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LIFE > SEC Filings for LIFE > Form 10-Q on 1-Aug-2013All Recent SEC Filings

Show all filings for LIFE TECHNOLOGIES CORP

Form 10-Q for LIFE TECHNOLOGIES CORP


1-Aug-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this report and the Consolidated Financial Statements and Notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2012.

Forward-looking Statements

Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance that are not historical facts are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as "believe," "anticipate," "should," "intend," "plan," "will," "expect(s)," "estimate(s)," "project(s)," "positioned," "strategy," "outlook" and similar expressions. Additionally, statements concerning future matters, such as the development of new products, enhancements of technologies, sales levels and operating results and other statements regarding matters that are not historical facts are forward-looking statements. Accordingly, all such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from the results expressed in the statements. Any forward-looking statements are qualified in their entirety by reference to the risk, uncertainties and other factors discussed throughout this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, including those described in Item 1-A - Risk Factors of our Annual Report on Form 10-K and in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013, including those described in Part II Item 1-A, Risk Factors of our Quarterly Report on Form 10-Q . Among the key factors that could cause our actual results to differ materially from those projected in our forward-looking statements, include our ability to:

• successfully complete our proposed merger transaction with Thermo Fisher, which is dependent and/or may be affected by a number of factors, including, without limitation (i) the receipt of stockholder approval for the transaction, and (ii) the timely receipt of the regulatory approvals required for the transaction;

• continually develop and offer new products and services that are commercially successful;

• successfully compete and maintain the pricing of products and services;

• maintain our revenue and profitability during periods of adverse economic and business conditions;

• successfully integrate and develop acquired businesses and technologies;

• successfully acquire new products, services, and technologies through additional acquisitions;

• successfully procure our products and supplies from our existing supply chain;

• successfully secure and deploy capital;

• satisfy our debt obligations; and

• the additional risks and other factors described under the caption "Risk Factors" under Item 1A of the Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the Securities and Exchange Commission on February 28, 2013 and under Part II Item 1-A of the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013, filed with the Securities and Exchange Commission on May 2, 2013.

Because the factors referred to above could cause our actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after such date.

OVERVIEW

Revenues for the three and six months ended June 30, 2013 were $945.8 million and $1,908.3 million, respectively, with net income attributable to the Company of $126.6 million and $247.8 million, respectively. Revenues for the three and six months ended June 30, 2012 were $949.3 million and $1,888.4 million, respectively, with net income attributable to the Company of $122.4 million and $255.0 million, respectively.

Proposed Acquisition by Thermo Fisher

On April 14, 2013, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Thermo Fisher Scientific Inc., a Delaware corporation (Thermo Fisher), and Polpis Merger Sub Co., a Delaware corporation and a wholly owned subsidiary of Thermo Fisher (Merger Sub), providing for, subject to the satisfaction or waiver of specified conditions, the acquisition of the Company by Thermo Fisher at a price of $76 per share in cash, subject to adjustment as described below. Subject to the terms and conditions of the Merger Agreement, the closing of the merger is expected to occur early in 2014. If the merger does not close by January 14, 2014 by reason of the failure to obtain certain required antitrust approvals or the issuance or enactment by a governmental


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authority of an order or law prohibiting or restraining the merger (and such prohibition or restraint is in respect of an antitrust law), the cash price per share will increase by $0.0062466 per day during the period commencing on, and including, January 14, 2014, and ending on, and including, the closing date.

Additional information about the merger and the terms of the Merger Agreement can be found in the Current Report on Form 8-K filed by the Company under Item 1.01 of that Form 8-K on April 16, 2013, including the full text of the Merger Agreement filed as Exhibit 2.1 to that Form 8-K, and the definitive proxy statement related to the merger filed by the Company on July 22, 2013. Stockholders of the Company are urged to read all relevant documents filed with the SEC, including Life Technologies' definitive proxy statement, because they contain important information about the proposed transaction. Investors and security holders are able to obtain the documents free of charge at the SEC's web site, http://www.sec.gov, or for free from the Company by contacting
(760) 603-7208 or ir@lifetech.com.

Our Business

We are a global life sciences company dedicated to helping our customers make scientific discoveries and ultimately improve the quality of life. Our systems, reagents, and services enable scientific researchers to accelerate scientific exploration, driving to discoveries and developments that make life better. Life Technologies customers do their work across the biological spectrum, working to advance genomic medicine, regenerative science, molecular diagnostics, agricultural and environmental research, and forensics.

The Company offers many different products and services, and is continually developing and/or acquiring others. Some of our specific product categories include the following:

• Capillary electrophoresis, SOLiD®, and Ion Torrent® DNA sequencing systems and reagents, which are used to discover sources of genetic and epigenetic variation, to catalog the DNA structure of organisms de novo, to verify the composition of genetic research material, and to apply these genetic analysis discoveries in markets such as forensic human identification.

• "High-throughput" gene cloning and expression technology, which allows customers to clone and expression-test genes on an industrial scale.

• Pre-cast electrophoresis products, which improve the speed, reliability and convenience of separating nucleic acids and proteins.

• Antibodies, which allow researchers to capture and label proteins, visualize their location through use of Molecular Probes® dyes and discern their role in disease.

• Magnetic beads, which are used in a variety of settings, such as attachment of molecular labels, nucleic acid purification, and organ and bone marrow tissue-type testing.

• Molecular Probes® fluorescence-based technologies, which facilitate the labeling of molecules for biological research and drug discovery.

• Fluorescence microscopy instrumentation, which facilitates monitoring and measuring cell density and morphology as well as quick detection and verification of fluorescently labeled cells through imaging.

• Transfection reagents, which are widely used to transfer genetic elements into living cells enabling the study of protein function and gene regulation.

• PCR and Real Time PCR systems and reagents, which enable researchers to amplify and detect targeted nucleic acids (DNA and RNA molecules) for a host of applications in molecular biology.

• Cell culture media and reagents used in the scale-up and manufacture of biological drugs at cGMP facilities.

• RNA Interference reagents, which enable scientists to selectively "turn off" genes in biology systems to gain insight into biological pathways.

• Food safety and animal health products, which are used to for pathogen detection, molecular testing for production animals, crop testing and environmental testing products.

• A lab developed test, which is used within our CLIA certified lab to help physicians stratify the risk of recurrence for their patients with early-stage, non-squamous, non-small cell lung cancer.

The Company aligns our products and services into three business groups:
Research Consumables, Genetic Analysis and Applied Sciences.

The Research Consumables business group includes our molecular and cell biology reagents, endpoint PCR and other benchtop instruments and consumables. These products include RNAi, DNA synthesis, sample prep, transfection, cloning and protein expression profiling and protein analysis, cell culture media used in research, stem cells and related tools, cellular imaging products, antibodies and cell therapy related products.


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The Genetic Analysis business group includes our capillary electrophoresis (also referred to as "CE") instruments used for research applications and all CE consumables, real-time and digital qPCR instruments used in research applications and all qPCR consumables and genomic assays, as well as our next generation sequencing systems and reagents for the SOLiD® and Ion Torrent® systems.

The Applied Sciences business group includes our BioProduction, forensics and animal health and food safety reagent kits, CE and qPCR instruments that are used in applied markets applications and our medical sciences business which includes our molecular diagnostics products and services and transplant diagnostics.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are those that require significant judgment. For additional information on our critical accounting policies, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and for additional information on the recent accounting pronouncements impacting our business, see Note 2 of the Notes to Consolidated Financial Statements.

RESULTS OF OPERATIONS

Second Quarter of 2013 Compared to the Second Quarter of 2012

The following table compares revenues and gross profit for the second quarter of
2013 and 2012:



                               Three months ended
                                    June 30,               $ Increase/        % Increase/
 (in millions) (unaudited)     2013           2012         (Decrease)         (Decrease)
 Research Consumables        $   405.2       $ 402.8      $         2.4                  1 %
 Genetic Analysis                340.6         353.1              (12.5 )               (4 )%
 Applied Sciences                197.8         193.6                4.2                  2 %
 Corporate and other               2.2          (0.2 )              2.4                 NM

 Total revenues              $   945.8       $ 949.3      $        (3.5 )                0 %

 Total gross profit          $   556.3       $ 545.0      $        11.3                  2 %
 Total gross profit %             58.8 %        57.4 %

Revenue

The Company's revenues decreased by $3.5 million for the second quarter of 2013 compared to the second quarter of 2012. The decrease in revenue was driven primarily by $14.5 million in unfavorable currency impacts and a decrease of $10.9 million in volume and pricing, partially offset by $12.6 million as a result of acquisitions and $9.5 million from royalties including licensing settlements. Volume and pricing relates to the impact on revenue due to existing and new product total unit sales as well as year over year change in unit pricing and its impact on gross revenue.

The Company operates our business under three business groups-Research Consumables, Genetic Analysis, and Applied Sciences. Revenue for the Research Consumables business group increased by $2.4 million or 1% in the second quarter of 2013 compared to the second quarter 2012. This increase was driven primarily by $8.7 million from acquisitions, partially offset by $5.3 million in unfavorable currency impacts. Revenue for the Genetic Analysis business group decreased $12.5 million or 4% for the second quarter of 2013 compared to the second quarter of 2012. This decrease was driven primarily by a $7.6 million net decrease in volume and pricing and $5.4 million in unfavorable currency impacts. Revenue for the Applied Sciences business group increased by $4.2 million or 2% for the second quarter of 2013 compared to the second quarter of 2012. The increase was primarily driven by a $9.5 million increase from royalties including licensing settlements and $3.9 million from acquisitions, partially offset by a $5.4 million net decrease in volume and pricing and $3.8 million in unfavorable currency impacts.

Changes in exchange rates of foreign currencies, especially in the euro, British pound, and Japanese yen, can significantly increase or decrease our reported revenue on sales made in these currencies and could result in a material positive or negative impact on our reported results. In addition to currency exchange rates, we expect that future revenues will be affected by, among other things, new product introductions, competitive conditions, customer research budgets, government research funding, the rate of expansion of our customer base, price increases, product discontinuations, and acquisitions or dispositions of businesses or product lines.


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Gross Profit

Gross profit increased $11.3 million or 2% in the second quarter of 2013 compared to the second quarter of 2012. The increase in gross profit was primarily driven by $9.5 million from royalties including licensing settlements, a $5.1 million decrease in amortization from intangibles purchased from business combinations, and a $3.6 million net increase from price, volume, and product mix, partially offset by $9.4 million in unfavorable currency impacts.

Operating Expenses

The following table compares operating expenses for the second quarter of 2013
and 2012:



                                                                   Three months ended June 30,
                                                          2013                                     2012
                                                                   As a                                     As a
                                            Operating          percentage of          Operating         percentage of          $ Increase/         % Increase/
(in millions) (unaudited)                    expense             revenues              expense            revenues             (Decrease)          (Decrease)
Operating Expenses:
Selling, general and administrative        $      276.4                    29 %      $     266.0                    28 %      $        10.4                   4 %
Research and development                           88.6                     9 %             84.8                     9 %                3.8                   4 %
Business integration costs                         28.3                     3 %              9.4                     1 %               18.9                  NM

Selling, General and Administrative

For the second quarter of 2013, selling, general and administrative expenses increased $10.4 million or 4% compared to the second quarter of 2012. This increase was driven primarily by a $14.9 million increase in compensation and benefits, and as a result, the costs are slightly up from the prior year as a percentage of revenues. The increase in compensation and benefits was partially offset by a $6.6 million decrease in purchased services.

Research and Development

For the second quarter of 2013, research and development expenses increased $3.8 million or 4% compared to the second quarter of 2012. The increase was primarily driven by a $3.6 million increase in purchased services. The Company continues to invest in research and development programs, and as a percentage of revenue, costs are comparable period to period.

Business Integration Costs

Business integration costs for the second quarter of 2013 were $28.3 million, compared to $9.4 million for the second quarter of 2012. The expenses for both periods primarily include costs of integration and restructuring efforts for our acquisitions and divestitures activities. The second quarter of 2013 also includes costs related to the proposed acquisition by Thermo Fisher.

Other Income (Expense)

Interest Income

Interest income was $0.7 million for the second quarter of 2013 compared to $0.5 million for the second quarter of 2012.

Interest income in the future will be affected by changes in short-term interest rates and changes in cash balances, which may materially increase or decrease as a result of operations, acquisitions, debt repayment, stock repurchase programs and other activities.

Interest Expense

Interest expense was $27.6 million for the second quarter of 2013 compared to $29.2 million for the second quarter of 2012. The decrease in interest expense was primarily driven by lower debt balances caused by the payoff of the 2013 Notes in March 2013.

Other Expense, Net

Other expense, net, was $1.9 million for the second quarter of 2013 compared to $2.6 million for the same period of 2012. Included in the second quarter of 2013 and 2012 were foreign currency losses of $1.1 million and $1.5 million, net of hedging activities, respectively, driven by currency fluctuation in major currencies.

Provision for Income Taxes

The provision for income taxes as a percentage of pre-tax income from continuing operations was 5.8% for the three months ended June 30, 2013 compared with 20.3% for the three months ended June 30, 2012. The rate was lower in the second quarter of 2013 than


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in the second quarter of 2012 due to the reinstatement of the U.S. research tax credit, greater earnings in countries with lower tax rates and the settlement of income tax audits.The 2013 effective tax rate of 5.8% was lower than the statutory federal income tax rate of 35% due primarily to earnings taxed at lower rates in foreign jurisdictions which are intended to be indefinitely reinvested outside the U.S., audit settlements and research and manufacturing incentives.

First Six Months of 2013 Compared to the First Six Months of 2012

The following table compares revenues and gross profit for the first six months
of 2013 and 2012:



                                 Six months ended
                                     June 30,               $ Increase/        % Increase/
 (in millions) (unaudited)     2013           2012          (Decrease)         (Decrease)
 Research Consumables        $   814.5      $   822.9      $        (8.4 )               (1 )%
 Genetic Analysis                705.3          708.8               (3.5 )                0 %
 Applied Sciences                386.7          355.1               31.6                  9 %
 Corporate and other               1.8            1.6                0.2                 13 %

 Total revenues              $ 1,908.3      $ 1,888.4      $        19.9                  1 %

 Total gross profit          $ 1,120.4      $ 1,098.3      $        22.1                  2 %
 Total gross profit %             58.7 %         58.2 %

Revenue

The Company's revenues increased by $19.9 million or 1% for the first six months of 2013 compared to the first six month of 2012. The increase in revenue was driven primarily by $22.6 million as a result of acquisitions, $17.1 million from royalties including licensing settlements, and an increase of $13.1 million in volume and pricing, partially offset by $32.2 million in unfavorable currency impacts. Volume and pricing relates to the impact on revenue due to existing and new product total unit sales as well as year over year change in unit pricing and its impact on gross revenue.

Revenue for the Research Consumables business group decreased by $8.4 million or 1% in the first six months of 2013 compared to the first six months of 2012. This decrease was driven primarily by $11.5 million in unfavorable currency impacts, a decrease of $7.0 million in volume and pricing and a $4.0 million decrease from royalties including licensing settlements, partially offset by an increase of $14.0 million as a result of acquisitions. Revenue for the Genetic Analysis business group decreased $3.5 million for the first six months of 2013 compared to the first six months of 2012. This decrease was driven primarily by $13.2 million in unfavorable currency impacts, partially offset by $9.7 million from royalties including licensing settlements. Revenue for the Applied Sciences business group increased by $31.6 million or 9% for the first six months of 2013 compared to the first six months of 2012. The increase was primarily driven by a $22.0 million net increase in volume and pricing, an increase of $8.6 million as a result of acquisitions, and an increase of $8.5 million from royalties including licensing settlements, partially offset by $7.6 million in unfavorable currency impacts.

Changes in exchange rates of foreign currencies, especially in the euro, British pound, and Japanese yen, can significantly increase or decrease our reported revenue on sales made in these currencies and could result in a material positive or negative impact on our reported results. In addition to currency exchange rates, we expect that future revenues will be affected by, among other things, new product introductions, competitive conditions, customer research budgets, government research funding, the rate of expansion of our customer base, price increases, product discontinuations, and acquisitions or dispositions of businesses or product lines.

Gross Profit

Gross profit increased $22.1 million or 2% in the first six months of 2013 compared to the first six months of 2012. The increase in gross profit was primarily driven by a $21.2 million net increase from price, volume, and product mix, a $17.1 million increase from royalties including licensing settlements, and a $4.8 million decrease from intangibles purchased from business combinations, partially offset by $22.1 million in unfavorable currency impacts.


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Operating Expenses

The following table compares operating expenses for the first six months of 2013
and 2012:





                                                                   Six months ended June 30,
                                                         2013                                     2012
                                                                  As a                                     As a
                                            Operating         percentage of          Operating         percentage of          $ Increase/          % Increase/
(in millions) (unaudited)                    expense            revenues              expense            revenues             (Decrease)           (Decrease)
Operating Expenses:
Selling, general and administrative        $     547.6                    29 %      $     519.4                    28 %      $        28.2                    5 %

Research and development 172.1 9 % 173.4 9 % (1.3 ) (1 )% Business integration costs 55.0 3 % 23.7 1 % 31.3 NM

Selling, General and Administrative

For the first six months of 2013, selling, general and administrative expenses increased $28.2 million or 5% compared to the first six months of 2012. This increase was driven primarily by a $33.6 million increase in compensation and benefits, and as a result, the costs are slightly up from the prior year as a percentage of revenues. The increase in compensation and benefits was partially offset by a $7.9 million decrease in purchased services.

Research and Development

For the first six months of 2013, research and development expenses decreased $1.3 million or 1% compared to the first six months of 2012. The Company continues to invest in research and development programs, and as a percentage of revenue, costs are comparable period to period.

Business Integration Costs

Business integration costs for the first six months of 2013 were $55.0 million, compared to $23.7 million for the first six months of 2012. The expenses for both periods primarily include costs of integration and restructuring efforts for our acquisitions and divestitures activities. Included in the six months ended June 30, 2013 is a loss of $28.3 million related to the sale of assets which were obtained from a previous acquisition, offset by a $17.7 million curtailment gain as a result of a plan change of a postretirement medical plan. The six months ended June 30, 2013 also include charges related to the proposed acquisition by Thermo Fisher.

Other Income (Expense)

Interest Income

Interest income was $1.2 million for the first six months of 2013 compared to $1.3 million for the first six months of 2012.

Interest income in the future will be affected by changes in short-term interest rates and changes in cash balances, which may materially increase or decrease as a result of operations, acquisitions, debt repayment, stock repurchase programs and other activities.

Interest Expense

Interest expense was $57.0 million for the first six months of 2013 compared to $65.0 million for the first six months of 2012. The decrease in interest expense was primarily driven by lower debt balances caused by the payoff of the 2013 Notes in March 2013 and the 2024 Convertible Senior Notes in February 2012, and a $3.7 million charge as a result of the extinguishment of a line of credit during the six months ended June 30, 2012.

Other Expense, Net

Other expense, net, was $4.4 million for the first six months of 2013 compared to $8.3 million for the same period of 2012. Included in the first six months of 2012 were $5.3 million of charges associated with divesture related activities. . . .

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