UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(mark
one)
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x
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Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the fiscal year ended December 31, 2005
or
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o
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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Commission
file number 1-8002
(Exact
name of Registrant as specified in its charter)
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Delaware
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04-2209186
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(State
of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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81
Wyman Street, P.O. Box 9046
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Waltham,
Massachusetts
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02454-9046
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (781) 622-1000
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, $1.00 par value
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New
York Stock Exchange
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Preferred
Stock Purchase Rights
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New
York Stock Exchange
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3
1/4% Subordinated Convertible Debentures due 2007
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American
Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes
x
No
o
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or 15(d) of the Act.
Yes
o
No
x
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months, and (2) has been subject to the filing requirements
for at
least the past 90 days. Yes
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best
of
the
Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference into Part III of this Form 10-K or any amendment
to
this
Form
10-K.
x
Indicate
by check mark whether the Registrant is an accelerated filer (as defined
in Rule
12b-2 of the Exchange Act).
Yes
x
No
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
As
of
July 1, 2005, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was approximately $4,316,878,000 (based on
the
last reported sale of common stock on the New York Stock Exchange Composite
Tape
reporting system on July 1, 2005).
As
of
January 27, 2006, the Registrant had 162,738,621 shares of Common Stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Sections
of Thermo Electron Corporation’s definitive Proxy Statement for the 2006 Annual
Meeting of Shareholders are incorporated by reference into Parts II and III
of
this report.
THERMO
ELECTRON CORPORATION
ANNUAL
REPORT ON FORM 10-K
FOR
THE FISCAL YEAR ENDED DECEMBER 31,
2005
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Page
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PART
I
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Item
1.
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3
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Item
1A.
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16
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Item
1B.
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21
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Item
2.
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21
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Item
3.
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22
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Item
4.
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22
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PART
II
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Item
5.
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22
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Item
6.
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23
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Item
7.
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24
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Item
7A.
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39
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Item
8.
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40
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Item
9.
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40
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Item
9A.
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40
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Item
9B.
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41
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PART
III
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Item
10.
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41
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Item
11.
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42
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Item
12.
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42
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Item
13.
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42
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Item
14.
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42
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PART
IV
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Item
15.
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42
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Business
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General
Development of Business
Thermo
Electron Corporation (also referred to in this document as “Thermo Electron,”
“we,” the “company,” or the “registrant”) is a world-wide provider of analytical
instruments that enable customers to make the world a healthier, cleaner and
safer place. We provide analytical instruments, scientific equipment, services
and software solutions for life science, drug discovery, clinical, environmental
and industrial laboratories, as well as for use in a variety of manufacturing
processes and in-the-field applications including those associated with safety
and homeland security.
In
the
late 1980s, Thermo Electron adopted a strategy of spinning out certain
businesses into separate public subsidiaries in which we kept a majority
ownership. By 1997, we had spun out 22 public entities serving many diverse
markets. To simplify our structure, we announced in January 2000 a major
reorganization that ultimately resulted in taking private all of our public
subsidiaries, selling non-core businesses and spinning off our paper recycling
and medical products businesses. As part of the reorganization, we divested
of
businesses with aggregate annual revenues of over $2 billion. This
reorganization was substantially completed in February 2002, when we took
private our last publicly traded subsidiary. In July 2004, we sold
Spectra-Physics, Inc., our optical technologies segment (Note 16).
The
businesses spun off and sold have been accounted for as discontinued operations.
The company’s continuing operations are comprised solely of its instrument
businesses.
Except
where indicated, the information presented in this report pertains to our
continuing operations.
Our
current strategy is to drive internal growth by developing for our customers
those products, services and solutions with the highest growth potential. In
addition, we plan to augment that growth with strategic acquisitions that expand
the reach of our technology and services by either rounding out our product
lines or bringing them to new markets. Our strategy for growth also includes
expanding our presence in developing geographic markets such as Asia, in
particular China and India, where economic development is contributing to demand
for our products. Our strategy is also to continue to improve productivity,
enabling us to better serve our customers with improved products, technologies
and complete integrated systems and services.
Thermo
Electron is a Delaware corporation and was incorporated in 1956. The company
completed its initial public offering in 1967 and was listed on the New York
Stock Exchange in 1980.
Forward-looking
Statements
Forward-looking
statements, within the meaning of Section 21E of the Securities Exchange Act
of
1934 (the Exchange Act), are made throughout this Annual Report on Form 10-K.
Any statements contained herein that are not statements of historical fact
may
be deemed to be forward-looking statements. Without limiting the foregoing,
the
words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and
similar expressions are intended to identify forward-looking statements. While
the company may elect to update forward-looking statements in the future, it
specifically disclaims any obligation to do so, even if the company’s estimates
change, and readers should not rely on those forward-looking statements as
representing the company’s views as of any date subsequent to the date of the
filing of this report.
A
number
of important factors could cause the results of the company to differ materially
from those indicated by such forward-looking statements, including those
detailed under the heading, “Risk Factors” in Part I, Item 1A.
Business
Segments and Products
We
report
our business in two principal segments: Life and Laboratory Sciences and
Measurement and Control. For financial information about segments, including
domestic and international operations and export sales, see Note 3 to our
Consolidated Financial Statements, which begin on page F-1 of this
report.
Life
and Laboratory Sciences
We
serve
the pharmaceutical, biotechnology, academic, government and other research
and
industrial laboratory markets, as well as the clinical laboratory and healthcare
industries, through our Life and Laboratory Sciences segment. This segment
has
four principal product groupings - Laboratory Equipment, Scientific Instruments,
Informatics and Services, and Clinical
Diagnostics
- and
provides
products and integrated solutions for various scientific challenges that support
many facets of life science research. Specifically, our Laboratory Equipment
products consist primarily of sample preparation and handling equipment, our
Scientific Instruments products include analytical instrumentation that analyzes
the prepared samples, our Informatics and Services offerings include software
interpretation tools and development support for the data generated by the
instruments and our Clinical Diagnostics products and services are used by
healthcare and other laboratories to prepare and analyze patient samples, such
as blood.
We
sell
our products through a variety of distribution channels, which include our
direct sales force, distributors, independent sales representatives, independent
agents and catalogs. Generally, our more technically complex instruments and
solutions are sold directly by our sales force and less sophisticated products
are sold through distributors and catalogs.
Laboratory
Equipment
products
and integrated solutions are used primarily by pharmaceutical companies for
drug
discovery and development, and by biotechnology companies and universities
for
life science research to advance the prevention and cure of diseases and enhance
the quality of life.
We
provide a broad range of equipment that is used for the preparation and
preservation of chemical and biological samples, primarily for pharmaceutical,
academic, clinical and government customers. Products include incubators that
are used in biological experiments to allow growth of cells and organisms in
optimal conditions of temperature, carbon dioxide and humidity as well as cold
temperature storage equipment, ranging from laboratory refrigerators to
freezers, ultra-low temperature freezers and cryopreservation storage tanks,
which are used primarily for storing samples in a cold environment to protect
from degradation. We also offer a range of centrifuges, which are used to
separate biological matrices and inorganic materials. Our microcentrifuges
are
primarily used for the purification of nucleic acids in the molecular biology
laboratory, our general use benchtop centrifuges are suitable for processing
clinical samples such as blood and urine, and our floor models are used for
large volume blood processing or in laboratories with high throughput needs.
Our
centrifugal vacuum concentrators assist researchers in evaporating organic
solvents, acids and buffers from their samples and have a wide range of
applications in preparations of deoxyribonucleic acid (DNA) oligomers and
pharmaceutical compounds and our freeze dryers are used to lyophilize drugs,
plants or tissues. Our biological safety cabinets enable technicians to handle
samples without risk to themselves or their environment and without risk of
cross contamination of samples. Equipped with filtered air ventilation,
controlled laminar flow and an ultraviolet source, biological safety cabinets
can be used for forensic analysis or bioterrorism research. Other products
we
provide to the laboratory include water baths and ovens for applications where
temperature uniformity and control are critical. For sterilizing biological
samples and laboratory tools we provide a range of stream sterilizers that
are
primarily used by pharmaceutical, clinical and academic customers. Our magnetic
stirrers are offered in a wide range of different products, from cent-size
cuvette stirrers to powerful 600-litre stirrers for the homogenization of liquid
samples in almost any kind of laboratory.
We
also
provide thermal cyclers for the amplification of nucleic acids by
polymerase chain reaction (PCR
)
or
reverse transcriptase-PCR (RT-PCR). In addition, our consumables, microtiter
plates, pipettes and pipette tips provide accuracy and precision for liquid
handling in a variety of industrial, academic, government and clinical
laboratories. We also provide robotic arms,
stackers
and fully integrated automation systems that are used for purposes ranging
from
simple storage solutions to high throughput screening, primarily for drug
discovery applications. In 2005, we introduced our new LeadStream product,
an
automated, integrated product for ADME/Tox (absorption, distribution,
metabolism, excretion and toxicology) analysis for drug discovery applications.
LeadStream, which combines our laboratory automation technology with our mass
spectrometry systems, is designed to increase throughput and sample analysis
time.
In
May 2005,
we purchased the Kendro Laboratories Products division of SPX Corporation for
$836.6 million in cash, net of cash acquired. Kendro designs, manufactures,
markets and services a wide range of laboratory equipment, including laboratory
refrigerators, freezers and ultra-low temperature freezers, centrifuges,
incubators, ovens, furnaces and sterilizers, for sample preparation, processing
and storage used primarily in life sciences and drug discovery laboratories
as
well as clinical laboratories. The Kendro business expands our laboratory
equipment offering in several areas such as super speed and ultra speed
centrifugation. It also increases our field service capabilities.
Scientific
Instruments
analytical instrumentation products are used primarily in laboratory and
industrial settings and incorporate a range of techniques
,
including mass spectrometry, chromatography and optical spectroscopy
,
and can
be combined with a range of accessories, consumables, software, spectral
reference databases, services and support, to provide a complete solution to
the
customer.
Mass
spectrometry is a technique for analyzing chemical compounds, individually
or in
complex mixtures, by forming gas phase charged ions that are then analyzed
according to mass-to-charge ratios. In addition to molecular information, each
discrete chemical compound generates a fragmentation pattern that provides
structurally diagnostic information. Chromatography is a technique for
separating, identifying and quantifying individual chemical components of
substances based on physical and chemical characteristics specific to each
component. Optical spectroscopy is a technique for analyzing individual chemical
components of substances based on the absorption or emission of electromagnetic
radiation of a specific wavelength of light, for example, visible (light),
ultraviolet or infra-red.
In
the
life sciences market, we offer
a
line of
mass spectrometers including ion traps, quadrupoles
and
hybrid mass spectrometers (MS)
,
as well
as
liquid
chromatographs (LCs) and columns, and hybrid multi-instrument combinations
of
these products as integrated solutions (LC-MS). These systems are tailored
to
meet the rigorous demands of lab professionals in applications such as drug
discovery, life science research and analytical
quantitation.
Ion
Traps
.
The
company’s ion trap mass spectrometer product line features a tiered portfolio to
support a wide spectrum of analytical requirements. These instruments support
applications ranging from compound identification and routine high performance
liquid chromatography (HPLC) to sophisticated analysis of low-level components
in complex biological matrices.
| · |
Finnigan
LTQ FT™ – this hybrid MS system combines our most advanced ion trap
and Fourier Transform (FT) Ion Cyclotron Resonance (ICR) technologies
into
a single instrument with superior analytical power and versatility.
The
system uniquely combines high resolution, accurate mass determinations
and
MSn (mass spectrometry to the nth power) for high-throughput analysis
on a
single instrument.
|
| · |
LTQ
Orbitrap
™
–
this novel hybrid MS system combines our most advanced ion trap with
our
new, patented Orbitrap technology. This system provides high resolution
and accurate mass determinations over a broad dynamic range for the
analysis of complex biological mixtures.
|
| · |
Finnigan
LTQ
™
–
this linear MS system, based on a 2-dimensional (2-D) linear ion
trap
design and incorporating patented innovative technologies and ease-of-use
features, is primarily used for metabolic profiling and proteomics
research.
|
| · |
Finnigan
LXQ™ – this
linear
MS system, based on a 2-D linear ion trap design, provides high-throughput
performance for drug discovery, forensics and proteomics
applications.
|
| · |
Finnigan
LCQ
™
Deca
XP MAX – this ion trap mass spectrometer is used primarily for rapid
metabolite identification, peptide mapping and complex mixture analysis.
It features the Ion Max
™
source, an improved front-end ion source, which provides ruggedness
and
full scan sensitivity, making it a valuable tool for analysis of
in-vivo
and in-vitro samples.
|
| · |
Finnigan
LCQ Advantage MAX – this ion trap mass spectrometer integrates the power
of MS/MS with an LC system, boosting analytical power with library
searchable MS/MS spectra for reliable compound identification. This
instrument delivers high productivity for routine HPLC
environments.
|
Triple
Quadrupole MS
.
The
company’s TSQ Quantum Series of mass spectrometers represents a highly advanced
and powerful line of triple quadrupole mass spectrometers.
| · |
Finnigan
TSQ
™
Quantum Discovery MAX – this high-performance, ultra compact benchtop
MS system incorporates innovative new technology for increased
sensitivity, precision, ruggedness and reliability. It is principally
designed for high-productivity environments such as environmental,
clinical and drug discovery laboratories. With the Ion Max source,
the
Finnigan TSQ Quantum Discovery MAX addresses the need of these
laboratories for more rugged and dependable LC/MS/MS to enable
around-the-clock productivity.
|
| · |
Finnigan
TSQ Quantum Ultra EMR – this MS offers higher resolution and an extended
mass range (EMR) of up to 3000 Daltons. This extended mass range
capability allows high-resolution analysis of a whole new class of
biopolymers including peptides, polysaccharides and oligonucleotides.
The
system delivers a complete solution for the proteomics and large
molecule
research community.
|
| · |
The
Finnigan TSQ Quantum Ultra – this MS is an advanced instrument used
primarily for bioanalytical and environmental analysis. It features
the
Ion Max source with interchangeable electrospray ionization (ESI)
and
atmospheric pressure chemical ionization (APCI) probes and a wide
aperture
titanium skimmer for increased robustness and
sensitivity.
|
In
2005,
we expanded our mass spectrometry capabilities with the acquisition of
Ionalytics Corporation, a developer of a patented, dynamic ion filtering device
called FAIMS (Field Asymmetric Waveform Ion Mobility Spectrometry), which is
used with mass spectrometers in bioanalysis, proteomics and drug discovery.
When
combined with liquid chromatography mass spectrometry (LC-MS), FAIMS technology
helps resolve analytical method development challenges significantly faster
and
more easily, primarily by reducing chemical background noise, increasing
throughput and improving detection limits.
A
significant and growing application for
our
technology-driving mass spectrometers
is
proteomics, the study of proteins. Most drugs – about 90 percent –
interact with proteins, so multi-instrument systems that can rapidly identify
and quantify proteins are of increasing value to pharmaceutical and
biotechnology customers. We continue to introduce new systems that address
the
breadth of primary analytical needs for high-throughput analysis and proteomics
research, as well as for other growing life science areas such as:
| · |
Biomarkers –
compounds which may be endogenous and signal the early onset of a
specific
disease.
|
| · |
ADME/Tox
– Absorption, Distribution, Metabolism, Excretion and Toxicology studies
that are conducted for drug discovery in support of human clinical
trials.
|
| · |
Metabalomics –
measurement of the real biochemical status, dynamics, interactions
and
regulation of whole systems or organisms at a molecular
level.
|
The sensitivity of our Finnigan LTQ ion trap and the power of our Finnigan
LTQ
FT hybrid MS, particularly with the new vMALDI source, are being used to improve
protein detection, and our SEQUEST® (registered trademark of the University of
Washington) software provides higher sensitivity and accuracy for protein
identification.
Thermo
Electron also offers a broad range of advanced magnetic sector instrumentation
for high resolution MS. This range also covers organic MS, gas isotope ratio
MS
and thermal ionization MS.
Liquid
Chromatography
.
Our
HPLC systems, such as the Finnigan Surveyor Plus™ and Finnigan SpectraSYSTEM,
offer high throughput and sensitivity. They are sold as stand-alone
instrumentation (HPLC) or as integrated systems with our mass spectrometers
(LC-MS).
The
Finnigan Surveyor MSQ™ Plus is a single quadrupole LC-MS system used primarily
in pharmaceutical laboratories as a detector, providing chromatographers the
ability to run routine HPLC applications more efficiently.
These
products utilize our comprehensive line of HPLC columns, including
HYPERSIL
™
Gold,
HyPurity
™
and
Aquasil columns.
Beyond
the life sciences market, our chemical analysis instrumentation uses various
separation and optical
spectroscopy
techniques
to determine the elemental and molecular composition of a wide range of complex
liquids and solids.
Gas
Chromatography
.
Gas
chromatography is a separation technique used in the analysis of complex samples
in the form of gases. Thermo Electron’s high performance and reliable line of
gas chromatographs (GCs) includes our Trace GC Ultra, a versatile laboratory
GC
with a full range of detectors, injectors, and valve systems, our FOCUS GC
which
is a single channel GC, our Trace GCxGC for analysis of target compounds in
complex matrices, and autosamplers, including our TriPlus™ Autosampler, that
provide a robotic sampling solution to a GC laboratory. We also offer
chromatography data system software, detectors and various accessories such
as
GC columns to complete our gas phase chromatography offering.
Our
GC
offering is also incorporated into our GC mass spectrometry (GC-MS) product
line, which pairs a mass spectrometer detector with a GC front end. Our Trace
DSQ single quadrupole GC-MS is a system that provides a dual-stage mass filter.
The PolarisQ Ion Trap MSn offers affordable tandem mass spectrometry at the
sensitivity of GC-specific detectors. And our recently introduced DFS high
resolution GC-MS system is a double-focusing sector MS for trace and target
compound analysis with high resolution.
Elemental
Analysis.
Thermo
Electron also offers a line of elemental analysis instrumentation used to
analyze elements in liquid samples. This product line includes our combustion
analyzers, S Series atomic absorption (AA) systems, inductively coupled
plasma
(ICP)
spectrometers and X Series and Element2 ICP mass spectrometry (ICP-MS) systems.
Environmental laboratories as well as clinical or toxicology laboratories often
utilize these techniques, as well as many other industrial
laboratories.
Thermo
Electron provides a full range of instrumentation that also looks at the
elemental analysis of solids, including our ARL arc spark product line based
on
optical emission spectroscopy (OES), our benchtop and standalone ARL X-ray
fluorescence (XRF) systems for bulk analysis, our ARL X-ray diffractometry
(XRD)
systems, our X-ray microspectroscopy offering, the recently introduced glow
discharge MS system and our Auger and X-ray photoelectron spectroscopy (XPS)
systems for surface analysis.
With
the
acquisition of Niton LLC in March 2005, we expanded our product line to include
our new Niton portable XRF analyzers product line. These portable elemental
analyzers are state-of-the-art handheld instruments offering high performance
analysis of metal alloys for positive material identification, scrap metal
recycling, QA/QC and precious metals analysis, as well as analysis of soils
and
sediments, environmental monitoring, lead in paint assessment, geochemical
mapping and coatings/plating analysis. The Niton Xli, XLp and XLt Series product
lines are designed for the rapid on-site testing of metals for numerous
industrial applications including mining, coatings, precious metals and powder
samples.
Molecular Spectroscopy
.
Thermo
Electron is also a market leader in analytical instrumentation involving
spectroscopic analysis of molecular structures. Our Nicolet Series research
grade Fourier transform infrared (FT-IR) and Nicolet 380 FT-IR systems provide
a
complete analytical offering in FT-IR spectroscopy, from routine QA/QC
applications to advanced research work across many industries. Thermo Electron
has built on this technology with a broad range of IR spectroscopy and imaging
systems such as its Continuum XL and Centaurus IR microscope systems.
Complementing FT-IR analysis capabilities, we also offer dispersive and FT-Raman
systems for additional vibrational spectroscopic analysis for large samples
or
analysis down to a single micron. Thermo Electron also designs, manufactures
and
markets visible and UV-visible spectrophotometers.
Customers
for
Thermo
Electron’s chemical analysis instrumentation
include
environmental, pharmaceutical, polymer, petrochemical, food, semiconductor,
energy, coatings, geological, steel and basic material producers, who frequently
use these instruments for quality assurance and quality control applications,
primarily in a laboratory.
Informatics
and Services
offerings include laboratory information management systems (LIMS)
,
chromatography data systems
,
database analytical tools and instrument integration solutions
for
customers in regulated and nonregulated industries such as pharmaceuticals,
biotechnology, petrochemicals, chemicals and food and beverage. We also provide
desktop spectroscopy software for data processing, data management, 3-D data
viewing, spectral reference databases and chemometrics.
Each
of
these software
systems
is
critical
to regulatory compliance because they facilitate the monitoring and analysis
of
samples by storing and organizing the massive amounts of analytical data
gathered in laboratories, industrial settings and clinical-testing sites.
To
support our global installations, we provide implementation, validation,
training, maintenance and support from our large globally-based informatics
services network.
In
2005,
we expanded our LIMS offering with the launch of Darwin LIMS
™
,
a
commercial-off-the-shelf (COTS) solution designed specifically for
pharmaceutical research and development and quality assurance/quality control.
Darwin is a continuation of Thermo’s strategy to develop COTS solutions that
provide application-specific, purpose-built functionality in software targeted
for certain industries. This is an outgrowth of Thermo’s September 2004
acquisition of InnaPhase Corporation, a supplier of
application-oriented
LIMS software solutions
for the
pharmaceutical and biotechnology markets.
Our
portfolio also includes SampleManager, an enterprise LIMS used in laboratories
at leading companies in the pharmaceutical, oil and gas, environmental, chemical
and food and beverage industries; Watson
™
LIMS,
for pharmaceutical bioanalytical laboratories; Galileo
™
LIMS,
designed specifically for ADME and in-vitro testing in early drug discovery
and
development; Nautilus LIMS, used by leading biotechnology laboratories because
of its application-specific functionality and configurability; and Darwin LIMS
for pharmaceutical manufacturing R&D and QA/QC. In addition, we market the
Atlas chromatography data system, a multi-industry enterprise-class system
that
is tightly integrated with our LIMS solutions for greater accuracy and
consistent reporting of shared data. Our Enterprise Pharmacology (EP)
Series
™
and
Kinetica
™
database
analytical tools are used in pharmacokinetics and pharmacodynamics and our
GRAMS/AI is a comprehensive desk-top spectroscopy data processing and management
solution.
Our
informatics portfolio also includes Retriever
™
,
a
web-based data extraction, presentation and reporting solution allowing secure
access to laboratory data, regardless of the original data system and Migration
Agent, a professional services-driven process that includes software tools
for
low-risk, effective data migration to facilitate a successful transition to
a
new or upgraded LIMS solution.
We
also
provide a global services network of experienced consultants
that
provide a broad range of services
focused
on the successful implementation of our customers
’
projects.
These
services
include project planning, management of user workshops, defining business
requirements, milestone delivery, systems integration, workflow modeling and
validation consultancy.
Furthering our strategy to become the most comprehensive service provider to
scientific laboratories, we acquired Laboratory Management Systems, Inc. (LMSi)
in November 2003,
US
Counseling Services, Inc. (
USCS)
in
April 2004 and our biorepository services business in May 2005 as part of the
acquisition of the Kendro Laboratory Products division of SPX Corporation.
LMSi
provides multi-vendor laboratory instrument services, including instrument
qualifications, preventive and corrective maintenance,
validation, regulatory compliance and
metrology.
USCS
is a
leader in
instrument/equipment asset management services
in
the
life and laboratory sciences and healthcare industries as well as the U.S.
government, with solutions that deliver
instrument
and equipment maintenance
management, physical inventory tracking and enterprise-wide maintenance
reporting to help customers improve the cost/performance of their
instrumentation, equipment and facilities. Thermo’s b
iorepository
business, formerly the Cryonix division of Kendro Laboratory Products, has
a 15
year history of providing repository services for pharmaceutical, biotechnology,
university, government, clinical and blood processing customers. Our
biorepository services business stores millions of customer samples at six
commercial sites in the United States and the United Kingdom. Additional
services include inventory management, validation, business continuity,
repository management and transportation capabilities resulting in a complete
cold chain sample management solution
.
These
strategic acquisitions have solidified Thermo’s presence as a leading provider
of enterprise wide maintenance services, known as
LIFECYCLE
Asset
Management Services. This portfolio includes managed maintenance, multi-vendor
and biorepository services and is one of the broadest such offerings available
to the life science and healthcare industries, as well as to the government.
Life and laboratory science customers, including several of the leading
pharmaceutical and chemical companies, use Thermo’s
LIFECYCLE
Asset
Management Services to optimize the cost and performance of their laboratory
assets from acquisition to disposition. In addition to demonstrated cost
savings, customers benefit from improved productivity and enhanced compliance
through an integrated asset management solution.
Clinical
Diagnostics
products
and
services
are used
by healthcare laboratories in hospitals, academic and research institutes to
prepare
and analyze patient samples, such as blood, urine, body fluids or tissue
sections, to
detect
and diagnose
diseases,
such as cancer.
Our
Clinical Chemistry and Automation Systems include clinical chemistry analyzers
and reagents to analyze and measure routine blood and urine chemistry, such
as
glucose and cholesterol; and advanced testing for specific proteins, therapeutic
drug monitoring and drugs of abuse. Our diagnostics test range currently covers
approximately 80 different validated methods. We also provide pre- and
post-analytical automation for preparation of blood specimens before and after
analysis. In other analytical laboratory fields, our reagents and automated
photometric analyzers are used for colorimetric and enzymatic analysis and
quality control in food and beverages, wine and pharmaceutical processes. In
addition to our own sales channels, our clinical chemistry and automation
systems are distributed by some of the leading diagnostic manufacturers, such
as
Diagnostic Products Corporation (DPC) and Ortho-Clinical Diagnostics (OCD).
Our
Anatomical Pathology products include cytocentrifuges for cell preparation
of
body fluids; tissue processors for preparation of tissue samples; cassette
and
slide labelers for identifying specimens; microtomes for sectioning of processed
tissues; and slide stainers to highlight abnormal cells for microscopic
examination and diagnosis.
The
Shandon Cytospin™ 4 Cytocentrifuge uses low-speed centrifugation technology to
concentrate and deposit a thin layer of cells onto a microscope slide to ensure
better cell capture and better preservation of cell morphology. The Shandon
Excelsior™ provides a fully automatic solution for tissue processing and reagent
storage/handling.
For
efficient handling and accurate identification of histology and cytology
specimens, we offer a comprehensive line of cassette and slide labelers
including
the new Shandon Laser MicroWriter™ developed specifically for anatomical
pathology. The Laser MicroWriter prints 1D and 2D barcodes, text, logos and
graphics in 26 different fonts at a speed of 1 to 2 seconds per slide and is
designed to handle high volume workloads in clinical or research laboratories.
Other histology products include the new Shandon Finesse™ + line of microtomes
for paraffin or resin sectioning, the Shandon Cryotome™ Series of cryostats for
frozen sections and the Shandon Varistain™ line of slide stainers for cell
morphology highlights.
In
addition, we supply a complete line of ventilated workstations, dissecting
tables, autopsy sinks and cadaver storage for forensic investigation and morgue
facilities.
Measurement
and Control
Our
Measurement and Control segment serves industrial markets and governmental
agencies by providing products, solutions and services for process control
and
optimization, and for environmental monitoring, safety and security. Our
products enable customers to increase quality, improve productivity, ensure
worker safety and improve environmental protection and regulatory compliance.
In
addition, we offer a comprehensive range of fixed and portable chemical-,
radiation- and explosives-detection instruments to help ensure the safety of
public places and people. This segment has two principal product groupings,
Process Instruments and Environmental Instruments.
We
sell
our products through a variety of distribution channels, which include our
direct sales force, distributors, independent sales representatives, independent
agents and catalogs to end-users and original equipment manufacturers.
Generally, our more technically complex instruments and solutions are sold
directly by our sales force and less sophisticated products are sold through
distributors and catalogs.
Process
Instruments
include
online instrumentation products, solutions and services that provide regulatory
inspection, quality control, package integrity, process measurements, precise
temperature control, physical, elemental and compositional analysis, surface
and
thickness measurements, remote communications, and flow and blend optimization.
We serve a variety of industries, such as oil and gas, petrochemical,
pharmaceutical, food and beverage, consumer products, power-generation, metal,
cement, minerals and mining, semiconductor, polymer, coatings and adhesives
manufacturers, water and wastewater treatment facilities and pulp and paper
manufacturers. Our Process Instruments include five principal product lines:
compliance testing, control technologies, materials and minerals, process
systems and weighing and inspection.
Through
our control technologies product line we are a leading manufacturer of precision
temperature control, material characterization and compliance test systems
for
the global industrial and laboratory markets. The temperature-control product
line includes the NESLAB
™
and
HAAKE
™
lines of
heated/refrigerated circulating baths, immersion coolers and re-circulating
chillers. Customers use these products to control highly critical manufacturing
processes, such as semiconductor manufacturing operations or
pharmaceutical-grade extrusion lines. We provide material characterization
instruments that help our customers analyze materials for viscosity, surface
tension and thermal properties. For instance, our Haake-MARS
™
and
Haake-POLYLAB
™
products
accurately and flexibly measure a wide range of rheological properties in the
lab and in process applications. Our Compliance Test Solutions business
manufactures testing instrumentation under the KeyTek brand based on “pulsed EMI
(Electromagnetic Interference) technology.” This business provides electronic
components and systems testing solutions for OEMs and independent testing labs.
Our testing products and solutions are capable of testing EMC (Electromagnetic
Compatibility) and ESD (Electrostatic Discharge) at the systems and discrete
package levels to assist our customers in complying with various industry
standards.
Our
materials and minerals products include online bulk material analysis systems,
such as the CBX
™
and
CQM
™
products, and use proprietary, ultrahigh-speed, non-invasive measurement
technologies that use neutron activation and measurement of gamma rays to
analyze, in real time, the physical and chemical properties of streams of raw
materials. These products are used in the coal, cement, minerals and other
bulk
material handling applications to analyze entire streams of material and
eliminate the need for off-line sampling, which can add production time, waste
and cost. Our analyzer products coupled with material-handling products help
our
customers optimally blend raw feed streams to control sulfur and ash in
coal-fired power plants. We also provide systems, such as the
Radiometrie
™
line of
products, to measure the total thickness, basis weight and coating thickness
of
flat-sheet materials, such as metal strip, plastics, foil, rubber, glass, paper
and other web-type products. These gauging products use ionizing and
non-ionizing technologies to perform high-speed, real-time, non-invasive
measurements.
Our
process systems help oil and gas, refining, petrochemical, electric-utility
and
other customers optimize their processes. Our instruments provide measurement
and sensor systems to improve efficiency, provide process and quality control,
maintain regulatory compliance and increase worker safety. For instance, our
gas
flow computers support custody transfer applications in the production and
transmission of natural gas; our KRIL
™
level
and interface detection products are used in extremely harsh coker applications
for petroleum refining; and our VG Prima
™
line of
process mass spectrometers help our customers detect minute constituents in
process gases. These systems provide real-time direct and remote data
collection, analysis and local control functions using a variety of
technologies, including radiation, radar, ultrasonic and vibration measurement
principles, gas chromatography and mass spectrometry. Our SOLA
™
line of
products, based on pulsed UV fluorescence technology, is the leading online
sulfur analyzer used by refiners to bring clean fuels to consumers.
Our
weighing and inspection products serve the food and beverage, pharmaceutical
packaging and bulk material handling industries. For the food and beverage
and
pharmaceutical markets, we provide solutions to help our customers attain safety
and quality standards. Based on a variety of technologies, such as X-ray imaging
and ultratrace chemical detection, our products are used to inspect packaged
goods for physical contaminants, validate fill quantities, or check for missing
or broken parts. For example, our DSP
™
line of
metal detectors uses non-invasive, high-speed, flux technology to inspect
packaged products; our AC line of checkweighers is used to weigh packages on
high-speed packaging lines; our InScan
™
line
uses X-ray imaging to enable our customers to inspect canned or bottled
beverages at very high speed; and the PureAqua
™
line
provides online-sniffing technology to inspect recycled bottles for traces
of
contaminants before refilling. We also provide bulk material handling products
such as belt-scales, flow meters, safety switches and contamination detectors
to
enable solids-flow-monitoring, level measurements, personnel safety, spillage
prevention and contamination detection for a wide variety of processing
applications in the food, minerals, coal, cement and other bulk solids handling
markets.
Environmental
Instruments
include
portable and fixed instrumentation used to help our customers protect people
and
the environment,
with
particular focus on environmental compliance, product quality, worker safety,
process efficiency and security.
Key
end
markets include fossil fuel and nuclear-powered electric generation facilities,
federal and state agencies such as the Environmental Protection Agency (EPA)
and
first responders such as the New York Police Department, national laboratories
such as Los Alamos, general commercial and academic laboratories, transportation
security for sites such as ports and airports and other industrial markets
such
as pulp and paper and petrochemical. Our instrumentation is used in four primary
applications
:
air
quality monitoring and gas detection, water quality and aqueous solutions
analysis, radiation measurement and protection, and explosives detection.
We
are a
leader in air quality instruments for ambient air and continuous emissions
monitoring. Primary markets and customers include environmental regulatory
agencies, emissions generating industries such as power generation and pulp
and
paper, first responders and industrial customers with Occupational Safety and
Health Administration-related gas detection requirements. Our instruments
utilize a variety of leading analytical techniques, such as chemiluminescence,
which uses the light emission from chemical reactions to detect common air
pollutants such as nitrogen dioxide at the parts per trillion level. The
iSeries
™
family
of
analyzers uses various optical detection technologies to monitor parts per
billion levels of regulated pollutants, such as ground level ozone and sulfur
dioxide.
The
TEOM
™
series
of
continuous particulate monitors utilizes a patented measurement technology
to
detect airborne particle matter with high sensitivity in a brief time period.
This monitoring capability allows the U.S. EPA and worldwide monitoring networks
to provide the public with web based access to the concentration levels of
the
particulate matter of most concern to people most susceptible to respiratory
conditions (such as the elderly and young children).
Further,
state and federal environmental agencies, as well as environmental compliance
officers at facilities that generate emissions into the air, use our stack
gas
monitoring systems to ensure that governmentally mandated standards are being
met.
The
recent introduction of our Mercury Freedom
™
System
for the continuous emissions monitoring of total gaseous mercury from coal
fired
power plants enables the U.S. power generation industry to monitor compliance
with the new regulations mandating the measurement of mercury, which will become
effective in 2009.
Our
industrial hygiene products measure toxic gases such as carbon monoxide and
hydrogen sulfide and hazardous chemicals such as benzene. The instruments range
from hand-held monitors that are used at hazardous
waste
sites for remediation activities, to general-purpose portable products for
personnel exposure monitoring, to sophisticated fixed systems in industrial
facilities for early warning of unsafe combustible and toxic gas concentrations.
In addition to these core applications, our product portfolio includes
particulate monitoring instruments and leak detection monitors.
Our
water
analysis
products
are recognized as an industry leader for high quality meters, electrodes and
solutions for the measurement of pH, ions, conductivity and dissolved oxygen.
Marketed under the Orion
™
product
name, our products are sold across a broad range of industries for a variety
of
laboratory, field and process applications. Based on electrochemical sensing
technology, these products are used wherever the quality of water and
water-based products is critical. Primary applications include quality
assurance, environmental testing and regulatory compliance in end markets such
as general laboratories, life science, water and wastewater, food and beverage,
chemical, pharmaceutical and power-generation.
Our
radiation measurement and protection instruments are used to monitor, detect
and
identify specific forms of radiation in nuclear power, environmental,
industrial, medical and security applications. For example, power- generation
facilities distribute our Mark II
™
electronic
pocket-calculator sized personal dosimeters to employees who work in areas
that
may expose them to radiation to capture the legal dose of record to which they
are daily exposed. In addition, our customers use contamination monitors, such
as our PCM2
™
,
in
at-risk locations around their facilities to monitor radiation. A variety of
our
detectors, such as the Surveyor 2000
™
,
are
used to monitor radiation levels and dosage using gross gamma detection
technologies. Our product portfolio includes hand-held survey meters and vehicle
and pedestrian portals used to stop illicit transport of radioactive material.
Environmental and contamination monitors are used by nuclear power plants to
ensure worker safety.
Our
security instruments and systems include a comprehensive range of stationary
and
portable instruments used for chemical, radiation and trace explosives
detection. These instruments are based upon analytical technologies used in
our
core markets that we have refined for the specific needs of the security market,
including key customers like the Department of Homeland Security, the Department
of Defense, the Department of Energy and first responders. Our instruments
are
used for the detection and prevention of terrorist acts at airports, embassies,
cargo facilities, border crossings and other high-threat facilities, as well
as
at major events such as the Olympics. For example, the EGIS
™
System
is
designed to identify explosives so that they can be intercepted before being
taken to their intended destination, whether it is an airplane, building, or
other target. EGIS is currently being used to screen checked and carry-on
baggage, packages and personnel at airports, buildings, military bases and
embassies. EGIS utilizes separation and detection technologies identical to
those used in advanced forensic laboratories worldwide: gas chromatography
combined with chemiluminescent detection. The Transportation Security
Administration (TSA) has approved the EGIS System in accordance with TSA’s trace
explosive detection standards, and has placed these technologies on its
Qualified Vendor List for trace explosive detection systems. EGIS and our other
instruments are also used by first responders, hazardous material teams and
forensics labs in response to a terrorist event.
New
Products and Research and Development
Our
business includes the development and introduction of new products and may
include entry into new business segments. We are not currently committed to
any
new products that require the investment of a material amount of our funds,
nor
do we have any definitive plans to enter new businesses that would require
such
an investment.
During
2005, 2004 and 2003, we spent $152.8 million, $134.7 million and $128.0 million,
respectively, on research and development.
Raw
Materials
Our
management team believes that we have a readily available supply of raw
materials for all of our significant products from various sources. We do not
anticipate any difficulties obtaining the raw materials essential to our
business.
Patents,
Licenses and Trademarks
Patents
are important in both segments of our business. No particular patent, or related
group of patents, is so important, however, that its loss would significantly
affect our operations as a whole. Where appropriate, we seek patent protection
for inventions and developments made by our personnel and incorporated into
our
products or otherwise falling within our fields of interest. Patent rights
resulting from work sponsored by outside parties do not always accrue
exclusively to the company and may be limited by agreements or
contracts.
We
protect some of our technology as trade secrets and, where appropriate, we
use
trademarks or register trademarks used in connection with products. We also
enter into license agreements with others to grant and/or receive rights to
patents and know-how.
Seasonal
Influences
Revenues
in the fourth calendar quarter are historically stronger than in the other
quarters due to capital spending patterns of industrial, pharmaceutical and
government customers.
Working
Capital Requirements
There
are
no special inventory requirements or credit terms extended to customers that
would have a material adverse effect on our working capital.
Dependency
on a Single Customer
There
is
no single customer the loss of which would have a material adverse effect on
our
business. No customer accounted for more than 10% of our total revenues in
any
of the past three years.
Backlog
Our
backlog of firm orders at year-end 2005 and 2004 was as follows:
|
2005
|
2004
|
|||||||
|
|
(In
thousands)
|
|||||||
|
Life
and Laboratory Sciences
|
$
|
401,927
|
$
|
339,662
|
||||
|
Measurement
and Control
|
126,155
|
127,329
|
||||||
|
$
|
528,082
|
$
|
466,991
|
|||||
We believe that
virtually all of our backlog at the end of 2005 will be filled during 2006.
The
increase in backlog in 2005 in the Life and Laboratory Sciences segment is
due
to acquisitions and, to a lesser extent, increased demand, offset in part
by the
impact of currency translation.
Government
Contracts
Although
the company transacts business with various government agencies, no government
contract is of such magnitude that a renegotiation of profits or termination
of
the contract at the election of the government agency would have a material
adverse effect on the company’s financial results.
Competition
General
The
company encounters aggressive and able competition in virtually all of the
markets we serve. Because of the diversity of our products and services, we
face
many different types of competitors and competition. Our competitors range
from
large organizations that produce a comprehensive array of products and services
for a variety of markets to small organizations producing a limited number
of
products and services for specialized markets. In general, competitive climates
in the markets we serve are characterized by changing technology and customer
demands that require continuing research and development. Our success in these
markets primarily depends on five factors:
| · |
technical
performance and advances in technology that result in new products
and
improved price/performance ratios;
|
| · |
our
reputation among customers as a quality provider of products and
services;
|
| · |
customer
service and support;
|
| · |
active
research and application-development programs;
and
|
| · |
relative
prices of our products and
services.
|
Life
and Laboratory Sciences
Laboratory
Equipment.
In the
markets for these products, our principal competitors include Eppendorf AG;
Gilson, Inc.; Tecan Group Ltd.; PerkinElmer, Inc.; Molecular Devices Corp.;
Sanyo Electric Biomedical Co. (a subsidiary of Sanyo Electric Co.); New
Brunswick Scientific Co., Inc.; Nuaire, Inc.; Beckman Coulter, Inc.; Fisher
Scientific International Inc.; The Baker Company; and Sheldon Mfg.
Inc.
Scientific
Instruments.
In the
markets for these products, our principal competitors include Applied Biosystems
Inc.; Agilent Technologies Inc.; Waters Corporation; Shimadzu Corporation;
PerkinElmer; Bruker Biosciences Corporation; Hitachi, Ltd.; and Varian
Inc.
Informatics
and Services.
In the
markets for these offerings, our principal competitors include PerkinElmer;
Applied Biosystems; Agilent; LabWare, Inc.; and GE Medical Systems (a General
Electric Company going to market as GE Healthcare).
Clinical
Diagnostics.
In the
markets for these products, our principal competitors include Leica Microsystems
a subsidiary of Danaher Corporation; Sakura Finetechnical Co., Ltd.; Becton,
Dickinson and Company; Apogent Technologies Inc. (a subsidiary of Fisher
Scientific International Inc.); and Roche Diagnostics (a division of F.
Hoffmann-La Roche A.G.).
Measurement
and Control
Process
Instruments.
In the
markets for these products, our principal competitors include Mettler-Toledo
International Inc.; Yokogawa Electric Corporation; Fisher-Rosemount (a division
of Emerson Electric Co.); ABB Ltd.; Endress & Hauser Holding AG; Integrated
Measurement Systems, Inc.; Antek Instruments, Inc.; SMC Corporation; Lytron
Inc.; Julabo USA, Inc.; TA Instruments Inc.; Gottfert Inc.; C.W. Brabender
Instruments, Inc.; and MDC Technology (a division of Emerson Electric
Co.).
Environmental
Instruments.
In the
markets for these products, our principal competitors include Mettler-Toledo;
Horiba Instruments Inc.; Fisher-Rosemount; Danaher Corporation; Teledyne
Advanced Pollution Instrumentation, Inc.; RAE Systems Inc.; Canberra Industries,
Inc.; MGP Instruments, Inc.; GE Interlogix Inc. (a subsidiary of General
Electric Company); and Smiths Group PLC.
Environmental
Protection Regulations
Complying
with federal, state and local environmental protection regulations should not
significantly affect our capital spending, earnings or competitive
position.
Number
of Employees
As
of
December 31, 2005, we had approximately 11,500 employees.
Financial
Information About Geographic Areas
Financial
information about geographic areas is summarized in Note 3 to our Consolidated
Financial Statements, which begin on page F-1 of this report.
Available
Information
The
company files annual, quarterly and current reports, proxy statements and other
documents with the Securities and Exchange Commission (SEC) under the Exchange
Act. The public may read and copy any materials that we file with the SEC at
the
SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room
by
calling the SEC at 1-800-SEC-0330.
Also,
the
SEC maintains a Web site that contains reports, proxy and information statements
and other information that issuers, including the company, file electronically
with the SEC. The public can obtain any documents that we file with the SEC
at
www.sec.gov. We also make available free of charge on or through our own Web
site at www.thermo.com our Annual Report on Form 10-K, Quarterly Reports on
Form
10-Q, Current Reports on Form 8-K and, if applicable, amendments to those
reports filed or furnished pursuant to Section 13(a) of the Exchange Act as
soon
as reasonably practicable after we electronically file such material with,
or
furnish it to, the SEC. In addition, paper copies of these documents may be
obtained free of charge by writing to the company care of its Investor Relations
Department at our principal executive office located at 81 Wyman Street,
Waltham, Massachusetts 02451.
Executive
Officers of the Registrant
|
Name
|
Age
|
Present
Title (Fiscal Year First Became Executive Officer)
|
||
|
Marijn
E. Dekkers
|
48
|
President
and Chief Executive Officer (2000)
|
||
|
Marc
N. Casper
|
37
|
Senior
Vice President (2001)
|
||
|
Guy
Broadbent
|
42
|
Vice
President; President, Laboratory Equipment (2001)
|
||
|
Seth
H. Hoogasian
|
51
|
Vice
President, General Counsel and Secretary (2001)
|
||
|
Stephen
G. Sheehan
|
50
|
Vice
President, Human Resources (2003)
|
||
|
Peter
M. Wilver
|
46
|
Vice
President and Chief Financial Officer (2003)
|
||
|
Peter
E. Hornstra
|
46
|
Corporate
Controller and Chief Accounting Officer
(2001)
|
Mr.
Dekkers was appointed Chief Executive Officer in November 2002 and President
in
July 2000. He was Chief Operating Officer from July 2000 to November
2002.
Mr.
Casper was appointed Senior Vice President of Thermo Electron in December 2003.
He was President, Life and Laboratory Sciences from December 2001 to March
2005.
He was Vice President of Thermo Electron from
December
2001 to December 2003. From July 2000 to July 2001, Mr. Casper was president
and
chief executive officer of Kendro Laboratory Products, a life sciences company
that provides sample-preparation and processing equipment and that was acquired
by the company in May 2005.
Mr.
Broadbent was appointed President, Laboratory Equipment in November 2004 and
Vice President of Thermo Electron in January 2001. He was President,
Spectra-Physics Division from December 2003 to July 2004 and was President,
Optical Technologies from October 2000 to December 2003.
Mr.
Hoogasian was appointed Secretary in 2001, Vice President in 1996 and General
Counsel in 1992.
Mr.
Sheehan was appointed Vice President, Human Resources in August 2001. From
1997
to July 2001, Mr. Sheehan served as vice president of human resources for Merck
Research Labs, the research unit of Merck & Co., Inc., a pharmaceutical
company.
Mr.
Wilver was appointed Vice President and Chief Financial Officer in October
2004.
He was Vice President, Financial Operations from October 2000 to October
2004.
Mr.
Hornstra was appointed Chief Accounting Officer in January 2001 and Corporate
Controller in 1996.
|
Risk
Factors
|
Set
forth
below are the risks that we believe are material to our investors. This section
contains forward-looking statements. You should refer to the explanation of
the
qualifications and limitations on forward-looking statements beginning on page
3.
We
must develop new products, adapt to rapid and significant technological change
and respond to introductions of new products in order to remain competitive.
Our
growth strategy includes significant investment in and expenditures for product
development. We sell our products in several industries that are characterized
by rapid and significant technological changes, frequent new product and service
introductions and enhancements and evolving industry standards. Without the
timely introduction of new products, services and enhancements, our products
and
services will likely become technologically obsolete over time, in which case
our revenue and operating results would suffer.
Development
of our products requires significant investment; our products and technologies
could become uncompetitive or obsolete.
Our
customers use many of our products to develop, test and manufacture their own
products. As a result, we must anticipate industry trends and develop products
in advance of the commercialization of our customers’ products. If we fail to
adequately predict our customers’ needs and future activities, we may invest
heavily in research and development of products and services that do not lead
to
significant revenue.
Many
of
our existing products and those under development are technologically innovative
and require significant planning, design, development and testing at the
technological, product and manufacturing-process levels. These activities
require us to make significant investments.
Products
in our markets undergo rapid and significant technological change because of
quickly changing industry standards and the introduction of new products and
technologies that make existing products and technologies uncompetitive or
obsolete. Our competitors may adapt more quickly to new technologies and changes
in customers’ requirements than we can. The products that we are currently
developing, or those we will develop in the future, may not be technologically
feasible or accepted by the marketplace, and our products or technologies could
become uncompetitive or obsolete.
It
may be difficult for us to implement our strategies for improving internal
growth.
Some
of
the markets in which we compete have been flat or declining over the past
several years. To address this issue, we are pursuing a number of strategies
to
improve our internal growth, including:
| · |
finding
new markets for our products;
|
| · |
developing
new applications for our technologies;
|
| · |
combining
sales and marketing operations in appropriate markets to compete
more
effectively;
|
| · |
allocating
research and development funding to products with higher growth prospects;
|
| · |
continuing
key customer initiatives;
|
| · |
expanding
our service offerings;
|
| · |
strengthening
our presence in selected geographic markets; and
|
| · |
continuing
the development of commercial tools and infrastructure to increase
and
support cross-selling opportunities of products and services to take
advantage of our breadth in product
offerings.
|
We
may
not be able to successfully implement these strategies, and these strategies
may
not result in the growth of our business.
Our
inability to protect our intellectual property could have a material adverse
effect on our business. In addition, third parties may claim that we infringe
their intellectual property, and we could suffer significant litigation or
licensing expense as a result.
We place
considerable emphasis on obtaining patent and trade secret protection for
significant new technologies, products and processes because of the length
of
time and expense associated with bringing new products through the development
process and into the marketplace. Our success depends in part on our ability
to
develop patentable products and obtain and enforce patent protection for our
products both in the United States and in other countries. We own numerous
U.S.
and foreign patents, and we intend to file additional applications, as
appropriate, for patents covering our products. Patents may not be issued for
any pending or future patent applications owned by or licensed to us, and the
claims allowed under any issued patents may not be sufficiently broad to protect
our technology. Any issued patents owned by or licensed to us may be challenged,
invalidated or circumvented, and the rights under these patents may not provide
us with competitive advantages. In addition, competitors may design around
our
technology or develop competing technologies. Intellectual property rights
may
also be unavailable or limited in some foreign countries, which could make
it
easier for competitors to capture increased market position. We could incur
substantial costs to defend ourselves in suits brought against us or in suits
in
which we may assert our patent rights against others. An unfavorable outcome
of
any such litigation could materially adversely affect our business and results
of operations.
We
also
rely on trade secrets and proprietary know-how with which we seek to protect
our
products, in part, by confidentiality agreements with our collaborators,
employees and consultants. These agreements may be breached and we may not
have
adequate remedies for any breach. In addition, our trade secrets may otherwise
become known or be independently developed by our competitors.
Third
parties may assert claims against us to the effect that we are infringing on
their intellectual property rights. For example, in September 2004 Applied
Biosystems/MDS Scientific Instruments and related parties brought a lawsuit
against us alleging our mass spectrometer systems infringe a patent held by
the
plaintiffs. We could incur substantial costs and diversion of management
resources in defending these claims, which could have a material adverse effect
on
our
business, financial condition and results of operations. In addition, parties
making these claims could secure a judgment awarding substantial damages, as
well as injunctive or other equitable relief, which could effectively block
our
ability to make, use, sell, distribute, or market our products and services
in
the United States or abroad. In the event that a claim relating to intellectual
property is asserted against us, or third parties not affiliated with us hold
pending or issued patents that relate to our products or technology, we may
seek
licenses to such intellectual property or challenge those patents. However,
we
may be unable to obtain these licenses on commercially reasonable terms, if
at
all, and our challenge of the patents may be unsuccessful. Our failure to obtain
the necessary licenses or other rights could prevent the sale, manufacture,
or
distribution of our products and, therefore, could have a material adverse
effect on our business, financial condition and results of
operations.
Demand
for most of our products depends on capital spending policies of our customers
and on government funding policies.
Our
customers include pharmaceutical and chemical companies, laboratories,
universities, healthcare providers, government agencies and public and private
research institutions. Many factors, including public policy spending
priorities, available resources and product and economic cycles, have a
significant effect on the capital spending policies of these entities. These
policies in turn can have a significant effect on the demand for our
products.
Our
results could be impacted if we are unable to realize potential future benefits
from new productivity initiatives.
We
continue to pursue practical process improvement (PPI) programs and other cost
saving initiatives at our locations which are designed to further enhance our
productivity, efficiency and customer satisfaction. While we anticipate
continued benefits from these initiatives, future benefits are expected to
be
fewer and smaller in size and may be more difficult to achieve.
Our
Measurement and Control segment sells products and services to a number of
companies that operate in cyclical industries; downturns in those industries
would adversely affect our results of operations.
The
growth and profitability of some of our businesses in the Measurement and
Control segment depend in part on sales to industries that are subject to
cyclical downturns. For example, certain businesses in this segment depend
in
part on sales to the steel, cement and semiconductor industries. Slowdowns
in
these industries would adversely affect sales by these businesses, which in
turn
would adversely affect our revenues and results of operations.
Our
business is impacted by general economic conditions and related uncertainties
affecting markets in which we operate.
Adverse
economic conditions could adversely impact our business in 2006 and beyond,
resulting in:
| · |
reduced
demand for some of our products;
|
| · |
increased
rate of order cancellations or
delays;
|
| · |
increased
risk of excess and obsolete
inventories;
|
| · |
increased
pressure on the prices for our products and services;
and
|
| · |
greater
difficulty in collecting accounts
receivable.
|
Changes
in governmental regulations may reduce demand for our products or increase
our
expenses.
We
compete in many markets in which we and our customers must comply with federal,
state, local and international 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 those regulations. Any significant
change in regulations could reduce demand for our products or increase our
expenses. For example, many of our instruments are marketed to the
pharmaceutical industry for use in discovering and developing drugs. Changes
in
the U.S. Food and Drug Administration’s regulation of the drug discovery and
development process could have an adverse effect on the demand for these
products.
If
any of our security products fail to detect explosives or radiation, we could
be
exposed to product liability and related claims for which we may not have
adequate insurance coverage.
The
products sold by our environmental instruments division include a comprehensive
range of fixed and portable instruments used for chemical, radiation and trace
explosives detection. These products are used in airports, embassies, cargo
facilities, border crossings and other high-threat facilities for the detection
and prevention of terrorist acts. If any of these products were to malfunction,
it is possible that explosive or radioactive material could pass through the
product undetected, which could lead to product liability claims. There are
also
many other factors beyond our control that could lead to liability claims,
such
as the reliability and competence of the customers’ operators and the training
of such operators. Any such product liability claims brought against us could
be
significant and any adverse determination may result in liabilities in excess
of
our insurance coverage. Although we carry product liability insurance, we cannot
be certain that our current insurance will be sufficient to cover these claims
or that it can be maintained on acceptable terms, if at all.
Our
branding strategy could be unsuccessful.
We
historically operated our business largely as autonomous, unaffiliated
companies, and as a result, each of our businesses independently created and
developed its own brand names. Our marketing and branding strategy transitions
multiple, unrelated brands to one brand, Thermo Electron. Several of our former
brands such as Finnigan and Nicolet commanded strong market recognition and
customer loyalty. We believe the transition to the one brand enhances and
strengthens our collective brand image and brand awareness across the entire
company. Our success in promoting our brand depends on many factors, including
effective communication of the transition to our customers, acceptance and
recognition by customers of this brand and successful execution of the branding
campaign by our marketing and sales teams. If we are not successful with this
strategy, we may experience erosion in our product recognition, brand image
and
customer loyalty and a decrease in demand for our products.
Our
inability to successfully identify and complete acquisitions or successfully
integrate any new or previous acquisitions could have a material adverse effect
on our business.
Our
business strategy includes the acquisition of technologies and businesses that
complement or augment our existing products and services. Promising acquisitions
are difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory, including
antitrust, approvals. We may not be able to identify and successfully complete
transactions. Any acquisition we may complete may be made at a substantial
premium over the fair value of the net assets of the acquired company. Further,
we may not be able to integrate any acquired businesses successfully into our
existing businesses, make such businesses profitable, or realize anticipated
cost savings or synergies, if any, from these acquisitions, which could
adversely affect our business. For example, we will need to integrate the Kendro
business that we recently acquired in order to realize its anticipated cost
savings and synergies.
Moreover,
we have acquired many companies and businesses. As a result of these
acquisitions, we recorded significant goodwill on our balance sheet, which
amounts to approximately $1.97 billion as of December 31, 2005. We assess the
realizability of the goodwill we have on our books annually as well as whenever
events or changes in circumstances indicate that the goodwill may be impaired.
These events or circumstances generally include operating losses or a
significant decline in earnings associated with the acquired business or asset.
Our ability to realize the value of the goodwill will depend on the future
cash
flows of these businesses. These cash flows in turn depend in part on how well
we have integrated these businesses. If we are not able to realize the value
of
the goodwill, we may be required to incur material charges relating to the
impairment of those assets.
We
have retained contingent liabilities from businesses that we have sold.
From
1997
through 2004, we divested over 60 businesses with aggregate annual revenues
in
excess of $2 billion. As part of these transactions, we retained responsibility
for some of the contingent liabilities related to these businesses, such as
lawsuits, product liability and environmental claims and potential claims by
buyers that representations and warranties we made about the businesses were
inaccurate. The resolution of these contingencies has not had a material adverse
effect on our results of operations or financial condition; however, we can
not
be certain that this favorable pattern will continue.
As
a
multinational corporation, we are exposed to fluctuations in currency exchange
rates, which could adversely affect our cash flows and results of
operations.
International revenues account for a substantial portion of our revenues, and
we
intend to continue expanding our presence in international markets. In 2005,
our
international revenues from continuing operations, including export revenues
from the United States, accounted for approximately 58% of our total revenues.
The exposure to fluctuations in currency exchange rates takes on different
forms. International revenues are subject to the risk that fluctuations in
exchange rates could adversely affect product demand and the profitability
in
U.S. dollars of products and services provided by us in international markets,
where payment for our products and services is made in the local currency.
As a
multinational corporation, our businesses occasionally invoice third-party
customers in currencies other than the one in which they primarily do business
(the “functional currency”). Movements in the invoiced currency relative to the
functional currency could adversely impact our cash flows and our results of
operations. In addition, reported sales made in non-U.S. currencies by our
international businesses, when translated into U.S. dollars for financial
reporting purposes, fluctuate due to exchange rate movement. Should our
international sales grow, exposure to fluctuations in currency exchange rates
could have a larger effect on our financial results. In 2005, currency
translation had an unfavorable effect on revenues of our continuing operations
of $4.5 million due to a strengthening of the U.S. dollar relative to other
currencies in which the company sells products and services. In 2004, currency
translation had a favorable effect on revenues of our continuing operations
of
$92.1 million due to weakening of the U.S. dollar.
We
are subject to laws and regulations governing government contracts, and failure
to address these laws and regulations or comply with government contracts could
harm our business by leading to a reduction in revenue associated with these
customers.
We
have
agreements relating to the sale of our products to government entities and,
as a
result, we are subject to various statutes and regulations that apply to
companies doing business with the government. The laws governing government
contracts differ from the laws governing private contracts and government
contracts may contain pricing terms and conditions that are not applicable
to
private contracts. We are also subject to investigation for compliance with
the
regulations governing government contracts. A failure to comply with these
regulations could result in suspension of these contracts, criminal, civil
and
administrative penalties or debarment.
Unforeseen
problems with the implementation and maintenance of our information systems
could interfere with our operations.
As
a part
of the effort to upgrade our current information systems, we are implementing
new enterprise resource planning software and other software applications to
manage certain of our business operations. As we implement and add
functionality, problems could arise that we have not foreseen. Such problems
could adversely impact our ability to do the following in a timely manner:
provide quotes, take customer orders, ship products, provide services and
support to our customers, bill and track our customers, fulfill contractual
obligations and otherwise run our business. In addition, if our new systems
fail
to provide accurate and increased visibility into pricing and cost structures,
it may be difficult to improve or maximize our profit margins. As a result,
our
results of operations and cash flows could be adversely affected.
Our
debt may adversely affect our cash flow and may restrict our investment
opportunities or limit our activities.
As
of
December 31, 2005, we had approximately $598.8 million in outstanding
indebtedness.
We
have
$250 million in additional borrowing capacity available to us under our
revolving credit facility and $83 million available under our euro facility.
We
may also obtain additional long-term debt and lines of credit to meet future
financing needs, which would have the effect of increasing our total
leverage.
Our
leverage could have negative consequences, including increasing our
vulnerability to adverse economic and industry conditions, limiting our ability
to obtain additional financing and limiting our ability to acquire new products
and technologies through strategic acquisitions.
Our
ability to satisfy our obligations depends on our future operating performance
and on economic, financial, competitive and other factors beyond our control.
Our business may not generate sufficient cash flow to meet these obligations.
If
we are unable to service our debt or obtain additional financing, we may be
forced to delay strategic acquisitions, capital expenditures or research and
development expenditures. We may not be able to obtain additional financing
on
terms acceptable to us or at all.
Additionally,
the agreements governing our debt require that we maintain certain financial
ratios, and contain affirmative and negative covenants that restrict our
activities by, among other limitations, limiting our ability to incur additional
indebtedness, make investments, create liens, sell assets and enter into
transactions with affiliates. The financial covenants in our U.S. dollar
revolving credit facility and euro facility include interest coverage and
debt-to-capital ratios. Specifically, the company agrees that, so long as the
commitments remain in effect or any loan or other amount is outstanding under
the loan agreements, it will not permit (as the following terms are defined
in
the loan agreements):
| · |
the
Consolidated Interest Coverage Ratio (the ratio of Consolidated EBITDA
to
Consolidated Interest Expense) for any period of four consecutive
fiscal
quarters to be less than 3.25:1.00;
or
|
| · |
the
Consolidated Total Debt to Consolidated Total Capitalization ratio
at the
end of any fiscal quarter to be greater than
0.50:1.00.
|
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 and interest rates.
Our
failure to comply with any of these restrictions or covenants may result in
an
event of default under the applicable debt instrument, which could permit
acceleration of the debt under that instrument and require us to prepay that
debt before its scheduled due date. Also, an acceleration of the debt under
one
of our debt instruments
would
trigger an event of default under other of our debt instruments.
Earthquakes
could disrupt our operations in California.
One
of
the company’s principal operations, which manufactures analytical instruments,
is located in San Jose, a region near major California earthquake faults. Our
operating results could be materially affected in the event of a major
earthquake.
|
Unresolved
Staff Comments
|
Not
applicable.
|
Properties
|
The
location and general character of our principal properties by segment as of
December 31, 2005, are as follows:
Life
and Laboratory Sciences
We
own
approximately 1,891,000 square feet of office, engineering, laboratory and
production space, principally in Ohio, Wisconsin, California, Texas and
Pennsylvania within the U.S., and in Germany, Italy, Switzerland and France.
We
lease approximately 2,168,000 square feet of office, engineering, laboratory
and
production space, principally in Massachusetts, North Carolina, Maryland and
Pennsylvania within the U.S., and in Finland, England, France, China and
Germany, under various leases that expire between 2006 and 2050.
Measurement
and Control
We
own
approximately 700,000 square feet of office, engineering, laboratory and
production space, principally in New Hampshire, Minnesota and New Mexico within
the U.S., and in Germany and England. We lease approximately 786,000 square
feet
of office, engineering, laboratory and production space, principally in
Massachusetts, Texas and New York within the U.S., and in England and Australia,
under various leases that expire between 2006 and 2015.
Corporate
Headquarters
We
own
approximately 81,000 square feet of office space in Massachusetts.
We
believe that all of the facilities that we are currently utilizing are in good
condition and are suitable and adequate to meet our current needs. If we are
unable to renew any of the leases that are due to expire in the next year or
two, we believe that suitable replacement properties are available on
commercially reasonable terms.
|
Legal
Proceedings
|
On
September 3, 2004, Applera Corporation, MDS Inc. and Applied Biosystems/MDS
Scientific Instruments filed a complaint against the company in U.S. District
Court for the District of Delaware, Civil Action No. 04-1230-GMS. These
plaintiffs allege that the company’s mass spectrometer systems, including its
triple quadrupole and certain of its ion trap systems, infringe U.S. patent
number 4,963,736 entitled “Mass Spectrometer and Method and Improved Ion
Transmission.” The plaintiffs seek damages, including treble damages for alleged
willful infringement, attorneys’ fees, prejudgment interest and injunctive
relief. An unfavorable outcome could have a material adverse impact on the
company’s financial position, results of operations and cash flows.
On
December 8, 2004 and February 23, 2005, the company asserted in two lawsuits
in
the same Delaware court, that one or more of the plaintiffs in the above action
infringe two patents of the company
(U.S.
patent number 5,385,654 entitled “Controlled Temperature Anion Separation by
Capillary Electrophoresis” and U.S. patent number 6,528,784 entitled “Mass
Spectrometer System Including a Double Ion Guide Interface and Method of
Operation”).
The
lawsuits brought by the company seek relief similar to that being sought by
the
plaintiffs.
|
Submission
of Matters to a Vote of Security
Holders
|
No
matters were submitted to a vote of security holders, whether through the
solicitation of proxies or otherwise, during our 2005 fourth fiscal
quarter.
PART
II
|
Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
Market
Price of Common Stock
Our
common stock is traded on the New York Stock Exchange under the symbol TMO.
The
following table sets forth the high and low sale prices of the company’s common
stock for 2005 and 2004, as reported in the consolidated transaction reporting
system.
|
2005
|
2004
|
|||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||
|
First
Quarter
|
$
|
29.99
|
$
|
24.89
|
$
|
29.33
|
$
|
25.03
|
||||||
|
Second
Quarter
|
27.20
|
24.24
|
31.00
|
27.81
|
||||||||||
|
Third
Quarter
|
30.90
|
26.70
|
29.45
|
24.21
|
||||||||||
|
Fourth
Quarter
|
31.78
|
29.53
|
30.88
|
26.20
|
||||||||||
Holders
of Common Stock
As
of
January 27, 2006, the company had 8,898 holders of record of its common stock.
This does not include holdings in street or nominee names.
Dividend
Policy
The
company has never paid cash dividends and does not expect to pay cash dividends
in the foreseeable future. Payment of dividends will rest within the discretion
of the company’s Board of Directors and will depend upon, among other factors,
the company’s earnings, capital requirements and financial
condition.
Issuer
Purchases of Equity Securities
The
company did not repurchase any of its debt or equity securities during the
fourth quarter of 2005.
|
Selected
Financial Data
|
|
2005
(a)
|
2004
(b)
|
2003
(c)
|
2002
(d)
|
2001
(e)
|
||||||||||||
|
(In millions except per share
amounts)
|
||||||||||||||||
|
Statement
of Operations Data
|
||||||||||||||||
|
Revenues
|
$
|
2,633.0
|
$
|
2,206.0
|
$
|
1,899.4
|
$
|
1,849.4
|
$
|
1,916.2
|
||||||
|
Operating
Income
|
263.5
|
237.5
|
187.4
|
169.9
|
82.4
|
|||||||||||
|
Income from Continuing Operations Before Cumulative Effect
of
Change in Accounting Principle
|
198.3
|
218.4
|
175.2
|
203.4
|
76.0
|
|||||||||||
|
Income
Before Cumulative Effect of Change in Accounting Principle
|
223.2
|
361.8
|
200.0
|
309.7
|
0.2
|
|||||||||||
|
Net
Income (Loss)
|
223.2
|
361.8
|
200.0
|
309.7
|
(0.8
|
)
|
||||||||||
|
Earnings per Share from Continuing Operations Before Cumulative
Effect of Change in Accounting Principle:
|
||||||||||||||||
|
Basic
|
1.23
|
1.34
|
1.08
|
1.21
|
.42
|
|||||||||||
|
Diluted
|
1.21
|
1.31
|
1.05
|
1.17
|
.41
|
|||||||||||
|
Earnings
(Loss) per Share:
|
||||||||||||||||
|
Basic
|
1.38
|
2.22
|
1.23
|
1.84
|
–
|
|||||||||||
|
Diluted
|
1.36
|
2.17
|
1.20
|
1.73
|
–
|
|||||||||||
|
Balance
Sheet Data
|
||||||||||||||||
|
Working
Capital
|
$
|
562.2
|
$
|
890.9
|
$
|
710.5
|
$
|
667.8
|
$
|
823.2
|
||||||
|
Total
Assets
|
4,251.6
|
3,576.7
|
3,389.3
|
3,651.5
|
3,825.1
|
|||||||||||
|
Long-term
Obligations
|
468.6
|
226.1
|
229.5
|
451.3
|
727.5
|
|||||||||||
|
Shareholders’
Equity
|
2,793.3
|
2,665.6
|
2,381.7
|
2,030.3
|
1,908.1
|
|||||||||||
Th
rough
2002, the company had a fiscal year end ending the Saturday nearest December
31.
In 2003, the company changed its year end to December 31. The consolidated
financial statements for fiscal year 2001 were audited by Arthur Andersen LLP,
which has ceased operations. The results of Spectra-Physics have been
reclassified to discontinued operations for all years presented.
|
(a)
|
Reflects
a $30.3 million pre-tax charge for restructuring and other costs;
$27.6
million of pre-tax net gains from the sale of shares of Thoratec
Corporation and Newport Corporation; and after-tax income of $24.9
million
related to the company’s discontinued operations. Also reflects use of
cash and debt for acquisitions, principally
Kendro.
|
|
(b)
|
Reflects
a $19.2 million pre-tax charge for restructuring and other costs;
$9.6
million of pre-tax gains from the sale of shares of Thoratec; $33.8
million of tax benefits recorded on completion of tax audits; after-tax
income of $143.5 million related to the company’s discontinued operations;
and the repurchase of $231.5 million of the company’s common
stock.
|
|
(c)
|
Reflects
a $45.3 million pre-tax charge for restructuring and other costs;
$16.3
million of pre-tax gains from the sale of shares of Thoratec; $13.7
million of pre-tax gains from the sale of shares of FLIR Systems,
Inc.;
after-tax income of $24.8 million related to the company’s discontinued
operations; and the repurchase and redemption of $356.9 million of
the
company’s debt and equity
securities.
|
|
(d)
|
Reflects
a $46.2 million pre-tax charge for restructuring and other costs;
$111.4
million of pre-tax gains from the sale of shares of FLIR; after-tax
income
of $106.3 million related to the company’s discontinued operations; the
repurchase and redemption of $924.9 million of the company’s debt and
equity securities; and the reclassification of the company’s $71.9 million
principal amount 4 3/8% subordinated convertible debentures from
long-term
obligations to current liabilities as a result of the company’s decision
to redeem them in April 2003. Also reflects the adoption of SFAS
No. 142,
under which amortization of goodwill
ceased.
|
|
(e)
|
Reflects
a $107.4 million pre-tax charge for restructuring and other costs;
$38.3
million of goodwill amortization expense; $35.1 million of pre-tax
gains
from the sale of shares of FLIR; an after-tax loss of $75.8 million
related to the company’s discontinued operations; and a $1.0 million
after-tax charge reflecting the cumulative effect of a change in
accounting principle for the adoption of SFAS No.
133.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
Reference
is made throughout this Management’s Discussion and Analysis of Financial
Condition and Results of Operations to Notes to Consolidated Financial
Statements, which begin on page F-1 of this report.
Overview
of Results of Operations and Liquidity
The
company develops and manufactures a
broad range of products that are sold worldwide. The company expands the product
lines and services it offers by developing and commercializing its own core
technologies and by making strategic acquisitions of complementary businesses.
In 2004, the company sold Spectra-Physics, its optical technologies segment
which has been presented as discontinued operations in the accompanying
financial statements. The company’s continuing operations fall into two
principal business segments: Life and Laboratory Sciences and Measurement and
Control. Revenues in the fourth quarter are historically stronger than in other
quarters due to capital spending patterns of industrial, pharmaceutical and
government customers.
|
2005
|
2004
|
|||||||||||
| Revenues |
(Dollars
in thousands)
|
|||||||||||
|
Life
and Laboratory Sciences
|
$
|
1,960,153
|
74.4%
|
|
$
|
1,573,445
|
71.3%
|
|||||
|
Measurement
and Control
|
672,874
|
25.6%
|
|
632,550
|
28.7%
|
|||||||
|
$
|
2,633,027
|
100%
|
|
$
|
2,205,995
|
100%
|
||||||
The
company’s revenues grew by 19% during 2005. The increase was due in part to
acquisitions, net of divestitures. The strengthening of the dollar relative
to
non-U.S. currencies caused a decrease in reported revenues. In addition to
the
change in revenues caused by acquisitions, net of divestitures and currency
translation, which are discussed below, sales increased 4% in 2005, primarily
due to increased demand and, to a lesser extent, higher
prices.
The
company’s strategy is to augment internal growth at existing businesses with
complementary acquisitions such as those completed in 2005 and 2004. The
principal acquisitions included Ionalytics Corporation, a provider of an
ion-filtering device used with mass spectrometers, which was acquired in August
2005; the Kendro Laboratory Products division of SPX Corporation, a provider
of
a wide range of laboratory equipment for sample preparation, processing and
storage, which was acquired in May 2005; Rupprecht and Patashnick Co., Inc.
(R&P), a provider of continuous particulate monitoring instrumentation for
the ambient air, emissions monitoring and industrial hygiene markets, which
was
acquired in April 2005; Niton LLC, a provider of portable X-ray analyzers to
the
metals, petrochemical and environmental markets, which was acquired in March
2005; InnaPhase Corporation, a supplier of
laboratory
information management systems for the pharmaceutical and biotechnology markets,
which was acquired in September 2004; and US Counseling Services, Inc. (USCS),
a
supplier of equipment asset management services to the pharmaceutical,
healthcare and related industries, which was acquired in April
2004.
In
2005,
the company’s operating income and operating income margin were $263.5 million
and 10.0%, respectively, compared with $237.5 million and 10.8%, respectively,
in 2004. (Operating income margin is operating income divided by revenues.)
The
increase in operating income was due to higher revenues, productivity
improvements including lower costs following restructuring actions and, to
a
lesser extent, price increases, offset in part by $54.8 million of higher
amortization expense associated with acquisition-related intangible assets.
Operating income margin decreased due to lower operating margins on revenue
from
acquisitions as a result of amortization of acquisition-related intangible
assets. Restructuring and other costs, net, (including charges to cost of
revenues principally associated with the sale of inventories revalued at the
date of acquisition) reduced operating income by $30.3 million and $19.2 million
in 2005 and 2004, respectively.
The
company’s effective tax rate was 30.6% and 15.8% in 2005 and 2004, respectively.
The provision for income taxes in 2005 includes $4.2 million for the estimated
effect of tax audits of prior years in a non-U.S. country. This charge increased
the effective tax rate in 2005 by 1.5 percentage points. The provision for
income taxes in 2004 includes a benefit of $33.8 million associated with the
settlement of U.S. and state tax audits of prior years. This benefit reduced
the
company’s effective tax rate by 13.0 percentage points.
Income
from continuing operations decreased to $198.3 million in 2005, from $218.4
million in 2004, primarily due to the effect of tax audits in both years and
higher amortization expense, discussed above, offset in part by higher operating
income from increased revenues as well as an increase in other
income.
During
2005, the company’s cash flow from operations totaled $270.9 million, compared
with $264.5 million in 2004.
As
of
December 31, 2005, the company’s outstanding debt totaled $598.8 million, of
which 65% is due in 2008 and thereafter. The company expects that its existing
cash and short-term investments of $295.0 million as of December 31, 2005,
and
the company’s future cash flow from operations together with available unsecured
borrowings of up to $250 million under its existing 5-year revolving credit
agreement and available unsecured borrowings under its 5-year euro facility
are
sufficient to meet its capital requirements for the foreseeable future,
including at least the next 24 months.
Critical
Accounting Policies
The
company’s discussion and analysis of its financial condition and results of
operations is based upon its financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America. The preparation of these financial statements requires the company
to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses and related disclosure of contingent
liabilities. On an on-going basis, the company evaluates its estimates,
including those related to equity investments, bad debts, inventories,
intangible assets, warranty obligations, income taxes, pension costs,
contingencies and litigation, restructuring and sale of businesses. The company
bases its estimates on historical experience, current market and economic
conditions and other assumptions that management believes are reasonable. The
results of these estimates form the basis for judgments about the carrying
value
of assets and liabilities where the values are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
The
company believes the following represent its critical accounting policies and
estimates used in the preparation of its financial statements:
|
(a)
|
The
company maintains allowances for doubtful accounts for estimated
losses
resulting from the inability of its customers to pay amounts due.
Such
allowances totaled $21.8 million at December 31, 2005. The company
estimates the amount of customer receivables that are uncollectible
based
on the age of the
receivable,
the creditworthiness of the customer and any other information that
is
relevant to the judgment. If the financial condition of the company’s
customers were to deteriorate, reducing their ability to make payments,
additional allowances would be
required.
|
|
(b)
|
The
company writes down its inventories for estimated obsolescence for
differences between the cost and estimated net realizable value taking
into consideration usage in the preceding 12 months, expected demand
and
any other information that is relevant to the judgment. If ultimate
usage
or demand vary significantly from expected usage or demand, additional
writedowns may be required.
|
|
(c)
|
The
company periodically evaluates goodwill for impairment using forecasts
of
discounted future cash flows. Goodwill totaled $1.97 billion at December
31, 2005. Estimates of future cash flows require assumptions related
to
revenue and operating income growth, asset-related expenditures,
working
capital levels and other factors. Different assumptions from those
made in
the company’s analysis could materially affect projected cash flows and
the company’s evaluation of goodwill for impairment. Should the fair value
of the company’s goodwill decline because of reduced operating
performance, market declines, or other indicators of impairment,
or as a
result of changes in the discount rate, charges for impairment of
goodwill
may be necessary.
|
|
(d)
|
The
company estimates the fair value of acquisition-related intangible
assets
principally based on projections of cash flows that will arise from
identifiable intangible assets of acquired businesses. The projected
cash
flows are discounted to determine the present value of the assets
at the
dates of acquisition. Actual cash flows arising from a particular
intangible asset could vary from projected cash flows which could
imply
different carrying values and annual amortization expense from those
established at the dates of
acquisition.
|
|
(e)
|
The
company reviews other long-lived assets for impairment when indication
of
potential impairment exists, such as a significant reduction in cash
flows
associated with the assets. Other long-lived assets totaled $931.5
million
at December 31, 2005, including $280.7 million of fixed assets. In
testing
a long-lived asset for impairment, assumptions are made concerning
projected cash flows associated with the asset. Estimates of future
cash
flows require assumptions related to revenue and operating income
growth
and asset-related expenditures associated with the asset being reviewed
for impairment. Should future cash flows decline significantly from
estimated amounts, charges for impairment of other long-lived assets
may
be necessary.
|
|
(f)
|
In
instances where the company sells equipment with a related installation
obligation, the company generally recognizes revenue related to
the
equipment when title passes. The company recognizes revenue related
to the
installation when it performs the installation. The allocation
of revenue
between the equipment and the installation is based on relative
fair value
at the time of sale. Should the fair value of either the equipment
or the
installation change, the company’s revenue recognition would be affected.
If fair value is not available for any undelivered element, revenue
for
all elements is deferred until delivery is
completed.
|
|
(g)
|
In
instances where the company sells equipment with customer-specified
acceptance criteria, the company must assess whether it can demonstrate
adherence to the acceptance criteria prior to the customer’s acceptance
testing to determine the timing of revenue recognition. If the
nature of
customer-specified acceptance criteria were to change or grow in
complexity such that the company could not demonstrate adherence,
the
company would be required to defer additional revenues upon shipment
of
its products until completion of customer acceptance
testing.
|
|
(h)
|
The
company’s software license agreements generally include multiple products
and services, or “elements.” The company recognizes software license
revenue based on the residual method after all elements have either
been
delivered or vendor specific objective evidence (VSOE) of fair value
exists for
|
|
any
undelivered elements. In the event VSOE is not available for any
undelivered element, revenue for all elements is deferred until delivery
is completed. Revenues from software maintenance and support contracts
are
recognized on a straight-line basis over the term of the contract.
VSOE of
fair value of software maintenance and support is determined based
on the
price charged for the maintenance and support when sold separately.
Revenues from training and consulting services are recognized as
services
are performed, based on VSOE, which is determined by reference to
the
price customers pay when the services are sold separately.
|
|
(i)
|
At
the time the company recognizes revenue, it provides for the estimated
cost of product warranties and returns based primarily on historical
experience and knowledge of any specific warranty problems that
indicate
projected warranty costs may vary from historical patterns. The
liability
for warranty obligations of the company’s continuing operations totaled
$33.5 million at December 31, 2005. Should product failure rates
or the
actual cost of correcting product failures vary from estimates,
revisions
to the estimated warranty liability would be
necessary.
|
|
(j)
|
The
company estimates the degree to which tax assets and loss carryforwards
will result in a benefit based on expected profitability by tax
jurisdiction, and provides a valuation allowance for tax assets
and loss
carryforwards that it believes will more likely than not go unused.
If it
becomes more likely than not that a tax asset or loss carryforward
will be
used, the company reverses the related valuation allowance with
an offset
generally to goodwill as most of the tax attributes arose from
acquisitions. The company’s tax valuation allowance totaled $63.5 million
at December 31, 2005. Should the company’s actual future taxable income by
tax jurisdiction vary from estimates, additional allowances or
reversals
thereof may be necessary.
|
|
(k)
|
The
company provides a liability for future income tax payments in the
worldwide tax jurisdictions in which it operates. Accrued income
taxes
totaled $55.1 million at December 31, 2005. Should tax return positions
that the company expects are sustainable not be sustained upon audit,
the
company could be required to record an incremental tax provision
for such
taxes. Should previously unrecognized tax benefits ultimately be
sustained, a reduction in the company’s tax provision would
result.
|
|
(l)
|
The
company estimates losses on contingencies and litigation for which
a loss
is probable and provides a reserve for losses that can be reasonably
estimated. Should the ultimate losses on contingencies and litigation
vary
from estimates, adjustments to those reserves may be
required.
|
|
(m)
|
One
of the company’s U.S. subsidiaries and several non-U.S. subsidiaries
sponsor defined benefit pension plans. Major assumptions used in
the
accounting for these employee benefit plans include the discount
rate,
expected return on plan assets and rate of increase in employee
compensation levels. Assumptions are determined based on company
data and
appropriate market indicators in consultation with third party actuaries,
and are evaluated each year as of the plans’ measurement date. Net
periodic pension costs for defined benefit plans totaled $16.1 million
in
2005 and the company’s unfunded benefit obligation totaled $124 million at
year-end 2005. Should any of these assumptions change, they would
have an
effect on net periodic pension costs and the unfunded benefit obligation.
For example, a 10% decrease in the discount rate would result in
an annual
increase in pension expense of approximately $3 million and an increase
in
the benefit obligation of approximately $31 million.
|
|
(n)
|
The
company records restructuring charges for the cost of vacating
facilities
based on future lease obligations and expected sub-rental income.
The
company’s accrued restructuring costs for abandoned facilities in
continuing operations totaled $9.2 million at December 31, 2005.
Should
actual cash flows associated with sub-rental income from vacated
facilities vary from estimated amounts, adjustments may be
required.
|
| (o) |
The
company estimates the expected proceeds from any assets held for
sale and,
when necessary, records losses to reduce the carrying value of
these
assets to estimated realizable value. Should the actual or estimated
proceeds, which would include post-closing purchase price adjustments,
vary from current estimates, results could differ from expected
amounts.
|
Results
of Operations
2005
Compared With 2004
Continuing
Operations
Sales
in
2005 were $2.633 billion, an increase of $427.0 million (19%) from 2004. Sales
increased $337.3 million (15%) due to acquisitions, net of divestitures. The
unfavorable effects of currency translation resulted in a decrease in revenues
of $4.5 million in 2005. Aside from the effect of acquisitions, net of
divestitures, and currency translation, revenues increased $94.2 million (4%)
primarily due to increased demand, and to a lesser extent, price increases,
as
described by segment below. Growth was strong in Asia and moderate in North
America and Europe.
|
Operating
Income Margin
|
2005
|
2004
|
|||||
|
Consolidated
|
10.0%
|
|
10.8%
|
Operating
income was $263.5 million in 2005, compared with $237.5 million in 2004.
Operating income increased due to higher sales, including revenues from
acquisitions, offset in part by the items discussed below. Operating income
margin decreased to 10.0% in 2005 from 10.8% in 2004, primarily due to $54.8
million of higher amortization expense for acquisition-related intangible assets
and $10.0 million of higher charges to cost of revenues, primarily for the
sale
of inventories revalued at the date of acquisition. These factors were offset
in
part by higher profitability from the increase in revenues and, to a lesser
extent, price increases.
In
response to a downturn in markets served by the company and in connection with
the company’s overall reorganization, restructuring actions were initiated in
2003 and, to a lesser extent, 2004 in a number of business units to reduce
costs
and redundancies, principally through headcount reductions and consolidation
of
facilities. Restructuring and other costs recorded in 2005 were primarily for
reductions in staffing levels at existing businesses resulting from the
integration of Kendro and consolidation of two facilities in Texas. The
restructuring actions undertaken prior to 2005 were substantially complete
at
the end of 2004. The 2005 costs include charges associated with actions
initiated prior to 2005 that could not be recorded until incurred and
adjustments to previously provided reserves due to changes in estimates of
amounts due for abandoned facilities, net of expected sub-tenant rental income.
The company is continuing to evaluate potential restructuring actions that
may
be undertaken at Kendro or within existing businesses with which Kendro is
being
integrated. Such actions may include rationalization of product lines,
consolidation of facilities and reductions in staffing levels. The cost of
actions at Kendro businesses is being charged to the cost of the acquisition
while the cost of actions at existing businesses being integrated with Kendro
are charged to expense. The company has not finalized its plans for integrating
Kendro with its existing business but expects that charges to expense will
ultimately total $15 - $20 million, of which approximately $8 million has been
recorded as of December 31, 2005. The company expects to finalize its
restructuring plans for Kendro no later than one year from the date of
acquisition.
In
2005,
the company recorded restructuring and other costs, net, of $30.3 million,
including charges to cost of revenues of $13.4 million primarily for the sale
of
inventories revalued at the date of acquisition. The company incurred $23.2
million of cash costs, primarily for severance, abandoned facilities and
relocation expenses in connection with the integration of Kendro with existing
businesses. In addition, the company recorded a gain of $8.0 million primarily
from the sale of six abandoned buildings and a charge of $1.7 million
principally for the writedown of a building held for sale. In 2004, the company
recorded restructuring and other costs, net, of $19.2 million, including charges
to cost of revenues of $3.4 million, consisting of $2.3 million for the sale
of
inventories revalued at the date of acquisition of Jouan and $1.1 million of
accelerated depreciation on fixed assets being abandoned due to facility
consolidations. The company incurred $17.4 million of cash costs, primarily
for
severance, abandoned facilities and relocation expenses at businesses that
have
been consolidated. In addition, the company recorded a gain of $2.6 million
on
the sale of a product line and a loss of $1.0 million from the writedown of
abandoned equipment and the sale of two abandoned buildings (Note 15). The
restructuring actions initiated in 2005 resulted in annual cost savings
beginning in the second half of 2005 and early 2006 of approximately $13
million, including $9 million in the Life and Laboratory Sciences segment and
$4
million in the Measurement and Control segment. The company expects to incur
an
additional $2 million of restructuring costs, primarily in 2006, for charges
associated with these actions that cannot be recorded until
incurred.
Segment
Results
The
company’s management evaluates operating segment performance based on measures
that are not determined in accordance with U.S. generally accepted accounting
principles including adjusted operating income and adjusted operating income
margin. Adjusted operating income is segment operating income before certain
charges to cost of revenues, principally associated with acquisition accounting;
restructuring and other costs/income including costs arising from facility
consolidations such as severance and abandoned lease expense and gains and
losses from the sale of real estate and product lines; and amortization of
acquisition-related intangible assets. The company uses these measures because
they help management understand and evaluate the segments’ core operating
results and facilitate comparison of performance for determining compensation.
Adjusted operating income margin is adjusted operating income divided by
revenues.
Life and Laboratory Sciences
|
2005
|
2004
|
Change
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Revenues
|
$
|
1,960,153
|
$
|
1,573,445
|
24.6%
|
|
|||||
|
Operating
Income Margin
|
12.1%
|
|
14.3%
|
|
(2.2
|
)
|
|||||
|
Charges
to cost of revenues
|
0.6%
|
|
0.2%
|
|
0.4
|
||||||
|
Restructuring
and other costs, net
|
0.3%
|
|
0.4%
|
|
(0.1
|
)
|
|||||
|
Amortization
of acquisition-related intangible assets
|
3.7%
|
|
1.3%
|
|
2.4
|
||||||
|
Adjusted
Operating Income Margin
|
16.7%
|
|
16.2%
|
|
0.5
|
||||||
Sales
in
the Life and Laboratory Sciences segment increased $386.7 million (25%) to
$1,960.2 billion in 2005. Sales increased $334.8 million due to the acquisitions
of Kendro in May 2005, Niton in March 2005, InnaPhase in September 2004 and
USCS
in April 2004, net of divestitures, principally the point of care and rapid
diagnostics business in September 2005. The unfavorable effects of currency
translation resulted in a decrease in revenues of $5.0 million in 2005. In
addition to the changes in revenue resulting from acquisitions, divestitures
and
currency translation, revenues increased $56.9 million (4%) due to higher
broad-based demand from life science and industrial customers combined with
strong market response to new products and, to a lesser extent, price increases.
Growth was particularly strong in sales of mass spectrometry and spectroscopy
instruments and, to a lesser extent, anatomical pathology products.
Adjusted
operating income margin was 16.7% in 2005 and 16.2% in 2004. The increase
resulted from higher revenues including the effect of acquisitions, and to
a
lesser extent, price increases and cost reduction measures following
restructuring actions.
Charges
to cost of revenues relate to the sale of inventories revalued at the date
of
acquisition and increased in 2005 due to the Kendro acquisition. The increase
in
amortization of acquisition-related intangible assets was primarily due to
the
acquisition of Kendro, and, to a lesser extent, other businesses.
Measurement and Control
|
2005
|
2004
|
Change
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Revenues
|
$
|
672,874
|
$
|
632,550
|
6.4%
|
||||||
|
Operating
Income Margin
|
9.5%
|
|
8.4%
|
|
1.1
|
||||||
|
Charges
to cost of revenues
|
0.1%
|
|
0.0%
|
|
0.1
|
||||||
|
Restructuring
and other costs, net
|
1.5%
|
|
1.0%
|
|
0.5
|
||||||
|
Amortization
of acquisition-related intangible assets
|
0.8%
|
|
0.5%
|
|
0.3
|
||||||
|
Adjusted
Operating Income Margin
|
11.9%
|
|
9.9%
|
|
2.0
|
||||||
Sales
in
the Measurement and Control segment increased $40.3 million (6%) to $672.9
million in 2005. Sales increased $2.4 million due to acquisitions, net of
divestitures. The favorable effects of currency translation resulted in an
increase in revenues of $0.6 million in 2005. In addition to the changes in
revenue resulting from acquisitions, divestitures and currency translation,
revenues increased $37.3 million (6%). The increase was primarily the result
of
higher demand from industrial customers, particularly from commodity markets
including steel, petroleum and cement and customers purchasing instruments
for
use in environmental and security applications. Growth was strong in Asia and,
to a lesser extent, in North America. The increase in revenues was, to a lesser
extent, due to price increases.
Adjusted
operating income margin increased to 11.9% in 2005 from 9.9% in 2004. The
increase resulted from higher sales volumes and cost reduction measures
following restructuring actions.
The
increase in restructuring costs in 2005 primarily related to the consolidation
of two facilities in Texas. The increase in amortization of acquisition-related
intangible assets was due primarily to the acquisition of R&P.
Other
Income, Net
The
company reported other income, net, of $22.4 million and $21.7 million in 2005
and 2004, respectively (Note 4). Other income, net, includes interest income,
interest expense, gain on investments, net, equity in earnings of unconsolidated
subsidiaries and other items, net. Interest income increased to $11.6 million
in
2005 from $9.0 million in 2004, primarily due to higher invested cash balances
following the sale of Spectra-Physics in July 2004 and, to a lesser extent,
increased market interest rates, offset in part by cash used to fund
acquisitions. Interest expense increased to $26.7 million in 2005 from $11.0
million in 2004, as a result of debt used to partially fund the Kendro
acquisition and, to a lesser extent, higher rates associated with the company’s
variable-rate debt.
During
2005 and 2004, the company had gains on investments, net, of $35.3 million
and
$20.8 million, respectively. The gains included $28.9 million in 2005 and $9.6
million in 2004 from the sale of shares of Thoratec Corporation and a loss
of
$1.3 million in 2005 from the sale of shares of Newport Corporation, in addition
to other gains from the company’s investment portfolio activity. The company
obtained common shares of Thoratec as part of the sale of Thermo Cardiosystems
Inc. in 2001 and obtained the shares of Newport as part of the sale of
Spectra-Physics in 2004. The company no longer owns shares of Thoratec or
Newport and does not expect to report material gains or losses from investments
in 2006. Other income in 2005 and 2004 also includes net currency transaction
gains and equity in earnings of unconsolidated subsidiaries.
Provision
for Income Taxes
The
company’s effective tax rate was 30.6% and 15.8% in 2005 and 2004, respectively.
The provision for income taxes in 2005 includes $4.2 million for the estimated
effect of a tax audit of prior years in a non-U.S. country. The effect of this
charge increased the effective tax rate in 2005 by 1.5 percentage points. The
effective tax rate was lower in 2004 primarily due to $33.8 million of tax
benefits associated with the completion of tax audits. The company’s federal tax
returns and those of several subsidiaries were under audit for the period 1998
to 2000. In 2004 and early 2005, the IRS and the company reached final
settlements of the audits and the company determined that previously
unrecognized tax benefits were realizable. In addition, audits of state tax
returns were also completed in 2004. This tax benefit reduced the company’s
effective tax rate in 2004 by 13.0 percentage points.
Contingent
Liabilities
At
year-end 2005, the company was contingently liable with respect to certain
lawsuits. An unfavorable outcome in either of the pending matters described
under “Litigation and Related Contingencies” in Note 11 could materially affect
the company’s financial position as well as its results of operations and cash
flows.
Recent
Accounting Pronouncements
In
June
2005, the FASB issued FSP No. FAS 143-1, “Accounting for Electronic Equipment
Waste Obligations” to address the accounting for obligations associated with EU
Directive 2002/96/EC on Waste Electrical and Electronic Equipment. The directive
requires EU member countries to adopt legislation to regulate the collection,
treatment, recovery and environmentally sound disposal of electrical and
electronic waste equipment. Under the directive, the waste management obligation
for historical equipment (products put on the market on or prior to August
13,
2005) remains with the commercial user until the equipment is replaced.
Depending upon the law adopted by the particular country, upon replacement,
the
waste management obligation for that equipment may be transferred to the
producer of the related equipment. The user retains the obligation if they
do
not replace the equipment. FSP No. FAS 143-1 requires a commercial user to
apply
the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations”
and related FASB Interpretation No. 47, “Accounting for Conditional Asset
Retirement Obligations” to waste obligations associated with historical
equipment. The rules require that a liability be established for the retirement
obligation with an offsetting increase to the carrying amount of the related
asset. FSP No. FAS 143-1 is effective the later of the first reporting period
ending after June 8, 2005 or the date of adoption of the law by the applicable
EU member country. The issuance of FSP No. FAS 143-1 is not expected to have
a
material impact on the company’s financial statements.
In
December 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment.” SFAS No.
123(R) amends SFAS No. 123 to require that companies record as expense the
effect of equity-based compensation, including stock options over the applicable
vesting period. The company currently discloses the effect on income that stock
options would have were they recorded as expense. SFAS No. 123(R) also requires
more extensive disclosures concerning stock options than required under current
standards. The new rule applies to option grants made after adoption as well
as
options that are not vested at the date of adoption. SFAS No. 123(R) becomes
effective in 2006. The company will apply the new standard using the modified
prospective method in the first quarter of 2006. If the company had adopted
this
standard in 2005, the company’s net income for 2005 would have been $13.6
million (or $.08 per diluted share) lower than reported in 2005. The company
expects that adoption of this standard will result in a reduction in net income
of approximately $16 million (or $.10 per diluted share) during
2006.
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs - an amendment of
ARB No. 43, Chapter 4,” which is the result of its efforts to converge U.S.
accounting standards for inventories with International Accounting Standards.
SFAS No. 151 requires abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage) to be recognized as current-period
charges. It also requires that allocation of fixed production overheads to
the
costs of conversion be based on the normal capacity of the production
facilities. SFAS No. 151 will be effective for inventory costs incurred during
2006. The company does not expect the new standard to have a material effect
on
its financial statements.
Discontinued
Operations
The
company had after-tax gains of $24.9 million in 2005 and $100.5 million in
2004
from the disposal of discontinued operations and $43.0 million of after-tax
income in 2004 from discontinued operations.
An
after-tax gain of $16.8 million arose from the September 2005 sale of the
company’s point of care and rapid diagnostics business for $53.1 million in
cash. Revenues and pre-tax loss of the divested business totaled $29.7 million
and $0.7 million, respectively, in 2004 and revenues and pre-tax income totaled
$26.6 million and $1.0 million, respectively, in 2005 through the date of sale.
Due to the immateriality of the operating results of this business relative
to
consolidated results, the company has not reclassified the historical results
and accounts of this business to discontinued operations. In addition to the
sale of this business, the company had after-tax gains aggregating $8.1 million
in 2005 from the sale of abandoned real estate; additional proceeds from the
sale of businesses divested prior to 2004, including the sale of abandoned
real
estate and post-closing adjustments; and the settlement of litigation and an
arbitration award related to a divested business.
In
July
2004, the company completed the sale of its Optical Technologies segment,
Spectra-Physics, to Newport. The company has reclassified the results of
Spectra-Physics as discontinued operations for all periods presented in the
accompanying financial statements.
The
company’s discontinued operations (Spectra-Physics) had revenues through the
date of sale of $118.9 million in 2004. Net income of the discontinued
operations through the date of sale in 2004 was $4.5 million, net of a tax
provision of $2.2 million. As a result of the decision to sell Spectra-Physics,
a previously unrecognized tax asset arising from the difference between the
book
and tax basis of Spectra-Physics became realizable and the company recorded
a
tax benefit as income from discontinued operations totaling $38.5 million in
2004. In addition, the company recorded a gain on the sale of Spectra-Physics
of
$45.9 million, net of a tax provision of $15.9 million.
The
tax
returns of the company and its former Trex Medical and ThermoLase businesses
were under audit by the IRS. In 2004 and early 2005, the IRS and the company
reached final settlements of the audits and the company determined that
previously unrecognized tax benefits associated with the divested businesses
totaling $52.7 million were realizable. These tax benefits were recorded as
a
gain on the disposal of discontinued operations in 2004.
In
addition to the 2004 gains discussed above, the company had $1.3 million of
after-tax gains and $0.6 million of tax benefits associated with discontinued
operations.
2004
Compared With 2003
Continuing
Operations
Sales
in
2004 were $2.206 billion, an increase of $306.6 million from 2003. The favorable
effects of currency translation resulted in an increase in revenues of $92.1
million in 2004. Sales increased $134.4 million due to acquisitions, net of
divestitures. In addition to the changes in revenue resulting from currency
translation, acquisitions and divestitures, revenues increased $80.1 million,
or
4%, primarily due to increased demand, as described by segment below.
|
Operating
Income Margin
|
2004
|
2003
|
|||||
|
Consolidated
|
10.8%
|
|
9.9%
|
Operating
income was $237.5 million in 2004, compared with $187.4 million in 2003.
Operating income margin increased to 10.8% in 2004 from 9.9% in 2003. Operating
income increased primarily due to lower restructuring and other costs, net,
and,
to a lesser extent, higher revenues in each segment in 2004. Operating income
in
2004 and 2003
was
reduced by additional charges associated with restructuring actions initiated
in
those and prior years and certain other costs, net (Note 15). The restructuring
and other items totaled $19.2 million and $45.3 million in 2004 and 2003,
respectively, and are discussed by segment below.
Restructuring
actions were initiated in 2003 and, to a lesser extent, in 2004 in a number
of
business units to reduce costs and redundancies in response to a downturn in
markets served by the company and in connection with the company’s overall
reorganization, principally through headcount reductions and consolidation
of
facilities. The actions initiated in 2004 resulted in annual cost savings
beginning in late 2004 and early 2005 of approximately $10 million, including
$7
million in the Life and Laboratory Sciences segment and $3 million in the
Measurement and Control segment. The actions initiated in 2003 resulted in
annual cost reductions beginning in late 2003 and early 2004 of approximately
$11 million, including $7 million in the Life and Laboratory Sciences segment
and $4 million in the Measurement and Control segment.
In
2004,
the company recorded restructuring and other costs, net, of $19.2 million,
including charges to cost of revenues of $3.4 million, consisting of $2.3
million for the sale of inventories revalued at the date of acquisition of
Jouan
and $1.1 million of accelerated depreciation on fixed assets being abandoned
due
to facility consolidations. The company incurred $17.4 million of cash costs,
primarily for severance, abandoned facilities and relocation expenses at
businesses that have been consolidated. In addition, the company recorded a
gain
of $2.6 million on the sale of a product line and a loss of $1.0 million from
the writedown of abandoned equipment and the sale of two abandoned buildings.
In
2003, the company recorded restructuring and other costs, net, of $45.3 million,
including $37.4 million of cash costs, primarily for severance, abandoned
facilities, employee retention and relocation expenses at businesses being
consolidated. In addition, the company recorded net charges of $3.4 million,
to
write down the carrying value of fixed assets, primarily buildings held for
sale, to expected disposal value, and $2.0 million, primarily for the writedown
of goodwill in the test and measurement business to reduce the carrying value
to
disposal value, and for the writedown of assets at facilities being
consolidated. These charges were offset by a gain of $2.1 million on the sale
of
a building and $0.4 million of net gains, primarily from the sale of a product
line. The company also recorded charges to cost of revenues of $0.1 million
for
the sale of inventories revalued at the date of acquisition
(Note 15).
Segment
Results
Life and Laboratory Sciences
|
2004
|
2003
|
Change
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Revenues
|
$
|
1,573,445
|
$
|
1,293,009
|
21.7%
|
|
|||||
|
Operating
Income Margin
|
14.3%
|
|
14.2%
|
|
0.1
|
||||||
|
Charges
to cost of revenues
|
0.2%
|
|
0.0%
|
|
0.2
|
||||||
|
Restructuring
and other costs, net
|
0.4%
|
|
1.7%
|
|
(1.3
|
)
|
|||||
|
Amortization
of acquisition-related intangible assets
|
1.3%
|
|
0.5%
|
|
0.8
|
||||||
|
Adjusted
Operating Income Margin
|
16.2%
|
|
16.4%
|
|
(0.2
|
)
|
|||||
Sales
in
the Life and Laboratory Sciences segment increased $280.4 million (22%) to
$1.573 billion in 2004. Sales increased $153.1 million (12%) due to the
acquisitions of InnaPhase in September 2004, USCS in April 2004, Jouan in
December 2003 and LMSi in November 2003, net of product line divestitures.
The
favorable effects of currency translation resulted in an increase in revenues
of
$66.7 million (5%) in 2004. In addition to the changes in revenue resulting
from
acquisitions, divestitures and currency translation, revenues increased $60.6
million, or 5%, due to higher demand. The increase in demand resulted
principally in higher sales of mass spectrometry and spectroscopy instruments
and, to a lesser extent, new anatomical pathology products and laboratory
informatics. The combination of new products and a rebound in sales to
industrial markets along with strength in pharmaceutical demand contributed
to
the
instrument sales growth, offset in part by lower revenues in Europe where the
recovery of demand lagged the U.S. and Asia. The increase in revenues was offset
in part by $5.6 million of lower revenue from rapid diagnostic tests due to
a
weak flu season in 2004 following a harsh season in 2003.
Adjusted
operating income margin was 16.2% in 2004 and 16.4% in 2003. The inclusion
of
Jouan, USCS and LMSi, which have historically operated at lower profitability
margins compared with the segment’s existing businesses contributed to the
reduction and was offset in part by the impact of higher revenue.
The
decrease in restructuring and other costs, net, was due to the completion of
several significant facility consolidation actions undertaken in 2003. The
increase in amortization expense resulted from 2003 and 2004
acquisitions.
Measurement and Control
|
2004
|
2003
|
Change
|
|||||||||
|
(Dollars
in thousands)
|
|||||||||||
|
Revenues
|
$
|
632,550
|
$
|
601,104
|
5.2%
|
|
|||||
|
Operating
Income Margin
|
8.4%
|
|
7.4%
|
|
1.0
|
||||||
|
Charges
to cost of revenues
|
0.0%
|
|
0.0%
|
|
0.0
|
||||||
|
Restructuring
and other costs, net
|
1.0%
|
|
1.7%
|
|
(0.7
|
)
|
|||||
|
Amortization
of acquisition-related intangible assets
|
0.5%
|
|
0.4%
|
|
0.1
|
||||||
|
Adjusted
Operating Income Margin
|
9.9%
|
|
9.5%
|
|
0.4
|
||||||
Sales
in
the Measurement and Control segment increased $31.4 million (5%) to $632.6
million in 2004. The favorable effects of currency translation resulted in
an
increase in revenues of $25.4 million (4%) in 2004. Sales decreased $13.5
million (2%) due to divestitures, net of acquisitions. The principal divestiture
was the segment’s test and measurement business, which it sold in October 2003.
In addition to the changes in revenue resulting from currency translation,
acquisitions and divestitures, revenues increased $19.5 million (3%). The
increase was primarily the result of a rebound in demand for precision
temperature-control products from the semiconductor industry and other process
applications and, to a lesser extent, process instruments used by the materials
industry and equipment used in metal production, particularly in
China.
Adjusted
operating income margin increased to 9.9% in 2004 from 9.5% in 2003. The
increase in operating income margin resulted from higher sales volumes and
cost
reduction measures following restructuring actions.
The
decrease in restructuring and other costs, net, was due to the completion of
several significant facility consolidation actions undertaken in
2003.
Other
Income, Net
The
company reported other income, net, of $21.7 million and $35.2 million in 2004
and 2003, respectively (Note 4). Interest income decreased to $9.0 million
in
2004 from $19.7 million in 2003, primarily due to lower invested cash balances
following the acquisitions (net of divestitures) in late 2003 and 2004 and
the
use of cash for the repurchase and redemption of company securities. Interest
expense decreased to $11.0 million in 2004 from $18.2 million in 2003, as a
result of the repurchase and redemption of debentures.
During
2004 and 2003, the company had gains on investments, net, of $20.8 million
and
$35.5 million, respectively. The gains included $9.6 million in 2004 and $16.3
million in 2003 from the sale of shares of Thoratec and $13.7 million in 2003
from the sale of shares of FLIR Systems, Inc. The company obtained an equity
interest in FLIR as part of the acquisition of Spectra-Physics AB in 1999.
Other
income in 2004 and 2003 also includes currency transaction gains and losses
and
equity in earnings of unconsolidated subsidiaries. In addition, the company
repurchased and redeemed debentures, resulting in a charge of $1.0 million
during 2003.
Provision
for Income Taxes
The
company’s effective tax rate was 15.8% and 21.3% in 2004 and 2003, respectively.
The effective tax rate decreased in 2004 primarily due to $33.8 million of
tax
benefits associated with the completion of tax audits. The 2003 effective tax
rate was favorably affected by $9.0 million of tax benefit from the reversal
of
a valuation allowance due to expected utilization of foreign tax credit
carryforwards (Note 6) and $3.7 million of tax benefit from the sale of a
business. These tax benefits reduced the company’s 2004 and 2003 effective tax
rates by 13.0 percentage points and 5.7 percentage points, respectively. In
addition, the company reduced its effective tax rate by 1.8 percentage points
in
2003 through repatriation of cash from non-U.S. subsidiaries, which resulted
in
foreign tax credits.
Income
from Continuing Operations
Income
from continuing operations was $218.4 million in 2004, compared with $175.2
million in 2003. Results in both periods were affected by restructuring, gains
on the sale of Thoratec shares and other items, discussed above.
Discontinued
Operations
The
company had after-tax gains of $100.5 million in 2004 and $27.3 million in
2003
from the disposal of discontinued operations.
The
company’s discontinued operations (Spectra-Physics) had revenues through the
date of sale of $118.9 million and $197.8 million in 2004 and 2003,
respectively. Net income of the discontinued operations through the date of
sale
in 2004 was $4.5 million, net of a tax provision of $2.2 million. The company’s
discontinued operations incurred a net loss in 2003 of $2.5 million, net of
a
tax benefit of $1.5 million. The improvement resulted from a rebound in the
demand for lasers and photonics from microelectronics customers and other
industrial markets served by Spectra-Physics. As a result of the decision to
sell Spectra-Physics, a previously unrecognized tax asset arising from the
difference between the book and tax basis of Spectra-Physics became realizable
and the company recorded a tax benefit as income from discontinued operations
totaling $38.5 million in 2004. In 2004, the company recorded a gain on the
sale
of Spectra-Physics of $45.9 million, net of a tax provision of $15.9
million.
In
2004,
the company recorded a gain on disposal of discontinued operations of $52.7
million as a result of the settlement of tax audits of businesses previously
sold.
In
addition to the 2004 gains discussed above, the company had $1.3 million of
after-tax gains and $0.6 million of tax benefits associated with discontinued
operations.
The
2003
gain consists of two pre-tax components and two tax components. In 2003, the
company resolved several disputes and related claims that it had retained
following the sale of businesses in its discontinued operations. In connection
with the resolution of these matters on favorable terms relative to the damages
estimated and amount of established reserves as well as the settlement of lease
obligations, the company’s pre-tax gain recorded in prior years on disposal of
the related businesses increased by $27.1 million. In 2003, the company also
sold the last remaining business in discontinued operations, Peter Brotherhood
Ltd., and received additional proceeds associated with businesses sold prior
to
2003, including post-closing purchase price adjustments. The company recorded
pre-tax gains from the disposal of discontinued operations of $8.3 million,
substantially as a result of these transactions. The company recorded a tax
provision of $13.2 million on the above gains and realized $5.1 million of
additional tax benefits from the disposal of businesses sold prior to 2003,
principally foreign tax credits.
Liquidity
and Capital Resources
Consolidated
working capital was $562.2 million at December 31, 2005, compared with $890.9
million at December 31, 2004. Included in working capital were cash, cash
equivalents and short-term available-for-sale investments of $295.0 million
at
December 31, 2005, compared with $512.3 million at December 31, 2004. The
decreases result primarily from use of cash, cash equivalents, short-term
available-for-sale investments and short-term debt to partially fund the Kendro
acquisition.
2005
Cash
provided by operating activities was $270.9 million during 2005, including
$272.8 million provided by continuing operations and $1.9 million used by
discontinued operations. Cash of $24.3 million was provided by an increase
in
other current liabilities, primarily accrued payroll and benefits due to the
timing of payments, and deferred revenue, pending completion of obligations
to
customers. Income tax payments of approximately $13 million arose from taxes
on
gains on the sale of investments. The company contributed $10.9 million of
funding to a U.K. pension plan in June 2005 (Note 5). Payments for restructuring
actions of the company’s continuing operations, principally severance, lease
costs and other expenses of real estate consolidation, used cash of $19.7
million in 2005.
In
connection with restructuring actions undertaken by continuing operations,
the
company had accrued $17.9 million for restructuring costs at December 31, 2005.
The company expects to pay approximately $7.4 million of this amount for
severance, primarily through 2006, and $1.3 million for other costs, primarily
through 2006. The balance of $9.2 million will be paid for lease obligations
over the remaining terms of the leases, with approximately 65% to be paid
through 2006 and the remainder through 2011. In addition, at December 31, 2005,
the company had accrued $6.3 million for acquisition expenses. Accrued
acquisition expenses included $2.6 million of severance and relocation
obligations, which the company expects to pay primarily through 2006. The
remaining balance primarily represents abandoned-facility payments that will
be
paid over the remaining terms of the leases through 2014.
During
2005, the primary investing activities of the company’s continuing operations,
excluding available-for-sale investment activities, included acquisitions and
the purchase and sale of property, plant and equipment. The company expended
$933.2 million, net of cash acquired, for the acquisitions of Niton, R&P,
Kendro and Ionalytics (Note 2). The company expended $43.5 million for the
purchases of property, plant and equipment and had proceeds from the sale of
property, principally abandoned real estate, of $16.2 million. Investing
activities of the company’s discontinued operations provided $65.6 million of
cash in 2005, primarily from the sale of its point of care and rapid diagnostics
business in September 2005 and the sale of a building of a previously divested
business in August 2005.
The
company’s financing activities provided $390.9 million of cash during 2005,
principally from the issuance of $250 million senior notes due in 2015 and
a net
increase in short-term borrowings of $119.0 million. The company received net
proceeds of $27.2 million from the exercise of employee stock options during
2005. In February 2006, the company's Board of Directors authorized the
repurchase of up to $100 million of the company's common stock through February
28, 2007.
The
company repaid in full $570 million of borrowings under its bridge loan with
cash and proceeds of new debt issuances described below. In May 2005, the
company issued $250 million aggregate principal amount of 5% senior notes (the
Notes) due 2015, with an effective interest rate of 5.27% after including the
impact of an interest swap arrangement. Under the Notes’ Indenture, the company
is subject to certain affirmative and negative covenants.
Also
in
May 2005, the company entered into an arrangement that provides the company
an
uncommitted line of credit of up to $250 million through a series of short-term
money market loans funded on an ongoing basis in the secondary market. Such
money market loans have maturity periods of overnight to 364 days and bear
varying rates of interest based on the maturity date and market rate at the
time
of issuance. In May 2005, the company borrowed $250 million through three
short-term loans under the money market arrangement with maturities of one
week
to three months. As of December 31, 2005, the company had repaid the borrowings
under this arrangement.
In
June
2005, the company entered into a five-year revolving credit facility with a
bank
group that provides up to 175 million euros. The facility carries interest
at a
Euribor rate plus 35 basis points. Under the facility, borrowings of one to
six
months duration may be drawn. The agreement 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-capital ratios.
As
of December 31, 2005, the company had outstanding borrowings under this facility
of 105 million euros ($124 million) in two tranches with maturities in January
2006 and with a weighted average interest rate of 2.47%. The company has
refinanced the outstanding borrowings and intends to refinance future maturities
with additional borrowings under the facility to the extent necessary for
liquidity purposes.
2004
Cash
provided by operating activities was $264.5 million during 2004, including
$250.0 million provided by continuing operations and $14.5 million provided
by
discontinued operations. Payments for restructuring actions of the company’s
continuing operations, principally severance, lease costs and other expenses
of
real estate consolidation, used cash of $25.8 million in 2004. Accounts
receivable increased $27.6 million due primarily to higher sales of mass
spectrometry and informatics product offerings. Inventories increased $21.5
million, due in part to increased production of mass spectrometry and
spectroscopy instruments in response to higher demand for these products. Cash
provided by discontinued operations of $14.5 million principally represents
the
positive cash flow of Spectra-Physics, offset in part by the payment of retained
liabilities from businesses sold prior to 2003, including settlement of
litigation and lease payments on abandoned facilities.
During
2004, the primary investing activities of the company’s continuing operations,
excluding available-for-sale investment activities, included acquisitions for
$143.0 million, net of cash acquired (Note 2) and the expenditure of $44.5
million for the purchase of property, plant and equipment, net of dispositions.
Investing activities of discontinued operations provided $171.8 million of
cash
in 2004. In July 2004, the company sold Spectra-Physics to Newport Corporation
for $300 million, including $200 million of initial cash proceeds. As a result
of Newport assuming non-U.S. debt of Spectra-Physics that had earlier been
expected to be retained by the company, and as a result of the post-closing
adjustment process, the company refunded $25.1 million to Newport (Note
16).
The
company’s financing activities used $183.2 million of cash during 2004,
including $183.7 million used by continuing operations. During 2004, the company
expended $231.5 million to repurchase 8.4 million shares of the company’s common
stock. The company received net proceeds of $57.6 million from the exercise
of
employee stock options during 2004.
2003
Cash
provided by operating activities was $214.7 million during 2003, including
$200.3 million provided by continuing operations and $14.4 million provided
by
discontinued operations. Payments for restructuring actions of the company’s
continuing operations, principally severance, lease costs and other expenses
of
real estate consolidation, used cash of $53.6 million in 2003. A decrease in
inventories of $27.4 million resulted from efforts to improve working capital.
Cash provided by discontinued operations of $14.4 million principally represents
the positive cash flow of Spectra-Physics, offset in part by the payment of
liabilities for businesses sold prior to 2003, including settlement of
litigation and lease payments on abandoned facilities.
During
2003, the primary investing activities of the company’s continuing operations,
excluding available-for-sale investment activities, included acquisitions,
the
purchase of property, plant and equipment and collection of a note receivable.
The company expended $134.9 million, net of cash acquired, for acquisitions
(Note 2). The company expended $37.4 million for purchases of property, plant
and equipment, net of dispositions. In April and June 2003, the company received
aggregate cash payments of $75.6 million, including $69.1 million of principal
payments, plus interest, from Trimble Navigation Limited as complete and early
payment of Trimble’s note to the company.
The
company’s financing activities used $663.6 million of cash during 2003,
including $652.0 million for continuing operations. During 2003, the company’s
continuing operations expended $369.1 million to reduce short-term notes
payable. The company received net proceeds of $75.0 million from the exercise
of
employee stock options in 2003. During 2003, the company expended $269.1 million
to redeem its debt securities (Note 10). In addition, the company expended
$88.9
million to repurchase its debt and equity securities, of which $57.8 million
was
used to repurchase 3.0 million shares of the company’s common stock. The debt
repurchases and redemptions have been made with the objective of reducing
interest costs.
Off-Balance
Sheet Arrangements
The
company did not use special purpose entities or other off-balance-sheet
financing arrangements in 2003 - 2005 except for letters of credit, bank
guarantees, surety bonds and other guarantees disclosed in the table below.
Of
the amounts disclosed in the table below for letters of credit, bank guarantees,
surety bonds and other guarantees, $14.0 million relates to guarantees of the
performance of third parties, principally in connection with businesses that
were sold (Note 11). The balance relates to guarantees of the company’s own
performance, primarily in the ordinary course of business.
Contractual
Obligations and Other Commercial Commitments
The
table
below summarizes, by period due or expiration of commitment, the company’s
contractual obligations and other commercial commitments as of December 31,
2005, which are principally for its continuing operations.
|
Payments
Due by Period or Expiration of
Commitment
|
||||||||||||||||
|
|
|
|
2007
and
|
2009
and
|
2011
and
|
|||||||||||
|
2006
|
2008
|
2010
|
Thereafter
|
Total
|
||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
Contractual Obligations and Other Commercial
Commitments:
|
||||||||||||||||
|
Long-term debt obligations
|
$
|
646
|
$
|
208,161
|
$
|
403
|
$
|
252,958
|
$
|
462,168
|
||||||
|
Interest on fixed rate debt
|
15,010
|
27,092
|
25,000
|
56,250
|
123,352
|
|||||||||||
|
Capital lease obligations
|
1,014
|
2,104
|
2,159
|
2,845
|
8,122
|
|||||||||||
|
Operating lease obligations
|
39,525
|
52,701
|
30,405
|
69,957
|
192,588
|
|||||||||||
|
Purchase obligations
|
82,351
|
492
|
1
|
–
|
82,844
|
|||||||||||
|
Total contractual obligations
|
138,546
|
290,550
|
57,968
|
382,010
|
869,074
|
|||||||||||
|
Other Commitments (not on the balance
sheet):
|
||||||||||||||||
|
Letters of credit and bank
guarantees
|
33,849
|
3,809
|
365
|
133
|
38,156
|
|||||||||||
|
Surety bonds and other guarantees
|
5,930
|
935
|
–
|
7,334
|
14,199
|
|||||||||||
|
Total other commitments
|
39,779
|
4,744
|
365
|
7,467
|
52,355
|
|||||||||||
|
$
|
178,325
|
$
|
295,294
|
$
|
58,333
|
$
|
389,477
|
$
|
921,429
|
|||||||
This table excludes $133.0 million of other long-term liabilities, principally pension liabilities, $65.0 million of deferred income taxes and interest payments on $130.5 million of variable rate long-term debt, as these liabilities are not fixed amounts or are not subject to fixed payment schedules.
The
company has no material commitments for purchases of property, plant and
equipment but expects that for 2006, such expenditures for its existing business
will approximate $46 to $51 million.
The
company believes that its existing resources, including cash and investments,
future cash flow from operations and available borrowings under its existing
5-year revolving credit facilities, are sufficient to meet the working capital
requirements of its existing businesses for the foreseeable future, including
at
least the next 24 months.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
The
company is exposed to market risk from changes in interest rates, currency
exchange rates and equity prices, which could affect its future results of
operations and financial condition. The company manages its exposure to these
risks through its regular operating and financing activities. Additionally,
the
company uses short-term forward contracts to manage certain exposures to
currencies. The company enters into forward currency-exchange contracts to
hedge
firm purchase and sale commitments denominated in currencies other than its
subsidiaries’ local currencies. The company does not engage in extensive
currency hedging activities; however, the purpose of the company’s currency
hedging activities is to protect the company’s local currency cash flows related
to these commitments from fluctuations in currency exchange rates. The company’s
forward currency-exchange contracts principally hedge transactions denominated
in euros, U.S. dollars, British pounds sterling and Canadian dollars. Income
and
losses arising from forward contracts are recognized as offsets to losses and
income resulting from the underlying exposure being hedged. The company does
not
enter into speculative currency agreements.
Interest
Rates
Certain
of the company’s short-term available-for-sale investments, long-term notes
receivable and long-term obligations are sensitive to changes in interest rates.
Interest rate changes would result in a change in the fair value of these
financial instruments due to the difference between the market interest rate
and
the rate at the date of purchase or issuance of the financial instrument. A
10%
decrease in year-end 2005 and 2004 market interest rates would result in a
net
negative impact to the company of $9 million and $5 million, respectively,
on the net fair value of its interest-sensitive financial
instruments.
In
addition, interest rate changes would result in a change in the company’s
interest expense due to variable-rate debt instruments. A 100-basis-point
increase in 90-day LIBOR at December 31, 2005 and 2004, would increase the
company’s annual pre-tax interest expense by $1 million. A 100-basis-point
increase in 90 day Euribor at December 31, 2005 would increase the company’s
annual pre-tax interest expense by $1 million.
Currency
Exchange Rates
The
company views its investment in international subsidiaries with a functional
currency other than the company’s reporting currency as permanent. The company’s
investment in international subsidiaries is sensitive to fluctuations in
currency exchange rates. The functional currencies of the company’s
international subsidiaries are principally denominated in euros, British pounds
sterling and Japanese yen. The effect of a change in currency exchange rates
on
the company’s net investment in international subsidiaries is reflected in the
“accumulated other comprehensive items” component of shareholders’ equity. A 10%
depreciation in year-end 2005 and 2004 functional currencies, relative to the
U.S. dollar, would result in a reduction of shareholders’ equity of $66 million
and $106 million, respectively.
The
fair
value of forward currency-exchange contracts is sensitive to changes in currency
exchange rates. The fair value of forward currency-exchange contracts is the
estimated amount that the company would pay or receive upon termination of
the
contract, taking into account the change in currency exchange rates. A 10%
appreciation in year-end 2005 and 2004 currency exchange rates related to the
company’s contracts would result in an increase in the unrealized loss on
forward currency-exchange contracts of $0.7 million and $5.9 million,
respectively. The unrealized gains or losses on forward currency-exchange
contracts resulting from changes in currency exchange rates are expected to
approximately offset losses or gains on the exposures being hedged.
Certain
of the company’s cash and cash equivalents are denominated in currencies other
than the functional currency of the depositor and are sensitive to changes
in
currency exchange rates. A 10% depreciation in the related year-end 2005 and
2004 currency exchange rates would result in a negative impact of $2.7 million
and $3.6 million, respectively, on the company’s net income.
Equity
Prices
The
company’s available-for-sale investment portfolio includes equity securities
that are sensitive to fluctuations in price. In addition, the company’s
convertible obligations are sensitive to fluctuations in the price of the
company’s common stock. Changes in equity prices would result in changes in the
fair value of the company’s available-for-sale investments and convertible
obligations due to the difference between the current market price and the
market price at the date of purchase or issuance of the financial instrument.
A
10% decrease in year-end 2004 market equity prices would have resulted in a
negative impact to the company of $10 million on the net fair value of its
price-sensitive equity financial instruments, principally its available-for-sale
investments. During 2005, the company sold substantially all of its
available-for-sale equity investments (Note 4). A 10% increase in December
31,
2005 market equity prices would reduce the fair value of the company’s
convertible obligations by $1 million.
|
Financial
Statements and Supplementary
Data
|
This
data
is submitted as a separate section to this report. See Item 15 “Exhibits and
Financial Statement Schedules.”
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
Not
applicable.
|
Controls
and Procedures
|
Management’s
Evaluation of Disclosure Controls and Procedures
The
company’s management, with the participation of the company’s chief executive
officer and chief financial officer, evaluated the effectiveness of the
company’s disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2005. Based on this evaluation,
the
company’s chief executive officer and chief financial officer concluded that, as
of December 31, 2005, the company’s disclosure controls and procedures were
effective in providing reasonable assurance that information required to be
disclosed by the company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized, reported and accumulated and
communicated to the company’s management, including its chief executive officer
and chief financial officer, as appropriate to allow timely decisions regarding
required disclosure.
Management’s
Annual Report on Internal Control Over Financial Reporting
The
company’s management, including the company’s chief executive officer and chief
financial officer, is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the company. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. The company’s management conducted an assessment of the
effectiveness of the company’s internal control over financial reporting as of
December 31, 2005 based on criteria established in “Internal Control -
Integrated Framework” issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this assessment, the company’s management
concluded that, as of December 31, 2005, the company’s internal control over
financial reporting was effective.
The
company’s independent registered public accounting firm, PricewaterhouseCoopers
LLP, has audited the effectiveness of the company’s internal control over
financial reporting and management’s assessment of the effectiveness of the
company’s internal control over financial reporting as of December 31, 2005, as
stated in their report that appears on pages F-2 and F-3 of this Annual Report
on Form 10-K.
Changes
in Internal Control over Financial Reporting
There
have been no changes in the company’s internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during the fiscal
quarter ended December 31, 2005, that have materially affected or are reasonably
likely to materially affect the company’s internal control over financial
reporting. The company acquired Kendro on May 9, 2005 and has evaluated Kendro’s
internal control over financial reporting and is making changes where
appropriate.
|
Other
Information
|
Not
applicable.
PART
III
|
Directors and Executive Officers of the
Registrant
|
The
information with respect to directors required by this Item will be contained
in
our definitive proxy statement to be filed with the SEC not later than 120
days
after the close of business of the fiscal year (2006 Definitive Proxy Statement)
under the headings “
ELECTION
OF DIRECTORS
”
and
“
CORPORATE
GOVERNANCE PRINCIPLES AND BOARD MATTERS
,”
and
is
incorporated in this report by reference.
The
information with respect to executive officers required by this Item is included
in Item 1 of Part I of this report.
The
information with respect to audit committee financial expert and identification
of the audit committee of the Board of Directors required by this Item will
be
contained in our 2006 Definitive Proxy Statement under the heading “
CORPORATE
GOVERNANCE
PRINCIPLES AND BOARD MATTERS,” and is incorporated in this report by reference.
Copies of the audit committee charter, as well as the charters for the
compensation committee and nominating and corporate governance committee, are
available on our Web site at www.thermo.com. Paper copies of these documents
may
be obtained free of charge by writing to the company care of its Investor
Relations Department at our principal executive office located at 81 Wyman
Street, Waltham, Massachusetts 02451.
The
company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. This code of ethics is
incorporated in our code of business conduct and ethics that applies to all
of
our officers, directors and employees. A copy of our code of business conduct
and ethics is available on our Web site at www.thermo.com. We intend to satisfy
the SEC’s disclosure requirements regarding amendments to, or waivers of, the
code of business conduct and ethics by posting such information on our Web
site.
A paper copy of our code of business conduct and ethics may be obtained free
of
charge by writing to the company care of its Investor Relations Department
at
our principal executive office.
In
addition, the Board of Directors has adopted corporate governance guidelines
of
the company. A copy of the company’s corporate governance guidelines are
available on the company’s Web site at www.thermo.com. Paper copies of the
corporate governance guidelines may be obtained free of charge by writing to
the
company care of its Investor Relations Department at our principal executive
office.
|
Executive
Compensation
|
The
information required by this Item will be contained in our 2006 Definitive
Proxy
Statement under the heading “
EXECUTIVE
COMPENSATION,
”
and
under the sub-heading “Director Compensation” under the heading “
CORPORATE
GOVERNANCE PRINCIPLES AND BOARD MATTERS
,”
and
is
incorporated in this report by reference.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
The
information with respect to security ownership of certain beneficial owners
and
management required by this Item will be contained in our 2006 Definitive Proxy
Statement under the heading “
STOCK
OWNERSHIP
,”
and
is
incorporated in this report by reference.
The
information with respect to securities authorized for issuance under equity
compensation plans will be
contained in our 2006 Definitive Proxy Statement under the heading “
EQUITY
COMPENSATION PLAN INFORMATION
,”
and
is
incorporated in this report by reference.
|
Certain
Relationships and Related
Transactions
|
The
information required by this Item
will
be
contained in our 2006 Definitive Proxy Statement under the heading “
CORPORATE
GOVERNANCE PRINCIPLES AND BOARD MATTERS,
”
and
is
incorporated in this report by reference.
|
Principal
Accountant Fees and
Services
|
The
information required by this Item will be contained in our 2006 Definitive
Proxy
Statement under the heading “
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM,
”
and
is
incorporated in this report by reference.
PART
IV
|
Exhibits
and Financial Statement
Schedules
|
|
(a)
|
The
following documents are filed as part of this
report:
|
|
(1)
|
Consolidated
Financial Statements (see Index on
page F-1
of this
report):
|
Report
of
Independent Registered Public Accounting Firm
Consolidated
Statement of Income
Consolidated
Balance Sheet
Consolidated
Statement of Cash Flows
Consolidated
Statement of Comprehensive Income and Shareholders’ Equity
Notes
to
Consolidated Financial Statements
|
(2)
|
Consolidated
Financial Statement Schedule (see Index on
page F-1
of
this report):
|
Schedule
II: Valuation and Qualifying Accounts
All
other
schedules are omitted because they are not applicable or not required, or
because the required information is included either in the consolidated
financial statements or in the notes thereto.
|
(b)
|
Exhibits
|
See
the
Exhibit Index on page 44.
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
Date:
March
2, 2006
|
THERMO ELECTRON CORPORATION | ||
| By: |
/s/
Marijn E. Dekkers
|
||
|
Marijn
E. Dekkers
|
|||
|
President
and Chief Executive Officer
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated, as of March 2
,
2006.
|
Signatures
|
Title
|
||
| By: |
/s/
Marijn E. Dekkers
|
President,
Chief Executive Officer and Director
|
|
| Marijn E. Dekkers |
(Principal
Executive Officer)
|
||
| By: |
/s/
Jim P. Manzi
|
Chairman
of the Board and Director
|
|
| Jim P. Manzi | |||
|
|
|||
| By: |
/s/
Peter M. Wilver
|
Vice
President and Chief Financial Officer
|
|
|
Peter
M. Wilver
|
(Principal Financial Officer) | ||
| By: |
/s/
Peter E. Hornstra
|
Corporate
Controller and Chief Accounting Officer
|
|
| Peter E. Hornstra | (Principal Accounting Officer) | ||
| By: |
/s/
John L. LaMattina
|
Director
|
|
| John L. LaMattina | |||
| By: |
/s/
Peter J. Manning
|
Director
|
|
| Peter J. Manning | |||
| By: |
/s/
Robert A. McCabe
|
Director
|
|
| Robert A. McCabe | |||
| By: |
/s/
Robert W. O’Leary
|
Director
|
|
| Robert W. O’Leary | |||
| By: |
/s/
Michael E. Porter
|
Director
|
|
| Michael E. Porter | |||
| By: |
/s/
Elaine S. Ullian
|
Director
|
|
| Elaine S. Ullian |
|
Exhibit
Number
|
Description
of Exhibit
|
|
2
|
Purchase
Agreement among the Registrant, one of its direct wholly-owned
subsidiaries, SPX Corporation and certain of its direct and indirect
wholly-owned subsidiaries, dated as of January 19, 2005 (filed as
Exhibit
99.1 to the Registrant’s Current Report on Form 8-K filed January 21, 2005
[File No. 1-8002] and incorporated in this document by
reference).
|
|
2.1
|
Amendment
to Purchase Agreement among the company, the indirect, wholly owned
subsidiaries of the company named therein, SPX Corporation, and the
direct
and indirect, wholly owned subsidiaries of SPX Corporation named
therein,
dated May 6, 2005 (filed as Exhibit 99.2 to the company’s Current Report
on Form 8-K filed May 12, 2005 [File No. 1-8002] and incorporated
in this
document by reference).
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of the
Registrant.
|
|
3.2
|
By-laws
of the Registrant, as amended and effective as of November 20, 2003
(filed
as Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2003 [File No. 1-8002] and
incorporated in this document by reference).
The
Registrant agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation
S-K,
to furnish to the Commission upon request, a copy of each instrument
with
respect to long-term debt of the Registrant or its consolidated
subsidiaries
.
|
|
4.1
|
Rights
Agreement, dated as of September 15, 2005, by and between Thermo
Electron
Corporation and American Stock Transfer & Trust Company, as Rights
Agent, which includes as Exhibit A, the Terms of Series B Junior
Participating Preferred Stock, and as Exhibit B, the Form of Rights
Certificate (filed as Exhibit 4.1 to the Registrant’s Current Report on
Form 8-K dated September 16, 2005 [File No. 1-8002 and incorporated
in
this document by reference).
|
|
10.1
|
Revolving
Credit Facility Letters from Barclays Bank PLC in favor of the Registrant
and its subsidiaries (filed as Exhibit 10.8 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended January 3, 1998 [File
No.
1-8002] and incorporated in this document by
reference).
|
|
10.2
|
Amended
and Restated Deferred Compensation Plan for Directors of the Registrant
(filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q
for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated
in this document by reference).
|
|
10.3
|
Thermo
Electron Corporation Directors Stock Option Plan, as amended and
restated
as of February 25, 2005 (filed as Exhibit 10.3 to the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2004 [File No.
1-8002]
and incorporated in this document by reference).
|
|
10.4
|
Thermo
Electron Corporation 2003 Annual Incentive Award Plan, effective
May 14,
2003 (filed as Appendix B to the Registrant’s Definitive Proxy on Schedule
14A for the 2003 Annual Shareholders Meeting [File No. 1-8002] and
incorporated in this document by
reference).
|
|
10.5
|
Thermo
Electron Corporation Equity Incentive Plan, as amended and restated
as of
February 7, 2002 (filed as Exhibit 10.10 to the Registrant’s Annual Report
on Form 10-K for the fiscal year ended December 29, 2001 [File No.
1-8002]
and incorporated in this document by reference).
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.6
|
Thermo
Electron Corporation 2001 Equity Incentive Plan, as amended and restated
as of February 7, 2002 (filed as Exhibit 10.11 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 29, 2001 [File
No.
1-8002] and incorporated in this document by
reference).
|
|
10.7
|
Thermo
Electron Corporation Employees’ Equity Incentive Plan, as amended and
restated as of February 7, 2002 (filed as Exhibit 10.12 to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
29, 2001 [File No. 1-8002] and incorporated in this document by
reference).
|
|
10.8
|
Thermo
Electron Corporation Deferred Compensation Plan, effective November
1,
2001 (filed as Exhibit 10.13 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 29, 2001 [File No. 1-8002]
and
incorporated in this document by reference).
|
|
10.9
|
Thermo
Electron Corporation 2000 Employees Equity Incentive Plan as amended
and
restated as of May 15, 2003 (filed as Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended June 28, 2003
[File
No. 1-8002] and incorporated in this document by
reference).
|
|
Each
of the plans listed in
Exhibits
10.10 to 10.26 originally provided
for the grant of options to
acquire the shares of the Registrant’s formerly majority-owned
subsidiaries. In connection with the reorganization of the Registrant
commenced in 1999, all of the Registrant’s formerly majority-owned
subsidiaries were taken private and as a result, these plans were
frozen
and all of the options originally granted under the plans ultimately
became options to purchase shares of Common Stock of the
Registrant.
|
|
|
10.10
|
Amended
and Restated Thermo Information Solutions Inc. Equity Incentive Plan
(filed as Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for
the fiscal year ended December 28, 2002 [File No. 1-8002] and incorporated
in this document by reference). (Thermo Information Solutions merged
with
Thermo Coleman Corporation on September 17, 1999, and Thermo Coleman
merged with Thermo Electron on October 15, 1999.)
|
|
10.11
|
Amended
and Restated Thermo Coleman Corporation Equity Incentive Plan (filed
as
Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 28, 2002 [File No. 1-8002] and
incorporated in this document by reference). (Thermo Coleman merged
with
Thermo Electron on October 15, 1999.)
|
|
10.12
|
Amended
and Restated Thermo Electron Corporation - Thermo Sentron Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.21 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
[File No.
1-8002] and incorporated in this document by reference). (Thermo
Sentron
merged with Thermedics Inc. on April 4, 2000, and Thermedics merged
with
Thermo Electron on June 30, 2000.)
|
| 10.13 | Equity Incentive Plan of Thermo Sentron Inc. (filed as Exhibit 10.7 to Thermo Sentron’s Registration Statement on Form S-1 [Reg. No. 333-806] and incorporated in this document by reference). (Thermo Sentron merged with Thermedics Inc. on April 4, 2000, and Thermedics merged with Thermo Electron on June 30, 2000.) |
|
10.14
|
Equity
Incentive Plan of Thermedics Detection Inc. (filed as Exhibit 10.7
to
Thermedics Detection’s Registration Statement on Form S-1 [File No.
333-19199] and incorporated in this document by reference). (Thermedics
Detection merged with Thermedics on April 12, 2000, and Thermedics
merged
with Thermo Electron on June 30,
2000.)
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.15
|
Amended
and Restated Equity Incentive Plan of Thermedics Inc. (filed as Exhibit
10.7 to the Quarterly Report on Form 10-Q of Thermedics for the quarter
ended July 3, 1999 [File No. 1-9567] and incorporated in this document
by
reference). (Thermedics merged with Thermo Electron on June 30,
2000.)
|
|
10.16
|
Amended
and Restated Thermo Electron Corporation - Thermo BioAnalysis Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.14 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
[File No.
1-8002] and incorporated in this document by reference). (On April
19,
2000, Thermo BioAnalysis merged with Thermo Instrument Systems Inc.
and on
June 30, 2000, Thermo Instrument merged with Thermo Electron and
all
outstanding options granted under this plan were ultimately assumed
by
Thermo Electron.)
|
|
10.17
|
Amended
and Restated Equity Incentive Plan of Metrika Systems Corporation
(filed
as Exhibit 10.3 to the Quarterly Report on Form 10-Q of Metrika for
the
quarter ended July 3, 1999 [File No. 1-13085] and incorporated in
this
document by reference). (Metrika merged with Thermo Instrument on
May 3,
2000, and Thermo Instrument merged with Thermo Electron on June 30,
2000.)
|
|
10.18
|
Amended
and Restated Equity Incentive Plan of ThermoQuest Corporation (filed
as
Exhibit 10.2 to the Quarterly Report on Form 10-Q of ThermoQuest
for the
quarter ended July 3, 1999 [File No. 1-14262] and incorporated in
this document by reference). (ThermoQuest merged with Thermo Instrument
on
May 11, 2000, and Thermo Instrument merged with Thermo Electron on
June
30, 2000.)
|
|
10.19
|
Amended
and Restated Thermo Electron Corporation - ThermoQuest Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.19 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
[File No.
1-8002] and incorporated in this document by reference). (On May
11, 2000,
ThermoQuest merged with Thermo Instrument and on June 30, 2000, Thermo
Instrument merged with Thermo Electron and all outstanding options
granted
under this plan were ultimately assumed by Thermo
Electron.)
|
|
10.20
|
Amended
and Restated Equity Incentive Plan of Thermo Optek Corporation (filed
as
Exhibit 10.2 to the Quarterly Report on Form 10-Q of Thermo Optek
for the
quarter ended July 3, 1999 [File No. 1-11757] and incorporated in
this document by reference). (Thermo Optek merged with Thermo Instrument
on May 11, 2000, and Thermo Instrument merged with Thermo Electron
on June
30, 2000.)
|
|
10.21
|
Amended
and Restated Thermo Electron Corporation - Thermo Optek Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.20 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
[File No.
1-8002] and incorporated in this document by reference). (On May
11, 2000,
Thermo Optek merged with Thermo Instrument and on June 30, 2000,
Thermo
Instrument merged with Thermo Electron and all outstanding options
granted
under this plan were ultimately assumed by Thermo
Electron.)
|
| 10.22 | Amended and Restated Equity Incentive Plan of Thermo Instrument Systems Inc. (filed as Exhibit 10.6 to the Quarterly Report on Form 10-Q of Thermo Instrument for the quarter ended July 3, 1999 [File No. 1-9786] and incorporated in this document by reference). (Thermo Instrument merged with Thermo Electron on June 30, 2000.) |
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.23
|
Amended
and Restated Thermo Electron Corporation - Trex Medical Corporation
Nonqualified Stock Option Plan (filed as Exhibit 10.22 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999
[File No.
1-8002] and incorporated in this document by reference). (Trex Medical
merged with Thermo Electron on November 29, 2000.)
|
|
10.24
|
Amended
and Restated Equity Incentive Plan of Trex Medical Corporation (filed
as
Exhibit 10.2 to the Quarterly Report on Form 10-Q of Trex Medical
for the
quarter ended July 3, 1999 [File No. 1-11827] and incorporated in
this
document by reference). (Trex Medical merged with Thermo Electron
on
November 29, 2000.)
|
|
10.25
|
1997
Spectra-Physics Lasers, Inc. Stock Option Plan (filed as Exhibit
10.6 of
Amendment No. 1 to Spectra-Physics’ Registration Statement on Form S-1
[File No. 333-38329] and incorporated in this document by reference).
(Spectra-Physics merged with Thermo Electron on February 25,
2002.)
|
|
10.26
|
2000
Spectra-Physics Lasers, Inc. Stock Incentive Plan (filed as Exhibit
10.1
to Spectra-Physics’ Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 [File No. 000-23461] and incorporated in this
document
by reference). (Spectra-Physics merged with Thermo Electron on February
25, 2002.)
|
|
10.27
|
Description
of Amendments to Certain Stock Option Plans made in February 2002
(filed
as Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 29, 2001 [File No. 1-8002] and incorporated
in
this document by reference).
|
|
10.28
|
Form
of Indemnification Agreement between the Registrant and the directors
and
officers of its former majority-owned subsidiaries (filed as Exhibit
10.1
to the Registrant’s Registration Statement on Form S-4 [Reg. No.
333-90661] and incorporated in this document by
reference).
|
|
10.29
|
Form
of Amended and Restated Indemnification Agreement between the Registrant
and its directors and officers (filed as Exhibit 10.2 to the Registrant’s
Registration Statement on Form S-4 [Reg. No. 333-90661] and
incorporated in this document by reference).
|
|
10.30
|
Amended
and Restated Employment Agreement between the Registrant and Mr.
Marijn
Dekkers (filed as Exhibit 99.1 to the Registrant’s Current Report on Form
8-K dated December 12, 2002 [File No. 1-8002] and incorporated in
this document by reference).
|
|
10.31
|
Executive
Registry Program at the Massachusetts General Hospital (filed as
Exhibit
10.74 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended December 28, 2002 [File No. 1-8002] and incorporated in this
document by reference).
|
|
10.32
|
Form
of Executive Change in Control Retention Agreement dated November
19,
2003, between the Registrant and its executive officers (other than
Mr.
Marijn Dekkers) and certain other key employees (filed as Exhibit
10.65 to
the Registrant’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 [File No. 1-8002] and incorporated in this document
by
reference).
|
| 10.33 | Form of Executive Severance Agreement dated November 19, 2003, between the Registrant and its executive officers (other than Mr. Marijn Dekkers) and certain other key employees (filed as Exhibit 10.66 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 [File No. 1-8002] and incorporated in this document by reference). |
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.34
|
Restricted
Stock Units Agreement dated November 19, 2003, by and between the
Registrant and Mr. Marc Casper (filed as Exhibit 10.68 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2003
[File No. 1-8002] and incorporated in this document by
reference).
|
|
10.35
|
Restricted
Stock Agreement dated December 12, 2003, by and between the Registrant
and
Mr. Jim Manzi (filed as Exhibit 10.71 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2003 [File No. 1-8002]
and incorporated in this document by reference).
|
|
10.36
|
Stock
Option Agreement dated December 12, 2003, by and between the Registrant
and Mr. Jim Manzi (filed as Exhibit 10.72 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2003 [File
No.
1-8002] and incorporated in this document by
reference).
|
|
10.37
|
Restricted
Stock Agreement for Chief Executive Officer dated January 7, 2004,
between
the Registrant and Mr. Marijn Dekkers (filed as Exhibit 10.73 to
the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2003 [File No. 1-8002] and incorporated in this document by
reference).
|
|
10.38
|
Letter
Agreement dated February 11, 2004, between the Registrant and Mr.
Marijn
Dekkers (filed as Exhibit 10.74 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2003 [File No. 1-8002]
and
incorporated in this document by reference).
|
|
10.39
|
Restricted
Stock Agreement dated February 26, 2004, by and between the Registrant
and
Mr. Peter Wilver (filed as Exhibit 10.75 to the Registrant’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2003 [File No.
1-8002]
and incorporated in this document by reference).
|
|
10.40
|
Restricted
Stock Agreement dated June 2, 2004, by and between Thermo Electron
Corporation and Mr. Seth Hoogasian (filed as Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 3,
2004 [File No. 1-8002] and incorporated in this document by
reference).
|
|
10.41
|
Five-Year
Credit Agreement among the Registrant, the Several Lenders thereto,
Barclays Bank Plc, as Administrative Agent, ABN AMRO Bank N.V., as
Syndication Agent, and Bank of America, N.A. and JPMorgan Chase Bank,
N.A., as co-documentation agents, dated as of December 17, 2004 (filed
as
Exhibit 10.58 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2004 [File No. 1-8002] and incorporated
in
this document by reference).
|
|
10.42
|
Letter
Agreement dated February 25, 2005, between the Registrant and Mr.
Marijn
Dekkers (filed as Exhibit 10.60 to the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 31, 2004 [File No. 1-8002]
and
incorporated in this document by reference).
|
|
10.43
|
Form
of Thermo Electron Corporation Stock Option Agreement for use in
connection with the grant of stock options under the Registrant’s equity
incentive plans to officers and directors of the Registrant (filed
as
Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated February
25, 2005 [file number 1-8002] and incorporated herein by
reference).
|
| 10.44 |
Form
of Thermo Electron Corporation Stock Option Agreement for use in
connection with the grant of stock options under the Registrant’s equity
incentive plans to Mr. Dekkers (filed as Exhibit 99.2 to the Registrant’s
Current Report on Form 8-K dated February 25, 2005 [file number 1-8002]
and incorporated herein by reference).
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
10.45
|
Form
of Thermo Electron Corporation Restricted Stock Agreement for use
in
connection with the grant of restricted stock under the Registrant’s
equity incentive plans to Mr. Dekkers (filed as Exhibit 99.3 to the
Registrant’s Current Report on Form 8-K dated February 25, 2005 [file
number 1-8002] and incorporated herein by reference).
|
|
10.46
|
Revised
Summary of Thermo Electron Corporation Director Compensation.
|
|
10.47
|
2005
Stock Incentive Plan, as amended (filed as Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q/A for the quarter ended July 2,
2005 [File 1-8002] and incorporated in this document by
reference).
|
|
10.48
|
Form
of Thermo Electron Corporation Stock Option Agreement for use in
connection with the grant of stock options under the company’s 2005 Stock
Incentive Plan to officers and directors (filed as Exhibit 99.1 to
the
company’s Current Report on Form 8-K filed May 23, 2005 [File No. 1-8002]
and incorporated in this document by reference).
|
|
10.49
|
Credit
Agreement among the company, Thermo Luxembourg Holding S.a.r.l.,
Thermo
Finance Company B.V., the several banks and other financial institutions
or entities from time to time parties thereto, ABN AMRO Bank, N.V.,
as
Administrative Agent, Sole Bookrunner and a Lead Arranger, Barclays
Bank
PLC, as co-Documentation Agent, JPMorgan Chase Bank, N.A., as
co-Documentation Agent, and Bank of Tokyo-Mitsubishi Trust Company,
as
Syndication Agent, dated June 30, 2005 (filed as Exhibit 10.6 to
the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 2,
2005 [File 1-8002] and incorporated in this document by
reference).
|
|
10.50
|
Letter
Agreement dated November 17, 2005 between the Registrant and Mr.
Marijn
Dekkers.
|
|
10.51
|
Letter
Agreement dated February 27, 2006, between the Registrant and Mr.
Marijn
Dekkers.
|
|
10.52
|
Summary
of Annual Incentive Program of Thermo Electron Corporation (filed
as
Exhibit 10.66 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2004 [File No. 1-8002] and incorporated
in
this document by reference).
|
|
10.53
|
Summary
of 2006 Annual Cash Incentive Plan Matters (set forth in Item 1.01
to the
Registrant’s Current Report on Form 8-K dated February 27, 2006 [File No.
1-8002] in the first two paragraphs under heading “2006 Executive
Compensation Matters” and incorporated herein by
reference).
|
|
10.54
|
Restricted
Stock Agreement dated February 27, 2006, by and between the Registrant
and
Mr. Guy Broadbent.
|
| 21 | Subsidiaries of the Registrant. |
| 23 | Consent of PricewaterhouseCoopers LLP. |
|
31.1
|
Certification
of Chief Executive Officer required by Exchange Act Rules 13a-14(a)
and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.
|
|
31.2
|
Certification
of Chief Financial Officer required by Exchange Act Rules 13a-14(a)
and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.
|
|
Exhibit
Number
|
Description
of Exhibit
|
|
32.1
|
Certification
of Chief Executive Officer required by Exchange Act Rules 13a-14(b)
and
15d-14(b), as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002.*
|
|
32.2
|
Certification
of Chief Financial Officer required by Exchange Act Rules 13a-14(b)
and
15d-14(b), as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002.*
|
*Certification
is not deemed “filed” for purposes of Section 18 of the Exchange Act or
otherwise subject to the liability of that section. Such certification is
not deemed
to
be incorporated by reference into any filing under the Securities Act or the
Exchange Act except to the extent that the registrant specifically incorporates
it by
reference.
The
following Consolidated Financial Statements of the Registrant and its
subsidiaries are required to be included in Item 15:
|
Page
|
|
|
F-2
|
|
|
F-4
|
|
|
F-5
|
|
|
F-7
|
|
|
F-9
|
|
|
F-11
|
The following Consolidated Financial Statement Schedule of the Registrant and its subsidiaries is filed as part of this Report as required to be included in
Item
15(a):
|
Note
:
|
All
other financial statement schedules are omitted because they are
not
applicable or not required, or because the required information is
included in the consolidated financial statements or in the notes
thereto.
|
To
the
Board of Directors and Shareholders of
Thermo
Electron Corporation:
We
have
completed integrated audits of Thermo Electron Corporation’s 2005 and 2004
consolidated financial statements and of its internal control over financial
reporting as of December 31, 2005, and an audit of its 2003 consolidated
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.
Consolidated
financial statements and financial statement schedule
In
our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Thermo Electron Corporation and its subsidiaries at December 31,
2005 and 2004, and the results of their operations and their cash flows for
each
of the three years in the period ended December 31, 2005 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits. We conducted our audits of these statements in accordance with
the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in Management’s Annual Report on
Internal Control Over Financial Reporting appearing under Item 9A, that the
Company maintained effective internal control over financial reporting as of
December 31, 2005 based on criteria established in
Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005,
based on criteria established in
Internal
Control - Integrated Framework
issued
by the COSO. The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on the effectiveness of
the Company’s internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. An audit of internal control
over financial reporting includes obtaining an understanding of internal control
over financial reporting, evaluating management’s assessment, testing and
evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
PricewaterhouseCoopers
LLP
Boston,
Massachusetts
February
28, 2006
|
2005
|
2004
|
2003
|
||||||||
|
Revenues
(Notes
1 and 3)
|
$
|
2,633,027
|
$
|
2,205,995
|
$
|
1,899,378
|
||||
|
Costs
and Operating Expenses:
|
||||||||||
|
Cost
of revenues (Note 15)
|
1,438,079
|
1,191,516
|
1,019,476
|
|||||||
|
Selling,
general and administrative expenses
|
761,786
|
626,458
|
519,322
|
|||||||
|
Research
and development expenses
|
152,775
|
134,680
|
127,996
|
|||||||
|
Restructuring and other costs, net (Note 15)
|
16,900
|
15,829
|
45,200
|
|||||||
|
2,369,540
|
1,968,483
|
1,711,994
|
||||||||
|
Operating
Income
|
263,487
|
237,512
|
187,384
|
|||||||
|
Other
Income, Net (Note 4)
|
22,411
|
21,707
|
35,247
|
|||||||
|
Income from Continuing Operations Before Provision for Income
Taxes
|
285,898
|
259,219
|
222,631
|
|||||||
|
Provision
for Income Taxes (Note 6)
|
(87,597
|
)
|
(40,852
|
)
|
(47,421
|
)
|
||||
|
Income from Continuing Operations
|
198,301
|
218,367
|
175,210
|
|||||||
|
Income (Loss) from Discontinued Operations (includes income tax benefit
of
$36,321 and $1,485 in 2004
and 2003; Note 16)
|
–
|
43,018
|
(2,513
|
)
|
||||||
|
Gain on Disposal of Discontinued Operations, Net (net of income tax
provision of $16,341 and $8,141 in 2005
and 2003; includes income tax benefit of $36,728 in 2004; Note
16)
|
24,917
|
100,452
|
27,312
|
|||||||
|
Net
Income
|
$
|
223,218
|
$
|
361,837
|
$
|
200,009
|
||||
|
Earnings
per Share from Continuing Operations
(Note
7)
|
||||||||||
|
Basic
|
$
|
1.23
|
$
|
1.34
|
$
|
1.08
|
||||
|
Diluted
|
$
|
1.21
|
$
|
1.31
|
$
|
1.05
|
||||
|
Earnings
per Share
(Note
7)
|
||||||||||
|
Basic
|
$
|
1.38
|
$
|
2.22
|
$
|
1.23
|
||||
|
Diluted
|
$
|
1.36
|
$
|
2.17
|
$
|
1.20
|
||||
|
Weighted
Average Shares
(Note
7)
|
||||||||||
|
Basic
|
161,587
|
163,133
|
162,713
|
|||||||
|
Diluted
|
165,334
|
167,641
|
170,730
|
|||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
2005
|
2004
|
|||||
|
Assets
|
||||||
|
Current
Assets:
|
||||||
|
Cash and cash equivalents
|
$
|
214,326
|
$
|
326,886
|
||
|
Short-term
available-for-sale investments, at quoted market value (Note
9)
|
80,661
|
185,369
|
||||
|
Accounts
receivable, less allowances of $21,841 and $22,844
|
565,564
|
469,553
|
||||
|
Inventories
|
359,392
|
336,711
|
||||
|
Deferred
tax assets (Note 6)
|
79,586
|
92,929
|
||||
|
Other
current assets
|
54,371
|
52,606
|
||||
|
Current
assets of discontinued operations (Note 16)
|
–
|
5,600
|
||||
|
1,353,900
|
1,469,654
|
|||||
|
Property,
Plant and Equipment, at Cost, Net
|
280,654
|
261,041
|
||||
|
Acquisition-related
Intangible Assets, Net (Note 2)
|
450,740
|
158,577
|
||||
|
Other
Assets (Note 2)
|
200,080
|
174,428
|
||||
|
Goodwill
(Note 2)
|
1,966,195
|
1,513,025
|
||||
|
$
|
4,251,569
|
$
|
3,576,725
|
|||
|
2005
|
2004
|
||||||
|
Liabilities
and Shareholders’ Equity
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Short-term
obligations and current maturities of long-term obligations (Note
10)
|
$
|
130,137
|
$
|
15,017
|
|||
|
Accounts
payable
|
153,475
|
131,175
|
|||||
|
Accrued
payroll and employee benefits
|
114,707
|
94,671
|
|||||
|
Accrued
income taxes
|
55,147
|
22,829
|
|||||
|
Deferred
revenue
|
85,592
|
77,778
|
|||||
|
Customer
deposits
|
38,229
|
47,786
|
|||||
|
Other
accrued expenses (Notes 2 and 15)
|
179,184
|
146,920
|
|||||
|
Current
liabilities of discontinued operations (Note 16)
|
35,191
|
42,552
|
|||||
|
791,662
|
578,728
|
||||||
|
Deferred
Income Taxes (Note 6)
|
65,015
|
15,213
|
|||||
|
Other
Long-term Liabilities (Note 5)
|
132,950
|
91,164
|
|||||
|
Long-term
Obligations (Note 10):
|
|||||||
|
Senior
notes
|
380,542
|
135,232
|
|||||
|
Subordinated
convertible obligations
|
77,234
|
77,234
|
|||||
|
Other
|
10,854
|
13,604
|
|||||
|
468,630
|
226,070
|
||||||
|
Commitments
and Contingencies (Note 11)
|
|||||||
|
Shareholders’
Equity (Notes 5 and 12):
|
|||||||
|
Preferred
stock, $100 par value, 50,000 shares authorized; none
issued
|
|||||||
|
Common
stock, $1 par value, 350,000,000 shares authorized; 181,817,452 and
179,818,648 shares
issued
|
181,817
|
179,819
|
|||||
|
Capital
in excess of par value
|
1,421,382
|
1,381,448
|
|||||
|
Retained
earnings
|
1,604,475
|
1,381,257
|
|||||
|
Treasury
stock at cost, 19,335,163 and 19,269,245 shares
|
(437,707
|
)
|
(435,779
|
)
|
|||
|
Deferred
compensation
|
(3,834
|
)
|
(2,561
|
)
|
|||
|
Accumulated
other comprehensive items (Note 8)
|
27,179
|
161,366
|
|||||
|
2,793,312
|
2,665,550
|
||||||
|
$
|
4,251,569
|
$
|
3,576,725
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
2005
|
2004
|
2003
|
||||||||
|
Operating
Activities
|
||||||||||
|
Net
income
|
$
|
223,218
|
$
|
361,837
|
$
|
200,009
|
||||
|
(Income)
loss from discontinued operations (Note 16)
|
–
|
(43,018
|
)
|
2,513
|
||||||
|
Gain
on disposal of discontinued operations, net (Note 16)
|
(24,917
|
)
|
(100,452
|
)
|
(27,312
|
)
|
||||
|
Income
from continuing operations
|
198,301
|
218,367
|
175,210
|
|||||||
|
Adjustments
to reconcile income from continuing operations to net cash provided
by
operating activities:
|
||||||||||
|
Depreciation
and amortization
|
123,272
|
66,141
|
46,716
|
|||||||
|
Noncash
restructuring and other costs, net (Note 15)
|
1,700
|
1,156
|
5,394
|
|||||||
|
Provision
for losses on accounts receivable
|
3,467
|
3,045
|
3,485
|
|||||||
|
Change
in deferred income taxes
|
(5,417
|
)
|
3,004
|
(17,249
|
)
|
|||||
|
Gain
on investments, net (Notes 4 and 9)
|
(35,319
|
)
|
(20,838
|
)
|
(35,536
|
)
|
||||
|
(Gain)
loss on sale of businesses (Note 2)
|
(272
|
)
|
–
|
4,654
|
||||||
|
Equity
in earnings of unconsolidated subsidiaries (Note 4)
|
(168
|
)
|
(733
|
)
|
(490
|
)
|
||||
|
Other
noncash expenses, net
|
18,015
|
9,663
|
10,024
|
|||||||
|
Changes
in current accounts, excluding the effects of acquisitions and
dispositions:
|
||||||||||
|
Accounts receivable
|
(65,500
|
)
|
(27,609
|
)
|
931
|
|||||
|
Inventories
|
6,258
|
(21,456
|
)
|
27,414
|
||||||
|
Other
current assets
|
(2,627
|
)
|
(1,009
|
)
|
688
|
|||||
|
Accounts
payable
|
6,740
|
12,939
|
(12,942
|
)
|
||||||
|
Other
current liabilities
|
24,338
|
7,337
|
(7,956
|
)
|
||||||
|
Net
cash provided by continuing operations
|
272,788
|
250,007
|
200,343
|
|||||||
|
Net
cash provided by (used in) discontinued operations
|
(1,875
|
)
|
14,503
|
14,402
|
||||||
|
Net
cash provided by operating activities
|
270,913
|
264,510
|
214,745
|
|||||||
|
Investing
Activities
|
||||||||||
|
Acquisitions,
net of cash acquired (Note 2)
|
(933,218
|
)
|
(143,010
|
)
|
(134,924
|
)
|
||||
|
Proceeds
from sale of available-for-sale investments (Note 4)
|
363,719
|
634,967
|
291,521
|
|||||||
|
Purchases
of available-for-sale investments
|
(231,900
|
)
|
(611,095
|
)
|
(245,704
|
)
|
||||
|
Proceeds
from maturities of available-for-sale investments
|
129
|
29,819
|
349,192
|
|||||||
|
Purchases
of property, plant and equipment
|
(43,545
|
)
|
(49,985
|
)
|
(41,690
|
)
|
||||
|
Proceeds
from sale of property, plant and equipment
|
16,151
|
5,511
|
4,272
|
|||||||
|
Proceeds
from sale of businesses, net of cash divested (Note 2)
|
5,661
|
–
|
16,427
|
|||||||
|
Proceeds
from sale of other investments (Note 4)
|
5,970
|
26
|
1,692
|
|||||||
|
Collection
of notes receivable (Note 2)
|
–
|
178
|
69,136
|
|||||||
|
Increase
in other assets
|
(2,489
|
)
|
(2,506
|
)
|
(6,623
|
)
|
||||
|
Other
|
431
|
(1,579
|
)
|
(938
|
)
|
|||||
|
Net
cash provided by (used in) continuing operations
|
(819,091
|
)
|
(137,674
|
)
|
302,361
|
|||||
|
Net
cash provided by discontinued operations
|
65,611
|
171,827
|
6,042
|
|||||||
|
Net
cash provided by (used in) investing activities
|
$
|
(753,480
|
)
|
$
|
34,153
|
$
|
308,403
|
|||
|
2005
|
2004
|
2003
|
||||||||
|
Financing
Activities
|
||||||||||
|
Net
proceeds from issuance of long-term debt
|
$
|
246,851
|
$
|
–
|
$
|
–
|
||||
|
Borrowings
under short-term bridge financing agreements
|
570,000
|
–
|
–
|
|||||||
|
Repayment
of bridge financing agreement
|
(570,000 |
)
|
–
|
–
|
||||||
|
Increase
(decrease) in short-term notes payable
|
119,048
|
(7,938
|
)
|
(369,110
|
)
|
|||||
|
Purchases
of company common stock and subordinated convertible
debentures (Note 10)
|
–
|
(231,530
|
)
|
(88,871
|
)
|
|||||
|
Net
proceeds from issuance of company common stock (Note 5)
|
27,191
|
57,636
|
75,049
|
|||||||
|
Redemption
and repayment of long-term obligations (Note 10)
|
(212
|
)
|
(1,288
|
)
|
(269,135
|
)
|
||||
|
Other
|
(2,018
|
)
|
(548
|
)
|
40
|
|||||
|
Net
cash provided by (used in) continuing operations
|
390,860
|
(183,668
|
)
|
(652,027
|
)
|
|||||
|
Net
cash provided by (used in) discontinued operations
|
–
|
445
|
(11,605
|
)
|
||||||
|
Net
cash provided by (used in) financing activities
|
390,860
|
(183,223
|
)
|
(663,632
|
)
|
|||||
|
Exchange
Rate Effect on Cash of Continuing Operations
|
(20,853
|
)
|
16,522
|
31,976
|
||||||
|
Exchange
Rate Effect on Cash of Discontinued Operations
|
–
|
(849
|
)
|
2,966
|
||||||
|
Increase
(Decrease) in Cash and Cash Equivalents
|
(112,560
|
)
|
131,113
|
(105,542
|
)
|
|||||
|
Cash
and Cash Equivalents at Beginning of Year
|
326,886
|
195,773
|
301,315
|
|||||||
|
Cash
and Cash Equivalents at End of Year
|
$
|
214,326
|
$
|
326,886
|
$
|
195,773
|
See
Note
14 for supplemental cash flow information.
The
accompanying notes are an integral part of these consolidated financial
statements.
|
2005
|
2004
|
2003
|
||||||||
|
Comprehensive
Income
|
||||||||||
|
Net
Income
|
$
|
223,218
|
$
|
361,837
|
$
|
200,009
|
||||
|
Other
Comprehensive Items (Note 8):
|
||||||||||
|
Currency
translation adjustment
|
(105,033
|
)
|
96,800
|
124,711
|
||||||
|
Unrealized
gains (losses) on available-for-sale investments, net of reclassification
adjustment and net of tax
|
15,309
|
(9,970
|
)
|
28,195
|
||||||
|
Unrealized
gains (losses) on hedging instruments, net of tax
|
(1,921
|
)
|
2,528
|
(1,033
|
)
|
|||||
|
Minimum
pension liability adjustment, net of tax
|
(13,502
|
)
|
(3,023
|
)
|
(7,415
|
)
|
||||
|
(105,147
|
)
|
86,335
|
144,458
|
|||||||
|
$
|
118,071
|
$
|
448,172
|
$
|
344,467
|
|||||
|
Shareholders’
Equity
|
||||||||||
|
Common
Stock, $1 Par Value:
|
||||||||||
|
Balance
at beginning of year (179,818,648; 175,479,994; and 169,952,419
shares)
|
$
|
179,819
|
$
|
175,480
|
$
|
169,952
|
||||
|
Issuance
of stock under employees’ and directors’ stock plans (1,998,804;
4,338,654;
and 5,527,575 shares)
|
1,998
|
4,339
|
5,528
|
|||||||
|
Balance
at end of year (181,817,452; 179,818,648; and 175,479,994
shares)
|
181,817
|
179,819
|
175,480
|
|||||||
|
Capital
in Excess of Par Value:
|
||||||||||
|
Balance
at beginning of year
|
1,381,448
|
1,298,881
|
1,212,145
|
|||||||
|
Activity
under employees’ and directors’ stock plans
|
33,296
|
66,562
|
74,717
|
|||||||
|
Tax
benefit related to employees’ and directors’ stock plans
|
6,638
|
16,005
|
12,019
|
|||||||
|
Balance
at end of year
|
1,421,382
|
1,381,448
|
1,298,881
|
|||||||
|
Retained
Earnings:
|
||||||||||
|
Balance
at beginning of year
|
1,381,257
|
1,019,420
|
819,411
|
|||||||
|
Net
income
|
223,218
|
361,837
|
200,009
|
|||||||
|
Balance
at end of year
|
$
|
1,604,475
|
$
|
1,381,257
|
$
|
1,019,420
|
||||
|
2005
|
2004
|
2003
|
||||||||
|
Treasury
Stock:
|
||||||||||
|
Balance
at beginning of year (19,269,245; 10,416,770 and 7,098,501
shares)
|
$
|
(435,779
|
)
|
$
|
(192,469
|
)
|
$
|
(129,675
|
)
|
|
|
Purchases
of company common stock (8,448,800 and 3,033,400 shares)
|
–
|
(231,530
|
)
|
(57,838
|
)
|
|||||
|
Activity
under employees’ and directors’ stock plans (65,918; 403,675 and
284,869
shares)
|
(1,928
|
)
|
(11,780
|
)
|
(4,956
|
)
|
||||
|
Balance
at end of year (19,355,163; 19,269,245 and 10,416,770
shares)
|
(437,707
|
)
|
(435,779
|
)
|
(192,469
|
)
|
||||
|
Deferred
Compensation (Note 5):
|
||||||||||
|
Balance
at beginning of year
|
(2,561
|
)
|
(2,834
|
)
|
(4,852
|
)
|
||||
|
Awards
under employees’ stock plans
|
(4,076
|
)
|
(1,680
|
)
|
(1,577
|
)
|
||||
|
Amortization
of deferred compensation
|
2,803
|
1,757
|
2,256
|
|||||||
|
Forfeitures
under employees’ stock plans
|
–
|
196
|
1,339
|
|||||||
|
Balance
at end of year
|
(3,834
|
)
|
(2,561
|
)
|
(2,834
|
)
|
||||
|
Accumulated
Other Comprehensive Items (Note 8):
|
||||||||||
|
Balance
at beginning of year
|
161,366
|
83,215
|
(36,704
|
)
|
||||||
|
Other
comprehensive items
|
(134,187
|
)
|
78,151
|
119,919
|
||||||
|
Balance
at end of year
|
27,179
|
161,366
|
83,215
|
|||||||
|
$
|
2,793,312
|
$
|
2,665,550
|
$
|
2,381,693
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements.
|
Note
1.
|
Nature
of Operations and Summary of Significant Accounting
Policies
|
Nature
of Operations
A
world
leader in high-tech instruments, Thermo Electron Corporation (the company)
helps
life science, laboratory and industrial customers advance scientific knowledge,
enable drug discovery, improve manufacturing processes and protect people and
the environment with instruments, scientific equipment, services and software
solutions. The company’s powerful technologies help researchers make discoveries
that will fight disease or prolong life. They automatically monitor and control
online production to ensure the quality and safety of raw materials as well
as
the end products. And they are critical components embedded as enabling
technologies within scientific and industrial devices.
Principles
of Consolidation
The
accompanying financial statements include the accounts of the company and its
wholly and majority-owned subsidiaries. All intercompany accounts and
transactions have been eliminated. The company accounts for investments in
businesses in which it owns between 20% and 50% using the equity method.
Presentation
During
2000 and 2001, the company completed the principal aspects of a major corporate
reorganization. As part of this reorganization, the company spun off two
businesses and sold a number of operating units which were treated as
discontinued operations. In July 2004, the company sold Spectra-Physics, Inc.,
its optical technologies segment. The results of operations and cash flows
of
Spectra-Physics have been classified as discontinued operations in the
accompanying financial statements (Note 16). Certain reclassifications of prior
year amounts have been made to conform to the current year
presentation.
Revenue
Recognition and Accounts Receivable
Revenue
is recognized after all significant obligations have been met, collectibility
is
probable and title has passed, which typically occurs upon shipment or
completion of services. If customer-specific acceptance criteria exists, the
company recognizes revenue after demonstrating adherence to the acceptance
criteria. The company recognizes revenue and related costs for arrangements
with
multiple deliverables, such as equipment and installation, as each element
is
delivered or completed based upon its relative fair value. If fair value is
not
available for any undelivered element, revenue for all elements is deferred
until delivery is completed. When a portion of the customer’s payment is not due
until installation or acceptance, the company defers that portion of the revenue
until completion of installation or acceptance has been obtained. Revenues
for
training are deferred until the service is completed. Revenues for extended
service contracts are recognized ratably over the contract period.
The
company’s informatics business recognizes revenue from the sale of software.
License fee revenues relate primarily to sales of perpetual licenses to
end-users and are recognized when a formal agreement exists, the license fee
is
fixed and determinable, delivery of the software has occurred and collection
is
probable. Software arrangements with customers often include multiple elements,
including software products, maintenance and support. The company recognizes
software license fees based on the residual method after all elements have
either been delivered or vendor specific objective evidence (VSOE) of fair
value
exists for such undelivered elements. In the event VSOE is not available for
any
undelivered element, revenue for all elements is deferred until delivery is
completed. Revenues from software maintenance and support contracts are
recognized on a straight-line basis over the term of the contract, which is
generally a period of one year. VSOE of fair value of software maintenance
and
support is determined based on the price charged for the maintenance and support
when sold separately. Revenues from training and consulting services are
recognized as services are performed, based on VSOE, which is determined by
reference to the price customers pay when the services are sold
separately.
|
Note
1.
|
Nature
of Operations and Summary of Significant Accounting Policies
(continued)
|
Accounts
receivable are recorded at the invoiced amount and do not bear interest. The
company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to pay amounts due. The allowance
for doubtful accounts is the company’s best estimate of the amount of probable
credit losses in existing accounts receivable. The company determines the
allowance based on historical write-off experience. Past due balances are
reviewed individually for collectibility. Account balances are charged off
against the allowance when the company believes it is probable the receivable
will not be recovered. The company does not have any off-balance-sheet credit
exposure related to customers.
Deferred
revenue in the accompanying balance sheet consists primarily of unearned revenue
on service contracts, which is recognized ratably over the terms of the
contracts. Substantially all of the deferred revenue in the accompanying 2005
balance sheet will be recognized within one year.
Warranty
Obligations
The
company provides for the estimated cost of product warranties, primarily from
historical information, in cost of revenues at the time product revenue is
recognized. While the company engages in extensive product quality programs
and
processes, including actively monitoring and evaluating the quality of its
component supplies, the company’s warranty obligation is affected by product
failure rates, utilization levels, material usage, service delivery costs
incurred in correcting a product failure and supplier warranties on parts
delivered to the company. Should actual product failure rates, utilization
levels, material usage, service delivery costs or supplier warranties on parts
differ from the company’s estimates, revisions to the estimated warranty
liability would be required. The liability for warranties is included in other
accrued expenses in the accompanying balance sheet. The changes in the carrying
amount of warranty obligations are as follows (in thousands):
|
Balance
at December 31, 2003
|
$
|
25,645
|
|||
|
Provision
charged to income
|
21,063
|
||||
|
Usage
|
(19,952
|
)
|
|||
|
Adjustments
to previously provided warranties, net
|
(2,545
|
)
|
|||
|
Other,
net (a)
|
3,158
|
||||
|
Balance
at December 31, 2004
|
27,369
|
||||
|
Provision
charged to income
|
29,122
|
||||
|
Usage
|
(25,200
|
)
|
|||
|
Acquisitions
|
6,763
|
||||
|
Adjustments
to previously provided warranties, net
|
(1,947
|
)
|
|||
|
Other,
net (a)
|
(2,654
|
)
|
|||
|
Balance
at December 31, 2005
|
$
|
33,453
|
| (a) |
Primarily
represents the effects of currency
translation.
|
|
Note
1.
|
Nature
of Operations and Summary of Significant Accounting Policies
(continued)
|
Stock-based
Compensation Plans and Pro Forma Stock-based Compensation
Expense
The
company applies Accounting Principles Board Opinion (APB) No. 25, “Accounting
for Stock Issued to Employees” and related interpretations in accounting for its
stock-based compensation plans (Note 5). Accordingly, no accounting recognition
is given to stock options granted at fair market value until they are exercised.
Upon exercise, net proceeds, including tax benefits realized, are credited
to
shareholders’ equity.
In
October 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based
Compensation,” which sets forth a fair-value-based method of recognizing
stock-based compensation expense. As permitted by SFAS No. 123, the company
has
elected to continue to apply APB No. 25 to account for its stock-based
compensation plans. Had compensation cost for awards granted after 1994 under
the company’s stock-based compensation plans been determined based on the fair
value at the grant dates consistent with the method set forth under SFAS No.
123, and had the fair value of awards been amortized on a straight-line basis
over the vesting period, the effect on certain financial information of the
company would have been as follows:
|
2005
|
2004
|
2003
|
|||||||||
|
(In
thousands except
per
share amounts)
|
|||||||||||
|
Income
from Continuing Operations:
|
|||||||||||
|
As
reported
|
$
|
198,301
|
$
|
218,367
|
$
|
175,210
|
|||||
|
Add:
Stock-based employee compensation expense included in reported results,
net of tax
|
1,822
|
1,142
|
1,677
|
||||||||
|
Deduct:
Total stock-based employee compensation expense determined under
the
fair-
value-
based
method
for all awards, net of tax
|
(15,422
|
)
|
(12,710
|
)
|
(18,276
|
)
|
|||||
|
Pro
forma
|
$
|
184,701
|
$
|
206,799
|
$
|
158,611
|
|||||
|
Basic Earnings per Share from Continuing Operations:
|
|||||||||||
|
As
reported
|
$
|
1.23
|
$
|
1.34
|
$
|
1.08
|
|||||
|
Pro
forma
|
$
|
1.14
|
$
|
1.27
|
$
|
0.97
|
|||||
|
Diluted Earnings per Share from Continuing Operations:
|
|||||||||||
|
As
reported
|
$
|
1.21
|
$
|
1.31
|
$
|
1.05
|
|||||
|
Pro
forma
|
$
|
1.13
|
$
|
1.24
|
$
|
0.96
|
|||||
|
Net
Income:
|
|||||||||||
|
As
reported
|
$
|
223,218
|
$
|
361,837
|
$
|
200,009
|
|||||
|
Add:
Stock-based employee compensation expense included in reported net
income,
net of tax
|
1,822
|
1,142
|
1,677
|
||||||||
|
Deduct:
Total stock-based employee compensation expense determined under
the
fair-
value-based method for all awards, net of tax
|
(15,422
|
)
|
(12,607
|
)
|
(21,601
|
)
|
|||||
|
Pro
forma
|
$
|
209,618
|
$
|
350,372
|
$
|
180,085
|
|||||
|
Basic
Earnings per Share:
|
|||||||||||
|
As
reported
|
$
|
1.38
|
$
|
2.22
|
$
|
1.23
|
|||||
|
Pro
forma
|
$
|
1.30
|
$
|
2.15
|
$
|
1.11
|
|||||
|
Diluted
Earnings per Share:
|
|||||||||||
|
As
reported
|
$
|
1.36
|
$
|
2.17
|
$
|
1.20
|
|||||
|
Pro
forma
|
$
|
1.28
|
$
|
2.10
|
$
|
1.08
|
|||||
|
Note
1.
|
Nature
of Operations and Summary of Significant Accounting Policies
(continued)
|
The weighted average fair value per share of options granted was $9.04, $8.79
and $6.73 in 2005, 2004 and 2003, respectively. The fair value of each option
grant was estimated on the grant date using the Black-Scholes option-pricing
model assuming an expected dividend yield of zero and with the following
weighted-average assumptions:
|
2005
|
2004
|
2003
|
||||||
|
Volatility
|
32%
|
|
31%
|
|
38%
|
|
||
|
Risk-free
Interest Rate
|
3.9%
|
|
3.2%
|
|
2.9%
|
|
||
|
Expected
Life of Options
|
4.4
years
|
4.6
years
|
4.4
years
|
The
Black-Scholes option-pricing model was developed for use in estimating the
fair
value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions, including expected stock price volatility. Because
the
company’s employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management’s
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Income
Taxes
In
accordance with SFAS No. 109, “Accounting for Income Taxes,” the company
recognizes deferred income taxes based on the expected future tax consequences
of differences between the financial statement basis and the tax basis of assets
and liabilities, calculated using enacted tax rates in effect for the year
in
which the differences are expected to be reflected in the tax
return.
Earnings
per Share
Basic
earnings per share has been computed by dividing net income by the weighted
average number of shares outstanding during the year. Except where the result
would be antidilutive to income from continuing operations, diluted earnings
per
share has been computed assuming the conversion of convertible obligations
and
the elimination of the related interest expense, and the exercise of stock
options, as well as their related income tax effects (Note 7).
Cash
and Cash Equivalents
Cash
equivalents consists principally of money market funds, commercial paper and
other marketable securities purchased with an original maturity of three months
or less. These investments are carried at cost, which approximates market
value.
Available-for-sale
Investments
The
company’s marketable equity and debt securities are considered
available-for-sale investments in the accompanying balance sheet and are carried
at market value, with the difference between cost and market value, net of
related tax effects, recorded in the “Accumulated other comprehensive items”
component of shareholders’ equity
(Notes
8
and 9). Decreases in market values of individual securities below cost for
a
duration of six to nine months are deemed indicative of other than temporary
impairment, and the company assesses the need to write down the carrying amount
of the investments to market value through other income, net, in the
accompanying statement of income.
|
Note
1.
|
Nature
of Operations and Summary of Significant Accounting Policies
(continued)
|
Inventories
Inventories
are stated at the lower of standard cost (which approximates the first-in,
first-out basis) or net realizable value and include materials, labor and
manufacturing overhead. The components of inventories are as
follows:
|
2005
|
2004
|
||||||
|
(In
thousands)
|
|||||||
|
Raw
Materials
|
$
|
133,774
|
$
|
131,810
|
|||
|
Work
in Progress
|
50,043
|
40,244
|
|||||
|
Finished
Goods
|
175,575
|
164,657
|
|||||
|
$
|
359,392
|
$
|
336,711
|
||||
The
company writes down its inventories for estimated obsolescence for differences
between the cost and estimated net realizable value taking into consideration
usage in the preceding 12 months, expected demand and any other information
that
is relevant to the judgment. The company records as a charge to cost of revenues
any amounts required to reduce the carrying value of inventories to net
realizable value.
Property,
Plant and Equipment
The
costs
of additions and improvements are capitalized, while maintenance and repairs
are
charged to expense as incurred. The company provides for depreciation and
amortization using the straight-line method over the estimated useful lives
of
the property as follows: buildings and improvements, 25 to 40 years; machinery
and equipment, 3 to 10 years; and leasehold improvements, the shorter of
the term of the lease or the life of the asset. Property, plant and equipment
consists of the following:
|
2005
|
2004
|
|||||||
|
(In
thousands)
|
||||||||
|
Land
|
$
|
29,743
|
$
|
33,037
|
||||
|
Buildings
and Improvements
|
152,943
|
156,218
|
||||||
|
Machinery,
Equipment and Leasehold Improvements
|
332,699
|
310,674
|
||||||
|
515,385
|
499,929
|
|||||||
|
Less:
Accumulated Depreciation and Amortization
|
234,731
|
238,888
|
||||||
|
$
|
280,654
|
$
|
261,041
|
|||||
Depreciation
and amortization expense of property, plant and equipment was $45.6 million,
$43.3 million and $37.7 million in 2005, 2004 and 2003,
respectively.
|
Note
1.
|
Nature
of Operations and Summary of Significant Accounting Policies
(continued)
|
Acquisition-related
Intangible Assets and Other Assets
Other
assets in the accompanying balance sheet include deferred tax assets, notes
receivable, cash surrender value of life insurance, deferred debt expense,
other
assets and, in 2004, shares of Newport Corporation common stock subject to
long-term resale restrictions (Note 16). Acquisition-related intangible assets
include the costs of acquired product technology, patents, trademarks and other
specifically identifiable intangible assets, and are being amortized using
the
straight-line method over their estimated useful lives, which range from 2
to 20
years. The company has no intangible assets with indefinite lives. The company
reviews other intangible assets for impairment when indication of potential
impairment exists, such as a significant reduction in cash flows associated
with
the assets. Acquisition-related intangible assets are as follows:
|
Gross
|
Accumulated
Amortization
|
Net
|
||||||||
|
(In
thousands)
|
||||||||||
|
2005
|
||||||||||
|
Product
technology
|
$
|
143,826
|
$
|
(29,494
|
)
|
$
|
114,332
|
|||
|
Customer
relationships
|
388,186
|
(58,713
|
)
|
329,473
|
||||||
|
Patents
|
18,508
|
(13,405
|
)
|
5,103
|
||||||
|
Trademarks
|
2,838
|
(1,399
|
)
|
1,439
|
||||||
|
Other
|
1,570
|
(1,177
|
)
|
393
|
||||||
|
$
|
554,928
|
$
|
(104,188
|
)
|
$
|
450,740
|
||||
|
2004
|
||||||||||
|
Product
technology
|
$
|
88,482
|
$
|
(27,490
|
)
|
$
|
60,992
|
|||
|
Customer
relationships
|
89,368
|
(11,968
|
)
|
77,400
|
||||||
|
Patents
|
34,690
|
(19,295
|
)
|
15,395
|
||||||
|
Trademarks
|
2,996
|
(941
|
)
|
2,055
|
||||||
|
Other
|
4,398
|
(1,663
|
)
|
2,735
|
||||||
|
$
|
219,934
|
$
|
(61,357
|
)
|
$
|
158,577
|
||||
The
estimated future amortization expense of acquisition-related intangible assets
is as follows (in thousands):
|
2006
|
$
|
101,113
|
||
|
2007
|
100,198
|
|||
|
2008
|
97,768
|
|||
|
2009
|
89,873
|
|||
|
2010
|
38,996
|
|||
|
2011
and thereafter
|
22,792
|
|||
|
$
|
450,740
|
Amortization
of
acquisition-related
intangible
assets was $77.6 million, $22.8 million and $9.0 million in 2005, 2004 and
2003,
respectively.
|
Note
1.
|
Nature
of Operations and Summary of Significant Accounting Policies
(continued)
|
Goodwill
The
company assesses the realizability of goodwill annually and whenever events
or
changes in circumstances indicate it may be impaired. Such events or
circumstances generally include the occurrence of operating losses or a
significant decline in earnings associated with one or more of the company’s
reporting units. The company estimates the fair value of its reporting units
by
using forecasts of discounted future cash flows. When an impairment is
indicated, any excess of carrying value over fair value of goodwill is recorded
as an operating loss.
The
company completed annual tests for impairment at December 31, 2005 and 2004,
and
determined that goodwill was not impaired.
The
changes in the carrying amount of goodwill by segment are as
follows:
|
Life
and
Laboratory
Sciences
|
Measurement
and
Control
|
Total
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Balance at December 31, 2003
|
$
|
1,026,912
|
$
|
414,260
|
$
|
1,441,172
|
|||||
|
Acquisitions
|
93,964
|
–
|
93,964
|
||||||||
|
Acquired
tax benefits
|
(38,748
|
)
|
(1,771
|
)
|
(40,519
|
)
|
|||||
|
Finalization
of purchase price allocation for Jouan
|
(22,186
|
)
|
–
|
(22,186
|
)
|
||||||
|
Change
in estimate of pre-acquisition tax matter
|
–
|
3,767
|
3,767
|
||||||||
|
Currency translation
|
32,479
|
7,387
|
39,866
|
||||||||
|
Other
|
(3,455
|
)
|
416
|
(3,039
|
)
|
||||||
|
Balance at December 31, 2004
|
1,088,966
|
424,059
|
1,513,025
|
||||||||
|
Acquisitions
|
488,212
|
15,532
|
503,744
|
||||||||
|
Write off due to sale of businesses
|
(10,949
|
)
|
(4,587
|
)
|
(15,536
|
)
|
|||||
|
Tax liabilities of acquired businesses
|
11,834
|
–
|
11,834
|
||||||||
|
Currency translation
|
(36,239
|
)
|
(9,583
|
)
|
(45,822
|
)
|
|||||
|
Other
|
(1,050
|
)
|
–
|
(1,050
|
)
|
||||||
|
Balance at December 31, 2005
|
$
|
1,540,774
|
$
|
425,421
|
$
|
1,966,195
|
|||||
Currency
Translation
All
assets and liabilities of the company’s non-U.S. subsidiaries are translated at
year-end exchange rates, and revenues and expenses are translated at average
exchange rates for the year in accordance with SFAS No. 52, “Foreign Currency
Translation.” Resulting translation adjustments are reflected in the
“Accumulated other comprehensive items” component of shareholders’ equity.
Currency transaction gains and losses are included in the accompanying statement
of income and are not material for the three years presented.
|
Note
1.
|
Nature
of Operations and Summary of Significant Accounting Policies
(continued)
|
Forward
Contracts
T
he
company accounts for forward currency contracts under SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities.” SFAS No. 133, as amended,
requires that all derivatives, including forward currency-exchange contracts,
be
recognized in the balance sheet at fair value. Derivatives that are not hedges
must be recorded at fair value through earnings. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative are either offset against the change in fair value of the hedged
item
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The company immediately records in earnings
the
extent to which a hedge is not effective in achieving offsetting changes in
fair
value or cash flows.
The
company uses forward currency-exchange contracts primarily to hedge certain
operational (cash-flow hedges) and balance sheet (fair-value hedges) exposures
resulting from changes in currency exchange rates. Such exposures result from
purchases, sales and intercompany loans that are denominated in currencies
other
than the functional currencies of the respective operations. These contracts
principally hedge transactions denominated in euros, U.S. dollars, British
pounds sterling and Canadian dollars. The company enters into these
currency-exchange contracts to hedge anticipated product purchases and sales
and
assets and liabilities arising in the normal course of business, principally
accounts receivable and intercompany loans. Accordingly, the hedges are not
speculative in nature. As part of the company’s overall strategy to manage the
level of exposure to the risk of currency-exchange fluctuations, some operating
units hedge a portion of their currency exposures anticipated over the ensuing
12-month period, using exchange contracts that have maturities of 12 months
or
less. The company does not hold or engage in transactions involving derivative
instruments for purposes other than risk management.
The
company records its forward currency-exchange contracts at fair value in its
balance sheet as other current assets or other accrued expenses and, for
cash-flow hedges, the related gains or losses on these contracts are deferred
as
a component of accumulated other comprehensive items in the accompanying balance
sheet. These deferred gains and losses are recognized in earnings in the period
in which the underlying anticipated transaction occurs. Unrealized gains and
losses resulting from the impact of currency exchange rate movements on
fair-value hedges are recognized in earnings in the period in which the exchange
rates change and offset the currency losses and gains on the underlying exposure
being hedged. Cash flows resulting from currency-exchange contracts qualifying
as cash-flow hedges are recorded in the accompanying statement of cash flows
in
the same category as the item being hedged. At December 31, 2005, the company
did not have any deferred gains or losses relating to forward currency-exchange
contracts. The ineffective portion of the gain or loss on derivative instruments
is recorded in other income, net, in the accompanying statement of income and
is
not material for the three years presented.
The
company entered into an interest rate swap agreement in 2005 in connection
with
debt issued for the Kendro acquisition (Note 10).
Recent
Accounting Pronouncements
In
June
2005, the FASB issued FSP No. FAS 143-1, “Accounting for Electronic Equipment
Waste Obligations” to address the accounting for obligations associated with EU
Directive 2002/96/EC on Waste Electrical and Electronic Equipment. The directive
requires EU member countries to adopt legislation to regulate the collection,
treatment, recovery and environmentally sound disposal of electrical and
electronic waste equipment. Under the directive, the waste management obligation
for historical equipment (products put on the market on or prior to August
13,
2005) remains with the commercial user until the equipment is replaced.
Depending upon the law adopted by the particular country, upon replacement,
the
waste management obligation for that equipment may be transferred to the
producer of the related equipment. The user retains the obligation if they
do
not replace the equipment. FSP No. FAS 143-1 requires a commercial user to
apply
the provisions
|
Note
1.
|
Nature
of Operations and Summary of Significant Accounting Policies
(continued)
|
of
SFAS
No. 143, “Accounting for Asset Retirement Obligations” and related FASB
Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”
to waste obligations associated with historical equipment. The rules require
that a liability be established for the retirement obligation with an offsetting
increase to the carrying amount of the related asset. FSP No. FAS 143-1 is
effective the later of the first reporting period ending after June 8, 2005
or
the date of adoption of the law by the applicable EU member country. The
issuance of FSP No. FAS 143-1 is not expected to have a material impact on
the
company’s financial statements.
In
December 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment.” SFAS No.
123(R) amends SFAS No. 123 to require that companies record as expense the
effect of equity-based compensation, including stock options, over the
applicable vesting period. The company currently discloses the effect on income
that stock options would have were they recorded as expense. SFAS No. 123(R)
also requires more extensive disclosures concerning stock options than required
under current standards. The new rule applies to option grants made after
adoption as well as options that are not vested at the date of adoption. SFAS
No. 123(R) becomes effective in 2006. The company will apply the new standard
using the modified prospective method in the first quarter of 2006. If the
company had adopted this standard in 2005, the company’s net income for 2005
would have been $13.6 million (or $.08 per diluted share) lower than reported
in
2005.
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs - an amendment of
ARB No. 43, Chapter 4,” which is the result of its efforts to converge U.S.
accounting standards for inventories with International Accounting Standards.
SFAS No. 151 requires abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage) to be recognized as current-period
charges. It also requires that allocation of fixed production overheads to
the
costs of conversion be based on the normal capacity of the production
facilities. SFAS No. 151 will be effective for inventory costs incurred during
2006. The company does not expect adoption of this standard will have a material
effect on its financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. In addition,
significant estimates were made in estimating future cash flows to quantify
impairment of assets, and in determining the ultimate loss from abandoning
leases at facilities being exited (Note 15). Actual results could differ from
those estimates.
|
Note
2.
|
Acquisitions
and Dispositions
|
Acquisitions
In
August
2005, the company’s Life and Laboratory Sciences segment acquired Ionalytics
Corporation, a Canada-based provider of a dynamic ion-filtering device used
with
mass spectrometers in bioanalysis, proteomics and drug discovery for $24.7
million, net of cash acquired. The acquisition of Ionalytics enabled the segment
to broaden its mass spectrometry product offerings. Ionalytics did not have
material revenues in 2004 as its focus was on commercially introducing its
principal product to market. The purchase price exceeded the fair value of
the
acquired net assets and, accordingly, $6.8 million was allocated to goodwill,
all of which is tax deductible.
|
Note
2.
|
Acquisitions
and Dispositions
(continued)
|
In May 2005, the company’s Life and Laboratory Sciences segment acquired the
Kendro Laboratory Products division of SPX Corporation for $836.6 million,
net
of cash acquired, including transaction costs. Kendro designs, manufactures,
markets and services, on a global basis, a wide range of laboratory equipment
for sample preparation, processing and storage, used primarily in life sciences
and drug discovery laboratories as well as clinical laboratories. The
acquisition of Kendro broadened the segment’s product offerings and access to
customers. Kendro’s revenues were $371 million in 2004. The purchase price
exceeded the fair value of the acquired assets and, accordingly, $465.0 million
was allocated to goodwill, approximately $185 million of which is expected
to be
tax deductible.
The
company obtained short-term bridge financing, which permitted it to borrow
$570
million to partially fund the purchase price of Kendro. The company used
existing cash balances to fund the remainder of the purchase price.
Subsequently, the company used a combination of short- and long-term debt
instruments to refinance the bridge loan (Note 10).
In
April
2005, the company’s Measurement and Control segment completed the acquisition of
Rupprecht and Patashnick Co., Inc. (R&P), a New York-based provider of
continuous particulate monitoring instrumentation for the ambient air, emissions
monitoring and industrial hygiene markets for $31.0 million in cash, net of
cash
acquired. The acquisition of R&P enabled the segment to broaden its air
monitoring product offerings. R&P’s revenues totaled $17 million in 2004.
The agreement calls for additional consideration of up to $3 million through
2007 based on achieving targeted sales levels and payment of 7% of specified
product sales thereafter through 2009. The purchase price exceeded the fair
value of the acquired net assets and, accordingly, $15.5 million was allocated
to goodwill, none of which is tax deductible.
In
March
2005, the Life and Laboratory Sciences segment acquired Niton LLC, a
Massachusetts-based provider of portable X-ray analyzers to the metals,
petrochemical and environmental markets for $40.9 million in cash, net of cash
acquired. Of the total purchase price, $40.0 million was paid on the closing
date and the balance was paid in June 2005, following determination of the
post-closing adjustment. The agreement under which the company acquired Niton
calls for additional contingent consideration of up to $2.0 million through
2006
based on post-acquisition results, of which $1.0 million was earned and accrued
at December 31, 2005, through an increase to goodwill. The acquisition of Niton
enabled the segment to expand its X-ray products to include a portable line.
Niton’s revenues in 2004 totaled $36 million. The purchase price exceeded the
fair value of the acquired net assets and, accordingly, $16.4 million was
allocated to goodwill, all of which is tax deductible.
In
September 2004, the Life and Laboratory Sciences segment broadened its
informatics offerings by acquiring InnaPhase Corporation, a Pennsylvania-based
supplier of laboratory information management systems for the pharmaceutical
and
biotechnology markets, for $64.7 million, net of cash acquired. In February
2005
the company received a post-closing adjustment of $0.5 million as a refund
of
part of the purchase price. The purchase price exceeded the fair value of the
acquired net assets and, accordingly, $39.8 million was allocated to goodwill,
none of which is tax deductible. InnaPhase had revenues of $17.7 million in
2004, prior to it being acquired.
In
April
2004, the Life and Laboratory Sciences segment expanded its service capabilities
by acquiring US Counseling Services, Inc. (USCS), a Wisconsin-based supplier
of
equipment asset management services to the pharmaceutical, healthcare and
related industries, for $74.7 million, net of cash acquired. The purchase price
exceeded the fair value of the acquired net assets and, accordingly, $54.2
million was allocated to goodwill, all of which is tax deductible. USCS reported
revenues of $57 million in 2003.
In
addition, in September 2004 the Measurement and Control segment acquired a
manufacturer and distributor of air quality instruments in China for $3.7
million in cash.
|
Note
2.
|
Acquisitions
and Dispositions
(continued)
|
On
December 31, 2003, the Life and Laboratory Sciences segment acquired Jouan
SA
for 110.9 million euros in cash ($137.8 million, or $122.7 million, net of
cash
acquired) and the assumption of approximately 11.8 million euros of debt ($14.7
million). Jouan is a global supplier of products used by life science
researchers in academic, pharmaceutical, biotech and clinical markets to prepare
and preserve laboratory samples and has broadened the company’s offerings in
these markets. Having completed the acquisition of Jouan at the close of
business on the last day of the company’s fiscal year, no results of operations
or cash flows prior to 2004 have been included in the accompanying financial
statements. During the first quarter of 2004, the company determined the fair
value of Jouan’s identifiable intangible assets and completed the purchase price
allocation. As a result, $34.9 million was reclassified from goodwill to
acquired intangible assets in 2004. In addition, the company recorded a deferred
tax liability of $12.1 million related to these assets, with a corresponding
increase in goodwill. After these adjustments, goodwill arising from the Jouan
acquisition totaled $77.1 million, none of which is tax deductible.
In
2003,
in addition to the acquisition of Jouan, the company made four other
acquisitions for $12.3 million in cash, net of cash acquired.
In
2004,
the company recorded a reduction in goodwill of $40.5 million related to use
or
expected use of tax attributes of businesses acquired in 2002 and prior
years.
The
company’s acquisitions have historically been made at prices above the fair
value of the acquired assets, resulting in goodwill, due to expectations of
synergies of combining the businesses. These synergies include use of the
company’s existing infrastructure such as sales force, distribution channels and
customer relations to expand sales of the acquired businesses’ products; use of
the infrastructure of the acquired businesses to cost effectively expand sales
of company products; and elimination of duplicative facilities, functions and
staffing.
These
acquisitions have been accounted for using the purchase method of accounting,
and the acquired companies’ results have been included in the accompanying
financial statements from their respective dates of acquisition. Allocation
of
the purchase price for acquisitions was based on estimates of the fair value
of
the net assets acquired and, for acquisitions completed in 2005, is subject
to
adjustment upon finalization of the purchase price allocation. The company
has
gathered no information that indicates the final purchase price allocations
will
differ materially from the preliminary estimates although for Kendro, the
company expects to finalize an asset appraisal in Germany and complete its
rationalization plans for certain product lines, headcount and facilities in
the
first quarter of 2006.
Had
the
acquisition of Kendro been completed as of the beginning of 2004, the company’s
pro forma results for 2005 and 2004 would have been as follows (in thousands
except per share amounts):
|
2005
|
2004
|
||||||
|
Revenues
|
$
|
2,761,346
|
$
|
2,572,173
|
|||
|
Net
Income
|
$
|
211,602
|
$
|
336,395
|
|||
|
Earnings
per Share from Continuing Operations:
|
|||||||
|
Basic
|
$
|
1.16
|
$
|
1.18
|
|||
|
Diluted
|
$
|
1.14
|
$
|
1.16
|
|||
|
Earnings
per Share:
|
|||||||
|
Basic
|
$
|
1.31
|
$
|
2.06
|
|||
|
Diluted
|
$
|
1.29
|
$
|
2.02
|
|||
The
company’s results for 2005 and 2004 would not have been materially different
from its reported results had its other acquisitions occurred at the beginning
of 2004.
|
Note
2.
|
Acquisitions
and Dispositions
(continued)
|
The
components of the purchase price allocation for 2005 acquisitions are as
follows:
|
Niton
|
R&P
|
Kendro
|
Ionalytics
|
Total
|
|||||||||||||
|
(In
thousands)
|
|||||||||||||||||
|
Purchase Price:
|
|||||||||||||||||
|
Cash paid (a)
|
$
|
41,716
|
$
|
32,798
|
$
|
839,264
|
$
|
26,980
|
$
|
940,758
|
|||||||
|
Cash acquired
|
(764
|
)
|
(1,817
|
)
|
(2,672
|
)
|
(2,287
|
)
|
(7,540
|
)
|
|||||||
|
$
|
40,952
|
$
|
30,981
|
$
|
836,592
|
$
|
24,693
|
$
|
933,218
|
||||||||
|
Allocation:
|
|||||||||||||||||
|
Current assets
|
$
|
13,240
|
$
|
6,766
|
$
|
124,689
|
$
|
645
|
$
|
145,340
|
|||||||
|
Property, plant and equipment
|
2,157
|
449
|
62,651
|
170
|
65,427
|
||||||||||||
|
Acquired intangible assets
|
17,741
|
15,796
|
330,432
|
18,276
|
382,245
|
||||||||||||
|
Goodwill
|
16,385
|
15,532
|
465,000
|
6,827
|
503,744
|
||||||||||||
|
Other assets
|
181
|
–
|
2,536
|
–
|
2,717
|
||||||||||||
|
Liabilities assumed
|
(8,752
|
)
|
(7,562
|
)
|
(148,716
|
)
|
(1,225
|
)
|
(166,255
|
)
|
|||||||
|
$
|
40,952
|
$
|
30,981
|
$
|
836,592
|
$
|
24,693
|
$
|
933,218
|
||||||||
| (a) |
Includes
acquisition expenses.
|
Acquired
intangible assets for 2005 acquisitions are as follows:
|
Niton
|
R&P
|
Kendro
|
Ionalytics
|
Total
|
|||||||||||||
|
|
(In
thousands)
|
||||||||||||||||
|
Customer
Relationships
|
$
|
11,468
|
$
|
12,904
|
$
|
287,355
|
$
|
–
|
$
|
311,727
|
|||||||
|
Product
Technology
|
6,273
|
2,892
|
43,077
|
18,276
|
70,518
|
||||||||||||
|
$
|
17,741
|
$
|
15,796
|
$
|
330,432
|
$
|
18,276
|
$
|
382,245
|
||||||||
The
weighted-average amortization periods for intangible assets acquired in 2005
are: 5 years for customer relationships and 6 years for product technology.
The
weighted-average amortization period for all intangible assets acquired in
2005
is approximately 5 years.
|
Note
2.
|
Acquisitions
and Dispositions
(continued)
|
The components of the purchase price allocation for 2004 acquisitions are as
follows:
|
InnaPhase
|
USCS
|
Other
|
Total
|
|||||||||||
|
(In
thousands)
|
||||||||||||||
|
Purchase Price:
|
||||||||||||||
|
Cash paid (a)
|
$
|
66,467
|
$
|
77,785
|
$
|
3,650
|
$
|
147,902
|
||||||
|
Cash acquired
|
(1,777
|
)
|
(3,115
|
)
|
–
|
(4,892
|
)
|
|||||||
|
$
|
64,690
|
$
|
74,670
|
$
|
3,650
|
$
|
143,010
|
|||||||
|
Allocation:
|
||||||||||||||
|
Current assets
|
$
|
4,975
|
$
|
5,711
|
$
|
75
|
$
|
10,761
|
||||||
|
Property, plant and equipment
|
761
|
367
|
–
|
1,128
|
||||||||||
|
Acquired intangible assets
|
36,089
|
34,700
|
3,610
|
74,399
|
||||||||||
|
Goodwill
|
39,753
|
54,211
|
–
|
93,964
|
||||||||||
|
Other assets
|
4,465
|
3
|
–
|
4,468
|
||||||||||
|
Liabilities assumed
|
(21,353
|
)
|
(20,322
|
)
|
(35
|
)
|
(41,710
|
)
|
||||||
|
$
|
64,690
|
$
|
74,670
|
$
|
3,650
|
$
|
143,010
|
|||||||
| (a) |
Includes
acquisition expenses.
|
Acquired
intangible assets for 2004 acquisitions are as follows:
|
InnaPhase
|
USCS
|
Other
|
Total
|
|||||||||||
|
(In
thousands)
|
||||||||||||||
|
Customer
Relationships
|
$
|
22,676
|
$
|
34,700
|
$
|
1,805
|
$
|
59,181
|
||||||
|
Product
Technology
|
13,413
|
–
|
1,805
|
15,218
|
||||||||||
|
$
|
36,089
|
$
|
34,700
|
$
|
3,610
|
$
|
74,399
|
|||||||
The
weighted-average amortization periods for intangible assets acquired in 2004
are: 5 years for customer relationships and 7 years for product technology.
The
weighted-average amortization period for all intangible assets acquired in
2004
is 6 years.
|
Note
2.
|
Acquisitions
and Dispositions
(continued)
|
The
components of the purchase price allocation for 2003 acquisitions are as
follows:
|
Jouan
|
Other
|
Total
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Purchase Price:
|
|||||||||||
|
Cash paid (a)
|
$
|
137,838
|
$
|
12,422
|
$
|
150,260
|
|||||
|
Cash acquired
|
(15,188
|
)
|
(148
|
)
|
(15,336
|
)
|
|||||
|
$
|
122,650
|
$
|
12,274
|
$
|
134,924
|
||||||
|
Allocation:
|
|||||||||||
|
Current assets
|
$
|
48,049
|
$
|
3,713
|
$
|
51,762
|
|||||
|
Property, plant and equipment
|
24,089
|
851
|
24,940
|
||||||||
|
Acquired intangible assets
|
35,116
|
8,078
|
43,194
|
||||||||
|
Goodwill
|
77,130
|
4,082
|
81,212
|
||||||||
|
Other assets
|
7
|
2
|
9
|
||||||||
|
Debt
|
(14,653
|
)
|
(234
|
)
|
(14,887
|
)
|
|||||
|
Other liabilities assumed
|
(47,088
|
)
|
(4,218
|
)
|
(51,306
|
)
|
|||||
|
$
|
122,650
|
$
|
12,274
|
$
|
134,924
|
||||||
| (a) |
Includes
acquisition expenses.
|
Acquired
intangible assets for 2003 acquisitions are as follows:
|
Jouan
|
Other
|
Total
|
||||||||
|
(In
thousands)
|
||||||||||
|
Customer and Distributor Relationships
|
$
|
24,643
|
$
|
–
|
$
|
24,643
|
||||
|
Product Technology
|
10,231
|
4,755
|
14,986
|
|||||||
|
Patents
|
198
|
1,352
|
1,550
|
|||||||
|
Other
|
44
|
1,971
|
2,015
|
|||||||
|
$
|
35,116
|
$
|
8,078
|
$
|
43,194
|
|||||
The
weighted-average amortization periods for intangible assets acquired in 2003
are: 6 years for customer and distributor relationships; 6 years for product
technology; 10 years for patents; and 3 years for other intangible assets.
The
weighted-average amortization period for all intangible assets acquired in
2003
is 6 years.
The
company has undertaken restructuring activities at acquired businesses. These
activities, which were accounted for in accordance with EITF Issue No. 95-3,
“Recognition of Liabilities in Connection with a Purchase Business Combination,”
have primarily included reductions in staffing levels and the abandonment of
excess facilities. In connection with these restructuring activities, as part
of
the cost of acquisitions, the company established reserves as detailed below,
primarily for severance and excess facilities. In accordance with EITF Issue
No.
95-3, the company finalizes its restructuring plans no later than one year
from
the respective dates of the acquisitions. Upon finalization of restructuring
plans or settlement of obligations for less than the expected amount, any excess
reserves are reversed with a corresponding decrease in goodwill or other
intangible assets when no goodwill exists. Accrued acquisition expenses are
included in other accrued expenses in the accompanying balance sheet.
|
Note
2.
|
Acquisitions
and Dispositions
(continued)
|
The changes in accrued acquisition expenses for acquisitions completed during
2005 are as follows:
|
Severance
|
Abandonment
of
Excess
Facilities
|
Other
|
Total
|
|||||||||||
|
(In
thousands)
|
||||||||||||||
|
Reserves
established
|
$
|
3,557
|
$
|
373
|
$
|
79
|
$
|
4,009
|
||||||
|
Payments
|
(856
|
)
|
(28
|
)
|
–
|
(884
|
)
|
|||||||
|
Currency
translation
|
(207
|
)
|
–
|
(6
|
)
|
(213
|
)
|
|||||||
|
Balance
at December 31, 2005
|
$
|
2,494
|
$
|
345
|
$
|
73
|
$
|
2,912
|
||||||
The
principal acquisition expenses for 2005 acquisitions were for severance for
approximately 76 employees across all functions and for an abandoned facility
in
the U.S., primarily related to the company’s acquisition of Kendro.
The
company did not establish material reserves for restructuring businesses
acquired in 2004.
The
changes in accrued acquisition
expenses for acquisitions completed prior to 2005 are as follows:
|
Severance
|
Abandonment
of
Excess
Facilities
|
Other
|
Total
|
|||||||||||
|
(In
thousands)
|
||||||||||||||
|
Balance
at December 28, 2002
|
$
|
1,319
|
$
|
7,010
|
$
|
499
|
$
|
8,828
|
||||||
|
Reserves
established
|
5,043
|
3,954
|
99
|
9,096
|
||||||||||
|
Payments
|
(966
|
)
|
(697
|
)
|
(194
|
)
|
(1,857
|
)
|
||||||
|
Decrease
recorded as a reduction
in goodwill and other intangible assets
|
(488
|
)
|
(401
|
)
|
(186
|
)
|
(1,075
|
)
|
||||||
|
Currency
translation
|
90
|
699
|
35
|
824
|
||||||||||
|
Balance
at December 31, 2003
|
4,998
|
10,565
|
253
|
15,816
|
||||||||||
|
Reserves
established
|
896
|
4
|
317
|
1,217
|
||||||||||
|
Payments
|
(3,285
|
)
|
(568
|
)
|
(503
|
)
|
(4,356
|
)
|
||||||
| Decrease recorded as a reduction in goodwill | – | (4,644 |
)
|
– | (4,644 | ) | ||||||||
|
Currency
translation
|
639
|
512
|
45
|
1,196
|
||||||||||
|
Balance
at December 31, 2004
|
3,248
|
5,869
|
112
|
9,229
|
||||||||||
|
Payments
|
(2,796
|
)
|
(90
|
)
|
(19
|
)
|
(2,905
|
)
|
||||||
| Decrease recorded as a reduction in goodwill | – | (2,111 |
)
|
(81 | ) | (2,192 |
)
|
|||||||
|
Currency
translation
|
(313
|
)
|
(456
|
)
|
(12
|
)
|
(781
|
)
|
||||||
|
Balance
at December 31, 2005
|
$
|
139
|
$
|
3,212
|
$
|
–
|
$
|
3,351
|
||||||
The
principal acquisition expenses for pre-2005 acquisitions were for severance
for
approximately 1,038 employees across all functions and for abandoned facilities,
primarily related to the company’s acquisitions of Life Sciences International
PLC in 1997, the product-monitoring businesses of Graseby Limited in 1998,
Spectra-Physics AB in 1999 and Jouan in 2003. The abandoned facilities for
the
1997 and 1998 acquisitions include three operating facilities in England with
leases expiring through 2014. In some instances, the facilities are subleased
but certain restoration obligations are payable at the end of the lease. The
amounts accrued for abandoned facilities also include closure of a Jouan
manufacturing facility in Denmark, with a lease expiring in 2007. In 2004 and
2005, the company
reached
favorable settlements of lease obligations for several abandoned sites and
recorded the benefit as a reduction of goodwill. The amounts captioned as
“other” primarily represent employee relocation, contract termination and other
exit costs.
|
Note
2.
|
Acquisitions
and Dispositions
(continued)
|
Dispositions
The
company sold its point of care and rapid diagnostics business in 2005 and
Spectra-Physics in 2004 (Note 16). The company sold a non-core business for
net
cash proceeds of $5.7 million in 2005 and several non-core businesses for net
cash proceeds of $16.4 million in 2003 and recorded $0.3 million of pre-tax
gains in 2005 and $4.7 million of pre-tax losses in 2003, which are included
in
restructuring and other costs, net, in the accompanying statement of
income.
In
2000,
the company’s Measurement and Control segment sold its Spectra Precision
businesses to Trimble Navigation Limited. As part of the sale proceeds, the
company obtained an $80.0 million note from Trimble, which carried interest
at
10%. Trimble and the company negotiated a change in the note’s terms in March
2002. Under the revised terms, Trimble paid $11 million of principal, together
with $10 million of accrued interest. The amended note carried an interest
rate
of 10.41% and under certain conditions allowed the interest to be added to
the
note’s principal. In addition, the company obtained warrants to purchase shares
of Trimble, which became exercisable at various times and prices depending
on
the outstanding balance of the note. The warrants were recorded at their fair
value. During 2003, Trimble repaid the note in full and the company sold all
of
the warrants that it had obtained from Trimble. The company recorded a gain
of
$1.2 million on the sale of the warrants as other income in the accompanying
2003 statement of income.
|
Note
3.
|
Business
Segment and Geographical
Information
|
The
company’s businesses are managed in two segments:
The
Life
and Laboratory Sciences segment serves the pharmaceutical, biotechnology and
other research and industrial laboratory markets, as well as scientists in
government and academia, with advanced instrument systems and software that
enable discovery, R&D and quality assurance. The segment also serves the
healthcare market with equipment, laboratory-automation systems and consumables
for pharmaceutical, biotechnology, academic, government and clinical
customers.
The
Measurement and Control segment enables customers in key industrial markets,
such as chemical, oil and gas, semiconductor, pharmaceutical, food and beverage,
minerals and mining, and steel, to control and optimize their manufacturing
processes. The segment provides analytical tools, online process instruments
and
precision temperature-control systems that are used to increase quality, improve
productivity and meet environmental and other regulatory standards. The segment
also offers a comprehensive range of chemical-, radiation- and
explosives-detection instruments.
Business
segment information captioned as Other in the following tables represents
results of a unit that marketed and manufactured molecular beam epitaxy
equipment. The unit was part of the company’s former Optical Technologies
segment and was sold in 2003. Results after 2003 primarily represent revisions
to estimates of abandoned lease obligations, net of subtenant
rents.
The
company’s management evaluates operating segment performance based on a measure
that is not determined in accordance with U.S. generally accepted accounting
principles, adjusted operating income. Adjusted operating income is segment
operating income before certain charges to cost of revenues, principally
associated with acquisition accounting; restructuring and other costs/income
including costs arising from facility consolidations such as severance and
abandoned lease expense and gains and losses from the sale of real estate and
product lines; and amortization of acquisition-related intangible assets. The
company uses this measure because it helps management understand and evaluate
the segment’s core operating results and facilitates comparison of performance
for determining compensation.
|
Note
3.
|
Business
Segment and Geographical Information
(continued)
|
Business
Segment Information
|
Life
and
Laboratory
Sciences
|
Measurement
and
Control
|
Other
|
Corporate
|
Total
|
||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
2005
|
||||||||||||||||
|
Revenues
|
$
|
1,960,153
|
$
|
672,874
|
$
|
–
|
$
|
–
|
$
|
2,633,027
|
||||||
|
Adjusted
operating income (a)
|
$
|
328,138
|
$
|
80,178
|
$
|
148
|
$
|
(37,050
|
)
|
$
|
371,414
|
|||||
|
Cost
of revenues charges
|
12,374
|
1,013
|
–
|
–
|
13,387
|
|||||||||||
|
Restructuring
and other items
|
5,524
|
9,870
|
(613
|
)
|
2,119
|
16,900
|
||||||||||
|
Amortization
|
72,530
|
5,105
|
–
|
5
|
77,640
|
|||||||||||
|
Operating
income
|
237,710
|
64,190
|
761
|
(39,174
|
)
|
263,487
|
||||||||||
|
Other income, net (b)
|
22,411
|
|||||||||||||||
|
Income
from continuing operations before provision for income
taxes
|
$
|
285,898
|
||||||||||||||
|
Total
assets (c)
|
$
|
3,268,265
|
$
|
971,891
|
$
|
–
|
$
|
11,413
|
$
|
4,251,569
|
||||||
|
Depreciation
|
30,869
|
9,810
|
–
|
4,953
|
45,632
|
|||||||||||
|
Capital
expenditures (d)
|
34,001
|
9,683
|
–
|
2,270
|
45,954
|
|||||||||||
|
2004
|
||||||||||||||||
|
Revenues
|
$
|
1,573,445
|
$
|
632,550
|
$
|
–
|
$
|
–
|
$
|
2,205,995
|
||||||
|
Adjusted
operating income (a)
|
$
|
254,454
|
$
|
62,895
|
$
|
–
|
$
|
(37,816
|
)
|
$
|
279,533
|
|||||
|
Cost
of revenues charges
|
3,177
|
184
|
–
|
–
|
3,361
|
|||||||||||
|
Restructuring
and other items
|
7,054
|
6,337
|
163
|
2,275
|
15,829
|
|||||||||||
|
Amortization
|
19,830
|
2,998
|
–
|
3
|
22,831
|
|||||||||||
|
Operating
income
|
224,393
|
53,376
|
(163
|
)
|
(40,094
|
)
|
237,512
|
|||||||||
|
Other
income, net (b)
|
21,707
|
|||||||||||||||
|
Income
from continuing operations before provision for income
taxes
|
$
|
259,219
|
||||||||||||||
|
Total
assets (c)
|
$
|
2,438,703
|
$
|
971,515
|
$
|
210
|
$
|
166,297
|
$
|
3,576,725
|
||||||
|
Depreciation
|
29,811
|
10,245
|
–
|
3,254
|
43,310
|
|||||||||||
|
Capital
expenditures
|
36,837
|
9,710
|
–
|
3,438
|
49,985
|
|||||||||||
|
Note
3.
|
Business
Segment and Geographical Information
(continued)
|
|
Life
and
Laboratory
Sciences
|
Measurement
and
Control
|
Other
|
Corporate
|
Total
|
|||||||||||||
|
(In
thousands)
|
|||||||||||||||||
|
2003
|
|||||||||||||||||
|
Revenues
|
$
|
1,293,009
|
$
|
601,104
|
$
|
5,265
|
$
|
–
|
$
|
1,899,378
|
|||||||
|
Adjusted
operating income (a)
|
$
|
211,933
|
$
|
57,280
|
$
|
(378
|
)
|
$
|
(27,142
|
)
|
$
|
241,693
|
|||||
|
Cost
of revenues charges
|
–
|
71
|
–
|
–
|
71
|
||||||||||||
|
Restructuring
and other items
|
21,808
|
10,214
|
8,051
|
5,127
|
45,200
|
||||||||||||
|
Amortization
|
6,592
|
2,446
|
–
|
–
|
9,038
|
||||||||||||
|
Operating
income
|
183,533
|
44,549
|
(8,429
|
)
|
(32,269
|
)
|
187,384
|
||||||||||
|
Other
income, net (b)
|
35,247
|
||||||||||||||||
|
Income
from continuing operations before provision
for income taxes
|
$
|
222,631
|
|||||||||||||||
|
Total
assets (c)
|
$
|
2,128,177
|
$
|
894,772
|
$
|
286
|
$
|
366,087
|
$
|
3,389,322
|
|||||||
|
Depreciation
|
23,399
|
10,698
|
382
|
3,199
|
37,678
|
||||||||||||
|
Capital
expenditures
|
26,585
|
9,321
|
–
|
5,784
|
41,690
|
||||||||||||
Geographical
Information
|
2005
|
2004
|
2003
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Revenues
(e):
|
|||||||||||
|
United States
|
$
|
1,566,826
|
$
|
1,272,153
|
$
|
1,133,626
|
|||||
|
Germany
|
463,833
|
316,386
|
254,038
|
||||||||
|
England
|
324,924
|
324,728
|
294,264
|
||||||||
|
Other
|
1,228,407
|
790,327
|
617,282
|
||||||||
|
Transfers
among geographical areas (f)
|
(950,963
|
)
|
(497,599
|
)
|
(399,832
|
)
|
|||||
|
$
|
2,633,027
|
$
|
2,205,995
|
$
|
1,899,378
|
||||||
|
Long-lived
Assets (g):
|
|||||||||||
|
United
States
|
$
|
147,114
|
$
|
116,306
|
$
|
118,751
|
|||||
|
Germany
|
67,355
|
41,025
|
29,070
|
||||||||
|
England
|
21,627
|
23,291
|
22,728
|
||||||||
|
Other
|
64,741
|
116,009
|
93,083
|
||||||||
|
$
|
300,837
|
$
|
296,631
|
$
|
263,632
|
||||||
|
Export
Sales Included in United States Revenues Above (h)
|
$
|
469,879
|
$
|
383,600
|
$
|
354,108
|
|||||
|
(a)
|
Represents
operating income before certain charges to cost of revenues, restructuring
and other costs, net, and amortization of acquisition-related
intangibles.
|
|
(b)
|
The
company does not allocate other income and expenses to its segments.
Other
income and expense includes $27.6 million, $9.6 million and $29.0
million
of income in 2005, 2004 and 2003, respectively, primarily related
to the
sale of the company’s investments in Thoratec, Newport and FLIR (Note
4).
|
|
Note
3.
|
Business
Segment and Geographical Information
(continued)
|
|
(c)
|
Total
assets for corporate include $5.6 million and $282.6 million in 2004
and
2003, respectively of total assets of discontinued operations. Corporate
assets consist primarily of cash and cash equivalents, short-term
investments and property and equipment at the company’s corporate
office.
|
|
(d)
|
Includes
non-cash additions of $2.4 million associated with asset retirement
obligations.
|
|
(e)
|
Revenues
are attributed to countries based on selling
location.
|
|
(f)
|
Transfers
among geographical areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
|
|
(g)
|
Includes
property, plant and equipment, net, and other long-term tangible
assets.
|
|
(h)
|
In
general, export revenues are denominated in U.S.
dollars.
|
|
Note
4.
|
Other
Income, Net
|
The
components of other income, net, in the accompanying statement of income are
as
follows:
|
2005
|
2004
|
2003
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Interest
Income
|
$
|
11,569
|
$
|
9,021
|
$
|
19,663
|
|||||
|
Interest
Expense (Note 10)
|
(26,715
|
)
|
(10,979
|
)
|
(18,197
|
)
|
|||||
|
Gain
on Investments, Net (Note 9)
|
35,319
|
20,838
|
35,536
|
||||||||
|
Equity
in Earnings of Unconsolidated Subsidiaries
|
168
|
733
|
490
|
||||||||
|
Other
Items, Net
|
2,070
|
2,094
|
(2,245
|
)
|
|||||||
|
$
|
22,411
|
$
|
21,707
|
$
|
35,247
|
||||||
In
July
2004, the company received 3,220,000 shares of Newport Corporation common stock
upon the sale of Spectra-Physics to Newport. In June 2005, the company reached
an agreement with Newport under which Newport purchased all of the 3,220,000
shares of Newport common stock. Newport purchased the shares for $13.56 per
share, which resulted in aggregate proceeds of $43.7 million. The company
recorded a loss on the sale of $1.3 million. The Newport shares had been subject
to resale restrictions that would have fully lapsed by January
2006.
As
a
result of the divestiture of Thermo Cardiosystems Inc. in 2001, the company
acquired shares of Thoratec Corporation. The company sold 4,436,000, 1,250,000
and 2,000,000 shares of Thoratec common stock during 2005, 2004 and 2003 and
realized gains of $28.9 million, $9.6 million and $16.3 million, respectively.
At December 31, 2005, the company no longer owned shares of
Thoratec.
The
company acquired 4,162,000 shares of FLIR Systems, Inc. common stock in
connection with a business acquired in 1999. The company sold 334,175 shares
of
FLIR common stock during 2003 and realized gains of $13.7 million. These gains
included $3.9 million from the recovery of amounts written down in prior years
when the company deemed an impairment of its investment in FLIR to be other
than
temporary. At December 31, 2003, the company no longer owned shares of
FLIR.
Gain
on
investments, net, also includes portfolio gains from the company’s day-to-day
investing activities. In addition to gains from the sale of available-for-sale
investments, $1.5 million of gains arose in 2005 from the sale of investments
that had been classified as Other Assets.
|
Note
5.
|
Employee
Benefit Plans
|
Stock-based
Compensation Plans
Stock
Option Plans
The
company has stock-based compensation plans for its key employees, directors
and
others. These plans permit the grant of a variety of stock and stock-based
awards, including restricted stock, stock options, stock bonus shares or
performance-based shares, as determined by the compensation committee of the
company’s Board of Directors (the Board Committee) or in limited circumstances,
by the company’s option committee, which consists of its chief executive
officer. Generally, options granted prior to July 2000 under these plans are
exercisable immediately, but shares acquired upon exercise are subject to
certain transfer restrictions and the right of the company to repurchase the
shares at the exercise price upon certain events, primarily termination of
employment. The restrictions and repurchase rights lapse over periods ranging
from 0-10 years, depending on the term of the option, which may range from
3-12
years. Options granted in or after July 2000 under these plans generally vest
over three to five years, assuming continued employment with certain exceptions.
Upon a change in control of the company, all options, regardless of grant date,
become immediately exercisable and shares acquired upon exercise cease to be
subject to transfer restrictions and the company’s repurchase rights.
Nonqualified options are generally granted at fair market value. Incentive
stock
options must be granted at not less than the fair market value of the company’s
stock on the date of grant. The company also has a directors’ stock option plan
that provides for the annual grant of stock options of the company to outside
directors. Options awarded under this plan prior to 2003 are immediately
exercisable and expire three to seven years after the date of grant. Options
awarded in 2003 and thereafter vest over three years, assuming continued service
on the board, and expire seven years after the date of grant.
In
2005,
2004 and 2003, the company awarded to a number of key employees 146,000, 60,000
and 75,000 shares, respectively, of restricted company common stock or
restricted units that convert into an equivalent number of shares of common
stock assuming continued employment, with some exceptions. The awards had an
aggregate value of $4.1 million, $1.7 million and $1.6 million, respectively.
The awards generally vest in equal annual installments over two to three years,
assuming continued employment, with some exceptions. The company recorded $2.8
million, $1.8 million and $2.6 million of compensation expense related to these
awards in 2005, 2004 and 2003, respectively.
A
summary
of the company’s stock option activity is as follows:
|
2005
|
2004
|
2003
|
|||||||||||||||||
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
||||||||||||||
|
(Shares
in thousands)
|
|||||||||||||||||||
|
Options
Outstanding, Beginning of Year
|
10,893
|
$
|
20.38
|
15,915
|
$
|
20.83
|
22,472
|
$
|
20.11
|
||||||||||
|
Granted
|
3,458
|
27.47
|
1,671
|
27.77
|
1,534
|
18.82
|
|||||||||||||
|
Exercised
|
(1,658
|
)
|
16.49
|
(3,920
|
)
|
16.77
|
(5,200
|
)
|
14.69
|
||||||||||
|
Forfeited
|
(609
|
)
|
26.20
|
(2,773
|
)
|
32.51
|
(2,891
|
)
|
25.21
|
||||||||||
|
Options
Outstanding, End of Year
|
12,084
|
$
|
22.65
|
10,893
|
$
|
20.38
|
15,915
|
$
|
20.83
|
||||||||||
|
Options
Exercisable
|
6,245
|
$
|
20.41
|
6,003
|
$
|
19.32
|
8,916
|
$
|
21.57
|
||||||||||
|
Options
Available for Grant
|
11,713
|
3,806
|
3,842
|
||||||||||||||||
|
Note
5.
|
Employee
Benefit Plans
(continued)
|
A
summary
of the status of the company’s stock options at December 31, 2005, is as
follows:
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||
|
Range of
Exercise Prices
|
Number
of
Shares
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
||||||||||||
|
(Shares
in thousands)
|
|||||||||||||||||
|
$
5.87 – $ 15.00
|
675
|
1.6
years
|
$
|
11.28
|
584
|
$
|
11.26
|
||||||||||
|
15.01
– 19.00
|
1,075
|
3.5
years
|
17.59
|
771
|
17.69
|
||||||||||||
|
19.01
– 21.00
|
3,915
|
4.4
years
|
19.75
|
2,683
|
19.79
|
||||||||||||
|
21.01
– 25.00
|
1,765
|
2.8
years
|
22.56
|
1,660
|
22.51
|
||||||||||||
|
25.01 –
28.00
|
4,117
|
5.8
years
|
27.37
|
391
|
27.34
|
||||||||||||
|
28.01 –
34.00
|
510
|
5.4
years
|
29.70
|
129
|
30.18
|
||||||||||||
|
34.01 –
148.21
|
27
|
3.6
years
|
80.77
|
27
|
80.68
|
||||||||||||
|
$
5.87 – $148.21
|
12,084
|
4.5
years
|
$
|
22.65
|
6,245
|
$
|
20.41
|
||||||||||
Employee
Stock Purchase Plans
Qualifying
employees are eligible to participate in an employee stock purchase plan
sponsored by the company. Under this program, through 2005 shares of the
company’s common stock could be purchased at 85% of the lower of the fair market
value at the beginning or end of the purchase period, and the shares purchased
were subject to a one-year resale restriction. Shares are purchased through
payroll deductions of up to 10% of each participating employee’s gross wages. In
early 2006, 2005 and 2004, the company issued 115,000, 136,000 and 185,000
shares, respectively, of its common stock for the 2005, 2004 and 2003 plan
years, which ended on December 31. Beginning in 2006, shares may be purchased
under the program at 95% of the fair market value at the end of the purchase
period and the shares purchased are not subject to a holding
period.
The
company had a plan in England under which employees could purchase shares of
the
company’s common stock through payroll deductions. No material issuances
occurred in 2003 or 2004 under the plan. Following the issuance of 30,000 shares
under the plan in 2005, the plan was discontinued.
401(k)
Savings Plan and Other Defined Contribution Plans
The
company’s 401(k) savings plan covers the majority of the company’s eligible
full-time U.S. employees. Contributions to the plan are made by both the
employee and the company. Company contributions are based on the level of
employee contributions.
Certain
of the company’s subsidiaries offer retirement plans in lieu of participation in
the company’s principal 401(k) savings plan. Company contributions to these
plans are based on formulas determined by the company.
For
these
plans, the company contributed and charged to expense $22.2 million, $17.7
million and $16.3 million in 2005, 2004 and 2003, respectively.
|
Note
5.
|
Employee
Benefit Plans
(continued)
|
Defined
Benefit Pension Plans
Several
of the company’s non-U.S. subsidiaries, principally in Germany and England, and
one U.S. subsidiary have defined benefit pension plans covering substantially
all full-time employees at those subsidiaries. Some of the plans are unfunded,
as permitted under the plans and applicable laws. Net periodic benefit costs
for
the plans in aggregate included the following components:
|
2005
|
2004
|
2003
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Service
Cost
|
$
|
7,455
|
$
|
5,527
|
$
|
4,408
|
|||||
|
Interest
Cost on Benefit Obligation
|
13,400
|
11,191
|
9,578
|
||||||||
|
Expected
Return on Plan Assets
|
(11,436
|
)
|
(9,798
|
)
|
(8,227
|
)
|
|||||
|
Recognized
Net Actuarial Loss
|
2,587
|
2,558
|
2,091
|
||||||||
|
Amortization
of Unrecognized Initial Obligation and Prior Service Cost
|
4,056
|
1
|
45
|
||||||||
|
$
|
16,062
|
$
|
9,479
|
$
|
7,895
|
||||||
During
the second quarter of 2005, the company merged two defined benefit plans in
the
U.K. and provided the participating employees with a defined contribution plan
while limiting future benefits under the combined defined benefit plan. The
transaction met the criteria of a plan curtailment although no gain or loss
resulted. In connection with the transaction, the company contributed $10.9
million to the combined U.K. defined benefit plan. Subsequently, the company
modified a retirement benefit obligation under the merged plan to conform to
U.K. law and recorded a charge of $4.1 million for the cost of the
change.
|
Note
5.
|
Employee
Benefit Plans (continued)
|
The
activity under the company’s defined benefit plans is as follows:
|
2005
|
2004
|
|||||||
|
(In
thousands)
|
||||||||
|
Change
in Benefit Obligation:
|
||||||||
|
Benefit
obligation, beginning of year
|
$
|
276,049
|
$
|
235,379
|
||||
|
Service
cost
|
7,455
|
5,527
|
||||||
|
Interest
cost
|
13,400
|
11,191
|
||||||
|
Acquisition
|
27,189
|
–
|
||||||
|
Benefits
paid
|
(6,808
|
)
|
(4,745
|
)
|
||||
|
Actuarial
loss
|
39,193
|
10,137
|
||||||
|
Currency
translation
|
(34,888
|
)
|
18,560
|
|||||
|
Benefit
obligation, end of year
|
321,590
|
276,049
|
||||||
|
Change
in Plan Assets:
|
||||||||
|
Fair
value of plan assets, beginning of year
|
189,011
|
162,993
|
||||||
|
Company
contributions
|
17,146
|
5,624
|
||||||
|
Benefits
paid
|
(6,808
|
)
|
(4,745
|
)
|
||||
|
Actual
return on plan assets
|
19,875
|
12,687
|
||||||
|
Currency
translation
|
(21,752
|
)
|
12,452
|
|||||
|
Fair
value of plan assets, end of year
|
197,472
|
189,011
|
||||||
|
Funded
Status
|
(124,118
|
)
|
(87,038
|
)
|
||||
|
Unrecognized
Net Actuarial Loss
|
78,314
|
62,557
|
||||||
|
Unrecognized
Initial Obligation and Prior Service Cost
|
1,070
|
63
|
||||||
|
Net
Amount Recognized
|
$
|
(44,734
|
)
|
$
|
(24,418
|
)
|
||
|
Amounts
Recognized in the Balance Sheet:
|
||||||||
|
Accrued
pension liability
|
$
|
(112,375
|
)
|
$
|
(70,822
|
)
|
||
|
Intangible
asset
|
57
|
63
|
||||||
|
Accumulated
other comprehensive items
|
67,584
|
46,341
|
||||||
|
Net
Amount Recognized
|
$
|
(44,734
|
)
|
$
|
(24,418
|
)
|
||
Nearly
all of the company’s defined benefit plans have projected benefit obligations
and accumulated benefit obligations in excess of plan assets. The aggregate
accumulated benefit obligations were $305.8 million and $240.7 million at
year-end 2005 and 2004, respectively.
The
measurement date used to determine benefit information was December 31 for
all
plan assets and benefit obligations.
|
Note
5.
|
Employee
Benefit Plans
(continued)
|
The
weighted average rates used to determine the net periodic benefit costs were
as
follows:
|
2005
|
2004
|
2003
|
|||||
|
Discount
Rate
|
4.9%
|
|
5.3%
|
5.5%
|
|||
|
Rate
of Increase in Salary Levels
|
3.1%
|
|
3.3%
|
3.3%
|
|||
|
Expected
Long-term Rate of Return on Assets
|
6.2%
|
6.8%
|
6.9%
|
The
weighted average rates used to determine benefit obligations at the respective
year ends were as follows:
|
2005
|
2004
|
||||
|
Discount
Rate
|
4.4%
|
|
4.9%
|
||
|
Rate
of Increase in Salary Levels
|
3.2%
|
|
3.2%
|
In determining the discount rate used to determine benefit obligations, the
company references indicies for long-term, high-quality corporate bonds and
uses
a discount rate that does not exceed the yield reported for those indicies
after
adjustment for the duration of the plans’ liabilities.
In
determining the expected long-term rate of return on plan assets, the company
considers the relative weighting of plan assets, the historical performance
of
total plan assets and individual asset classes and economic and other indicators
of future performance. In addition, the company may consult with and consider
the opinions of financial and other professionals in developing appropriate
return benchmarks.
For
the
company’s plans, the asset allocation at the respective year ends by asset
category, which approximates target allocation, was as follows:
|
2005
|
2004
|
||||
|
Equity
Securities
|
43%
|
|
62%
|
||
|
Debt
Securities
|
31%
|
|
21%
|
||
|
Insurance
Policies
|
13%
|
|
6%
|
||
|
Real
Estate
|
4%
|
|
3%
|
||
|
Other
|
9%
|
|
8%
|
||
|
100%
|
|
100%
|
Asset
management objectives include maintaining an adequate level of diversification
to reduce interest rate and market risk and providing adequate liquidity to
meet
immediate and future benefit payment requirements.
The
company expects to make contributions to its plans in 2006 of approximately
$7.3
million.
The
following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid (in thousands):
|
2006
|
$
|
7,247
|
||
|
2007
|
7,566
|
|||
|
2008
|
8,472
|
|||
|
2009
|
9,257
|
|||
|
2010
|
9,750
|
|||
|
2011-2015
|
65,228
|
|
Note
6.
|
Income
Taxes
|
The
components of income from continuing operations before provision for income
taxes are as follows:
|
2005
|
2004
|
2003
|
||||||||
|
(In
thousands)
|
||||||||||
|
U.S.
|
$
|
155,881
|
$
|
109,812
|
$
|
108,424
|
||||
|
Non-U.S.
|
130,017
|
149,407
|
114,207
|
|||||||
|
$
|
285,898
|
$
|
259,219
|
$
|
222,631
|
|||||
The
components of the provision for income taxes of continuing operations are as
follows:
|
2005
|
2004
|
2003
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Currently
Payable:
|
|||||||||||
|
Federal
|
$
|
44,805
|
$
|
10,759
|
$
|
41,126
|
|||||
|
Non-U.S.
|
56,521
|
29,636
|
32,572
|
||||||||
|
State
|
1,840
|
(6,363
|
)
|
1,575
|
|||||||
|
103,166
|
34,032
|
75,273
|
|||||||||
|
Net
Deferred (Prepaid):
|
|||||||||||
|
Federal
|
(1,366
|
)
|
7,494
|
(29,766
|
)
|
||||||
|
Non-U.S.
|
(13,660
|
)
|
(679
|
)
|
1,621
|
||||||
|
State
|
(543
|
)
|
5
|
293
|
|||||||
|
(15,569
|
)
|
6,820
|
(27,852
|
)
|
|||||||
|
$
|
87,597
|
$
|
40,852
|
$
|
47,421
|
||||||
The
income tax provision (benefit) included in the accompanying statement of income
is as follows:
|
2005
|
2004
|
2003
|
||||||||
|
(In
thousands)
|
||||||||||
|
Continuing
Operations
|
$
|
87,597
|
$
|
40,852
|
$
|
47,421
|
||||
|
Discontinued
Operations
|
16,341
|
(73,049
|
)
|
6,656
|
||||||
|
$
|
103,938
|
$
|
(32,197
|
)
|
$
|
54,077
|
||||
The
company receives a tax deduction upon the exercise of nonqualified stock options
by employees for the difference between the exercise price and the market price
of the underlying common stock on the date of exercise. The provision for income
taxes that is currently payable does not reflect $6.6 million, $16.0 million
and
$12.0 million, of such benefits of the company that have been allocated to
capital in excess of par value in 2005, 2004 and 2003, respectively.
|
Note
6.
|
Income
Taxes (continued)
|
The
provision for income taxes in the accompanying statement of income differs
from
the provision calculated by applying the statutory federal income tax rate
of
35% to income from continuing operations before provision for income taxes
due
to the following:
|
2005
|
2004
|
2003
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Provision
for Income Taxes at Statutory Rate
|
$
|
100,064
|
$
|
90,727
|
$
|
77,921
|
|||||
|
Increases
(Decreases) Resulting From:
|
|||||||||||
|
Tax
return reassessments and settlements
|
3,988
|
(33,782
|
)
|
–
|
|||||||
|
Non-U.S.
tax rate and tax law differential
|
(7,129
|
)
|
(14,360
|
)
|
(10,439
|
)
|
|||||
|
Income
tax credits
|
(5,610
|
)
|
(4,555
|
)
|
(16,148
|
)
|
|||||
|
Extraterritorial
income exclusion
|
(4,450
|
)
|
(3,396
|
)
|
(3,358
|
)
|
|||||
|
Manufacturing
deduction
|
(862
|
)
|
–
|
–
|
|||||||
|
Basis
difference of businesses sold or terminated
|
–
|
2,847
|
(4,988
|
)
|
|||||||
|
State
income taxes, net of federal tax
|
1,293
|
1,885
|
1,213
|
||||||||
|
Nondeductible
expenses
|
530
|
863
|
1,014
|
||||||||
|
Losses
not benefited in the year they occurred
|
–
|
–
|
2,224
|
||||||||
|
Other,
net
|
(227
|
)
|
623
|
(18
|
)
|
||||||
|
$
|
87,597
|
$
|
40,852
|
$
|
47,421
|
||||||
Net
deferred tax asset in the accompanying balance sheet consists of the
following:
|
2005
|
2004
|
|||||||
|
(In
thousands)
|
||||||||
|
Deferred
Tax Asset (Liability):
|
||||||||
|
Net
operating loss and credit carryforwards
|
$
|
159,907
|
$
|
160,693
|
||||
|
Reserves
and accruals
|
51,504
|
71,582
|
||||||
|
Inventory
basis difference
|
17,928
|
22,714
|
||||||
|
Accrued
compensation
|
37,711
|
4,728
|
||||||
|
Depreciation
and amortization
|
(81,128
|
)
|
(27,829
|
)
|
||||
|
Available-for-sale
investments
|
–
|
(11,901
|
)
|
|||||
|
Other,
net
|
4,271
|
(2,434
|
)
|
|||||
|
190,193
|
217,553
|
|||||||
|
Less:
Valuation allowance
|
63,545
|
66,152
|
||||||
|
$
|
126,648
|
$
|
151,401
|
|||||
The
company estimates the degree to which tax assets and loss carryforwards will
result in a benefit based on expected profitability by tax jurisdiction and
provides a valuation allowance for tax assets and loss and credit carryforwards
that it believes will more likely than not go unused. At December 31, 2005,
$42.6 million of the company’s valuation allowance relates to deferred tax
assets for which any subsequently recognized tax benefits will reduce goodwill
of an acquired business.
|
Note
6.
|
Income
Taxes (continued)
|
During
2004 and early 2005, the Internal Revenue Service (IRS) and the company reached
a final settlement of the audit of the company’s tax returns for the 1998
through 2000 tax years. In addition, in 2004, audits of state tax returns were
completed. In 2004, the company recorded tax benefits that had not previously
been recognized of $33.8 million in continuing operations and $52.7 million
in
discontinued operations (Note 16) associated with the completion of the tax
audits.
In
addition to the tax benefit of $52.7 million, discussed above, the company’s tax
benefit from discontinued operations in 2004 included amounts pertaining to
Spectra-Physics (Note 16).
At
December 31, 2005, the company had federal, state and non-U.S. net operating
loss carryforwards of $63 million, $1.3 billion and $188 million, respectively.
Use of the carryforwards is limited based on the future income of certain
subsidiaries. The federal and state net operating loss carryforwards expire
in
the years 2006 through 2021. Of the non-U.S. net operating loss carryforwards,
$18 million expire in the years 2006 through 2014, and the remainder do not
expire. The company also had $61 million of federal foreign tax credit
carryforwards as of December 31, 2005, which expire in the years 2006 through
2014.
A
provision has not been made for U.S. or additional non-U.S. taxes on $711
million of undistributed earnings of international subsidiaries that could
be
subject to taxation if remitted to the U.S. because the company plans to keep
these amounts permanently reinvested overseas except for instances where the
company can remit such earnings to the U.S. without an associated net tax
cost.
|
Note
7.
|
Earnings
per Share
|
|
2005
|
2004
|
2003
|
|||||||||
|
(In
thousands except per share amounts)
|
|||||||||||
|
Income from Continuing Operations
|
$
|
198,301
|
$
|
218,367
|
$
|
175,210
|
|||||
|
Income
(Loss) from Discontinued Operations
|
–
|
43,018
|
(2,513
|
)
|
|||||||
|
Gain
on Disposal of Discontinued Operations, Net
|
24,917
|
100,452
|
27,312
|
||||||||
|
Net
Income for Basic Earnings per Share
|
223,218
|
361,837
|
200,009
|
||||||||
|
Effect
of Convertible Debentures
|
1,606
|
1,606
|
4,830
|
||||||||
|
Income Available to Common Shareholders, as Adjusted for
Diluted Earnings per Share
|
$
|
224,824
|
$
|
363,443
|
$
|
204,839
|
|||||
|
Basic
Weighted Average Shares
|
161,587
|
163,133
|
162,713
|
||||||||
|
Effect
of:
|
|||||||||||
|
Convertible
debentures
|
1,846
|
1,846
|
5,737
|
||||||||
|
Stock
options
|
1,847
|
2,571
|
2,085
|
||||||||
|
Restricted
stock awards and contingently issuable shares
|
54
|
91
|
195
|
||||||||
|
Diluted
Weighted Average Shares
|
165,334
|
167,641
|
170,730
|
||||||||
|
Note
7.
|
Earnings
per Share (continued)
|
|
2005
|
2004
|
2003
|
||||||||
|
(In
thousands except
per
share amounts)
|
||||||||||
|
Basic
Earnings per Share:
|
||||||||||
|
Continuing
operations
|
$
|
1.23
|
$
|
1.34
|
$
|
1.08
|
||||
|
Discontinued
operations
|
.15
|
.88
|
.15
|
|||||||
|
$
|
1.38
|
$
|
2.22
|
$
|
1.23
|
|||||
|
Diluted
Earnings per Share:
|
||||||||||
|
Continuing
operations
|
$
|
1.21
|
$
|
1.31
|
$
|
1.05
|
||||
|
Discontinued
operations
|
.15
|
.86
|
.15
|
|||||||
|
$
|
1.36
|
$
|
2.17
|
$
|
1.20
|
|||||
Options
to purchase 1,391,000, 1,078,000 and 6,678,000 shares of common stock were
not
included in the computation of diluted earnings per share for 2005, 2004 and
2003, respectively, because the options’ exercise prices were greater than the
average market price for the common stock and their effect would have been
antidilutive.
The
computation of diluted earnings per share for 2003 excludes the effect of
assuming the conversion of the company’s 4 3/8% subordinated convertible
debentures convertible at $111.83 per share because the effect would be
antidilutive. These debentures were no longer outstanding as of December 31,
2003, having previously been redeemed.
|
Note
8.
|
Comprehensive
Income
|
Comprehensive
income combines net income and other comprehensive items. Other comprehensive
items represents certain amounts that are reported as components of
shareholders’ equity in the accompanying balance sheet, including currency
translation adjustments, unrealized gains and losses, net of tax, on
available-for-sale investments and hedging instruments and minimum pension
liability adjustment.
Accumulated
other comprehensive items in the accompanying balance sheet consists of the
following:
|
2005
|
2004
|
|||||||
|
(In
thousands)
|
||||||||
|
Cumulative
Translation Adjustment
|
$
|
75,030
|
$
|
180,063
|
||||
|
Net Unrealized Gains on Available-for-sale Investments (net of tax
provision
of $7,394)
|
–
|
13,731
|
||||||
|
Net Unrealized Gains (Losses) on Hedging Instruments (net of tax
benefit
of
$1,123 in 2005 and tax provision of $3 in 2004)
|
(1,916
|
)
|
5
|
|||||
|
Minimum Pension Liability Adjustment (net of tax benefit of $21,649
and
$13,908)
|
(45,935
|
)
|
(32,433
|
)
|
||||
|
$
|
27,179
|
$
|
161,366
|
|||||
An
increase in shareholders’ equity in 2005 was offset in part by a decrease of
$134.2 million in accumulated other comprehensive items, principally the effect
that changes in currency translation rates had on the company’s non-U.S. assets
and liabilities.
|
Note
8.
|
Comprehensive
Income (continued)
|
The
change in unrealized gains (losses) on available-for-sale investments, a
component of other comprehensive items in the accompanying statement of
comprehensive income and shareholders’ equity, includes the
following:
|
2005
|
2004
|
2003
|
||||||||
|
(In
thousands)
|
||||||||||
|
Unrealized Holding Gains (Losses) Arising During the Year
(net of income tax provision (benefit) of $5,203, $(2,481)
and $14,407)
|
$
|
9,644
|
$
|
(4,609
|
)
|
$
|
26,754
|
|||
|
Reclassification Adjustment for (Gains) Losses Included in Net
Income (net of income tax provision (benefit)
of
$(3,738),
$2,690 and $(1,366))
|
5,665
|
(5,361
|
)
|
1,441
|
||||||
|
Net Unrealized Gains (Losses) (net of income tax provision
(benefit)
of $8,941, $(5,171) and $15,773)
|
$
|
15,309
|
$
|
(9,970
|
)
|
$
|
28,195
|
|||
The
change in unrealized gains (losses) on hedging instruments, a component of
other
comprehensive items in the accompanying statement of comprehensive income and
shareholders’ equity, includes the following:
|
2005
|
2004
|
2003
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Unrealized Holding Gains (Losses) Arising During the Year
(net of income tax provision (benefit) of $(1,057), $(43) and
$(2,137))
|
$
|
(1,808
|
)
|
$
|
28
|
$
|
(4,261
|
)
|
|||
|
Reclassification Adjustment for (Gains) Losses Included in Net
Income (net of income tax provision (benefit) of $69, $(1,410)
and $(1,686))
|
(113
|
)
|
2,500
|
3,228
|
|||||||
|
Net Unrealized Gains (Losses) (net of income tax provision
(benefit) of $(1,126), $1,367 and $(451))
|
$
|
(1,921
|
)
|
$
|
2,528
|
$
|
(1,033
|
)
|
|||
|
Note
9.
|
Available-for-sale
Investments
|
The
aggregate market value, cost basis and gross unrealized gains and losses of
short-term available-for-sale investments by major security type are as
follows:
|
Market
Value
|
Cost
Basis
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
of
Investments
with
Unrealized
Losses
|
||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
2005
|
||||||||||||||||
|
Auction
Rate Securities
|
$
|
80,661
|
$
|
80,661
|
$
|
–
|
$
|
–
|
$
|
–
|
||||||
|
2004
|
||||||||||||||||
|
Equity
Securities
|
$
|
81,446
|
$
|
60,321
|
$
|
22,107
|
$
|
(982
|
)
|
$
|
22,703
|
|||||
|
Auction
Rate Securities
|
103,923
|
103,923
|
–
|
–
|
–
|
|||||||||||
|
$
|
185,369
|
$
|
164,244
|
$
|
22,107
|
$
|
(982
|
)
|
$
|
22,703
|
||||||
The
cost
of available-for-sale investments that were sold was based on specific
identification in determining realized gains and losses recorded in the
accompanying statement of income. The net gain on the sale of available-for-sale
investments resulted from gross realized gains of $35.1 million, $21.0 million
and $38.2 million, and gross realized losses of $1.3 million, $0.2 million
and
$2.7 million, in 2005, 2004 and 2003, respectively. The sole investment with
an
unrealized loss at December 31, 2004, was the portion of the company’s
investment in Newport common stock held as an available-for-sale security.
The
fair value of the Newport shares increased in early 2005 such that it
approximated the company’s cost.
The
company’s investments in auction rate securities are recorded at cost, which
approximates fair value due to their variable interest rates. The interest
rates
generally reset every 7 to 28 days. Despite the long-term nature of their stated
contractual maturities,
all
of
which are over 10 years, the company has the ability to quickly liquidate
investments in auction rate securities. All income generated from these
investments has been recorded as interest income.
|
Note
10.
|
Long-term
Obligations and Other Financing Arrangements
|
|
2005
|
2004
|
||||||
|
(In
thousands except
per
share amounts)
|
|||||||
|
5% Senior Notes, Due 2015
|
$
|
250,000
|
$
|
–
|
|||
|
7
5/8% Senior Notes, Due 2008
|
130,542
|
135,232
|
|||||
|
3
1/4% Subordinated Convertible Debentures, Due 2007, Convertible at
$41.84
per Share
|
77,234
|
77,234
|
|||||
|
Other
|
12,514
|
15,556
|
|||||
|
470,290
|
228,022
|
||||||
|
Less:
Current Maturities
|
1,660
|
1,952
|
|||||
|
$
|
468,630
|
$
|
226,070
|
||||
The
annual requirements for long-term obligations are as follows (in
thousands):
|
2006
|
$
|
1,660
|
||
|
2007
|
78,464
|
|||
|
2008
|
131,801
|
|||
|
2009
|
1,285
|
|||
|
2010
|
1,277
|
|||
|
2011
and thereafter
|
255,803
|
|||
|
$
|
470,290
|
See
Note
13 for fair value information pertaining to the company’s long-term
obligations.
Short-term
obligations and current maturities of long-term obligations in the accompanying
balance sheet included $128.5 million and $13.1 million at year-end 2005 and
2004, respectively, of short-term bank borrowings and borrowings under lines
of
credit of certain of the company’s subsidiaries. The borrowings outstanding at
year-end 2005 include amounts under the company’s euro facility, described
below. The weighted average interest rate for these borrowings was 2.4% and
1.4%
at year-end 2005 and 2004, respectively. In addition to available borrowings
under the company’s five-year U.S. dollar and euro revolving credit agreements
and a money market loan fund arrangement, all discussed below, the company
had
unused lines of credit of $188.4 million as of year-end 2005. These unused
lines
of credit generally provide for short-term unsecured borrowings at various
interest rates.
In
December 2002, the company entered into revolving credit agreements, as amended,
with a bank group that provided for up to $250 million of unsecured borrowings.
The arrangement was replaced in December 2004 with a 5-year revolving credit
agreement. The agreement provides for a $250 million revolving credit facility
that will expire in December 2009. The agreement calls for interest at either
a
LIBOR-based rate or a rate based on the prime lending rate
of
the
agent bank, at the company’s option. The rate at December 31, 2005, was 5.10%
under the more favorable of the two rates. The agreement 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-capital ratios. At December 31, 2005, no borrowings were outstanding.
The credit agreement permits the company to use the facility for working
capital; acquisitions; repurchases of common stock, debentures and other
securities; the refinancing of debt; and general corporate
purposes.
|
Note
10.
|
Long-term
Obligations and Other Financing
Arrangements (continued)
|
In June 2005, the company entered into a five-year revolving credit facility with a bank group that provides up to 175 million euros. The facility carries interest at a Euribor rate plus 35 basis points. Under the facility, borrowings of one to six months duration may be drawn. The agreement 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-capital ratios. As of December 31, 2005, the company had outstanding borrowings under this facility of 105 million euros ($124 million) in two tranches with maturities in January 2006. The company has refinanced the outstanding borrowings and intends to refinance future maturities with additional borrowings under the facility to the extent necessary for liquidity purposes.
In
May
2005, the company entered into an arrangement that provides the company an
uncommitted line of credit of up to $250 million until May 26, 2006 through
a
series of short-term money market loans funded on an ongoing basis in the
secondary market. Such money market loans have maturity periods of overnight
to
364 days and bear varying rates of interest based on the maturity date and
market rate at the time of issuance. In May 2005, the company borrowed $250
million through three short-term loans under the money market arrangement with
maturities of one week to three months. As of December 31, 2005, the company
had
repaid these borrowings and had no balance outstanding.
During
2002, the company entered into interest-rate swap arrangements for its $128.7
million principal amount 7 5/8% senior notes, due in 2008, with the
objective of reducing interest costs. The arrangements provide that the company
will receive a fixed interest rate of 7 5/8%, and will pay a variable rate
of 90-day LIBOR plus 2.19% (6.83%
as
of
December 31, 2005). The swaps have terms expiring at the maturity of the debt.
The swaps are designated as fair-value hedges and as such, are carried at fair
value, which resulted in an increase in both other long-term assets and
long-term debt of $1.8 million and $6.5 million at December 31, 2005 and 2004,
respectively. The swap arrangements are with different counterparties than
the
holders of the underlying debt. Management believes that any credit risk
associated with the swaps is remote based on the creditworthiness of the
financial institutions issuing the swaps.
In
May
2005, in connection with plans to refinance a portion of the amounts borrowed
under the bridge facility for the Kendro acquisition (Note 2), the company
entered into forward starting pay fixed swap agreements with several banks
to
mitigate the risk of interest rates rising prior to completion of a debt
offering. Based on the company’s conclusion that a debt offering was probable
and that such debt would carry semi-annual interest payments over a 10-year
term, the swaps hedge the cash flow risk that exists on each of the semi-annual
fixed-rate interest payments on $250 million of principal amount of the 10-year
fixed-rate debt issue (or any subsequent refinancing of such debt). The change
in the fair value of the hedge, $2.0 million, net of tax, was classified as
a
reduction of accumulated other comprehensive items within shareholders’ equity
and is being amortized to interest costs over the term of the debt through
2015.
The
company repaid in full $570 million of borrowings under its bridge loan with
cash and proceeds of new debt issuances described above. In May 2005, the
company issued $250 million aggregate principal amount of 5% senior notes (the
Notes) due 2015, with an effective interest rate of 5.27% after including the
impact of the swap arrangement. Under the Notes’ Indenture, the company is
subject to certain affirmative and negative covenants.
In
2003,
the company redeemed the convertible debentures discussed below with the
objective of reducing interest expense. The redemption price was 100% of the
principal amount of the debentures plus accrued interest. In 2003, the company
redeemed all of its outstanding 4 3/8% subordinated convertible debentures
due
2004 and 4% subordinated convertible debentures due 2005. The principal amounts
redeemed for the 4 3/8% and 4% debentures were $70.9 million and $197.1 million,
respectively. Redemptions and repurchases of subordinated convertible debentures
resulted in a charge of $1.0 million in 2003 in the accompanying statement
of
income.
|
Note
11.
|
Commitments
and
Contingencies
|
Operating
Leases
The
company leases portions of its office and operating facilities under various
operating lease arrangements. Income from continuing operations includes expense
from operating leases of $4
6.5
million, $40.3 million and $35.5 million in 2005, 2004 and 2003, respectively.
Future minimum payments due under noncancellable operating leases at December
31, 2005, are $39.5 million in 2006, $30.1 million in 2007, $22.6 million in
2008, $16.7 million in 2009, $13.7 million in 2010 and $70.0 million in 2011
and
thereafter. Total future minimum lease payments are $192.6 million.
Purchase
Obligations
At
December 31, 2005, the company had outstanding noncancellable purchase
obligations, principally for inventory purchases, totaling $82.8 million,
substantially all of which will be settled in 2006.
Letters
of Credit and Guarantees
Outstanding
letters of credit and bank guarantees totaled $38.2 million at December 31,
2005, including $3.2 million for businesses that have been sold. The expiration
of these credits and guarantees ranges through 2013.
Outstanding
surety bonds totaled $14.2 million at December 31, 2005, including $10.8 million
for businesses that have been sold. The expiration of these bonds ranges through
2010 for existing businesses and primarily through 2011 for businesses that
have
been sold.
The
letters of credit, bank guarantees and surety bonds principally secure
performance obligations, and allow the holder to draw funds up to the face
amount of the letter of credit, bank guarantee or surety bond if the applicable
business unit does not perform as contractually required. With respect to
letters of credit, guarantees and surety bonds that were issued for businesses
that were sold, the buyer is obligated to indemnify the company in the event
such letters of credit and/or surety bonds are drawn.
In
connection with the sale of businesses of the company, the buyers have assumed
certain contractual obligations of such businesses and have agreed to indemnify
the company with respect to those assumed liabilities. In the event a third
party to a transferred contract does not recognize the transfer of obligations
or a buyer defaults on its obligations under the transferred contract, the
company could be liable to the third party for such obligations. However, in
such event, the company would be entitled to indemnification by the
buyer.
Indemnifications
In
conjunction with certain transactions, primarily divestitures, the company
has
agreed to indemnify the other parties with respect to certain liabilities
related to the businesses that were sold or leased properties that were
abandoned (e.g., retention of certain environmental, tax, employee and product
liabilities). The scope and duration of such indemnity obligations vary from
transaction to transaction. Where appropriate, an obligation for such
indemnifications is recorded as a liability. Generally, a maximum obligation
cannot be reasonably estimated. Other than obligations recorded as liabilities
at the time of divestiture, historically the company has not made significant
payments for these indemnifications.
|
Note
11.
|
Commitments
and Contingencies
(continued)
|
In
connection with the company’s efforts to reduce the number of facilities that it
occupies, the company has vacated some of its leased facilities or sublet them
to third parties. When the company sublets a facility to a third party, it
remains the primary obligor under the master lease agreement with the owner
of
the facility. As a result, if a third party vacates the sublet facility, the
company would be obligated to make lease or other payments under the master
lease agreement. The company believes that the financial risk of default by
sublessors is individually and in the aggregate not material to the company’s
financial position or results of operations.
In
connection with the sale of products in the ordinary course of business, the
company often makes representations affirming, among other things, that its
products do not infringe on the intellectual property rights of others and
agrees to indemnify customers against third-party claims for such infringement.
The company has not been required to make material payments under such
provisions.
Litigation
and Related Contingencies
On
September 3, 2004, Applera Corporation, MDS Inc. and Applied Biosystems/MDS
Scientific Instruments filed a lawsuit against the company in U.S. federal
court. These plaintiffs allege that the company’s mass spectrometer systems,
including its triple quadrupole and certain of its ion trap systems, infringe
a
patent of the plaintiffs. The plaintiffs seek damages, including treble damages
for alleged willful infringement, attorneys’ fees, prejudgment interest and
injunctive relief.
Chromagen,
Inc. has brought an arbitration proceeding against the company alleging that
it
owes Chromagen up to approximately $30 million for failure to timely develop
and
commercialize a new product utilizing Chromagen scanning fluorescence detection
technology. The company has filed a counterclaim in the same proceeding
alleging that, among other things, Chromagen breached its obligation to provide
the company with the specified technology. The case is expected to be heard
by a
panel of arbitrators in March
2006.
In
the
opinion of management, an unfavorable outcome of either or both of these matters
could have a material adverse effect on the company’s financial position as well
as its results of operations and cash flows.
On
December 8, 2004 and February 23, 2005, the company asserted in two lawsuits
against a combination of Applera Corporation, MDS Inc. and Applied
Biosystems/MDS Scientific Instruments that one or more of these parties infringe
two patents of the company.
The
company’s continuing and discontinued operations are a defendant in a number of
other pending legal proceedings incidental to present and former operations.
The
company does not expect the outcome of these proceedings, either individually
or
in the aggregate, to have a material adverse effect on its financial position,
results of operations, or cash flows.
|
Note
12.
|
Common
and Preferred Stock
|
At
December 31, 2005, the company had reserved 25,350,285 unissued shares of its
common stock for possible issuance under stock-based compensation plans and
for
possible conversion of the company’s convertible debentures.
The
company has 50,000 shares of authorized but unissued $100 par value preferred
stock.
The
company has distributed rights under a shareholder rights plan adopted by the
company’s Board of Directors to holders of outstanding shares of the company’s
common stock. Each right entitles the holder to purchase one one
hundred-thousandth of a share (a Unit) of Series B Junior Participating
Preferred Stock, $100 par value, at a purchase price of $200 per Unit, subject
to adjustment. The rights will not be exercisable until the earlier of (i)
10
business days following a public announcement that a person or group of
affiliated or associated persons (an Acquiring Person) has acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of the outstanding
shares of common stock (the Stock Acquisition Date), or (ii) 10 business days
following the commencement of a tender offer or exchange offer for 15% or more
of the outstanding shares of common stock.
In
the
event that a person becomes the beneficial owner of 15% or more of the
outstanding shares of common stock, except pursuant to an offer for all
outstanding shares of common stock that at least 75% of the Board of Directors
determines to be fair to, and otherwise in the best interests of, stockholders,
each holder of a right (except for the Acquiring Person) will thereafter have
the right to receive, upon exercise, that number of shares of common stock
(or,
in certain circumstances, units of preferred stock, cash, property or other
securities of the company) which equals the exercise price of the right divided
by one-half of the current market price of the common stock. In the event that,
at any time after any person has become an Acquiring Person, (i) the
company is acquired in a merger or other business combination transaction in
which the company is not the surviving corporation or its common stock is
changed or exchanged (other than a merger that follows an offer approved by
the
Board of Directors), or (ii) 50% or more of the company’s assets or earning
power is sold or transferred, each holder of a right (except for the Acquiring
Person) shall thereafter have the right to receive, upon exercise, the number
of
shares of common stock of the acquiring company that equals the exercise price
of the right divided by one-half of the current market price of such common
stock.
At
any
time until the Stock Acquisition Date, the company may redeem the rights in
whole, but not in part, at a price of $.01 per right (payable in cash or stock).
The rights expire on September 29, 2015, unless earlier redeemed or
exchanged.
|
Note
13.
|
Fair
Value of Financial
Instruments
|
The company’s financial instruments consist mainly of cash and cash equivalents,
short-term available-for-sale investments, accounts receivable, notes
receivable, short-term obligations and current maturities of long-term
obligations, accounts payable, long-term obligations and forward
currency-exchange contracts.
Available-for-sale
investments are carried at fair value in the accompanying balance sheet. The
fair values were determined based on quoted market prices (Note 9).
The
carrying amount and fair value of the company’s notes receivable, long-term
obligations and forward currency-exchange contracts are as follows:
|
2005
|
2004
|
||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
||||||||||
|
(In
thousands)
|
|||||||||||||
|
Notes
Receivable
|
$
|
48,420
|
$
|
50,941
|
$
|
47,373
|
$
|
49,286
|
|||||
|
Investment in Newport Common Stock Subject to Long-term Resale
Restrictions
|
$
|
–
|
$
|
–
|
$
|
21,317
|
$
|
22,703
|
|||||
|
Long-term
Obligations:
|
|||||||||||||
|
Convertible
obligations
|
$
|
77,234
|
$
|
76,075
|
$
|
77,234
|
$
|
76,848
|
|||||
|
Senior
notes
|
380,542
|
377,291
|
135,232
|
135,232
|
|||||||||
|
Other
|
10,854
|
10,854
|
13,604
|
13,604
|
|||||||||
|
$
|
468,630
|
$
|
464,220
|
$
|
226,070
|
$
|
225,684
|
||||||
|
Forward
Currency-exchange Contracts Receivable
|
$
|
173
|
$
|
173
|
$
|
56
|
$
|
56
|
|||||
The
fair
value of the notes receivable (principally the note receivable from Newport)
was
determined based on borrowing rates available to companies of comparable credit
worthiness at December 31, 2005 and 2004.
The
fair
value of the investment in Newport common stock subject to long-term resale
restrictions was determined using a quoted fair market value.
The
fair
value of long-term obligations was determined based on quoted market prices
and
on borrowing rates available to the company at the respective year ends.
The
notional amounts of forward currency-exchange contracts outstanding totaled
$94.8 million and $60.4 million at year-end 2005 and 2004, respectively. The
fair value of such contracts is the estimated amount that the company would
receive upon liquidation of the contracts, taking into account the change in
currency exchange rates.
|
Note
14.
|
Supplemental
Cash Flow
Information
|
|
2005
|
2004
|
2003
|
|||||||||
|
(In
thousands)
|
|||||||||||
|
Cash
Paid For
|
|||||||||||
|
Interest
|
$
|
23,025
|
$
|
11,003
|
$
|
20,548
|
|||||
|
Income
taxes
|
$
|
90,385
|
$
|
36,279
|
$
|
33,592
|
|||||
|
Noncash
Activities
|
|||||||||||
|
Fair
value of assets of acquired businesses and product lines
|
$
|
1,107,013
|
$
|
189,612
|
$
|
216,453
|
|||||
|
Cash
paid for acquired businesses and product lines
|
(940,758
|
)
|
(147,902
|
)
|
(150,260
|
)
|
|||||
|
Liabilities
assumed of acquired businesses and product lines
|
$
|
166,255
|
$
|
41,710
|
$
|
66,193
|
|||||
|
Fair
value of common stock and note received from sale of discontinued
operations
|
$
|
–
|
$
|
89,974
|
$
|
–
|
|||||
|
Issuance
of restricted stock
|
$
|
4,076
|
$
|
1,679
|
$
|
1,578
|
|||||
|
Note
15.
|
Restructuring
and Other Costs, Net
|
In
response to a downturn in markets served by the company and in connection with
the company’s overall reorganization, restructuring actions were initiated in
2003, and to a lesser extent, 2004 in a number of business units to reduce
costs
and redundancies, principally through headcount reductions and consolidation
of
facilities. Restructuring and other costs recorded in 2005 are primarily for
reductions in staffing levels at existing businesses resulting from the
integration of Kendro and the consolidation of two facilities in Texas. The
2005
costs also include charges associated with actions initiated prior to 2005
that
could not be recorded until incurred and adjustments to previously provided
reserves due to changes in estimates of sub-tenant rentals from abandoned
facilities. The company expects to incur an additional $2 million of costs
that
cannot be recorded until incurred, primarily in 2006. The restructuring actions
undertaken in 2003 and 2004 were substantially complete at the end of 2004.
The
company is continuing to evaluate potential restructuring actions that may
be
undertaken at Kendro or within existing businesses with which Kendro is being
integrated. Such actions may include rationalization of product lines,
consolidation of facilities and reductions in staffing levels. The cost of
actions at Kendro businesses is being charged to the cost of the acquisition
while the cost of actions at existing businesses being integrated with Kendro
is
charged to expense. While the company has not finalized its plans for
integrating Kendro with its existing business, it expects that charges to
expense will ultimately total $15 - $20 million, of which approximately $8
million has been recorded as of December 31, 2005.
2005
The
company recorded net restructuring and other costs by segment for 2005 as
follows:
|
Life
and
Laboratory
Sciences
|
Measurement
and
Control
|
Other
|
Corporate
|
Total
|
||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
Cost
of Revenues
|
$
|
12,374
|
$
|
1,013
|
$
|
–
|
$
|
–
|
$
|
13,387
|
||||||
| Restructuring and Other Costs, Net | 5,524 | 9,870 | (613 | ) | 2,119 | 16,900 | ||||||||||
| $ | 17,898 | $ | 10,883 | $ | (613 | ) | $ | 2,119 | $ | 30,287 | ||||||
|
Note
15.
|
Restructuring
and Other Costs, Net
(continued)
|
The
components of net restructuring and other costs by segment are as
follows:
Life
and Laboratory Sciences
The
Life
and Laboratory Sciences segment recorded $17.9 million of net restructuring
and
other charges in 2005. The segment recorded charges to cost of revenues of
$12.4
million, for the sale of inventories revalued at the date of acquisition, and
$5.5 million of other costs, net. These other costs consisted of $11.6 million
of
cash
costs, principally associated with the integration of Kendro with existing
businesses, including $9.2 million of severance for 151 employees across all
functions
;
$1.6
million of abandoned-facility costs, primarily for charges associated with
facilities vacated in prior periods where estimates of sub-tenant rental income
have changed; and $0.8 million of other cash costs, primarily retention and
relocation expenses associated with facility consolidations. These severance
and
other cash costs were net of reversals of $0.1 million, principally due to
lower
costs resulting from employee attrition. In addition, the segment recorded
charges of $1.7 million primarily for the writedown to estimated disposal value
of a building in France held for sale. These costs were offset by gains of
$7.8
million from the sale of six abandoned buildings.
Measurement
and Control
The
Measurement and Control segment recorded $10.9 million of net restructuring
and
other charges in 2005. The segment recorded charges to cost of revenues of
$1.0
million, consisting of $0.5 million for accelerated depreciation at facilities
closing due to real estate consolidation and $0.5 million for the sale of
inventories revalued at the date of acquisition; and $9.9 million of other
costs, net. These other costs consisted of $10.2 million of cash costs,
including $4.6 million of severance for 98 employees across all functions;
$4.4
million of abandoned-facility costs, primarily for charges associated with
facilities vacated in prior periods where estimates of sub-tenant rental income
have changed and for the 2005 consolidation of two operating facilities in
Texas; and $1.2 million of other cash costs, primarily retention and relocation
expenses. These severance, facility and other cash costs were net of reversals
of $0.6 million, principally due to lower costs resulting from employee
attrition. In addition, the segment recorded a gain of $0.3 million on the
sale
of a small U.K. non-core business for cash proceeds of $5.7
million.
Other
The
company reversed previously established reserves of $0.6 million in 2005 as
a
result of revising its estimate of lease obligations due to sub-leasing an
abandoned facility of a divested business.
Corporate
The
company recorded $2.1 million of restructuring and other charges at its U.S.
and
European administrative offices in 2005, all of which were cash costs. These
cash costs were primarily for severance for 18 employees.
2004
Restructuring
and other costs recorded in 2004 include charges associated with new actions
and
actions initiated prior to 2004 that could not be recorded until incurred.
These
charges totaled $19.2 million and are detailed by segment below.
|
Note
15.
|
Restructuring
and Other Costs, Net
(continued)
|
The
company recorded net restructuring and other costs by segment for 2004 as
follows:
|
Life
and
Laboratory
Sciences
|
Measurement
and
Control
|
Other
|
Corporate
|
Total
|
||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
Cost
of Revenues
|
$
|
3,177
|
$
|
184
|
$
|
–
|
$
|
–
|
$
|
3,361
|
||||||
| Restructuring and Other Costs, Net | 7,054 | 6,337 | 163 | 2,275 | 15,829 | |||||||||||
| $ | 10,231 | $ | 6,521 | $ | 163 | $ | 2,275 | $ | 19,190 | |||||||
The
components of net restructuring and other costs by segment are as
follows:
Life
and Laboratory Sciences
The
Life
and Laboratory Sciences segment recorded $10.2 million of net restructuring
and
other charges in 2004. The segment recorded charges to cost of revenues of
$3.2
million, consisting of $2.1 million for the sale of inventories revalued at
the
date of acquisition of Jouan, and $1.1 million of accelerated depreciation
on
fixed assets being abandoned due to facility consolidations; and $7.0 million
of
other costs. These other costs consisted of $8.6 million of cash costs,
including $5.1 million of severance for 181 employees across all
functions
;
$2.8
million of abandoned- facility costs, primarily for charges associated with
facilities vacated in prior periods where estimates of sub-tenant rental income
have changed or for costs that could not be recorded until incurred; and $0.7
million of other cash costs, primarily relocation expenses. These severance
and
other cash costs were net of reversals of $0.6 million, principally due to
lower
costs resulting from employee attrition. In addition, the segment recorded
charges of $1.0 million, primarily for abandoned equipment and the sale of
two
abandoned buildings. These costs were offset by a gain of $2.6 million on the
sale of a product line.
Measurement
and Control
The
Measurement and Control segment recorded $6.5 million of net restructuring
and
other charges in 2004. The segment recorded charges to cost of revenues of
$0.2
million for the sale of inventories revalued at the date of acquisition; and
$6.3 million of other costs. These other costs consisted of $6.2 million of
cash
costs, including $3.8 million of severance for 106 employees across all
functions; $1.9 million of abandoned-facility costs, primarily for charges
associated with facilities vacated in prior periods where estimates of
sub-tenant rental income have changed or for costs that could not be recorded
until incurred; and $0.5 million of other cash costs, primarily relocation
expenses. These severance, facility and other cash costs were net of reversals
of $0.7 million, principally due to lower costs resulting from employee
attrition. In addition, the segment recorded charges of $0.1 million, primarily
for equipment at an abandoned facility.
Corporate
The
company recorded $2.3 million of restructuring and other charges at its U.S.
and
European administrative offices in 2004, all of which were cash costs. These
cash costs included $1.3 million of severance; $0.7 million of third-party
advisory fees; and $0.3 million of abandoned-facility costs. While the company
no longer has any public subsidiaries, it has numerous non-U.S. subsidiaries
through which the formerly public subsidiaries conducted business. The
third-party advisory fees were incurred to simplify this legal structure. The
principal aspects of this project were completed in 2004.
|
Note
15.
|
Restructuring
and Other Costs, Net
(continued)
|
2003
In
response to a continued downturn in markets served by the company and in
connection with the company’s overall reorganization, restructuring actions were
initiated in 2003 in a number of business units to reduce costs and
redundancies, principally through headcount reductions and consolidation of
facilities. These charges totaled $45.3 million and are detailed by segment
below.
The
company recorded net restructuring and other costs by segment for 2003 as
follows:
|
Life
and
Laboratory
Sciences
|
Measurement
and
Control
|
Other
|
Corporate
|
Total
|
||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
Cost
of Revenues
|
$
|
–
|
$
|
71
|
$
|
–
|
$
|
–
|
$
|
71
|
||||||
| Restructuring and Other Costs, Net | 21,808 | 10,214 | 8,051 | 5,127 | 45,200 | |||||||||||
| $ | 21,808 | $ | 10,285 | $ | 8,051 | $ | 5,127 | $ | 45,271 | |||||||
The components of net restructuring and other costs by segment are as follows:
Life
and Laboratory Sciences
The
Life
and Laboratory Sciences segment recorded $21.8 million of net restructuring
and
other charges in 2003. These charges included $18.8 million of cash costs,
principally associated with facility consolidations, including $9.8 million
of
severance for 415 employees across all functions; $4.2 million of ongoing lease
costs through 2006 for abandoned facilities described below; $1.5 million of
employee-retention costs; and $3.3 million of other cash costs, primarily
relocation expenses. The charges for severance are net of reversals of $1.5
million that the segment had provided prior to 2003 and were not required,
primarily due to employee attrition. The charges for abandoned facilities
included the consolidation of four manufacturing facilities in the United
States; the closure of a manufacturing facility in the United Kingdom, the
activities of which were transferred to a facility in the United States;
consolidation of distribution facilities in Japan; and revised estimates of
future lease costs for facilities in Europe that the segment provided prior
to
2003. These charges are net of reversals of $1.0 million, which represents
revised estimates of future lease costs for facilities that the segment
abandoned prior to 2003. In addition, the segment recorded net charges of $3.4
million, principally to write down the carrying value of fixed assets, primarily
buildings held for sale, to estimated disposal value. These charges were offset
by $0.4 million of net gains, primarily from the sale of a product
line.
Measurement
and Control
The
Measurement and Control segment recorded $10.3 million of net restructuring
and
other charges in 2003. The segment recorded charges to cost of revenues of
$0.1
million, primarily for the sale of inventories revalued at the date of
acquisition
;
and
$10.2 million of other costs. These other costs consisted of $10.3 million
of
cash costs, principally associated with facility consolidations, including
$6.8
million of severance for 164 employees across all functions; $0.9 million of
ongoing lease costs through 2007 for abandoned facilities described below;
$0.3
million of employee-retention costs; and $2.3 million of other cash costs,
primarily relocation expenses. The charges for severance are net of reversals
of
$1.5 million that the segment had provided prior to 2003 and were not required,
primarily due to a change in the restructuring plan and employee attrition.
The
charges for abandoned facilities included the closure of sales offices in The
Netherlands and France, the activities of which were transferred to other
facilities
in the region, and the consolidation of manufacturing facilities in
Massachusetts and Wisconsin. These charges are net of reversals of $0.4 million,
which represent revised estimates of future lease costs for facilities that
the
segment abandoned prior to 2003. In addition, the segment recorded a gain of
$2.1 million on the sale of a building in Germany, offset by net charges of
$2.0
million, primarily for the writedown of goodwill related to the segment’s test
and measurement business to reduce the carrying value of the business to
disposal value. The test and measurement business was sold in October
2003.
|
Note
15.
|
Restructuring
and Other Costs, Net
(continued)
|
Other
The
company’s other businesses (previously included in the Optical Technologies
segment) recorded $8.1 million of restructuring costs in 2003. The costs
included a charge of $4.8 million for the writedown to disposal value of a
non-core product line that was sold in October 2003. The company also recorded
$2.2 million of lease costs for the closure of a manufacturing facility in
the
United Kingdom relating to the sale of the product line discussed above; $0.7
million of severance for 20 employees; and $0.4 million of employee retention
and other cash costs.
Corporate
The
company recorded $5.1 million of restructuring and other charges at its
corporate offices in 2003, all of which were cash costs. These cash costs
included $2.6 million for third-party advisory fees; $1.0 million of ongoing
lease costs through 2006 for abandoned facilities described below; $0.9 million
of severance for 16 employees in administrative functions; and $0.6 million
of
relocation expenses. The third-party advisory fees were incurred to simplify
the
legal structure of the company’s non-U.S. subsidiaries. The charges for
abandoned facilities and relocation expenses are for the consolidation of three
administrative offices in Europe.
|
Note
15.
|
Restructuring
and Other Costs, Net
(continued)
|
The
following table summarizes the cash components of the company’s restructuring
plans. The noncash components and other amounts reported as restructuring and
other costs, net, in the accompanying statement of income have been summarized
in the notes to the tables.
|
Severance
|
Employee
Retention
(a)
|
Abandonment
of
Excess
Facilities
|
Other
|
Total
|
|||||||||||||
|
(In
thousands)
|
|||||||||||||||||
| Pre-2003 Restructuring Plans | |||||||||||||||||
| Balance at December 28, 2002 | $ | 16,843 | $ | 1,577 | $ | 14,730 | $ | 1,078 | $ | 34,228 | |||||||
|
Costs
incurred in 2003
|
2,125
|
1,449
|
2,491
|
2,576
|
8,641
|
||||||||||||
|
Reserves
reversed (b)
|
(3,137
|
)
|
(169
|
)
|
(1,371
|
)
|
(334
|
)
|
(5,011
|
)
|
|||||||
|
Payments
|
(14,287
|
)
|
(2,767
|
)
|
(9,209
|
)
|
(3,411
|
)
|
(29,674
|
)
|
|||||||
|
Transfer
to accrued pension costs (c)
|
(290
|
)
|
–
|
–
|
–
|
(290
|
)
|
||||||||||
|
Currency
translation
|
1,816
|
39
|
1,219
|
236
|
3,310
|
||||||||||||
| Balance at December 31, 2003 | 3,070 | 129 | 7,860 | 145 | 11,204 | ||||||||||||
|
Costs
incurred in 2004
|
8
|
–
|
1,006
|
128
|
1,142
|
||||||||||||
|
Reserves
reversed (b)
|
(806
|
)
|
(69
|
)
|
(118
|
)
|
(132
|
)
|
(1,125
|
)
|
|||||||
|
Payments
|
(1,221
|
)
|
(60
|
)
|
(4,592
|
)
|
(124
|
)
|
(5,997
|
)
|
|||||||
|
Currency
translation
|
226
|
–
|
304
|
–
|
530
|
||||||||||||
| Balance at December 31, 2004 | 1,277 | – | 4,460 | 17 | 5,754 | ||||||||||||
|
Costs
incurred in 2005
|
–
|
–
|
2,526
|
40
|
2,566
|
||||||||||||
|
Reserves
reversed (b)
|
(457
|
)
|
–
|
(103
|
)
|
(17
|
)
|
(577
|
)
|
||||||||
|
Payments
|
(370
|
)
|
–
|
(1,553
|
)
|
(40
|
)
|
(1,963
|
)
|
||||||||
|
Currency
translation
|
(140
|
)
|
–
|
(141
|
)
|
–
|
(281
|
)
|
|||||||||
| Balance at December 31, 2005 | $ | 310 | $ | – | $ | 5,189 | $ | – | $ | 5,499 | |||||||
|
2003
Restructuring Plans
|
|||||||||||||||||
|
Costs
incurred in 2003 (d)
|
$
|
20,025
|
$
|
770
|
$
|
8,030
|
$
|
6,844
|
$
|
35,669
|
|||||||
|
Reserves
reversed (b)
|
(791
|
)
|
–
|
(819
|
)
|
(267
|
)
|
(1,877
|
)
|
||||||||
|
Payments
|
(13,908
|
)
|
(706
|
)
|
(2,643
|
)
|
(6,682
|
)
|
(23,939
|
)
|
|||||||
|
Currency
translation
|
827
|
4
|
346
|
219
|
1,396
|
||||||||||||
| Balance at December 31, 2003 | 6,153 | 68 | 4,914 | 114 | 11,249 | ||||||||||||
|
Costs
incurred in 2004 (e)
|
4,164
|
148
|
3,971
|
1,780
|
10,063
|
||||||||||||
|
Reserves
reversed (b)
|
(120
|
)
|
–
|
(4
|
)
|
(29
|
)
|
(153
|
)
|
||||||||
|
Payments
|
(9,590
|
)
|
(153
|
)
|
(4,327
|
)
|
(1,927
|
)
|
(15,997
|
)
|
|||||||
|
Currency
translation
|
401
|
–
|
511
|
71
|
983
|
||||||||||||
| Balance at December 31, 2004 | 1,008 | 63 | 5,065 | 9 | 6,145 | ||||||||||||
|
Costs
incurred
in 2005
|
340
|
–
|
1,619
|
44
|
2,003
|
||||||||||||
|
Reserves
reversed (b)
|
(79
|
)
|
–
|
(484
|
)
|
–
|
(563
|
)
|
|||||||||
|
Payments
|
(752
|
)
|
(63
|
)
|
(2,954
|
)
|
(53
|
)
|
(3,822
|
)
|
|||||||
|
Currency
translation
|
(29
|
)
|
–
|
(527
|
)
|
–
|
(556
|
)
|
|||||||||
| Balance at December 31, 2005 | $ | 488 | $ | – | $ | 2,719 | $ | – | $ | 3,207 |
|
Note
15.
|
Restructuring
and Other Costs, Net
(continued)
|
|
Severance
|
Employee
Retention
(a)
|
Abandonment
of
Excess
Facilities
|
Other
|
Total
|
|||||||||||||
|
(In
thousands)
|
|||||||||||||||||
| 2004 Restructuring Plans | |||||||||||||||||
|
Costs
incurred in 2004
(e)
|
$ |
6,751
|
|
–
|
340
|
370
|
7,461
|
||||||||||
|
Reserves
reversed (b)
|
(24
|
)
|
–
|
|
–
|
|
–
|
|
(24
|
)
|
|||||||
|
Payments
|
(3,497
|
)
|
–
|
|
(53
|
)
|
(276
|
)
|
(3,826
|
)
|
|||||||
|
Currency
translation
|
287
|
–
|
14
|
8
|
309
|
||||||||||||
| Balance at December 31, 2004 | 3,517 |
–
|
301 | 102 | 3,920 | ||||||||||||
|
Costs
incurred in 2005 (f)
|
2,087 |
–
|
229
|
628
|
2,944
|
||||||||||||
|
Reserves
reversed (b)
|
(116
|
)
|
–
|
|
–
|
|
–
|
|
(116
|
)
|
|||||||
|
Payments
|
(4,652
|
)
|
–
|
|
(289
|
)
|
(141
|
)
|
(5,082
|
)
|
|||||||
|
Currency
translation
|
(385
|
)
|
–
|
(35
|
)
|
–
|
(420
|
)
|
|||||||||
| Balance at December 31, 2005 | $ | 451 | $ | – | $ | 206 | $ | 589 | $ | 1,246 | |||||||
|
2005
Restructuring Plans
|
|||||||||||||||||
|
Costs
incurred in 2005 (f)
|
$
|
13,427
|
$
|
433
|
$
|
1,773
|
$
|
1,423
|
$
|
17,056
|
|||||||
|
Reserves
reversed (b)
|
(69
|
)
|
–
|
–
|
|
–
|
|
(69
|
)
|
||||||||
|
Payments
|
(6,983
|
)
|
(121
|
)
|
(639
|
)
|
(1,065
|
)
|
(8,808
|
)
|
|||||||
|
Currency
translation
|
(243
|
) |
1
|
(3
|
) |
(1
|
) |
(246
|
)
|
||||||||
| Balance at December 31, 2005 | $ | 6,132 | $ | 313 | $ | 1,131 | $ | 357 | $ | 7,933 |
| (a) |
Employee-retention
costs are accrued ratably over the period through which employees
must
work to qualify for a payment. The pre-2002 awards were based on
specified
percentages of employees’ salaries and were generally awarded to help
ensure continued employment at least through completion of the company’s
reorganization plan.
|
| (b) |
Represents
reductions in cost of plans as described in the discussion of
restructuring actions by segment.
|
| (c) |
Balance
of accrued restructuring costs for severance from 2000 plans related
to
pension liability associated with employees terminated in 2000, which
was
transferred to accrued pension costs in
2003.
|
| (d) |
Excludes
noncash charges, net, of $3.0 million in the Life and Laboratory
Sciences
segment and $4.9 million at the company’s other businesses; and net gains
of $0.1 million, primarily from the sale of a building, offset by
a
writedown to disposal value of a business sold in October 2003, in
the
Measurement and Control segment.
|
| (e) |
Excludes
noncash charges, net, of $1.0 million and $0.1 million in the Life
and
Laboratory Sciences and Measurement and Control segments, respectively;
other income, net, of $2.6 million in the Life and Laboratory Sciences
segment; and $0.1 million of other income, net in the company’s other
businesses.
|
(f)
Excludes
net gains of $7.8 million from the sale of six abandoned buildings and noncash
charges of $1.7 million in the Life and Laboratory Sciences segment and a gain
of $0.3 million from the sale of a small non-core business in the Measurement
and Control segment.
The
company expects to pay accrued restructuring costs as follows: severance,
employee-retention obligations and other costs, which principally consist of
cancellation/termination fees, primarily through 2006; and abandoned-facility
payments, over lease terms expiring through 2011.
|
Note
16.
|
Discontinued
Operations
|
During
2004, the company’s discontinued operations (principally Spectra-Physics) had
revenues and net income of $118.9 million and $4.5 million, respectively. In
addition, the company recorded a $38.5 million tax benefit related to
Spectra-Physics, described below. During 2003, the company’s discontinued
operations had revenues and a net loss of $197.8 million and $2.5 million,
respectively. Liabilities of discontinued operations principally represent
remaining obligations of the discontinued businesses including litigation,
severance and lease obligations.
In
2005,
the company recorded after-tax gains of $24.9 million from the disposal of
discontinued operations. In September 2005, the Life and Laboratory Sciences
segment sold its point of care and rapid diagnostics business for $53.1 million
in cash after determining it was not a strategic fit in the long-term. The
company recorded an after-tax gain of $16.8 million as a result of the sale.
Revenues and pre-tax loss of the divested business totaled $29.7 million and
$0.7 million, respectively, in 2004 and revenues and pre-tax income totaled
$26.6 million and $1.0 million, respectively, in 2005 through the date of sale.
Due to the immateriality of the operating results of this business relative
to
consolidated results, the company has not reclassified the historical results
and accounts of this business to discontinued operations. In August 2005, the
company sold a building of a previously divested business for net proceeds
of
$7.3 million in cash, which approximated its carrying value. In
addition,
the
company recorded after-tax gains of $8.1 million from the disposal of
discontinued operations. The gains represent additional proceeds from the sale
of businesses divested prior to 2004, including the sale of abandoned real
estate and post-closing adjustments, settlement of litigation and an arbitration
award related to divested businesses.
Spectra-Physics
In
July
2004, the company sold its Optical Technologies segment, Spectra-Physics, to
Newport for initial consideration of $300 million, subject to a post-closing
balance sheet adjustment. As a result of Newport assuming non-U.S. debt of
Spectra-Physics that had earlier been expected to be retained by the company
and
as a result of the post-closing adjustment process, the company paid $25.1
million to Newport, making the net selling price approximately $275 million.
The
company sold this operating unit to focus on its core businesses that provide
analytical instrumentation to laboratory and industrial customers. The net
selling price of $275 million exceeded Spectra-Physics’ book value and was
comprised of $175 million in cash; a 5% note in the principal amount of $50
million, due in 2009; and $50 million in Newport common stock, with the number
of issued shares determined based on the 20-trading day average price prior
to
closing. The fair value of the note and Newport common stock at the date of
closing aggregated approximately $90 million. The note receivable from Newport
is classified as noncurrent other assets in the accompanying balance sheet.
Under the terms of the agreement, the company had agreed to certain restrictions
on the sale of the Newport shares it received in this transaction, however,
this
restriction was subsequently removed and as of December 31, 2005, the company
no
longer owned shares of Newport common stock. The company retained a small
manufacturing unit in New York.
As
a
result of the decision to sell Spectra-Physics, a previously unrecognized tax
asset arising from the difference between the book and tax basis of
Spectra-Physics became realizable and the company recorded a tax benefit as
income from discontinued operations totaling $38.5 million in 2004. In addition,
the company recorded a gain on the sale of Spectra-Physics of $45.9 million,
net
of a tax provision of $15.9 million.
Other
In
January 2000, the company announced its intention to sell several of its
businesses, including its power-generation business and its Trex Medical and
ThermoLase units. The company classified these businesses as discontinued
operations.
|
Note
16.
|
Discontinued
Operations
(continued)
|
The
tax
returns of the company and its former Trex Medical and ThermoLase businesses
were under audit by the IRS. In 2004 and early 2005, the IRS and the company
reached final settlements of the audits and the company determined that
previously unrecognized tax benefits associated with the divested businesses
totaling $52.7 million were realizable. These tax benefits were recorded as
a
gain on disposal of discontinued operations in 2004.
In
addition to the 2004 gains discussed above, the company had $1.3 million of
after-tax gains and $0.6 million of tax benefits associated with discontinued
operations.
The
company had after-tax gains of $27.3 million in 2003 from the disposal of
discontinued operations. The gain consisted of two pre-tax components and two
tax components. In 2003, the company resolved several disputes and related
claims that it had retained following the sale of businesses in its discontinued
operations. In connection with the resolution of these matters on favorable
terms relative to the damages estimated and amount of established reserves
as
well as the settlement of lease obligations, the company’s pre-tax gain recorded
in prior years on disposal of the related businesses increased by $27.1 million.
In 2003, the company also sold the last remaining business in discontinued
operations, Peter Brotherhood Ltd., and received additional proceeds associated
with businesses sold prior to 2003, including post-closing purchase price
adjustments. The company recorded pre-tax gains on disposal of discontinued
operations of $8.3 million, substantially as a result of these transactions.
The
company recorded a tax provision of $13.2 million on the above gains and
realized $5.1 million of additional tax benefits from the disposal of businesses
sold prior to 2003, principally foreign tax credits.
|
Note
17.
|
Unaudited
Quarterly Information
|
|
2005
|
|||||||||||||
|
First
(a)
|
Second
(b)
|
Third
(c)
|
Fourth
(d)
|
||||||||||
|
(In
thousands except per share amounts)
|
|||||||||||||
|
Revenues
|
$
|
559,208
|
$
|
653,621
|
$
|
679,411
|
$
|
740,787
|
|||||
|
Gross
Profit
|
259,234
|
287,455
|
305,699
|
342,560
|
|||||||||
|
Income from Continuing Operations
|
45,583
|
56,760
|
40,597
|
55,361
|
|||||||||
|
Net
Income
|
48,856
|
60,223
|
57,734
|
56,405
|
|||||||||
|
Earnings per Share from Continuing Operations:
|
|||||||||||||
|
Basic
|
.28
|
.35
|
.25
|
.34
|
|||||||||
|
Diluted
|
.28
|
.35
|
.25
|
.34
|
|||||||||
|
Earnings
per Share:
|
|||||||||||||
|
Basic
|
.30
|
.37
|
.36
|
.35
|
|||||||||
|
Diluted
|
.30
|
.37
|
.35
|
.34
|
|||||||||
Amounts
reflect aggregate restructuring and other items, net, and nonoperating items,
net, as follows:
|
(a)
|
Income
of $0.3 million and after-tax income of $3.3 million related to the
company’s discontinued operations.
|
|
(b)
|
Costs
of $13.7 million, net gains of $27.6 million from the sale of shares
of
Newport and Thoratec and after-tax income of $3.5 million related
to the
company’s discontinued operations.
|
|
(c)
|
Costs
of $12.2 million and after-tax income of $17.1 million related to
the
company’s discontinued operations.
|
| (d) |
Costs
of $4.6 million and after-tax income of $1.0 million related to the
company’s discontinued operations.
|
|
Note
17.
|
Unaudited
Quarterly Information
(continued)
|
|
2004
|
|||||||||||||
|
First
(e)
|
Second
(f)
|
Third
(g)
|
Fourth
(h)
|
||||||||||
|
(In
thousands except per share amounts)
|
|||||||||||||
|
Revenues
|
$
|
525,032
|
$
|
525,309
|
$
|
542,315
|
$
|
613,339
|
|||||
|
Gross
Profit
|
240,860
|
238,885
|
250,955
|
283,779
|
|||||||||
|
Income from Continuing Operations
|
39,665
|
50,579
|
42,641
|
85,482
|
|||||||||
|
Net
Income
|
43,122
|
91,080
|
106,536
|
121,099
|
|||||||||
|
Earnings per Share from Continuing Operations:
|
|||||||||||||
|
Basic
|
.24
|
.31
|
.26
|
.53
|
|||||||||
|
Diluted
|
.24
|
.30
|
.26
|
.52
|
|||||||||
|
Earnings
per Share:
|
|||||||||||||
|
Basic
|
.26
|
.55
|
.66
|
.76
|
|||||||||
|
Diluted
|
.26
|
.54
|
.65
|
.74
|
Amounts
reflect aggregate restructuring and other items, net, and nonoperating items,
net, as follows:
|
(e)
|
Costs
of $5.6 million, gains of $1.6 million from the sale of shares of
Thoratec
and after-tax income of $3.5 million related to the company’s discontinued
operations.
|
|
(f)
|
Costs
of $1.1 million, gains of $8.0 million from the sale of shares of
Thoratec
and after-tax income of $40.5 million related to the company’s
discontinued operations.
|
|
(g)
|
Costs
of $5.4 million and after-tax income of $63.9 million related to
the
company’s discontinued operations.
|
|
(h)
|
Costs
of $7.1 million, a tax benefit of $33.8 million recorded on completion
of
tax audits and after-tax income of $35.6 million related to the company’s
discontinued operations.
|
|
Balance
at
Beginning
of
Year
|
Provision
Charged
to
Expense
|
Accounts
Recovered
|
Accounts
Written
Off
|
Other
(a)
|
Balance
at
End
of
Year
|
|||||||||||||
|
Allowance
for Doubtful Accounts
|
||||||||||||||||||
|
Year
Ended December 31, 2005
|
$
|
22,844
|
$
|
3,467
|
$
|
163
|
$
|
(8,687
|
)
|
$
|
4,054
|
$
|
21,841
|
|||||
|
Year
Ended December 31, 2004
|
$
|
24,212
|
$
|
3,045
|
$
|
116
|
$
|
(6,978
|
)
|
$
|
2,449
|
$
|
22,844
|
|||||
|
Year
Ended December 31, 2003
|
$
|
22,064
|
$
|
3,485
|
$
|
221
|
$
|
(5,257
|
)
|
$
|
3,699
|
$
|
24,212
|
|||||
|
Balance
at
Beginning
of
Year
|
Established
as
Cost of
Acquisitions
|
Activity
Charged
to
Reserve
|
Other
(c)
|
Balance
at
End
of
Year
|
|||||||||||
|
Accrued
Acquisition Expenses
(b)
|
|||||||||||||||
|
Year
Ended December 31, 2005
|
$
|
9,229
|
$
|
4,009
|
$
|
(3,789
|
)
|
$
|
(3,186
|
)
|
$
|
6,263
|
|||
|
Year
Ended December 31, 2004
|
$
|
15,816
|
$
|
1,217
|
$
|
(4,356
|
)
|
$
|
(3,448
|
)
|
$
|
9,229
|
|||
|
Year
Ended December 31, 2003
|
$
|
8,828
|
$
|
9,096
|
$
|
(1,857
|
)
|
$
|
(251
|
)
|
$
|
15,816
|
|||
|
Balance
at
Beginning
of
Year
|
Provision
Charged
to
Expense
(e)
|
Activity
Charged
to
Reserve
|
Other
(f)
|
Balance
at
End
of
Year
|
|||||||||||
|
Accrued
Restructuring Costs
(d)
|
|||||||||||||||
|
Year
Ended December 31, 2005
|
$
|
15,819
|
$
|
23,244
|
$
|
(19,675
|
)
|
$
|
(1,503
|
)
|
$
|
17,885
|
|||
|
Year
Ended December 31, 2004
|
$
|
22,453
|
$
|
17,364
|
$
|
(25,820
|
)
|
$
|
1,822
|
$
|
15,819
|
||||
|
Year
Ended December 31, 2003
|
$
|
34,228
|
$
|
37,422
|
$
|
(53,614
|
)
|
$
|
4,417
|
$
|
22,453
|
||||
|
(a)
|
Includes
allowance of businesses acquired and sold during the year as described
in
Note 2 and the effect of currency
translation.
|
|
(b)
|
The
nature of activity in this account is described in Note
2.
|
|
(c)
|
Represents
reversal of accrued acquisition expenses and corresponding reduction
of
goodwill or other intangible assets resulting from finalization of
restructuring plans and the effect of currency
translation.
|
| (d) |
The
nature of activity in this account is described in Note
15.
|
| (e) |
In
2005, excludes $1.7 million of noncash costs, net, primarily for
asset
writedowns, and excludes other income, net of $8.0 million. In 2004,
excludes $1.1 million of noncash costs, net, primarily for asset
writedowns, and excludes other income, net, of $2.7 million. In 2003,
excludes $7.8 million of noncash costs, net, primarily for asset
writedowns.
|
(f)
Represents the effect of currency translation and, in 2003, transfers to accrued
pension costs of $0.3 million.