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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-----------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission file number 0-14991
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LIFE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-0431300
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9800 MEDICAL CENTER DRIVE, ROCKVILLE, MD 20850
(Address of principal executive offices) (Zip Code)
___________
Registrant's telephone number, including area code: (301) 840-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
----------------------------
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No_____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 21, 1997 was $304,689,587.
The number of shares of Common Stock outstanding as of February 21, 1997 was
22,984,623.
Documents Incorporated By Reference
Portions of the registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held on April 15, 1997 are incorporated by reference in
Part III of this Report.
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As used herein, the terms "LTI" and the "Company" shall mean Life Technologies,
Inc. and its subsidiaries unless the context otherwise indicates and the term
"Proxy Statement" shall mean the definitive Proxy Statement for the Company's
Annual Meeting of Stockholders to be held on April 15, 1997.
PART I
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ITEM 1. BUSINESS
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GENERAL
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LTI, originally incorporated in Ohio in 1915 and reincorporated in Delaware in
1986, develops, manufactures and supplies more than 3,000 products used in life
sciences research and commercial manufacture of genetically engineered products.
The Company's products include sera, other cell growth media, biochemicals and
enzymes and other biological products necessary for recombinant DNA procedures.
These and related products and services provided by the Company are used in
cellular biochemistry and molecular biology research and in the production of
genetically engineered pharmaceuticals such as interferons, interleukins and
tissue plasminogen activator ("t-PA").
The Company's products are sold to more than 20,000 customers consisting of
laboratories generally associated with universities, medical research centers,
and government institutions as well as biotechnology, pharmaceutical, energy,
agricultural and chemical companies. The Company sells its products principally
through its own direct sales organization which is supplemented by a network of
distributors.
The Company's research and development activity is aimed at maintaining a
leadership position in providing research tools to the life sciences research
market and enhancing its market position as a supplier of products used to
manufacture genetically engineered pharmaceuticals and other materials.
The Company's activities are focused on the following areas:
o PRODUCTS FOR LIFE SCIENCES RESEARCH
CELL CULTURE PRODUCTS - The Company is a leading supplier of sera and other
cell and tissue culture media used by life sciences researchers to grow
cells under laboratory conditions.
CELL AND MOLECULAR BIOLOGY PRODUCTS - The Company is a leading supplier of
enzymes, nucleic acids, custom primers, reagent systems, biochemicals and
other products used by life sciences researchers to identify, isolate and
manipulate the metabolic processes and genetic material of living
organisms.
o PRODUCTS FOR COMMERCIAL PROCESSES USING GENETICALLY ENGINEERED CELLS
The Company is a leading supplier of sera, cell culture media and reagents
used for the commercial production of pharmaceuticals and other materials
made by genetically engineered cells.
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MARKETS
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The Company serves two principal markets: life sciences research and commercial
manufacture of genetically engineered products.
The life sciences research market consists of laboratories generally associated
with universities, medical research centers, government institutions such as the
National Institutes of Health, and other research institutions as well as
biotechnology, pharmaceutical, energy, agricultural and chemical companies.
Life sciences researchers require special biochemical research tools capable of
performing precise functions in a given experimental procedure. The Company
serves two principal disciplines of the life sciences research market: cellular
biochemistry and molecular biology.
Cellular biochemistry involves the study of the genetic functioning and
biochemical composition of cells as well as their proliferation,
differentiation, growth and death. The understanding gained from such study has
broad application in the field of developmental biology and is important in the
study of carcinogenesis, virology, immunology, vaccine design and production and
agriculture. To grow the cells required for research, researchers use cell or
tissue culture media which simulate under laboratory conditions (in vitro) the
-- -----
environment which surrounds such cells naturally (in vivo) and which facilitate
-- ----
their growth.
Molecular biology involves the study of the genetic information systems of
living organisms. The genetic material of living organisms consists of long,
double-stranded molecules of DNA (deoxyribonucleic acid). DNA contains the
information required for the production of proteins by means of RNA (ribonucleic
acid), a single-stranded molecule similar in structure to DNA. Proteins have
many different functional properties and include antibodies, certain hormones
and enzymes. Many researchers study the various steps of gene expression from
DNA to RNA to protein products, and the impact of these proteins on cellular
function. Other researchers are interested in manipulating the DNA-RNA system
in order to modify its functioning. Through techniques that are commonly termed
"genetic engineering" or "gene-splicing," the researcher modifies an organism's
naturally occurring DNA to produce a desired protein not usually produced by the
organism, or to produce a naturally produced protein at an increased rate.
The Company also serves industries which apply genetic engineering to the
commercial production of otherwise rare or difficult to obtain substances with
potential for significant utility. For example, in the biotechnology industry,
these substances include interferons, interleukins, t-PA and monoclonal
antibodies. The manufacturers of these materials require larger quantities of
the same sera and other cell growth media that are also purchased in smaller
quantities as research tools. Some of these new substances are manufactured in
full scale production facilities, while others are being manufactured on a pre-
production basis. Other industries involved in the commercial production of
genetically engineered products include the pharmaceutical, food processing and
agricultural industries. The Company is increasingly expanding its activities
into related new markets for its products. These include genetic and identity
testing, cell therapy and tissue engineering involving cell culture media and
plant biotechnology applications.
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PRODUCTS
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The Company is a major supplier of cell culture products used to maintain living
cells for study in the laboratory and for the commercial production of
pharmaceuticals and other materials made by genetically engineered cells. The
Company's cell culture products consist of bovine serum, liquid and dry-powdered
culture media, balanced salt solutions, other animal sera and plant tissue
culture media. The Company also produces and markets a line of products to
assist the researcher in analyzing cellular functions in mammals and other
multicell organisms, including the growth and differentiation of cells and their
immunological response. Sales of fetal bovine serum ("FBS"), a major product of
the Company, accounted for 14% of the Company's net sales in 1996, 16% in 1995
and 18% in 1994.
The Company is a major supplier of products used as research tools by molecular
biologists, including restriction enzymes, DNA and RNA modifying enzymes,
specialty reagents, research apparatus, nucleic acids, molecular biology systems
and custom primers.
GEOGRAPHIC INFORMATION
----------------------
Information regarding geographic operations and sales required by this item is
contained in the Financial Notes entitled "Geographic Data" on page F-20 of this
1996 Annual Report on Form 10-K.
SALES AND MARKETING
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At December 31, 1996, the Company had approximately 134 employees worldwide who
were employed in direct field sales. Most of the Company's products are sold
throughout the world by its own sales employees, and the remaining products are
sold through agents or distributors.
RESEARCH AND DEVELOPMENT
------------------------
The Company believes that a strong research and product development effort is
important to its future growth. The Company's investment in research and
development was $19.1 million in 1996, $15.9 million in 1995 and $15.0 million
in 1994. An explanation of the changes in research and development expense for
the above periods is contained under the caption "Research and Development
("R&D") Expenses" in Management's Discussion and Analysis of Financial Condition
and Results of Operations provided under Part II, Item 7 on page 11 of this 1996
Annual Report on Form 10-K.
The Company conducts most of its research and development activities at its own
facilities using its own personnel. At December 31, 1996, the Company had
approximately 143 employees principally engaged in research and development. The
Company's scientific staff is augmented by advisory relationships with a number
of scientists.
The Company's research and development activities are aimed at providing new
products for its current product lines and developing new applications for its
products.
COMPETITION
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Only one company is known to compete with the Company in all its major product
lines, but in each product line competition is offered by a number of companies,
including companies substantially larger and with greater financial resources
than LTI. In the Company's view, competitive position in its
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markets is determined by product quality, technical support, price, breadth of
product line, timely product development and speed of delivery.
PATENTS AND LICENSES
--------------------
The Company has a number of patents and has pending applications for additional
U.S. patents and corresponding foreign filings. The Company owns intellectual
property, and on a case by case basis, grants licenses to others to use such
intellectual property. The Company does not believe that license revenue is
material to its business as a whole. In addition, the Company obtains
nondisclosure and confidentiality agreements from all its employees believed to
have access to proprietary information.
The Company has obtained rights to products and technologies under a number of
license agreements with universities and others. In 1996, approximately 14% of
the Company's net sales were related to products which were licensed from others
or which incorporated technologies licensed from others. The Company intends to
continue its current strategy of seeking licenses to technologies and products
from sources around the world. The Company does not believe that any single
product or technology licensed from others is material to its business as a
whole.
CUSTOMERS
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LTI has no single customer for its products which it deems to be material to its
business as a whole. However, many of the Company's customers receive funding
for their research either directly or indirectly from the federal government in
the United States and from government agencies in various countries throughout
the world.
SUPPLIERS
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The Company buys materials for its products from many suppliers, including
certain affiliated joint ventures, and is generally not dependent on any one
supplier or group of suppliers. Raw materials, other than FBS, purchased from
others are generally readily available at competitive prices from a number of
suppliers. Although there is a well-established market for FBS, one of the
Company's major products, its price is unstable, and its supply could be limited
because the availability of slaughtered cattle tends to be cyclical. The Company
acquires raw FBS products from various suppliers, including affiliated joint
ventures. Some of these suppliers provide a major portion of the FBS available
from a specific geographic region, although no single supplier provides a
majority of the total FBS available to the Company.
The Company believes it maintains a quantity of FBS inventory adequate to insure
reasonable customer service levels while guarding against normal volatility in
the supply of FBS available to the Company. FBS inventory quantities can
fluctuate significantly as the Company balances varying customer demand for FBS
against fluctuating supplies of FBS available to the Company. The Company
believes it will be able to continue to acquire FBS in quantities sufficient to
meet its customers' requirements.
GOVERNMENT REGULATION
---------------------
Certain of the Company's cell culture products are subject to regulation under
the U.S. Federal Food, Drug and Cosmetic Act with respect to testing, safety,
efficacy, marketing, labeling and other matters. In addition, the Company's
manufacturing facilities for the production of cell culture products are subject
to periodic inspection primarily by the U.S. Food and Drug
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Administration ("FDA") and other product-oriented federal agencies and various
state and local authorities in the U.S. Such facilities are believed to be in
compliance with the requirements of the FDA's current Good Manufacturing
Practices, other federal, state and local regulations and other quality
standards such as ISO 9000.
The U.S. federal government oversees certain recombinant DNA research activities
through the National Institutes of Health Guidelines for research involving
recombinant DNA molecules (the "NIH Guidelines"). The NIH Guidelines prohibit
or restrict certain recombinant DNA experiments, set forth levels of biological
and physical containment of recombinant DNA molecules to be met for various
types of research and require that institutional biosafety committees approve
certain experiments before they are initiated. The NIH Guidelines now exempt
most of the experiments conducted by the Company. The Company, however,
voluntarily complies with the NIH Guidelines for its molecular and cell biology
experiments. Compliance with the NIH Guidelines has not had, and the Company
does not believe it will have in the future, a material effect on the capital
expenditures, earnings or competitive position of the Company.
The Company has an Institutional Biosafety Committee, which has been approved
and certified by the NIH Office of Recombinant DNA Activities, to oversee its
laboratory practices concerning biological agents. Through training, practices,
equipment and facilities, LTI follows the NIH Guidelines' hazard classification
system recommendations for handling bacterial and viral agents, with
capabilities through biosafety level three.
In addition to the foregoing, the Company is subject to other federal, state and
local laws and ordinances applicable to its business, including the Occupational
Safety and Health Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, various statutes and regulations applicable to the use
of radioactive material, as well as national restrictions on technology
transfer, and import, export and customs regulations and similar laws and
regulations in foreign countries.
EMPLOYEES
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At December 31, 1996, the Company had approximately 1,457 full-time and 68 part-
time employees, approximately 557 of whom were employed outside the United
States. No employees are covered by a collective bargaining agreement.
Management believes that its relations with its employees are good.
ITEM 2. PROPERTIES
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The Company owns or leases the following principal properties, each of which
contains manufacturing, storage, laboratory or office facilities:
Location
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Rockville, Maryland (Owned and leased)
Gaithersburg, Maryland (Owned and leased)
Frederick, Maryland (Leased)
Glasgow area, principally Inchinnan, Scotland (Owned and leased)
Grand Island, New York (Owned)
Auckland, New Zealand (Owned and leased)
The Company owns or leases certain other properties throughout the world in
addition to the principal properties listed. The terms of the leases for
properties to which the Company is a party range in expiration dates from 1997
to 2020, and some are renewable.
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Many of the Company's plants have been constructed, renovated, or expanded one
or more times during the past ten years. The Company is currently using
substantially all of its space and considers the facilities to be in a condition
suitable for their current uses. Because of expected growth in the business and
due to the increasing requirements of customers or regulatory agencies, the
Company may need to acquire additional space or upgrade and enhance existing
space during the next five years.
Over the past several years, the Company has undertaken a facilities upgrade and
improvement program. The initial focus of this program was the Company's
manufacturing facilities in the U.S., Scotland and New Zealand. The second
phase, now largely completed, focused on the Company's research and development
facilities, including the new corporate R&D facility in Rockville, Maryland.
The final phase of the facilities modernization program, to be completed in 1997
and 1998, includes completion of the corporate R&D facility and an adjoining
administrative facility. The Company currently believes it may spend $50-55
million for property, plant and equipment from 1997 through 1999, of which $20-
30 million would be for facilities modernization.
Additional information regarding the Company's properties is contained in the
Financial Notes entitled "Property, Plant and Equipment" and "Leases" on pages
F-9 and F-10, respectively, of this 1996 Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
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The Company is not involved in any pending or threatened legal proceedings
(other than ordinary routine litigation incidental to its business) which the
Company believes will have a material adverse effect on the Company's financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
EXECUTIVE OFFICERS OF THE REGISTRANT
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The Board of Directors elects all executive officers of the Company. Each
executive officer holds his or her office until the earlier of his or her death,
resignation, removal from office or the election or appointment of his or her
successor. No family relationships exist among any of the Company's executive
officers, directors or persons nominated to serve as such. The positions held
and period during which the executive officers have served in those positions
are set forth below:
J. STARK THOMPSON, PH.D. (age: 55; years of service: 8) was elected President
and Chief Executive Officer of the Company in August 1988 and became a director
of the Company in September 1988. Prior to joining the Company, he had been
with E.I. DuPont de Nemours & Company ("DuPont") for 21 years. From June to
August 1988, he had been Director of Sales and Marketing, North America,
Diagnostics Division of DuPont. He was Director of the Diagnostics Systems
Division between 1985 and June 1988. Prior thereto, he had been Business
Director of the Diagnostic Systems Division from 1984 to 1985 with worldwide
sales and marketing responsibility for the Division. Prior thereto, he had been
Manager of DuPont's Instrument System Division and was responsible for general
management of that Division.
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THOMAS M. COUTTS (age: 52; years of service: 27) was elected Senior Vice
President and General Manager, European Division, effective March 1, 1989. Prior
thereto, he had been Vice President of Life Technologies, Europe, since prior to
1987.
JOHN V. COOPER (age 45; years of service: 5) was elected Vice President and
General Manager, America's Research Products Division, effective April 13, 1993.
Prior to joining the Company, he had been a Worldwide Business Manager in
Printed Circuit Materials for DuPont since prior to 1987.
BRIAN D. GRAVES (age: 55; years of service: 15) was elected Vice President and
General Manager, U.S. Industrial Bioproducts Division, effective July 1, 1990.
Prior thereto, he had been Vice President of Sales and Marketing, U.S. Research
Products Division, for the Company since prior to 1987.
JOHN LEFFLER, PH.D. (age: 56, years of service: 4) was elected Vice President,
Human Resources, effective October 15, 1996 and has held the position of Vice
President, Manufacturing, effective April 11, 1995. Prior to joining the
Company, he worked for Dupont for 28 years in various director and management
positions.
TIMOTHY E. PIERCE, PH.D. (age: 55; years of service: 6) was elected Vice
President and General Manager, Asia Pacific Division, effective September 18,
1990. Prior to joining the Company, he had been General Manager, Asia Pacific,
for Technicon Instruments Corporation since prior to 1987.
JOSEPH C. STOKES, JR. (age: 49; years of service: 8) was elected Senior Vice
President and Chief Financial Officer effective July 16, 1996 and has held the
position of Vice President, Finance, Secretary and Treasurer, effective March 1,
1989. Prior thereto, he had been Treasurer of The Dexter Corporation, an
affiliate of the Company, since prior to 1987.
ROSEMARY J. VERSTEEGEN, PH.D. (age: 48; years of service: 15) was elected a
Vice President of the Company on April 16, 1991. Since 1982 she held several
managerial positions with the Company. Prior thereto, she worked for Litton
Industries as a staff scientist.
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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MATTERS
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The Company's Common Stock is traded on The National Association of Securities
Dealers Automated Quotation System ("NASDAQ") National Market under the symbol:
LTEK. The high and low sales prices for the Company's Common Stock for each
quarter of 1995 and 1996 as reported by The NASDAQ Stock Market are contained in
the Financial Notes entitled "Quarterly Financial Information" on page F-19 of
this 1996 Annual Report on Form 10-K.
The number of stockholders of record of the Company's Common Stock at February
21, 1997 was 586. At February 21, 1997, The Dexter Corporation owned
approximately 53% of the outstanding Common Stock of the Company.
The Company's Board of Directors has declared quarterly dividends of $0.03-1/3
per share in each quarter of the previous three fiscal years through the first
quarter of 1996 and $0.04 per share for the remaining three fiscal quarters of
1996 and expects to consider the declaration and payment of quarterly dividends
based on future operating results.
ITEM 6. SELECTED FINANCIAL DATA
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This information has been derived from, and should be read in conjunction with,
the related consolidated financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this 1996 Annual Report on Form 10-K or the 1996 report to shareholders.
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SELECTED FINANCIAL DATA
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(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Revenues $310,339 $272,299 $235,262 $205,616 $197,640
Research & development
expenses 19,084 15,871 15,000 14,463 13,892
Gain on product line disposal 2,569 - - - -
Operating income 46,287 33,823 27,506 25,638 24,540
Net income 28,700 22,277 18,207 16,560 15,487
Capital expenditures $ 42,151 $ 11,159 $ 12,123 $ 7,230 $ 16,424
Return on average
stockholders' equity 17.0% 15.7% 15.2% 16.0% 16.6%
Average shares outstanding
including dilutive common
stock equivalents 23,504 22,929 22,607 22,637 22,619
- -------------------------------------------------------------------------------------------
AT DECEMBER 31
Cash & cash
equivalents $ 15,326 $ 23,201 $ 13,246 $ 7,927 $ 7,652
Working capital 84,196 96,761 71,255 60,228 51,924
Total assets 253,931 208,744 171,747 145,790 130,049
Long-term debt 4,668 1,451 - - -
Stockholders' equity 182,919 153,925 130,129 110,000 96,680
Per share $ 7.97 $ 6.76 $ 5.79 $ 4.90 $ 4.32
Shares outstanding 22,951 22,773 22,472 22,426 22,388
- -------------------------------------------------------------------------------------------
PER SHARE
Net income:
Primary $ 1.22 $ .97 $ .81 $ .73 $ .69
Fully diluted 1.21 .97 .80 .73 .69
Cash dividends declared .15-1/3 .13-1/3 .13-1/3 .13-1/3 .13-1/3
Market price:
High 26 1/2 18 1/3 13 1/2 17 1/3 15 1/2
Low 15 1/3 11 2/3 10 10 1/2 10 1/2
Close 25 18 1/6 13 12 1/3 14 1/2
</TABLE>
Dividends - The Board has declared quarterly dividends of $0.03-1/3 per share in
each quarter through the first quarter of 1996 and $0.04 per share for the last
three quarters of 1996.
All share and per share amounts have been adjusted for a 3 for 2 stock split
effected on August 28, 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
---------------------
The information in this Item 7 should be read in conjunction with the related
consolidated financial statements and notes thereto contained elsewhere in this
1996 Annual Report on Form 10-K.
GENERAL
Statements in this Annual Report on Form 10-K concerning the Company's business
outlook or future economic performance; anticipated profitability, revenues,
expenses or other financial items; and statements concerning assumptions made or
expectations as to any future events, conditions, performance or other matters,
are "forward-looking statements" as that term is defined under the Federal
Securities Laws. Forward-looking statements are subject to risks, uncertainties
and other factors which could cause actual results to differ materially from
those stated in such statements. The reader should consider carefully the
risks, uncertainties and other factors contained in this discussion, especially
in the sections entitled "Looking Ahead" and "1997 Cash Flows".
The Company develops, manufactures, and sells cell and molecular biology
products and cell culture products under the GIBCO BRL brand name. Cell and
molecular biology products are used by scientists to identify, isolate, and
manipulate the metabolic processes and genetic material of living organisms.
Cell culture products include cell and tissue culture media, reagents, fetal
bovine serum ("FBS"), a major product of the Company, and other animal sera.
These products are used by scientists to grow cells under laboratory conditions
and are also used for the commercial manufacture of pharmaceuticals and other
life sciences products.
RESULTS OF OPERATIONS
REVENUES
The major product line components of net sales for 1996, 1995 and 1994 compare
as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
(amounts in thousands) 1996 1995 1994
- ----------------------------------------------------------
<S> <C> <C> <C>
Cell and molecular biology $137,577 $115,278 $ 94,034
Cell culture 171,878 156,954 141,161
- ----------------------------------------------------------
Net sales $309,455 $272,232 $235,195
==========================================================
</TABLE>
Net sales for 1996 were $309.5 million, an increase of $37.2 million, or 14%,
over 1995. Sales of products other than FBS increased $38.9 million, or 17%,
when comparing 1996 net sales with 1995 and excluding the effect of changes due
to different currency translation rates. FBS sales were $1.5 million higher in
1996 than in 1995 on a comparable currency basis. Higher unit sales of FBS
increased 1996 net sales by $3.2 million while lower unit selling prices
decreased net sales by $1.7 million when compared with 1995. The impact of
consolidating the results of the Company's Japanese subsidiary effective
September 1, 1995 represented approximately 3% of the 14% increase in net sales
for 1996. The effect of changes in currency exchange rates decreased 1996 net
sales by $3.2 million, or 1%, when compared with 1995.
Net sales for 1995 were $272.2 million, an increase of $37.0 million, or 16%,
over 1994. Sales of products other than FBS increased $28.5 million, or 15%,
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when comparing 1995 net sales with 1994 and excluding the effect of changes due
to different currency translation rates. FBS sales were $0.2 million lower in
1995 than in 1994 on a comparable currency basis. Lower unit sales of FBS
decreased 1995 net sales by $2.1 million while higher unit selling prices
increased net sales by $1.9 million when compared with 1994. The impact of
consolidating the results of the Company's Japanese subsidiary effective
September 1, 1995 represented almost 2% of the 16% increase in net sales for
1995. The effect of changes in currency exchange rates increased 1995 net sales
by $8.7 million, or 4%, when compared with 1994.
FBS represented 14% of net sales in 1996, 16% of net sales in 1995 and 18% of
net sales in 1994.
Royalty income was $0.9 million, $0.1 million and $0.1 million in 1996, 1995 and
1994, respectively. Royalty income relates to licensed technologies developed
from research efforts undertaken for the Company's molecular diagnostics product
line which was sold in 1990.
COST OF SALES - GROSS MARGIN
Gross margins were 52.5% of net sales in 1996 compared with 50.1% in 1995. Gross
margins improved in 1996 as FBS gross margins increased and the Company realized
higher gross margins in Japan. FBS gross margins improved as FBS unit costs
decreased at a faster rate than FBS unit selling prices when comparing 1996 with
1995. Gross margins were higher in Japan principally as a result of
consolidating the results of its Japanese subsidiary upon acquisition of a
controlling interest in that subsidiary in September 1995. The Company reduced
its LIFO reserves in the amount of $3.3 million during 1996, largely as a result
of lower unit costs for FBS.
Gross margins were 50.1% of net sales in 1995 compared with 47.3% in 1994. Gross
margins improved in 1995 as the Company consolidated the gross margins of its
Japanese subsidiary and because the Company reported higher gross margins in
markets it served directly in 1995 where these markets were served by
distributors for a substantial portion of 1994.
MARKETING AND ADMINISTRATIVE EXPENSES
Marketing and administrative expenses were 32.5% of net sales in 1996, 31.9% of
net sales in 1995 and 29.2% of net sales in 1994. The increase in marketing and
administrative expenses over the period from 1994 to 1996, expressed as a
percentage of sales, is due principally to the consolidation of the Company's
Japanese subsidiary beginning in September 1995, the costs of opening new sales
offices related to the Company's geographic expansion program, and the costs of
implementing new management information systems. Increasing the Company's
interest in its Japanese subsidiary and opening new sales offices were part of
the Company's strategic program to reach its customers more directly and both
actions have contributed significantly to the Company's sales growth and gross
margin improvement over the period from 1994 to 1996.
RESEARCH AND DEVELOPMENT ("R&D") EXPENSES
Research and development expenses were $19.1 million in 1996, $15.9 million in
1995 and $15.0 million in 1994. R&D expenses in 1996, 1995 and 1994 were
primarily directed toward developing new products and business solutions for the
Company's customers in the life sciences research and industrial bioprocessing
areas and toward improving production processes.
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Research and development expenses represented 6.2%, 5.8%, and 6.4% of net sales
in 1996, 1995 and 1994, respectively.
GAIN ON PRODUCT LINE DISPOSAL
The Company reported a $2.6 million gain in 1996 on the disposal of its
molecular diagnostics product line which was sold in 1990 for book value plus a
$2.6 million note receivable. The Company delayed recognition of the gain on
this sale until the note was collected because of reasonable doubt as to whether
the note might be collected. The Company received payments on the note,
primarily for interest, from the time the note was first issued. All interest
payments were included in interest income.
OPERATING INCOME
Operating income for 1996 was $46.3 million, an increase of $12.5 million, or
37%, compared with 1995. The gain on a product line disposal represented 8% of
the 37% increase in operating income. Adjusting for this gain, operating income
increased 29% compared with a 14% increase in net sales when comparing 1996 with
1995. The percentage increase in operating income was greater than the
percentage increase in net sales principally due to the improvement in gross
margins. Changes in currency exchange rates used to translate non-U.S. earnings
to U.S. dollars decreased operating income in 1996 by $0.7 million when compared
with 1995.
Operating income for 1995 was $33.8 million, an increase of $6.3 million, or
23%, compared with 1994. The percentage increase in operating income was
greater than the percentage increase in net sales when comparing 1995 with 1994
largely because gross margins increased at a faster rate than marketing and
administrative expenses. Changes in currency exchange rates used to translate
non-U.S. earnings to U.S. dollars increased operating income in 1995 by $1.5
million when compared with 1994.
OTHER INCOME AND EXPENSES
Investment income was $0.7 million in 1996, $0.9 million in 1995 and $0.6
million in 1994. Investment income in 1996, 1995 and 1994 included $0.1
million, $0.2 million and $0.3 million, respectively, related to an interest
bearing note received upon the disposition of the Company's molecular
diagnostics product line in late 1990. Other income includes equity income from
the Company's Japanese joint venture of $0.5 million in 1995 and $0.7 million in
1994.
INCOME TAXES
Income taxes were 36.0% of pre-tax income in 1996, compared with 34.8% in 1995
and 36.0% in 1994.
MINORITY INTERESTS
Income attributed to minority interest investors was $1.2 million in 1996, $0.5
million in 1995 and $0.1 million in 1994. The increase is principally for
minority interests in the net income of the Company's Japanese subsidiary and
its serum collection joint venture.
NET INCOME
Net income for 1996 was $28.7 million, an increase of 29% over net income in
1995 of $22.3 million. Earnings per share were $1.22 in 1996, an increase of
12
<PAGE>
26% when compared with earnings per share of $0.97 in 1995. The gain on a
product line disposal represented $0.07 of the 1996 earnings per share.
Net income for 1995 was $22.3 million, an increase of 22% over 1994's net income
of $18.2 million. Earnings per share were $0.97 in 1995, representing a 20%
increase over the $0.81 per share earnings reported in 1994.
LOOKING AHEAD
The Company expects to concentrate on its core cell and molecular biology and
cell culture product lines in 1997. Future trends in the Company's markets may
be affected by government funding for life sciences research, the number of new
products developed and introduced by the Company's customers, and changes in
technology and scientific discoveries. The political debate in the United
States and other countries with respect to reducing government budget deficits
may ultimately lead to lower increases in, or levels of, government funding for
research.
Changes in currency exchange rates, the supply and price of FBS, the global
economic situation and the availability of well-trained employees throughout the
world are factors that could have a significant effect on the Company in 1997.
Significant strengthening of the U.S. dollar or Pound Sterling against other
currencies, especially European and Japanese currencies, could have a negative
impact on the Company's results. Volatility in the FBS market will continue to
have a significant impact on the Company's results. The market volatility of
FBS and the increasing demand for alternative media provide strong incentive to
develop products and technologies which are not dependent on animal sera raw
materials.
The Company will actively seek out highly motivated and well-educated
individuals to become employees of the Company.
Heightened worldwide safety and environmental concerns are likely to lead to
increased regulation in these areas. The Company is committed to promoting the
safety and health of its employees and the environment and will remain pro-
active in complying with federal, state and local regulations.
LIQUIDITY AND CAPITAL RESOURCES
1996 CASH FLOWS
The Company generated $40.3 million in cash from operations during 1996. Net
income after adjustments for depreciation and amortization was the principal
source of cash from operations in 1996. Working capital was a source of cash
for the Company in 1996. Accounts payable and accrued expenses increased at a
greater rate than the increase in net sales. The Company's 1996 cash flow
benefited from the timing of several large payments including deferred purchase
earnouts and accrued construction retentions due in 1997. FBS inventories
decreased $1.9 million in 1996, largely as a result of lower unit costs.
Inventories other than FBS increased at a rate less than the increase in net
sales due to programs to more effectively manage inventories. Increases in
accounts receivable used $6.9 million in cash. Trade accounts receivable
balances increased at a rate consistent with the increase in net sales.
The Company paid $36.0 million in cash for property, plant and equipment in
1996. Capital spending in 1996 included $21.2 million for the Company's new
corporate R&D center in Maryland and $5.6 million for other facilities expansion
and modernization programs. The balance of 1996 capital spending was for new
and replacement machinery and equipment and management information
13
<PAGE>
systems related to the Company's ongoing business operations. In January 1996,
the Company used $7.1 million in cash to purchase approximately 75% of the
outstanding common stock of Custom Primers, Inc., a California-based producer of
oligonucleotides, increasing the Company's ownership to 100%. In September 1996,
the Company used $3.7 million to purchase an additional 29% ownership of its
Japanese subsidiary, increasing the Company's ownership to 80%. The Company also
paid $0.4 million in deferred purchase payments related to the 1994 acquisition
of a distributor in Sweden and $0.5 million to establish a serum collection
joint venture. The Company received $2.6 million in 1996 as repayment of a note
receivable which represented the final deferred payments related to its 1990
disposition of a product line.
The Company's balance sheet included $6.7 million of debt at the end of 1996.
The Company recorded a $4.7 million capital lease in 1996. This lease is for
the land on which the Company is constructing its new corporate R&D center and
other administrative buildings. During 1996, the Company used $1.6 million to
reduce outstanding notes payable and borrowed an additional $0.3 million from
banks in Japan. The Company currently has unused lines of credit with two
commercial banks totaling $21.5 million and a short-term revolving credit
facility with The Dexter Corporation, an affiliate of the Company, in the amount
of $8.0 million.
1997 CASH FLOWS
Capital expenditures in 1997 are expected to range from $30-35 million. The
Company expects to spend up to $20 million in 1997 to complete its new corporate
R&D and administrative office complex in Maryland. The balance of expected 1997
capital spending is anticipated to be for new and replacement machinery,
equipment and management information systems.
The Company believes it will be able to generate sufficient cash from its
operations and its existing credit lines to meet its anticipated working capital
and capital expenditure requirements in 1997.
The Board of Directors intends to consider the declaration and payment of
quarterly dividends in the future based on the operating performance of the
Company.
The Company believes that "Year 2000" costs will be minimal since the new
information system currently being installed has the capability to process that
date.
The Company is actively evaluating licensing possibilities, as well as
acquisition candidates which complement the Company's core cell and molecular
biology and cell culture product lines. The Company may fund these transactions
using cash from operations, debt, equity, or other sources.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The Financial Statements and Supplementary Data appear on pages F-1 through F-20
of this 1996 Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
14
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Information regarding directors of the Company and compliance by the directors
and officers of the Company with certain reporting requirements pursuant to
Section 16(a) of the Securities Exchange Act of 1934 is contained under the
caption "Proposal No. 1 - Election of Directors - Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Company's Proxy Statement, which
is incorporated herein by reference. Information regarding executive officers
of the Company is included in Part I hereof, under the caption "Executive
Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information required by this item is contained under the caption "Executive
Compensation" in the Company's Proxy Statement, which is incorporated herein by
reference (except for the "Report of the Compensation and Organization Committee
and Stock Option Committee on Executive Compensation" and the "Performance
Graph").
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The information required by this item is contained under the caption "Beneficial
Ownership of Common Stock" in the Company's Proxy Statement, which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information required by this item is contained under the headings "Certain
Relationships and Related Transactions", "Compensation Committee Interlocks and
Insider Participation" and "Compensation of Directors" of the Company's Proxy
Statement, which is incorporated herein by reference.
15
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a) (1) Financial Statements:
a. Report of Independent Accountants
b. Consolidated Statement of Income for the
years ended December 31, 1996, 1995 and 1994
c. Consolidated Balance Sheet as of December 31,
1996 and 1995
d. Consolidated Statement of Cash Flows for the
years ended December 31, 1996, 1995 and 1994
e. Consolidated Statement of Changes in
Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994
f. Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules:
None.
All schedules have been omitted because they are not required, not
applicable, or the information required to be set forth therein is
included in the Company's consolidated financial statements.
(a) (3) Exhibits:
Exhibit numbers 10(A),(B),(C),(D),(E),(F),(G),(H),(I),(J),(K),(L) and
(M) are management contracts, compensatory plans or arrangements.
3(A) Certificate of Incorporation of the Registrant including
Amendment to Certificate of Incorporation dated April 17, 1987,
previously filed as Exhibit 3(A) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992, which
is incorporated herein by reference.
3(B) By-laws of the Registrant as amended and restated on April 16,
1991, previously filed as Exhibit 3(B) to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1991, which is incorporated herein by reference.
4(A) Instruments defining the rights of security holders, including
indentures.
Registrant by this filing agrees, upon request, to file with
the Securities and Exchange Commission the instruments defining
the rights of holders of its long-term debt where the total
amount of securities authorized thereunder does not exceed 10%
of the total assets of registrant and its subsidiaries on a
consolidated basis.
16
<PAGE>
10(A) 1984 Stock Option Plan, previously filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8, No. 33-21807,
dated May 12, 1988, which is incorporated herein by reference.
10(B) Executive Supplemental Retirement Plan, previously filed as
Exhibit 10(B) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990, SEC file no. 0-14991,
which is incorporated herein by reference.
10(C) Executive Deferred Compensation Benefit Plan, previously filed
as Exhibit 10.8 to the Registrant's Registration Statement on
Form S-1, No. 33-7993, dated October 1, 1986, which is
incorporated herein by reference.
10(D) Employment Agreement dated June 23, 1989, between the
Registrant and Dr. J. Stark Thompson regarding certain
severance benefits in the event of termination of employment
following a change of control, as defined in the agreement,
previously filed as Exhibit 10(K) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989, SEC
file no. 0-14991, which is incorporated herein by reference.
10(E) Employment Agreement dated June 23, 1989, between the
Registrant and Joseph C. Stokes, Jr. regarding certain
severance benefits in the event of termination of employment
following a change of control, as defined in the agreement,
previously filed as Exhibit 10(E) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992, SEC
file no. 0-14991, which is incorporated herein by reference.
10(F) Employment Agreement dated June 23, 1989, between the
Registrant and Thomas M. Coutts regarding certain severance
benefits in the event of termination of employment following a
change of control, as defined in the agreement, previously
filed as Exhibit 10(F) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992, SEC file no. 0-
14991, which is incorporated herein by reference.
10(G) Employment Agreement dated April 13, 1993, between the
Registrant and John V. Cooper regarding certain severance
benefits in the event of termination of employment following a
change of control, as defined in the agreement, previously
filed as Exhibit 10(H) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993, SEC file no. 0-
14991, which is incorporated herein by reference.
17
<PAGE>
10(H) Executive Deferred Compensation Benefit Plan, previously filed
as Exhibit 10(H) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991, SEC file no. 0-14991,
which is incorporated herein by reference.
10(I) 1991 Stock Option Plan, previously filed as Exhibit 4 to the
Registrant's Registration Statement on Form S-8 No. 33-956,
dated May 9, 1991, which is incorporated herein by reference.
10(J) 1995 Stock Option Plan, previously filed as Exhibit 4 to the
Registrant's Registration Statement on Form S-8 No. 33-59741,
dated June 1, 1995, which is incorporated herein by reference.
10(K) Employment Agreement dated April 11, 1995, between the
Registrant and John E. Leffler regarding certain severance
benefits in the event of termination of employment following a
change of control, as defined in the agreement, previously
filed as Exhibit 10(M) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, SEC file no. 0-
14991, which is incorporated herein by reference.
10(L) 1996 Non-Employee Directors' Stock Option Plan, previously
filed as Exhibit 4(b) to the Registrant's Registration
Statement on Form S-8 No. 333-03773, dated May 15, 1996, which
is incorporated herein by reference.
10(M) 1996 Non-Employee Directors' Annual Retainer Stock Plan,
previously filed as Exhibit 4(a) to the Registrant's
Registration Statement on Form S-8 No. 333-03773, dated May 15,
1996, which is incorporated herein by reference.
11 Statement re: computation of per share earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
Exhibits other than those incorporated herein by reference have been
included in copies of this Form 10-K filed with the Securities and
Exchange Commission. The Registrant agrees that it will furnish,
without charge, a copy of any such exhibits to each stockholder of the
Registrant upon the written request therefor to the Registrant.
(b) Reports on Form 8-K.
None.
(c) Exhibits
See (a) (3) above.
(d) Financial Statement Schedules
See (a) (2) above.
18
<PAGE>
SIGNATURES
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.
Dated February 28, 1997 LIFE TECHNOLOGIES, INC.
(Registrant)
By /s/ Joseph C. Stokes, Jr.
----------------------------------------
Joseph C. Stokes, Jr.
Sr. Vice President and
Chief Financial 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.
/s/ Thomas H. Adams, Ph.D. /s/ J. Stark Thompson, Ph.D.
- ---------------------------------------------------------------------------
Thomas H. Adams, Ph.D. J. Stark Thompson, Ph.D.
Director President and Chief Executive Officer
(Principal Executive Officer)
/s/ Kathleen Burdett /s/ K. Grahame Walker
- ---------------------------------------------------------------------------
Kathleen Burdett K. Grahame Walker
Director Chairman of the Board of Directors
/s/ Betsy Z. Cohen /s/ Iain C. Wylie
- ---------------------------------------------------------------------------
Betsy Z. Cohen Iain C. Wylie
Director Director
/s/ Rita R. Colwell, Ph.D. /s/ Joseph C. Stokes, Jr.
- ---------------------------------------------------------------------------
Rita R. Colwell, Ph.D. Joseph C. Stokes, Jr.
Director Sr. Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ C. Eric Winzer
----------------------------------------
Jerry E. Robertson, Ph.D. C. Eric Winzer
- -------------------------
Director Controller
(Principal Accounting Officer)
/s/ Frank E. Samuel, Jr.
- ------------------------
Frank E. Samuel, Jr.
Director
19
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Financial Statements: Page
<S> <C>
Index to Financial Statements and Schedules F-1
Report of Independent Accountants F-2
Consolidated Statement of Income for the
years ended December 31, 1996, 1995 and 1994 F-3
Consolidated Balance Sheet as of December 31,
1996 and 1995 F-4
Consolidated Statement of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statement of Changes in F-6
Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements F-7
</TABLE>
Financial Statement Schedules:
None.
All schedules have been omitted because they are not
required, not applicable, or the information required
to be set forth therein is included in the Company's
consolidated financial statements.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Life Technologies, Inc.
We have audited the consolidated financial statements of Life Technologies, Inc.
and its subsidiaries listed in Item 14(a) of this Form 10-K. These financial
statements 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Life Technologies,
Inc. and its subsidiaries as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Rockville, Maryland
January 24, 1997
F-2
<PAGE>
Life Technologies, Inc.
Consolidated Statement of Income
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994
====================================================================
<S> <C> <C> <C>
Revenues:
Net sales $309,455 $272,232 $235,195
Net royalties 884 67 67
- --------------------------------------------------------------------
Total revenues 310,339 272,299 235,262
- --------------------------------------------------------------------
Expenses:
Cost of sales 147,018 135,784 123,988
Marketing and administrative 100,519 86,821 68,768
Research and development 19,084 15,871 15,000
Gain on product line disposal (2,569) - -
- --------------------------------------------------------------------
Total expenses 264,052 238,476 207,756
- --------------------------------------------------------------------
Operating income 46,287 33,823 27,506
- --------------------------------------------------------------------
Other income (expense):
Investment income 708 867 615
Interest expense (89) (76) (30)
Other, net (186) 329 534
- --------------------------------------------------------------------
Total other income 433 1,120 1,119
- --------------------------------------------------------------------
Income before income taxes 46,720 34,943 28,625
Income taxes 16,819 12,160 10,305
- --------------------------------------------------------------------
Income before minority interests 29,901 22,783 18,320
Minority interests (1,201) (506) (113)
- --------------------------------------------------------------------
Net income $ 28,700 $ 22,277 $ 18,207
====================================================================
Average shares outstanding 23,504 22,929 22,607
- --------------------------------------------------------------------
Primary net income per share $ 1.22 $ .97 $ .81
- --------------------------------------------------------------------
Dividends declared per share $.15-1/3 $.13-1/3 $.13-1/3
====================================================================
</TABLE>
All share and per share amounts have been adjusted for a 3 for 2 stock split
effected on August 28, 1996.
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
Life Technologies, Inc.
Consolidated Balance Sheet
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 31, 1996 1995
======================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,326 $ 23,201
Accounts receivable, net 54,566 48,722
Inventories:
FIFO 65,312 67,106
LIFO reserve (2,992) (6,261)
- ----------------------------------------------------------------------
Total inventory 62,320 60,845
Prepaid expenses 3,109 3,697
Current deferred tax assets 5,176 5,557
- ----------------------------------------------------------------------
Total current assets 140,497 142,022
Property, plant and equipment, net 88,367 51,861
Other assets 11,023 8,671
Excess of cost over net assets of businesses
acquired, net 14,044 6,190
- ----------------------------------------------------------------------
Total assets $253,931 $208,744
======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 2,004 $ 1,934
Accounts payable 20,976 14,549
Accrued and deferred income taxes 11,256 13,645
Accrued liabilities and expenses 22,065 15,133
- ----------------------------------------------------------------------
Total current liabilities 56,301 45,261
Long-term debt 4,668 1,451
Deferred items 4,471 3,334
Deferred income taxes 3,165 2,421
Minority interests 2,407 2,352
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, one million
shares authorized; none issued
Common stock, $.01 par value, 50 million
shares authorized; issued and outstanding
22,951,313 in 1996 and
22,772,909 in 1995 230 152
Additional paid-in capital 48,344 45,995
Retained earnings 133,633 108,444
Currency exchange effects 712 (666)
- ----------------------------------------------------------------------
Total stockholders' equity 182,919 153,925
- ----------------------------------------------------------------------
Total liabilities and stockholders' equity $253,931 $208,744
======================================================================
</TABLE>
All share amounts have been adjusted for a 3 for 2 stock split effected on
August 28, 1996.
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
Life Technologies, Inc.
Consolidated Statement of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994
==============================================================================
<S> <C> <C> <C>
CASH INFLOWS (OUTFLOWS)
Operations:
Net income $ 28,700 $ 22,277 $ 18,207
Non-cash items:
Depreciation 8,293 7,136 5,996
Amortization 2,283 592 512
Deferred income taxes (533) (419) 229
Gain on product line disposal (2,569) - -
Minority interests in net income 1,201 506 113
Other (702) (827) 403
Changes in assets and liabilities net of
acquisitions:
Accounts receivable (6,898) (5,892) (4,994)
Inventories 140 (4,435) (2,939)
Prepaid expenses 472 (1,355) 471
Accounts payable and accrued expenses 11,641 2,461 1,580
Accrued income taxes (1,764) 1,307 1,775
- ------------------------------------------------------------------------------
Cash provided by operating activities 40,264 21,351 21,353
- ------------------------------------------------------------------------------
Investments:
Property, plant and equipment (36,017) (12,279) (12,533)
Acquisitions/joint ventures (11,704) (825) (1,287)
Proceeds from product line disposal 2,569 - -
Other (30) (28) 17
- ------------------------------------------------------------------------------
Cash used in investing activities (45,182) (13,132) (13,803)
- ------------------------------------------------------------------------------
Financing:
Dividends paid (3,351) (3,007) (2,993)
Proceeds from exercise of stock options 1,998 2,990 308
Short-term borrowings 319 - -
Long-term loan repayments (1,617) - -
- ------------------------------------------------------------------------------
Cash used in financing activities (2,651) (17) (2,685)
- ------------------------------------------------------------------------------
Effect of exchange rate changes on cash (306) (381) 454
- ------------------------------------------------------------------------------
Increase/(decrease) in cash and
cash equivalents (7,875) 7,821 5,319
Cash included from consolidation of a
subsidiary which became majority owned
in 1995 - 2,134 -
Cash and cash equivalents at beginning
of year 23,201 13,246 7,927
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 15,326 $ 23,201 $ 13,246
==============================================================================
Supplemental cash flow information:
Cash paid during the year:
Income tax, net of refunds $ 18,092 $ 11,354 $ 8,057
Non-cash financing activity:
Capital lease $ 4,739 - -
==============================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
Life Technologies, Inc.
Consolidated Statement of Changes in Stockholders' Equity
(amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Additional Currency
Common Stock Paid-in Retained Exchange
------------
Shares Amount Capital Earnings Effects Total
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1993 22,426 $150 $42,184 $ 73,972 $(6,306) $110,000
Net income 18,207 18,207
Dividends-$.13-1/3 per share (2,995) (2,995)
Shares issued under
stock option plans 45 377 377
Currency effects 4,540 4,540
- ------------------------------------------------------------------------------------------------
Balances at
December 31, 1994 22,471 150 42,561 89,184 (1,766) 130,129
Net income 22,277 22,277
Dividends-$.13-1/3 per share (3,017) (3,017)
Shares issued under
stock option plans 302 2 3,434 3,436
Currency effects 1,100 1,100
- ------------------------------------------------------------------------------------------------
Balances at
December 31, 1995 22,773 152 45,995 108,444 (666) 153,925
Net income 28,700 28,700
Dividends-$.15-1/3 per share (3,511) (3,511)
Shares issued under
stock option and stock
grant plans 178 2 2,425 2,427
Stock split 76 (76)
Currency effects 1,378 1,378
- ------------------------------------------------------------------------------------------------
Balances at
December 31, 1996 22,951 $230 $48,344 $133,633 $ 712 $182,919
================================================================================================
</TABLE>
All share and per share amounts have been adjusted for a 3 for 2 stock split
effected on August 28, 1996.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
BASIS OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Life Technologies,
Inc. (the "Company" or "Life Technologies") and its majority owned or controlled
subsidiaries. Intercompany accounts, transactions, and profits have been
eliminated in the consolidated financial statements. Investments in affiliated
companies (20% to 50% Life Technologies' ownership) are recorded in the
consolidated financial statements using the equity method of accounting except
in cases where the Company can effectively exercise control. In these cases, the
accounts of the affiliate are included in the Company's consolidated financial
statements. Certain amounts for prior years have been reclassified to conform to
and be consistent with the 1996 presentation.
Management has made estimates and assumptions in the preparation of these
financial statements that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NATURE OF OPERATIONS
Life Technologies is a multinational firm that develops, manufactures, and sells
cell and molecular biology products and cell culture products used principally
in life sciences research and commercial manufacture of genetically engineered
products. The Company's principal customers consist of laboratories generally
associated with universities, medical research centers, and government
institutions as well as biotechnology, pharmaceutical, energy, agricultural and
chemical companies. The Company is engaged in one line of business.
Sales of fetal bovine serum ("FBS") accounted for 14% of net sales in 1996, 16%
in 1995 and 18% in 1994. Historically, the availability and price of FBS have
been volatile and periodically have had a significant effect on the Company's
results.
BUSINESS ACQUISITIONS
In January 1996, the Company paid $7.1 million to purchase 75% of the common
stock of Custom Primers, Inc. ("CPI"), a California-based producer of
oligonucleotides, increasing the Company's ownership to 100%. The Company had
acquired 25% of CPI in several transactions prior to 1996 valued at $0.8
million. Based upon the net assets purchased in January 1996 and the total cash
paid of $7.9 million, the Company recorded $7.4 million in goodwill in 1996. The
January 1996 purchase agreement provides for an additional $4.4 million in earn-
out contingencies based on the sales of oligonucleotides over the next five
years. In 1996, the Company recorded additional earn-outs of $0.8 million based
on 1996 sales activity. The original intangible is being amortized over five
years. The 1996 earn-out and any additional intangibles resulting from future
earn-outs will be amortized over the remaining term of the original amortization
period.
In September 1996, the Company acquired an additional 29% ownership of its
Japanese subsidiary, Life Technologies Oriental, K.K. ("LTOKK"), for $3.7
million, which resulted in $1.8 million of additional goodwill. This additional
purchase increased the Company's ownership from 51% to 80%.
F-7
<PAGE>
In September 1995, the Company acquired an additional 1% ownership of LTOKK for
$150,000, which approximated book value. This additional ownership resulted in a
51% controlling interest and led to the consolidation of LTOKK's financial
results as of the acquisition date. Prior to the acquisition, the Company
accounted for LTOKK using the equity method of accounting. Equity income
reported for LTOKK was $0.5 million for the first eight months of 1995 and $0.7
million for 1994. Sales for LTOKK, which were not included in the Company's
financial statements prior to consolidation, were $22.2 million in the first
eight months of 1995 and $24.5 million in 1994.
In August 1994, the Company acquired certain assets of a distributor of life
sciences research products serving Sweden, for $1.7 million. One million dollars
of the purchase price was deferred and is being paid over three years, ending in
1997. The acquisition was accounted for as a purchase.
None of the businesses acquired during the period, individually or in the
aggregate, constitute a significant subsidiary of the Company.
TECHNOLOGY AGREEMENTS
The Company has obtained rights to products and technologies under a number of
licensing agreements or patents. The cost of technologies acquired from outside
sources is capitalized and amortized over the legal or expected useful life
where the technologies are currently commercially applicable. Where considerable
development effort is required to have acquired technologies become part of the
Company's product lines, the cost of the technologies are reported as research
and development expense. Internal efforts to develop or patent technologies are
expensed when incurred.
The Company also licenses technology it has developed to others. The Company
recognizes revenue on these licenses when payment is reasonably certain.
Revenues are reduced by related transaction expenses.
NET INCOME PER SHARE
Primary net income per common share has been computed by dividing net income by
the weighted average number of shares of common stock outstanding plus dilutive
common stock equivalents.
RELATED PARTY - DEXTER
At December 31, 1996, The Dexter Corporation ("Dexter") owned approximately 53%
of the outstanding shares of the Company's common stock. Most transactions with
Dexter are administrative in nature (e.g., insurance), and the Company has no
significant product sales to Dexter or its affiliates. Two executives of Dexter
served as directors of the Company in 1996, 1995 and 1994.
The Company can borrow up to $8.0 million under a revolving line of credit from
Dexter to finance short-term working capital needs. There were no borrowings
during 1996 or 1995. The Company borrowed various amounts up to $3.1 million in
1994. There were no amounts outstanding under this line of credit at year-end
1996, 1995 or 1994.
F-8
<PAGE>
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid short-term investments readily convertible
into cash. Cash equivalents consist primarily of time deposits and certificates
of deposit with various financial institutions throughout the world. These
investments are carried at cost, which approximates market, and mature within 90
days and, therefore, are subject to minimal risk.
ACCOUNTS RECEIVABLE
Accounts receivable are reduced by allowances of $1.5 million and $1.2 million
at December 31, 1996 and 1995, respectively.
INVENTORIES
Inventories are valued at the lower of cost or market. Inventories valued at
cost using the LIFO method were approximately 30% and 33% of total inventories
at December 31, 1996 and 1995, respectively. Inventories were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(amounts in thousands) 1996 1995
================================================================================
<S> <C> <C>
Materials and supplies $11,844 $10,507
Work in process 10,241 9,975
Finished goods 43,227 46,624
- -------------------------------------------------------------------------------
Total FIFO value 65,312 67,106
LIFO reserve (2,992) (6,261)
- -------------------------------------------------------------------------------
Total inventory $62,320 $60,845
================================================================================
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation is provided by
the straight-line method for financial reporting purposes based upon the
estimated useful lives of the assets which range from 3 to 50 years. The cost of
assets sold or retired and the related amounts of accumulated depreciation are
eliminated from the accounts and the resulting gain or loss is included in
income. Renewals and betterments are capitalized. Repairs and maintenance are
charged to expense when incurred and were $3.4 million in 1996, $2.7 million in
1995 and $2.4 million in 1994.
The cost and accumulated depreciation of property, plant and equipment were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(amounts in thousands) 1996 1995
================================================================================
<S> <C> <C>
Land and land improvements $ 3,360 $ 3,268
Land under a capital lease 4,739 -
Buildings and leasehold improvements 36,756 27,279
Machinery and equipment 57,724 51,098
Construction-in-process 31,724 8,045
- -------------------------------------------------------------------------------
Total cost 134,303 89,690
Accumulated depreciation (45,936) (37,829)
- -------------------------------------------------------------------------------
Property, plant and equipment, net $ 88,367 $ 51,861
===============================================================================
</TABLE>
F-9
<PAGE>
LEASES
The Company leases buildings, automobiles and equipment under operating lease
arrangements. These leases contain various renewal options, purchase options and
escalation clauses. The total rental expense of all operating leases was $5.8
million in 1996, $5.9 million in 1995, and $5.8 million in 1994. The Company has
one capital lease which is for a parcel of land on which the Company is
constructing a new corporate R&D center and other administrative offices,
including the Company's headquarters.
The future minimum rental payments required under noncancellable leases as of
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(amounts in thousands) Capital Lease Operating Leases
===============================================================================
<S> <C> <C>
For the years ending
1997 $ 394 $ 5,068
1998 430 2,430
1999 430 1,729
2000 430 1,127
2001 430 598
2002 and thereafter 7,957 408
- -------------------------------------------------------------------------------
Total minimum lease payments 10,071 $ 11,360
Less amount representing interest (5,332)
- -------------------------------------------------------------------------------
Present value of net minimum lease payments $ 4,739
===============================================================================
</TABLE>
OTHER ASSETS
Significant components of other assets were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(amounts in thousands) 1996 1995
===============================================================================
<S> <C> <C>
Pension and retirement related $ 4,264 $4,090
Software, net of amortization 3,315 2,235
Deferred tax assets 2,165 607
Other 1,279 1,739
- -------------------------------------------------------------------------------
Other assets $11,023 $8,671
===============================================================================
</TABLE>
EXCESS ACQUISITION COSTS
The excess of costs over the net asset values of businesses acquired prior to
1992 are being amortized on a straight-line basis principally over 30 years. The
excess of costs over net asset values of businesses acquired since 1992 are
being amortized on a straight-line basis over no more than 10 years. The Company
assesses the recoverability of net cost in excess of net assets of acquired
businesses by determining whether the amortization of this intangible asset over
its remaining life can be recovered through future operating cash flows. The
Company makes a specific provision against the asset when impairment is
identified. The Company did not make an impairment charge in 1996, 1995 or 1994.
Future acquisitions will be evaluated using this method and an appropriate
useful life will be determined for amortization of the excess of costs over the
net asset value of businesses acquired, if any.
Accumulated amortization at December 31, 1996 and 1995 amounted to $5.5 million
and $3.4 million, respectively.
F-10
<PAGE>
ACCRUED LIABILITIES AND EXPENSES
Accrued liabilities and expenses were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(amounts in thousands) 1996 1995
===============================================================================
<S> <C> <C>
Salaries, wages and benefits $ 9,831 $ 8,257
Royalties 2,570 1,719
Deferred purchase and construction payments 2,745 553
Other 6,919 4,604
- -------------------------------------------------------------------------------
Accrued liabilities and expenses $22,065 $15,133
===============================================================================
</TABLE>
DEBT
The following is a summary of the outstanding debt at December 31, 1996 and
1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(amounts in thousands) 1996 1995
================================================================================
<S> <C> <C>
Short-term debt:
Japanese Yen bank borrowings $ 1,286 $ 967
Current portion of obligations under a capital lease 71 -
Current portion of long-term notes 647 967
- --------------------------------------------------------------------------------
Short-term debt $ 2,004 $ 1,934
- --------------------------------------------------------------------------------
Long-term debt:
Capital lease (7.5%) $ 4,739 $ -
Long-term notes
Note due 1996 - 967
Note due 1997 647 1,451
- --------------------------------------------------------------------------------
5,386 2,418
- --------------------------------------------------------------------------------
Less: Current portion of long-term debt 718 967
- --------------------------------------------------------------------------------
Long-term debt $ 4,668 $ 1,451
================================================================================
</TABLE>
Short-term debt consists of notes payable to various banks denominated in
Japanese Yen, the current portion of obligations under a capital lease and the
current portion of long-term notes. The carrying value of short-term borrowings
approximates fair value. The average interest rate on the Japanese Yen bank
borrowings during the year and at year-end was 1.875% in 1996 and 2.6% in 1995.
The Company currently has unused lines of credit with two banks totaling $21.5
million and a short-term revolving credit facility with Dexter for $8.0 million.
The capital lease is for a parcel of land on which the Company is constructing a
new corporate R&D center and other administrative offices, including the
Company's headquarters. Payments commence in February 1997 and continue for 23
years. The agreement includes a 50 year renewal clause. The Company also has an
option to purchase the land.
Long-term notes consists of Yen 75 million at December 31, 1996 and Yen 250
million at December 31, 1995 in the form of promissory notes from the Company's
majority owned Japanese subsidiary to the minority shareholder. The year-end
interest rates were 3.20% in 1996 and ranged from 2.25% to 4.50% at December 31,
1995. The weighted average interest rate was 3.0% in 1996 and 3.6% in 1995.
Long-term debt represented 2.5% and less than 1.0% of total capital at December
31, 1996 and 1995, respectively. The fair value of the Company's long-term debt
is estimated by management to approximate the
F-11
<PAGE>
carrying value of that long-term debt at December 31, 1996 and 1995,
respectively. In 1996, the minority shareholder renegotiated the payment due
dates for one promissory note from the year 2001 to 1997.
INCOME TAXES
The differences between the U.S. federal statutory tax rate and the Company's
effective tax rate are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
================================================================================
<S> <C> <C> <C>
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
State income taxes 1.5 0.7 1.1
Non-U.S. tax rate differences (3.0) (0.6) (3.2)
U.S. tax credits - (0.4) (2.2)
Non-deductible expenses 1.7 0.4 0.5
Other 0.8 (0.3) 4.8
- --------------------------------------------------------------------------------
Effective income tax rate 36.0% 34.8% 36.0%
================================================================================
</TABLE>
The provision (benefit) for taxes on income for 1996, 1995 and 1994 is
summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(amounts in thousands) 1996 1995 1994
================================================================================
<S> <C> <C> <C>
Current
United States $ 7,348 $ 2,759 $ 3,599
International 8,788 9,396 5,967
State 1,216 424 510
- --------------------------------------------------------------------------------
Total current 17,352 12,579 10,076
- --------------------------------------------------------------------------------
Deferred
United States (838) (532) 301
International 545 209 (114)
State (240) (96) 42
- --------------------------------------------------------------------------------
Total deferred (533) (419) 229
- --------------------------------------------------------------------------------
Total provision for income taxes $16,819 $12,160 $10,305
================================================================================
</TABLE>
F-12
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995 are presented below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(amounts in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory reserves and intercompany profit $3,308 $3,087
Expenses deductible when paid 232 115
Employee pension plans 1,691 782
Reserves for vacation pay 678 598
Reserves for bad debts and product returns 341 371
Reserves for insurance 224 156
Other 867 1,055
- --------------------------------------------------------------------------------
Gross deferred tax assets 7,341 6,164
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Fixed assets, principally depreciation 2,615 2,410
Inventory capitalization 484 445
Employee pension plans 554 -
Other 96 112
- --------------------------------------------------------------------------------
Gross deferred tax liabilities 3,749 2,967
- --------------------------------------------------------------------------------
Net deferred tax asset $3,592 $3,197
================================================================================
</TABLE>
Management has determined that tax benefits associated with the net deferred tax
asset will more likely than not be realized based on the availability of taxable
income in prior carryback years against which future tax deductions may be
offset and on expectations that future operating income of the Company will also
be sufficient to realize fully these net deferred tax assets.
Tax credits for research and development and foreign income taxes paid on
foreign source income reduce income tax expense in the year realized.
U.S. and international withholding taxes have not been provided on approximately
$84.7 million of undistributed earnings of foreign subsidiaries. The Company
remits only those earnings which are considered to be in excess of the
reasonably anticipated working capital needs of the foreign subsidiaries, with
the balance considered to be permanently reinvested in the operations of such
subsidiaries. It is impractical to estimate the total tax liability, if any,
until such a distribution is made. Pretax income from international operations
amounted to $30.6 million in 1996, $28.0 million in 1995 and $19.3 million in
1994.
RETIREMENT BENEFITS
The Company has a qualified pension plan ("defined benefit") and a 401(k) plan
("employee deferral" and "defined contribution") for substantially all United
States employees. With respect to its qualified U.S. pension plan, the Company's
policy is to deposit with an independent trustee amounts as are necessary on an
actuarial basis to provide for benefits in accordance with the requirements of
the Employee Retirement Income Security Act and any other applicable Federal
laws and regulations. The U.S. pension plan provides benefits that are generally
based upon the employee's highest average compensation in any consecutive five
year period in the ten years before retirement. The Company's 401(k) plan allows
employees to contribute, on a tax-deferred basis, up to twelve percent of their
annual base compensation subject to certain regulatory and plan limitations.
Prior to 1995, the Company provided a deferred profit sharing program as a
component of its 401(k) plan.
F-13
<PAGE>
Beginning in 1995, the Company replaced the deferred profit sharing component of
its 401(k) plan with an employer match program under which the Company matches
one half of the employee's 401(k) deferral up to a maximum of three percent of
annual base compensation.
The Company also sponsors an unfunded, nonqualified supplementary retirement
plan for certain senior management. The Company has purchased life insurance on
the lives of participants designed to provide sufficient funds to recover all
costs of the plan. In addition to the above plans, the Company sponsors an
unfunded, nonqualified executive supplemental plan that provides for a target
benefit based upon the average annual compensation during the highest five years
of the last ten years before retirement, which benefit is then offset by other
benefits payable to the participant.
The retirement benefits for most employees of non-U.S. operations are generally
provided by government sponsored or insured programs and, in certain countries,
by defined benefit plans. The only significant non-U.S. defined benefit plan is
for United Kingdom employees. The Company's policy with respect to its U.K.
pension plan is to fund amounts as are necessary on an actuarial basis to
provide for benefits under the plan in accordance with local laws and income tax
regulations. The U.K. pension plan provides benefits based upon the employee's
highest average base compensation over three consecutive years.
The components of net periodic pension cost and other costs for the retirement
benefits plans during the years 1996, 1995 and 1994 are provided in the
following table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(amounts in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension Plans:
Service cost $ 2,188 $ 1,254 $ 1,705
Interest cost 1,757 1,429 1,352
Actual return on assets (2,877) (2,050) (318)
Net amortization and deferrals 1,941 974 (272)
- --------------------------------------------------------------------------------
Net periodic pension costs 3,009 1,607 2,467
401(k) employer match program 998 787 -
401(k) deferred profit sharing program - - 461
Defined contribution plans and other 509 299 239
- --------------------------------------------------------------------------------
Total pension costs $ 4,516 $ 2,693 $ 3,167
================================================================================
</TABLE>
F-14
<PAGE>
The assumptions used in accounting for pensions in 1996, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension plan assumptions:
Discount rate
Beginning of year:
U.S. 6.50% 8.50% 6.75%
U.K. 7.75% 9.75% 6.75%
End of year:
U.S. 7.00% 6.50% 8.50%
U.K. 8.50% 7.75% 9.75%
Average wage increase
U.S. 4-5% 4-6% 6%
U.K. 6% 6% 6%
Expected long-term rate of
return on plan assets
U.S. 9% 9% 9%
U.K. 8% 8% 8%
================================================================================
</TABLE>
The discount rate is the estimated rate at which the obligation for pension
benefits could effectively be settled. The average wage increase assumption
reflects the Company's best estimate of the future compensation levels of the
individual employees covered by the plans. The expected long-term rate of return
on plan assets reflects the average rate of earnings that the Company estimates
will be generated on the assets of the plans.
The funded status of the Company's pension plans and amounts recognized at
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Plans Where Plans Where
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
- --------------------------------------------------------------------------------
(amounts in thousands) 1996 1995 1996 1995
================================================================================
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligation:
Vested $16,146 $15,074 $ 1,221 $ 1,302
Accumulated 16,912 16,030 1,654 1,669
Projected 26,704 24,727 1,894 1,899
Plan assets at fair market value 21,838 17,444 - -
- --------------------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (4,866) (7,283) (1,894) (1,899)
Unrecognized net loss 1,474 4,736 133 164
Unrecognized prior service cost 2,492 2,681 423 522
Unrecognized net asset (344) (334) - -
Adjustment required to recognize
minimum liability - - (316) (456)
- --------------------------------------------------------------------------------
Accrued pension liability $(1,244) $ (200) $(1,654) $(1,669)
================================================================================
</TABLE>
CONTINGENCIES
The Company is subject to potential liability under government regulations and
various claims and legal actions which are pending or may be asserted. These
claims and legal actions have arisen in the ordinary course and conduct of the
Company's business and some are expected to be covered, at least partly, by
insurance. Estimated amounts for claims that are probable, can be reasonably
F-15
<PAGE>
estimated and are not covered by insurance are reflected as liabilities of the
Company. The ultimate resolution of these claims is subject to many
uncertainties, and it is reasonably possible that some of the actions or
proceedings referred to above could be decided unfavorably to the Company.
Although the amount of liability at December 31, 1996 with respect to these
matters could not be ascertained with certainty, the Company believes that any
resulting liability should not materially affect the Company's consolidated
financial statements.
CURRENCY EFFECTS
The financial statements of the Company's non-U.S. operations are translated to
U.S. dollars for consolidation, and the translation adjustment resulting from
the fluctuation in the exchange rates is carried directly to stockholders'
equity. The adjustments will affect net income only upon sale or liquidation of
the underlying non-U.S. investment. Currency exchange gains and losses realized
on business transactions were not significant in 1996, 1995 or 1994.
The Company utilizes forward exchange contracts to hedge non-local currency
transactions and commitments. Gains and losses on forward exchange contracts
that hedge specific currency commitments are deferred and recognized in income
in the same period as the hedged transaction. Gains and losses on forward
contracts that do not hedge an identifiable currency commitment are included in
income as the gain or loss arises.
The market risk associated with forward exchange contracts is caused by
fluctuations in exchange rates subsequent to entering into the forward exchange
contracts. Forward exchange contracts outstanding at year-end 1996 were short-
term in nature and related to non-local currency transactions of the Company's
European and Japanese operations. The equivalent U.S. dollar purchase amounts
were $6.2 million, $10.3 million and $2.1 as of December 31, 1996, 1995 and
1994, respectively. There were no sale amounts outstanding as of December 31,
1996 and 1994. The equivalent U.S. dollar sale amount was $12.9 million as of
December 31, 1995. Deferred unrealized gains and losses at December 31, 1996,
1995 and 1994 were not significant.
STOCK INCENTIVE PLANS
In 1996, the Company established a Non-Employee Directors' Annual Retainer Stock
Plan enabling members of the Board of Directors who are not officers or
employees of the Company to receive common stock in lieu of all or a portion of
the annual cash retainer fee and to receive an automatic annual amount of 300
shares of common stock for services rendered. The Plan provides that up to
112,500 shares may be granted based on the fair market value of the common stock
at the date of issue. 900 shares have been granted through December 31, 1996.
In 1996, the Company established a Non-Employee Directors' Stock Option Plan
that provides for each of the Company's non-employee directors to receive an
automatic, annual option to purchase 6,750 shares of common stock. The Plan
provides that up to 750,000 shares may be granted based on the fair market value
of the common stock at the annual grant date. 40,500 stock options have been
granted through December 31, 1996.
In 1995, the Company established a long-term incentive plan for certain key
management and other personnel. The 1995 Long-term Incentive Plan provides
F-16
<PAGE>
that up to 1,125,000 shares of common stock may be awarded through various stock
and stock related awards. For options awarded under the Plan, the option price
cannot be less than 100 percent of the fair market value of common stock at the
time the option is granted. Through December 31, 1996 the Company has granted
1,063,102 stock options under this plan.
The 1991, 1984 and 1983 Stock Option Plans have been frozen and no further
grants under the Plans can be made. The Plans are listed under "Former Plans No
Longer Granting Options."
The transactions under the stock option plans were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1996 1995 Former Plans
Non-Employee Long-term No Longer
Directors' Incentive Granting
Plan Plan Options
============================================================================
<S> <C> <C> <C>
December 31, 1993 1,302,148
Granted 309,377
Expired or canceled (25,353)
Exercised at average price
of $6.98 per share (44,126)
- ----------------------------------------------------------------------------
December 31, 1994 1,542,046
Granted 553,202
Expired or canceled (26,047)
Exercised at average price
of $10.17 per share (314,064)
- ----------------------------------------------------------------------------
December 31, 1995 553,202 1,201,935
Granted 40,500 509,900
Expired or canceled (18,125) (4,467)
Exercised at average price
of $11.70 per share (2,650) (184,514)
- ----------------------------------------------------------------------------
December 31, 1996 40,500 1,042,327 1,012,954
============================================================================
Price range $22.88-$22.88 $16.00-$25.00 $4.83-$13.92
Weighted average price $22.88 $ 20.19 $ 11.41
============================================================================
Exercisable - 180,987 820,297
============================================================================
</TABLE>
All share and per share amounts have been adjusted for a 3 for 2 stock split
effected on August 28, 1996.
Most options become exercisable on a cumulative basis over a period of service
not exceeding ten years from the date of grant. At December 31, 1996 there were
709,500 and 80,023 shares of common stock available for future grant under the
1996 and 1995 plans, respectively. The Company makes no charge against income
with respect to options granted at fair market value.
F-17
<PAGE>
The Company elected the disclosure-only presentation of Financial Accounting
Statement No. 123, Accounting for Stock-Based Compensation ("FAS 123") in 1996.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model. The following table sets forth the
assumptions used and the pro forma net income and net income per share resulting
from applying FAS 123.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1996 1995
===========================================================================
<S> <C> <C>
Net income (amounts in thousands)
As reported $28,700 $22,277
Pro forma $27,918 $22,149
Primary earnings per share (in dollars)
As reported $1.22 $ .97
Pro forma $1.19 $ .97
Risk-free interest rate 6.1% 5.8%
Dividend yield 0.6% 0.7%
Expected life in years 4 4
Volatility 31% 31%
Weighted average remaining contractual life in years 6.3 5.8
Weighted average fair value at date of grant $ 7.94 $ 4.96
(in dollars)
===========================================================================
</TABLE>
F-18
<PAGE>
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(amounts in thousands, except per share data)
- --------------------------------------------------------------------------------
Quarterly amounts are unaudited First Second Third Fourth Year
================================================================================
<S> <C> <C> <C> <C> <C>
1996:
Net sales $76,630 $77,430 $77,064 $78,331 $309,455
Net royalties - 134 425 325 884
Cost of sales 35,817 36,742 37,298 37,161 147,018
Gain on product line disposal - 2,569 - - 2,569
Operating income 10,913 13,457 10,630 11,287 46,287
Net income 6,682 8,295 6,631 7,092 28,700
Primary earnings
per share .29 .35 .28 .30 1.22
Market price per share:
High 21 1/3 21 5/6 25 3/4 26 1/2 26 1/2
Low 15 1/3 18 20 1/6 21 1/8 15 1/3
================================================================================
1995:
Net sales $66,243 $68,853 $66,981 $70,155 $272,232
Net royalties - - 67 - 67
Cost of sales 33,884 35,480 33,012 33,408 135,784
Operating income 8,439 8,184 8,081 9,119 33,823
Net income 5,622 5,614 5,367 5,674 22,277
Primary earnings
per share .25 .25 .23 .25 .97
Market price per share:
High 13 1/2 15 1/3 17 5/6 18 1/3 18 1/3
Low 11 2/3 12 5/6 14 5/6 15 1/3 11 2/3
================================================================================
</TABLE>
All per share amounts have been adjusted for a 3 for 2 stock split effected on
August 28, 1996.
F-19
<PAGE>
GEOGRAPHIC DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
(amounts in thousands) 1996 1995 1994
===============================================================
<S> <C> <C> <C>
Net sales:
North America $204,783 $177,917 $151,771
Intercompany (43,124) (27,008) (20,555)
- ---------------------------------------------------------------
Trade sales 161,659 150,909 131,216
- ---------------------------------------------------------------
Europe 106,598 100,220 86,650
Intercompany (1,480) (1,673) (3,181)
- ---------------------------------------------------------------
Trade sales 105,118 98,547 83,469
- ---------------------------------------------------------------
Pacific 45,042 24,129 20,510
Intercompany (2,364) (1,353) -
- ---------------------------------------------------------------
Trade sales 42,678 22,776 20,510
- ---------------------------------------------------------------
Net sales $309,455 $272,232 $235,195
===============================================================
Operating income:
North America $ 21,929 $ 13,085 $ 15,069
Europe 26,719 26,537 19,925
Pacific area 7,998 4,189 346
General corporate expense (10,359) (9,988) (7,834)
- ---------------------------------------------------------------
Operating income $ 46,287 $ 33,823 $ 27,506
===============================================================
Assets:
North America $139,363 $ 90,660 $ 87,341
Europe 82,258 85,299 67,939
Pacific area 32,310 32,785 16,467
- ---------------------------------------------------------------
Total assets $253,931 $208,744 $171,747
===============================================================
</TABLE>
Intercompany sales between areas are based on estimated market prices or on
amounts computed to provide reasonable profit to each unit. Operating income
represents net sales less expenses of operations. Sales and related income prior
to September 1995 to the Company's then-unconsolidated Japanese joint venture,
LTOKK, are included in the Pacific area.
F-20
<PAGE>
INDEX TO EXHIBITS Page#
----------------- -----
3(A) Certificate of Incorporation of the Registrant including Amendment
to Certificate of Incorporation dated April 17, 1987, previously
filed as Exhibit 3(A) to the Registrant's Annual Report on Form 10-
K for the year ended December 31, 1992, which is incorporated
herein by reference.
3(B) By-laws of the Registrant as amended and restated on April 16,
1991, previously filed as Exhibit 3(B) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991, which is
incorporated herein by reference.
4(A) Instruments defining the rights of security holders, including
indentures.
Registrant by this filing agrees, upon request, to file with the
Securities and Exchange Commission the instruments defining the
rights of holders of its long-term debt where the total amount of
securities authorized thereunder does not exceed 10% of the total
assets of registrant and its subsidiaries on a consolidated basis.
10(A) 1984 Stock Option Plan, previously filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8, No. 33-21807,
dated May 12, 1988, SEC file no. 0-14991, which is incorporated
herein by reference.
10(B) Executive Supplemental Retirement Plan, previously filed as
Exhibit 10(B) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, SEC file no. 0-14991, which is
incorporated herein by reference.
10(C) Executive Deferred Compensation Benefit Plan, previously filed as
Exhibit 10.8 to the Registrant's Registration Statement on Form S-
1, No. 33-7993, dated October 1, 1986, which is incorporated herein
by reference.
10(D) Employment Agreement dated June 23, 1989, between the Registrant
and Dr. J. Stark Thompson regarding certain severance benefits in
the event of termination of employment following a change of
control, as defined in the agreement, previously filed as Exhibit
10(K) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989, SEC file no. 0-14991, which is
incorporated herein by reference.
<PAGE>
10(E) Employment Agreement dated June 23, 1989, between the Registrant
and Joseph C. Stokes, Jr. regarding certain severance benefits in
the event of termination of employment following a change of
control, as defined in the agreement, previously filed as Exhibit
10(E) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992, SEC file no. 0-14991, which is
incorporated herein by reference.
10(F) Employment Agreement dated June 23, 1989, between the Registrant
and Thomas M. Coutts regarding certain severance benefits in the
event of termination of employment following a change of control,
as defined in the agreement, previously filed as Exhibit 10(F) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992, SEC file no. 0-14991, which is incorporated
herein by reference.
10(G) Employment Agreement dated April 13, 1993, between the Registrant
and John V. Cooper regarding certain severance benefits in the
event of termination of employment following a change of control,
as defined in the agreement, previously filed as Exhibit 10(H) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, SEC file no. 0-14991, which is incorporated
herein by reference.
10(H) Executive Deferred Compensation Benefit Plan, previously filed as
Exhibit 10(H) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991, SEC file no. 0-14991, which is
incorporated herein by reference.
10(I) 1991 Stock Option Plan, previously filed as Exhibit 4 to the
Registrant's Registration Statement on Form S-8 No. 33-956, dated
May 9, 1991, which is incorporated herein by reference.
10(J) 1995 Stock Option Plan, previously filed as Exhibit 4 to the
Registrant's Registration Statement on Form S-8 No. 33-59741, dated
June 1, 1995, which is incorporated herein by reference.
10(K) Employment Agreement dated September 1, 1990, between the
Registrant and John E. Leffler regarding certain severance benefits
in the event of termination of employment following a change of
control, as defined in the agreement previously filed as Exhibit
10(M) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, SEC file no. 0-14991, which is
incorporated herein by reference.
10(L) 1996 Non-Employee Directors' Stock Option Plan, previously filed as
Exhibit 4(b) to the Registrant's Registration Statement on Form
S-8 No. 333-03773, dated May 15, 1996, which is incorporated
herein by reference.
10(M) 1996 Non-Employee Directors' Annual Retainer Stock Plan,
<PAGE>
previously filed as Exhibit 4(a) to the Registrant's Registration
Statement on Form S-8 No. 333-03773, dated May 15, 1996, which
is incorporated herein by reference.
11 Statement re: computation of per share earnings. E-1
21 Subsidiaries of the Registrant. E-6
23 Consent of Independent Accountants. E-8
27 Financial Data Schedule. E-11
<PAGE>
Exhibit 11
----------
E-1
<PAGE>
Exhibit 11
INDEX
-----
Calculation of earnings per share for the quarters and for the years ended
December 31:
PAGE
----
o 1996 E-3
o 1995 E-4
o 1994 E-5
E-2
<PAGE>
Exhibit 11
LIFE TECHNOLOGIES
CALCULATION OF EARNINGS PER SHARE
for the year ended December 31, 1996
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Quarters (unaudited)
-------------------------------------------
PRIMARY First Second Third Fourth Year
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 6,682 $ 8,295 $ 6,631 $ 7,092 $28,700
===========================================
Weighted average shares
outstanding 22,806 22,860 22,905 22,952 22,881
Weighted average effect of
common stock equivalents 492 575 669 701 623
-------------------------------------------
23,298 23,435 23,574 23,653 23,504
===========================================
Primary net income per share $ .29 $ .35 $ .28 $ .30 $ 1.22
===========================================
FULLY DILUTED
- -------------
Net income $ 6,682 $ 8,295 $ 6,631 $ 7,902 $28,700
===========================================
Weighted average shares
outstanding 22,806 22,860 22,905 22,952 22,881
Weighted average effect of
common stock equivalents 533 663 729 759 793
-------------------------------------------
23,339 23,523 23,634 23,711 $23,674
===========================================
Fully diluted net income
per share $ .29 $ .35 $ .28 $ .30 $ 1.21
============================================
</TABLE>
All share and per share amounts have been adjusted for a 3 for 2 stock split
effected on August 28, 1996.
E-3
<PAGE>
Exhibit 11
LIFE TECHNOLOGIES
CALCULATION OF EARNINGS PER SHARE
for the year ended December 31, 1995
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Quarters (unaudited)
-----------------------------------
PRIMARY First Second Third Fourth Year
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 5,622 $ 5,614 $ 5,367 $ 5,674 $22,277
===========================================
Weighted average shares
outstanding 22,494 22,547 22,617 22,743 22,601
Weighted average effect of
common stock equivalents 197 283 395 404 328
-------------------------------------------
22,691 22,830 23,012 23,147 22,929
===========================================
Primary net income per share $ .25 $ .25 $ .23 $ .25 $ .97
===========================================
FULLY DILUTED
- -------------
Net income $ 5,622 $ 5,614 $ 5,367 $ 5,674 $22,277
===========================================
Weighted average shares
outstanding 22,494 22,547 22,617 22,743 22,601
Weighted average effect of
common stock equivalents 224 351 480 507 522
-------------------------------------------
22,718 22,898 23,097 23,250 $23,123
===========================================
Fully diluted net income
per share $ .25 $ .25 $ .23 $ .24 $ .96
===========================================
</TABLE>
All share and per share amounts have been adjusted for a 3 for 2 stock split
effected on August 28, 1996.
E-4
<PAGE>
Exhibit 11
LIFE TECHNOLOGIES
CALCULATION OF EARNINGS PER SHARE
for the year ended December 31, 1994
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Quarters (unaudited)
-------------------------------------------
PRIMARY First Second Third Fourth Year
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 4,679 $ 4,638 $ 4,352 $ 4,538 $18,207
===========================================
Weighted average shares
outstanding 22,439 22,455 22,461 22,470 22,457
Weighted average effect of
common stock equivalents 153 131 155 158 150
-------------------------------------------
22,592 22,586 22,616 22,628 22,607
===========================================
Primary net income per share $ .21 $ .21 $ .19 $ .20 $ .81
===========================================
FULLY DILUTED
- -------------
Net income $ 4,679 $ 4,638 $ 4,352 $ 4,538 $18,207
===========================================
Weighted average shares
outstanding 22,439 22,455 22,461 22,470 22,457
Weighted average effect of
common stock equivalents 153 165 195 248 239
-------------------------------------------
22,592 22,620 22,656 22,718 $22,695
===========================================
Fully diluted net income
per share $ .21 $ .21 $ .19 $ .20 $ .80
===========================================
</TABLE>
All share and per share amounts have been adjusted for a 3 for 2 stock split
effected on August 28, 1996.
E-5
<PAGE>
Exhibit 21
----------
E-6
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
The following table sets forth subsidiaries of Life Technologies, Inc. which are
included in the consolidated financial statements.
<TABLE>
<CAPTION>
Percentage Jurisdiction in
of Which Incorporated
Name Ownership or Organized
- ------------------------------------------------------------------------------------
<S> <C> <C>
Canadian Life Technologies, Inc. 100% Ontario
Laboratory Services Ltd. 100% New Zealand
Life Technologies A.G. 100% (A) Switzerland
Life Technologies A.S. 100% Denmark
Life Technologies B.V. 100% (A) Netherlands
Life Technologies Foreign Sales Corp. 100% U.S.Virgin Islands
Life Technologies Holdings, Unlimited 100% Scotland
Life Technologies GmbH 100% (A) Germany
Life Technologies Investment Holdings,Inc. 100% Delaware, USA
Life Technologies Italia S.r.l. 100% Italy
Life Technologies Ltd. 100% (B) Scotland
Life Technologies Ltd. 100% New Zealand
Life Technologies Overseas Ltd. 100% (B) Scotland
Life Technologies (Pacific) Ltd. 100% Hong Kong
Life Technologies Pty. Ltd. 100% Australia
Life Technologies S.A.R.L. 100% (A) France
Life Technologies Asia Pacific Inc. 100% Delaware, USA
N.V. Life Technologies S.A. 100% (A) Belgium
Serum Technologies Holdings, Inc. 100% Delaware, USA
Life Technologies Sweden AB 100% Sweden
Life Technologies S.A. 100% Spain
Life Technologies Uruguay, S.A. 100% Uruguay
Custom Primers, Inc. 100% California, USA
Life Technologies Oriental K.K. 80% Japan
Life Technologies GIBCO BRL Co., Ltd. 51% Republic of China,
(Taiwan)
</TABLE>
(A) Owned by Life Technologies Overseas Ltd.
(B) Owned by Life Technologies Holdings, Unlimited
E-7
<PAGE>
Exhibit 23
----------
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Life Technologies, Inc. and subsidiaries on Form S-8, Registration No. 33-59741,
Registration No. 33-21807 and Registration No. 33-956, and the Company's
registration statement on Form S-3, Registration No. 33-29536, of our report
dated January 24, 1997, on our audits of the consolidated financial statements
of Life Technologies, Inc. and subsidiaries as of December 31, 1996 and 1995,
and for the years ended December 31, 1996, 1995 and 1994, which report is
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Rockville, Maryland
February 28, 1997
E-9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet, Income Statement and Exhibit 11 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,326
<SECURITIES> 0
<RECEIVABLES> 56,034
<ALLOWANCES> 1,468
<INVENTORY> 62,320
<CURRENT-ASSETS> 140,497
<PP&E> 134,303
<DEPRECIATION> 45,936
<TOTAL-ASSETS> 253,931
<CURRENT-LIABILITIES> 56,301
<BONDS> 0
0
0
<COMMON> 230
<OTHER-SE> 182,689
<TOTAL-LIABILITY-AND-EQUITY> 253,931
<SALES> 309,455
<TOTAL-REVENUES> 310,339
<CGS> 147,018
<TOTAL-COSTS> 147,018
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89
<INCOME-PRETAX> 46,720
<INCOME-TAX> 16,819
<INCOME-CONTINUING> 28,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,700
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.21
</TABLE>
