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thermo fisher 2005

  1. 1. IMAGINE... 2005 ANNUAL REPORT
  2. 2. A WORLD LEADER IN SERVING SCIENCE Fisher Scientific International Inc. (NYSE: FSH) is a leading provider of products and services to the scientific community. Fisher facilitates discovery by supplying researchers and clinicians in labs around the world with the tools they need. We serve pharmaceutical and biotech companies; colleges and universities; medical-research institutions; hospitals; reference, quality-control, process-control and R&D labs in various industries; as well as government agencies. From biochemicals, cell-culture media and proprietary RNAi technology to rapid-diagnostic tests, safety products and other consumable supplies, Fisher provides more than 600,000 products and services. This broad offering, combined with Fisher ’s globally integrated supply chain and unmatched sales and marketing capabilities, helps make our 350,000 customers more efficient and effective at what they do. Founded in 1902, Fisher Scientific is a FORTUNE 500 company and is a component of the S&P 500 Index. With approximately 19,500 employees worldwide, the company had revenues of $5.6 billion in 2005. Fisher Scientific is a company committed to delivering on our promises — to customers, shareholders, employees and our communities. Additional information about Fisher is available on the company ’s Web site at www.fisherscientific.com. 2 LETTER TO 10 IMAGINE ONE with what they want, strengths, product and SHAREHOLDERS S O U R C E Fisher helps when and how they service offerings as well pharmaceutical and want it. as answers to investors’ 6 FINANCIAL biotech companies most frequently asked HIGHLIGHTS 14 IMAGINE accelerate the drug questions. O U T S TA N D I N G development process 9 IMAGINE S E RV I C E Because our 1 8 S U P P L E M E N TA RY by offering a full range I N N O VAT I O N From customers come first, FINANCIAL of clinical-trial services, advanced diagnostic Fisher was in the field I N F O R M AT I O N analytical testing and tests to specialized life- to deliver desperately specimen handling science technologies, 19 FORM 10-K needed supplies in the and storage. Fisher creates novel aftermath of two of 8 0 C O R P O R AT E products that support 12 IMAGINE ONE the nation’s worst I N F O R M AT I O N our customers’ quest to S O L U T I O N Fisher’s natural disasters. enhance and prolong life. 81 DIRECTORS, unparalleled sourcing OFFICERS AND and distribution power, AT A G L A N C E BIOTECHNOLOGY combined with our own Learn about Fisher COUNCIL R&D capabilities, enable Scientific’s principal us to provide customers markets, customer base,
  3. 3. IMAGINE... A COMPANY THAT ’ S BEEN AROUND FOR MORE THAN 100 YEARS AND IS STILL AT THE CUTTING EDGE OF SCIENCE. Researchers and clinicians have relied on Fisher Scientific to meet their laboratory needs for more than a century. They still count on us to anticipate scientific advances and provide innovations to move them forward. We are there every step of the way, supporting the breakthroughs that improve health and extend life.
  4. 4. DEAR INVESTORS In 2005, Fisher Scientific continued its momentum in some manufacturing operations and expanding others generating long-term growth. The company’s financial to accommodate regional and product-area growth. Fisher performance was outstanding by virtually every measure. built a state-of-the-art immunodiagnostic production and Sales, earnings and cash flow all reached new highs. Our research facility in Osgood, California, combining the tech- performance was marked by strong execution against nology strengths of our MAS and Microgenics businesses. our strategic priority to drive profitable growth. Especially noteworthy is the scope of our international activ- ity. To augment our manufacturing operations in Asia, we FINANCIAL HIGHLIGHTS In 2005, our: began producing lab equipment in Kuala Lumpur, Malaysia. • Sales increased 20.6 percent to $5.6 billion; This facility not only provides us with a low-cost structure, • Diluted earnings per share (EPS) rose 24 percent to but enables us to serve the region’s increasing number of $3.58, excluding nonrecurring and special items; and research scientists, particularly in China and India. • Operating cash flow reached a new record of $612 million. Business expanded significantly at our new HyClone cell- culture facility in Beijing, which serves local universities and Our financial performance was fueled by robust demand from the growing R&D needs of multi-national pharmaceutical our core scientific-research and healthcare customers, our companies in China. operational achievements and our new strategic investments. S T R AT E G I C I N V E S T M E N T S In 2005, we continued acquiring companies to comple- O P E R AT I O N A L A C C O M P L I S H M E N T S We made rapid progress on the assimilation of Apogent ment our product offering and reinvested in the business. businesses into our company. By the end of 2005, we We completed four strategic acquisitions in areas that we completed a majority of the integration projects, resulting believe have terrific growth potential: biopharma services, in about $55 million in cost savings for the year. life sciences and immunodiagnostics. We completed numerous initiatives to enhance our We acquired Lancaster Laboratories and McKesson BioServices production capabilities that included consolidating to broaden and strengthen our position in the growing market 2
  5. 5. Paul M. Meister Vice Chairman Paul M. Montrone Chairman and Chief Executive Officer David T. Della Penta President and Chief Operating Officer for outsourced pharmaceutical services. Fisher purchased life-science marketplace, enabling researchers to accelerate privately held Lancaster Laboratories for $150 million in cash. the process of developing new medicines. There are signifi- It is one of the largest pharmaceutical and industrial testing cant opportunities for Fisher to use its expertise in expanding laboratories in the United States. a line of consumable reagents for Cellomics’ customers. Several businesses in our biosciences organization have been We also bought McKesson BioServices, now called Fisher collaborating on new product development and capitalizing BioServices, for $64 million in cash. Fisher BioServices is on bundling opportunities, such as combining protein inter- an industry leader in managing biological specimens and action kits from Pierce, media from HyClone and RNAi clinical-trial materials and specializes in cold-storage products from Dharmacon. management. We continue to bolster our R&D efforts in the biosciences These two acquisitions coupled with the ongoing investment and immunodiagnostics areas. More specifically, we see in expanding and enhancing Fisher Clinical Services have significant prospects to enhance our profitability through given the company a stronghold in this high-growth market. the development of innovative technologies for cell biology Industry surveys indicate that the pharmaceutical sector is applications, RNAi technology for therapeutic applications more focused on outsourcing than ever before. The key driv- and bioreagents for molecular biology research. We also ers of outsourcing for large pharma companies are: focusing invested in the development of specialized media and on core competencies and utilizing external expertise to disposable bioprocess containers for manufacturing increase their speed to market and improve productivity while protein-based drugs and immunohistochemistry products reducing costs. Fisher now holds a very competitive position to for diagnostic applications. capitalize on this outsourcing trend. In 2005, we launched an immunohistochemistry initiative, In 2005, Fisher also bought privately held Cellomics Inc. for drawing on the powerful combination of Richard-Allan $49 million in cash. Cellomics is the worldwide leader in Scientific, Erie Scientific and Lab Vision. Bringing these providing complete instrumentation and software systems businesses together has created one of the world’s leading for high-content screening and analysis of cells. Its portfolio manufacturers of anatomical supplies and equipment. The complements our offering of drug discovery solutions in the group’s full suite of consumables and instruments is used 3
  6. 6. SALES ADJUSTED OPERATING INCOME* in billions in millions 2005 $5.6 2005 $735 2004 $4.6 2004 $471 2003 $3.6 2003 $274 * Excludes nonrecurring and special items Fisher achieved record sales of $5.6 billion in 2005, an increase In 2005, adjusted operating income increased 56 percent to of 21 percent over 2004 sales of $4.6 billion. These results reflect $735 million. This significant increase was primarily a result of strong performance in our scientific-research and healthcare the full-year effect of Apogent, margin expansion in our base businesses as well as the full-year effect of Apogent. business and synergies from the Apogent merger. to analyze tissue and other samples for various diseases There are still many opportunities for consolidation within and conditions, including cancer, cirrhosis of the liver and the fragmented scientific-research and healthcare industries, organ transplant rejection. Such products are critical to the and we believe we are in a strong position to act. We are development of personalized medicines that are tailored a disciplined buyer and are especially focused on the areas to respond to individual needs. This is one example of how of life-science consumables, diagnostic consumables and businesses across the company are working together to pharmaceutical services. develop new, innovative products and to streamline the supply chain. MARKET PERSPECTIVE Long term, the market dynamics that fuel our growth We believe our investments in biosciences and immuno- continue to be favorable for Fisher. In 2006, we are opti- diagnostics will further strengthen our competitive position mistic that the pharma and biotech markets will remain as well as drive profitable growth. strong. There are a growing number of small and mid-sized biotech companies that can be well served by our offering. In October, we acquired privately held Duke Scientific Another positive market indicator is the overall strength Corporation to enhance our portfolio of higher-margin in biotech funding, which continued unabated in 2005. proprietary products in our healthcare products and services Funding for biotech companies exceeded $20 billion last segment. Utilizing its unique microsphere technology, Duke year, which presented us with unique opportunities to Scientific produces nanometer-particle microscopic beads used secure incremental sales. in laboratories for quality control and analysis, instrument calibration, as well as in diagnostic test kits. The company’s From an international perspective, we believe European intensely blue-dyed particles are used in consumer products markets will further strengthen and our sales should including electronic home pregnancy test kits. The particles outpace market growth this year as a result of customer- are also used in a rapid test instrument for diabetes testing. specific initiatives. In Asia, we are growing at double-digit Duke Scientific enhances our immunodiagnostics business rates and are aggressively expanding the scope of our and is a good fit with Microgenics. operations across the region, particularly in China. 4
  7. 7. Tribute to Frank H. Jellinek Jr. In January, we lost a close friend and long-time industry leader. Frank Jellinek Jr., chairman emeritus of Fisher Scientific, died in a tragic airplane accident while on company business. While he was only with Fisher for a short time, Frank was an industry veteran who started his career at age 15, working for the company his grandfather founded, Erie Scientific. Both Frank and Erie Scientific came to Fisher through our acquisition of Apogent in 2004. He was a great leader who dedicated his life to his family, company and community. We continue to be deeply saddened by the loss of our good friend. He will long be remembered by the many people whose lives he touched as he left an enduring imprint on the business he built and more Frank H. Jellinek Jr. broadly on our industry. We will remain true to his enthusiasm, his passion for our business and 1945-2006 his philosophy of providing steadfast attention to our supplier partners and customers. The aging population and the demand for more specialized and we thank them for their contributions. We also diagnostic tests continue to drive growth in the healthcare appreciate the loyalty of our customers and suppliers, industry. Our enhanced capabilities in immunodiagnostics whom we consider partners in the effort to improve and immunohistochemistry give us a leading competitive health and extend life. position, and we expect to capitalize on opportunities in this market as the industry moves to a more predictive Our board of directors and management team have a proven model. This push toward personalized medicine has been track record of setting our direction and guiding our growth. driven by developments in molecular diagnostics and life- We are grateful to them for their experience and their service. science research. Our strengths in both life-science research tools and clinical diagnostics position us well to benefit Every day our focus is on increasing shareholder value. from this trend. Our objective is to make Fisher Scientific an even stronger enterprise by setting new performance records. We have While 2005 was a good year for Fisher, we are not a an excellent foundation for growth and are well positioned company that spends time reflecting on the past. Our to capture new opportunities in 2006 and beyond. focus is on the future. We are constantly analyzing market trends, cognizant of our competition and responsive to the ever-changing needs of our customers. The research scientists and clinicians we serve face increased complexity in their jobs: complexity generated by changing technol- ogy, increased regulation, pressure to reduce costs and the need to accelerate drug development. We provide the products and value-added services that help our customers Paul M. Montrone manage this complexity. Chairman and Chief Executive Officer Our success would not be possible without the tireless March 20, 2006 commitment of our nearly 20,000 employees around the world. Their performance was exemplary in 2005, 5
  8. 8. FINANCIAL HIGHLIGHTS % change Years Ended December 31, 2005 05 vs. 04 2004 2003 in millions, except per share amounts Sales $5,579.4 21% $4,627.3 $3,554.0 Operating income 657.7 134% 281.5 256.7 Adjusted operating income 734.8 56% 470.8 274.1 Adjusted EBITDA 922.7 52% 605.7 357.4 Diluted EPS 3.05 69% 1.80 1.29 Adjusted diluted EPS 3.58 24% 2.89 2.36 Intangible amortization per share (1) 0.27 17% 0.23 0.13 Operating cash flow 612.0 56% 392.8 218.0 Capital expenditures 127.8 37% 93.4 80.2 Free cash flow (2) 484.2 62% 299.4 137.8 See Supplementary Financial Information on page 18, “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information regarding nonrecurring and restructuring-related charges and a reconciliation of certain non-GAAP information provided above. (1) Included in diluted and adjusted diluted EPS. (2) Free cash flow is cash provided by operating activities less capital expenditures. 6
  9. 9. IMAGINE... Muhammad Ashfaq, repository specialist for Fisher BioServices, prepares frozen, patient samples for the National Cancer Institute. Fisher BioServices currently houses more than 30 million samples for pharmaceutical and biotechnology companies as well as government and academia. Utilizing cold-chain systems technology, Fisher BioServices provides controlled-temperature storage of biological specimens from –196ºC to 8ºC.
  10. 10. Yvonne Johnson, lead technician in Manufacturing Services for Microgenics, inspects vials used for diag- nostic calibration controls. Proper packaging and labeling of containers and kits are crucial steps in the production process, and added inspections like this ensure strict quality assurance for customers. 8
  11. 11. IMAGINE... A DOCTOR KNOWING A PATIENT ’ S INDIVIDUAL RESPONSE TO A MEDICINE BEFORE ADMINISTERING A SINGLE DOSE. Thanks to breakthroughs in personalized medi- diseases including cancer, diabetes and arthritis. cine, doctors now have the ability to use genetic Dharmacon also led the formation of the Genome- tests to select the right drug and dosage for a Wide RNAi Global Initiative, an alliance of leading patient. Pharmacogenomics, the study of individ- international biomedical research centers. This ual genetic variations and their effect on drug prestigious group is using Dharmacon’s human response, is heavily dependent on lab testing. genome-wide siRNA library in its research, The era of personalized medicine is in its infancy sharing protocols and comparing screening data as only a handful of tests is currently on the among members to accelerate scientific and market. But we see many opportunities ahead medical discoveries. as scientific and medical advances make genetic tests more broadly available. Fisher is well posi- What if a doctor knew the exact dosage of tioned to serve this growing field by providing an anti-rejection drug for an organ transplant technologically advanced diagnostic tests and patient? The risk of organ rejection would be specialized life-science products. reduced, and the patient’s chances of survival would increase dramatically. Fisher’s immuno- What if a scientist could choose from a road diagnostics business helps doctors determine map of more than 20,000 human genes and the correct dosage of these powerful medicines selectively “turn off ” certain ones to determine by providing tests for all immunosuppressive their involvement in causing disease or adverse drugs on the market today. drug reactions? Thanks to Fisher Biosciences and its Dharmacon business, this technology At Fisher, we imagine innovations that will help is a reality today. Dharmacon created the first our customers enhance and prolong human life. siRNA (small interfering RNA) library for the Then we create them. entire human genome, enabling scientists to develop novel treatments that fight serious 9
  12. 12. IMAGINE... A PHARMA OR BIOTECH COMPANY HAVING ONE SOURCE READY TO HELP REDUCE THE COST AND TIME NECESSARY TO DEVELOP NEW DRUGS. Blockbuster drugs aren’t developed overnight. the complex details that require uncompromised They take years of research, hundreds of millions quality and accuracy. We use Interactive Voice of dollars, extensive clinical trials and rigorous Response (IVR) — a sophisticated information regulatory scrutiny. Only a few new drugs technology tool — to capture patient data and ever make it into a patient’s medicine cabinet. manage all the logistics involved in a clinical trial. Imagine this process becoming faster, less costly and easier to complete. That’s the value Fisher We also offer complementary services to manage provides to customers through its broad offering biological specimens and clinical-trial materials of biopharma services. using cold-chain systems technology. And, with the largest single-site commercial-testing lab Pharmaceutical and biotechnology companies are in the United States, we can serve the analytical- under increasing pressure to focus on their core testing needs of leading pharmaceutical, bio- competency — developing new medicines. Added pharmaceutical and medical-device companies, pressures to reduce costs and navigate through as well as large industrial firms. government regulations, while accelerating the process, make outsourcing a necessity. Fisher Fisher BioPharma Services offers peace of BioPharma Services offers a full range of clinical- mind and efficiencies that our customers trial support. From clinical-trial management never imagined were possible — until now. to investigational drug blinding, labeling and randomization, our customers trust us to manage 10
  13. 13. Tom Shatto, manufacturing technical specialist for Fisher Clinical Services, performs a step in the overencapsulation process, a technique that blinds compounds used in clinical trials. Overencapsulation and drug blinding prevent clinical-trial patients from being influenced by the knowledge of what compounds or placebo products they receive.
  14. 14. Scientists and clinicians need access to new products and technologies that will support IMAGINE... their work. Fisher has an extensive portfolio of innovative products and services that includes the most sought-after brands in the industry. We augment our product and service offering by investing in our own research and develop- ment capabilities and acquiring companies A COMPANY THAT PROVIDES with advanced technologies. We also focus on CUSTOMERS WITH WHAT bundling our products to provide our customers THEY WANT, WHEN AND HOW with solutions, and on developing innovative THEY WANT IT, IN AN EFFICIENT products with cross-technology applications. AND COST-EFFECTIVE MANNER. Fisher is also home to many talented scientists and researchers who move our R&D efforts forward at an aggressive pace. Our researchers have developed many patented technologies used in a wide range of our products. 12
  15. 15. Pauli Undesser, associate research scientist for Pierce, dispenses Melon™ Gel Resin into a spin column prior to centrifugation. Researchers purify antibodies from serum to assess protein interactions. This technique enables scientists to identify non-functional drug candidates, reducing the time and money spent during the drug-discovery process. Additionally, Fisher has a biotechnology council While having thousands of suppliers and of renowned scientists who provide insight products available provides customers with on the future direction of science and point to choice, it also increases the complexity of the the consequential growth opportunities in the procurement process. Enter Fisher. Our value industry. All this enables Fisher to offer the most proposition is helping these customers manage innovative products and serve the changing everything that isn’t part of their core capabili- needs of our customers. ties. Our solutions help customers streamline their procurement process. Our broad offering is supported by our unparalleled sales and marketing capabilities. At Fisher, we take pride in understanding the We have nearly 4,000 sales and marketing promise of science as well as the challenges professionals including application specialists facing scientists and clinicians. Our technolo- with advanced technical degrees, highly trained gies, products and services are designed to sales representatives and top-notch customer meet those challenges head-on, providing service representatives. This impressive team customers with real solutions that enable gives Fisher a comprehensive channel position them to lower their costs, enhance efficiency across all of its markets. To further strengthen and focus on their areas of expertise. this position, Fisher has extensive global sourcing and manufacturing capabilities, enabling us to serve customers on virtually every continent. 13
  16. 16. IMAGINE... A COMPANY SERVING CUSTOMERS BEFORE SOME OF THE WORLD ’ S WORST NATURAL DISASTERS AND BEING THERE TO HELP THEM THE VERY NEXT DAY. In 2005, Fisher helped its customers through in desperate need, including more than a two of the biggest public-safety and medical hundred hospitals and research laboratories. emergencies in U.S. history: Hurricanes Katrina Fisher also helped to save perishable biological and Rita. specimens used for cancer and genetic research, moving liquid-nitrogen tanks until electricity With extensive experience serving government could be restored to the Tulane University agencies and first responders, Fisher had the School of Medicine in New Orleans. logistical expertise to plan for and respond to the Gulf Coast crisis with a successfully orchestrated The effort included Fisher sales specialists who and executed strategy. Sourcing and delivering were embedded with government agencies. the right supplies in the right quantities were Others were based in mobile operations units, achieved with careful forethought and planning. where they lived and worked for weeks at a time As part of the massive coordination and commu- to serve customers. For Fisher, putting customers nications effort, Fisher had a backup delivery first in the face of seemingly insurmountable fleet ready to serve the region almost immedi- odds isn’t hard to imagine at all. Our customers ately following the storms. always come first. Navigating through the debris and chaos, our employees delivered critical supplies to customers 14
  17. 17. Kristin Hedgelon, microbiologist for Lancaster Laboratories, performs sterility testing in an isolator. Following Hurricanes Katrina and Rita, Lancaster Laboratories provided analytical services to the United States Army, including testing Louisiana water and soil samples for herbicides and semivolatiles.
  18. 18. IMAGINE... W H AT ’ S N E X T Personalized medicine. A cure for cancer. At Fisher Scientific, we embrace our role supporting and accelerating future scientific and medical discoveries. We continue to build the world’s greatest resource for products and services for the scientist and clinician — serving them every step of the way. 16
  19. 19. FISHER SCIENTIFIC AT A G L A N C E
  20. 20. C O R P O R AT E P R O F I L E Fisher Scientific International Inc. (NYSE: FSH) is a leading provider of products and services to the scientific community. Fisher facilitates discovery by supplying researchers and clinicians in labs around the world with the tools they need. We serve pharmaceutical and biotech companies; colleges and universities; medical-research institutions; hospitals; reference, quality- control, process-control and R&D labs in various industries; as well as government agencies. From biochemicals, cell-culture media and proprietary RNAi technology to rapid-diagnostic tests, safety products and other consumable supplies, Fisher provides more than 600,000 products and services. This broad offering, combined with Fisher’s globally integrated supply chain and unmatched sales and marketing capabilities, helps make our 350,000 customers more efficient and effective at what they do. Founded in 1902, Fisher Scientific is a FORTUNE 500 company and is a component of the S&P 500 Index. With approximately 19,500 employees worldwide, the company had revenues of $5.6 billion in 2005. Fisher Scientific is a company committed to delivering on our promises — to customers, shareholders, employees and our communities. Additional information about Fisher is available on the company’s Web site at www.fisherscientific.com. BUSINESS SEGMENTS Our businesses are organized into two primary reporting segments. The scientific products and services segment manufactures and sells products and services primarily to entities conducting scientific research, including drug discovery and drug development, quality and process control and basic research and development as well as to third-party distributors. Businesses in our healthcare products and services segment manufacture and distribute an array of diagnostic kits and reagents, equipment, instruments and other consumable products to hospitals, clinical laboratories, reference laboratories and physicians’ offices, as well as third-party distributors located primarily in the U.S. LIFE BIOPHARMA SERVICES Proprietary Protein, Nucleic Acid, Cell Fine and High-Purity Chemistry Clinical Trial Support Services Biology and Cell-Culture Offering • High-purity solvent applications for • Investigational drug blinding • RNAi technology and siRNA for life- DNA synthesis and separation science • Label design and randomization science research and drug discovery • Combinatorial chemistry libraries • Packaging, environmentally con- • Gene silencing services • Laboratory reagents, organic chemicals trolled storage and distribution • High-content cell-screening systems and organic-synthesis products of clinical-trial supplies and reagents • Custom synthesis in development and • Data capture and analysis • Products for the characterization, production quantities purification, modification and Biological Lab Services immunodetection of proteins Chemistry Services • Biological specimen management • Cell-culture media, sera and • Repackaging and distribution of • Cell banking and specimen archiving biopharma process containers for customized quantities of pharma- • Cold-chain systems management biopharmaceutical research and ceutical intermediates production • Synthesis capability for intermediates, Analytical Testing Services • Microbiological-culture media and prod- supported by strong development • Method development and validation ucts that test for bacterial contamination chemistry and kilo manufacture to • Drug stability testing • PCR reagents and modifying enzymes cGMP standards • Raw material and finished • Fluorescent dyes • Manufacturing scale-up from product release testing research to production quantities • Drug-coated device testing
  21. 21. M A N A G E D S E RV I C E S PRODUCTS AND TECHNOLOGY DISTRIBUTION BIOPHARMA SERVICES ( 1 ) LIFE SCIENCES ( 2 ) SCIENTIFIC PRODUCTS ( 2 ) GLOBAL DISTRIBUTION ( 2 ) 2005 Sales ( 3 ) $300 $1,400 $900 $2,800 in millions Major Clinical services Research consumables Research Life sciences Clinical diagnostics Businesses Bioservices Clinical consumables Healthcare Microbiology Immunohistochemistry Analytical services Lab equipment Safety Global chemicals Histology Lab consumables Representative Clinical-trial support Glassware Chemicals/reagents Antibodies Chemicals/reagents Products Packaging/labeling Plastic labware Life-science tools Diagnostic tests Diagnostic tests and Services Analytical lab services Lab equipment Microbiology supplies Instruments Lab equipment Specimen storage Instruments Cell-culture supplies Instruments (1) Revenues are included in the Scientific Products and Services segment. (2) Revenues are included in both the Scientific Products and Services segment and the Healthcare Products and Services segment. (3) Excludes Lab Workstations SCIENCES SCIENTIFIC Clinical-Testing Supplies Diagnostic Products and Services Research Consumables and Equipment • Design, development, production • Life-science plastic products including • Histology, cytology and immuno- and packaging of diagnostic tests PCR accessories, cryogenic vials, pipet histochemistry/anatomical-pathology and test kits tips for automated liquid handling, consumables and instrumentation • Antibody production and organic filters, centrifuge ware, cell culture and including detection and primary- synthesis, which are key components immunology modules for in vitro diag- antibody kits, stains, specimen-collection in the development of immunoassays nostic kits, as well as bottles, flasks, containers, tissue-processing reagents, • Broad selection of specialty diagnostic tubing and collection containers microscope slides, microtomes and tests for: drugs of abuse; therapeutic • Bioproduction products including single automated slide-staining instruments drugs; organ-transplant drugs; and use and reusable carboys, tanks, tubing, life-threatening conditions such as flexible bioprocess containers and large- cardiovascular disease and viral infections scale cell-culture tools such as roller • Quality Assurance Program (QAP) bottles and cell factories solutions • Specialty glass products including • OEM of testing reagents for in vitro HPLC accessories, autosampler vials diagnostic companies and bottles
  22. 22. FINANCIAL PERFORMANCE OPERATING OPERATING SALES EPS ( 1 ) MARGIN ( 1 ) percent CASH FLOW in billions in dollars in millions $5.6 $3.58 13.2% $612 $4.6 $2.89 10.2% $2.36 $393 $3.6 7.3% 7.5% 7.7% $3.2 $2.9 $1.77 $1.31 $218 $159 $159 01 02 03 04 05 01 02 03 04 05 01 02 03 04 05 01 02 03 04 05 (1) Excludes restructuring and nonrecurring items and amortization of goodwill See Supplementary Financial Information on page 18. PRODUCTS GLOBAL DISTRIBUTION Lab Supplies, Equipment • Educational products for K-12 Clinical Lab Consumables and Consumables science and math classes • Supplies used in diagnostic labs • Comprehensive offering of including specimen collection and more than 600,000 products for Services triple-seal transport containers, research and clinical labs provided • Supply-chain management transfer pipets, histology cassettes, by Fisher and its suppliers services chromatography products, • Bioreagents, biochemicals, • Product standardization and test/culture tubes, vials and specialty antibodies and proteins cost-reduction programs sample cups • Automated instrumentation and • Lab startup programs • Glass vials, glass tubes and plastic high-throughput screening • Proprietary programs products for environmental labs reagents and supplies for tracking funds • Instrument systems for clinical • On-site service, repair and Lab Equipment chemistry, immunoassay, calibration of equipment • Analytical instrumentation hematology, coagulation • Consulting for physician-office labs and bench-top lab equipment and microbiology • Medical-technician recruitment • Constant temperature, • Chemical/biological fluid handling and control, contamination testing products water analysis/purification, • Personal-protection supplies evaporation and sterilization and equipment products
  23. 23. K E Y FA C T S A N D S T O C K P E R F O R M A N C E Founded: 1902 FSH STOCK Stock Symbol: NYSE:FSH +2500% PERFORMANCE +2000% Index: S&P 500, MSCI +1500% as of March 20, 2006 Customers: 350,000 +1000% Since its 1991 public offering, Countries Served: 150 +500% Fisher has provided a 25 percent S&P 500 Number of Employees: 19,500 compound annual return to its Global Sales and Customer Service shareholders. Professionals: 3,900 92 94 96 98 00 02 04 06 CUSTOMERS AND MARKETS CUSTOMER MIX MARKETS AND MARKET DRIVERS NO SINGLE CUSTOMER WE SERVE MARKETS TOTALLING MORE THAN $50 BILLION IN REVENUE REPRESENTS MORE THAN 3% WHICH ARE EXPECTED TO GROW AT CONSISTENT MID TO HIGH SINGLE-DIGIT RATES OF TOTAL SALES 9% Government U.S. CLINICAL LAB: $15 BILLION* • Aging population 19% Academic • Proliferation of patient testing GLOBAL SCIENTIFIC • Increased focus on RESEARCH: $27 BILLION* 22% Hospitals and specialized testing • Growth in R&D spending Reference Labs • Focus on proteomics GLOBAL BIOPHARMA • Development of PRODUCTION: $8 BILLION* personalized medicine 25% Pharma and • Shift to protein-based drugs • Pressure on drug Biotech • Concern about development costs contamination 25% Other Scientific Research * Includes safety-related products P R O P R I E TA RY F I S H E R B R A N D S
  24. 24. F R E Q U E N T LY A S K E D Q U E S T I O N S relationships. We are especially excited about new Q: What value do you provide your customers? products such as those used in the manufacture A: We provide our customers with what they want, of biotech drugs; immunoassays used to detect when and how they want it, in an efficient and and measure proteins; diagnostic tests for drugs cost-effective manner. Customers can order a broad of abuse and immunosuppressive drug monitoring; range of products and have them delivered to multi- and immunohistochemistry supplies and equip- ple global locations through us, rather than dealing ment used in the analysis of tissue for disease with multiple suppliers. We also have an extensive detection, just to name a few. suite of outsourced managed services that enable our customers to focus on what they do best — scientific research and healthcare diagnostics. Q: What type of services do you provide? A: Our service offering includes packaging and distributing supplies for clinical trials of new medi- Q: What are your competitive strengths? cines; managing and storing biological specimens A: Our competitive strengths include our: using cold-chain systems technology; and analytical • Comprehensive channel position laboratory testing. We also offer managed R&D • Broad product offering services, such as gene silencing; custom diagnostic • Extensive suite of managed services formulation; and supply-chain management. • Unmatched sales and marketing capabilities • Global manufacturing and distribution network Q: How much do you invest in R&D? A: The amount we invest varies by business. In Q: How will you continue to increase our manufacturing operations, our R&D investment shareholder value? as a percentage of sales ranges from 2 percent to A: We will grow our revenues by increasing our 15 percent. investments in Research and Development (R&D) to accelerate new product introductions, making acquisitions and executing sales and marketing Q: What markets are you looking to expand in? initiatives to capitalize on cross-selling and product A: We are focused on increasing our portfolio of bundling opportunities. We will enhance our consumable life-science products, particularly bio- margins by capturing additional synergies from reagents, protein chemistry supplies and products acquisitions as well as realizing fixed-cost leverage used in the manufacture of biotech drugs. We are from aggressively managing expenses and increasing also looking to expand our offering of diagnostic- productivity. Additionally, we will improve our cash testing kits and immunohistochemistry solutions. flow by enhancing our margins and reducing our In addition, we are seeking to broaden our range investment in working capital, particularly in the of outsourced managed services for our life- former Apogent businesses. science customers. Q: How do cost pressures on your customers Q: How do you evaluate your performance? affect Fisher? A: We measure our performance based on growth A: We can help our customers be more cost-effective in operating margins, cash flow and return on capi- by partnering with them to standardize products, tal. We have been growing our operating margins consolidate their supplier base, reduce their supply- through a purposeful shift toward a higher mix of chain costs and outsource non-core functions. With proprietary products. Our strong cash flow is a result our broad product portfolio and the scale of our serv- of increased profitability, the efficient use of working ice offering, we can help our customers reduce costs capital and the low level of ongoing capital expendi- without affecting our profitability. tures. We improve our return on capital through a disciplined approach to acquisitions, R&D, working capital management and capital expenditures, Q: Where will growth come from? emphasizing sustainable cash returns on investment. A: Sales growth will come from ongoing market As we continue to realize margin expansion, we also growth, acquisitions, the introduction of new expect our return on capital to increase. products and technologies and cross-selling opportunities that leverage our existing customer WORLD LEADER IN SERVING SCIENCE Liberty Lane, Hampton, NH 03842 • 603.926.5911 • www.fisherscientific.com
  25. 25. 2005 FISHER FINANCIALS
  26. 26. S U P P L E M E N TA RY F I N A N C I A L I N F O R M AT I O N The aforementioned amounts exclude restructuring and other charges (See “Selected Financial Data” on page 13 of the following 10 -K). Year Ended December 31, In millions, except per share amounts 2005 2004 2003 Income from operations $657.7 $281.5 $256.7 Restructuring charges 22.8 7.8 – Other charges 54.3 181.5 17.4 Adjusted operating Income 734.8 470.8 274.1 Other income (expense), net (60.3) 10.4 (77.7) Cost of refinancing and financial instruments 70.8 16.6 81.6 Depreciation and amortization, net of deferred financing fees and accelerated depreciation 180.7 130.6 79.4 Gain on sale of investment (3.3) (22.7) – Adjusted EBITDA $922.7 $605.7 $357.4 Diluted net income per share $ 3.05 $ 1.80 $ 1.29 Restructuring charges 0.12 0.06 – Other charges 0.21 0.92 0.19 Cost of refinancing and financial instruments 0.33 0.11 0.88 Gain on sale of business, net (0.13) – – Adjusted diluted net income per share $ 3.58 $ 2.89 $ 2.36 18
  27. 27. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ˛ For the fiscal year ended December 31, 2005 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ® (NO FEE REQUIRED) For the transition period from to Commission File Number 1-10920 Fisher Scientific International Inc. (Exact name of registrant as specified in its charter) Delaware 02-0451017 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) Liberty Lane 03842 (Zip Code) Hampton, New Hampshire (Address of principal executive offices) Registrant’s telephone number, including area code: (603) 926-5911 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ˛ No ® Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ® No ˛ 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 ˛ No ® Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. ® Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ˛ Accelerated filer ® Non-accelerated filer ® The aggregate market value of the voting common equity held by non-affiliates of the registrant as of June 30, 2005 was approximately $7,775,672,310. The number of shares of Common Stock outstanding as of February 1, 2006 was 123,520,652. Documents Incorporated by Reference: The registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held May 5, 2006 is incorporated by reference into Part III. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ® No ˛
  28. 28. F I S H E R S C I E N T I F I C I N T E R N AT I O N A L I N C . FORM 10-K ANNUAL REPORT December 31, 2005 Page No. PART I Item 1. Business 1 Item 1A. Risk Factors 8 Item 1B. Unresolved Staff Comments 11 Item 2. Properties 11 Item 3. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13 Item 6. Selected Financial Data 13 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30 Item 8. Financial Statements and Supplementary Data 32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 68 Item 9A. Controls and Procedures 68 Item 9B. Other Information 68 PART III Item 10. Directors and Executive Officers of the Registrant 70 Item 11. Executive Compensation 70 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 70 Item 13. Certain Relationships and Related Transactions 70 Item 14. Principal Accountant Fees and Services 70 PART IV Item 15. Exhibits and Financial Statement Schedules 71 SIGNATURES 77
  29. 29. F I S H E R S C I E N T I F I C I N T E R N AT I O N A L I N C . PA R T I • Global distribution network: We have a world-class ITEM 1. BUSINESS supply chain that allows us to reduce end-to-end Our Business procurement costs for our multinational customers. Fisher Scientific International Inc. (“Fisher,” the “Company,” Utilizing state-of-the-art systems and our global “we,” “us” or “our”) is a leading manufacturer and supplier footprint, we serve our customers in more than of products and services principally to the scientific-research 150 countries on a cost-effective basis. and clinical laboratory markets. We serve pharmaceutical and biotechnology companies; colleges and universities; • Comprehensive channel position: We believe we medical-research institutions; hospitals; reference, quality- occupy a pivotal position in the globally integrated control, process-control and research and development supply chain for suppliers and end users, by combining labs in various industries; as well as government agencies. our global distribution capabilities with an extensive From biochemicals, cell-culture media and proprietary portfolio of proprietary products and value-added RNAi technology to rapid-diagnostic tests, safety products services. By constantly expanding our product and other consumable supplies, Fisher offers an array of and service offerings and leveraging operational products and services. This broad offering, combined efficiencies, we can further enhance our position with Fisher’s global supply chain and sales and marketing with both our customers and suppliers. capabilities, helps make our customers more efficient and effective. Business Segments and Products Our operations are organized into three reporting We were founded in 1902 by Chester G. Fisher in segments: scientific products and services, healthcare Pittsburgh, Pennsylvania. In 1991 we were incorporated products and services, and laboratory workstations. as a Delaware corporation and became a public company whose shares are listed on the New York Stock Exchange. Approximately 65% of our revenue is generated from Fisher is a Fortune 500 company and a component of the sale of higher-margin proprietary products, which the S&P 500, Russell 1000 and MSCI World indices. are products that we manufacture, private-label products Our principal executive office is located at Liberty Lane, and products that we distribute on an exclusive basis. Our Hampton, New Hampshire 03842, and our telephone remaining revenues are generated from the sale of prod- number is (603) 926-5911. Our Web site address is ucts we source on a nonexclusive basis from our suppliers. www.fisherscientific.com. Approximately 80% of our revenue is generated from the sale of consumable products. Competitive Strengths We believe that our key competitive strengths include our: Scientific products and services The scientific products and services segment manufactures • Broad product offering: We offer an extensive line and sells products and services primarily to entities conduct- of products that constitutes a virtual one-stop shop for ing scientific research, including drug discovery and drug the scientist, researcher and healthcare professional. development, quality and process control and basic research This comprehensive offering of high-quality products and development, as well as to third-party distributors. Our includes proprietary products developed in our manu- businesses in this segment manufacture and/or distribute facturing facilities or exclusively sourced from some a broad range of biochemicals and bioreagents; organic of the world’s leading scientific and clinical-laboratory and inorganic chemicals; sera; cell-culture media; sterile suppliers. We actively invest in the development of liquid-handling systems; microbiology media and related our self-manufactured product portfolio. Given the products; and other scientific research-related consumable complexity of dealing with multiple suppliers providing products, instruments and equipment. Our businesses in thousands of products and the pressure to improve effi- this segment also distribute safety-related products, such ciency and reduce costs, our customers increasingly as personal-protection equipment, respiratory-protection look to us to meet their diverse product requirements systems, environmental monitoring and sampling equip- in a timely and cost-effective manner. ment, and other safety and clean-room supplies. Addi- tionally, businesses in this segment provide services to • Enhanced suite of outsourced services: We provide pharmaceutical and biotechnology companies engaged a wide range of outsourced services, from supply-chain in clinical trials, including specialized packaging, over- management and custom chemical synthesis to clinical- encapsulation, labeling and distribution for phase III and trial packaging and distribution, analytical-laboratory phase IV clinical trials, analytical testing, biological-specimen testing and biological sample storage. Our suite of management, as well as combinatorial chemistry, custom- services helps our customers reduce their costs, chemical synthesis and supply-chain management. enabling them to engage in more productive research activities. 1
  30. 30. F I S H E R S C I E N T I F I C I N T E R N AT I O N A L I N C . PA R T I continued We estimate that the markets served by this segment are sold under such brand names as Fisherbrand®, Fisher total approximately $40 billion and include the following: Diagnostics®, Erie Scientific®, Microgenics®, MAS®, global scientific-research market, estimated at approxi- Richard-Allan Scientific® and Seradyn®. mately $23 billion with an estimated growth rate of 5% to 8% annually; global biopharma-production supplies Laboratory workstations market estimated at approximately $5 billion with an esti- The laboratory-workstations segment primarily manu- mated growth rate of 15% to 25% annually; and U.S. lab factures and sells workstations and fume hoods for safety and personal-protection market estimated at approxi- laboratories. Our product offerings include steel, wood mately $12 billion with a projected growth rate equal to and plastic laminate casework systems, adaptable the overall gross domestic product growth rates, impacted furniture systems, airflow products and various other by prospective changes in regulations. Scientific research laboratory fixtures and accessories. Products in the revenues are primarily driven by customer spending on laboratory-workstations segment are sold under such research and development. The increased customer demand brand names as Fisher Hamilton®, Horizon®, Concept®, for products and services that create or provide greater SafeAire® and Pioneer®. The laboratory-workstations efficiency in and lower the costs of drug development also market is highly competitive in both pricing and the cost drives growth in this market. The U.S. lab-safety and of manufacturing. The market is project-based and is personal-protection market is affected by environmental influenced by capital-spending cycles. Sales in the and safety regulations, the growth in homeland security laboratory-workstations segment, including intersegment spending and increased focus on bioterrorism protection. sales, represented approximately $200.6 million, or 3% of total sales, in 2005. Sales in the scientific products and services segment, including intersegment sales, represented approximately Customers $4,141.2 million or 74% of our total sales in 2005. Pro- We have a broad and diversified customer base. We do prietary products and services in this segment are sold not rely on any single customer or one group of customers under such brand names as Fisherbrand®, Fisher Clinical for a material portion of our sales. No single customer Services®, ABgene®, Acros Organics™, ART®, Barnstead®, accounted for more than 3% of our total sales in any Cole-Parmer®, Endogen®, HyClone®, Maybridge®, of the past three years. Masterflex®, Matrix®, Dharmacon®, MBP®, Nalgene®, Nunc®, Oxoid®, Pierce® and Remel®, among others. Scientific products and services: The businesses in this segment primarily serve pharmaceutical and biotechnology Healthcare products and services companies, colleges and universities, medical-research Businesses in our healthcare products and services segment institutions, hospital-research labs, government agencies, manufacture and distribute an array of diagnostic kits and original equipment manufacturers, quality-control, process- reagents, equipment, instruments and other consumable control and other research and development laboratories products to hospitals, clinical laboratories, reference labo- as well as third-party distributors worldwide. ratories and physicians’ offices, as well as third-party distributors located primarily in the U.S. Other businesses Healthcare products and services: The businesses in in this segment provide outsourced manufacturing services this segment primarily serve hospitals, clinical laboratories, for diagnostic reagents, calibrators and controls to the reference laboratories, physicians’ offices, original equip- healthcare and pharmaceutical industries. We estimate the ment manufacturers and third-party distributors located domestic clinical-laboratory market to be approximately mostly in the U.S. $10 billion and growing at a rate of 4% to 5% annually. Laboratory workstations: This segment primarily serves Sales in the healthcare products and services segment are pharmaceutical and biotechnology companies, medical- fueled by the administration and evaluation of diagnostic research institutions, colleges, universities and secondary tests. We believe that the aging population as well as the schools, as well as hospitals and reference labs worldwide. increased demand for the development of new specialty diagnostic tests will result in increased market growth. Competition Due to our broad product and service offering, we do not Sales in this segment, including intersegment sales, repre- believe that any single company competes directly with our sented approximately $1,304.4 million or 23% of our total full range of products and services. Our markets are highly sales in 2005. Combined sales of a broad range of prod- competitive and we have many competitors in our differ- ucts obtained from our two largest suppliers accounted for ent product categories. We believe we are well positioned approximately 31% of sales in this segment. Proprietary to compete effectively in each category. Our competitors products in the healthcare products and services segment in each of our reporting segments include the following: 2
  31. 31. F I S H E R S C I E N T I F I C I N T E R N AT I O N A L I N C . PA R T I continued Scientific products and services: Our competitors in Manufacturing and Distribution this segment include a broad range of manufacturers We manufacture our products throughout North America, and third-party distributors. We compete on the basis of Europe and Asia. Our manufacturing facilities are organ- a broad product offering, innovative technologies, product ized around groups of similar product categories. We sell differentiation, availability and reliability, service and price. our manufactured products through our distribution busi- nesses and through third-party distributors, including Healthcare products and services: Our competitors in Cardinal Health and VWR International. this segment include a broad range of manufacturers and third-party distributors. We compete primarily on the basis During 2005, our Lab Workstations business commenced of innovative technologies, product differentiation, value operations at its new facility in Mexico. For information and service. regarding the locations of our principal manufacturing facilities, refer to “Item 2 – Properties.” Laboratory workstations: Our competitors in this segment include Kewaunee Scientific and a number of smaller con- Raw materials and supplies for our product and service tractors. We compete primarily on the basis of quality, offerings are generally available in adequate quantities. product innovation, project-management skills and price. While there are some raw materials that we obtain from a single supplier, we are not dependent on any one supplier Sales and Distribution for a significant portion of our raw materials. Raw-material We market and sell our products and services through a and fuel prices are subject to fluctuations due to market direct sales force, customer-service professionals, electronic conditions. We employ many strategies, including the use commerce, third-party distributors and various catalogs. The of alternative materials and the use of derivative instru- Fisher Catalog has been published for more than 100 years ments, to mitigate the effect of these fluctuations on our and is an internationally recognized scientific supply reference. results. During 2005, we experienced price increases in We publish more than 3 million copies of our various catalogs certain raw materials, including petroleum-based resins. each year in eight different languages. Our e-commerce product To date, we have been able to minimize the effect of a references are showcased by our Web site www.fishersci.com, portion of these increases by raising prices and imple- which is a leading e-commerce site supporting the scientific- menting various cost-saving measures. research community. We do not report backlog for our scientific products and We have approximately 3,100 sales and marketing profes- services and healthcare products and services segments sionals augmented by approximately 800 highly trained because turnaround time from order placement to fulfill- technical specialists who enable us to better meet the needs ment generally is within 48 hours. Our laboratory- of our more technical end-users. We also provide customers workstations segment is project-based, selling primarily with an efficient ordering system, product standardization through a competitive bidding process. As such, this and other supply-chain-management services to reduce segment maintains a backlog of work. Our backlog for procurement costs. Because timeliness is critical to our this segment was approximately $97.6 million and customers, in the United States our distribution businesses $134.0 million as of December 31, 2005, and 2004, ship approximately 95% of all orders within 24 hours of respectively. A majority of backlog orders for this order placement. segment is filled within one year. Our international distribution network consists of facilities Research and Development in Europe, Canada, Asia and Latin America, as well as We are increasing our investment in research and develop- dealers located in countries where we do not have opera- ment within certain businesses to create innovative new tions. We have 28 distribution facilities in 13 countries, products that both complement and update our existing augmented by sales offices in 20 countries and indepen- offering. Substantially all of our research and development dent dealers in more than 100 countries. activities to date have been conducted in the United States, but we are expanding our research and develop- We deliver our products through third-party carriers and ment initiatives overseas. These activities take place our own fleet of delivery vehicles. Third-party carriers primarily in our life-science, immunodiagnostic, clinical include United Parcel Service (“UPS”), Federal Express, DHL and research consumable and lab equipment businesses. and other carriers, including national and regional trucking Specific initiatives are focused on cell-culture media firms, overnight carrier services and the U.S. Postal Service. and sera, single-use disposable-bioprocess containers, 3
  32. 32. F I S H E R S C I E N T I F I C I N T E R N AT I O N A L I N C . PA R T I continued immunohistochemistry products, protein chemistry, our customers’ supply chains, particularly in the global bioreagents, antibodies, microbiology, and RNAi technol- scientific research market. The following is a brief descrip- ogy. Our aggregate research and development expenses tion of acquisitions and a disposition completed in 2005. were approximately $44.2 million, $36.7 million and $11.8 million for the three years ended December 31, 2005, On August 31, 2005, we acquired privately held Cellomics, 2004 and 2003, respectively. Research and development Inc. (“Cellomics”) for approximately $49 million, including expenses of $1.5 million and $0.5 million for 2004 and the assumption of approximately $10 million in debt and 2003, respectively, were included in discontinued opera- approximately $4 million in other assumed seller transaction tions. We expect our research and development expenses costs. Cellomics operates in the high content screening to continue to increase during 2006. segment of the cellular-analysis market. Cellomics develops instrumentation, reagents, bioassays and software used to Intellectual Property provide information on functional changes in fixed and We own or license an extensive number of patents, trade- living cells. The results of operations of Cellomics have marks, trade names and service marks in the United States been included in our scientific products and services and abroad. Our patents, trademarks and licenses are viewed segment from the date of acquisition. as assets of our operations. Except for certain trade names and trademarks such as “Fisher Scientific,” “Barnstead,” On August 6, 2005, we acquired privately held Lancaster “Cellomics,” “Cole Parmer,” “Hamilton,” “HyClone,” Laboratories, Inc. (“Lancaster Laboratories”) for approxi- “Microgenics,” “Nalgene,” “Oxoid,” and “Remel,” we mately $150 million in cash. Lancaster Laboratories do not believe that any patent or group of patents, trade- performs pharmaceutical and industrial analytical testing. mark or license is, in and of itself, essential to us such that The results of operations of Lancaster Laboratories have its loss would materially affect our business as a whole. been included in our scientific products and services segment from the date of acquisition. Government Contracts We transact business with various government agencies On July 31, 2005, we acquired McKesson BioServices, a and through various government contracts at the Federal, unit of McKesson Corporation, for approximately $64 mil- state and local levels. Our contracts with these agencies lion in cash. McKesson BioServices manages biological include both purchase orders for specific products or specimens and clinical-trial materials for government insti- services and contracts with base terms, typically of one tutions and pharmaceutical and biotech companies. The to two years, with extension options available at the results of operations of McKesson BioServices have been government’s discretion. Although it is unlikely, it is possi- included in our scientific products and services segment ble that a renegotiation or termination of one or more of from the date of acquisition. our government contracts, or a reduction in the profits or fees we receive thereunder, would result in a material On April 5, 2005, we completed the sale of Atos Medical adverse effect on our financial results. Holding AB (“Atos”), a manufacturer of ear, nose and throat devices, for approximately $110 million in cash. Acquisitions and Divestiture As a result of the divestiture, we have reflected the Since our initial public offering in 1991, we have strategi- account balances and activities of Atos as discontinued cally pursued acquisitions that we believe will help drive operations in our consolidated financial statements. Atos cash flow and profit growth. Our recent acquisitions have was acquired in September 2003 in connection with our expanded our geographic presence and the breadth of acquisition of Perbio Science AB. our product and service offering, enhancing our life-science products portfolio. These acquisitions have also accelerated Environmental Matters our revenue growth, enhanced margins and increased We are subject to various laws and governmental regula- cash flow. tions concerning environmental matters and employee safety and health in the United States and other countries. Our principal focus for acquisitions are companies that U.S. federal environmental legislation that affects us manufacture consumable products for use in life science includes the Toxic Substances Control Act, the Resource research and immunodiagnostic applications as well as Conservation and Recovery Act, the Clean Air Act, businesses providing outsourcing services to pharmaceu- the Clean Water Act, the Safe Drinking Water Act, tical and biotech companies. We are also interested in and the Comprehensive Environmental Response continuing to consolidate and enhance the efficiency of Compensation and Liability Act (“CERCLA”). We are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”) concerning employee 4

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