UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended OctoberApril 1, 20062007
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-5075
PerkinElmer, Inc.
(Exact name of Registrant as specified in its Charter)
Massachusetts | 04-2052042 | |
(State of incorporation) | (I.R.S. Employer Identification No.) |
45 William940 Winter Street
Wellesley,Waltham, Massachusetts 0248102451
(Address of principal executive offices)
(781) 237-5100663-6900
(Registrant’s telephone number, including area code)
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 þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
As of November 6, 2006,May 10, 2007, there were outstanding 122,969,013119,759,390 shares of common stock, $1 par value per share.
Page | ||||
PART I. FINANCIAL INFORMATION | ||||
Item 1. | 3 | |||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
33 | ||||
Item 3. | ||||
Item 4. | ||||
PART II. OTHER INFORMATION | ||||
Item 1. | ||||
Item 1A. | ||||
Item 2. | ||||
Item 4. | 43 | |||
Item 6. | ||||
Item 1. | Financial Statements |
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | April 1, 2007 | April 2, 2006 | |||||||||||||||||||
(In thousands, except per share data) | (In thousands, except per share data) | (In thousands, except per share data) | ||||||||||||||||||||||
Sales | $ | 386,917 | $ | 359,982 | $ | 1,119,372 | $ | 1,086,173 | $ | 402,900 | $ | 355,454 | ||||||||||||
Cost of sales: | ||||||||||||||||||||||||
Cost of sales | 230,976 | 209,700 | 670,155 | 636,479 | 242,833 | 213,767 | ||||||||||||||||||
Amortization of acquired inventory revaluation | 1,377 | — | ||||||||||||||||||||||
Total cost of sales | 244,210 | 213,767 | ||||||||||||||||||||||
Selling, general and administrative expenses | 94,664 | 87,900 | 277,172 | 277,437 | 101,765 | 89,853 | ||||||||||||||||||
Research and development expenses | 24,762 | 21,676 | 72,640 | 66,349 | 27,841 | 22,842 | ||||||||||||||||||
Restructuring and integration (reversals) charges, net | — | — | (290 | ) | 14,245 | |||||||||||||||||||
Gains on dispositions, net | — | (461 | ) | (1,505 | ) | (64 | ) | |||||||||||||||||
In-process research and development charge | — | — | — | 194 | ||||||||||||||||||||
Restructuring charges | 4,438 | — | ||||||||||||||||||||||
In-process research and development charges | 1,502 | — | ||||||||||||||||||||||
Operating income from continuing operations | 36,515 | 41,167 | 101,200 | 91,533 | 23,144 | 28,992 | ||||||||||||||||||
Interest expense (income), net | 233 | 6,397 | (965 | ) | 20,684 | |||||||||||||||||||
Extinguishment of debt | — | — | — | 6,210 | ||||||||||||||||||||
(Gains) losses on dispositions of investments and other, net | (456 | ) | (349 | ) | 2,383 | (5,342 | ) | |||||||||||||||||
Interest and other (income) expense, net | (223 | ) | 6,048 | 1,418 | 21,552 | |||||||||||||||||||
Interest and other expense (income), net | 2,766 | (173 | ) | |||||||||||||||||||||
Income from continuing operations before income taxes | 36,738 | 35,119 | 99,782 | 69,981 | 20,378 | 29,165 | ||||||||||||||||||
Provision for (benefit from) income taxes | 7,823 | 8,650 | 22,527 | (2,652 | ) | |||||||||||||||||||
Provision for income taxes | 5,559 | 7,145 | ||||||||||||||||||||||
Income from continuing operations | 28,915 | 26,469 | 77,255 | 72,633 | 14,819 | 22,020 | ||||||||||||||||||
Income (loss) from discontinued operations, net of income taxes | — | 5,176 | (1,025 | ) | 12,464 | |||||||||||||||||||
Gain (loss) on disposition of discontinued operations, net of income taxes | 838 | 188 | 1,625 | (4,537 | ) | |||||||||||||||||||
Loss from discontinued operations, net of income taxes | — | (443 | ) | |||||||||||||||||||||
(Loss) gain on disposition of discontinued operations, net of income taxes | (127 | ) | 2,040 | |||||||||||||||||||||
Net income | $ | 29,753 | $ | 31,833 | $ | 77,855 | $ | 80,560 | $ | 14,692 | $ | 23,617 | ||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||
Continuing operations | $ | 0.23 | $ | 0.20 | $ | 0.61 | $ | 0.56 | $ | 0.12 | $ | 0.17 | ||||||||||||
Income (loss) from discontinued operations, net of income taxes | — | 0.04 | (0.01 | ) | 0.10 | |||||||||||||||||||
Gain (loss) on disposition of discontinued operations, net of income taxes | 0.01 | — | 0.01 | (0.04 | ) | |||||||||||||||||||
Loss from discontinued operations, net of income taxes | — | — | ||||||||||||||||||||||
(Loss) gain on disposition of discontinued operations, net of income taxes | — | 0.02 | ||||||||||||||||||||||
Net income | $ | 0.24 | $ | 0.25 | $ | 0.62 | $ | 0.62 | $ | 0.12 | $ | 0.18 | ||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||
Continuing operations | $ | 0.23 | $ | 0.20 | $ | 0.61 | $ | 0.55 | $ | 0.12 | $ | 0.17 | ||||||||||||
Income (loss) from discontinued operations, net of income taxes | — | 0.04 | (0.01 | ) | 0.10 | |||||||||||||||||||
Gain (loss) on disposition of discontinued operations, net of income taxes | 0.01 | — | 0.01 | (0.03 | ) | |||||||||||||||||||
Loss from discontinued operations, net of income taxes | — | — | ||||||||||||||||||||||
(Loss) gain on disposition of discontinued operations, net of income taxes | — | 0.02 | ||||||||||||||||||||||
Net income | $ | 0.24 | $ | 0.24 | $ | 0.61 | $ | 0.62 | $ | 0.12 | $ | 0.18 | ||||||||||||
Weighted average shares of common stock outstanding: | ||||||||||||||||||||||||
Basic | 124,277 | 129,543 | 126,105 | 129,135 | 121,685 | 127,918 | ||||||||||||||||||
Diluted | 125,171 | 131,291 | 127,429 | 131,021 | 123,263 | 129,715 | ||||||||||||||||||
Cash dividends per common share | $ | 0.07 | $ | 0.07 | $ | 0.21 | $ | 0.21 | $ | 0.07 | $ | 0.07 |
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 1, 2006 | January 1, 2006 | April 1, 2007 | December 31, 2006 | |||||||||||||
(In thousands, except share and per share data) | (In thousands, except share and per share data) | |||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 207,074 | $ | 502,264 | $ | 119,562 | $ | 191,059 | ||||||||
Accounts receivable, net | 253,189 | 250,844 | 267,628 | 268,459 | ||||||||||||
Inventories | 182,124 | 163,150 | ||||||||||||||
Inventories, net | 204,597 | 183,260 | ||||||||||||||
Other current assets | 72,745 | 71,189 | 82,378 | 101,511 | ||||||||||||
Current assets of discontinued operations | 1,090 | 11,442 | 477 | 477 | ||||||||||||
Total current assets | 716,222 | 998,889 | 674,642 | 744,766 | ||||||||||||
Property, plant and equipment: | ||||||||||||||||
Property, plant and equipment, net: | ||||||||||||||||
At cost | 517,611 | 484,453 | 532,510 | 525,134 | ||||||||||||
Accumulated depreciation | (336,026 | ) | (307,084 | ) | (344,154 | ) | (342,938 | ) | ||||||||
Property, plant and equipment, net | 181,585 | 177,369 | 188,356 | 182,196 | ||||||||||||
Marketable securities and investments | 7,531 | 9,222 | 4,589 | 7,508 | ||||||||||||
Intangible assets, net | 412,017 | 375,419 | 421,228 | 404,021 | ||||||||||||
Goodwill | 1,102,232 | 1,026,201 | 1,156,469 | 1,117,724 | ||||||||||||
Other assets | 80,028 | 90,156 | 51,129 | 52,502 | ||||||||||||
Long-term assets of discontinued operations | 1,654 | 16,205 | 1,557 | 1,605 | ||||||||||||
Total assets | $ | 2,501,269 | $ | 2,693,461 | $ | 2,497,970 | $ | 2,510,322 | ||||||||
Current liabilities: | ||||||||||||||||
Short-term debt | $ | 1,142 | $ | 1,131 | $ | 1,627 | $ | 1,153 | ||||||||
Accounts payable | 142,644 | 146,971 | 147,708 | 152,836 | ||||||||||||
Accrued restructuring costs and integration costs | 8,607 | 11,242 | ||||||||||||||
Accrued restructuring and integration costs | 5,883 | 2,731 | ||||||||||||||
Accrued expenses | 278,969 | 324,954 | 266,054 | 318,987 | ||||||||||||
Current liabilities of discontinued operations | 909 | 10,241 | — | 826 | ||||||||||||
Total current liabilities | 432,271 | 494,539 | 421,272 | 476,533 | ||||||||||||
Long-term debt | 201,133 | 243,282 | 178,119 | 151,781 | ||||||||||||
Long-term liabilities | 311,218 | 303,687 | 356,755 | 304,278 | ||||||||||||
Long-term liabilities of discontinued operations | — | 1,440 | ||||||||||||||
Total liabilities | 944,622 | 1,042,948 | 956,146 | 932,592 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock—$1 par value per share, authorized 1,000,000 shares; none issued or outstanding | — | — | — | — | ||||||||||||
Common stock—$1 par value per share, authorized 300,000,000 shares; issued and outstanding 122,919,000 and 130,109,000 at October 1, 2006 and January 1, 2006, respectively | 122,919 | 130,109 | ||||||||||||||
Common stock—$1 par value per share, authorized 300,000,000 shares; issued and outstanding 121,302,000 and 123,255,000 at April 1, 2007 and December 31, 2006, respectively | 121,302 | 123,255 | ||||||||||||||
Capital in excess of par value | 400,006 | 556,728 | 359,050 | 407,345 | ||||||||||||
Unearned compensation | — | (6,372 | ) | |||||||||||||
Retained earnings | 1,007,088 | 964,690 | 1,049,964 | 1,040,190 | ||||||||||||
Accumulated other comprehensive income | 26,634 | 5,358 | 11,508 | 6,940 | ||||||||||||
Total stockholders’ equity | 1,556,647 | 1,650,513 | 1,541,824 | 1,577,730 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 2,501,269 | $ | 2,693,461 | $ | 2,497,970 | $ | 2,510,322 | ||||||||
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended | Three Months Ended | |||||||||||||||
October 1, 2006 | October 2, 2005 | April 1, 2007 | April 2, 2006 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Operating activities: | ||||||||||||||||
Net income | $ | 77,855 | $ | 80,560 | $ | 14,692 | $ | 23,617 | ||||||||
Loss (income) from discontinued operations, net of income taxes | 1,025 | (12,464 | ) | |||||||||||||
(Gain) loss on disposition of discontinued operations, net of income taxes | (1,625 | ) | 4,537 | |||||||||||||
Add: loss from discontinued operations, net of income taxes | — | 443 | ||||||||||||||
Add: Loss (gain) on disposition of discontinued operations, net of income taxes | 127 | (2,040 | ) | |||||||||||||
Net income from continuing operations | 77,255 | 72,633 | 14,819 | 22,020 | ||||||||||||
Adjustments to reconcile net income from continuing operations to net cash provided by continuing operations: | ||||||||||||||||
Adjustments to reconcile net income from continuing operations to net cash provided by (used in) continuing operations: | ||||||||||||||||
Stock-based compensation | 10,629 | 5,627 | 2,888 | 2,841 | ||||||||||||
Restructuring and integration (reversals) charges, net | (290 | ) | 14,245 | |||||||||||||
Amortization of debt discount and issuance costs | 218 | 8,506 | ||||||||||||||
Restructuring charges, net | 4,438 | — | ||||||||||||||
Amortization of deferred debt issuance costs | 74 | 70 | ||||||||||||||
Depreciation and amortization | 50,937 | 51,117 | 19,085 | 16,478 | ||||||||||||
Resolution of prior year tax contingencies | 55 | (27,772 | ) | |||||||||||||
In-process research and development charges | 1,502 | — | ||||||||||||||
Amortization of acquired inventory revaluation | 1,377 | — | ||||||||||||||
Gains on dispositions, net | (3,418 | ) | (5,908 | ) | (401 | ) | (266 | ) | ||||||||
Changes in operating assets and liabilities which provided (used) cash, excluding effects from companies purchased and divested: | ||||||||||||||||
Accounts receivable | 12,972 | (2,658 | ) | 12,459 | 18,224 | |||||||||||
Inventories | (13,264 | ) | (2,186 | ) | (8,901 | ) | (7,373 | ) | ||||||||
Accounts payable | (9,976 | ) | 2,810 | (10,155 | ) | (12,211 | ) | |||||||||
Taxes paid on divestitures | (59,996 | ) | — | — | (54,550 | ) | ||||||||||
Accrued expenses and other | (21,907 | ) | (6,547 | ) | (19,802 | ) | (19,392 | ) | ||||||||
Net cash provided by operating activities from continuing operations | 43,215 | 109,867 | ||||||||||||||
Net cash (used in) provided by discontinued operations | (862 | ) | 13,651 | |||||||||||||
Net cash provided by (used in) operating activities from continuing operations | 17,383 | (34,159 | ) | |||||||||||||
Net cash used in discontinued operations | (131 | ) | (580 | ) | ||||||||||||
Net cash provided by operating activities | 42,353 | 123,518 | ||||||||||||||
Net cash provided by (used in) operating activities | 17,252 | (34,739 | ) | |||||||||||||
Investing activities: | ||||||||||||||||
Capital expenditures | (30,999 | ) | (16,199 | ) | (11,393 | ) | (9,238 | ) | ||||||||
Proceeds from dispositions of property, plant and equipment, net | 7,085 | 9,393 | ||||||||||||||
Proceeds from surrender of insurance policies | 3,753 | — | ||||||||||||||
Proceeds from disposition of investments, net | 23,243 | 6,956 | ||||||||||||||
Cash used for acquisitions, net of cash acquired | (97,576 | ) | (14,888 | ) | ||||||||||||
(Payments for) proceeds from disposition of businesses and investments, net | (473 | ) | 21,201 | |||||||||||||
Payments for acquisitions and investments, net of cash and cash equivalents acquired | (39,995 | ) | (8,696 | ) | ||||||||||||
Net cash used in continuing operations | (94,494 | ) | (14,738 | ) | ||||||||||||
Net cash provided by (used in) discontinued operations | 467 | (9,547 | ) | |||||||||||||
Net cash used in investing activities | (94,027 | ) | (24,285 | ) | ||||||||||||
Net cash (used in) provided by investing activities | (51,861 | ) | 3,267 | |||||||||||||
Financing activities: | ||||||||||||||||
Payments on debt | (56,565 | ) | (100,000 | ) | — | (39,734 | ) | |||||||||
Premium on prepayment of debt | — | (4,125 | ) | |||||||||||||
Payment of debt issuance and tender costs | (741 | ) | — | |||||||||||||
Proceeds from borrowing | 25,450 | — | ||||||||||||||
Payment of debt issuance costs | — | (741 | ) | |||||||||||||
Decrease in other credit facilities | (812 | ) | (875 | ) | (13 | ) | (104 | ) | ||||||||
Tax benefit from exercise of common stock options | 3,998 | — | 703 | 3,785 | ||||||||||||
Proceeds from issuance of common stock | 17,385 | 9,270 | ||||||||||||||
Proceeds from issuance of common stock under stock plans | 6,170 | 14,829 | ||||||||||||||
Purchases of common stock | (190,121 | ) | — | (60,028 | ) | (116,393 | ) | |||||||||
Cash dividends | (26,851 | ) | (27,210 | ) | ||||||||||||
Net cash used in continuing operations | (253,707 | ) | (122,940 | ) | ||||||||||||
Net cash used in discontinued operations | — | (155 | ) | |||||||||||||
Dividends paid | (8,630 | ) | (9,116 | ) | ||||||||||||
Net cash used in financing activities | (253,707 | ) | (123,095 | ) | (36,348 | ) | (147,474 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 10,191 | (7,594 | ) | (540 | ) | (1,477 | ) | |||||||||
Net decrease in cash and cash equivalents | (295,190 | ) | (31,456 | ) | (71,497 | ) | (180,423 | ) | ||||||||
Cash and cash equivalents at beginning of period | 502,264 | 197,513 | 191,059 | 502,264 | ||||||||||||
Cash and cash equivalents at end of period | $ | 207,074 | $ | 166,057 | $ | 119,562 | $ | 321,841 | ||||||||
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1)Note 1: Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by PerkinElmer, Inc. (the “Company”), without audit, in accordance with the accounting principles generally accepted in the United States and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information in the footnote disclosures of these financial statements has been condensed or omitted where it substantially duplicates information provided in the Company’s latest audited financial statements in accordance with the rules and regulations of the SEC. These financial statements should be read in conjunction with the Company’s financial statements and notes included in its Annual Report on Form 10-K for the fiscal year ended January 1,December 31, 2006, filed with the SEC (the “2005“2006 Form 10-K”). The balance sheet amounts at January 1,December 31, 2006 in this report were derived from the Company’s audited 20052006 financial statements included in the 20052006 Form 10-K. Certain prior period amounts related to discontinued operations have been reclassified to conform to the current-year financial statement presentation. The financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the ninethree months ended OctoberApril 1, 20062007 and OctoberApril 2, 20052006 are not necessarily indicative of the results for the entire fiscal year or any future period.
Recently Adopted Accounting Pronouncement
Effective January 2,In June 2006, the Company adoptedFinancial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 48,“Accounting for Uncertainty in Income Taxes” (“FIN No. 48”). FIN No. 48 was issued to clarify the accounting for uncertainty in income taxes recognized in the financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”), which requires compensation costs related to stock-based transactions, including employee stock options, to be recognized in the financial statements based on fair value. SFAS No. 123(R) revises SFAS No. 123, as amended,109,“Accounting for Stock-Based Compensation,Income Taxes.” FIN No. 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and supersedes Accounting Principles Board (“APB”) Opinion No. 25,“Accounting for Stock Issued to Employees.”penalties, accounting in interim periods, disclosure, and transition. The Company adopted SFASFIN No. 123(R) using the modified prospective application transition method. Under this method, compensation cost, measured using fair value, is recognized for the unvested portion of stock-based payments granted prior to January 2, 2006 and all stock-based payments granted subsequent to48 effective January 1, 2006 over the related vesting period. Prior to January 2, 2006, the Company applied the intrinsic value based method prescribed in APB Opinion No. 25 in accounting for employee stock-based compensation.2007. In accordance with FIN No. 48 the modified prospective method, prior period results have not been restatedCompany has decided to continue to classify interest and are not directly comparable to periods after adoption. Due topenalties as a component of income tax expense. During the three months ended April 1, 2007 the Company recognized approximately $0.6 million in interest and penalties in its tax provision.
As a result of the adoption of SFASFIN No. 123(R),48, the Company’s resultsCompany adjusted the estimated value of its uncertain tax positions and reduced its accrued liabilities by $3.6 million, which was accounted for as an increase to retained earnings as of January 1, 2007. As of the threeadoption date, the Company had gross tax effected unrecognized tax benefits of $159.6 million, of which $126.6 million, if recognized, would affect the continuing operations effective tax rate. The remaining amount, if recognized, would affect goodwill, equity and nine months ended October 1, 2006 include incremental compensationdiscontinued operations. The Company had accrued interest, net of tax benefits, and penalties expense related to stock options totaling $3.1the unrecognized tax benefits of $7.3 million, which is not included in the $159.6 million.
As of January 1, 2007 there were $8.8 million of FIN No. 48 accrued tax liabilities and $6.9$48.7 million respectively.of other unrecognized tax benefits which should be resolved within the next year as a result of the completion of audits that, depending on the ultimate resolution, could affect the continuing operations effective tax rate; however, quantification of an estimated range cannot be made at this time. The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years through 2002. The U.S. federal income tax returns for 2003 through 2005 are currently under examination. In addition, tax years ranging from 1997 through 2006 remain open to examination by various state and foreign taxing jurisdictions.
Recently Issued Accounting Pronouncements
In September 2006, the SEC issued Staff Accounting Bulletin No. 108,“Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”(“SAB 108”). SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. The Company will be required to adopt SAB 108 in the fourth quarter of fiscal year 2006. Management does not anticipate that the adoption of SAB 108 will have a material impact on the Company’s consolidated financial statements.
In September 2006, the Financial Accounting Standards Board (“FASB”)FASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. The Company will be required to adopt SFAS No. 157 in the first quarter of fiscal year 2008. ManagementThe Company is currently evaluating the requirements of SFAS No. 157 and has not yet determined the impact, if any, of its adoption on the Company’sits consolidated financial statements.
In September 2006,February 2007, the FASB issued SFAS No. 158,159,“Employers’ AccountingThe Fair Value Option for Defined Benefit PensionFinancial Assets and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R)”Financial Liabilities” (“SFAS No. 158”159”). SFAS No. 158 requires companies to recognize a net liability or asset and159 provides entities with an offsetting adjustment to accumulated other comprehensive incomeoption to report selected financial assets and liabilities at fair value, with the funded status of defined benefit pensionobjective to reduce both the complexity in accounting for financial instruments and other postretirement benefit plans. Additionally,the volatility in earnings caused by measuring related assets and liabilities differently. The Company will be required to adopt SFAS No. 158 requires companies to measure plan assets and obligations at their year-end balance sheet date. SFAS No. 158 requires prospective application, and159 in the recognition and disclosure requirements are effective for the Company’sfirst quarter of fiscal year ending December 31, 2006.
Management2008. The Company is currently evaluating the requirements of SFAS No. 158159 and has not yet determined the impact, if any, of its adoption on the Company’sits consolidated financial statements. The effect of adopting SFAS No. 158 may have an impact on the Company’s consolidated balance sheets, but no impact to the Company’s consolidated income statements or statements of cash flows. The actual impact of adopting SFAS No. 158 will be dependent upon the fair value of plan assets and the amount of projected benefit obligations measured as of December 31, 2006. Management does not anticipate an impact on the Company’s compliance with the financial covenants contained in the Company’s loan agreement, described in more detail in Note 5, from the adoption of SFAS No. 158.
In July 2006,March 2007, the FASB issued FASB Interpretationratified Emerging Issues Task Force Issue (“EITF”) No. 48,06-10“Accounting for Uncertainty in Income Taxes”Collateral Assignment Split-Dollar Life Insurance Agreements” (“FINEITF No. 48”06-10”). FINEITF No. 48 clarifies06-10 provides guidance for determining a liability for the accounting for uncertainty in income taxes recognized inpostretirement benefit obligation as well as recognition and measurement of the financial statementsassociated asset on the basis of an entity in accordance with SFASthe terms of the collateral assignment agreement. EITF No. 109,“Accounting for Income Taxes.” The new interpretation06-10 is effective for fiscal years beginning after December 15, 2006.2007. The Company will be required to adopt FIN No. 48 in the first quarter of fiscal year 2007. Management is currently evaluating the requirements of FINEITF No. 4806-10 and has not yet determined the impact, if any, of its adoption on the Company’sits consolidated financial statements.
(2)Note 2: Acquisitions
Acquisition of Agilix Corporation. In February 2006, the Company acquired specified assets of Agilix Corporation (“Agilix”) for approximately $8.7 million in cash plus potential additional contingent consideration, which management expects to be immaterial to the Company.cash. Assets acquired primarily relate to Agilix’s core technology which centers around labeling technology using isobaric mass tags that allowsallow for the simultaneous quantification of molecules, such as proteins, from multiple samples.
Acquisition of Spectral Genomics, Inc. In April 2006, the Company acquired specified assets and assumed specified liabilities of Spectral Genomics, Inc. (“Spectral”), a leader in molecular karyotyping technology used to evaluate chromosomal abnormalities. Consideration for the transaction was approximately $12.0$13.1 million in cash plus potential additional contingent consideration, which management expects to be immaterial to the Company. The Company will make cash payments of $2.1a $0.9 million payment in the fourth quarter of 2006 and $0.9 million in the firstsecond quarter of 2007, as well as royalty payments based on future sales, to license additional intellectual property rights from a third party. The Company expects to receive a partial reimbursement of the license fees as a result of its agreement with Spectral.
Acquisition of Clinical & Analytical Service Solutions Ltd. In June 2006, the Company acquired the stock of Clinical & Analytical Service Solutions Ltd. (“C&A”), a scientific equipment asset and managed maintenance company serving the pharmaceutical, biotechnology and healthcare markets. Consideration for the transaction was approximately $12.3$12.4 million in cash, net of cash acquired, plus potential additional contingent consideration, which management expects to be immaterial to the Company.
Acquisition of J.N. Macri Technologies LLC and NTD Laboratories, Inc. In July 2006, the Company acquired specified assets and assumed specified liabilities of J.N. Macri Technologies LLC (“Macri”) and acquired the stock of NTD Laboratories, Inc. (“NTD”). Macri holds and licensesThe Company acquired Macri’s global patents related to free beta Human Chorionic Gonadotropin (“free Beta hCG”). Free Beta hCG is a peptide hormone produced in the early stage of pregnancy that is widely recognized as an important biomarker for first-trimester prenatal risk assessment. NTD is a laboratory specializing in prenatal risk assessment and offers laboratory developedlaboratory-developed and validated testing under the brand name UltraScreen®, of which free Beta hCG is an important component. Aggregate consideration for these transactions was $55.2 million in cash, net of cash acquired, and subject to a net working capital adjustment.acquired.
Acquisition of Avalon Instruments Limited. In September 2006, the Company acquired the stock of Avalon Instruments Limited (“Avalon”). The acquisition of Avalon expands and complements the Company’s Molecular Spectroscopymolecular spectroscopy product portfolio by adding a family of innovative bench-top dispersive Raman spectrometers. Raman spectroscopy identifies and characterizes the composition of both organic and inorganic materials in a wide range of applications. Consideration for this transaction was $5.2$5.4 million in cash, net of cash acquired, plus potential additional contingent consideration, which management expects to be immaterial to the Company.
Acquisition of Triton Technology Ltd. In December 2006, the Company acquired specified assets of Triton Technology Ltd (“Triton”). The Company acquired from Triton a line of Dynamic Mechanical Analysis (“DMA”) products. The DMA products offer a thermal analysis tool that is used by scientists in the polymers, pharmaceuticals and food industries for diverse applications ranging from simple quality control to advanced research. Consideration for this transaction was $2.3 million in cash at the closing, plus additional cash payments of $1.6 million payable in 2007. The Company paid $0.9 million of the additional cash payments in the first quarter of 2007.
Acquisition of Evotec Technologies GmbH. In January 2007, the Company acquired the stock of Evotec Technologies GmbH (“Evotec”). The acquisition is intended to allow the Company to provide its customers in the pharmaceutical, biotechnology and academic arenas with Evotec’s high content screening (“HCS”) instruments and software. These analysis tools determine the composition of cells and cell structure, a critical step in moving potential drug targets quickly through the discovery process. Consideration for this transaction was approximately $30.2 million in cash, net of cash acquired, which was paid in the fiscal year 2006.
Acquisition of Euroscreen Products S.A. In January 2007, the Company acquired the stock of Euroscreen Products S.A. (“Euroscreen”), a developer of the AequoScreen™ cellular assay platform. The AequoScreen™ platform from Euroscreen is based on an innovative luminescence technology that generates higher quality data, while reducing the number of false positives in G protein-coupled receptor (“GPCR”) screening applications. Consideration for this transaction was approximately $16.9 million in cash, net of cash acquired.
Acquisition of Improvision Ltd. In March 2007, the Company acquired the stock of Improvision Ltd. (“Improvision”), a leading provider of cellular imaging software and integrated hardware solutions used in life sciences research. The Company expects that the addition of Improvision’s imaging and analysis software to the Company’s high content screening systems will provide customers with powerful imaging solutions for analyzing cellular events from real-time imaging of live cells to rapid high content screening of multiple samples. Consideration for this transaction was approximately $22.7 million in cash, net of cash acquired, plus potential additional contingent consideration, which management expects to be immaterial to the Company.
The operations for each of these acquisitions are reported within the results of the Company’s Life and Analytical Sciences segment from the acquisition date. TheseThe operations subsequent to the acquisitions, individually and in the aggregate, did not have a material effect on the Company’s financial position, results of operations or cash flows.
The acquisitions were accounted for in accordance with SFAS No. 141, “Business“Business Combinations” (“SFAS No. 141”), and the Company has accordingly allocatedusing the purchase pricesmethod of accounting. Allocation of the purchase price for acquisitions was based on estimates of the fair value of the net assets acquired and is subject to adjustment upon finalization of the preliminarypurchase price allocation. The fair values of theassigned to tangible and intangible assets acquired and liabilities assumed.assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. The excess purchase price over those assigned values was recorded as goodwill. In accordance with SFAS No. 142,“Goodwill and Other Intangible Assets,” goodwill will be reviewed at least annually for impairment. Purchased intangibles with finite lives will be amortized on a straight-line basis over their respective estimated useful lives, described in more detail in Note 12, below.
In-process research and development (“IPR&D”) charges represent incomplete acquired research and development projects that have not reached technological feasibility and have no alternative future use as of the acquisition date. Technological feasibility is established when an enterprise has completed all planning, designing, coding, and testing activities that are necessary to establish that a product can be produced to meet its design specifications including functions, features, and technical performance requirements. At the time of the acquisitions of Evotec and Euroscreen, there were multiple IPR&D efforts under way at each company for certain current and future product lines. In determining the value of the in-process projects, the Company considers, among other factors, the in-process projects’ stage of completion, the complexity of the work completed as of the acquisition date, the costs already incurred, the projected costs to complete, the contribution of core technologies and other acquired assets, the expected introduction date and the estimated useful life of the technology. The Company utilized the discounted cash flow method to value the IPR&D, using a discount rate equivalent to the relative risk of the asset, including the uncertainty of technological feasibility and successful launch. This approach determines fair value by estimating the after-tax cash flows attributable to an in-process project over its useful life and then discounting these after-tax cash flows back to a present value. At the time of acquisition, the Company estimated the fair value as of the valuation date to be $1.5 million and does believe that the estimated purchased research and development amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the projects.
As of April 1, 2007 the purchase price allocation for Agilix has been finalized. The purchase prices and related allocations are preliminaryfor the Spectral, C&A, Macri, NTD, Avalon, Triton, Evotec, Euroscreen and may be revised as a resultImprovision acquisitions have not been finalized. The Company is not aware of adjustments made toany information that indicates the purchase prices, additional information regarding liabilities assumed, including contingent liabilities, and revisions of preliminary estimates of fair values made at the dates of purchase. In connection with the fair valuing of the assets acquired and liabilities assumed, management, assisted by valuation consultants, performed assessments of intangible assets using customary valuation procedures and techniques. During the third quarter of 2006, the Company has updated thefinal purchase price allocations will differ materially from the preliminary estimates, although the Company expects to complete any outstanding asset valuations no later than one year from the date of Agilix and Spectral based on additional information regarding the liabilities assumed and future payments for deferred consideration.acquisition.
The components of the preliminary purchase prices and allocations for the acquisitions completed in 2007 are as follows (in thousands):follows:
Agilix | Spectral | C&A | Macri/NTD | Avalon | |||||||||||||||
Consideration and acquisition costs: | |||||||||||||||||||
Cash payments, net of cash acquired | $ | 8,696 | $ | 12,000 | $ | 12,333 | $ | 55,222 | $ | 5,240 | |||||||||
Deferred consideration | — | 2,000 | — | — | — | ||||||||||||||
Transaction costs | 29 | 69 | 440 | 377 | 165 | ||||||||||||||
Total consideration and acquisition costs | $ | 8,725 | $ | 14,069 | $ | 12,773 | $ | 55,599 | $ | 5,405 | |||||||||
Allocation of purchase price | |||||||||||||||||||
Current assets | $ | — | $ | 468 | $ | 2,468 | $ | 3,044 | $ | 512 | |||||||||
Property, plant and equipment | 645 | 388 | 533 | 384 | 8 | ||||||||||||||
Identifiable intangible assets | 7,300 | 9,900 | 4,368 | 32,600 | 1,600 | ||||||||||||||
Goodwill | 780 | 5,427 | 10,993 | 31,811 | 3,998 | ||||||||||||||
Other assets | — | — | — | 40 | — | ||||||||||||||
Deferred taxes | — | — | (1,416 | ) | (8,388 | ) | (480 | ) | |||||||||||
Liabilities assumed | — | (2,114 | ) | (4,173 | ) | (3,892 | ) | (233 | ) | ||||||||||
Total | $ | 8,725 | $ | 14,069 | $ | 12,773 | $ | 55,599 | $ | 5,405 | |||||||||
Consideration and acquisition costs: Cash payments, net of cash acquired Transaction costs Total consideration and acquisition costs Allocation of purchase price Current assets* Property, plant and equipment Identifiable intangible assets Goodwill Deferred taxes Liabilities assumed Total Evotec Euroscreen Improvision (In thousands) $ 30,162 $ 16,864 $ 22,672 656 191 375 $ 30,818 $ 17,055 $ 23,047 $ 14,510 $ 3,224 $ 3,933 2,622 61 330 10,300 11,968 4,914 17,038 7,135 18,196 (4,096 ) (4,029 ) (1,502 ) (9,556 ) (1,304 ) (2,824 ) $ 30,818 $ 17,055 $ 23,047
* | Current assets includes $0.9 million and $1.3 million of purchase price accounting adjustments to record the inventory from the Evotec and Euroscreen acquisitions, respectively. |
(3)Note 3: Restructuring Charges
The Company has undertaken a series of restructuring actions related to the impact of acquisitions, divestitures and the integration of its business units. Restructuring actions taken since 2002 were recorded in accordance with SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal ActivitiesActivities”.” In certain instances, specifically when governmental authorities are involved in setting severance levels, (“SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,”is applied. The principal actions associated with these plans related to workforce and overhead reductions resulting from reorganization activities, including the closure of certain manufacturing and selling facilities.146”). Details of these plans are discussed more fully in the Company’s 20052006 Form 10-K.
The purpose of the 2006 through 2007 restructuring plans was principally to shift resources into geographic regions and product lines that are more consistent with the Company’s growth strategy. The pre-tax restructuring
activity associated with these plans has been reported as restructuring expenses as a component of operating expenses from continuing operations. The impact of immediate and future cost savings from these restructuring activities on operating results and cash flows is expected to be negligible as the Company has incurred and will incur offsetting costs.
A description of each of the restructuring plans and the activity recorded for the nine month periodthree months ended OctoberApril 1, 20062007 is as follows:
Q1 2007 Plan
During the first quarter of 2007, the Company’s management approved a plan to shift resources into product lines that are more consistent with the Company’s growth strategy. The Company completed notifying affected employees on March 30, 2007. As a result of this plan, the Company recognized a pre-tax restructuring charge of $4.4 million during the first quarter of 2007 (the “Q1 2007 Plan”). The actions within the Q1 2007 Plan related to a workforce reduction resulting from reorganization activities within the Life and Analytical Sciences segment.
The following table summarizes the components of the Q1 2007 Plan activity for the three months ended April 1, 2007:
Headcount | Severance | ||||||
(Dollars in thousands) | |||||||
Balance at December 31, 2006 | — | $ | — | ||||
Provision | 60 | 4,438 | |||||
Amounts paid | (31 | ) | (1,174 | ) | |||
Balance at April 1, 2007 | 29 | $ | 3,264 | ||||
The Company anticipates that the remaining payments of $3.3 million will be completed by the end of the first quarter of 2008.
Q2 2006 Plan
During the second quarter of 2006, the Company recognized a pre-tax restructuring charge of $0.8 million restructuring charge in the Life and Analytical Sciences segment (the “Q2 2006 Plan”). The purpose of this restructuring action wasprincipal actions within the Q2 2006 Plan related to shifta workforce reduction in two locations in the United States as the Company shifted resources into product lines that wereare more consistent with the Company’s growth strategy. The actions in the Q2 2006 Plan were workforce reductions resulting from reorganization activities.
The following table summarizes the components of the Q2 2006 Plan activity for the ninethree months ended OctoberApril 1, 2006:2007:
Headcount | Severance | ||||||
(Dollars in thousands) | |||||||
Balance at January 1, 2006 | — | $ | — | ||||
Provision | 23 | 755 | |||||
Amounts paid | (23 | ) | (391 | ) | |||
Balance at October 1, 2006 | — | $ | 364 | ||||
Severance | ||||
(In thousands) | ||||
Balance at December 31, 2006 | $ | 106 | ||
Amounts paid | (79 | ) | ||
Balance at April 1, 2007 | $ | 27 | ||
All actions related to the Q2 2006 Plan werehave been completed and the Company anticipates that the remaining payments will be completed by the end of the second quarter of 2006, and the Company anticipates that all payments will be completed by the end of 2006.2007.
Q42001 to 2005 PlanRestructuring and Integration Plans:
DuringThe principal actions of these restructuring plans were workforce reductions related to the fourth quarterintegration of 2005, the Company recognized a $2.2 million restructuring chargeCompany’s Life Sciences and Analytical Instruments businesses in order to reduce costs and achieve operational efficiencies as well as workforce reductions in both the Life and Analytical Sciences segment and a $6.0 million restructuring charge in the Optoelectronics segment (the “Q4 2005 Plan”). The purpose of these restructuring actions wassegments to shift resources into geographic regions and product lines that wereare more consistent with the Company’s growth strategy. The principal actions inAs of April 1, 2007, the Q4Company had approximately $2.5 million of remaining liabilities associated with 2001 to 2005 Plan wererestructuring and integration plans, primarily relating to workforce reductions andseverance benefits associated with the closure of several facilities resulting from reorganization activities.
During the second quarter of 2006, the Company recorded a pre-tax restructuring charge of $0.4 million relating to its Q4 2005 Plan due to higher than expected costs associated with the termination of employees in Europe within the Life and Analytical Sciences segment. The Company also recorded a pre-tax restructuring reversal of $1.4 million relating to its Q4 2005 Plan due to the completion in June 2006 of the sale of a building previously reserved for in the Q4 2005 Plan. The amount of the proceeds from this sale in excess of the current book value of the property was recorded as a restructuring reversal within the Optoelectronics segment.
The following table summarizes the components of the Q4 2005 Plan activity for the nine months ended October 1, 2006:
Headcount | Severance | Abandonment of Excess Facilities | Total | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Balance at January 1, 2006 | 24 | $ | 1,792 | $ | 354 | $ | 2,146 | ||||||||
Change in estimate | — | 354 | — | 354 | |||||||||||
Amounts paid | (16 | ) | (1,665 | ) | (221 | ) | (1,886 | ) | |||||||
Balance at October 1, 2006 | 8 | $ | 481 | $ | 133 | $ | 614 | ||||||||
All actions related to the Q4 2005 Plan have been completed and the Company anticipates that all payments will be completed by the end of 2006.
Q2 2005 Plan
During the second quarter of 2005, the Company recognized a $5.3 million restructuring chargeCompany’s European manufacturing facility in the Life and Analytical Sciences segment and a $2.9 million restructuring charge in the Optoelectronics segment (the “Q2 2005 Plan”). The purpose of these restructuring actions was to shift resources into geographic regions and product lines that were more consistent with the Company’s growth strategy. The principal actions in the Q2 2005 Plan were workforce reductions resulting from reorganization activities. All workforce reductions have been completed and the remaining payments relate to international severance contracts.
The following table summarizes the components of the Q2 2005 Plan activity for the nine months ended October 1, 2006:
Severance | ||||
(In thousands) | ||||
Balance at January 1, 2006 | $ | 2,338 | ||
Amounts paid | (1,299 | ) | ||
Balance at October 1, 2006 | $ | 1,039 | ||
All actions related to the Q2 2005 Plan have been completed and the Company anticipates that all payments will be completed by the end of 2006.
2001 to 2003 Restructuring and Integration Plans
The Company has approximately $6.6 million of remaining liabilities associated with 2001 to 2003 restructuring and integration plans, primarily relating to remaining lease obligations ofrelated to those closed facilities. The remaining terms of these leases vary in length but alland will be paid through 2014. The remaining severance payments will be completed by 2014.the end of 2008.
(4)Note 4: Interest and Other Expense (Income), Net
Interest and other expense (income), net consisted of the following:
Three Months Ended | ||||||||
April 1, 2007 | April 2, 2006 | |||||||
(In thousands) | ||||||||
Interest income | $ | (1,211 | ) | $ | (3,372 | ) | ||
Interest expense | 2,255 | 2,305 | ||||||
Gains on disposition of investments, net | (401 | ) | (266 | ) | ||||
Other | 2,123 | 1,160 | ||||||
Total interest and other expense (income), net | $ | 2,766 | $ | (173 | ) | |||
Note 5: Inventories
Inventories consisted of the following:
October 1, 2006 | January 1, 2006 | |||||
(In thousands) | ||||||
Raw materials | $ | 67,224 | $ | 59,023 | ||
Work in progress | 12,069 | 9,606 | ||||
Finished goods | 102,831 | 94,521 | ||||
Total Inventories | $ | 182,124 | $ | 163,150 | ||
Raw materials Work in progress Finished goods Total inventories April 1,
2007 December 31,
2006 (In thousands) $ 73,501 $ 67,014 15,012 10,077 116,084 106,169 $ 204,597 $ 183,260
(5)Note 6: Debt
Senior Unsecured Credit Facility. InOn October 31, 2005, the Company entered into a $350.0 million five-year senior unsecured revolving credit facility. This facility replaced its previous $100.0 million five-year revolving credit facility. Letters of credit in the aggregate amount of approximately $15.0 million, originally issued under its previous credit agreement, are treated as issued under this new agreement.facility. The Company uses the senior unsecured revolving credit facility for general corporate purposes which may include working capital, refinancing existing indebtedness, capital expenditures, share repurchases, acquisitions and strategic alliances. The interest rates under the senior unsecured revolving credit facility are based on the Eurocurrency rate at the time of borrowing plus a margin or the base rate from time to time. The Eurocurrency margin as of October 1, 2006 was 60 basis points. The base rate is the higher of (1) the corporate base rate announced from time to time by Bank of America, N.A. and (2) the Federal Funds rate plus 50 basis points. The Company may allocate all or a portion of its indebtedness under the senior unsecured revolving credit facility to interest based upon the Eurocurrency rate plus a margin or the base rate. AsThe Eurocurrency margin as of OctoberApril 1, 2006, all borrowings under the senior unsecured revolving credit facility were allocated to interest based on the Eurocurrency rate plus a margin.2007 was 60 basis points. The weighted-averageweighted average Eurocurrency interest
rate as of OctoberApril 1, 20062007 was 3.32%4.01%, resulting in a weighted-averageweighted average effective Eurocurrency rate, including the margin, of 3.92%4.61%. There were approximately $200.9$177.9 million of borrowings under the facility as of OctoberApril 1, 2006, which2007 with interest based on the above described Eurocurrency rate. The borrowings were undertaken by the Company and certain of its foreign subsidiaries ofand the Company. The funds were borrowed in US Dollars (USD) and the subsidiaries’ functional currencies of Euro (EUR), Canadian Dollars (CAD) and Japanese Yen (JPY). The effective rates of the borrowings as of April 1, 2007 were as follows: USD: 5.92%; EUR: 4.47%; CAD: 4.86% and JPY: 1.26%. The agreement for the facility contains affirmative, negative and financial covenants and events of default customary for financings of this type. The financial covenants include interest coverage and debt-to-EBITDA ratios. The Company was in compliance with all applicable covenants as of OctoberApril 1, 2006.2007.
(6)Note 7: 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 less restricted unvested shares. Diluted earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding plus all potentially dilutive common stock equivalents, primarily shares issuable upon the exercise of stock options using the treasury stock method:method. The following table reconciles the number of shares utilized in the earnings per share calculations:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | April 1, 2007 | April 2, 2006 | |||||||
(In thousands) | (In thousands) | (In thousands) | ||||||||||
Number of common shares—basic | 124,277 | 129,543 | 126,105 | 129,135 | 121,685 | 127,918 | ||||||
Effect of dilutive securities: | ||||||||||||
Stock options and restricted stock | 894 | 1,748 | 1,324 | 1,886 | ||||||||
Stock options | 1,509 | 1,765 | ||||||||||
Restricted stock | 69 | 32 | ||||||||||
Number of common shares—diluted | 125,171 | 131,291 | 127,429 | 131,021 | 123,263 | 129,715 | ||||||
Number of potentially dilutive securities excluded from calculation due to antidilutive impact | 9,966 | 6,786 | 8,577 | 7,831 | 8,392 | 7,542 | ||||||
Antidilutive securities include outstanding stock options with exercise prices and average unrecognized compensation cost in excess of the average fair market value of the Company’s common stock for the related period. Antidilutive options were excluded from the calculation of diluted net income per share and could become dilutive in the future.
(7)Note 8: Comprehensive Income
ComprehensiveThe components of other comprehensive income, consistednet of income taxes, are the following:
Three Months Ended | Nine Months Ended | |||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Net income | $ | 29,753 | $ | 31,833 | $ | 77,855 | $ | 80,560 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustments, net of tax | 3,877 | (296 | ) | 21,382 | (42,609 | ) | ||||||||||
Unrealized (losses) gains on securities, net of tax | (42 | ) | 73 | (106 | ) | (72 | ) | |||||||||
3,835 | (223 | ) | 21,276 | (42,681 | ) | |||||||||||
Comprehensive income | $ | 33,588 | $ | 31,610 | $ | 99,131 | $ | 37,879 | ||||||||
Three Months Ended | |||||||
April 1, 2007 | April 2, 2006 | ||||||
(In thousands) | |||||||
Net income | $ | 14,692 | $ | 23,617 | |||
Other comprehensive income (loss): | |||||||
Foreign currency translation adjustments, net of income taxes | 4,737 | 6,266 | |||||
Unrealized (losses) gains on securities, net of income taxes | (169 | ) | 150 | ||||
4,568 | 6,416 | ||||||
Comprehensive income, net of income taxes | $ | 19,260 | $ | 30,033 | |||
The components of accumulated other comprehensive income, net of tax, were as follows:income taxes, consisted of the following:
October 1, 2006 | January 1, 2006 | |||||||
(In thousands) | ||||||||
Foreign currency translation adjustments, net of tax | $ | 59,014 | $ | 37,632 | ||||
Minimum pension liability, net of tax | (32,401 | ) | (32,401 | ) | ||||
Unrealized gains on securities, net of tax | 21 | 127 | ||||||
Accumulated other comprehensive income, net of tax | $ | 26,634 | $ | 5,358 | ||||
April 1, 2007 | December 31, 2006 | |||||||
(In thousands) | ||||||||
Foreign currency translation adjustments, net of income taxes | $ | 75,800 | $ | 71,063 | ||||
Unrecognized losses and prior service costs, net of income taxes | (64,252 | ) | (64,252 | ) | ||||
Unrealized (losses) gains on securities, net of income taxes | (40 | ) | 129 | |||||
Accumulated other comprehensive income, net of income taxes | $ | 11,508 | $ | 6,940 | ||||
(8)Note 9: Industry Segment Information
The Company follows SFAS No. 131,“Disclosures About Segments of an Enterprise and Related InformationInformation.”.” SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and in interim reports to shareholders. The method for determining what information to report is based on the way that management organizes the segments within the Company for making operating decisions and assessing financial performance. In evaluating financialThe Company evaluates the performance management usesof its operating profit as the measure of the segments’ profit or loss.segments based on sales and operating profit. Intersegment sales and transfers are not significant. Based on the guidance in SFAS No. 131, the Company has two operating segments for financial reporting purposes. The operating segments and their principal products and services are:
• | Life and Analytical Sciences.The Company is a leading provider of drug discovery, genetic screening and environmental and chemical analysis tools, including instruments, reagents, consumables, and services. |
• | Optoelectronics.The Company provides a broad range of digital imaging, sensor and specialty lighting components used in |
Sales and operating profit by segment, excluding discontinued operations, are shown in the table below:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | April 1, 2007 | April 2, 2006 | |||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||||||
Life & Analytical Sciences | ||||||||||||||||||||||||
Sales | $ | 283,527 | $ | 259,083 | $ | 823,918 | $ | 794,634 | $ | 299,538 | $ | 261,929 | ||||||||||||
Operating profit | 25,334 | 26,717 | 74,429 | 64,342 | ||||||||||||||||||||
Operating income from continuing operations | 14,852 | 23,790 | ||||||||||||||||||||||
Optoelectronics | ||||||||||||||||||||||||
Sales | 103,390 | 100,899 | 295,454 | 291,539 | 103,362 | 93,525 | ||||||||||||||||||
Operating profit | 20,097 | 20,782 | 50,209 | 47,156 | ||||||||||||||||||||
Operating income from continuing operations | 16,269 | 12,747 | ||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Operating loss | (8,916 | ) | (6,332 | ) | (23,438 | ) | (19,965 | ) | ||||||||||||||||
Operating loss from continuing operations | (7,977 | ) | (7,545 | ) | ||||||||||||||||||||
Continuing Operations | ||||||||||||||||||||||||
Sales | $ | 386,917 | $ | 359,982 | $ | 1,119,372 | $ | 1,086,173 | $ | 402,900 | $ | 355,454 | ||||||||||||
Operating profit | 36,515 | 41,167 | 101,200 | 91,533 | ||||||||||||||||||||
Operating income from continuing operations | 23,144 | 28,992 | ||||||||||||||||||||||
Interest and other expense (income), net (Note 4) | 2,766 | (173 | ) | |||||||||||||||||||||
Income from continuing operations before income taxes | 20,378 | 29,165 | ||||||||||||||||||||||
(9)Note 10: Discontinued Operations
As part of its continued efforts to focus on higher growth opportunities, the Company has discontinued certain businesses. The Company has accounted for these businesses as discontinued operations in accordance
with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and, accordingly, has presented the results of operations and related cash flows as discontinued operations for all periods presented. The assets and liabilities of these businesses have been presented separately and are reflected within the assets and liabilities from discontinued operations in the accompanying consolidated balance sheets as of OctoberApril 1, 20062007 and January 1,December 31, 2006.
The Company recorded the following gains and losses, which have been reported as the gain (loss) on dispositions of discontinued operations:
Three Months Ended | ||||||||
April 1, 2007 | April 2, 2006 | |||||||
(In thousands) | ||||||||
Gain on the sale of Semiconductor business | $ | — | $ | 3,473 | ||||
Loss on the sale of Aerospace business | — | (659 | ) | |||||
Loss on the sale of Fluid Testing business | — | (234 | ) | |||||
Gain on contract settlements associated with the Technical Services business | 50 | 386 | ||||||
Net loss on dispositions of other discontinued operations | (78 | ) | (174 | ) | ||||
Net (loss) gain on dispositions of discontinued operations before income taxes | (28 | ) | 2,792 | |||||
Provision for income taxes | 99 | 752 | ||||||
(Loss) gain on dispositions of discontinued operations, net of income taxes | $ | (127 | ) | $ | 2,040 | |||
In September 2005, the Company’s Board of Directors approved a plan to divest its Fluid Sciences segment. The Fluid Sciences segment consisted of three businesses—Aerospace, Fluid Testing and Semiconductor. In November 2005,February 2006, the Company sold substantially all of the Fluid Testing division to Caleb Brett USA Inc.assets of its Semiconductor business for approximately $34.5$26.5 million, resulting insubject to a net working capital adjustment, plus potential additional contingent consideration. The Company recognized a pre-tax gain of $30.3 million. In December 2005,$3.5 million, exclusive of additional contingent consideration, in the Company sold the Aerospace division to Eaton Corporation for approximately $333.0 million, resulting in a net pre-tax gainfirst quarter of $250.6 million. These gains were recognized during fiscal 2005 as gains on the dispositions of discontinued operations. The Company received total cash proceeds in these transactions of approximately $361.1 million.2006. During the first nine monthsquarter of 2006, the Company finalized the net working capital adjustments associated with the sales of these businesses and settled a claim related to an employee benefit program, resulting in the recognition of losses in 2006 of $1.3$0.7 million and $0.2 million relative to the Aerospace business and the Fluid Testing business, respectively. In February 2006, the Company sold substantially all of the assets of its Semiconductor business to an entity affiliated with Tara Capital, Inc. for approximately $26.5 million, subject to a net working capital adjustment, plus potential additional contingent consideration. A pre-tax gain of $3.8 million, exclusive of additional contingent consideration, was recognized through the first nine months of 2006.
In December 2005, the Company’s Board of Directors approved a plan to sell its Lithography business. In June 2005, the Company’s Board of Directors approved a plan to shut down the Company’s Fiber Optics Test Equipment business. The results of these businesses were previously reported as part of the Optoelectronics segment. During the quarter ended October 1, 2006, the Company substantially completed the remediation of an environmental matter within the Lithography business, resulting in recognition of a pre-tax loss of $1.1 million. The completion of the shut-down of the Fiber Optics Test Equipment business resulted in a pre-tax loss of $5.2 million related to lease and severance costs and the reduction of fixed assets and inventory to net realizable value. The Company recognized the net loss during fiscal 2005.
During 2006 and 2005, the Company settled various claims under certain long-term contracts and transition services with its Technical Services business, which was sold in August 1999.
During the third quarter of 2006 there was a $1.4 million tax benefit resulting from the inter-period allocation of income tax to the losses from the dispositions of discontinued operations.
The table below summarizes the gains and losses on dispositions of discontinued operations, as discussed above:
Three Months Ended | Nine Months Ended | ||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | ||||||||||||
(In thousands) | (In thousands) | ||||||||||||||
Gain on Semiconductor business | $ | — | $ | — | $ | 3,750 | $ | — | |||||||
Loss on Aerospace business | (11 | ) | — | (1,288 | ) | — | |||||||||
Loss on Fluid Testing business | — | — | (234 | ) | — | ||||||||||
Loss on Lithography business | (1,079 | ) | — | (1,481 | ) | — | |||||||||
Gain on contract settlements associated with the Technical Services business | 467 | 24 | 853 | 424 | |||||||||||
Gain (loss) on Fiber Optics Test Equipment business | 30 | 126 | 28 | (5,025 | ) | ||||||||||
Net gain (loss) on dispositions of other discontinued operations | 70 | 64 | (208 | ) | 356 | ||||||||||
Net (loss) gain on dispositions of discontinued operations before income taxes | (523 | ) | 214 | 1,420 | (4,245 | ) | |||||||||
(Benefit from) provision for income taxes | (1,361 | ) | 26 | (205 | ) | 292 | |||||||||
Gain (loss) on dispositions of discontinued operations, net of income taxes | $ | 838 | $ | 188 | $ | 1,625 | $ | (4,537 | ) | ||||||
Summary operating results of the discontinued operations of the Fluid Sciences segment and the Fiber Optics Test Equipment and Lithography businesses for the periods prior to disposition were as follows:
Three Months Ended | Nine Months Ended | ||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | ||||||||||
(In thousands) | (In thousands) | ||||||||||||
Sales | $ | — | $ | 60,190 | $ | 8,705 | $ | 176,096 | |||||
Costs and expenses | — | 51,523 | 9,707 | 154,948 | |||||||||
Operating income (loss) from discontinued operations | — | 8,667 | (1,002 | ) | 21,148 | ||||||||
Other expenses, net | — | 574 | 396 | 1,228 | |||||||||
Operating income (loss) from discontinued operations before income taxes | — | 8,093 | (1,398 | ) | 19,920 | ||||||||
Provision for (benefit from) income taxes | — | 2,917 | (373 | ) | 7,456 | ||||||||
Income (loss) from discontinued operations, net of taxes | $ | — | $ | 5,176 | $ | (1,025 | ) | $ | 12,464 | ||||
Three Months Ended | |||||||
April 1, 2007 | April 2, 2006 | ||||||
(In thousands) | |||||||
Sales | $ | — | $ | 8,705 | |||
Costs and expenses | — | 8,762 | |||||
Operating loss from discontinued operations | — | (57 | ) | ||||
Other expenses, net | — | 559 | |||||
Loss from discontinued operations before income taxes | — | (616 | ) | ||||
Benefit from income taxes | — | (173 | ) | ||||
Loss from discontinued operations, net of income taxes | $ | — | $ | (443 | ) | ||
(10) Stock-Based CompensationNote 11: Stock Plans
In December 2004, the FASB issuedThe Company accounts for stock-based compensation in accordance with SFAS No. 123(R) which requires compensation costs related to stock-based transactions, including employee stock options, to be recognized in the financial statements based on fair value. ,“Share-Based Payment” (“SFAS No. 123(R) revises SFAS No. 123, as amended, “Accounting for Stock-Based Compensation”),” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”
Effective which was adopted January 2, 2006, the Company adopted the provisions of SFAS No. 123(R) using the modified prospective transition method. Accordingly, periods prior to adoption have not been restated and are not directly comparable to periods after adoption. Under the modified prospective method, compensation cost recognized in periods after adoption includes (i) compensation cost for all stock-based payments granted prior to, but not yet
vested as of, January 2, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, less estimated forfeitures, and (ii) compensation cost for all stock-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R), less estimated forfeitures.
Prior to January 2, 2006, themethod. The Company accounted forhas three stock-based compensation plans in accordance with the provisions of APB Opinion No. 25, as permitted by SFAS No. 123. Under APB Opinion No. 25, the Company recorded stock-based compensation expense for restricted stock, restricted stock units and performance units, which amounted to $0.4 million and $1.5 million, net of related taxes, for the three and nine months ended October 2, 2005, respectively. Under APB Opinion No. 25, the Company was generally not required to recognize compensation expense for the cost of stock options, when such options had an exercise price equal to the market price at the date of grant, or shares issued under the Company’s Employee Stock Purchase Plan. If the fair value based method as prescribed by SFAS No. 123 had been applied by the Company, the effect on net income and earnings per share for the three and nine months ended October 2, 2005 would have been as follows:
Three Months Ended October 2, 2005 | Nine Months Ended October 2, 2005 | |||||||
(In thousands, except per share data) | (In thousands, except per share data) | |||||||
Net income, as reported | $ | 31,833 | $ | 80,560 | ||||
Add: Stock-based employee compensation expense included in net income, net of related tax effects | 390 | 1,525 | ||||||
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects | (2,028 | ) | (8,909 | ) | ||||
Pro forma net income | $ | 30,195 | $ | 73,176 | ||||
Earnings per share: | ||||||||
Basic—as reported | $ | 0.25 | $ | 0.62 | ||||
Basic—pro forma | $ | 0.23 | $ | 0.57 | ||||
Diluted—as reported | $ | 0.24 | $ | 0.62 | ||||
Diluted—pro forma | $ | 0.23 | $ | 0.56 |
As of October 1, 2006, the Company had three stock-based compensation plans. Under the 2005 Incentive Plan, 5.4 million shares ofwhere the Company’s common stock werehas been made available for option grants, restricted stock awards and performance units. Under the 2001 Incentive Plan, 8.8 million sharesunits as part of the Company’s common stock were made available for option grants, restricted stock awards and performance units. Undercompensation programs (the “Plans”). These Plans are described in more detail in the Life Sciences Plan, 2.3 million shares of the Company’s common stock were made available for option grants.2006 Form 10-K.
For the three and nine months ended OctoberApril 1, 2007 and April 2, 2006, in accordance with the adoption of SFAS No. 123(R), the Company recorded incremental compensation related to the stock options of $3.1 million and $6.9 million, respectively. The total pre-tax stock-based compensation expense for the cost of stock options, restricted stock, restricted stock units and performance units was $4.5$4.2 million and $10.7$2.8 million, for the three and nine months ended October 1, 2006, respectively. The total income tax benefit recognized in the consolidated income statements of operations for stock-based compensation was $1.4 million and $3.5$0.9 million for the three and nine months ended OctoberApril 1, 2007 and April 2, 2006, respectively. Stock-based compensation costs capitalized as part of inventory were approximately $0.4$0.3 million as of OctoberApril 1, 2007 and April 2, 2006.
Stock Options:The Company has granted options to purchase common shares at prices equal to the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant. Options are generally exercisable in equal annual installments over a period of three years and will generally expire seven years after the date of grant. Options assumed as part of business combination transactions retain all the rights, terms and conditions of the respective plans under which they were originally issued.
The fair value of each option grant is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated primarily based on the historical volatility of the Company’s stock. The average expected life was based on the contractual term of the option and historic exercise experience. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. Forfeitures are estimated based on voluntary termination behavior, as well as an analysis of actual option forfeitures. The Company’s weighted-average assumptions used in the Black-Scholes option pricing model are as follows:
2006 | 2005 | |||||||
Expected stock price volatility | 35 | % | 48 | % | ||||
Risk free interest rate | 4.4 | % | 3.5 | % | ||||
Expected life of options (years) | 4.0 | 4.0 | ||||||
Expected annual dividend per share | $ | 0.28 | $ | 0.28 |
2007 | 2006 | |||||
Risk-free interest rate | 4.9 | % | 4.4 | % | ||
Expected dividend yield | 1.2 | % | 1.2 | % | ||
Expected lives | 4 years | 4 years | ||||
Expected stock volatility | 36 | % | 35 | % |
A summary ofThe following table summarizes stock option activity as of Octoberfor the three months ended April 1, 2006 and changes during the first nine months of 2006 are presented below:2007:
Shares | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in millions) | Number of Shares | Weighted- Average Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in millions) | |||||||||||||||
Outstanding at January 1, 2006 | 13,540,872 | $ | 22.44 | |||||||||||||||||||
(Shares in thousands) | ||||||||||||||||||||||
Outstanding at December 31, 2006 | 12,578 | $ | 23.25 | |||||||||||||||||||
Granted | 1,715,332 | 22.53 | 1,508 | 23.45 | ||||||||||||||||||
Exercised | (1,414,599 | ) | 12.31 | (379 | ) | 16.27 | ||||||||||||||||
Canceled | (636,993 | ) | 32.36 | (222 | ) | 34.80 | ||||||||||||||||
Forfeited | (345,922 | ) | 19.32 | (68 | ) | 22.85 | ||||||||||||||||
Outstanding at October��1, 2006 | 12,858,690 | $ | 23.18 | 3.9 | $ | 19.0 | ||||||||||||||||
Outstanding at April 1, 2007 | 13,417 | $ | 23.27 | 3.9 | $ | 38.9 | ||||||||||||||||
Exercisable at October 1, 2006 | 9,840,487 | $ | 23.73 | 3.3 | $ | 17.9 | ||||||||||||||||
Exercisable at April 1, 2007 | 10,912 | $ | 23.55 | 3.2 | $ | 35.6 | ||||||||||||||||
Vested and expected to vest in the future | 11,499 | $ | 23.27 | 3.9 | $ | 33.3 | ||||||||||||||||
The weighted-average grant-date fair values of options granted for the three and nine months ended OctoberApril 1, 2007 and April 2, 2006 were $6.33$7.45 and $6.85, respectively. The weighted-average grant-date fair values of options granted for the three and nine months ended October 2, 2005 were $7.47 and $8.20,$6.86, respectively. The total intrinsic value of options exercised for the three and nine months ended OctoberApril 1, 2007 and April 2, 2006 were $0.2was $2.8 million and $15.2$13.4 million, respectively. The total intrinsic value of options exercised for the three and nine months ended October 2, 2005 were $2.0 million and $5.3 million, respectively.
Cash received from option exercises for the first ninethree months ofended April 1, 2007 and April 2, 2006 and 2005 was $17.4$6.2 million and $9.3$14.8 million, respectively. The related tax benefit classified as a financing cash inflow was $4.0$0.7 million and $3.8 million for the first ninethree months ended April 1, 2007 and April 2, 2006, respectively.
There was $17.5 million of 2006.total unrecognized compensation cost, net of forfeitures, related to nonvested stock options granted as of April 1, 2007. This cost is expected to be recognized over a weighted-average period of 2.2 fiscal years and will be adjusted for any future changes in estimated forfeitures.
The following table summarizes total compensation recognized related to the stock options, which is a function of current and prior year awards isand net of estimated forfeitures, and was approximately $3.1 million and $6.9 million for the three and nine months ended October 1, 2006, respectively. There was $12.7 million of total unrecognized compensation cost related to non-vested stock options granted as of October 1, 2006. This cost is expected to be recognized over a weighted-average period of 1.7 fiscal years and will be adjusted for any future changes in estimated forfeitures. The following table summarizes total compensation expense related to stock options included in the Company’s consolidated income statement:
Three Months Ended October 1, 2006 | Nine Months Ended October 1, 2006 | |||||||
(In thousands) | ||||||||
Cost of sales | $ | 535 | $ | 837 | ||||
Selling, general and administrative expenses | 2,397 | 5,459 | ||||||
Research and development expenses | 154 | 533 | ||||||
Discontinued operations | 9 | 85 | ||||||
Compensation expense related to stock options | 3,095 | 6,914 | ||||||
Less: income tax benefit | (946 | ) | (2,121 | ) | ||||
Net compensation expense related to stock options | $ | 2,149 | $ | 4,793 | ||||
The following table summarizes information about stock options outstanding asstatement of Octoberoperations for the three months ended April 1, 2007 and April 2, 2006:
Options Outstanding | Options Exercisable | |||||||||||
Prices | Number Outstanding at | Weighted- Average Remaining Contractual Life | Weighted- Average Exercise Price | Number Exercisable at October 1, 2006 | Weighted- Average Exercise Price | |||||||
$ 4.88 – 5.70 | 63,666 | 2.9 | $ | 4.91 | 63,666 | $ | 4.91 | |||||
7.03 – 9.88 | 652,145 | 2.9 | 8.28 | 624,951 | 8.25 | |||||||
10.77 – 16.09 | 1,585,526 | 2.5 | 13.47 | 1,583,194 | 13.47 | |||||||
16.38 – 24.15 | 6,040,046 | 4.8 | 20.65 | 3,051,369 | 19.83 | |||||||
25.24 – 37.17 | 3,983,037 | 3.7 | 30.67 | 3,983,037 | 30.67 | |||||||
39.18 – 49.98 | 517,552 | 1.2 | 44.65 | 517,552 | 44.65 | |||||||
50.28 – 57.27 | 16,718 | 3.4 | 56.44 | 16,718 | 56.44 | |||||||
$ 4.88 – 57.27 | 12,858,690 | 3.9 | $ | 23.18 | 9,840,487 | $ | 23.73 | |||||
Three Months Ended | ||||||||
April 1, 2007 | April 2, 2006 | |||||||
(In thousands) | ||||||||
Cost of sales | $ | 246 | $ | — | ||||
Research and development expenses | 185 | 182 | ||||||
Selling, general and administrative and other expenses | 1,765 | 1,519 | ||||||
Compensation expense related to stock options | 2,196 | 1,701 | ||||||
Less: income tax benefit | (717 | ) | (522 | ) | ||||
Net compensation expense related to stock options | $ | 1,479 | $ | 1,179 | ||||
Restricted Stock Awards: The Company has awarded restricted stock and restricted stock units that contain time-based vesting provisions and restricted stock that contains performance-based vesting provisions to certain employees at no cost to them, which cannot be sold, assigned, transferred or pledged during the restriction period. These awards were granted under the Company’s 2005 Incentive Plan and 2001 Incentive Plan. All restrictions on the awards will lapse upon certain situations including death or disability of the employee and a change in control of the Company. Recipients offollowing table summarizes the restricted stock have the right to vote such shares and receive dividends, whereas the recipients of restricted stock units do not have these same benefits.
Restricted Stock Awards (Time-based Vesting)—Grants of restricted stock and restricted stock units that vest through the passage of time. The fair value of the award at the time of the grant is expensed on a straight line basis primarily in selling, general and administrative expenses over the vesting period, which is generally three years.
Restricted Stock Awards (Performance—based Vesting)—Grants of restricted stock that vest based on certain specified performance criteria. The fair value of the shares is expensed over the period of performance primarily in selling, general and administrative expenses, once achievement of criteria is deemed probable.
A summary of the status of the Company’s restricted stock awards as of October 1, 2006 and changes during the first nine months of 2006 are presented below:
Nonvested Restricted Stock Awards | Shares | Weighted-Average Grant-Date Fair Value | ||||
Nonvested at January 1, 2006 | 330,669 | $ | 20.59 | |||
Granted | 256,828 | 22.78 | ||||
Vested | (3,334 | ) | 20.06 | |||
Forfeited | (38,000 | ) | 20.70 | |||
Nonvested at October 1, 2006 | 546,163 | $ | 21.62 | |||
There were no restricted stock awards granted duringactivity for the three months ended OctoberApril 1, 2006. 2007:
Number of Shares | Weighted- Average Grant- Date Fair Value | |||||
(Shares in thousands) | ||||||
Nonvested at December 31, 2006 | 417 | $ | 21.40 | |||
Granted | 219 | 23.48 | ||||
Vested | — | — | ||||
Forfeited | (42 | ) | 20.06 | |||
Nonvested at April 1, 2007 | 594 | $ | 22.26 | |||
The weighted-average grant-date fair value of restricted stock awards granted during the ninethree months ended OctoberApril 1, 2007 and April 2, 2006 was $22.78. The weighted-average grant-date fair values of restricted stock awards granted during the three$23.48 and nine months ended October 2, 2005 were $19.94 and $20.76,$22.86, respectively. The total compensation expense recognized related to the restricted stock awards, which is a function of current and prior year awards, was approximately $0.8$0.7 million and $2.2$0.6 million for the three and nine months ended OctoberApril 1, 2007 and April 2, 2006, respectively. As of OctoberThere were no restricted stock awards that vested during the three months ended April 1, 2006, there were 546,163 shares2007. The fair value of restricted stock awards outstanding subject to forfeiture.vested during the three months ended April 2, 2006 was $0.1 million.
As of OctoberApril 1, 2006,2007, there was $8.6$10.5 million of total unrecognized compensation cost, net of forfeitures, related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of 1.72.0 fiscal years. The fair value of restricted stock awards vested during the first nine months of 2006 was $0.1 million. There were no restricted stock awards that vested during the first nine months of 2005.
Unearned compensation is recorded in a contra-equity account and established at the date restricted stock is granted representing the amount of unrecognized restricted stock expense that is reduced as expense is recognized. Under the provisions of SFAS No. 123(R), the recognition of unearned compensation at the date restricted stock is granted is no longer required. Therefore, in the first quarter of 2006, the $6.4 million of unrecognized restricted stock that had been in “Unearned compensation” in the consolidated balance sheet as of January 1, 2006 was reversed to “Capital in excess of par value.”
Performance Units: The Company’s performance unit program provides a cash award based on the achievement of specific performance criteria. A target number of units are granted at the beginning of a three-year performance period. The number of units earned at the end of the performance period is determined by multiplying the number of units granted by a performance factor for each individual ranging from 0% to 200%. Awards are determined by multiplying the number of units earned by the stock price at the end of the performance period and are paid in cash. The compensation expense associated with these units is recognized over the period that the performance targets are expected to be achieved. The Company granted 208,328209,326 and 247,197208,328 performance units induring the first ninethree months ofended April 1, 2007 and April 2, 2006, and 2005, respectively. The weighted-average grant-date fair values of performance units granted during the first ninethree months ofended April 1, 2007 and April 2, 2006 were $23.48 and 2005 were $22.74, and $21.02, respectively. The total compensation expense recognized related to these performance units, which is a function of current and prior year awards, was approximately $0.5$1.3 million and $1.6$0.5 million for the three and nine months ended OctoberApril 1, 2007 and April 2, 2006, respectively. As of OctoberApril 1, 2006,2007, there were 546,995615,321 performance units outstanding subject to forfeiture.
Employee Stock Purchase Plan: In April 1999, the Company’s stockholders approved the 1998 Employee Stock Purchase Plan, whereby participating employees had the right to purchase common stock at a price equal to 85% of the lower of the closing price on the first day or the last day of the six-month offering period. In April 2005, the Compensation and Benefits Committee of the Company’s Board of Directors voted to amend the Employee Stock Purchase Plan, effective July 1, 2005, whereby participating employees have the right to
purchase common stock at a price equal to 95% of the closing price on the last day of each six-month offering period. The number of shares which an employee may purchase, subject to certain aggregate limits, is determined by the employee’s voluntary contribution, which may not exceed 10% of the employee’s base compensation. During the nine months ended October 1, 2006, the Company issued 0.1 million shares under this plan at a weighted-average price of $19.85 per share. There remains available for sale to employees an aggregate of 1.8 million shares of the Company’s stock out of the 5.0 million shares authorized by shareholders.
Stock Repurchase Program: In the first nine months of 2006, the Company repurchased in the open market 8.9 million shares of its common stock at an aggregate cost of $190.1 million, including commissions. The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value. These repurchases were made pursuant to the Company’s stock repurchase program (the “Program”), which authorized repurchases of up to an aggregate of 10.0 million shares of the Company’s common stock. During the third quarter of 2006 the Company completed its repurchase of 10.0 million shares in the aggregate under the Program. On November 6, 2006, the Company announced that the Board of Directors (the “Board”) authorized the Company to repurchase up to 10.0 million additional shares of common stock under a new stock repurchase program (the “New Program”). The New Program will expire on October 25, 2010 unless this authorization is terminated earlier by the Board. The New ProgramBoard and may also be suspended or discontinued at any time by time. During
the Company.three months ended April 1, 2007, the Company repurchased in the open market 2.5 million shares of common stock at an aggregate cost of $60.0 million, including commissions, under the New Program. From April 2, 2007 through May 10, 2007, the Company repurchased approximately 2.1 million shares of its common stock in the open market under the New Program at an aggregate cost of $52.6 million, including commissions.
(11)Note 12: Goodwill and Intangible Assets
In accordance withGoodwill is subject to annual impairment testing using the guidance and criteria described in SFAS No. 142,“Goodwill and otherOther Intangible Assets,Assets.” The impairment test consists of a two-step process. The first step is the Company is requiredcomparison of the fair value to test goodwill for impairment atthe carrying value of the reporting unit level upon initial adoptionto determine if the carrying value exceeds the fair value. The second step measures the amount of an impairment loss, and at least annually thereafter. As partis only performed if the carrying value exceeds the implied fair value of the Company’s on-going compliance with SFAS No. 142,reporting unit. The annual impairment assessment is performed by the Company assisted by valuation consultants,on the later of January 1 or the first day of each fiscal year. This same impairment test will be performed at other times during the course of the year should an event occur which suggests that the recoverability of goodwill should be reconsidered. The Company completed itsthe annual assessment of goodwillimpairment test using a measurement date of January 2, 2006. The results1, 2007 and concluded based on the first step of this annual assessment resulted inthe process that there was no impairment charge.goodwill impairment.
The changes in the carrying amount of goodwill for the period ended OctoberApril 1, 20062007 from January 1,December 31, 2006 are as follows:
Life and Analytical Sciences | Optoelectronics | Consolidated | |||||||
(In thousands) | |||||||||
Balance, January 1, 2006 | $ | 982,260 | $ | 43,941 | $ | 1,026,201 | |||
Foreign currency translation | 20,100 | 1,591 | 21,691 | ||||||
Acquisitions and earn-out adjustments | 53,083 | 1,257 | 54,340 | ||||||
Balance, October 1, 2006 | $ | 1,055,443 | $ | 46,789 | $ | 1,102,232 | |||
Balance, December 31, 2006 Foreign currency translation Acquisitions, earn-outs and other adjustments Balance, April 1, 2007 Life and
Analytical
Sciences Optoelectronics Consolidated (In thousands) $ 1,070,143 $ 47,581 $ 1,117,724 3,128 201 3,329 35,416 — 35,416 $ 1,108,687 $ 47,782 $ 1,156,469
Identifiable intangible asset balances at OctoberApril 1, 2007 and December 31, 2006 and January 1, 2006by category were as follows:
October 1, 2006 | January 1, 2006 | April 1, 2007 | December 31, 2006 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Patents | $ | 109,285 | $ | 90,955 | $ | 111,769 | $ | 110,847 | ||||||||
Less: Accumulated amortization | (48,504 | ) | (41,908 | ) | (53,911 | ) | (51,532 | ) | ||||||||
Net patents | 60,781 | 49,047 | 57,858 | 59,315 | ||||||||||||
Licenses | 60,362 | 51,529 | 60,158 | 59,978 | ||||||||||||
Less: Accumulated amortization | (25,081 | ) | (23,029 | ) | (26,943 | ) | (25,767 | ) | ||||||||
Net licenses | 35,281 | 28,500 | 33,215 | 34,211 | ||||||||||||
Core technology | 243,453 | 210,283 | 271,323 | 244,484 | ||||||||||||
Less: Accumulated amortization | (86,663 | ) | (71,575 | ) | (100,332 | ) | (93,153 | ) | ||||||||
Net core technology | 156,790 | 138,708 | 170,991 | 151,331 | ||||||||||||
Net amortizable intangible assets | 252,852 | 216,255 | 262,064 | 244,857 | ||||||||||||
Non-amortizing intangible assets, primarily trademarks and trade names | 159,165 | 159,164 | ||||||||||||||
Non-amortizing intangible assets | 159,164 | 159,164 | ||||||||||||||
Totals | $ | 412,017 | $ | 375,419 | $ | 421,228 | $ | 404,021 | ||||||||
Amortization expense related to identifiable intangible assets for the three months ended April 1, 2007 and April 2, 2006 was $10.4 million and $7.4 million, respectively.
(12)Note 13: Warranty Reserves
The Company provides warranty protection for certain products for periods ranging from one to three years beyond the date of sale. The majority of costs associated with warranty obligations include the replacement of parts and the time of service personnel to respond to repair and replacement requests. A warranty reserve is recorded based upon historical results, supplemented by management’s expectations of future costs. Warranty reserves are included in “Accrued expenses” on the condensed consolidated balance sheets. A summary of warranty reserve activity for the three and nine months ended OctoberApril 1, 20062007 and OctoberApril 2, 20052006 is as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Balance beginning of period | $ | 9,883 | $ | 9,387 | $ | 9,207 | $ | 9,601 | ||||||||
Provision | 3,397 | 3,344 | 10,813 | 10,001 | ||||||||||||
Charges | (3,443 | ) | (3,423 | ) | (10,756 | ) | (9,626 | ) | ||||||||
Other | 84 | (38 | ) | 657 | (706 | ) | ||||||||||
Balance end of period | $ | 9,921 | $ | 9,270 | $ | 9,921 | $ | 9,270 | ||||||||
Balance beginning of period Provision Charges Foreign currency Balance end of period Three Months Ended April 1,
2007 April 2,
2006 (In thousands) $ 10,054 $ 9,207 3,747 3,544 (3,114 ) (3,413 ) 55 72 $ 10,742 $ 9,410
(13)Note 14: Employee Benefit Plans
The following table summarizes the components of net periodic benefit cost (credit) for the Company’s various defined benefit employee pension and post-retirement plans in accordance with SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” for the three and nine months ended OctoberApril 1, 20062007 and OctoberApril 2, 2005:2006:
Defined Benefit Pension Benefits | Post-Retirement Medical Benefits | Defined Benefit Pension Benefits | Post-Retirement Medical Benefits | |||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | April 1, 2007 | April 2, 2006 | April 1, 2007 | April 2, 2006 | |||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Service cost | $ | 1,254 | $ | 1,585 | $ | 24 | $ | 34 | $ | 1,340 | $ | 1,370 | $ | 23 | $ | 24 | ||||||||||||||||
Interest cost | 5,567 | 5,614 | 60 | 125 | 6,090 | 5,433 | 60 | 63 | ||||||||||||||||||||||||
Expected return on plan assets | (5,576 | ) | (5,596 | ) | (214 | ) | (197 | ) | (6,010 | ) | (5,508 | ) | (242 | ) | (214 | ) | ||||||||||||||||
Net amortization and deferral | 1,528 | 1,131 | (216 | ) | (123 | ) | ||||||||||||||||||||||||||
Amortization of prior service | 15 | 32 | (79 | ) | (118 | ) | ||||||||||||||||||||||||||
Recognition of actuarial losses (gains) | 1,383 | 2,633 | (96 | ) | (97 | ) | ||||||||||||||||||||||||||
Net periodic benefit cost (credit) | $ | 2,773 | $ | 2,734 | $ | (346 | ) | $ | (161 | ) | $ | 2,818 | $ | 3,960 | $ | (334 | ) | $ | (342 | ) | ||||||||||||
Defined Benefit Pension Benefits | Post-Retirement Medical Benefits | |||||||||||||||||||||||||||||||
Nine Months Ended | ||||||||||||||||||||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | |||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Service cost | $ | 3,864 | $ | 4,919 | $ | 72 | $ | 102 | ||||||||||||||||||||||||
Interest cost | 16,518 | 17,087 | 180 | 375 | ||||||||||||||||||||||||||||
Expected return on plan assets | (16,560 | ) | (16,907 | ) | (642 | ) | (591 | ) | ||||||||||||||||||||||||
Net amortization and deferral | 4,549 | 3,361 | (648 | ) | (369 | ) | ||||||||||||||||||||||||||
Net periodic benefit cost (credit) | $ | 8,371 | $ | 8,460 | $ | (1,038 | ) | $ | (483 | ) | ||||||||||||||||||||||
(14)Note 15: Contingencies
The Company is conducting a number of environmental investigations and remedial actions at current and former Company locations and, along with other companies, has been named a potentially responsible party, (“PRP”)or PRP, for certain waste disposal sites. The Company accrues for environmental issues in the accounting period that the Company’s responsibility is established and when the cost can be reasonably estimated. The Company has accrued $3.7$3.8 million as of OctoberApril 1, 2006,2007, representing management’s estimate of the total cost of ultimate disposition of known environmental matters. Such amount is not discounted and does not reflect the recovery of any amounts through insurance or indemnification arrangements. These cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur and the possible effects of changing laws and regulations. For sites where the Company has been named a PRP, management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. The Company expects that the majority of such accrued amounts
could be paid out over a period of up to ten years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had or are expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows. While it is possible that a loss exceeding the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
In papers dated October 23, 2002, Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (collectively, “Enzo”) filed a complaint in the United States District Court for the Southern District of New York, Civil Action No. 02-8448, against Amersham plc, Amersham BioSciences, PerkinElmer, Inc., PerkinElmer Life Sciences, Inc., Sigma-Aldrich Corporation, Sigma Chemical Company, Inc., Molecular Probes, Inc., and Orchid
BioSciences, Inc. The complaint alleges that the Company has breached its distributorship and settlement agreements with Enzo, infringed Enzo’s patents, engaged in unfair competition and fraud, and committed torts against Enzo by, among other things, engaging in commercial development and exploitation of Enzo’s patented products and technology, separately and together with the other defendants. Enzo seeks injunctive and monetary relief. In 2003, the court severed the lawsuit and ordered Enzo to serve individual complaints against the five defendants. The Company subsequently filed an answer and a counterclaim alleging that Enzo’s patents are invalid. In July 2006, the court issued a decision regarding the construction of the claims in Enzo’s patents that effectively limited the coverage of certain of those claims and, the Company believes, excludes certain of the Company’s products from the coverage of Enzo’s patents. Discovery is ongoing. The courtNo trial date has been set, a schedule for filing ofbut summary judgment motions commencing onwere filed by the defendants in January 3, 2007, but has not set a date for trial.2007.
On October 17, 2003, Amersham Biosciences Corp. filed a complaint, which was subsequently amended, in the United States District Court for New Jersey, Civil Action No. 03-4901, against a subsidiary of the Company, alleging that the Company’s ViewLux™ and certain of its Image FlashPlate™ products infringe three of Amersham’s patents related to high-throughput screening (the “NJ case”). On August 18, 2004, Amersham plc filed a complaint against two of the Company’s United Kingdom-based subsidiaries in the Patent Court of the English High Court of Justice, Case No. 04C02688, alleging that the Company’s same products infringe one corresponding Amersham patent in the United Kingdom, which was granted in August 2004 (the “UK case”). Amersham seeks injunctive and monetary relief in both cases. The Company filed answers and counterclaims in both cases. On October 29, 2003, the Company filed a complaint, which was subsequently amended, against Amersham in the United States District Court for Massachusetts, Civil Action No. 03-12098, alleging that Amersham’s IN Cell Analyzer, and LEADseeker™ Multimodality Imaging system and certain Cyclic AMP and IP3 assays infringe two of the Company’s patents related to high-throughput screening (the “MA case”). The Company seeks injunctive and monetary relief. Amersham subsequently filed an answer and counterclaims. After a trial in the UK case in December 2005, the court ruled in February 2006 that Amersham’s patent in question was invalid in the United Kingdom and awarded costs to the Company. Amersham’sAmersham initiated an appeal of the ruling in the UK case is scheduled to be heardbut withdrew that appeal in earlyJanuary 2007. In May 2006, the court in the NJ case issued a decision regarding the construction of the claims in Amersham’s patents that adopted many of Amersham’s claim construction positions. The company has filed aCompany’s motion asking the court to reconsider that decision.decision was denied. Discovery has not yet been completed in either the NJ or MA case, nor has a trial date been set in either case. A voluntary mediationMediations occurred in September 2006 and April 2007, but did not result in a resolution of these matters. Fact discovery, which was stayed pending the mediation, has now resumed.
The Company believes it has meritorious defenses to these lawsuits and other proceedings, and it is contesting the actions vigorously in all of the above matters. The Company is currently unable, however, to reasonably estimate the amount of loss, if any, that may result from the resolution of these matters or to determine whether resolution of any of these matters will have a material adverse impact on its consolidated financial statements.
During 2005, the Internal Revenue Service concluded its audit of federal income taxes for the years 1999 through 2002. The Company has agreed to the conclusions of the Internal Revenue Service in all matters with the exception of one, and has filed a single issue protest with the Appeals Division of the Internal Revenue Service.
The Company expects to resolve the matter in the first half of 2007. Regardless of the outcome of the protest, the Company does not expect the final resolution to significantly impact its financial position, results of operations or cash flows in 2007.flows.
The Company is under regular examination by tax authorities in the United States and other countries (such as Germany and the United Kingdom) in which the Company has significant business operations. The tax years under examination vary by jurisdiction. The Company regularly assesses the likelihood of additional assessmentsreviews its tax positions in each significant taxing jurisdiction in the process of the taxing jurisdictions resulting from these and subsequent years’ examinations. The Company has established incomeevaluating its unrecognized tax reserves which it believes to be adequate in relationbenefits as required by FIN No. 48. Adjustments are made to the potential for additional assessments. Once established, reserves are adjusted as additional information becomes availableCompany’s unrecognized tax benefits when: (i) facts and when an
event occurs requiringcircumstances regarding a tax position change, causing a change toin management’s judgment regarding that tax position; (ii) a tax position is ultimately settled with a tax authority; and/or (iii) the reserves.statute of limitations expires regarding a tax position. The resolution of tax matterspositions is not expected to have a material adverse effect on the Company’s consolidated financial condition.
The Company is also subject to various other claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of its business activities. Each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company. The Company has established accruals for potential losses that it believes are probable and reasonably estimable. In the opinion of the Company’s management, based on its review of the information available at this time, the total cost of resolving these other contingencies at OctoberApril 1, 2006,2007, should not have a material adverse effect on the Company’s consolidated financial statements.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This quarterly report on Form 10-Q, including the following management’s discussion and analysis, contains forward-looking information that you should read in conjunction with the condensed consolidated financial statements and notes to the condensed consolidated financial statements that we have included elsewhere in this quarterly report on Form 10-Q.report. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as “believes,” “plans,” “anticipates,” “expects,” “will” and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from the plans, intentions or expectations we disclose in the forward-looking statements we make. We have included important factors above under the heading “Risk Factors” in Item 1A1A. below that we believe could cause actual results to differ materially from the forward-looking statements we make. We are not obligated to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
We are a leading provider of scientific instruments, consumables and services to the pharmaceutical, biomedical, academic research, environmental testing and general industrial markets, commonly referred to as the health sciences and photonics markets. We design, manufacture, market and service products and systems within two businesses, each constituting a separate reporting segment:
• | Life and Analytical Sciences.We are a leading provider of drug discovery, genetic screening and environmental and chemical analysis tools, including instruments, reagents, consumables, and services. |
• | Optoelectronics.We provide a broad range of digital imaging, sensor and specialty lighting components used in the biomedical, consumer products and other specialty end markets. |
The health sciences markets include all of the businesses in our Life and Analytical Sciences segment and the medical imaging business, as well as elements of the medical sensors and lighting businesses in our Optoelectronics segment. The photonics markets include the remaining businesses in our Optoelectronics segment.
Divestiture of Fluid Sciences Semiconductor Business.In February 2006, we sold substantially all of the assetsAs part of our Fluid Sciences Semiconductor businessstrategy to an entity affiliated with Tara Capital, Inc. for approximately $26.5 million, subject to a net working capital adjustment, plus potential additional contingent consideration. We recognized a pre-tax gain of $3.8 million, exclusive of additional contingent consideration, throughgrow our core businesses, we have taken the first nine months of 2006.following actions in recent years:
Acquisitions:
Acquisition of Agilix Corporation. In February 2006, we acquired specified assets of Agilix Corporation (“Agilix”) for approximately $8.7 million in cash plus potential additional contingent consideration, which we expect to be immaterial to the Company.cash. Assets acquired primarily relate to Agilix’s core technology which centers around labeling technology using isobaric mass tags that allowsallow for the simultaneous quantification of molecules, such as proteins, from multiple samples. Agilix’s operations are reported within the results of our Life and Analytical Sciences segment from the acquisition date. This acquisition did not have a material effect on our financial position, results of operations or cash flows.
Acquisition of Spectral Genomics, Inc. In April 2006, we acquired specified assets and assumed specified liabilities of Spectral Genomics, Inc. (“Spectral”), a leader in molecular karyotyping technology used to evaluate chromosomal abnormalities. Consideration for the transaction was approximately $12.0$13.1 million in cash plus potential additional contingent consideration, which we expect to be immaterial to the Company.us. We will make cash payments of $2.1a $0.9 million payment in the fourth quarter of 2006 and $0.9 million in the firstsecond quarter of 2007, as well as royalty payments based on future sales, to license additional intellectual property rights from a third party. We
expect to receive a partial reimbursement of the license fees as a result of our agreement with Spectral. Spectral’s operations are reported within the results of our Life and Analytical Sciences segment from the acquisition date. This acquisition did not have a material effect on our financial position, results of operations or cash flows.
Acquisition of Clinical & Analytical Service Solutions Ltd. In June 2006, we acquired the stock of Clinical & Analytical Service Solutions Ltd. (“C&A”), a scientific equipment asset and managed maintenance company serving the pharmaceutical, biotechnology and healthcare markets. Consideration for the transaction was approximately $12.3$12.4 million in cash, net of cash acquired, plus potential additional contingent consideration, which we expect to be immaterial to the Company. C&A’s operations are reported within the results of our Life and Analytical Sciences segment from the acquisition date. This acquisition did not have a material effect on our financial position, results of operations or cash flows.us.
Restructuring.During the second quarter of 2006, our management approved a plan for workforce reductions in two locations in the U.S. as we shift resources into product lines that are more consistent with our growth strategy. The actions within the Q2 2006 Plan, described below, related to workforce reductions resulting from reorganization activities within the Life and Analytical Sciences segment. We completed notifying affected employees on June 30, 2006. As a result of this plan of termination, we recorded a pre-tax restructuring charge of $0.8 million during the second quarter of 2006 (the “Q2 2006 Plan”). As of October 1, 2006, substantially all of the $0.4 million remaining pre-tax restructuring charge will result in future cash expenditures which we expect will be paid by the end of 2006.
Acquisition of J.N. Macri Technologies LLC and NTD Laboratories, Inc. In July 2006, we acquired specified assets and assumed specified liabilities of J.N. Macri Technologies LLC (“Macri”) and acquired the stock of NTD Laboratories, Inc. (“NTD”). Macri holds and licensesWe acquired Macri’s global patents related to free beta Human Chorionic Gonadotropin (“free Beta hCG”). Free Beta hCG is a peptide hormone produced in the early stage of pregnancy that is widely recognized as an important biomarker for first-trimester prenatal risk assessment. NTD is a laboratory specializing in prenatal risk assessment and offers laboratory developedlaboratory-developed and validated testing under the brand name UltraScreen®, of which free Beta hCG is an important component. Aggregate consideration for these transactions was $55.2 million in cash, net of cash acquired.
Avalon Instruments Limited. In September 2006, we acquired the stock of Avalon Instruments Limited (“Avalon”). The acquisition of Avalon expands and subjectcomplements our molecular spectroscopy product portfolio by adding a family of innovative bench-top dispersive Raman spectrometers. Raman spectroscopy identifies and characterizes the composition of both organic and inorganic materials in a wide range of applications. Consideration for this transaction was $5.4 million in cash, net of cash acquired, plus potential additional contingent consideration, which we expect to be immaterial to us.
Triton Technology Ltd. In December 2006, we acquired specified assets of Triton Technology Ltd (“Triton”). We acquired from Triton a line of Dynamic Mechanical Analysis (“DMA”) products. The DMA products offer a thermal analysis tool that is used by scientists in the polymers, pharmaceuticals and food industries for diverse applications ranging from simple quality control to advanced research. Consideration for this transaction was $2.3 million in cash at the closing, plus additional cash payments of $1.6 million payable in 2007. We paid $0.9 million of the additional cash payments in the first quarter of 2007.
Evotec Technologies GmbH. In January 2007, we acquired the stock of Evotec Technologies GmbH (“Evotec”). The acquisition is intended to allow us to provide our customers in the pharmaceutical, biotechnology and academic arenas with Evotec’s high content screening (“HCS”) instruments and software. These analysis tools determine the composition of cells and cell structure, a critical step in moving potential drug targets quickly through the discovery process. Consideration for this transaction was approximately $30.2 million in cash, net working capital adjustment. Bothof cash acquired, which was paid in fiscal year 2006.
Euroscreen Products S.A. In January 2007, we acquired the Macristock of Euroscreen Products S.A. (“Euroscreen”), a developer of the AequoScreen™ cellular assay platform. The AequoScreen™ platform from Euroscreen is based on an innovative luminescence technology that generates higher quality data, while reducing the number of false positives in G protein-coupled receptor (“GPCR”) screening applications. Consideration for this transaction was approximately $16.9 million in cash, net of cash acquired.
Improvision Ltd. In March 2007, we acquired the stock of Improvision Ltd. (“Improvision”), a leading provider of cellular imaging software and NTDintegrated hardware solutions used in life sciences research. We expect that the addition of Improvision’s imaging and analysis software to our high content screening systems will provide customers with powerful imaging solutions for analyzing cellular events from real-time imaging of live cells to rapid high content screening of multiple samples. Consideration for this transaction was approximately $22.7 million in cash, net of cash acquired, plus potential additional contingent consideration, which we expect to be immaterial to us.
The operations for each of these acquisitions are reported within the results of our Life and Analytical Sciences segment from the acquisition date. TheseThe operations subsequent to the acquisitions, individually and in the aggregate, did not have a material effect on our financial position, results of operations or cash flows.
Research and Development Expenses:
Research and development expenses were $29.3 million for the three months ended April 1, 2007 and $22.8 million for the three months ended April 2, 2006, an increase of $6.5 million, or 28%, including in-process
research and development (“IPR&D”) charges of $1.5 million related to the Evotec and Euroscreen acquisitions. We directed research and development efforts during 2007 and 2006 primarily toward genetic screening, biopharmaceutical, and environmental and chemical end markets within our Life and Analytical Sciences segment and medical digital imaging within our Optoelectronics segment in order to help accelerate our growth initiatives.
StockShare Repurchase Program.Program: In the first nine months of 2006, we repurchased in the open market 8.9 million shares of our common stock at an aggregate cost of $190.1 million, including commissions. The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value. These repurchases were made pursuant to our stock repurchase program (the “Program”), which authorized repurchases of up to an aggregate of 10.0 million shares of our common stock. During the third quarter of 2006 we completed our repurchase of 10.0 million shares in the aggregate under the Program.
On November 6, 2006, we announced that our Board of Directors (the “Board”) authorized us to repurchase up to 10.0 million additional shares of our common stock under a new stock repurchase program (the “New Program”). The New Program will expire on October 25, 2010 unless this authorization is terminated earlier by our Board. The New ProgramBoard and may also be suspended or discontinued at any time. During the first quarter of 2007, we repurchased in the open market 2.5 million shares of our common stock at an aggregate cost of $60.0 million, including commissions, under the New Program. The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value. We are likely to make additional share repurchases given current cash and debt levels. From April 2, 2007 through May 10, 2007, we repurchased approximately 2.1 million shares of our common stock in the open market under the New Program at an aggregate cost of $52.6 million, including commissions.
We have also taken the following actions in recent years to further focus our core businesses:
Restructuring:
AcquisitionDuring the first quarter of Avalon Instruments Limited. In September 2006,2007, our management approved a plan to shift resources into product lines that are more consistent with our growth strategy. We completed notifying affected employees on March 30, 2007. As a result of this plan, we acquiredrecognized a pre-tax restructuring charge of $4.4 million during the stockfirst quarter of Avalon Instruments Limited (“Avalon”).2007. The acquisition of Avalon expands and complements our Molecular Spectroscopy product portfolio by addingactions within this plan related to a family of innovative bench-top dispersive Raman spectrometers. Raman spectroscopy identifies and characterizes the composition of both organic and inorganic materials in a wide range of applications. Consideration for this transaction was $5.2 million in cash, net of cash acquired, plus potential additional contingent consideration, which we expect to be immaterial to the Company. Avalon’s operations are reportedworkforce reduction resulting from reorganization activities within the results of our Life and Analytical Sciences segment from the acquisition date. This acquisition did not have a material effect on our financial position, results of operations or cash flows.segment.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, restructuring, pensions and other post-retirement benefits, stock-based compensation, warranty costs, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are those policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. We believe our critical accounting policies include our policies regarding revenue recognition, allowances for doubtful accounts, inventory valuation, business combinations, value of long-lived assets, including intangibles, employee compensation and benefits, restructuring activities, gains or losses on dispositions and income taxes. For a more detailed discussion of our critical accounting policies, please refer to our Annual Report on Form 10-K for the fiscal year ended January 1,December 31, 2006, filed with the Securities and Exchange Commission (the “SEC”) (the “2005“2006 Form 10-K”).
Consolidated Results of Continuing Operations
Sales
Sales for the third quarter of 2006three months ended April 1, 2007 were $386.9$402.9 million, versus $360.0$355.5 million for the third quarter of 2005,three months ended April 2, 2006, an increase of $26.9$47.4 million, or 7%13%. The effect of acquisitions increased our third quarter of 2006 sales by $7.1 million. Changesand changes in
foreign exchange rates increased sales by $6.3 million in the third quarter of 2006, as compared to the third quarter of 2005. The total increase in sales reflects a $24.4 million, or 9%, increase in our Life and Analytical Sciences segment sales and an increase of $2.5 million, or 2%, in our Optoelectronics segment sales.
Sales for the nine-month period ended October 1, 2006 were $1,119.4 million, versus $1,086.2 million for the nine-month period ended October 2, 2005, an increase of $33.2 million, or 3%. The effect of acquisitions increased our sales for the nine-month periodthree months ended OctoberApril 1, 2006 by $10.1 million. Changes in foreign exchange rates decreased sales by approximately $2.2 million in the nine-month period ended October 1, 2006,2007, as compared to the nine-month periodthree months ended OctoberApril 2, 2005.2006, by $15.9 million and $12.1 million, respectively. This total increase in sales reflects a $29.3$37.6 million, or 4%14%, increase in our Life and Analytical Sciences segment sales, which includes a $9.5$15.9 million increase from acquisitions offset in part byand an approximately $1.7$9.3 million decreaseincrease in sales attributable to unfavorablefavorable changes in foreign exchange rates compared to the nine-month periodthree months ended OctoberApril 2, 2005.2006. Our Optoelectronics segment sales grew $3.9$9.8 million, or 1%11%, including an approximately $0.5$2.7 million decreaseincrease in sales attributable to unfavorablefavorable changes in foreign exchange rates compared to the nine-month periodthree months ended OctoberApril 2, 2005, offset by an increase of $0.6 million from acquisitions.2006.
Cost of Sales
Cost of sales for the third quarter of 2006three months ended April 1, 2007 was $231.0$244.2 million, versus $209.7$213.8 million for the third quarter of 2005,three months ended April 2, 2006, an increase of $21.3$30.4 million, or 10%14%. As a percentage of sales, cost of sales increased to 59.7%60.6% in the third quarter of 2006three months ended April 1, 2007 from 58.3%60.1% in the third quarter of 2005,three months ended April 2, 2006, resulting in a decrease in gross margin of 14050 basis points from 41.7%to 39.4% in the third quarter of 2005 to 40.3%three months ended April 1, 2007, from 39.9% in the third quarterthree months ended April 2, 2006. Amortization of intangible assets increased due to the acquisitions completed in 2006 and 2007 and was $8.5 million for the three months ended April 1, 2007 as compared to $7.0 million for the three months ended April 2, 2006. This decreaseThe amortization of purchase accounting adjustments to record the inventory from the Evotec and Euroscreen acquisitions was $1.4 million for the three months ended April 1, 2007. Stock option expense was $0.2 million and zero for the three months ended April 1, 2007 and April 2, 2006, respectively. Apart from the amortization, inventory revaluation and stock option expenses, the gross margin decline was primarily attributable to unusually high gross margins in the prior year due to favorable product mix, in the third quarter of 2005 in addition to unfavorable commodityinvestment costs in the third quarter of 2006. Partially offsetting these items were efficiencies gained through increased production volumeassociated with several large service programs and successful execution of productivity initiatives. Amortization of intangible assets was $7.4 million for the third quarter of 2006 and $6.9 million for the third quarter of 2005. Cost of sales for the third quarter of 2006 also included $0.5 million of stock option expense.
Cost of sales for the nine-month period ended October 1, 2006 was $670.2 million, versus $636.5 million for the nine-month period ended October 2, 2005, an increase of $33.7 million, or 5%. As a percentage of sales, cost of salesin transportation costs within our Life and Analytical Sciences segment partially offset by increased to 59.9% inperformance within our Optoelectronics segment as capacity and productivity improvements were made within the nine-month period ended October 1, 2006 from 58.6% in the nine-month period ended October 2, 2005, resulting in a decrease in gross margin of 130 basis points from 41.4% in the nine-month period ended October 2, 2005, to 40.1% in the nine-month period ended October 1, 2006. This decrease was primarily attributable to unusually high gross margins in the prior year due to favorable product mix in the third quarter of 2005 in addition to unfavorable commodity costs in the third quarter of 2006. Partially offsetting these items were efficiencies gained through increased production volume and successful execution of productivity initiatives. Amortization of intangible assets was $21.6 million and $20.8 million for the nine-month periods ended October 1, 2006 and October 2, 2005, respectively. Cost of sales for the nine-month period ended October 1, 2006 also included $0.8 million of stock option expense.amorphous silicon business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the third quarter of 2006three months ended April 1, 2007 were $94.7$101.8 million versus $87.9as compared to $89.9 million for the third quarter of 2005,three months ended April 2, 2006, an increase of $6.8 million, or 8%. As a percentage of sales, selling, general and administrative expenses increased 10 basis points from 24.4% in the third quarter of 2005 to 24.5% in the third quarter of 2006. This increase was primarily the result of stock option expense, increased investment in business development activities, and an increase in the number of sales employees in both emerging markets and higher growth product lines, primarily offset by increased fixed cost leverage and cost controls. Amortization of intangible assets was $1.1 million for the third quarter of 2006 and $0.2 million for the third quarter of 2005. Selling, general and administrative expenses for the third quarter of 2006 included $2.4 million of stock option expense.
Selling, general and administrative expenses for the nine-month period ended October 1, 2006 were $277.2 million versus $277.4 million for the nine-month period ended October 2, 2005, a decrease of approximately $0.3$11.9 million. As a percentage of sales, selling, general and administrative expenses decreased 70 basis points from 25.5% inwere 25.3% for the nine-month period ended OctoberApril 1, 2007, which remained flat as compared to the three months ended April 2, 2005 to 24.8% in the nine-month period ended October 1, 2006. This decreaseThe $11.9 million increase was primarily the result of increased fixed cost leverageheadcount and cost controls offset in part by increased investment inemployee related expenses to support our sales initiatives, business development activitiesactivity, amortization expense related to the acquisitions completed in 2006 and an increase in the number of sales employees in both emerging markets and higher growth product lines2007 and stock option expense. Amortization of intangible assets was $1.6 million and $0.6for the three months ended April 1, 2007 as compared to $0.2 million for the nine-month periodsthree months ended October 1, 2006April 2, 2006. Stock option expense was $1.8 million and October 2, 2005, respectively. Selling, general and administrative expenses$1.5 million for the nine-month periodthree months ended OctoberApril 1, 2007 and April 2, 2006, included $5.5 million of stock option expense.respectively.
Research and Development Expenses
Research and development expenses for the third quarter of 2006three months ended April 1, 2007 were $24.8$27.8 million versus $21.7$22.8 million for the third quarter of 2005,three months ended April 2, 2006, an increase of $3.1$5.0 million, or 14%22%. As a percentage of sales, research and development expenses increased 40 basis points from 6.0%to 6.9% in the third quarter of 2005 tothree months ended April 1, 2007, from 6.4% in the third quarter ofthree months ended April 2, 2006. We expect ourdirected research and development efforts to increaseduring 2007 and continue to emphasize the2006 primarily toward genetic screening, biopharmaceutical, and environmental and chemical end markets within our Life and Analytical Sciences segment and medical digital imaging within our Optoelectronics segment in order to help accelerate our growth initiative.initiatives. Amortization of intangible assets was $0.4 million for the three months ended April 1, 2007 as compared to $0.2 million for the three months ended April 2, 2006. Research and development expenses for the third quarter of 2006also included $0.2 million of stock option expense and $0.5of $0.2 million for each of the amortization of intangible assets.three months ended April 1, 2007 and April 2, 2006.
In-process Research and development expensesDevelopment Charges
IPR&D charges for the nine-month periodthree months ended OctoberApril 1, 20062007 were $72.6$1.5 million versus $66.3 million forrelated to the nine-month period ended October 2, 2005,acquisitions of Evotec and Euroscreen. In determining the value of the in-process projects, we considered, among other factors,
the in-process projects’ stage of completion, the complexity of the work completed as of the acquisition date, the costs already incurred, the projected costs to complete, the contribution of core technologies and other acquired assets, the expected introduction date and the estimated useful life of the technology. We utilized the discounted cash flow method to value the IPR&D, using a discount rate equivalent to the relative risk of the asset, including the uncertainty of technological feasibility and successful launch. This approach determines fair value by estimating the after-tax cash flows attributable to an increase of $6.3 million, or 9%. Asin-process project over its useful life and then discounting these after-tax cash flows back to a percentage of sales,present value. We do believe that the estimated purchased research and development expenses increased to 6.5% inamounts so determined represent the nine-month period ended October 1, 2006, from 6.1% infair value at the nine-month period ended October 2, 2005. Researchdate of acquisition and development expensesdo not exceed the amount a third party would pay for the nine-month period ended October 1, 2006 included $0.5 million of stock option expense and $1.0 million for the amortization of intangible assets.projects.
Restructuring (Reversals) and Integration Charges, Net
We have undertaken a series of restructuring actions related to the impact of acquisitions, divestitures and the integration of itsour business units. Restructuring actions taken since 2002 were recorded in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal ActivitiesActivities”.” In certain instances, specifically when governmental authorities are involved in setting severance levels, (“SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,”is applied. The principal actions associated with these plans related to workforce and overhead reductions resulting from reorganization activities, including the closure of certain manufacturing and selling facilities.146”). Details of these plans are discussed more fully in our 2005the 2006 Form 10-K.
The purpose of the 2006 through 2007 restructuring plans was principally to shift resources into geographic regions and product lines that are more consistent with our growth strategy. The pre-tax restructuring activity associated with these plans has been reported as restructuring expenses as a component of operating expenses from continuing operations. The impact of immediate and future cost savings from these restructuring activities on operating results and cash flows is expected to be negligible as we have incurred and will incur offsetting costs.
A description of each of the restructuring plans and the activity recorded for the nine month periodthree months ended OctoberApril 1, 20062007 is as follows:
Q1 2007 Plan
During the first quarter of 2007, we recognized a pre-tax restructuring charge of $4.4 million during the first quarter of 2007, which we refer to as the Q1 2007 Plan. The actions within the Q1 2007 Plan related to a workforce reduction resulting from reorganization activities within the Life and Analytical Sciences segment.
The following table summarizes the components of the Q1 2007 Plan activity for the three months ended April 1, 2007:
Headcount | Severance | ||||||
(Dollars in thousands) | |||||||
Balance at December 31, 2006 | — | $ | — | ||||
Provision | 60 | 4,438 | |||||
Amounts paid | (31 | ) | (1,174 | ) | |||
Balance at April 1, 2007 | 29 | $ | 3,264 | ||||
We anticipate that the remaining payments of $3.3 million will be completed by the end of the first quarter of 2008.
Q2 2006 Plan
During the second quarter of 2006, we recognized a pre-tax restructuring charge of $0.8 million restructuring charge in the Life and Analytical Sciences segment, which we refer to as the Q2 2006 Plan. The purpose of this restructuring action wasprincipal actions within the Q2 2006 Plan related to shifta workforce reduction in two locations in the United States as we shifted resources into product lines that wereare more consistent with our growth strategy. The actions in the Q2 2006 Plan were workforce reductions resulting from reorganization activities.
The following table summarizes the components of the Q2 2006 Plan activity for the ninethree months ended OctoberApril 1, 2006:2007:
Headcount | Severance | ||||||
(Dollars in thousands) | |||||||
Balance at January 1, 2006 | — | $ | — | ||||
Provision | 23 | 755 | |||||
Amounts paid | (23 | ) | (391 | ) | |||
Balance at October 1, 2006 | — | $ | 364 | ||||
Severance | ||||
(In thousands) | ||||
Balance at December 31, 2006 | $ | 106 | ||
Amounts paid | (79 | ) | ||
Balance at April 1, 2007 | $ | 27 | ||
All actions related to the Q2 2006 Plan werehave been completed and we anticipate that the remaining payments will be completed by the end of the second quarter of 2006, and we anticipate that all payments will be completed by the end of 2006.2007.
Q42001 to 2005 PlanRestructuring and Integration Plans
DuringThe principal actions of these restructuring plans were workforce reductions related to the fourth quarterintegration of 2005, we recognized a $2.2 million restructuring chargeour Life Sciences and Analytical Instruments businesses in order to reduce costs and achieve operational efficiencies as well as workforce reductions in both the Life and Analytical Sciences segment and a $6.0 million restructuring charge in the Optoelectronics segment, which we refer to as the Q4 2005 Plan. The purpose of these restructuring actions wassegments to shift resources into geographic regions and product lines that wereare more consistent with our growth strategy. The principal actions in the Q4As of April 1, 2007, we had approximately $2.5 million of remaining liabilities associated with 2001 to 2005 Plan wererestructuring and integration plans, primarily relating to workforce reductions andseverance benefits associated with the closure of several facilities resulting from reorganization activities.
In addition, during the second quarter of 2006, we recorded a pre-tax restructuring charge of $0.4 million relating to our Q4 2005 Plan due to higher than expected costs associated with the termination of employees in Europe within our Life and Analytical Sciences segment. We also recorded a pre-tax restructuring reversal of $1.4 million relating to our Q4 2005 Plan due to the completion in June 2006 of the sale of a building previously reserved for in the Q4 2005 Plan. The amount of the proceeds from this sale in excess of the current book value of the property was recorded as a restructuring reversal within our Optoelectronics segment.
The following table summarizes the components of the Q4 2005 Plan activity for the nine months ended October 1, 2006:
Headcount | Severance | Abandonment of Excess Facilities | Total | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Balance at January 1, 2006 | 24 | $ | 1,792 | $ | 354 | $ | 2,146 | ||||||||
Change in estimate | — | 354 | — | 354 | |||||||||||
Amounts paid | (16 | ) | (1,665 | ) | (221 | ) | (1,886 | ) | |||||||
Balance at October 1, 2006 | 8 | $ | 481 | $ | 133 | $ | 614 | ||||||||
All actions related to the Q4 2005 Plan have been completed and we anticipate that all payments will be completed by the end of 2006.
Q2 2005 Plan
During the second quarter of 2005, we recognized a $5.3 million restructuring chargeEuropean manufacturing facility in the Life and Analytical Sciences segment and a $2.9 million restructuring charge in the Optoelectronics segment, which we refer to as the Q2 2005 Plan. The purpose of these restructuring actions was to shift resources into geographic regions and product lines that were more consistent with our growth strategy. The principal actions in the Q2 2005 Plan were workforce reductions resulting from reorganization activities. All workforce reductions have been completed and the remaining payments relate to international severance contracts.
The following table summarizes the components of the Q2 2005 Plan activity for the nine months ended October 1, 2006:
Severance | ||||
(In thousands) | ||||
Balance at January 1, 2006 | $ | 2,338 | ||
Amounts paid | (1,299 | ) | ||
Balance at October 1, 2006 | $ | 1,039 | ||
All actions related to the Q2 2005 Plan have been completed and we anticipate that all payments will be completed by the end of 2006.
2001 to 2003 Restructuring and Integration Plans
We have approximately $6.6 million of remaining liabilities associated with 2001 to 2003 restructuring and integration plans, primarily relating to remaining lease obligations ofrelated to those closed facilities. The remaining terms of these leases vary in length but alland will be paid through 2014. The remaining severance payments will be completed by 2014.the end of 2008.
Interest and Other Expense (Income) Expense,, Net
Interest and other expense (income) expense,, net consisted of the following:
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | April 1, 2007 | April 2, 2006 | |||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||||||
Interest income | $ | (1,919 | ) | $ | (489 | ) | $ | (7,654 | ) | $ | (1,778 | ) | $ | (1,211 | ) | $ | (3,372 | ) | ||||||
Interest expense | 2,152 | 6,886 | 6,689 | 22,462 | 2,255 | 2,305 | ||||||||||||||||||
Extinguishment of debt | — | — | — | 6,210 | ||||||||||||||||||||
Gains on dispositions of investments, net | (980 | ) | (400 | ) | (1,913 | ) | (5,844 | ) | (401 | ) | (266 | ) | ||||||||||||
Other | 524 | 51 | 4,296 | 502 | 2,123 | 1,160 | ||||||||||||||||||
$ | (223 | ) | $ | 6,048 | $ | 1,418 | $ | 21,552 | $ | 2,766 | $ | (173 | ) | |||||||||||
InterestFor the three months ended April 1, 2007, interest and other expense (income), net was $2.8 million of expense versus $0.2 million of income for the comparable period in 2006, an increase of approximately $2.9 million. The increase in interest and other (income) expense, net, for the three months ended OctoberApril 1, 2006 was $0.2 million of income, versus $6.0 million of expense for2007 as compared to the three months ended OctoberApril 2, 2005, a decrease of $6.2 million or 103%. The decrease in interest and other expense, net in the third quarter of 2006 as compared to the third quarter of 2005 was primarily due to the overall reduction inlower outstanding debt, lowercash balances and higher borrowing costs and an increase inon the outstanding cash balances.debt. Interest expenseincome decreased $4.7 million primarily due to the $300.0 million of principal payments made on our senior subordinated 8 7/8% notes which we repurchased through a tender offer in the fourth quarter of 2005. These debt reductions in 2005 were partially offset by $200.9 million in debt outstanding as of October 1, 2006 under our new senior unsecured revolving credit facility, which we entered into on October 31, 2005. In addition, interest income increased $1.4$2.2 million due to higherlower overall cash balances, and also higher investment rates.balances. We also recognized a net gain on dispositions of investments of $1.0$0.4 million associated with the dissolution of certain investments. Other expenses for the three months ended April 1, 2007 and April 2, 2006 consisted primarily of expense related to foreign currency translation.
For the nine months ended October 1, 2006, interesttranslation and other expense, net was $1.4 million versus $21.6 million for the comparable period in 2005, a decrease of approximately $20.1 million, or 93%. The decrease primarily relates to the lower average outstanding balances on the senior subordinated 8 7/8% Notes which we repurchased through a tender offer in the fourth quarter of 2005, and replaced with lower cost debt through our senior unsecured revolving credit facility that we entered into on October 31, 2005.business development related costs. A more complete discussion of our liquidity and our prospective borrowing costs is set forth below under the heading, “Liquidity and Capital Resources.”
Provision/Benefit for Income Taxes
The third quarter 2006 provision for income taxes from continuing operations was $7.8$5.6 million versusfor the three months end April 1, 2007, as compared to a provision of $8.7$7.1 million for the third quarter of 2005.three months ended April 2, 2006. The provision for income taxeseffective
tax rate from continuing operations was $22.5 million27.3% for the nine-month periodthree months ended OctoberApril 1, 2006,2007 as compared to a benefit from income taxes of $2.7 million24.5% for the nine-month period ended October 2, 2005.
During the third quarter of 2006 our continuing operations tax provision was reduced, in the aggregate, by discrete items totaling approximately $1.2 million, resulting in a provision before the effect of discrete items of $9.0 million. The reported provision for income taxes for the third quarter of 2005 was $8.7 million. The net benefits of $1.2 million for the third quarter of 2006 consist of tax benefits from provision to return and amended return adjustments of $5.7 million partially offset by $4.5 million of audit settlements and accruals, and tax rate changes.
The reported provision for income taxes of $22.5 million for the ninethree months ended October 1, 2006 was reduced by a net benefit of $1.9 million, resulting in a provision before the effect of discrete items of $24.4 million.April 2, 2006. The reported benefit of $2.7 million from income taxes for the nine months ended October 2, 2005 reflects a benefit from the settlement of income tax audits of $26.5 million partially offset by a provision of $6.6
million, resulting in a provision before the effect of discrete items of $17.2 million. The provision of $6.6 million represents the U.S. tax cost on $225.0 million of earnings which were subsequently repatriated in accordance with the Homeland Investment provisions of the American Jobs Creation Act of 2004.
Without the impact of discrete items, our continuing operationshigher effective tax rate forin 2007 was primarily due to (i) the third quarternon-deductible IPR&D charges of 2006 and nine$1.5 million recorded in the three months ended OctoberApril 1, 2006 was 24.5%. The comparable effective tax rates for2007; and (ii) the third quarterdiscrete accrual of 2005 and nineinterest expense as a result of the adoption of FASB Interpretation (“FIN”) No. 48 in the three months ended October 2, 2005 were 24.6% and 24.5%, respectively.
We believe that the inclusion of these non-GAAP financial measures helps investors to gain a meaningful understanding of our tax provision and effective tax rate and their effect on our core operating results and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. We use these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring our tax provision and effective tax rate and their effect on our core operating results and future prospects and comparing such performance to that of prior periods and to the performance of our competitors. These measures are also used by us in our financial and operating decision making.April 1, 2007.
Discontinued Operations
As part of our continued efforts to focus on higher growth opportunities, we have discontinued certain businesses andbusinesses. We have accounted for themthese businesses as discontinued operations in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,.” Accordingly,and, accordingly, have presented the results of operations and related cash flows have been presented as discontinued operations for all periods presented. The assets and liabilities of these businesses have been presented separately and are reflected within the assets and liabilities from discontinued operations in the accompanying consolidated balance sheets as of OctoberApril 1, 20062007 and January 1,December 31, 2006.
We recorded the following gains and losses, which have been reported as the gain (loss) on dispositions of discontinued operations:
Three Months Ended | ||||||||
April 1, 2007 | April 2, 2006 | |||||||
(In thousands) | ||||||||
Gain on the sale of Semiconductor business | $ | — | $ | 3,473 | ||||
Loss on the sale of Aerospace business | — | (659 | ) | |||||
Loss on the sale of Fluid Testing business | — | (234 | ) | |||||
Gain on contract settlements associated with the Technical Services business | 50 | 386 | ||||||
Net loss on dispositions of other discontinued operations | (78 | ) | (174 | ) | ||||
Net (loss) gain on dispositions of discontinued operations before income taxes | (28 | ) | 2,792 | |||||
Provision for income taxes | 99 | 752 | ||||||
(Loss) gain on dispositions of discontinued operations, net of income taxes | $ | (127 | ) | $ | 2,040 | |||
In September 2005, our Board of Directors approved a plan to divest our Fluid Sciences segment. The Fluid Sciences segment consisted of three businesses—Aerospace, Fluid Testing and Semiconductor. In November 2005,February 2006, we sold substantially all of the Fluid Testing division to Caleb Brett USA Inc.assets of our Semiconductor business for approximately $34.5$26.5 million, resulting insubject to a net working capital adjustment, plus potential additional contingent consideration. We recognized a pre-tax gain of $30.3 million. In December 2005, we sold$3.5 million, exclusive of additional contingent consideration, in the Aerospace division to Eaton Corporation for approximately $333.0 million, resulting in a net pre-tax gainfirst quarter of $250.6 million. These gains were recognized during fiscal 2005 as gains on the dispositions of discontinued operations. We received total cash proceeds in these transactions of approximately $361.1 million.2006. During the first nine monthsquarter of 2006, we finalized the net working capital adjustments associated with the sales of these businesses and settled a claim related to an employee benefit program, resulting in the recognition of losses in 2006 of $1.3$0.7 million and $0.2 million relative to the Aerospace business and the Fluid Testing business, respectively. In February 2006, we sold substantially all of the assets of our Semiconductor business to an entity affiliated with Tara Capital, Inc. for approximately $26.5 million, subject to a net working capital adjustment, plus potential additional contingent consideration. The pre-tax gain of $3.8 million, exclusive of additional contingent consideration, was recognized through the first nine months of 2006.
In December 2005, our Board of Directors approved a plan to sell our Lithography business. In June 2005, our Board of Directors approved a plan to shut down our Fiber Optics Test Equipment business. The results of these businesses were previously reported as part of the Optoelectronics segment. During the quarter ended October 1, 2006, we substantially completed the remediation of an environmental matter within the Lithography business, resulting in recognition of a pre-tax loss of $1.1 million. The completion of the shut-down of the Fiber Optics Test Equipment business resulted in a pre-tax loss of $5.2 million related to lease and severance costs and the reduction of fixed assets and inventory to net realizable value. We recognized the net loss during fiscal 2005.
During 2006 and 2005, we settled various claims under certain long-term contracts and transition services with our Technical Services business, which was sold in August 1999.
During the third quarter of 2006 there was a $1.4 million tax benefit resulting from the inter-period allocation of income tax to the losses from the dispositions of discontinued operations.
The table below summarizes the gains and losses on dispositions of discontinued operations, as discussed above:
Three Months Ended | Nine Months Ended | ||||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | ||||||||||||
(In thousands) | (In thousands) | ||||||||||||||
Gain on Semiconductor business | $ | — | $ | — | $ | 3,750 | $ | — | |||||||
Loss on Aerospace business | (11 | ) | — | (1,288 | ) | — | |||||||||
Loss on Fluid Testing business | — | — | (234 | ) | — | ||||||||||
Loss on Lithography business | (1,079 | ) | — | (1,481 | ) | — | |||||||||
Gain on contract settlements associated with the Technical Services business | 467 | 24 | 853 | 424 | |||||||||||
Gain (loss) on Fiber Optics Test Equipment business | 30 | 126 | 28 | (5,025 | ) | ||||||||||
Net gain (loss) on dispositions of other discontinued operations | 70 | 64 | (208 | ) | 356 | ||||||||||
Net (loss) gain on dispositions of discontinued operations before income taxes | (523 | ) | 214 | 1,420 | (4,245 | ) | |||||||||
(Benefit from) provision for income taxes | (1,361 | ) | 26 | (205 | ) | 292 | |||||||||
Gain (loss) on dispositions of discontinued operations, net of income taxes | $ | 838 | $ | 188 | $ | 1,625 | $ | (4,537 | ) | ||||||
Summary operating results of the discontinued operations of the Fluid Sciences segment and the Fiber Optics Test Equipment and Lithography businesses for the periods prior to disposition were as follows:
Three Months Ended | Nine Months Ended | ||||||||||||
October 1, 2006 | October 2, 2005 | October 1, 2006 | October 2, 2005 | ||||||||||
(In thousands) | (In thousands) | ||||||||||||
Sales | $ | — | $ | 60,190 | $ | 8,705 | $ | 176,096 | |||||
Costs and expenses | — | 51,523 | 9,707 | 154,948 | |||||||||
Operating income (loss) from discontinued operations | — | 8,667 | (1,002 | ) | 21,148 | ||||||||
Other expenses, net | — | 574 | 396 | 1,228 | |||||||||
Operating income (loss) from discontinued operations before income taxes | — | 8,093 | (1,398 | ) | 19,920 | ||||||||
Provision for (benefit from) income taxes | — | 2,917 | (373 | ) | 7,456 | ||||||||
Income (loss) from discontinued operations, net of taxes | $ | — | $ | 5,176 | $ | (1,025 | ) | $ | 12,464 | ||||
Three Months Ended | |||||||
April 1, 2007 | April 2, 2006 | ||||||
(In thousands) | |||||||
Sales | $ | — | $ | 8,705 | |||
Costs and expenses | — | 8,762 | |||||
Operating loss from discontinued operations | — | (57 | ) | ||||
Other expenses, net | — | 559 | |||||
Loss from discontinued operations before income taxes | — | (616 | ) | ||||
Benefit from income taxes | — | (173 | ) | ||||
Loss from discontinued operations, net of income taxes | $ | — | $ | (443 | ) | ||
Contingencies
We are conducting a number of environmental investigations and remedial actions at our current and former locations and, along with other companies, have been named a potentially responsible party, (“PRP”)or PRP, for certain waste disposal sites. We accrue for environmental issues in the accounting period that our responsibility is established and when the cost can be reasonably estimated. We have accrued $3.7$3.8 million as of OctoberApril 1, 2006,2007, representing our management’s estimate of the total cost of ultimate disposition of known environmental matters. This amount is not discounted and does not reflect any recovery of any amounts through insurance or indemnification arrangements. These cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the time period over which remediation may occur, and the possible effects of changing laws and regulations. For sites where we have been named a PRP, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect that the majority of such accrued amounts could be paid out over a period of up to ten
years. As assessment and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had or are expected to have a material adverse effect on our financial position, results of operations or cash flows. While it is possible that a loss exceeding the amounts recorded in the consolidated financial statements may be incurred, the potential exposure is not expected to be materially different from those amounts recorded.
In papers dated October 23, 2002, Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (collectively, “Enzo”) filed a complaint in the United States District Court for the Southern District of New York, Civil Action No. 02-8448, against Amersham plc, Amersham BioSciences, PerkinElmer, Inc., PerkinElmer Life Sciences, Inc., Sigma-Aldrich Corporation, Sigma Chemical Company, Inc., Molecular Probes, Inc., and Orchid BioSciences, Inc. The complaint alleges that we have breached our distributorship and settlement agreements with Enzo, infringed Enzo’s patents, engaged in unfair competition and fraud, and committed torts against Enzo by, among other things, engaging in commercial development and exploitation of Enzo’s patented products and technology, separately and together with the other defendants. Enzo seeks injunctive and monetary relief. In 2003, the court severed the lawsuit and ordered Enzo to serve individual complaints against the five defendants. We subsequently filed an answer and a counterclaim alleging that Enzo’s patents are invalid. In July 2006, the court issued a decision regarding the construction of the claims in Enzo’s patents that effectively limited the coverage of certain of those claims and, we believe, excludes certain of our products from the coverage of Enzo’s patents. Discovery is ongoing. The courtNo trial date has been set, a schedule for filing ofbut summary judgment motions commencing onwere filed by the defendants in January 3, 2007, but has not set a date for trial.2007.
On October 17, 2003, Amersham Biosciences Corp. filed a complaint, which was subsequently amended, in the United States District Court for New Jersey, Civil Action No. 03-4901, against one of our subsidiary,subsidiaries, alleging that our ViewLux™ and certain of itsour Image FlashPlate™ products infringe three of Amersham’s patents related to high-throughput screening (the “NJ case”). On August 18, 2004, Amersham plc filed a complaint against two of our United Kingdom-based subsidiaries in the Patent Court of the English High Court of Justice, Case No. 04C02688, alleging that our same products infringe one corresponding Amersham patent in the United Kingdom, which was granted in August 2004 (the “UK case”). Amersham seeks injunctive and monetary relief in both cases. We filed answers and counterclaims in both cases. On October 29, 2003, we filed a complaint, which was subsequently amended, against Amersham in the United States District Court for Massachusetts, Civil Action No. 03-12098, alleging that Amersham’s IN Cell Analyzer, and LEADseeker™ Multimodality Imaging system and certain Cyclic AMP and IP3 assays infringe two of our patents related to high-throughput screening (the “MA case”). We seek injunctive and monetary relief. Amersham subsequently filed an answer and counterclaims. After a trial in the UK case in December 2005, the court ruled in February 2006 that Amersham’s patent in question was invalid in the United Kingdom and awarded costs to us. Amersham’sAmersham initiated an appeal of the ruling in the UK case is scheduled to be heardbut withdrew that appeal in earlyJanuary 2007. In May 2006, the court in the NJ case issued a decision regarding the construction of the claims in Amersham’s patents that adopted many of Amersham’s claim construction positions. We have filed aOur motion asking the court to reconsider that decision.decision was denied. Discovery has not yet been completed in either the NJ or MA case, nor has a trial date been set in either case. A voluntary mediationMediations occurred in September 2006 and April 2007, but did not result in a resolution of these matters. Fact discovery, which was stayed pending the mediation, has now resumed.
We believe we have meritorious defenses to these lawsuits and other proceedings, and we are contesting the actions vigorously in all of the above matters. We are currently unable, however, to reasonably estimate the amount of loss, if any, that may result from the resolution of these matters or to determine whether resolution of any of these matters will have a material adverse impact on our consolidated financial statements.
During 2005, the Internal Revenue Service concluded its audit of federal income taxes for the years 1999 through 2002. We have agreed to the conclusions of the Internal Revenue Service in all matters with the exception of one, and have filed a single issue protest with the Appeals Division of the Internal Revenue Service. We expect to resolve the matter in the first half of 2007. Regardless of the outcome of the protest, we do not expect the final resolution to significantly impact our financial position, results of operations or cash flows in 2007.flows.
We are under regular examination by tax authorities in the United States and other countries (such as Germany and the United Kingdom) in which we have significant business operations. The tax years under examination vary by jurisdiction. We regularly assess the likelihood of additional assessmentsreview our tax positions in each significant taxing jurisdiction in the process of the taxing jurisdictions resulting from theseevaluating our unrecognized tax benefits as required by FIN No. 48. Adjustments are made to our unrecognized tax benefits when: (i) facts and subsequent years’ examinations. We have established incomecircumstances regarding a tax reserves which we believe to be adequate in relation to the potential for additional assessments. Once established, reserves are adjusted as additional information becomes available and when an event occurs requiringposition change, causing a change toin our judgment regarding that tax position; (ii) a tax position is ultimately settled with a tax authority; and/or (iii) the reserves.statute of limitations expires regarding a tax position. The resolution of tax matterspositions is not expected to have a material adverse effect on our consolidated financial condition.
We are also subject to various other claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us. We have established accruals for potential losses that we believe are probable and reasonably estimable. In the opinion of our management, based on our review of the information available at this time, the total cost of resolving these other contingencies at OctoberApril 1, 2006,2007, should not have a material adverse effect on our consolidated financial statements.
Reporting Segment Results of Continuing Operations
Life and Analytical Sciences
Sales for the third quarter of 2006three months ended April 1, 2007 were $283.5$299.5 million, versus $259.1$261.9 million for the third quarter of 2005,three months ended April 2, 2006, an increase of $24.4$37.6 million, or 9%. Acquisitions increased sales in the third quarter of 2006 by $7.1 million, as compared to the third quarter of 2005. Changes in foreign exchange rates accounted for an increase in sales of $5.2 million in the third quarter of 2006 as compared to the third quarter of 2005. The analysis in the remainder of this paragraph compares selected sales by market and product type for the third quarter of 2006, as compared to the third quarter of 2005, and includes the effect of foreign exchange rate fluctuations and acquisitions. Sales to genetic screening customers increased $10.5 million, our OneSource™ laboratory service sales increased by $9.3 million, and sales to environmental and chemical analysis customers increased $4.7 million. Biopharma sales were unchanged from the comparable period from the prior year. Sales by type of product included increases in instruments of $14.4 million, service of $9.3 million and consumables of $0.7 million.
Sales for the nine-month period ended October 1, 2006 were $823.9 million, versus $794.6 million for the nine-month period ended October 2, 2005, an increase of $29.3 million, or 4%14%. The effect of acquisitions increased our sales for the nine-month periodthree months ended OctoberApril 1, 20062007 by $9.5$15.9 million, as compared to the nine-month periodthree months ended OctoberApril 2, 2005.2006. Changes in foreign exchange rates decreasedincreased sales by approximately $1.7$9.3 million in the nine-month periodthree months ended OctoberApril 1, 2006,2007, as compared to the nine-month periodthree months ended OctoberApril 2, 2005.2006. The following analysis in the remainder of this paragraph compares selected sales by market and product type for the nine-month periodthree months ended OctoberApril 1, 2006,2007, as compared to the nine-month periodthree months ended OctoberApril 2, 2005,2006, and includes the effect of foreign exchange rate fluctuations and acquisitions. Our OneSource™laboratory service sales increased by $17.4$15.0 million, sales to genetic screening customers increased by $16.9$10.4 million, and sales to environmental and chemical analysis customers increased by $8.6 million, while sales to biopharmaceutical customers decreased by $13.6$6.7 million. Sales by type of product included increases in sales of service of $17.4$15.0 million, and instruments of $16.8$13.3 million offset by decreases inand consumables and reagents of $5.0$9.3 million.
Operating profit for the third quarter of 2006three months ended April 1, 2007 was $25.3$14.9 million, versus $26.7as compared to $23.8 million for the third quarter of 2005,three months ended April 2, 2006, a decrease of $1.4$8.9 million, or 5%38%. The decrease in operatingOperating profit in the third quarter of 2006three months ended April 1, 2007 as compared to the third quarter of 2005 wasthree months ended April 2, 2006 primarily the result ofdeclined due to an increase in amortization expense and the inclusion of stock option expense, as well as a decrease in gross margin percentage. The decrease in gross margin percentage is due to unusually high gross margins in the prior year resulting from favorable product mix in the third quarter of 2005 in addition to unfavorable commodity costs in the third quarter of 2006, partially offset by efficiencies gained through increased production volume and successful execution of productivity initiatives. The third
quarter of 2006 includes stock option expense of $1.0 million.purchase accounting adjustments. Amortization of intangible assets increased due to the acquisitions completed in 2006 and 2007 and was $8.4$9.8 million for the third quarter of 2006 and $6.5three months ended April 1, 2007 as compared to $6.8 million for the third quarterthree months ended April 2, 2006. Amortization of 2005.
Operating profit forpurchase accounting adjustments to record the nine-month period ended October 1, 2006inventory and IPR&D from the Evotec and Euroscreen acquisitions was $74.4$1.4 million versus $64.3and $1.5 million for the nine-month periodthree months ended October 2, 2005, anApril 1, 2007, respectively. Apart from the increase of $10.1 million, or 16%. The increasein amortization expense and the purchase accounting adjustments, the decrease in operating profit in the nine-month period ended October 1, 2006 as comparedwas also attributable to the nine-month period ended October 2, 2005 was primarily the result of a decrease in restructuring charges from $11.0 million in 2005 to $1.1 million in 2006, offset by a decreasedecline in gross margin percentage. The decrease in gross margin percentage is due to unusually high gross margins in the prior year resulting from favorable product mix, investment costs associated with several large service programs and an increase in the third quarter of 2005 in addition to unfavorable commodity costs in the third quarter of 2006, partially offset by efficiencies gained through increased production volume and successful execution of productivity initiatives. The nine-month period ended October 1, 2006 includes stocktransportation costs. Stock option expense of $2.3 million. Amortization of intangible assets was $22.3$0.7 million and $0.6 million for the nine-month periodthree months ended OctoberApril 1, 2007 and April 2, 2006, and $19.6 million for the nine-month period ended October 2, 2005.respectively.
Optoelectronics
Sales for the third quarter of 2006three months ended April 1, 2007 were $103.4 million, versus $100.9$93.5 million for the third quarter of 2005,three months ended April 2, 2006, an increase of $2.5$9.8 million, or 2%11%. Changes in foreign exchange rates accounted for an increase inincreased sales of $1.1by approximately $2.7 million in the third quarter of 2006,three months ended April 1, 2007, as compared to sales in the third quarter of 2005.three months ended April 2, 2006. The analysis in the remainder of this paragraph compares selected sales by product type for the third quarter of 2006,three months ended April 1, 2007, as compared to the third quarter of 2005,three months ended April 2, 2006, and includes the effect of foreign exchange fluctuations and acquisitions. Sales of ourfluctuations. The increase in sales was primarily due to a $7.0 million increase in digital imaging products increased by $4.0 million, while sales withindue to the performance of our sensorsAmorphous Silicon business and an increase in specialty lighting product lines decreased $1.5products of $2.0 million as compareddue to the prior year.
Sales for the nine-month period ended October 1, 2006 were $295.5 million, versus $291.5 million for the nine-month period ended October 2, 2005, an increase of $3.9 million, or 1%. The effect of acquisitions increased our sales for the nine-month period ended October 1, 2006 by $0.6 million, as compared to the nine-month period ended October 2, 2005. Changes in foreign exchange rates decreased sales by approximately $0.5 million in the nine-month period ended October 1, 2006, as compared to sales in the nine-month period ended October 2, 2005. The analysis in the remainder of this paragraph compares selected sales by product type for the nine-month period ended October 1, 2006, as compared to the nine-month period ended October 2, 2005, and includes the effect of foreign exchange fluctuations and acquisitions. Sales of our digital imaging products increased by $9.2 million, while sales within our sensors and specialty lighting product lines decreased $5.3 million.
Operating profit for the third quarter of 2006 was $20.1 million, versus $20.8 million for the third quarter of 2005, a decrease of $0.7 million, or 3%. This decrease in operating profit was primarily the result of a decrease in gross margin percentage. The decrease in gross margin percentage is due to unusually high gross margins in the prior year resulting from favorable customer mix in the third quarter of 2005, unfavorable commodity costs in the third quarter of 2006 and capacity issues within the amorphous silicon business, offset by successful execution of productivity initiatives. The operating profit for the third quarter of 2006 includes stock option expense of $0.4 million. Amortization of intangible assets was $0.6 million for the third quarter of 2006, which was unchanged from the third quarter of 2005.
Operating profit for the nine-month period ended October 1, 2006 was $50.2 million, versus $47.2 million for the nine-month period ended October 2, 2005, an increase of $3.1 million, or 6%. The increase in operating profit in the nine-month period ended October 1, 2006, as compared to the nine-month period ended October 2, 2005, was primarily the result of a $1.4 million restructuring credit in 2006 as compared to the $3.2 million restructuring charge in 2005, offset by a decrease in gross margin percentage. The decrease in gross margin percentage is due to unusually high gross margins in the prior year resulting from favorable customer mix in the third quarter of 2005, unfavorable commodity costs in the third quarter of 2006 and capacity issues within the
amorphous silicon business, offset by successful execution of productivity initiatives. The nine-month period ended October 1, 2006 includes stock option expense of $1.1 million. Amortization of intangible assets was $1.9 million and $2.0 million for the nine-month periods ended October 1, 2006 and October 2, 2005, respectively. The nine-month period ended October 2, 2005 also included a $0.2 million charge for in-process research and development related to the acquisition of the capital stockperformance of Elcos AG, or Elcos, a leading European designer and manufacturer of custom light emitting diode, or LED, solutions for biomedical and industrial applications.applications that we acquired in 2005.
Operating profit for the three months ended April 1, 2007 was $16.3 million, versus $12.7 million for the three months ended April 2, 2006, an increase of $3.5 million, or 28%. The increase in operating profit in the three months ended April 1, 2007, as compared to the three months ended April 2, 2006, was primarily the result of a higher sales volume and higher gross margin. The increase in gross margin was driven by capacity and productivity improvements that were made within the amorphous silicon business. Amortization of intangible assets was $0.7 million for the three months ended April 1, 2007 as compared to $0.6 million for the three months ended April 2, 2006. Stock option expense was $0.4 million and $0.3 million for the three months ended April 1, 2007 and April 2, 2006, respectively.
Liquidity and Capital Resources
We require cash to pay our operating expenses, make capital expenditures, service our debt and other long-term liabilities and pay dividends on our common stock. Our principal sources of funds are from our operations and the capital markets, particularly the debt markets. In the near term, we anticipate that our operations will generate sufficient cash to fund our operating expenses, capital expenditures, interest payments on our debt and dividends on our common stock. In the long-term, we expect to use internally generated funds and external sources to satisfy our debt and other long-term liabilities.
Principal factors that could affect the availability of our internally generated funds include:
deterioration of sales due to weakness in markets in which we sell our products and services, and
changes in our working capital requirements.
Principal factors that could affect our ability to obtain cash from external sources include:
financial covenants contained in the financial instruments controlling our borrowings that limit our total borrowing capacity,
increases in interest rates applicable to our outstanding variable rate debt,
a ratings downgrade that would limit our ability to borrow under our accounts receivable facility and our overall access to the corporate debt market,
volatility in the markets for corporate debt,
a decrease in the market price for our common stock, and
volatility in the public equity markets.
In October 2005 our Board of Directors reaffirmed our authority to repurchase up to 10.0 million shares of our common stock from time to time on the open market or in privately negotiated transactions. During the third quarter of 2006 we completed our repurchase of 10.0 million shares in the aggregate under the Program. On November 6, 2006, we announced that our Board of Directors authorized us to repurchase up to 10.0 million additional shares of our common stock under a new stock repurchase program (the “New Program”). The New Program will expire on October 25, 2010 unless this authorization is terminated earlier by our Board. The timingBoard and amount of any shares repurchased will be determined based on our evaluation of market conditions and other factors. The New Program may also be suspended or discontinued at any time. During the first quarter of 2007, we repurchased in the open market 2.5 million shares of our common stock at an aggregate cost of $60.0 million, including commissions, under the New Program. From April 2, 2007 through May 10, 2007, we repurchased approximately 2.1 million shares of our common stock in the open market under the New Program at an aggregate cost of $52.6 million, including commissions. The repurchased shares have been reflected as additional authorized but unissued shares, with the payments reflected in common stock and capital in excess of par value. Any repurchased shares will be available for use in connection with our stock plans and for other corporate programs. If we continue to repurchase shares, the repurchase program will be funded using our existing financial resources, including cash and cash equivalents and our existing senior unsecured revolving credit facility. At OctoberApril 1, 2006,2007, we had cash and cash equivalents of approximately $207.1 million.$119.6 million and a credit facility with $172.1 million available for additional borrowing.
Cash Flows
Operating Activities. Net cash generated by continuing operations operating activities was $43.2$17.4 million for the ninethree months ended OctoberApril 1, 2006,2007, compared to net cash generated byused in continuing operations operating
activities of $109.9$34.2 million for the ninethree months ended OctoberApril 2, 2005.2006, a difference of $51.6 million. Principal contributors to the generation of cash from operating activities duringfor the ninethree months ended OctoberApril 1, 20062007 were net income from continuing operations of $77.3$14.8 million and depreciation and amortization of $50.9$19.1 million. These amounts were offset in part by taxes paid on divestitures of $60.0 million and ana net increase in net working capital of $10.3$6.6 million. Contributing to the net increase in working capital infor the ninethree months ended OctoberApril 1, 20062007, excluding the effect of foreign exchange rate fluctuations, was an increase in inventory of $13.3 million and a decrease in accounts payable of $10.0$10.2 million and an increase in inventory of $8.9 million, offset in part by a decrease in accounts receivable of $13.0$12.5 million. Strong performance in accounts receivable collections in the
Life and Analytical Sciences segment was partially offset by increased accounts payable disbursements in both the Life and Analytical Sciences and Optoelectronics segments. The increase in inventory iswas primarily the result of expanding the amount of inventory held at service locations to improve customer satisfaction within the Life and Analytical Sciences segment. There was no incremental use of our accounts receivable securitization facility duringfor the first ninethree months of 2006,ended April 1, 2007, which totaled $45.0 million at both OctoberApril 1, 20062007 and January 1,December 31, 2006. Net cash used for changesChanges in accrued expenses, other assets and liabilities and other items totaled $14.7$9.9 million duringfor the first ninethree months of 2006,ended April 1, 2007, and primarily relatesrelated to timing of payments for tax, restructuring and salary and benefit related payments.benefits. Included in the $9.9 million above are the in-process research and development costs of $1.5 million, revaluation of acquired inventory of $1.4 million and the net gain from settlement of investments of $0.4 million.
Investing Activities. Net cash used in continuing operations investing activities was $94.5$51.9 million infor the ninethree months ended OctoberApril 1, 2006,2007, compared to $14.7$3.3 million of cash used ingenerated by continuing operations investing activities for the ninethree months ended OctoberApril 2, 2005.2006. Included infor the first ninethree months ended April 1, 2007 was net payments of 2006 was $25.0$0.5 million of net proceeds received fromfor the sale of our semiconductorinvestments and business and $6.3 million of net proceeds from the dispositions of certain investments. This was offset by approximately $93.5development related costs. In addition, we used $36.7 million of net cash for acquisitions and used for acquisitions. In addition, we incurred $12.1$3.3 million of business developmentin related transaction costs, earn-out payments and other costs in connection with these and previous transactions. Capital expenditures infor the ninethree months ended OctoberApril 1, 20062007 were $31.0$11.4 million, mainly in the areas of tooling and other capital equipment purchases, in addition to facility improvements. These cash outflows were partially offset by $7.1 million received from the sale of property, plant and equipment and $3.8 million from the settlement of life insurance policies.improvements within our Optoelectronics segment.
Financing Activities. Net cash used in continuing operations financing activities was $253.7$36.3 million infor the ninethree months ended OctoberApril 1, 2006,2007, compared to $122.9$147.5 million infor the ninethree months ended OctoberApril 2, 2005, an increase2006, a decrease of $130.8$111.2 million, or 106%75%. InFor the ninethree months ended OctoberApril 1, 2006,2007, we repurchased in the open market 8.92.5 million shares of our common stock at a total cost of $190.1 million. Debt reductions during the first nine months of 2006 totaled $56.6$60.0 million, compared to reductions in the first nine months of 2005 of $104.1 million.including commissions. These uses of cash were offset in part by proceeds from common stock option exercises of $17.4$6.2 million and the related tax benefit of $4.0$0.7 million. Debt borrowings from our senior unsecured revolving credit facility for the three months ended April 1, 2007 totaled $25.4 million, compared to reductions for the three months ended April 2, 2006 of $39.7 million. In addition, we paid $26.9$8.6 million in dividends infor the first ninethree months of 2006.ended April 1, 2007.
Borrowing Arrangements
Senior Unsecured Credit Facility.On October 31, 2005, we entered into a $350.0 million five-year senior unsecured revolving credit facility. Letters of credit in the aggregate amount of approximately $15.0 million, originally issued under our previous credit agreement, are treated as issued under this agreement.facility. We use the senior unsecured revolving credit facility for general corporate purposes which may include working capital, refinancing existing indebtedness, capital expenditures, share repurchases, acquisitions and strategic alliances. The interest rates under the senior unsecured revolving credit facility are based on the Eurocurrency rate at the time of borrowing plus a margin or the base rate from time to time. The Eurocurrency margin as of October 1, 2006 was 60 basis points. The base rate is the higher of (1) the corporate base rate announced from time to time by Bank of America, N.A. and (2) the Federal Funds rate plus 50 basis points. We may allocate all or a portion of our indebtedness under the senior unsecured revolving credit facility to interest based upon the Eurocurrency rate plus a margin or the base rate. AsThe Eurocurrency margin as of OctoberApril 1, 2006, there2007 was 60 basis points; the weighted average Eurocurrency rate was 4.01%. There were approximately $200.9$177.9 million of borrowings under the facility.facility as of April 1, 2007 with interest based on the above described Eurocurrency rate. These borrowings were undertaken by us and certain of our foreign subsidiaries and the funds were borrowed in US Dollars (USD) and the subsidiaries’ functional currencies of Euro (EUR), Canadian Dollars (CAD) and Japanese Yen (JPY). The effective rates of the borrowings as of April 1, 2007 were as follows: USD: 5.92%; EUR: 4.47%; CAD: 4.86% and JPY: 1.26%.
Our senior unsecured revolving credit facility contains covenants that require us to maintain specific financial ratios, including:
A minimum interest coverage ratio, and
A maximum total leverage ratio.
We were in compliance with all applicable covenants as of OctoberApril 1, 2006.2007.
Off-Balance Sheet Arrangements
Receivables Securitization FacilityFacility.
We haveDuring 2001, we established a wholly-ownedwholly owned consolidated subsidiary to maintain a receivables purchase agreement with a third party financial institution. Under this arrangement, we sold, on a revolving basis, certain of our accounts receivable balances andto the consolidated subsidiary which simultaneously sellsold an undivided percentage ownership interest in this pooldesignated pools of receivables to a third party financial institution. This facility, which is currently scheduled to expire in January 2007, providesAs collections reduce the balance of sold accounts receivable, new receivables are sold. Our consolidated subsidiary retains the risk of credit loss on the receivables. Accordingly, the full amount of the allowance for total funding capacity of $65.0 million to expanddoubtful accounts has been provided for on our sources of liquidity.balance sheet. The amount available for funding is based on the amount of receivables purchasedsold and outstanding with the third party financial institution may not exceed $65.0 million. Under the terms of this arrangement, our consolidated subsidiary retains collection and administrative responsibilities for the balances. The amount of receivables sold to the consolidated subsidiary was $66.7 million as of April 1, 2007 and $67.8 million as of December 31, 2006. At each of April 1, 2007 and December 31, 2006, an undivided interest of $45.0 million in the receivables had been sold to the third party financial institution under this arrangement. The remaining interest in receivables of $21.7 million and $22.8 million that were sold to and held by the consolidated subsidiary were included in any given month. Amounts funded under this facility were $45.0 millionaccounts receivable in the consolidated financial statements at both OctoberApril 1, 2007 and December 31, 2006, and Januaryrespectively.
The agreement requires the third party financial institution to be paid interest during the period from the date the receivable is sold to its maturity date. At April 1, 2006. As of October 1, 2006, we had approximately $20.0 million of capacity available under2007, the facility. The facility had an effective interest rate ofwas LIBOR plus approximately 50 basis points as of October 1, 2006.points. The facilityservicing fees received constitute adequate compensation for services performed. No servicing asset or liability is therefore recorded. The agreement also includes conditions that require us to maintain a senior unsecured credit rating of BB or above, as defined by Standard & Poor’s Rating Services, and Ba2 or above, as defined by Moody’s Investors Service. At April 1, 2007, we had a senior unsecured credit rating of BBB- with a stable outlook from Standard & Poor’s Rating Services, and of Baa3 with a stable outlook from Moody’s Investors Service. In January 2006, we2007, our consolidated subsidiary entered into an agreement to extend the term of ourthe accounts receivable securitization facility to January 26, 2007.25, 2008.
Our Board of Directors declared regular quarterly cash dividends of seven cents per share in the first three quartersquarter of 20062007 and in each quarter of 2005.2006.
The following table summarizes our contractual obligations as of April 1, 2007:
Operating Leases | Sr. Unsecured Revolving Credit Facility Expiring 2010 | 8.875% Sr. Subordinated Notes due 2013 | Other Revolving Credit Facilities | Employee Benefit Plans | FIN No. 48 Liability* | Total | |||||||||||||||
(In thousands) | |||||||||||||||||||||
2007 | $ | 24,416 | $ | — | $ | — | $ | 1,823 | $ | 16,706 | $ | 8,841 | $ | 51,786 | |||||||
2008 | 23,738 | — | — | — | 22,650 | — | 46,388 | ||||||||||||||
2009 | 18,600 | — | — | — | 23,166 | — | 41,766 | ||||||||||||||
2010 | 14,234 | 177,898 | — | — | 23,661 | — | 215,793 | ||||||||||||||
2011 | 11,596 | — | — | — | 24,435 | — | 36,031 | ||||||||||||||
Thereafter | 119,592 | — | 25 | — | 135,405 | — | 255,022 | ||||||||||||||
Total | $ | 212,176 | $ | 177,898 | $ | 25 | $ | 1,823 | $ | 246,023 | $ | 8,841 | $ | 646,786 | |||||||
* | We have excluded $39,658 thousand from the above table related to our uncertain tax positions as we cannot make a reasonably reliable estimate of the amount and period of related future payments. |
Because the credit facility borrowings carry variable interest rates, the above table does not contemplate interest obligations.
Effects of Recently Adopted Accounting Pronouncement
Effective January 2,In June 2006, we adopted SFASthe Financial Accounting Standards Board (“FASB”) issued FIN No. 123(R),48,“Share-Based PaymentAccounting for Uncertainty in Income Taxes”” (“SFASFIN No. 123(R)”48”), which requires compensation costs related. FIN No. 48 was issued to stock-based transactions, including employee stock options, to beclarify the accounting for uncertainty in income taxes recognized in the financial statements based on fair value.by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return in accordance with SFAS No. 123(R) revises SFAS No. 123, as amended,109,“Accounting for Stock-Based Compensation”Income Taxes.” (“SFASFIN No. 123”),48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and supersedes Accounting Principles Board (“APB”) Opinionpenalties, accounting in interim periods, disclosure, and transition. We adopted FIN No. 25,“Accounting for Stock Issued48 effective January 1, 2007. In accordance with FIN No. 48 we have decided to Employees.” Priorcontinue to January 2, 2006,classify interest and penalties as a component of income tax expense. During the three months ended April 1, 2007 we appliedrecognized approximately $0.6 million in interest and penalties in our tax provision.
As a result of the intrinsic value based method prescribed in APB Opinionadoption of FIN No. 25, as permitted by SFAS No. 123, in accounting for employee stock-based compensation. We generally did not recognize compensation expense in connection with48, we adjusted the grant of stock options because the options granted had an exercise price equal to the fair marketestimated value of the underlying common stock on the date of grant.
In transitioning from APB Opinion No. 25our uncertain tax positions and reduced our accrued liabilities by $3.6 million, which was accounted for as an increase to SFAS No. 123(R), we have applied the modified prospective method. Accordingly, periods prior to adoption have not been restated and are not directly comparable to periods after adoption. Under the modified prospective method, compensation cost recognized in periods after adoption includes (i) compensation cost for all stock-based payments granted prior to, but not yet vestedretained earnings as of January 2, 2006, based on1, 2007. As of the grant-date fair value estimatedadoption date, we had gross tax effected unrecognized tax benefits of $159.6 million, of which $126.6 million, if recognized, would affect the continuing operations effective tax rate. The remaining amount, if recognized, would affect goodwill, equity and discontinued operations. We had accrued interest, net of tax benefits, and penalties expense related to the unrecognized tax benefits of $7.3 million, which is not included in accordance with the original provisions$159.6 million.
As of SFAS No. 123, less estimated forfeitures, and (ii) compensation cost for all stock-based payments granted subsequent to January 1, 2006, based2007, there were $8.8 million of FIN No. 48 accrued tax liabilities and $48.7 million of other unrecognized tax benefits which should be resolved within the next year as a result of the completion of audits that, depending on ultimate resolution, could affect the grant-date fair valuecontinuing operations effective tax rate; however, quantification of an estimated in accordance with the provisions of SFAS No. 123(R), less estimated forfeitures.
The total stock-based compensation expense for the cost of stock options, restricted stock, restricted stock units and performance units was $4.5 million and $10.7 million for the three and nine months ended October 1, 2006, respectively. The totalrange cannot be made at this time. We are subject to U.S. federal income tax benefit recognized in the consolidatedas well as income statementstax of multiple state and foreign jurisdictions. We have substantially concluded all U.S. federal income tax matters for stock-
based compensation was $1.4 millionyears through 2002. The U.S. federal income tax returns for 2003 through 2005 are currently under examination. In addition, tax years ranging from 1997 through 2006 remain open to examination by various state and $3.5 million for the three and nine months ended October 1, 2006, respectively. At October 1, 2006, total unrecognized stock-based compensation expense, expected to be recognized over a weighted average period of 1.7 fiscal years, amounted to $12.7 million. Total unrecognized stock-based compensation expense will be adjusted for future changes in estimated forfeitures, if any.
Prior to the adoption of SFAS No. 123(R), we presented all excess tax benefits related to stock compensation as cash flows from operating activities in our statement of consolidated statements of cash flows. SFAS No. 123(R) requires the cash flows resulting from these tax benefits to be classified as cash flows from financing activities. In the first nine months of fiscal 2006, the tax benefit from the exercise of stock options was $4.0 million, which was classified as cash flows from financing activities.foreign taxing jurisdictions.
Effects of Recently Issued Accounting Pronouncements
In September 2006, the SEC issued Staff Accounting Bulletin No. 108,“Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”(“SAB 108”). SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. We will be required to adopt SAB 108 in the fourth quarter of fiscal year 2006. We do not anticipate that the adoption of SAB 108 will have a material impact on our consolidated financial statements.
In September 2006, the Financial Accounting Standards Board (“FASB”)FASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. We will be required to adopt SFAS No. 157 in the first quarter of fiscal year 2008. We are currently evaluating the requirements of SFAS No. 157 and have not yet determined the impact, if any, of its adoption on our consolidated financial statements.
In September 2006,February 2007, the FASB issued SFAS No. 158,159,“Employers’ AccountingThe Fair Value Option for Defined Benefit PensionFinancial Assets and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R)”Financial Liabilities” (“SFAS No. 158”159”). SFAS No. 158 requires companies to recognize a net liability or asset and159 provides entities with an offsetting adjustment to accumulated other comprehensive incomeoption to report selected financial assets and liabilities at fair value, with the funded status of defined benefit pensionobjective to reduce both the complexity in accounting for financial instruments and other postretirement benefit plans. Additionally,the volatility in earnings caused by measuring related assets and liabilities differently. We will be required to adopt SFAS No. 158 requires companies to measure plan assets and obligations at their year-end balance sheet date. SFAS No. 158 requires prospective application, and159 in the recognition and disclosure requirements are effective for ourfirst quarter of fiscal year ending December 31, 2006.
2008. We are currently evaluating the requirements of SFAS No. 158159 and have not yet determined the impact, if any, of its adoption on our consolidated financial statements. The effect of adopting SFAS No. 158 may have an impact on our consolidated balance sheets, but no impact to our consolidated income statements or statements of cash flows. The actual impact of adopting SFAS No. 158 will be dependent upon the fair value of plan assets and the amount of projected benefit obligations measured as of December 31, 2006. We do not anticipate an impact on our compliance with the financial covenants contained in our loan agreement, described in more detail in Note 5 to our consolidated financial statements, from the adoption of SFAS No. 158.
In July 2006,March 2007, the FASB issued FASB Interpretationratified Emerging Issues Task Force Issue (“EITF”) No. 48,06-10“Accounting for Uncertainty in Income Taxes”Collateral Assignment Split-Dollar Life Insurance Agreements” (“FINEITF No. 48”06-10”). FINEITF No. 48 clarifies06-10 provides guidance for determining a liability for the accounting for uncertainty in income taxes recognized inpostretirement benefit obligation as well as recognition and measurement of the financial statementsassociated asset on the basis of an entity in accordance with SFASthe terms of the collateral assignment agreement. EITF No. 109,“Accounting for Income Taxes.” The new interpretation06-10 is effective for fiscal years beginning after December 15, 2006. We will be required to adopt FIN No. 48 in the first quarter of fiscal year 2007. We are currently evaluating the requirements of FINEITF No. 4806-10 and have not yet determined the impact, if any, of its adoption on our consolidated financial statements.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market Risk
Market Risk. We are exposed to market risks, relating to bothrisk, including changes in interest rates and currency exchange rates and interest rates. On occasion, in order toTo manage the volatility relating to these exposures, we may enter into various derivative transactions pursuant to our policies to hedge against known or forecasted market exposures. We briefly describe several of the market risks we face below. The following disclosure supplements the disclosure provided under the heading, “Item 7A. Quantitative and Qualitative Disclosure About Market Risk,” in our 20052006 Form 10-K.
Foreign Exchange Risk. The potential change in foreign currency exchange rates offersposes a substantial risk to us, as approximately 60%62% of our business is conducted outside of the U.S.,United States, generally in foreign currencies. Our risk management strategy currently uses forward contracts to mitigate certain balance sheet foreign currency transaction exposures. The intent is to offset gains and losses that occur on the underlying exposures, with gains and losses resulting from the forward contracts that hedge these exposures. For the three months ended April 1, 2007, we did not engage in any designated cash flow hedges. Principal hedged currencies include the British Pound (GBP), Canadian Dollar (CAD), Euro (EUR), Japanese Yen (JPY), and Singapore Dollar (SGD). The periods of these forward contracts typically span less than three months. We held forward foreign exchange contracts with U.S. equivalent notional amounts totaling $198.1$207.5 million at Octoberas of April 1, 20062007 and $172.6$167.7 million as of April 2, 2006. The approximate fair value of these foreign currency derivative contracts was insignificant. The gains and losses realized on October 2, 2005. Forforeign currency derivative contracts are not material and the nine months ended October 1, 2006, we did not engage in any cash flow hedges.duration of these contracts was generally 30 days for both 2007 and 2006. However, we are able to partially mitigate the impact that fluctuations in currencies have on our net income as a result of our manufacturing facilities located in countries outside the U.S., material sourcing and other spending which occur in countries outside the U.SU.S. resulting in a natural hedge. We do not enter into derivativesforeign currency derivative contracts for trading or other speculative purposes, nor do we use leveraged financial instruments.
Although we attempt to manage our foreign currency exchange risk through the above activities, when the U.S. dollar weakens against other currencies in which we transact business, generally sales and net income will be positively but not proportionately impacted.
Foreign Currency Risk—Value-at-Risk Disclosure. We continue to measure foreign currency risk using the Value-at-Risk model described in our 20052006 Form 10-K. These measures continue to approximate our risks.
Interest Rate Risk. OurAs described above, our debt portfolio after consideration of the tender offer and repayment of the 6.8% Notes, includes primarily variable rate instruments. Fluctuations in interest rates can therefore have a direct impact on both our short-term cash flows, (asas they relate to interest)interest, and our earnings.
Interest Rate Risk—Sensitivity. Our annual report on Form 10-K for the fiscal year ended January 1,December 31, 2006 presents sensitivity measures for our interest rate risk. We refer to our 20052006 Form 10-K for our sensitivity disclosure.
Item 4. | Controls and Procedures |
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of our quarter ended OctoberApril 1, 2006.2007. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management,
including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on their evaluation of our disclosure controls and procedures as of the end of our quarter ended OctoberApril 1, 2006,2007, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended OctoberApril 1, 20062007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 1. | Legal Proceedings |
In papers dated October 23, 2002, Enzo Biochem, Inc. and Enzo Life Sciences, Inc. (collectively, “Enzo”) filed a complaint in federal court inthe United States District Court for the Southern District of New York, Civil Action No. 02-8448, against us, oneAmersham plc, Amersham BioSciences, PerkinElmer, Inc., PerkinElmer Life Sciences, Inc., Sigma-Aldrich Corporation, Sigma Chemical Company, Inc., Molecular Probes, Inc., and Orchid BioSciences, Inc. The complaint alleges that we have breached our distributorship and settlement agreements with Enzo, infringed Enzo’s patents, engaged in unfair competition and fraud, and committed torts against Enzo by, among other things, engaging in commercial development and exploitation of our subsidiariesEnzo’s patented products and severaltechnology, separately and together with the other companies, which is described in more detail in Note 14defendants. Enzo seeks injunctive and monetary relief. In 2003, the court severed the lawsuit and ordered Enzo to our condensed consolidated financial statements in this quarterly report.serve individual complaints against the five defendants. We subsequently filed an answer and a counterclaim alleging that Enzo’s patents are invalid. In July 2006, the court issued a decision regarding the construction of the claims in Enzo’s patents that effectively limited the coverage of certain of those claims and, we believe, excludes certain of our products from the coverage of Enzo’s patents. Discovery is ongoing. The courtNo trial date has been set, a schedule for filing ofbut summary judgment motions commencing onwere filed by the defendants in January 3, 2007, but has not set a date for trial.2007.
On October 17, 2003, Amersham Biosciences Corp. filed a complaint, which was subsequently amended, in federal court inthe United States District Court for New Jersey, Civil Action No. 03-4901, against one of our subsidiaries, alleging that our ViewLux™ and certain of our subsidiary’sImage FlashPlate™ products infringe three of Amersham’s patents related to high-throughput screening (the “NJ case”). On August 18, 2004, Amersham plc filed a complaint against two of our United Kingdom-based subsidiaries in the Patent Court of the English High Court of Justice, Case No. 04C02688, alleging that our same products infringe one corresponding Amersham patent in the United Kingdom, which was granted in August 2004 (the “UK case”). Amersham seeks injunctive and monetary relief in both cases. We filed answers and counterclaims in both cases. On October 29, 2003, we filed a complaint, which was subsequently amended, against Amersham in federal court inthe United States District Court for Massachusetts, Civil Action No. 03-12098, alleging that Amersham’s IN Cell Analyzer, and LEADseeker™ Multimodality Imaging system and certain of Amersham’s productsCyclic AMP and IP3 assays infringe two of our patents related to high-throughput screening (the “MA case”). On August 18, 2004,We seek injunctive and monetary relief. Amersham plcsubsequently filed a complaint in the Patent Court of the English High Court of Justice against two of our United Kingdom-based subsidiaries, alleging that certain of our products infringe one corresponding Amersham United Kingdom patent granted in August 2004 (the “UK case”). These cases are described in more detail in Note 14 to our condensed consolidated financial statements in this quarterly report.an answer and counterclaims. After a trial in the UK case in December 2005, the court ruled in February 2006 that Amersham’s patent in question was invalid in the United Kingdom and awarded costs to us. Amersham’sAmersham initiated an appeal of the ruling in the UK case is scheduled to be heardbut withdrew that appeal in earlyJanuary 2007. In May 2006, the court in the NJ case issued a decision regarding the construction of the claims in Amersham’s patents that adopted many of Amersham’s claim construction positions. We have filed aOur motion asking the court to reconsider that decision.decision was denied. Discovery has not yet been completed in either the NJ or MA case, nor has a trial date been set in either case. A voluntary mediationMediations occurred in September 2006 and April 2007, but did not result in a resolution of these matters. Fact discovery, which was stayed pending the mediation, has now resumed.
We believe we have meritorious defenses to these lawsuits and the other proceedings, described in Note 14, and we are contesting the actions vigorously.vigorously in all of the above matters. We are currently unable, however, to reasonably estimate the amount of the loss, if any, that may result from the resolution of these matters or to determine whether resolution of any of these matters will have a material adverse impact on our consolidated financial statements.
We are also subject to various other claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Each of these matters is subject to uncertainties, and it is possible that some of these matters may be resolved unfavorably to us. We have established accruals for potential losses that we believe are probable and reasonably estimable. In the opinion of our management, based on its review of the information available at this time, the total cost of resolving these other contingencies at OctoberApril 1, 20062007 should not have a material adverse effect on our consolidated financial statements.
Item 1A. | Risk Factors |
The following important factors affect our business and operations generally or affect multiple segments of our business and operations:
If we do not introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth targets.
We sell many of our products in industries characterized by rapid technological change, frequent new product and service introductions, and evolving customer needs and industry standards. Many of the businesses competing with us in these industries have significant financial and other resources to invest in new technologies,
substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities and the distribution channels to deliver products to customers. Our products could become technologically obsolete over time, or we may invest in technology that does not lead to revenue growth or continue to sell products for which the demand from our customers is declining, in which case we may lose market share or not achieve our revenue growth targets. The success of our new product offerings will depend upon several factors, including our ability to:
accurately anticipate customer needs,
innovate and develop new technologies and applications,
successfully commercialize new technologies in a timely manner,
price our products competitively and manufacture and deliver our products in sufficient volumes and on time, and
differentiate our offerings from our competitors’ offerings.
Many of our products are used by our customers to develop, test and manufacture their products. Therefore, weWe must anticipate industry trends and consistently develop new products in advance of the commercialization ofto meet our customers’ products.expectations. In developing new products, we may be required to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant sales. We may also suffer a loss in market share and potential sales revenue if we are unable to commercialize our technology in a timely and efficient manner.
In addition, some of our licensed technology is subject to contractual restrictions, which may limit our ability to develop or commercialize products for some applications. For example, some of our license agreements are limited to the field of life sciences research, and exclude clinical diagnostics applications.
We may not be able to successfully execute acquisitions or license technologies, integrate acquired businesses or licensed technologies into our existing business,businesses, or make acquired businesses or licensed technologies profitable.
We have in the past, and may in the future, supplement our internal growth by acquiring businesses and licensing technologies that complement or augment our existing product lines, such as our acquisitions of J.N. MacriEvotec Technologies LLCGmbH and NTD Laboratories, Inc.Euroscreen Products S.A. acquired in July 2006January 2007 and Avalon Instruments LimitedImprovision Ltd. acquired in September 2006.March 2007. However, we may be unable to identify or complete promising acquisitions or license transactions for many reasons, including:
competition among buyers and licensees,
the high valuations of businesses and technologies,
the need for regulatory and other approval, and
our inability to raise capital to fund these acquisitions.
Some of the businesses we may seek to acquire may be unprofitable or marginally profitable. Accordingly, the earnings or losses of acquired businesses may dilute our earnings. For these acquired businesses to achieve acceptable levels of profitability, we must improve their management, operations, products and market penetration. We may not be successful in this regard and may encounter other difficulties in integrating acquired businesses into our existing operations, such as incompatible management, information or other systems, or cultural differences.
To finance our acquisitions, we may have to raise additional funds, either through public or private financings. We may be unable to obtain such funds or may be able to do so only on terms unacceptable to us. We may also incur expenses in evaluating possible acquisitions that we ultimately do not acquire, which expenses then may adversely impact our profitability.
We may not be successful in adequately protecting our intellectual property.
Patent and trade secret protection is important to us because developing new products, processes and technologies gives us a competitive advantage, although it is time-consuming and expensive. We own many United States and foreign patents and intend to apply for additional patents. Patent applications we file, however, may not result in issued patents or, if they do, the claims allowed in the patents that issue may be narrower than what is needed to protect fully our products, processes and technologies. Similarly, applications to register our trademarks may not be granted in all countries in which they are filed. For our intellectual property that is protected by keeping it secret, such as trade secrets and know-how, we may not use adequate measures to protect this intellectual property.
Third parties may also challenge the validity of our issued patents, may circumvent or “design around” our patents and patent applications, or may claim that our products, processes or technologies infringe their patents. In addition, third parties may assert that our product names infringe their trademarks. We may incur significant expense in legal proceedings to protect our intellectual property against infringement by third parties or to defend against claims of infringement by third parties. Claims by third parties in pending or future lawsuits could result in awards of substantial damages against us or court orders that could effectively prevent us from manufacturing, using, importing or selling our products in the United States or other countries.
If we are unable to renew our licenses or otherwise lose our licensed rights, we may have to stop selling products or we may lose competitive advantage.
We may not be able to renew our existing licenses, or licenses we may obtain in the future, on terms acceptable to us, or at all. If we lose the rights to a patented or other proprietary technology, we may need to stop selling products incorporating that technology and possibly other products, redesign our products or lose a competitive advantage. Potential competitors could in-license technologies that we fail to license and potentially erode our market share.
Our licenses 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 the right to exclusivity in a market. In some cases, we could lose all rights under the license. In addition, rights granted under the license could be lost for reasons out 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.
If we do not compete effectively, our business will be harmed.
We encounter aggressive competition from numerous competitors in many areas of our business. We may not be able to compete effectively with all of these competitors. To remain competitive, we must develop new products and periodically enhance our existing products. We anticipate that we may also have to adjust the prices of many of our products to stay competitive. In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of entire product lines.
Our quarterly operating results could be subject to significant fluctuation, and we may not be able to adjust our operations to effectively address changes we do not anticipate.
Given the nature of the markets in which we participate, we cannot reliably predict future sales and profitability. Changes in competitive, market and economic conditions may require us to adjust our operations, and we may not be able to make those adjustments or to make them quickly enough to adapt to changing conditions. A high proportion of our costs are fixed, due in part to our research and development and
manufacturing costs. Thus, small declines in sales could disproportionately affect our operating results in a quarter. Factors that may affect our quarterly operating results include:
demand for and market acceptance of our products,
competitive pressures resulting in lower selling prices,
adverse changes in the level of economic activity in regions in which we do business,
differing tax laws and changes in those laws, or changes in the countries in which we are subject to tax,
adverse changes in industries, such as pharmaceutical and biomedical, on which we are particularly dependent,
changes in the portions of our sales represented by our various products and customers,
delays or problems in the introduction of new products,
our competitors’ announcement or introduction of new products, services or technological innovations,
increased costs of raw materials or supplies, and
changes in the volume or timing of product orders.
If we are unable to produce an adequate quantity of products such as our digital x-ray detectors, to meet our customers’ demands, our revenue growth may be adversely affected.
We have an established global manufacturing base with facilities in multiple locations around the world. Each of these facilities faces risks to its production capacity that may relate to natural disasters, labor relations or regulatory compliance. In addition, in any of these facilities, such as our Optoelectronics amorphous silicon facility in Santa Clara, California, we may not manage the manufacturing or production processes at expected levels, we may fail to anticipate or act on the need to increase the production capacity, or we may be unable to quickly resolve technical manufacturing issues that arise from time to time. Any of these risks could cause our revenue growth to be adversely affected.
If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil or criminal penalties.
Some of the products produced by our Life and Analytical Sciences segment are subject to regulation by the United States Food and Drug Administration (“FDA”) and similar international agencies. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales, resales and distribution. If we fail to comply with those regulations or those of similar international agencies, we may have to recall products, cease their manufacture and distribution, and may be subject to fines or criminal prosecution. Other aspects of our operations are subject to regulation by different government agencies in the United States and other countries. If we fail to comply with those regulations, we could be subject to fines, penalties, criminal prosecution or other sanctions.
Changes in governmental regulations may reduce demand for our products or increase our expenses.
We compete in markets in which we or our customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, and food and drug regulations. We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
Economic, political and other risks associated with foreign operations could adversely affect our international sales.
Because we sell our products worldwide, our businesses are subject to risks associated with doing business internationally. Our sales originating outside the United States represented the majority of our total sales in the
quarter ended OctoberApril 1, 2006.2007. We anticipate that sales from international operations will continue to represent a substantial portion of our total sales. In addition, many of our manufacturing facilities, employees and suppliers are located outside the United States. Accordingly, our future results of operations could be harmed by a variety of factors, including:
changes in foreign currency exchange rates,
changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets,
longer payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions,
trade protection measures and import or export licensing requirements,
differing tax laws and changes in those laws, or changes in the countries in which we are subject to tax,
differing business practices associated with foreign operations,
difficulty in staffing and managing widespread operations,
differing labor laws and changes in those laws,
differing protection of intellectual property and changes in that protection, and
differing regulatory requirements and changes in those requirements.
If we do not retain our key personnel, our ability to execute our business strategy will be limited.
Our success depends to a significant extent upon the continued service of our executive officers and key management and technical personnel, particularly our experienced engineers, and on our ability to continue to attract, retain, and motivate qualified personnel. The competition for these employees is intense. The loss of the services of one or more of our key personnel could have a material adverse effect on our operating results. In addition, there could be a material adverse effect on us should the turnover rates for engineers and other key personnel increase significantly or if we are unable to continue to attract qualified personnel. We do not maintain any key person life insurance policy on any of our officers or employees.
Restrictions in our senior unsecured credit facility may limit our activities.
Our senior unsecured revolving credit facility contains, and future debt instruments to which we may become subject may contain, restrictive covenants that limit our ability to engage in activities that could otherwise benefit our company. Our new senior unsecured revolving credit facility includes restrictions on our ability and the ability of our subsidiaries to:
pay dividends on, redeem or repurchase our capital stock,
sell assets,
incur obligations that restrict their ability to make dividend or other payments to us,
guarantee or secure indebtedness,
enter into transactions with affiliates, and
consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis.
We are also required to meet specified financial ratios under the terms of our senior unsecured revolving credit facility. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition.
Our failure to comply with any of these restrictions in our senior unsecured revolving credit facility may result in an event of default under that facility, which could permit acceleration of the debt under that facility, and require us to prepay that debt before its scheduled due date.
Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets.
As of OctoberApril 1, 2006,2007, our total assets included $1.5$1.6 billion of net intangible assets. Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights and technology licenses, net of accumulated amortization. We test certain of these items—specifically all of those that are considered “non-amortizing”—on an annual basis for potential impairment by comparing the carrying value to the fair market value of the reporting unit to which they are assigned. All of our amortizing intangible assets are evaluated for impairment should discrete events occur that call into question the recoverability of the intangible.
Adverse changes in our business or the failure to grow our Life and Analytical Sciences segment may result in impairment of our intangible assets which could adversely affect our results of operations.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Stock Repurchase Program
The following table provides information with respect to the shares of common stock repurchased by us for the periods indicated.
Issuer Repurchases of Equity Securities | |||||||||
Period | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||
July 3, 2006 – July 30, 2006 | 0 | $ | 0.00 | 0 | 3,904,000 | ||||
July 31, 2006 – August 27, 2006 | 194,170 | 17.94 | 194,170 | 3,709,830 | |||||
August 28, 2006 – October 1, 2006 | 3,709,830 | 18.90 | 3,709,830 | 0 | |||||
Activity for quarter ended October 1, 2006 | 3,904,000 | $ | 18.86 | 3,904,000 | 0 | ||||
Issuer Repurchases of Equity Securities | |||||||||
Period | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||
January 1, 2007 – February 4, 2007 | 1,070,600 | $ | 23.67 | 1,070,600 | 8,929,400 | ||||
February 5, 2007 – March 4, 2007 | 1,429,400 | 24.22 | 1,429,400 | 7,500,000 | |||||
March 5, 2007 – April 1, 2007 | 0 | 0.00 | 0 | 7,500,000 | |||||
Activity for quarter ended April 1, 2007 | 2,500,000 | $ | 23.98 | 2,500,000 | 7,500,000 | ||||
(1) |
Item 4. | Submission of Matters to a Vote of Security Holders |
There were no matters submitted to a vote of security holders during the quarter ended April 1, 2007. The following matters were submitted to a vote of the stockholders at our 2007 annual meeting of stockholders held on April 24, 2007: (1) a proposal to elect the nine nominees for director named below for terms of one year each; (2) a proposal to ratify the selection of Deloitte & Touche LLP as our independent auditors for the current fiscal year; (3) a proposal to approve amendments to the Company’s Articles of Organization and By-laws to require a majority vote for uncontested elections of directors; and (4) a shareholder proposal to request that the Company’s Board of Directors establish a pay-for-superior-performance standard in the Company’s executive compensation plan for senior executives. The number of shares of common stock outstanding and eligible to vote as of the record date of February 26, 2007 was 121,588,965. Set forth below is the number of votes cast for or withheld with respect to each nominee for director and the number of votes cast for or against or abstaining, and if applicable the number of broker non-votes, for the other matters submitted to a vote of the shareholders at the meeting.
Proposal #1—To elect the following nominees as our directors for terms of one year each:
For | Withheld | |||
Friel, R.F. | 103,262,294 | 1,409,336 | ||
Lopardo, N.A. | 102,497,203 | 2,174,427 | ||
Michas, A.P. | 102,486,955 | 2,184,675 | ||
Mullen, J.C. | 102,315,693 | 2,355,937 | ||
Sato, V.L. | 102,712,926 | 1,958,704 | ||
Schmergel, G. | 103,140,139 | 1,531,491 | ||
Sicchitano, K.J. | 102,648,673 | 2,022,957 | ||
Summe, G.L. | 102,678,808 | 1,992,822 | ||
Tod, G.R. | 96,819,793 | 7,851,837 |
Proposal #2—To ratify the selection of Deloitte & Touche LLP as our independent auditors for the current fiscal year.
For | Against | Abstain | ||
102,663,005 | 1,847,523 | 161,102 |
Proposal #3—A proposal to approve amendments to the Company’s Articles of Organization and By-laws to require a majority vote for uncontested elections of directors.
For | Against | Abstain | ||
104,199,107 | 306,847 | 165,676 |
Proposal #4—A shareholder proposal to request that the Company’s Board of Directors establish a pay-for-superior-performance standard in the Company’s executive compensation plan for senior executives.
For | Against | Abstaining | Broker Non-Votes | |||
37,282,610 | 49,892,736 | 1,089,799 | 16,406,485 |
Item 6. | Exhibits |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PERKINELMER, INC. | ||
By: | /s/ JEFFREY D. CAPELLO | |
Jeffrey D. Capello Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
November 13, 2006May 11, 2007
P | ||
By: | /s/ MICHAEL L. BATTLES | |
Michael L. Battles Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) |
November 13, 2006May 11, 2007
Exhibit | Exhibit Name | |
3.1 | ||
3.2 | ||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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