Based on that assessment, no adjustments were made to the
amortization period or residual values of our intangible assets.
Additionally, SFAS 142 required us to perform an evaluation
of whether goodwill and indefinite-lived intangible assets were
impaired as of January 1, 2002, the effective date of the statement
for the Company.
SFAS 142 provided a six-month transitional period from the effective
date of adoption to perform our initial assessment of whether
an indication of goodwill impairment exists. This initial assessment
compares the fair value of the reporting unit to its carrying
value, including goodwill. Fair value was determined using a
combination of discounted cash flow and multiple of earnings
valuation techniques. To the extent that the fair value is less
than the carrying value, we are required to perform a second
test to measure the amount of the goodwill impairment, if any.
During 2002, we completed our transitional assessment in accordance
with SFAS 142, to determine if goodwill was impaired as of January
1, 2002. As a result, we recorded a noncash charge of $63.8
million ($46.1 million, net of tax) in our statement of operations
reflecting the cumulative effect of the accounting change to
adjust goodwill to its current fair value. The international
distribution segment and laboratory workstations segment accounted
for $19.7 million and $44.1 million of the charge, respectively.
The impairment charge in the international distribution segment
related to certain of our smaller-market distribution businesses
where operating performance was lower than originally forecasted.
Our laboratory workstations segment is sensitive to changes
in capital spending, and several of the markets to which the
laboratory workstations segment sells, including the technology
industry, experienced a significant economic slowdown causing
a reduction in capital spending in those markets. As a result,
sales growth was significantly less than originally forecasted,
resulting in decreased profitability.
SFAS 142 also requires that goodwill be tested annually and
between annual tests if events occur or circumstances change
that would more likely than not reduce the fair value of a reporting
unit below its carrying amount. We have elected to perform the
annual tests for indications of goodwill impairment as of October
31 of each year. As of October 31, 2002, there were no additional
impairments of goodwill. Future impairments of goodwill, if
any, will be recorded to operating income in our statement of
operations.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2002, cash generated from operating
activities was $159.3 million compared with $158.6 million in
2001. The increase in cash from operations is due to an increase
in net income offset primarily by $20 million in cash pension
contributions and $7.6 million of spending related to our 2001
restructuring plans. We expect cash flow from operations to
be between $180 million and $190 million in 2003.
During 2002, we used $105.4 million of cash for investing activities
compared with $419.6 million in 2001. The change in cash used
for investing activities is primarily attributable to a decrease
in acquisition spending. Capital expenditures totaled $43.9
million in 2002 compared with $40.1 million in 2001. We expect
to invest approximately $60 million in capital expenditures
in 2003, reflecting continued facility consolidation and increased
investment in our chemical manufacturing and pharmaceutical
services. In July 2002, we acquired a Netherlands-based distributor
operating under the names Retsch and Emergo for a purchase price
of $7.9 million and in November 2002 we acquired two companies
named Maybridge and Mimotopes. Maybridge is a United Kingdom-based
provider of organic compounds and combinatorial libraries for
use in drug discovery. Mimotopes is an Australia-based manufacturer
of custom peptides and peptide libraries used in conducting
scientific research. These acquisitions had an aggregate purchase
price of $53.2 million. Investing activities in 2001 consisted
of $371.2 million for strategic acquisitions, primarily FCS
and Cole-Parmer. Although we intend to continue pursuing acquisitions
of complementary businesses that will enhance our growth and
profitability, we currently have no commitment, understanding
or arrangement relating to any additional acquisitions.
During 2002, financing activities used $94.6 million versus
cash provided by financing activities of $270.0 million in 2001.
The use of cash was primarily related to the repayment of debt.
In April 2002, we issued $150.0 million 8 1/8 percent 10-year
senior subordinated notes. We used the net proceeds from the
$150 million 8 1/8 percent senior subordinated notes, together
with proceeds from the sale of accounts receivables through
our receivables securitization facility and cash on hand, to
retire bank term debt totaling $211.3 million. Financing activities
in 2001 primarily consisted of our May 2001 underwritten offering
of common stock from which we received net proceeds of $289.9
million that were used to fund acquisitions during 2001.
On January 14, 2003, the Company issued and sold $200 million
of 8 1/8 percent senior subordinated notes due in May 2012 at
a premium resulting in a yield of 7.4 percent. On February 14,
2003, the Company entered into a new credit facility (the “Credit
Facility”) with a group of financial institutions, consisting
of (i) a $400 million term loan facility (the “Term Facility”),
which contains a provision that, upon the Company’s future
request, and subject to the fulfillment of certain conditions,
an additional $250 million incremental term facility may be
drawn (the “Incremental Term Facility”) and (ii)
a $175 million revolving credit facility (the “Revolving
Facility”). The Revolving Facility includes a sub-limit
for the issuance of letters of credit. Commitments under the
Revolving Facility expire on March 31, 2008. The Term Facility
requires the Company to make quarterly repayments of principal
equal to $1 million through March 31, 2009, and quarterly repayments
of principal equal to $94 million beginning June 30, 2009 through
the maturity of the Term Facility on March 31, 2010. The Credit
Facility replaces the previous credit facility entered into
in January 1998.
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