| PERKINELMER INC Item 1A Risk Factors The following important factors affect our business and operations generally or affect multiple segments of our business and operations: If we do not introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth targets |
| We sell many of our products in industries characterized by rapid technological change, frequent new product and service introductions, and evolving customer needs and industry standards |
| Many of the businesses competing with us in these industries have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities and the distribution channels to deliver products to customers |
| Our products could become technologically obsolete over time, or we may invest in technology that does not lead to revenue growth or continue to sell products for which the demand from our customers is declining, in which case we may lose market share or not achieve our revenue growth targets |
| The success of our new product offerings will depend upon several factors, including our ability to: • accurately anticipate customer needs, • innovate and develop new technologies and applications, • successfully commercialize new technologies in a timely manner, • price our products competitively and manufacture and deliver our products in sufficient volumes and on time, and • differentiate our offerings from our competitors’ offerings |
| Many of our products are used by our customers to develop, test and manufacture their products |
| Therefore, we must anticipate industry trends and develop products in advance of the commercialization of our customers’ products |
| In developing new products, we may be required to make significant investments before we can determine the commercial viability of the new product |
| If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant sales |
| In addition, some of our licensed technology is subject to contractual restrictions, which may limit our ability to develop or commercialize products for some applications |
| For example, some of our license agreements are limited to the field of life sciences research, and exclude clinical diagnostics applications |
| We may not be able to successfully execute acquisitions or license technologies, integrate acquired businesses or licensed technologies into our existing business, or make acquired businesses or licensed technologies profitable |
| We have in the past, and may in the future, supplement our internal growth by acquiring businesses and licensing technologies that complement or augment our existing product lines, such as our acquisition of Elcos AG in February 2005 |
| However, we may be unable to identify or complete promising acquisitions or license transactions for many reasons, including: • competition among buyers and licensees, • the high valuations of businesses and technologies, • The need for regulatory an other approval, and • Our inability to raise capital to fund these acquisitions |
| 14 ______________________________________________________________________ [40]Table of Contents Some of the businesses we may seek to acquire may be unprofitable or marginally profitable |
| Accordingly, the earnings or losses of acquired businesses may dilute our earnings |
| For these acquired businesses to achieve acceptable levels of profitability, we must improve their management, operations, products and market penetration |
| We may not be successful in this regard and may encounter other difficulties in integrating acquired businesses into our existing operations, such as incompatible management, information or other systems or cultural differences |
| To finance our acquisitions, we may have to raise additional funds, either through public or private financings |
| We may be unable to obtain such funds or may be able to do so only on terms unacceptable to us |
| We may not be successful in adequately protecting our intellectual property |
| Patent and trade secret protection is important to us because developing new products, processes and technologies gives us a competitive advantage, although it is time-consuming and expensive |
| We own many United States and foreign patents and intend to apply for additional patents |
| Patent applications we file, however, may not result in issued patents or, if they do, the claims allowed in the patents that issue may be narrower that what is needed to protect fully our products, processes and technologies |
| Similarly, applications to register our trademarks may not be granted in all countries in which they are filed |
| For our intellectual property that is protected by keeping it secret, such as trade secrets and know-how, we may not use adequate measures to protect this intellectual property |
| Third parties may also challenge the validity of our issued patents, may circumvent or “design around” our patents and patent applications, or may claim that our products, processes or technologies infringe their patents |
| In addition, third parties may assert that our product names infringe their trademarks |
| We may incur significant expense in legal proceedings to protect our intellectual property against infringement by third parties or to defend against claims of infringement by third parties |
| Claims by third parties in pending or future lawsuits could result in awards of substantial damages against us or court orders that could effectively prevent us from manufacturing, using, importing or selling our products in the United States or other countries |
| If we are unable to renew our licenses or otherwise lose our licensed rights, we may have to stop selling products or we may lose competitive advantage |
| We may not be able to renew our existing licenses, or licenses we may obtain in the future, on terms acceptable to us, or at all |
| If we lose the rights to a patented or other proprietary technology, we may need to stop selling products incorporating that technology and possibly other products, redesign our products or lose a competitive advantage |
| Potential competitors could in-license technologies that we fail to license and potentially erode our market share |
| Our licenses typically subject us to various economic and commercialization obligations |
| If we fail to comply with these obligations we could lose important rights under a license, such as the right to exclusivity in a market |
| In some cases, we could lose all rights under the license |
| In addition, rights granted under the license could be lost for reasons out of our control |
| For example, the licensor could lose patent protection for a number of reasons, including invalidity of the licensed patent, or a third party could obtain a patent that curtails our freedom to operate under one or more licenses |
| If we do not compete effectively, our business will be harmed |
| We may not be able to compete effectively with all of these competitors |
| To remain competitive, we must develop new products and periodically enhance our existing products |
| We anticipate that we may also have to adjust the prices of many of our products to stay competitive |
| In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of entire product lines |
| 15 ______________________________________________________________________ [41]Table of Contents Our quarterly operating results could be subject to significant fluctuation, and we may not be able to adjust our operations to effectively address changes we do not anticipate |
| Given the nature of the markets in which we participate, we cannot reliably predict future sales and profitability |
| Changes in competitive, market and economic conditions may require us to adjust our operations, and we may not be able to make those adjustments or to make them quickly enough to adapt to changing conditions |
| A high proportion of our costs are fixed, due in part to our research and development, and manufacturing costs |
| Thus, small declines in sales could disproportionately affect our operating results in a quarter |
| Factors that may affect our quarterly operating results include: • demand for and market acceptance of our products, • competitive pressures resulting in lower selling prices, • adverse changes in the level of economic activity in regions in which we do business, • adverse changes in industries, such as pharmaceutical and biomedical, on which we are particularly dependent, • changes in the portions of our sales represented by our various products and customers, • delays or problems in the introduction of new products, • our competitors’ announcement or introduction of new products, services or technological innovations, • increased costs of raw materials or supplies, and • changes in the volume or timing of product orders |
| If we are unable to produce an adequate quantity of products, particularly of our digital x-ray detectors, to meet our customers’ demands, our revenue growth may be adversely affected |
| We have an established global manufacturing base with facilities in multiple locations around the world |
| Each of these facilities faces risks to its production capacity that may relate to natural disasters, labor relations or regulatory compliance |
| In addition, in any of these facilities, particularly our Optoelectronics amorphous silicon facility in Santa Clara, California, we may not manage the manufacturing or production processes at expected levels, we may fail to anticipate or act on the need to increase the production capacity, or we may be unable to quickly resolve technical manufacturing issues that arise from time to time |
| Any of these risks could cause our revenue growth to be adversely affected |
| If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil or criminal penalties |
| Some of the products produced by our Life and Analytical Sciences segment are subject to regulation by the United States Food and Drug Administration (“FDA”) and similar international agencies |
| These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales, resales and distribution |
| If we fail to comply with those regulations or those of similar international agencies, we may have to recall products, cease their manufacture and distribution, and may be subject to fines or criminal prosecution |
| Changes in governmental regulations may reduce demand for our products or increase our expenses |
| We compete in markets in which we or our customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety, and food and drug regulations |
| We develop, configure and market our products to meet customer needs created by these regulations |
| Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products |
| 16 ______________________________________________________________________ [42]Table of Contents Economic, political and other risks associated with foreign operations could adversely affect our international sales |
| Because we sell our products worldwide, our businesses are subject to risks associated with doing business internationally |
| Our sales originating outside the United States represented the majority of our total sales in the fiscal year ended January 1, 2006 |
| We anticipate that sales from international operations will continue to represent a substantial portion of our total sales |
| In addition, many of our manufacturing facilities, employees and suppliers are located outside the United States |
| Accordingly, our future results of operations could be harmed by a variety of factors, including: • changes in foreign currency exchange rates, • changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets, • longer payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions, • trade protection measures and import or export licensing requirements, • differing tax laws and changes in those laws, • difficulty in staffing and managing widespread operations, • differing labor laws and changes in those laws, • differing protection of intellectual property and changes in that protection, and • differing regulatory requirements and changes in those requirements |
| If we do not retain our key personnel, our ability to execute our business strategy will be limited |
| Our success depends to a significant extent upon the continued service of our executive officers and key management and technical personnel, particularly our experienced engineers, and on our ability to continue to attract, retain, and motivate qualified personnel |
| The competition for these employees is intense |
| The loss of the services of one or more of our key personnel could have a material adverse effect on our operating results |
| In addition, there could be a material adverse effect on us should the turnover rates for engineers and other key personnel increase significantly or if we are unable to continue to attract qualified personnel |
| We do not maintain any key person life insurance policy on any of our officers or employees |
| Restrictions in our senior unsecured credit facility may limit our activities |
| Our senior unsecured credit facility contains, and future debt instruments to which we may become subject may contain, restrictive covenants that limit our ability to engage in activities that could otherwise benefit our company |
| Our new senior unsecured credit facility includes restrictions on our ability and the ability of our subsidiaries to: • pay dividends on, redeem or repurchase our capital stock, • sell assets, • incur obligations that restrict their ability to make dividend or other payments to us, • guarantee or secure indebtedness, • enter into transactions with affiliates, and • consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis |
| 17 ______________________________________________________________________ [43]Table of Contents We are also required to meet specified financial ratios under the terms of our senior unsecured credit facility |
| Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition |
| Our failure to comply with any of these restrictions in our senior unsecured credit facility may result in an event of default under that facility, which could permit acceleration of the debt under that facility, and require us to prepay that debt before its scheduled due date |
| Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets |
| As of January 1, 2006, our total assets included dlra1dtta4 billion of net intangible assets |
| Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights and technology licenses, net of accumulated amortization |
| We test certain of these items—specifically all of those that are considered “non-amortizing”—on an annual basis for potential impairment by comparing the carrying value to the fair market value of the reporting unit to which they are assigned |
| All of our amortizing intangible assets are evaluated for impairment should discrete events occur that call into question the recoverability of the intangible |
| Adverse changes in our business or the failure to grow our Life and Analytical Sciences business may result in impairment of our intangible assets which could adversely affect our results of operations |