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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2006
 or
 o
    
    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 0-27316
 MOLECULAR DEVICES CORPORATION
  DELAWARE
    
    94-2914362(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)1311 ORLEANS DRIVE, SUNNYVALE, CALIFORNIA
    
    94089(Address of Principal Executive Offices)
    
    (Zip code)
 
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, $.001 par value
    
    The NASDAQ Stock Market LLC
  o þ
 o þ
 þ o
 o
  o þ o
 o þ
   
 *
    
    Excludes approximately 5,183,945 shares of common stock held by directors, officers and
holders of 5% or more of the registrants outstanding common stock at June 30, 2006.
Exclusion of shares held by any person should not be construed to indicate that such person
possesses the power, direct or indirect, to direct or cause the direction of the management
or policies of the registrant, or that such person is controlled by or under common control
with the registrant.




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TABLE OF CONTENTS
 PART IItem 1. Business

1Item 1A. Risk Factors

11Item 1B. Unresolved Staff Comments

21Item 2. Properties

21Item 3. Legal Proceedings

21Item 4. Submission of Matters to a Vote of Security Holders

21PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

22Item 6. Selected Consolidated Financial Data

23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

24Item 7A. Quantitative and Qualitative Disclosures About Market Risk

33Item 8. Financial Statements and Supplementary Data

34Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

35Item 9A. Controls and Procedures

35Item 9B. Other Information

35PART IIIItem 10. Directors, Executive Officers and Corporate Governance

36Item 11. Executive Compensation

38Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

55Item 13. Certain Relationships and Related Transactions, and Director Independence

58Item 14. Principal Accountant Fees and Services

59PART IVItem 15. Exhibits and Financial Statement Schedules

59SIGNATURES

62EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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Except for the historical information contained herein, this Annual Report on Form 10-K
contains forward-looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. For this
purpose, any statements that are not statements of historical fact may be deemed to be
forward-looking statements. Words such as believes, anticipates, plans, predicts,
expects, estimates, intends, will, continue, may, potential, should and similar
expressions are intended to identify forward-looking statements. There are a number of important
factors that could cause our results to differ materially from those indicated by these
forward-looking statements, including, among others, those discussed in Item 1A  Risk Factors,
Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations,
Item 7A  Quantitative and Qualitative Disclosures About Market Risk, and the risks detailed from
time to time in the Companys future U.S. Securities and Exchange Commission (SEC) reports.
Neither we nor any other person assumes responsibility for the accuracy and completeness of these
statements. We assume no duty to update any of the forward-looking statements after the date of
this report or to conform these statements to actual results. Accordingly, we caution readers not
to place undue reliance on these statements.
 
 PART I
 
 Item 1. Business .
 The Company
   Industry Background
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Our Products
  Life Sciences Research Products
 ® ® ® ®
 Microplate Detection Products
 ® ®
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SpectraMax
  
    
    EMax®.This product is aimed at the market for traditional microplate
readers that do not require kinetic capability. We introduced it to provide a reader for
customers in academia and other customers with restricted capital budgets.
    
    VMax®.This product was the first microplate reader to offer kinetic read
capability and is designed to address the needs of biochemists.
    
    VersaMaxTM. The VersaMax is our low cost variable wavelength offering that
provides kinetic capability and temperature control.
    
    SpectraMax 340PC384.This product is a visible range microplate
spectrophotometer, offering tunability and the additional capability of our patented
PathCheck® Sensor technology, which corrects common variability problems across
wells of microplates.
    
    SpectraMax 190.The predecessor to this product was the first microplate reader that
incorporated a monochromator for continuous wavelength selection. Wavelength selection
provides for enhanced convenience and flexibility in assay design. In addition, the
SpectraMax 190 also includes our patented PathCheck Sensor technology.
    
    SpectraMax Plus384.The SpectraMax Plus384 combines the
high-throughput of a microplate reader with the performance of a cuvette-based
spectrophotometer as a result of our patented PathCheck Sensor technology. It is capable
of reading wavelengths as short as 190 nanometers and as long as 1,000 nanometers, the
equivalent range to a spectrophotometer, and is compatible with both 96-well and 384-well
microplates.
    
    Gemini XPS.Gemini was the worlds first dual-scanning microplate spectrofluorometer,
a configuration that allows the user to automatically optimize the instrument for
particular assays. The Gemini XPS, introduced in 2004, is the most sensitive version of
Gemini yet and is capable of fluorescence, luminescence and time-resolved fluorescence
measurements.
    
    Gemini EM.The Gemini EM features the ability to read microplates from either the top
or the bottom, a capability that enables it to perform complex cell-based assays.
    
    LMax II384.LMax was our first reader to offer customers sensitive
luminescence detection in a bench-top instrument. The second generation of LMax adds
improved sensitivity, 384-well detection and the capability to integrate with laboratory
robots.
    
    SpectraMax M2/M2e. These instruments incorporate the dual-scanning
monochromator technology of the Gemini family into a multimode reader with both absorbance
and fluorescence detection. SpectraMax M2/M2e can read 96 and 384 well
microplates using any of four different scanning techniques. This combination of features
makes these highly versatile instruments capable of a wide range of applications. The
SpectraMax M2eoffers the additional option ofbottom-reading
capability.
    
    SpectraMax M5/M5e.These instruments expand our multimode reader family by
offering the performance features of SpectraMax M2/M2e with the flexibility of
five different detection modes. Our most versatile benchtop readers, SpectraMax
M5/M5e can measure absorbance, fluorescence intensity, fluorescence
polarization, time-resolved fluorescence and luminescence. The SpectraMax M5e
offers the additional benefit of being certified for a popular assay known as HTRF.
    
    StakMax.Introduced in 2006, the StakMax is a microplate handling system that is
compatible with all of our SpectraMax readers. This product allows users to automatically
process magazines of 20, 40 or 50 microplates, greatly increasing the efficiency of
laboratory operations.
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FlexStation
  
    
    FlexStation II/II384. Introduced in 2003, these instruments represent the
second generation of FlexStation technology with dual-monochrometer scanning, 8- or
16-channel fluid transfer and top or bottom reading. FlexStation II is compatible with
96-well microplates, while FlexStation II384 addresses both 96-well and
384-well formats. In addition to instrumentation, we offer proprietary reagent kits based
on our successful FLIPR assay technology and optimized to perform on the FlexStation
platform. These products are our FlexStation Calcium Assay Kit, FlexStation Calcium 3
Assay Kit, two formulations of the FlexStation Membrane Potential Assay Kit and our
QBTTM Fatty Acid Uptake Assay Kit.
    
    FlexStation 3. This instrument, introduced in 2006, adds liquid handling capabilities
to our popular SpectraMax M5/M5eplatform, enabling an even wider variety of
applications than previous generations of FlexStation. In addition to the assay kits that
are compatible with FlexStation II/ II384, FlexStation 3 is capable of running
our Calcium 4 Assay Kit and IMAP assays.
 GenePix Microarray Systems
 ®
 
    
    GenePix 4000B.The GenePix 4000B is the fastest and most compact microarray scanner
on the market today. Unlike most commercially available scanners, this instrument acquires
data simultaneously at two wavelengths, resulting in superior speed and a low error rate.
Like all of our microarray scanners, the GenePix 4000B comes with our popular and
user-friendly GenePix Pro software for data acquisition and analysis.
    
    GenePix Professional 4200A.This instrument offers the performance of the GenePix
4000B with additional features such as four-color scanning and enhanced flexibility. An
optional accessory, the Autoloader 4200AL, automates the process of introducing
microarrays to the instrument, an important feature for high-volume laboratory
environments.
    
    GenePix Personal 4100A.This instrument offers the superior performance of the
GenePix family in a lower-cost, more compact version that addresses the needs of the
individual researcher.
    
    Acuity®4.0. This software package provides applications for advanced
users, including data warehousing, sophisticated data analysis and visualization
applications. It is compatible with the GenePix family of scanners as well as other
commercially available microarray platforms.
 MetaMorph Imaging Software
  
    
    MetaMorph®.MetaMorph is a state-of-the-art software package for capturing
and analyzing cellular images. MetaMorphs functions include control of a wide variety of
imaging devices as well as a large menu of tools for image processing and analysis.
    
    MetaFluor®.MetaFluor software allows researchers to image and analyze
ratiometric indicators of intracellular events.
    
    MetaVueTM. A lower-cost version of MetaMorph, MetaVue is an entry-level
product tailored to common imaging applications.
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Laser Capture Microdissection
  
    
    Arcturus XTTM. This open-architecture system is built upon the Nikon
TE2000U(R) inverted research grade microscope and combines infrared laser-enabled LCM and
ultraviolet laser cutting in a single modular instrument, offering researchers superior
speed, precision and flexibility. It is completely modular and fully upgradeable, allowing
the system utility to expand as research requirements grow and microdissection
technologies emerge.
    
    PixCell®IIe. This is a dedicated LCM instrument that offers researchers a
simple, rapid and effective tool for selecting cells of interest from a tissue sample. The
system, like all of our LCM instruments, utilizes our CapSure® disposable caps for clean
and accurate retrieval of user-defined cell populations.
    
    VeritasTM. This system offers both LCM and laser cutting, enabling
researchers to prepare samples from a wide variety of tissue types. Veritas is highly
automated, simplifying the LCM process and enabling researchers to operate the system with
minimal training.
    
    Reagents. We offer several reagent kits that are optimized for the Veritas and
PixCell IIe and allow researchers to isolate RNA and DNA and amplify RNA from a variety of
tissue types.
 Cellular Neurosciences Research
  
    
    Digidata 1440A.The Digidata 1440A is a high-speed, low-noise data acquisition system
that is compatible with our pCLAMP 10.0 software.
    
    pCLAMP 10.0.Introduced in 2006, pCLAMP 10.0 is our latest-generation software
package for acquisition and analysis of electrophysiological data.
    
    MultiClamp 700B.MultiClamp 700B is a computer-controlled microelectrode amplifier
that is used for high-speed current clamp, patch clamp, voltammetry/amperometry,
ion-selective measurement, and bilayer recordings.
    
    Axopatch 200B.Axopatch 200B patch clamp is the latest version of our premier
patch-clamp amplifier, incorporating capacitor-feedback technology for single-channel
recording as well as resistive-feedback for whole-cell recording.
    
    Axoclamp 900A. Axoclamp 900A is a computer-controlled
microelectrode current-clamp and voltage-clamp amplifier, useful for a wide range of intracellular microelectrode recording techniques with several modes of operation.
 Liquid Handling Systems
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Threshold System
  Drug Discovery Products
  FLIPR System and Reagent Kits
  
    
    FLIPRTETRA.This product is the fourth generation FLIPR instrument. It
combines all of the benefits of preceding versions of FLIPR with new capabilities in a
completely redesigned, compact platform. FLIPRTETRA features simultaneous
liquid transfer of samples in 96, 384 and 1,536 well microplates, allowing customers to
screen as many as 250,000 samples daily with little human intervention. In addition, the
instrument enables excitation and detection at multiple wavelengths, enabling a broader
set of applications, and incorporates interfaces that allow it to integrate into automated
screening lines.
    
    FLIPR Assay Kits.This product family includes the FLIPR Calcium Assay Kit, the FLIPR
Calcium 3 Kit, the FLIPR Calcium 4 Assay Kit, the QBT Fatty Acid Uptake Assay Kit and two
formulations of the FLIPR Membrane Potential Assay Kit. By eliminating a step in the assay
protocol, these kits can significantly increase throughput, reduce costs and increase
screening efficiency. The FLIPR Calcium Assay Kit addresses the most popular assay
performed on the FLIPR system for detecting the activation of GPCRs. The FLIPR Calcium 3
Assay Kit extends the applicability of this assay by allowing researchers to test
problematic but important targets such as chemokines and other small peptides. The FLIPR
Calcium 4 Assay Kit, introduced in 2006, features a new dye which allows researchers to
detect very small calcium responses. The QBT Fatty Acid Uptake Assay Kit offers the only
kinetic uptake assay in a one-step, fluorescent format for detecting processes associated
with diabetes and cardiovascular disease. The FLIPR Membrane Potential Assay Kits allow
researchers to measure changes in the electrical potential across live cell membranes, a
key indicator of ion channel activity.
 Automated Electrophysiology Systems
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
    
    IonWorks Quattro.This is a turnkey system for drug discovery screening and safety
profiling that enables customers to obtain up to 400,000 data points per year, the highest
throughput currently available. The system consists of an instrument and a family of
proprietary consumables.
    
    PatchXpress 7000A.This system offers automated patch clamping with a high degree of
flexibility. It is capable of performing tests on the two major types of ion channels,
voltage-gated and ligand-gated, and generating an entire response curve for each cell
tested. Like the IonWorks Quattro, this system operates using its own proprietary
consumable plate.
    
    OpusXpress 6000A.OpusXpress 6000A is an automated solution for the early-stage
process of ion channel target identification, and enables efficient pharmacological
testing in the later stages of drug discovery research.
 High-Throughput Imaging Systems
  
    
    ImageXpress®Micro.This fully-integrated hardware and software system for
high-throughput imaging features custom optics for the most efficient light path and
highest resolution possible. It is our most compact, cost-effective and modular imaging
system to date. The system design is optimized for speed, utilizing an all-new high-speed
laser auto-focus option that allows for the acquisition of more than 50,000 wells per day.
Its small footprint requires minimal lab space, and it features an automated door for
robotic plate-loading access.
    
    ImageXpress UltraTM. The ImageXpress Ultra imaging system is a
fully-integrated true point-scanning confocal system for automated acquisition and
analysis of images for high-throughput cell-based screening. The bench-top system utilizes
up to four configurable solid-state lasers. The throughput and resolution of the
ImageXpress Ultra is comparable to larger, more expensive confocal commercial systems.
    
    ImageXpress®5000A.ImageXpress 5000A is an integrated hardware and
software system capable of very rapid image acquisition and sophisticated image analysis.
The system can be easily upgraded to allow environmental control and liquid handling, both
of which enable live cell imaging applications.
    
    MetaXpress and AcuityXpress.Our imaging systems incorporate MetaXpress software,
which is built on our industry-leading MetaMorph® software for cellular
imaging. In addition, an option available with all of our imaging systems is AcuityXpress
cellular informatics software, designed for enterprise-level data mining of
high-throughput screening experiments.
    
    Transfluor®.Transfluor is a patented, cell-based fluorescence technology
that is used in conjunction with high-throughput imaging systems. It is the most versatile
technology available for screening GPCRs. It has been successfully validated on over 90
GPCRs and is unique in its ability to test all of the different categories of GPCRs.
Transfluor has been established as a gold-standard high-throughput imaging assay by many
pharmaceutical and biotechnology companies and is considered an integral part of their
drug discovery processes.
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Analyst System and Reagent Kits
  
    
    Analyst GT.This multi-mode system features seven detection options and the ability
to read 96, 384 and 1,536 well microplates. With the capacity to test over 400,000 wells
per day, Analyst GT is designed to address the industrialized screening needs of the drug
discovery market.
    
    IMAP Technology.A proprietary bead-based platform, IMAP allows researchers to
determine the activity of kinases, phosphatases and phosphodiesterases in a simple,
non-radioactive format. We offer optimized kits for screening several of the most popular
kinases as well as kits that enable our customers to apply this extremely flexible
technology to their own protein kinase targets. IMAP assays were developed using FP
technology, and in 2006 we extended the IMAP platform to incorporate TR-FRET, another
popular detection technology.
 Customer Service
  Research and Development
   
    
    broadening our technology solution, including development of new proprietary reagent
kits and additional solutions for automated ion channel testing and high-throughput
imaging;
    
    providing more sensitive quantitative evaluation of biological events;
    
    providing greater throughput capability, especially with smaller sample volumes; and
    
    developing increasingly sophisticated data management and analysis capability.
 Marketing and Customers
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
    
    political, social and economic instability;
    
    trade restrictions and changes in tariffs;
    
    the impact of business cycles and downturns in economies outside of the United States;
    
    unexpected changes in regulatory requirements that may limit our ability to export
our products or sell into particular jurisdictions;
    
    import and export license requirements and restrictions;
    
    difficulties and costs of staffing, managing and monitoring geographically disparate operations;
    
    difficulties in maintaining effective communications with employees and customers due
to distance, language and cultural barriers;
    
    disruptions in international transport or delivery;
    
    difficulties in protecting our intellectual property rights, particularly in
countries where the laws and practices do not protect proprietary rights to as great an
extent as do the laws and practices of the United States;
    
    difficulties in enforcing agreements through non-U.S. legal systems;
    
    longer payment cycles and difficulties in collecting receivables;
    
    potentially adverse tax consequences; and
    
    foreign currency exchange fluctuations.
 Manufacturing
  Patents and Proprietary Technologies
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Competition
     Government Regulation
  Employees
  Available Information
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Item 1A. Risk Factors.
  Risks Related to the Proposed Acquisition by MDS Inc.
    11




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Variations in the amount of time it takes for us to sell our products and collect accounts
receivable and the timing of customer orders may cause fluctuations in our operating results,
which could cause our stock price to decline.
     We depend on orders that are received and shipped in the same quarter and therefore have limited
visibility of future product shipments.
  Many of our current and potential competitors have significantly greater resources than we do, and
increased competition could impair sales of our products.
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If we are not successful in developing new and enhanced products, we may lose market share to our
competitors.
  We must expend a significant amount of time and resources to develop new products, and if these
products do not achieve commercial acceptance, our operating results may suffer.
  We obtain some of the consumables, components and subassemblies used with or included in our
systems from a single source or limited group of suppliers, and the partial or complete loss of
one of these suppliers could cause customer supply or production delays and a substantial loss of
revenues.
   
    
    our suppliers may cease or interrupt production of required consumables, components
or subassemblies or otherwise fail to supply us with an adequate supply of required
consumables, components or subassemblies for a number of reasons, including contractual
disputes with our suppliers or adverse financial developments at or affecting the
supplier;
    
    we have reduced control over the pricing of third party-supplied consumables,
components and subassemblies, and our suppliers may be unable or unwilling to supply us
with required consumables, components and subassemblies on commercially acceptable terms,
or at all;
    
    we have reduced control over the timely delivery of third party-supplied consumables,
components and subassemblies; and
    
    our suppliers may be unable to develop technologically advanced products to support
our growth and development of new systems.
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We may encounter manufacturing and assembly problems or delays, which could result in lost
revenues.
    If we deliver products with defects, our credibility will be harmed and the sales and market
acceptance of our products will decrease.
  We have significantly expanded our international operations, which exposes us to risks inherent in
international business activities.
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
    
    political, social and economic instability;
    
    trade restrictions and changes in tariffs;
    
    the impact of business cycles and downturns in economies outside of the United States;
    
    unexpected changes in regulatory requirements that may limit our ability to export
our products or sell into particular jurisdictions;
    
    import and export license requirements and restrictions;
    
    difficulties and costs of staffing, managing and monitoring geographically disparate operations;
    
    difficulties in maintaining effective communications with employees and customers due
to distance, language and cultural barriers;
    
    disruptions in international transport or delivery;
    
    difficulties in protecting our intellectual property rights, particularly in
countries where the laws and practices do not protect proprietary rights to as great an
extent as do the laws and practices of the United States;
    
    difficulties in enforcing agreements through non-U.S. legal systems;
    
    longer payment cycles and difficulties in collecting receivables; and
    
    potentially adverse tax consequences.
   Most of our current and potential customers are from the pharmaceutical and biotechnology
industries and are subject to risks faced by those industries.
   Our products could infringe on the intellectual property rights of others, which may cause us to
engage in costly litigation and, if we are not successful, could also cause us to pay substantial
damages and prohibit us from selling our products.
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We may need to initiate lawsuits to protect or enforce our patents, which would be expensive and,
if we lose, may cause us to lose some of our intellectual property rights, which would reduce our
ability to compete in the market.
  
    
    assert claims of infringement;
    
    enforce our patents;
    
    protect our trade secrets or know-how; or
    
    determine the enforceability, scope and validity of the proprietary rights of others.
  The rights we rely upon to protect our intellectual property underlying our products may not be
adequate, which could enable third parties to use our technology and would reduce our ability to
compete in the market.
   
    
    the pending patent applications we have filed or to which we have exclusive rights
may not result in issued patents or may take longer than we expect to result in issued
patents;
    
    the claims of any patents which are issued may not provide meaningful protection;
    
    we may not be able to develop additional proprietary technologies that are patentable;
    
    the patents licensed or issued to us or our customers may not provide a competitive advantage;
    
    other companies may challenge patents licensed or issued to us or our customers;
    
    patents issued to other companies may harm our ability to do business;
    
    other companies may independently develop similar or alternative technologies or duplicate our technologies; and
    
    other companies may design around the technologies we have licensed or developed.
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We may have difficulty managing our growth.
  We rely upon distributors for product sales and support outside of North America.
  If we choose to acquire new and complementary businesses, products or technologies instead of
developing them ourselves, we may be unable to complete these acquisitions or may not be able to
successfully integrate an acquired business or technology in a cost-effective and non-disruptive
manner.
 ®
 
    
    the potential disruption of our ongoing business and distraction of our management;
    
    the potential strain on our financial and managerial controls and reporting systems and procedures;
    
    unanticipated expenses and potential delays related to integration of the operations,
technology and other resources of acquired businesses;
    
    the impairment of relationships with employees, suppliers and customers as a result
of any integration of new management personnel;
    
    greater than anticipated costs and expenses related to restructuring, including
employee severance or relocation costs and costs related to vacating leased facilities;
and
    
    potential unknown liabilities associated with any acquisition, including higher than
expected integration costs, which may cause our quarterly and annual operating results to
fluctuate.
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We depend on our key personnel, the loss of whom would impair our ability to compete.
  Changes to financial accounting standards or interpretations of those standards, may affect our
results of operations and cause us to change our business practices.
  Changes in our effective income tax rate could reduce our earnings.
 Share-Based
Payment
 Our operating results fluctuate and any failure to meet financial expectations may disappoint
securities analysts or investors and result in a decline in our stock price.
  
    
    customer confidence in the economy, evidenced, in part, by stock market levels;
    
    changes in the domestic and international economic, business and political conditions;
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
    
    economic conditions within the pharmaceutical and biotechnology industries;
    
    levels of product and price competition;
    
    market acceptance of and demand for our products;
    
    the length of our sales cycle and customer buying patterns;
    
    the size and timing of individual transactions;
    
    the timing of new product introductions and product enhancements;
    
    the mix of products sold;
    
    levels of international transactions;
    
    activities of and acquisitions by competitors;
    
    the timing of new hires and the allocation of our resources;
    
    changes in foreign currency exchange rates;
    
    our ability to develop and market new products and control costs; and
    
    changes in U.S. generally accepted accounting principles.
    Failure to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 could have a material adverse effect on our stock price.
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Our stock price is volatile, which could cause stockholders to lose a substantial part of
their investment in our stock.
   
    
    developments with or related to the transactions contemplated by the definitive agreement and plan of merger with MDS;
    
    domestic and international economic, business and political conditions;
    
    economic conditions within the pharmaceutical and biotechnology industries;
    
    our failure to meet our performance estimates or the performance estimates of securities analysts;
    
    changes in financial estimates of our revenues and operating results by us or securities analysts;
    
    changes in buy/sell recommendations by securities analysts; and
    
    the timing of announcements by us or our competitors of significant products,
contracts or acquisitions or publicity regarding actual or potential results or
performance thereof.
 Provisions of our charter documents and Delaware law may inhibit a takeover, which could limit the
price investors might be willing to pay in the future for our common stock.
  Our actual results could differ materially from those anticipated in our forward-looking
statements.
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Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  Location (1)
    
    Ownership
    
    Facilities
    
    Lease Expiration1311 Orleans Drive 
Sunnyvale, CA 94089
    
    Leased
    
    Approximately 60,000 square feet of office and laboratory space
    
    February 28, 20133280 Whipple Road 
Union City, CA 94587
    
    Leased
    
    Approximately 76,214 square feet of office, laboratory and
manufacturing space
    
    February 16, 20111312 Crossman Avenue 
Sunnyvale, CA 94089
    
    Leased
    
    Approximately 54,500 square feet of office, laboratory and
manufacturing space
    
    February 28, 2013402 Boot Road 
Downingtown, PA 19335
    
    Leased
    
    Approximately 27,900 square feet of office, laboratory and
manufacturing space
    
    November 15, 2010Nanhui, Shanghai, China
    
    Leased
    
    Approximately 19,000 square feet of manufacturing space
    
    December 31, 2010Wokingham, England
    
    Leased
    
    Approximately 14,048 square feet of office space
    
    September 2, 2015Tokyo, Japan
    
    Leased
    
    Approximately 4,300 square feet of office space
    
    June 30, 2007Osaka, Japan
    
    Leased
    
    Approximately 3,700 square feet of office space
    
    March 31, 2007Shanghai, China
    
    Leased
    
    Approximately 3,500 square feet of office space
    
    April 9, 2007Munich, Germany
    
    Leaased
    
    Approximately 3,500 square feet of office space
    
    Month to monthMelbourne, Australia
    
    Leased
    
    Approximately 2,200 square feet of office space
    
    May 31, 2007Seoul, South Korea
    
    Leased
    
    Approximately 2,100 square feet of office space
    
    November 14, 2008Beijing, China
    
    Leased
    
    Approximately 2,000 square feet of office space
    
    May 31, 2008Sao Paulo, Brazil
    
    Leased
    
    Approximately 2,000 square feet of office space
    
    February, 2008
 
 (1)
    
    In addition to the properties described above, we lease approximately 20,000 square feet
of property in Union City, California, which we sublease to a third party. We do not use this
property in our current operations and have not included it in the table above. 
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  21




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##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
 Market Information
   2006
    
    2005High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    33.30
    
    
    $
    28.00
    
    
    $
    21.32
    
    
    $
    18.27Second Quarter
    
    
    35.92
    
    
    
    27.79
    
    
    
    22.01
    
    
    
    18.16Third Quarter
    
    
    30.21
    
    
    
    18.03
    
    
    
    21.80
    
    
    
    19.95Fourth Quarter
    
    
    22.82
    
    
    
    18.15
    
    
    
    28.93
    
    
    
    19.45
 Holders
  Dividends
  Performance Graph
 
 22




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##### Table of Contents



Item 6. Selected Consolidated Financial Data.
  Consolidated Statements of Operations Data (in thousands):
 Years ended December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002Revenues (1)
    
    $
    186,412
    
    
    $
    181,951
    
    
    $
    149,095
    
    
    $
    116,008
    
    
    $
    102,570Cost of revenues (1)
    
    
    70,065
    
    
    
    70,267
    
    
    
    56,840
    
    
    
    43,683
    
    
    
    40,974Gross profit
    
    
    116,347
    
    
    
    111,684
    
    
    
    92,255
    
    
    
    72,325
    
    
    
    61,596Operating expenses:Research and development
    
    
    23,362
    
    
    
    25,281
    
    
    
    22,038
    
    
    
    18,679
    
    
    
    18,002Selling, general and administrative
    
    
    71,826
    
    
    
    59,885
    
    
    
    52,469
    
    
    
    43,457
    
    
    
    35,435Acquired in-process research and development (2)
    
    
    4,272
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    Restructuring and other charges (2)
    
    
    331
    
    
    
    1,427
    
    
    
    1,157
    
    
    
    
    
    
    
    Total operating expenses
    
    
    99,791
    
    
    
    86,593
    
    
    
    80,664
    
    
    
    62,136
    
    
    
    53,437Income from operations (2)
    
    
    16,556
    
    
    
    25,091
    
    
    
    11,591
    
    
    
    10,189
    
    
    
    8,159Gain on sale of equity securities
    
    
    2,235
    
    
    
    
    
    
    
    18,288
    
    
    
    
    
    
    
    Translation gain on liquidation of subsidiaries (2)
    
    
    1,413
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    (85
    )
    
    
    (85
    )
    
    
    (187
    )
    
    
    
    
    
    
    Interest and other income (expense), net
    
    
    524
    
    
    
    (530
    )
    
    
    319
    
    
    
    872
    
    
    
    1,562Income before income taxes
    
    
    20,643
    
    
    
    24,476
    
    
    
    30,011
    
    
    
    11,061
    
    
    
    9,721Income tax provision
    
    
    9,816
    
    
    
    8,580
    
    
    
    12,778
    
    
    
    3,319
    
    
    
    2,916Net income
    
    $
    10,827
    
    
    $
    15,896
    
    
    $
    17,233
    
    
    $
    7,742
    
    
    $
    6,805Basic net income per share
    
    $
    0.65
    
    
    $
    0.95
    
    
    $
    1.08
    
    
    $
    0.51
    
    
    $
    0.44Diluted net income per share
    
    $
    0.64
    
    
    $
    0.93
    
    
    $
    1.04
    
    
    $
    0.51
    
    
    $
    0.44Shares used in computing basic net income per share
    
    
    16,676
    
    
    
    16,783
    
    
    
    16,028
    
    
    
    15,067
    
    
    
    15,348Shares used in computing diluted net income per share
    
    
    17,047
    
    
    
    17,147
    
    
    
    16,532
    
    
    
    15,179
    
    
    
    15,457
 Consolidated Balance Sheets Data (in thousands):
 As of December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002Cash and cash equivalents
    
    $
    22,824
    
    
    $
    28,908
    
    
    $
    30,175
    
    
    $
    60,110
    
    
    $
    53,783Working capital
    
    
    60,416
    
    
    
    62,664
    
    
    
    67,556
    
    
    
    87,305
    
    
    
    84,851Total assets
    
    
    266,778
    
    
    
    257,416
    
    
    
    255,229
    
    
    
    166,913
    
    
    
    162,901Long-term liabilities
    
    
    9,630
    
    
    
    5,479
    
    
    
    6,776
    
    
    
    
    
    
    
    Retained earnings (accumulated deficit)
    
    
    17,850
    
    
    
    7,023
    
    
    
    (8,873
    )
    
    
    (26,106
    )
    
    
    (33,848
    )Total stockholders equity
    
    
    217,986
    
    
    
    213,073
    
    
    
    210,620
    
    
    
    145,538
    
    
    
    142,804
 
 (1)
    
    Revenues include increases of $0.7 million, $0.6 million, $0.4 million and $0.4 million
for the years ended 2005, 2004, 2003 and 2002, respectively, related to the reclassification of
freight charges recovered from customers from Cost of Revenues to Revenues. Cost of Revenues has
been increased accordingly, and there was no effect on gross profit, operating income or net income
for any of the periods presented.(2)
    
    Our 2006 income from operations included a $4.3 million write-off for the acquisition of
in-process research and development costs related to the acquisition of the LCM business from
Arcturus, a $0.3 million restructuring charge related to the closure of our 23




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##### Table of Contents



Norway facility and a
$1.4 million translation gain from the reversal of cumulative translation adjustments related to the liquidation of our Norway and Swiss subsidiaries. Our
2005 income from operations included a $1.4 million charge related to restructuring, associated
with the termination of employees and the restructuring of an agreement. Our 2004 income from
operations included a $5.0 million write-off for the acquisition of in-process research and
development costs and a $1.2 million charge related to restructuring, associated with the
acquisition of Axon. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
      24




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##### Table of Contents




    
    political, social and economic instability;
    
    trade restrictions and changes in tariffs;
    
    the impact of business cycles and downturns in economies outside of the United States;
    
    unexpected changes in regulatory requirements that may limit our ability to export
our products or sell into particular jurisdictions;
    
    import and export license requirements and restrictions;
    
    difficulties and costs of staffing, managing and monitoring geographically disparate operations;
    
    difficulties in maintaining effective communications with employees and customers due
to distance, language and cultural barriers;
    
    disruptions in international transport or delivery;
    
    difficulties in protecting our intellectual property rights, particularly in
countries where the laws and practices do not protect proprietary rights to as great an
extent as do the laws and practices of the United States;
    
    difficulties in enforcing agreements through non-U.S. legal systems;
    
    longer payment cycles and difficulties in collecting receivables;
    
    potentially adverse tax consequences; and
    
    foreign currency exchange fluctuations.
    25




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##### Table of Contents



®
  Critical Accounting Policies
   Revenue Recognition
  
    
    Emerging Issues Task Force, Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. Revenue arrangements with multiple elements are divided into separate units
of accounting if the deliverables in the arrangement have value to the customer on a stand
alone basis, there is objective and reliable evidence of the fair value of the undelivered
elements and there are no rights of return or additional performance guarantees by us.
    
    Statement of Position 97-2, Software Revenue Recognition. Revenue earned on
software arrangements involving multiple elements is allocated to each element based on
the relative fair values of the elements as determined by means of our quoting process and
published price lists.
    
    Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. Revenue is
recognized when the following four criteria are met: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered; (3) the
sellers price is fixed or determinable; and (4) collectibility is reasonably assured.
  26




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##### Table of Contents




    
    Instruments, software and consumables  We recognize revenue with respect to sales of
instruments, software and consumables at the time that an instrument, software or
consumable is shipped, in accordance with the shipping terms of the invoice. Under FOB
Destination terms, we do not recognize revenue until the product arrives at the customer
site. We determine that the SAB 104 criteria have been met through receipt of a valid
purchase order and issuance by us of either a sales order confirmation or an invoice,
confirmation of product shipment (or receipt, when FOB Destination terms apply), issuance
of an invoice indicating the price and determination of credit-worthiness or, in certain
circumstances, receipt of prior payment.
    
    Service, installation and training  Revenue from service events not covered by
warranty or a service contract is recognized upon completion of the service. Service can
be provided in the field or at our service depot. For a small number of products, we offer
the option to purchase installation services. Installation is billed separately at the
time of performance and is not part of a package price for instruments. We have
established a fair value for installation services, as installation can be purchased with
or without an instrument. Further, a third party or the customer can perform the
installation. Training is billed separately at the time of performance and is not part of
a package price for instruments. Training revenue is recognized upon completion of the
training. We determine that the SAB 104 criteria have been met through receipt of a valid
purchase order and issuance by us of either a sales order confirmation or an invoice,
receipt of a customer acknowledgment that the service, installation or training has been
completed, issuance of an invoice indicating the price and determination of
credit-worthiness or, in certain circumstances, receipt of prior payment.
    
    Service contracts  Revenue from service contracts for our instruments, generally
with a one-year term, is recognized ratably over the period of coverage. We determine that
the SAB 104 criteria have been met through receipt of a valid purchase order and issuance
by us of either a sales order confirmation or an invoice, issuance of an invoice
indicating the price and determination of credit-worthiness or, in certain circumstances,
receipt of prior payment.
    
    Technology license agreements  Revenue from technology license agreements is
recognized upon completion of our obligations to the licensee. We determine that the SAB
104 criteria have been met through receipt of an executed license agreement and
determination of credit-worthiness or, in certain circumstances, receipt of prior payment.
We have no ongoing obligations under our current technology license agreements.
 Warranty
  Accounts Receivable
  Inventories
  27




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Goodwill and Other Intangible Assets
  Equity Investments
  Income Taxes
    Stock-Based Compensation
   28




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Results of Operations
  Years Ended December 31,2006
    
    2005
    
    2004Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    37.6
    
    
    
    38.6
    
    
    
    38.1Gross profit
    
    
    62.4
    
    
    
    61.4
    
    
    
    61.9Operating expenses:
    
    
    
    
    
    
    
    
    
    
    Research and development
    
    
    12.5
    
    
    
    13.9
    
    
    
    14.8Selling, general and administrative
    
    
    38.5
    
    
    
    32.9
    
    
    
    35.2Acquired in-process research and development
    
    
    2.3
    
    
    
    
    
    
    
    3.4Restructuring and other charges
    
    
    0.2
    
    
    
    0.8
    
    
    
    0.8Total operating expenses
    
    
    53.5
    
    
    
    47.6
    
    
    
    54.1Income from operations
    
    
    8.9
    
    
    
    13.8
    
    
    
    7.8Gain on sale of equity securities
    
    
    1.2
    
    
    
    
    
    
    
    12.3Translation gain on liquidation of subsidiaries
    
    
    0.8
    
    
    
    
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Interest and other income (expense), net
    
    
    0.3
    
    
    
    (0.3
    )
    
    
    0.2Income before income taxes
    
    
    11.1
    
    
    
    13.5
    
    
    
    20.1Income tax provision
    
    
    5.3
    
    
    
    4.7
    
    
    
    8.6Net income
    
    
    5.8
    %
    
    
    8.7
    %
    
    
    11.6
    %
 Years Ended December 31, 2006 and 2005
 Revenues
  Gross margin
  Research and development expenses
  Selling, general and administrative expenses
  29




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##### Table of Contents



Acquired in-process research and development
  Restructuring and other charges
   Gain on sale of equity securities
  Translation gain on liquidation of subsidiaries
  Interest expense
  Interest and other income (expense), net
  Income tax provision
  Years Ended December 31, 2005 and 2004
 Revenues
  30




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Gross margin
  Research and development expenses
  Selling, general and administrative expenses
  Acquired in-process research and development
  Restructuring and other charges
   Gain on sale of equity securities
  Interest expense
  Interest and other income (expense), net
  Income tax provision
  31




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Liquidity and Capital Resources
       32




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
    
    the progress of our research and development;
    
    the number and scope of our research and development programs;
    
    our need to develop new and enhanced products;
    
    market acceptance and demand for our products;
    
    the costs that may be involved in enforcing our patent claims and other intellectual property rights;
    
    potential acquisition and technology licensing opportunities;
    
    the costs associated with repurchasing shares of our common stock;
    
    manufacturing capacity requirements; and
    
    the costs of expanding our sales, marketing and distribution capabilities both in the United States and abroad.
   Contractual Obligations
  Payments Due by Period2012 andTotal
    
    2007
    
    2008 to 2009
    
    2010 to 2011
    
    thereafterOperating leases
    
    $
    31.2
    
    
    $
    6.3
    
    
    $
    11.2
    
    
    $
    9.2
    
    
    $
    4.5Unconditional purchase obligations
    
    
    14.1
    
    
    
    14.1
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    45.3
    
    
    $
    20.4
    
    
    $
    11.2
    
    
    $
    9.2
    
    
    $
    4.5
 Recent Accounting Pronouncements
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  33




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##### Table of Contents



Foreign Currency Exchange
  Interest and Investment Income
  Debt and Interest Expense
  
 Item 8. Financial Statements and Supplementary Data.
  Financial Statements:
 
    
    Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm;
    
    Consolidated Balance Sheets as of December 31, 2006 and 2005;
    
    Consolidated Statements of Income for each of the three years in the period ended December 31, 2006;
    
    Consolidated Statements of Stockholders Equity for each of the three years in the period ended December 31, 2006;
    
    Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2006; and
    
    Notes to Consolidated Financial Statements.
 Financial Statement Schedules:
 Schedule II  Valuation and Qualifying Accounts
  34




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Managements Annual Report on Internal Control over Financial Reporting
 Internal Control
 Integrated Framework
  Attestation Report of the Registered Public Accounting Firm
       .
   
 Changes in Internal Control over Financial Reporting
  
 Item 9B. Other Information.
  35




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
 Identification of Directors and Executive Officers
  Name
    
    Age
    
    Position Held with Molecular DevicesJoseph D. Keegan, Ph.D.
    
    
    53
    
    
    President and Chief Executive Officer; DirectorMoshe H. Alafi
    
    
    77
    
    
    DirectorDavid L. Anderson
    
    
    63
    
    
    DirectorA. Blaine Bowman
    
    
    60
    
    
    DirectorAlan Finkel, Ph.D.
    
    
    54
    
    
    DirectorAndré F. Marion
    
    
    71
    
    
    DirectorHarden M. McConnell, Ph.D.
    
    
    79
    
    
    DirectorJ. Allan Waitz, Ph.D.
    
    
    71
    
    
    DirectorTimothy A. Harkness
    
    
    40
    
    
    Chief Financial Officer and Senior Vice President
Finance and OperationsSteven Davenport
    
    
    41
    
    
    Vice President European OperationsJan Hughes
    
    
    46
    
    
    Vice President Worldwide MarketingGillian M.K. Humphries,
Ph.D.
    
    
    68
    
    
    Vice President Strategic AffairsRobert J. Murray
    
    
    58
    
    
    Vice President Worldwide OperationsThomas J. OLenic
    
    
    43
    
    
    Vice President North American Sales and ServicePatricia C. Sharp
    
    
    63
    
    
    Vice President Human ResourcesJ. Richard Sportsman, Ph.D.
    
    
    54
    
    
    Vice President Assay and Reagent Research and DevelopmentRobert H. Wicke
    
    
    37
    
    
    Vice President Product Development
 Joseph D. Keegan, Ph.D.
 Moshe H. Alafi
 David L. Anderson
 A. Blaine Bowman
 Alan Finkel, Ph.D.
 André F. Marion
 36




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##### Table of Contents



Harden M. McConnell, Ph.D.
 J. Allan Waitz, Ph.D.
 Timothy A. Harkness
 Steven Davenport
 Jan Hughes
 Gillian M.K. Humphries, Ph.D.
 Robert J. Murray
 Thomas J. OLenic
 Patricia C. Sharp
 37




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##### Table of Contents



J. Richard Sportsman, Ph.D.
 Robert H. Wicke
 Audit Committee
  Schedule 16(a) Beneficial Ownership Reporting Compliance
   Code of Conduct
  
 Item 11. Executive Compensation.
 Compensation Discussion and Analysis
 Overview
  38




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##### Table of Contents




    
    Base Salary.Salary for each of our executive officers was based principally on an
assessment of the executive officers current salary against individual performance and
peer company pay levels.
    
    Bonus.Annual cash bonuses are awarded to our executive officers based on the
achievement of individual and company-wide performance objectives.
    
    Long-Term Incentive Compensation.Long-term incentive awards, comprised of stock
option grants, are designed to ensure that incentive compensation is linked to our
long-term performance and to align our executive officers performance objectives with the
interests of our stockholders.
  Role of the Compensation Committee in Setting Executive Compensation
  Benchmarking of Cash and Long-Term Incentive Compensation
  Executive Compensation Program
  39




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##### Table of Contents



Base Salary.
 Bonus.
 
    
    a revenue growth target, which was weighted at 25%;
    
    an operating margin target, which was weighted at 25%;
    
    the performance objectives specified in our 2006 Balanced Scorecard (described below)
which collectively were weighted at 30%; and
    
    personal performance objectives for each executive officer individually, which were
weighted at 20%.
    40




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##### Table of Contents



Long-Term Incentive Compensation.
   Severance and Change in Control Benefits.
 Other Benefits.
 Perquisites.
 41




---



##### Table of Contents



Compensation Actions for Our Executive Officers for 2006
  Joseph D. Keegan, Ph.D.  President and Chief Executive Officer
  
 Timothy A. Harkness  Chief Financial Officer and Senior Vice President Finance and Operations
  Thomas J. OLenic  Vice President North American Sales and Service
  42




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##### Table of Contents



Patricia C. Sharp  Vice President Human Resources
  Robert J. Murray  Vice President Worldwide Operations
  Accounting and Tax Considerations
   Summary
  43




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##### Table of Contents



Summary Compensation Table
  2006 SUMMARY COMPENSATION TABLE
 Non-EquityOption
    
    Incentive Plan
    
    All OtherSalary
    
    Bonus
    
    Awards
    
    Compensation
    
    Compensation
    
    TotalName and Principal Position
    
    Year
    
    ($)
    
    ($)(1)
    
    ($)(2)
    
    ($)(3)
    
    ($)
    
    ($)Joseph D. Keegan, Ph.D.
    
    
    2006
    
    
    
    440,833
    
    
    
    175,000
    
    
    
    727,188
    
    
    
    293,154
    
    
    
    26,972
    (4)
    
    
    1,663,147President and Chief Executive OfficerTimothy A. Harkness
    
    
    2006
    
    
    
    330,859
    
    
    
    150,000
    
    
    
    464,366
    
    
    
    132,012
    
    
    
    22,218
    (5)
    
    
    1,099,455Chief Financial Officer and Senior
Vice President Finance and OperationsThomas J. OLenic
    
    
    2006
    
    
    
    220,584
    
    
    
    75,000
    
    
    
    340,927
    
    
    
    54,264
    
    
    
    7,182
    (6)
    
    
    697,957Vice President North American Sales
and ServicePatricia C. Sharp
    
    
    2006
    
    
    
    223,484
    
    
    
    80,000
    
    
    
    327,344
    
    
    
    59,447
    
    
    
    3,882
    (7)
    
    
    694,157Vice President Human ResourcesRobert J. Murray
    
    
    2006
    
    
    
    225,287
    
    
    
    50,000
    
    
    
    300,966
    
    
    
    59,926
    
    
    
    5,712
    (8)
    
    
    641,891Vice President Worldwide Operations
 
 (1)
    
    Amounts in this column represent discretionary bonus award increases above the amounts
earned by the named executive officers under our annual cash bonus award program. These increases
were awarded in recognition of the efforts and contributions of the named executive officers that
were not addressed by the performance objectives under our annual cash bonus award program,
particularly in connection with the strategic review process that ultimately culminated in the
Merger Agreement with MDS.(2)
    
    The dollar amounts in this column represent the compensation cost for the year ended December
31, 2006 of stock option awards granted in and prior to 2006. These amounts have been calculated in
accordance with FAS 123R using the Black Scholes option-pricing model and the assumptions outlined
in Note 7 to the Notes to Consolidated Financial Statements included in this Annual Report on Form
10-K.(3)
    
    See footnote (1) to the 2006 Grants of Plan-Based Awards Table below.(4)
    
    Consists of $9,467 in supplemental health plan expenses reimbursed by us, $2,249 in health club
membership dues reimbursed by us, $12,000 for the use of an automobile, $756 in group life
insurance paid by us, and $2,500 in matching contributions made by us to Dr. Keegans 401(k)
account.(5)
    
    Consists of $10,466 in supplemental health plan expenses reimbursed by us, $9,000 for the use
of an automobile, $252 in group life insurance paid by us, and $2,500 in matching contributions
made by us to Mr. Harkness 401(k) account.(6)
    
    Consists of $4,120 in supplemental health plan expenses reimbursed by us, $562 in group life
insurance paid by us, and $2,500 in matching contributions made by us to Mr. OLenics 401(k)
account.(7)
    
    Consists of $815 in supplemental health plan expenses reimbursed by us, $567 in group life
insurance paid by us, and $2,500 in matching contributions made by us to Ms. Sharps 401(k)
account.(8)
    
    Consists of $2,639 in supplemental health plan expenses reimbursed by us, $573 in group life
insurance paid by us, and $2,500 in matching contributions made by us to Mr. Murrays 401(k)
account. Grants of Plan-Based Awards
  44




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##### Table of Contents



2006 GRANTS OF PLAN-BASED AWARDS TABLE
 All OtherOption Awards:Estimated PossiblePayouts
    
    Number of
    
    Exercise or
    
    GrantUnder Non-Equity
    
    Securities
    
    Base Price
    
    Date FairIncentive Plan Awards
    
    Underlying
    
    of Option
    
    Value ofGrant
    
    Target
    
    Options
    
    Awards
    
    OptionName
    
    Date
    
    ($)(1)
    
    (#)(2)
    
    ($/Sh)
    
    Awards($)(3)Joseph D. Keegan, Ph.D.
    
    
    
    
    
    
    440,833
    
    
    
    
    
    
    
    
    
    
    
    02/09/06
    
    
    
    
    
    
    
    50,000
    
    
    
    29.45
    
    
    
    755,000Timothy A. Harkness
    
    
    
    
    
    
    198,515
    
    
    
    
    
    
    
    
    
    
    
    02/09/06
    
    
    
    
    
    
    
    35,000
    
    
    
    29.45
    
    
    
    528,500Thomas J. OLenic
    
    
    
    
    
    
    88,234
    
    
    
    
    
    
    
    
    
    
    
    02/09/06
    
    
    
    
    
    
    
    25,000
    
    
    
    29.45
    
    
    
    377,500Patricia C. Sharp
    
    
    
    
    
    
    89,394
    
    
    
    
    
    
    
    
    
    
    
    02/09/06
    
    
    
    
    
    
    
    20,000
    
    
    
    29.45
    
    
    
    302,000Robert J. Murray
    
    
    
    
    
    
    90,115
    
    
    
    
    
    
    
    
    
    
    
    02/09/06
    
    
    
    
    
    
    
    20,000
    
    
    
    29.45
    
    
    
    302,000
 
 (1)
    
    This column sets forth the target amount of each named executive officers annual cash
bonus award for the year ended December 31, 2006 under our annual cash bonus award program. The
actual cash bonus award earned for the year ended December 31, 2006 for each named executive
officer is set forth in the 2006 Summary Compensation Table above. As such, the amounts set forth
in this column do not represent additional compensation earned by our named executive officers for
the year ended December 31, 2006. For a description of our annual cash bonus award program, see
Compensation Discussion and AnalysisExecutive Compensation ProgramBonus.(2)
    
    Stock options were granted pursuant to the 2005 Equity Plan. 25% of the shares subject to the
stock option vest on the first anniversary of the grant date, and 6.25% of the shares subject to
the stock option vest quarterly thereafter. Vesting is contingent upon continued service with us
(or our affiliate). For a description of the terms of stock options granted under the 2005 Equity
Plan, see Employment Agreements and ArrangementsStock Option Awards.(3)
    
    Represents the grant date fair value of such option award as determined in accordance with FAS
123R. These amounts have been calculated in accordance with FAS 123R using the Black Scholes
option-pricing model and the assumptions outlined in Note 7 to the Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K. Employment Agreements and Arrangements
 Chief Executive Officer Key Employee Agreement
  45




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##### Table of Contents




    
    we will retain Dr. Keegan as a consultant for a period of one year following his
termination, during which time he will be
entitled to a monthly cash payment equal to 1/12th of the sum of (i) his annual base salary
in effect at the time of his termination plus (ii) the bonus amount Dr. Keegan would have
earned at 100% of target for the year in which the termination occurs. Dr. Keegan agreed to
abide by certain noncompetition covenants during the one-year consulting period;
    
    the outstanding stock options held by Dr. Keegan as of the date of his termination
will become fully vested and exercisable as of that date;
    
    if Dr. Keegan timely elects continuation of his then-current medical, dental and
vision insurance under the Consolidated Omnibus Budget Reconciliation Act of 1985,
(COBRA), then we will pay the portion of the premiums it paid prior to the date of his
termination for up to one year;
    
    we will pay for an executive assistance program for a period not to exceed three
months and at a cost not to exceed $7,500; and
    
    we will provide reasonable secretarial support to Dr. Keegan during his one-year
consulting period from its own support staff, or will reimburse Dr. Keegan for reasonable
secretarial services provided to him during this time, up to a maximum of $1,250 per
month.
  
    
    Dr. Keegan will be entitled to a single lump-sum payment equal to the sum of (i) 24
months of his annual base salary in effect at the time of his termination, plus (ii) a
bonus amount equal to twice what Dr. Keegan would have earned at 100% of target for the
year in which the termination occurs;
    
    the outstanding stock options held by Dr. Keegan as of the date of his termination
will become fully vested and exercisable as of that date;
    
    if Dr. Keegan timely elects continuation of his then-current medical, dental and
vision insurance under COBRA, then we will pay the portion of the premiums it paid prior
to the date of his termination for up to 24 months;
    
    we will pay for an executive assistance program for a period not to exceed three
months and at a cost not to exceed $7,500; and
    
    we will provide reasonable secretarial support to Dr. Keegan during the twenty-four
month period following his termination from its own support staff, or will reimburse Dr.
Keegan for reasonable secretarial services provided to him during this time, up to a
maximum of $1,250 per month.
    Chief Financial Officer Employment Agreement
  46




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##### Table of Contents




    
    we will retain Mr. Harkness as a consultant for a period of one year following his
termination, during which time he will be entitled to a monthly cash payment equal to
1/12th of the sum of (i) his annual base salary in effect at the time of his termination
plus (ii) the bonus amount Mr. Harkness would have earned at 100% of target for the year
in which the termination occurs. Mr. Harkness agreed to abide by certain noncompetition
covenants during the one-year consulting period;
    
    the outstanding stock options held by Mr. Harkness as of the date of his termination
will become fully vested and exercisable as of that date; and
    
    if Mr. Harkness timely elects continuation of his then-current medical, dental and
vision insurance under COBRA, then we will pay the portion of the premiums it paid prior
to the date of his termination for up to one year.
  
    
    Mr. Harkness will be entitled to a single lump-sum payment equal to the sum of (i) 18
months of his annual base salary in effect at the time of his termination, plus (ii) 1.5
times the bonus amount Mr. Harkness would have earned at 100% of target for the year in
which the termination occurs;
    
    the outstanding stock options held by Mr. Harkness as of the date of his termination
will become fully vested and exercisable as of that date; and
    
    if Mr. Harkness timely elects continuation of his then-current medical, dental and
vision insurance under COBRA, then we will pay the portion of the premiums it paid prior
to the date of his termination for up to 18 months.
    47




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##### Table of Contents



Vice President Employment Agreements
  
    
    an initial annual base salary of $185,000 per year, subject to annual review;
    
    signing bonuses totaling $50,000;
    
    participation in our annual cash bonus award program;
    
    the grant of a stock option to purchase 47,500 shares of our common stock, which vested over a period of four years;
    
    the grant of an aggregate of 2,500 shares of our restricted common stock, which vested over a period of two years; and
    
    the provision of standard employee benefits.
   Change in Control Severance Benefit Plan
  
    
    a lump sum payment equal to 12 months salary;
    
    a lump sum bonus payment equal to what would have been earned at 100% of target for the year of termination;
    
    if the executive timely elects continuation of his or her then-current medical,
dental and vision insurance under COBRA, we will pay the portion of premiums it paid prior
to the date of his or her termination for up to 18 months;
    
    the outstanding stock options held by the executive officer as of the date of his or
her termination will become fully vested and exercisable as of that date; and
    
    we will pay for an executive assistance program for a period not to exceed three
months and at a cost not to exceed $7,500.
  Stock Option Awards
  48




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##### Table of Contents



Exercise Price.
 Consideration.
 Vesting.
 Tax Withholding.
 Term.
 Termination of Service.
 Restrictions on Transfer.
 Annual Cash Bonus Awards
  Other Arrangements
  49




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##### Table of Contents



Outstanding Equity Awards at December 31, 2006
  2006 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
 Option AwardsNumber of
    
    Number ofSecurities
    
    SecuritiesUnderlying
    
    UnderlyingUnexercised
    
    Unexercised
    
    OptionOptions
    
    Options
    
    Exercise
    
    Option(#)
    
    (#)
    
    Price
    
    ExpirationName
    
    
    
    
    
    Exercisable
    
    Unexercisable
    
    ($)
    
    DateJoseph D. Keegan, Ph.D.
    
    
    (1
    )
    
    
    25,000
    
    
    
    
    
    
    
    19.12
    
    
    
    03/30/08(2
    )
    
    
    50,000
    
    
    
    
    
    
    
    26.63
    
    
    
    05/20/09(2
    )
    
    
    75,000
    
    
    
    
    
    
    
    48.00
    
    
    
    02/08/10(3
    )
    
    
    60,000
    
    
    
    
    
    
    
    22.95
    
    
    
    05/29/11(3
    )
    
    
    60,000
    
    
    
    
    
    
    
    20.20
    
    
    
    01/31/12(3
    )
    
    
    30,531
    
    
    
    2,969
    
    
    
    15.85
    
    
    
    02/10/13(3
    )
    
    
    41,250
    
    
    
    18,750
    
    
    
    19.66
    
    
    
    02/11/14(3
    )
    
    
    22,968
    
    
    
    29,532
    
    
    
    21.32
    
    
    
    02/16/15(3
    )
    
    
    
    
    
    
    50,000
    
    
    
    29.45
    
    
    
    02/09/16Timothy A. Harkness
    
    
    (2
    )
    
    
    30,000
    
    
    
    
    
    
    
    48.00
    
    
    
    02/08/10(3
    )
    
    
    10,000
    
    
    
    
    
    
    
    20.20
    
    
    
    01/31/12(3
    )
    
    
    10,468
    
    
    
    2,032
    
    
    
    15.85
    
    
    
    02/10/13(3
    )
    
    
    24,062
    
    
    
    10,938
    
    
    
    19.66
    
    
    
    02/11/14(3
    )
    
    
    14,218
    
    
    
    18,282
    
    
    
    21.32
    
    
    
    02/16/15(3
    )
    
    
    
    
    
    
    35,000
    
    
    
    29.45
    
    
    
    02/09/16Thomas J. OLenic
    
    
    (2
    )
    
    
    5,000
    
    
    
    
    
    
    
    48.00
    
    
    
    02/08/10(3
    )
    
    
    4,218
    
    
    
    1,407
    
    
    
    15.85
    
    
    
    02/10/13(3
    )
    
    
    4,687
    
    
    
    7,813
    
    
    
    19.66
    
    
    
    02/11/14(3
    )
    
    
    10,937
    
    
    
    14,063
    
    
    
    21.32
    
    
    
    02/16/15(3
    )
    
    
    
    
    
    
    25,000
    
    
    
    29.45
    
    
    
    02/09/16Patricia C. Sharp
    
    
    (2
    )
    
    
    47,500
    
    
    
    
    
    
    
    77.69
    
    
    
    10/26/10(3
    )
    
    
    15,000
    
    
    
    
    
    
    
    22.95
    
    
    
    05/29/11(3
    )
    
    
    17,500
    
    
    
    
    
    
    
    20.20
    
    
    
    01/31/12(3
    )
    
    
    7,937
    
    
    
    1,563
    
    
    
    15.85
    
    
    
    02/10/13(3
    )
    
    
    7,187
    
    
    
    7,813
    
    
    
    19.66
    
    
    
    02/11/14(3
    )
    
    
    10,937
    
    
    
    14,063
    
    
    
    21.32
    
    
    
    02/16/15(3
    )
    
    
    
    
    
    
    20,000
    
    
    
    29.45
    
    
    
    02/09/16Robert J. Murray
    
    
    (2
    )
    
    
    15,000
    
    
    
    
    
    
    
    26.63
    
    
    
    05/20/09(2
    )
    
    
    22,500
    
    
    
    
    
    
    
    48.00
    
    
    
    02/08/10(3
    )
    
    
    25,000
    
    
    
    
    
    
    
    22.95
    
    
    
    05/29/11(3
    )
    
    
    25,000
    
    
    
    
    
    
    
    20.20
    
    
    
    01/31/12(3
    )
    
    
    21,093
    
    
    
    1,407
    
    
    
    15.85
    
    
    
    02/10/13(3
    )
    
    
    17,187
    
    
    
    7,813
    
    
    
    19.66
    
    
    
    02/11/14(3
    )
    
    
    8,750
    
    
    
    11,250
    
    
    
    21.32
    
    
    
    02/16/15(3
    )
    
    
    
    
    
    
    20,000
    
    
    
    29.45
    
    
    
    02/09/16
 
    50




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##### Table of Contents



Option Exercises During 2006
  2006 OPTION EXERCISES TABLE
 Option AwardsNumber of Shares
    
    Value RealizedAcquired on Exercise
    
    on ExerciseName
    
    (#)
    
    ($)Joseph D. Keegan, Ph.D.
    
    
    65,500
    
    
    
    873,735Timothy A. Harkness
    
    
    140,000
    
    
    
    1,532,711Thomas J. OLenic
    
    
    36,235
    
    
    
    398,271Patricia C. Sharp
    
    
    52,000
    
    
    
    605,619Robert J. Murray
    
    
    3,000
    
    
    
    57,797
 Potential Payments Upon Termination or Change in Control
  Joseph D. Keegan, Ph.D.
  No Change in Control
    
    Change in ControlTermination
    
    Terminationwithout Cause or for
    
    without Cause or forGood Reason
    
    Good Reason
    
    Death or DisabilityCompensation and Benefits
    
    ($)
    
    ($)
    
    ($)Base Salary and Bonus
    
    
    
    
    
    
    1,771,666
    
    
    
    111,250Consulting Agreement
    
    
    885,833
    
    
    
    
    
    
    
    COBRA Premiums
    
    
    12,924
    
    
    
    25,853
    
    
    
    3,231Vesting Acceleration (1)
    
    
    41,936
    
    
    
    41,936
    
    
    
    Executive Assistance Program
    
    
    7,500
    
    
    
    7,500
    
    
    
    Secretarial Support
    
    
    14,400
    
    
    
    28,800
    
    
    
    
 
  51




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##### Table of Contents



Timothy A. Harkness
  No Change in Control
    
    Change in ControlTermination
    
    Terminationwithout Cause or for
    
    without Cause or forGood Reason
    
    Good Reason
    
    Death or DisabilityCompensation and Benefits
    
    ($)
    
    ($)
    
    ($)Base Salary and Bonus
    
    
    
    
    
    
    798,032
    
    
    
    83,377Consulting Agreement
    
    
    532,021
    
    
    
    
    
    
    
    COBRA Premiums
    
    
    12,876
    
    
    
    19,360
    
    
    
    3,219Vesting Acceleration (1)
    
    
    26,030
    
    
    
    26,030
    
    
    
    
 
  Other Named Executive Officers
  Bonus
    
    
    
    
    
    Vesting
    
    Executive AssistanceBase Salary
    
    Payment
    
    COBRA Premiums
    
    Acceleration
    
    ProgramName
    
    ($)
    
    ($)
    
    ($)
    
    ($)(1)
    
    ($)Thomas J. OLenic
    
    
    222,685
    
    
    
    88,234
    
    
    
    19,266
    
    
    
    18,361
    
    
    
    7,500Patricia C. Sharp
    
    
    224,926
    
    
    
    89,394
    
    
    
    9,720
    
    
    
    19,175
    
    
    
    7,500Robert J. Murray
    
    
    227,089
    
    
    
    90,115
    
    
    
    11,488
    
    
    
    18,361
    
    
    
    7,500
 
  Compensation of Directors
 Cash Compensation Arrangements
  Equity Compensation Arrangements
  52




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##### Table of Contents



2006 DIRECTOR COMPENSATION TABLE
 Fees Earned or
    
    
    
    
    
    All OtherPaid in Cash
    
    Option Awards
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)(1)(2)(3)
    
    ($)
    
    ($)Moshe H. Alafi
    
    
    25,250
    
    
    
    67,075
    
    
    
    
    
    
    
    92,325David L. Anderson
    
    
    28,500
    
    
    
    67,075
    
    
    
    
    
    
    
    95,575A. Blaine Bowman
    
    
    34,250
    
    
    
    67,075
    
    
    
    
    
    
    
    101,325Alan Finkel, Ph.D.
    
    
    24,500
    
    
    
    
    
    
    
    7,422
    (5)
    
    
    31,922Paul Goddard, Ph.D.(4)
    
    
    9,250
    
    
    
    57,227
    
    
    
    41,560
    (6)
    
    
    108,037André F. Marion
    
    
    31,000
    
    
    
    67,075
    
    
    
    
    
    
    
    98,075Harden M. McConnell, Ph.D.
    
    
    26,750
    
    
    
    67,075
    
    
    
    
    
    
    
    93,825J. Allan Waitz, Ph.D.
    
    
    26,250
    
    
    
    67,075
    
    
    
    1,408
    (5)
    
    
    94,733
 
       53




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##### Table of Contents



Compensation Committee Interlocks and Insider Participation
  Compensation Committee Report
   
 54




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 Security Ownership of Management and Certain Beneficial Owners
  Beneficial Ownership (1)Percent ofBeneficial Owner
    
    Number of Shares
    
    
    Total (%)Franklin Resources, Inc.(2)One Franklin ParkwaySan Mateo, California 94403-1906
    
    
    1,563,193
    
    
    
    9.5OppenheimerFunds, Inc.(3)Two World Financial Center225 Liberty Street, 11th FloorNew York, New York 10281-1008
    
    
    1,174,903
    
    
    
    7.1Barclays Global Investors, NA(4)45 Fremont StreetSan Francisco, California 94105
    
    
    1,050,229
    
    
    
    6.4Brown Capital Management, Inc.(5)1201 N. Calvert StreetBaltimore, Maryland 21202
    
    
    999,000
    
    
    
    6.0WEDGE Capital Management L.L.P.(6)301 South College Street, Suite 2920Charlotte, North Caroline 28202-6002
    
    
    858,901
    
    
    
    5.2Joseph D. Keegan, Ph.D.(7)
    
    
    388,099
    
    
    
    2.3Moshe H. Alafi(8)
    
    
    359,040
    
    
    
    2.2Harden M. McConnell, Ph.D.(9)
    
    
    246,300
    
    
    
    1.5Robert J. Murray(10)
    
    
    171,970
    
    
    
    1.0Patricia C. Sharp(11)
    
    
    119,258
    
    
    
    *Timothy A. Harkness(12)
    
    
    110,269
    
    
    
    *A. Blaine Bowman(13)
    
    
    76,500
    
    
    
    *J. Allan Waitz, Ph.D.(14)
    
    
    43,000
    
    
    
    *David L. Anderson(15)
    
    
    41,500
    
    
    
    *Thomas J. OLenic(16)
    
    
    36,397
    
    
    
    *André F. Marion(17)
    
    
    21,000
    
    
    
    *Alan Finkel, Ph.D.
    
    
    
    
    
    
    All directors and executive officers as a group (17 persons)(18)
    
    
    1,782,177
    
    
    
    10.1
 
  (1)
    
    This table is based upon information supplied by officers and directors and Schedules 13G and
13G/A filed with the SEC. Unless otherwise indicated in the footnotes to this table and
subject to community property laws where applicable, we believe that each of the stockholders
named in this table has sole voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on 16,527,156 shares outstanding on
January 31, 2007, adjusted as required by rules promulgated by the SEC. Unless otherwise
indicated, the address of each of the individuals and entities listed in this table is c/o
Molecular Devices, 1311 Orleans Drive, Sunnyvale, CA 94089-1136.
 (2)
    
    Based upon a Schedule 13G/A filed with the SEC on February 6, 2007 by Franklin Resources,
Inc., or FRI. According to the Schedule 13G/A filed by FRI, such shares are beneficially
owned by one or more open or closed-end investment companies or other managed accounts that
are investment advisory clients of investment advisers that are direct or indirect
subsidiaries of FRI. FRI, Charles B. Johnson and Rupert H. Johnson, Jr., each an owner of
more than 10% of the outstanding common stock of FRI, may be deemed to be beneficial owners of
securities held by persons and entities advised by the direct or indirect subsidiaries of FRI. Pursuant
to the Schedule 13G/A filed by FRI, each of FRI, the direct or indirect subsidiaries of FRI,
Charles B. Johnson and Rupert H. Johnson, Jr. disclaim beneficial ownership of such shares.
According to the Schedule 13G/A filed by FRI, FRI has shared voting power over 1,540,493 of
such shares and has shared dispositive power over all of such shares. The Schedule 13G/A filed
by FRI provides information only as of December 31, 2006 and, consequently, FRIs beneficial
ownership of our common stock may have changed between December 31, 2006 and January 31, 2007.
 55




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##### Table of Contents



(3)
    
    Based upon a Schedule 13G filed with the SEC on February 6, 2007 by OppenheimerFunds, Inc.,
or OFI. The Schedule 13G filed by OFI was filed on behalf of itself and Oppenheimer Global
Opportunities Fund. Pursuant to the Schedule 13G filed by OFI, OFI has shared voting and
dispositive power over such shares, and Oppenheimer Global Opportunities Fund has shared
voting and dispositive power over 1,000,000 of such shares. The Schedule 13G filed by OFI
provides information only as of December 31, 2006 and, consequently, OFIs beneficial
ownership of our common stock may have changed between December 31, 2006 and January 31, 2007.(4)
    
    Based upon a Schedule 13G filed with the SEC on January 23, 2007 by Barclays Global
Investors, NA, or Barclays. The Schedule 13G filed by Barclays was filed on behalf of itself
and Barclays Global Fund Advisors, Barclays Global Investors, Ltd., Barclays Global Investors
Japan Trust and Banking Company Limited, and Barclays Global Investors Japan Limited.
Pursuant to the Schedule 13G filed by Barclays, Barclays and the foregoing affiliates of
Barclays have sole voting power over 957,888 of such shares, and have sole dispositive power
over all of such shares. The Schedule 13G filed by Barclays provides information only as of
December 31, 2006 and, consequently, Barclays beneficial ownership of our common stock may
have changed between December 31, 2006 and January 31, 2007.(5)
    
    Based upon a Schedule 13G/A filed with the SEC on February 5, 2007 by Brown Capital
Management, Inc., or BCM. According to the Schedule 13G/A filed by BCM, such shares are owned
by various investment advisory clients of BCM, which is deemed to be a beneficial owner of
such shares due to its discretionary power to make investment decisions over such shares for
its clients and its ability to vote such shares. Pursuant to the Schedule 13G/A filed by BCM,
BCM has sole dispositive power over all of such shares and has sole voting power over 503,500
of such shares. The Schedule 13G/A filed by BCM provides information only as of December 31,
2006 and, consequently, BCMs beneficial ownership of our common stock may have changed
between December 31, 2006 and January 31, 2007.(6)
    
    Based upon a Schedule 13G filed with the SEC on February 13, 2006 by WEDGE Capital Management
L.L.P., or WCM. Pursuant to the Schedule 13G filed by WCM, WCM has sole dispositive power over
all of such shares, and has sole voting power over 853,321 of such shares. The Schedule 13G
filed by WCM provides information only as of December 31, 2006 and, consequently, WCMs
beneficial ownership of our common stock may have changed between December 31, 2006 and
January 31, 2007.(7)
    
    Consists of 849 shares held by the Keegan 1990 Revocable Trust UAD 4/27/90, of which Dr.
Keegan is a trustee, and 387,250 shares that may be acquired within 60 days after January 31,
2007 pursuant to outstanding stock options.(8)
    
    Includes 306,040 shares held by Alafi Capital Company, of which Mr. Alafi is a general
partner, and 36,500 shares that may be acquired within 60 days after January 31, 2007 pursuant
to outstanding stock options.(9)
    
    Consists of 177,400 shares held by the Harden M. McConnell and Sophia G. McConnell Trust DTD
3/29/82, of which Dr. McConnell is a co-trustee, 11,200 shares held by the Jane R. McConnell
1999 Irrevocable Trust, of which Dr. McConnell is a trustee, 11,200 shares held by the Trevor
M. McConnell 1999 Irrevocable Trust, of which Dr. McConnell is a trustee, 10,000 shares held
by the Hunter McConnell 1999 Irrevocable Trust, of which Dr. McConnell is a trustee, and
36,500 shares that may be acquired within 60 days after January 31, 2007 pursuant to
outstanding stock options.(10)
    
    Includes 48 shares held in joint tenancy with Mr. Murrays spouse, and 143,750 shares that
may be acquired within 60 days after January 31, 2007 pursuant to outstanding stock options.(11)
    
    Includes 115,750 shares that may be acquired within 60 days after January 31, 2007 pursuant
to outstanding stock options.(12)
    
    Includes 103,750 shares that may be acquired within 60 days after January 31, 2007 pursuant
to outstanding stock options.(13)
    
    Includes 36,500 shares that may be acquired within 60 days after January 31, 2007 pursuant to
outstanding stock options.(14)
    
    Includes 36,500 shares that may be acquired within 60 days after January 31, 2007 pursuant to
outstanding stock options.(15)
    
    Consists of 5,000 shares held by the Anderson Living Trust UAD 1/22/98, of which Mr. Anderson
is a trustee, and 36,500 shares that may be acquired within 60 days after January 31, 2007
pursuant to outstanding stock options. Mr. Anderson disclaims
beneficial ownership of the shares held by the Anderson Living Trust UAD 1/22/98 except to the extent of his pecuniary
interest therein.(16)
    
    Includes 35,625 shares that may be acquired within 60 days after January 31, 2007 pursuant to
outstanding stock options.(17)
    
    Includes 20,000 shares that may be acquired within 60 days after January 31, 2007 pursuant to
outstanding stock options.(18)
    
    Includes 522,311 shares held by persons and/or entities affiliated with certain directors and
executive officers and 1,156,839 shares that certain directors and executive officers have the
right to acquire within 60 days after January 31, 2007 pursuant to outstanding stock options.
 56




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##### Table of Contents



Agreement and Plan of Merger with MDS
  Securities Authorized for Issuance Under Equity Compensation Plans
  Number ofsecurities remainingNumber of
    
    
    
    
    
    available for futuresecurities to be
    
    
    
    
    
    issuance underissued upon
    
    Weighted-average
    
    equityexercise of
    
    exercise price of
    
    compensation plansoutstanding options,
    
    outstanding
    
    (excludingwarrants and rights
    
    options, warrants
    
    securities reflectedPlan category
    
    (a)
    
    and rights (b)
    
    in column (a))(c)Equity compensation plans approved by security holders
    
    
    2,248,598
    
    
    $
    27.34
    
    
    
    930,865Equity compensation plans not approved by security holders (1)
    
    
    64,554
    
    
    $
    18.24
    
    
    
    11,706Total
    
    
    2,313,152
    
    
    
    
    
    
    
    942,571
 
  Molecular Devices Corporation 2001 Stock Option Plan
  57




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions, and Director Independence.
 Policies and Procedures for Review of Related Party Transactions
  Indemnity Agreements; Insurance
  Independence of Our Board of Directors
  58




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##### Table of Contents



Item 14. Principal Accountant Fees and Services.
 Principal Accountant Fees
  Fiscal Year Ended December 31,2006
    
    2005Audit Fees
    
    $
    1,305,000
    
    
    $
    1,257,000Audit-Related Fees
    
    
    140,000
    
    
    
    Tax Fees
    
    
    12,000
    
    
    
    9,000All Other Fees
    
    
    
    
    
    
    Total Fees
    
    $
    1,457,000
    
    
    $
    1,266,000
 Audit Fees.
 Audit-Related Fees.
 Tax Fees.
 All Other Fees.
  Pre-Approval of Audit and Non-Audit Services
   
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
     59




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF DOCUMENT2.1(19)
    
    Agreement and Plan of Merger, dated as of January 28, 2007, by and among MDS Inc., a company organized under the laws of Canada,
Monument Acquisition Corp., a Delaware corporation, and an indirect wholly-owned subsidiary of MDS and direct wholly owned
subsidiary of MDS (US) Inc., a Delaware corporation, and Registrant3.1(1)
    
    Amended and Restated Certificate of Incorporation of Registrant3.2(1)
    
    Bylaws of the Registrant3.3(5)
    
    Certificate of Amendment to Certificate of Incorporation3.4(8)
    
    Certificate of Designation of Series A Junior Participating Preferred Stock of Registrant4.1(1)
    
    Specimen Certificate of Common Stock of Registrant4.2(8)
    
    Rights Agreement, dated October 25, 2001, among the Registrant and EquiServe Trust Company, N.A.4.3(19)
    
    Amendment No. 1 to Rights Agreement, dated as of January 28, 2007, by and between Computershare Trust Company, N.A.
(successor-in-interest to EquiServe Trust Company, N.A.) and Registrant.10.1(1)*
    
    1988 Stock Option Plan10.2(1)*
    
    Form of Incentive Stock Option under the 1988 Stock Option Plan10.3(1)*
    
    Form of Supplemental Stock Option under the 1988 Stock Option Plan10.4(5)*
    
    1995 Employee Stock Purchase Plan10.6(1)*
    
    Form of Nonstatutory Stock Option under the 1995 Non-Employee Directors Stock Option Plan10.8(1)*
    
    Form of Incentive Stock Option under the 1995 Stock Option Plan10.9(1)*
    
    Form of Nonstatutory Stock Option under the 1995 Stock Option Plan10.10(1)*
    
    Form of Early Exercise Stock Purchase Agreement under the 1995 Stock Option Plan10.11(1)*
    
    Form of Indemnity Agreement between the Registrant and its Directors and Executive Officers10.19(10)*
    
    Amended Key Employee Agreement for Joseph D. Keegan, Ph.D., dated July 29, 2004.10.20(2)
    
    Exclusive License and Technical Support Agreement, dated August 28, 1998, by and between the Registrant and Affymax10.21(2)*
    
    Employee Offer Letter for Timothy A. Harkness10.24(10)*
    
    1995 Non-Employee Directors Stock Option Plan, as amended10.25(10)*
    
    1995 Stock Option Plan, as amended10.26(3)*
    
    Employee Offer Letter for Patricia Sharp10.27(4)*
    
    LJL BioSystems 1994 Equity Incentive Plan and Forms of Agreements10.28(4)*
    
    LJL BioSystems 1997 Stock Plan and Forms of Agreements10.29(4)*
    
    LJL BioSystems 1998 Directors Stock Option Plan and Forms of Agreements10.33(6)
    
    Lease Agreement, dated May 26, 2000, by and between Aetna Life Insurance Company and the Registrant10.34(7)*
    
    Change in Control Severance Benefit Plan10.37(5)*
    
    Key Employee Agreement for Tom OLenic10.38(10)*
    
    2001 Stock Option Plan, as amended10.39(9)
    
    Lease dated May 28, 2002 by and between The Irvine Company and the Registrant10.40(9)*
    
    Letter Agreement, dated April 11, 2002, by and between the Registrant and Joseph D. Keegan, Ph.D.10.43(11)*
    
    Amended Key Employment Agreement for Timothy A. Harkness10.44(11)*
    
    Employee Offer Letter for Alan Finkel10.45(11)*
    
    Employee Offer Letter for Steven Davenport10.46(11)*
    
    Employee Offer Letter for Jan Hughes10.47(11)*
    
    Amended Employee Offer Letter for Jan Hughes10.50(12)*
    
    Form of Stock Option Agreement for Non-Employee Director under the 1995 Equity Incentive Plan10.51(13)
    
    Asset Purchase Agreement, dated as of March 9, 2005, by and between Molecular Devices Corporation and Xsira Pharmaceuticals, Inc.10.52(14)*
    
    2005 Equity Incentive Plan10.53(14)*
    
    Form of Stock Option Agreement under the 2005 Equity Incentive Plan10.54(15)*
    
    Form of Stock Option Agreement for Non-Employee Director under the 2005 Equity Incentive Plan10.55(16)
    
    First Amendment to Lease, dated January 27, 2006, by and between the Registrant and Moffett Office Park Investors LLC
(successor-in-interest to Aetna Life Insurance Company)10.56(16)
    
    First Amendment to Lease, dated January 30, 2006, by and between the Registrant and The Irvine Company LLC10.57(17)*
    
    Executive Officer Compensation Arrangements10.58(18)*
    
    Non-Employee Director Cash Compensation Arrangements21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm24.1
    
    Power of Attorney (contained on the signature pages hereto)31.1
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(a)31.2
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(a)32.1**
    
    Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
(18 U.S.C 1350)
 
   60




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61




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##### Table of Contents



SIGNATURES
  Molecular Devices CorporationBy:
    /s/ Joseph D. Keegan, Ph.D.Joseph D. Keegan, Ph.D.President and Chief Executive Officer   Signature
    
    Title
    
    Date/s/  Joseph D. Keegan, Ph.D

Joseph D. Keegan, Ph.D.
    
    President, Chief Executive
Officer 
and Director (Principal Executive 
Officer)
    
    March 16, 2007/s/  Timothy A. Harkness

Timothy A. Harkness
    
    Chief Financial Officer and
Senior 
Vice President Finance and 
Operations (Principal Financial
and 
Accounting Officer)
    
    March 16, 2007/s/  Moshe H. Alafi

Moshe H. Alafi
    
    Director
    
    March 16, 2007/s/  David L. Anderson

David L. Anderson
    
    Director
    
    March 16, 2007/s/  A. Blaine Bowman

A. Blaine Bowman
    
    Director
    
    March 16, 2007/s/  Andre F. Marion

Andre F. Marion
    
    Director
    
    March 16, 2007/s/  Harden M. McConnell,
Ph.D.

Harden M. McConnell, Ph.D.
    
    Director
    
    March 16, 2007/s/  J. Allan Waitz, Ph.D.

J. Allan Waitz, Ph.D.
    
    Director
    
    March 16, 2007/s/  Alan Finkel, Ph.D.

Alan Finkel, Ph.D.
    
    Director
    
    March 16, 2007
 62




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##### Table of Contents



REPORT OF ERNST
& YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     .
   
 63




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MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 December 31,2006
    
    2005(In thousands, except share and per shareamounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,824
    
    
    $
    28,908Accounts receivable, net of allowance for doubtful accounts of $182 and $442
    
    
    39,098
    
    
    
    41,197Inventories, net
    
    
    29,435
    
    
    
    23,197Deferred tax assets
    
    
    4,326
    
    
    
    5,873Prepaid and other current assets
    
    
    3,895
    
    
    
    2,353Total current assets
    
    
    99,578
    
    
    
    101,528Equipment and leasehold improvements, net
    
    
    10,774
    
    
    
    9,902Goodwill
    
    
    107,302
    
    
    
    102,835Developed technology
    
    
    24,442
    
    
    
    25,152Intangible and other assets
    
    
    24,682
    
    
    
    17,999$
    266,778
    
    
    $
    257,416LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    7,091
    
    
    $
    7,676Accrued compensation
    
    
    9,415
    
    
    
    9,759Other accrued liabilities
    
    
    13,680
    
    
    
    13,623Deferred revenue
    
    
    8,976
    
    
    
    7,806Total current liabilities
    
    
    39,162
    
    
    
    38,864Deferred tax liabilities
    
    
    8,341
    
    
    
    4,486Other long-term liabilities
    
    
    1,289
    
    
    
    993Total liabilities
    
    
    48,792
    
    
    
    44,343Commitments and contingencies (Note 3)Stockholders equityPreferred stock, $.001 par value; 3,000,000 shares authorized, no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $.001 par value; 60,000,000 shares authorized; 20,803,632 and 20,076,495 shares
issued and 16,486,302 and 16,681,727 outstanding at December 31, 2006 and 2005, respectively
    
    
    21
    
    
    
    20Additional paid-in capital
    
    
    292,375
    
    
    
    271,300Retained earnings
    
    
    17,850
    
    
    
    7,023Treasury stock, at cost; 4,317,330 and 3,394,768 shares at December 31, 2006 and 2005, respectively
    
    
    (93,523
    )
    
    
    (66,519
    )Accumulated other comprehensive income
    
    
    1,263
    
    
    
    1,249Total stockholders equity
    
    
    217,986
    
    
    
    213,073$
    266,778
    
    
    $
    257,416
  64




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MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME
 Years Ended December 31,2006
    
    2005
    
    2004(In thousands, except per share amounts)Revenues
    
    $
    186,412
    
    
    $
    181,951
    
    
    $
    149,095Cost of revenues
    
    
    70,065
    
    
    
    70,267
    
    
    
    56,840Gross profit
    
    
    116,347
    
    
    
    111,684
    
    
    
    92,255Operating expenses:Research and development
    
    
    23,362
    
    
    
    25,281
    
    
    
    22,038Selling, general and administrative
    
    
    71,826
    
    
    
    59,885
    
    
    
    52,469Acquired in-process research and development
    
    
    4,272
    
    
    
    
    
    
    
    5,000Restructuring and other charges
    
    
    331
    
    
    
    1,427
    
    
    
    1,157Total operating expenses
    
    
    99,791
    
    
    
    86,593
    
    
    
    80,664Income from operations
    
    
    16,556
    
    
    
    25,091
    
    
    
    11,591Gain on sale of equity securities
    
    
    2,235
    
    
    
    
    
    
    
    18,288Translation gain on liquidation of subsidiaries
    
    
    1,413
    
    
    
    
    
    
    
    Interest expense
    
    
    (85
    )
    
    
    (85
    )
    
    
    (187
    )Interest and other income (expense), net
    
    
    524
    
    
    
    (530
    )
    
    
    319Income before income taxes
    
    
    20,643
    
    
    
    24,476
    
    
    
    30,011Income tax provision
    
    
    9,816
    
    
    
    8,580
    
    
    
    12,778Net income
    
    $
    10,827
    
    
    $
    15,896
    
    
    $
    17,233Basic net income per share
    
    $
    0.65
    
    
    $
    0.95
    
    
    $
    1.08Diluted net income per share
    
    $
    0.64
    
    
    $
    0.93
    
    
    $
    1.04
  65




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MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Retained
    
    
    
    
    
    
    
    
    
    
    AccumulatedEarnings
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Additional Paid-
    
    
    (Accumulated
    
    
    Treasury Stock
    
    
    Deferred Stock
    
    
    Comprehensive
    
    
    Stockholders'Shares
    
    
    Amount
    
    
    In Capital
    
    
    Deficit)
    
    
    (at cost)
    
    
    Compensation
    
    
    Income
    
    
    Equity(In thousands, except
share amounts)Balance at December 31, 2003
    
    
    14,778,837
    
    
    $
    16
    
    
    $
    184,956
    
    
    $
    (26,106
    )
    
    $
    (14,968
    )
    
    $
    
    
    
    $
    1,640
    
    
    $
    145,538Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,233Currency translation, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,866
    
    
    
    1,866Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,099Issuance of common stock to acquire Axon Instruments,
Inc., net of issuance costs of $784
    
    
    3,582,655
    
    
    
    3
    
    
    
    69,648
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,651Issuance of shares of common stock for options exercised
    
    
    290,619
    
    
    
    
    
    
    
    3,266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,266Issuance of shares of common stock under Employee Stock
Purchase Plan
    
    
    55,499
    
    
    
    
    
    
    
    872
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    872Income tax benefit associated with the exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    3,934
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,934Repurchase of shares of common stock
    
    
    (1,555,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,627
    )
    
    
    
    
    
    
    
    
    
    
    (31,627
    )Deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (226
    )
    
    
    
    
    
    
    (226
    )Amortization of deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    113Balance at December 31, 2004
    
    
    17,152,610
    
    
    
    19
    
    
    
    262,676
    
    
    
    (8,873
    )
    
    
    (46,595
    )
    
    
    (113
    )
    
    
    3,506
    
    
    
    210,620Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,896
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,896Currency translation, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,257
    )
    
    
    (2,257
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,639Issuance of shares of common stock for options exercised
    
    
    426,567
    
    
    
    1
    
    
    
    6,216
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,217Issuance of shares of common stock under Employee Stock
Purchase Plan
    
    
    67,872
    
    
    
    
    
    
    
    1,098
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,098Income tax benefit associated with the exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    1,310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,310Repurchase of shares of common stock
    
    
    (965,322
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,924
    )
    
    
    
    
    
    
    
    
    
    
    (19,924
    )Amortization of deferred stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    113Balance at December 31, 2005
    
    
    16,681,727
    
    
    
    20
    
    
    
    271,300
    
    
    
    7,023
    
    
    
    (66,519
    )
    
    
    
    
    
    
    1,249
    
    
    
    213,073Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,827
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,827Gain on liquidation of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,413
    )
    
    
    (1,413
    )Currency translation, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,427
    
    
    
    1,427Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,841Issuance of shares of common stock for options exercised
    
    
    727,137
    
    
    
    1
    
    
    
    13,144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,145Employee stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    4,676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,676Income tax benefit associated with the exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    3,255
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,255Repurchase of shares of common stock
    
    
    (922,562
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,004
    )
    
    
    
    
    
    
    
    
    
    
    (27,004
    )Balance at December 31, 2006
    
    
    16,486,302
    
    
    $
    21
    
    
    $
    292,375
    
    
    $
    17,850
    
    
    $
    (93,523
    )
    
    $
    
    
    
    $
    1,263
    
    
    $
    217,986
  66




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MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2006
    
    2005
    
    2004(In thousands, except share amounts)Cash flows from operating activities:Net income:
    
    $
    10,827
    
    
    $
    15,896
    
    
    $
    17,233Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    6,446
    
    
    
    6,494
    
    
    
    5,818Amortization of intangible assets
    
    
    3,767
    
    
    
    3,032
    
    
    
    1,247Amortization of deferred stock compensation
    
    
    
    
    
    
    113
    
    
    
    113Charge for acquired in-process research and development
    
    
    4,272
    
    
    
    
    
    
    
    5,000Non-cash restructuring and other expenses
    
    
    
    
    
    
    823
    
    
    
    Gain on sale of equity securities
    
    
    (2,235
    )
    
    
    
    
    
    
    (18,288
    )Loss on disposal of fixed assets
    
    
    31
    
    
    
    5
    
    
    
    23Equity investment exchanged for services
    
    
    
    
    
    
    524
    
    
    
    653Employee stock-based compensation
    
    
    5,016
    
    
    
    
    
    
    
    Excess tax benefits from stock-based compensation
    
    
    (1,513
    )
    
    
    1,310
    
    
    
    3,934Translation gain on liquidation of subsidiaries
    
    
    (1,413
    )
    
    
    
    
    
    
    (Increase) decrease in assets:Accounts receivable
    
    
    3,431
    
    
    
    (5,953
    )
    
    
    (2,715
    )Inventories
    
    
    (6,317
    )
    
    
    (67
    )
    
    
    1,188Prepaid and other current assets
    
    
    (1,466
    )
    
    
    375
    
    
    
    (233
    )Deferred tax assets
    
    
    (1,142
    )
    
    
    1,783
    
    
    
    4,297Increase (decrease) in liabilities:Accounts payable
    
    
    (602
    )
    
    
    626
    
    
    
    (576
    )Accrued liabilities
    
    
    2,645
    
    
    
    (1,120
    )
    
    
    5,068Deferred revenue
    
    
    (44
    )
    
    
    776
    
    
    
    377Net cash provided by operating activities
    
    
    21,703
    
    
    
    24,617
    
    
    
    23,139Cash flows from investing activities:Proceeds from sales and maturities of available-for-sale investments
    
    
    
    
    
    
    
    
    
    
    9,850Proceeds from sale of equity securities
    
    
    2,235
    
    
    
    
    
    
    
    28,288Capital expenditures
    
    
    (5,054
    )
    
    
    (2,850
    )
    
    
    (4,773
    )Acquisitions
    
    
    (11,264
    )
    
    
    
    
    
    
    (48,533
    )Purchase of intangible and other assets
    
    
    (1,292
    )
    
    
    (10,221
    )
    
    
    (1,600
    )Net cash used in investing activities
    
    
    (15,375
    )
    
    
    (13,071
    )
    
    
    (16,768
    )Cash flows from financing activities:Proceeds from borrowings on credit facility
    
    
    
    
    
    
    
    
    
    
    15,000Repayment of borrowings
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Issuance of common stock from stock option exercises
    
    
    13,146
    
    
    
    7,314
    
    
    
    4,138Purchase of treasury stock
    
    
    (27,004
    )
    
    
    (19,924
    )
    
    
    (31,627
    )Excess tax benefits from stock-based compensation
    
    
    1,513
    
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (12,345
    )
    
    
    (12,610
    )
    
    
    (27,489
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (67
    )
    
    
    (203
    )
    
    
    1,033Net decrease in cash and cash equivalents
    
    
    (6,084
    )
    
    
    (1,267
    )
    
    
    (20,085
    )Cash and cash equivalents at beginning of year
    
    
    28,908
    
    
    
    30,175
    
    
    
    50,260Cash and cash equivalents at end of year
    
    $
    22,824
    
    
    $
    28,908
    
    
    $
    30,175Supplemental
cash flow information:Cash paid
during the year for:Interest
    
    $
    85
    
    
    $
    85
    
    
    $
    186Income taxes
    
    $
    7,118
    
    
    $
    5,257
    
    
    $
    2,972Issuance of
3,582,655 shares of common stock in conjunction with the acquisition
of Axon Instruments, Inc. in July 2004.
    
    $
    
    
    
    $
    
    
    
    $
    69,648
  67




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##### Table of Contents



MOLECULAR DEVICES CORPORATION AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Summary of Significant Accounting Policies
 Basis of Presentation
  Principles of Consolidation
  Use of Estimates
  Cash Equivalents
  Concentration of Credit Risk
  Accounts Receivable
  Inventories
  Equipment and Leasehold Improvements
  68




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##### Table of Contents



Goodwill
 Goodwill and Other Intangible Assets
 Developed Technology, Intangible and Other Assets
  Impairment of Long-Lived Assets
  Equity Investments
   Income Taxes
  Foreign Currency Translation
  69




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##### Table of Contents



Revenue Recognition and Warranty
  
    
    Emerging Issues Task Force, Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables.Revenue arrangements with multiple elements are divided into separate units
of accounting if the deliverables in the arrangement have value to the customer on a stand
alone basis, there is objective and reliable evidence of the fair value of the undelivered
elements and there are no rights of return or additional performance guarantees by the
Company.
    
    Statement of Position 97-2, Software Revenue Recognition.Revenue earned on
software arrangements involving multiple elements is allocated to each element based on
the relative fair values of the elements as determined by means of our quoting process and
published price lists.
    
    Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition.Revenue is
recognized when the following four criteria are met: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered; (3) the
sellers price is fixed or determinable; and (4) collectibility is reasonably assured.
     
    
    Instruments, software and consumables  We recognize revenue with respect to sales of
instruments, software and consumables at the time that an instrument, software or
consumable is shipped, in accordance with the shipping terms of the invoice. Under FOB
Destination terms, we do not recognize revenue until the product arrives at the customer
site. We determine that the SAB 104 criteria have been met through receipt of a valid
purchase order and issuance by us of either a sales order confirmation or an invoice,
confirmation of product shipment (or receipt, when FOB Destination terms apply), issuance
of an invoice indicating the price and determination of credit-worthiness or, in certain
circumstances, receipt of prior payment.
    
    Service, installation and training  Revenue from service events not covered by
warranty or a service contract is recognized upon completion of the service. Service can
be provided in the field or at our service depot. For a small number of products, we offer
the option to purchase installation services. Installation is billed separately at the
time of performance and is not part of a package price for instruments. We have
established a fair value for installation services, as installation can be purchased with
or without an instrument. Further, a third party or the customer can perform the
installation. Training is billed separately at the time of performance and is not part of
a package price for instruments. Training revenue is recognized upon completion of the
training. We determine that the SAB 104 criteria have been met through receipt of a valid
purchase order and issuance by us of either a sales order confirmation or an invoice,
receipt of a customer acknowledgment that the service, installation or training has been
completed, issuance of an invoice indicating the price and determination of
credit-worthiness or, in certain
circumstances, receipt of prior payment.
 70




---



##### Table of Contents




    
    Service contracts  Revenue from service contracts for our instruments, generally
with a one-year term, is recognized ratably over the period of coverage. We determine that
the SAB 104 criteria have been met through receipt of a valid purchase order and issuance
by us of either a sales order confirmation or an invoice, issuance of an invoice
indicating the price and determination of credit-worthiness or, in certain circumstances,
receipt of prior payment.
    
    Technology license agreements  Revenue from technology license agreements is
recognized upon completion of our obligations to the licensee. We determine that the SAB
104 criteria have been met through receipt of an executed license agreement and
determination of credit-worthiness or, in certain circumstances, receipt of prior payment.
We have no ongoing obligations under our current technology license agreements.
  Advertising Costs
  Recent Accounting Pronouncements
 Share-Based Payment Accounting for Stock-Based
Compensation
 Fair Value Measurements
 Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 Earnings Per Share
  71




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##### Table of Contents



Years Ended December 31,2006
    
    2005
    
    2004Weighted average common shares outstanding for the period
    
    
    16,676
    
    
    
    16,783
    
    
    
    16,028Common equivalent shares assuming the exercise of stock
options under the treasury stock method
    
    
    371
    
    
    
    364
    
    
    
    504Shared used in computing diluted net income per share
    
    
    17,047
    
    
    
    17,147
    
    
    
    16,532Net income
    
    $
    10,827
    
    
    $
    15,896
    
    
    $
    17,233Basic net income per share
    
    $
    0.65
    
    
    $
    0.95
    
    
    $
    1.08Diluted net income per share
    
    $
    0.64
    
    
    $
    0.93
    
    
    $
    1.04
  Comprehensive Income
  Reclassifications
  72




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##### Table of Contents



Note 2. Balance Sheet Amounts
 December 31,2006
    
    2005(in thousands)Inventories, net:Raw materials
    
    $
    15,519
    
    
    $
    11,350Work-in-process
    
    
    1,667
    
    
    
    2,127Finished goods and demonstration equipment, net
    
    
    12,249
    
    
    
    9,720$
    29,435
    
    
    $
    23,197Equipment and leasehold improvements, net:Machinery and equipment
    
    $
    22,455
    
    
    $
    21,862Software
    
    
    5,327
    
    
    
    4,617Furniture and fixtures
    
    
    4,749
    
    
    
    4,604Leasehold improvements
    
    
    9,371
    
    
    
    8,89841,902
    
    
    
    39,981Less accumulated depreciation and amortization
    
    
    (31,128
    )
    
    
    (30,079
    )$
    10,774
    
    
    $
    9,902Intangible and other assets:Equity investments
    
    $
    1,177
    
    
    $
    1,177Intangible assets
    
    
    17,389
    
    
    
    13,481Other assets
    
    
    6,116
    
    
    
    3,341$
    24,682
    
    
    $
    17,999Other accrued liabilities:Accrued income tax
    
    $
    4,291
    
    
    $
    3,051Warranty accrual
    
    
    2,448
    
    
    
    2,663Other
    
    
    6,941
    
    
    
    7,909$
    13,680
    
    
    $
    13,623
 Note 3. Commitments and Contingencies
 Operating Leases
  For the year ended
    
    Minimum LeaseDecember 31,
    
    Payments
    
    Sublease Income
    
    Net2007
    
    $
    6,291
    
    
    $
    289
    
    
    $
    6,0022008
    
    
    5,604
    
    
    
    312
    
    
    
    5,2922009
    
    
    5,630
    
    
    
    323
    
    
    
    5,3072010
    
    
    5,774
    
    
    
    334
    
    
    
    5,4402011
    
    
    3,402
    
    
    
    43
    
    
    
    3,359Thereafter
    
    
    4,509
    
    
    
    
    
    
    
    4,509$
    31,210
    
    
    $
    1,301
    
    
    $
    29,909
  73




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##### Table of Contents



Purchase Obligations
  Warranty
  Balance December 31, 2004
    
    $
    2,276New warranties issued during the period
    
    
    2,738Cost of warranties incurred during the period
    
    
    (2,351
    )Balance December 31, 2005
    
    
    2,663New warranties issued during the period
    
    
    2,195Warranties assumed through the acquisition of LCM business
    
    
    186Cost of warranties incurred during the period
    
    
    (2,596
    )Balance December 31, 2006
    
    $
    2,448
 Guarantees
 Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others,
   Note 4. Acquisitions and Restructuring
 Acquisition of LCM Business from Arcturus Bioscience, Inc.
   74




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##### Table of Contents



In-process research and development
    
    $
    4,272Acquired goodwill
    
    
    1,354Acquired developed technology (amortized over five to ten years)
    
    
    2,762Acquired trade name
    
    
    1,002Acquired patents (amortized over ten years)
    
    
    1,797Net book value of acquired assets and liabilities which approximate fair value
    
    
    72Total purchase price
    
    $
    11,259
   Restructuring and Other Charges
  Non-cashCharges and
    
    Balance atCash
    
    December 31,Initial Cost
    
    Payments
    
    2006Molecular Devices
employee severance
    
    $
    240
    
    
    $
    (181
    )
    
    $
    59Other costs
    
    
    91
    
    
    
    (91
    )
    
    
    Total
    
    $
    331
    
    
    $
    (272
    )
    
    $
    59
  75




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##### Table of Contents



Non-cash
    
    
    
    
    
    Non-cashCharges and
    
    Balance at
    
    Charges and
    
    Balance atCash
    
    December 31,
    
    Cash
    
    December 31,Initial Cost
    
    Payments
    
    2005
    
    Payments
    
    2006Molecular Devices employee severance
    
    $
    604
    
    
    $
    (201
    )
    
    $
    403
    
    
    $
    (403
    )
    
    $
    Termination of agreement
    
    
    823
    
    
    
    (823
    )
    
    
    
    
    
    
    0
    
    
    
    Total
    
    $
    1,427
    
    
    $
    (1,024
    )
    
    $
    403
    
    
    $
    (403
    )
    
    $
    
    Non-cash
    
    
    
    
    
    Non-cash
    
    
    
    
    
    
    
    
    
    Non-cashCharges and
    
    Balance at
    
    Charges and
    
    Adjustments
    
    Balance at
    
    Charges and
    
    Balance atCash
    
    December 31,
    
    Cash
    
    Included in
    
    December 31,
    
    Cash
    
    December 31,Initial Cost
    
    Payments
    
    2004
    
    Payments
    
    Net Income
    
    2005
    
    Payments
    
    2006Axon employee severance and relocation
    
    $
    500
    
    
    $
    (365
    )
    
    $
    135
    
    
    $
    (35
    )
    
    $
    (100
    )
    
    $
    
    
    
    $
    
    
    
    $
    Closure of duplicate facilities
    
    
    2,200
    
    
    
    
    
    
    
    2,200
    
    
    
    (857
    )
    
    
    (54
    )
    
    
    1,289
    
    
    
    (304
    )
    
    
    985Molecular Devices employee severance
    
    
    1,157
    
    
    
    (124
    )
    
    
    1,033
    
    
    
    (972
    )
    
    
    (61
    )
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,857
    
    
    $
    (489
    )
    
    $
    3,368
    
    
    $
    (1,864
    )
    
    $
    (215
    )
    
    $
    1,289
    
    
    $
    (304
    )
    
    $
    985
 Note 5. Goodwill, Developed Technology and Intangible and Other Assets
 ®
   79




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##### Table of Contents



December 31, 2006
    
    December 31, 2005Gross Carrying
    
    Accumulated
    
    Net Carrying
    
    Gross Carrying
    
    Accumulated
    
    Net CarryingValue
    
    Amortization
    
    Value
    
    Value
    
    Amortization
    
    ValueDeveloped technology
    
    $
    31,505
    
    
    $
    7,063
    
    
    $
    24,442
    
    
    $
    28,743
    
    
    $
    3,591
    
    
    $
    25,152License fees
    
    
    4,285
    
    
    
    1,165
    
    
    
    3,120
    
    
    
    2,688
    
    
    
    772
    
    
    
    1,916Patents
    
    
    3,169
    
    
    
    867
    
    
    
    2,302
    
    
    
    1,372
    
    
    
    610
    
    
    
    762Tradename
    
    
    200
    
    
    
    35
    
    
    
    165
    
    
    
    200
    
    
    
    15
    
    
    
    185Order Backlog
    
    
    100
    
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    100
    
    
    
    Total
    
    $
    39,259
    
    
    $
    9,230
    
    
    $
    30,029
    
    
    $
    33,103
    
    
    $
    5,088
    
    
    $
    28,015
  For the Year Ended December 31,
    
    Amortization Expense2007
    
    $
    3,9872008
    
    
    3,9872009
    
    
    3,9872010
    
    
    3,9872011
    
    
    3,740Thereafter
    
    
    10,341$
    30,029
 80




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##### Table of Contents



Note 6. Stockholders Equity
  Note 7. Stock Option and Employee Incentive Plans
      Year EndedDecember 31, 2006Cost of revenues
    
    $
    408Research and development
    
    
    1,097Selling, general and administrative
    
    
    3,511Income before taxes
    
    
    5,016Income tax benefit
    
    
    (930
    )Effect on net income
    
    $
    4,086Basic net income per share
    
    $
    0.25Diluted net income per share
    
    $
    0.24
  81




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##### Table of Contents



Years ended December 31,2005
    
    2004Net income  as reported
    
    $
    15,896
    
    
    $
    17,233Plus: Stock based compensation expense included in reported net income, net of tax
    
    
    65
    
    
    
    65Less: Stock based compensation expense determined using the fair value method, net of tax
    
    
    (5,759
    )
    
    
    (6,301
    )Net income  pro forma
    
    $
    10,202
    
    
    $
    10,997Net income per share:Basic  as reported
    
    $
    0.95
    
    
    $
    1.08Basic  pro forma
    
    $
    0.61
    
    
    $
    0.69Diluted  as reported
    
    $
    0.93
    
    
    $
    1.04Diluted  pro forma
    
    $
    0.59
    
    
    $
    0.67
   Years Ended December 31,2006
    
    2005
    
    2004Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    49
    %
    
    
    77
    %
    
    
    86
    %Risk-free interest rate
    
    
    4.3
    %
    
    
    4.0
    %
    
    
    4.1
    %Expected life of options
    
    5.2 years
    
    
    6.0 years
    
    
    5.2 years
 82




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##### Table of Contents



Shares Available for
    
    
    
    
    
    Weighted AverageFuture Grant
    
    Options Outstanding
    
    Exercise PriceBalance at December 31, 2003
    
    
    1,064,355
    
    
    
    2,952,571
    
    
    $
    25.55Authorized
    
    
    300,000
    
    
    
    
    
    
    
    Granted
    
    
    (522,500
    )
    
    
    522,500
    
    
    
    19.54Assumed through acquisition of Axon
    
    
    
    
    
    
    572,570
    
    
    
    18.55Exercised
    
    
    
    
    
    
    (270,258
    )
    
    
    12.18Cancelled
    
    
    289,768
    
    
    
    (289,768
    )
    
    
    24.74Balance at December 31, 2004
    
    
    1,131,623
    
    
    
    3,487,615
    
    
    
    24.59Granted
    
    
    (411,500
    )
    
    
    411,500
    
    
    
    20.82Exercised
    
    
    
    
    
    
    (458,190
    )
    
    
    14.29Cancelled
    
    
    356,595
    
    
    
    (356,595
    )
    
    
    27.69Balance at December 31, 2005
    
    
    1,076,718
    
    
    
    3,084,330
    
    
    
    25.15Granted
    
    
    (336,250
    )
    
    
    336,250
    
    
    
    29.49Exercised
    
    
    
    
    
    
    (727,985
    )
    
    
    18.00Cancelled
    
    
    202,103
    
    
    
    (202,103
    )
    
    
    33.98Balance at December 31, 2006
    
    
    942,571
    
    
    
    2,490,492
    
    
    $
    27.18
  Options Outstanding
    
    Options ExercisableWeighted AverageWeighted Average
    
    
    
    
    
    
    
    
    
    RemainingRange of Exercise
    
    
    
    
    
    Remaining Contractual
    
    Weighted Average
    
    Number
    
    Contractual Life
    
    Weighted AveragePrices
    
    Number Outstanding
    
    Life (Yr.)
    
    Exercise Price
    
    Exercisable
    
    (Yr.)
    
    Exercise Price$0.00 to $12.58
    
    
    87,959
    
    
    
    3.9
    
    
    $
    7.73
    
    
    
    86,887
    
    
    
    3.9
    
    
    $
    7.69$12.59 to $25.16
    
    
    1,509,149
    
    
    
    6.0
    
    
    
    19.63
    
    
    
    1,161,366
    
    
    
    5.5
    
    
    
    19.49$25.17 to $37.74
    
    
    459,235
    
    
    
    7.1
    
    
    
    28.86
    
    
    
    144,485
    
    
    
    2.5
    
    
    
    27.50$37.75 to $50.33
    
    
    274,956
    
    
    
    3.2
    
    
    
    47.09
    
    
    
    274,956
    
    
    
    3.2
    
    
    
    47.09$50.34 to $62.91
    
    
    43,594
    
    
    
    3.6
    
    
    
    53.15
    
    
    
    43,594
    
    
    
    3.6
    
    
    
    53.15$62.92 to $75.49
    
    
    41,250
    
    
    
    4.1
    
    
    
    75.27
    
    
    
    41,250
    
    
    
    4.1
    
    
    
    75.27$75.50 to $88.08
    
    
    74,349
    
    
    
    3.8
    
    
    
    77.74
    
    
    
    74,349
    
    
    
    3.8
    
    
    
    77.742,490,492
    
    
    
    
    
    
    $
    27.18
    
    
    
    1,826,887
    
    
    
    
    
    
    $
    28.15
   401(k) Plan
  83




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##### Table of Contents



Stock Reserved for Issuance
  Note 8. Income Taxes
  Years ended December 31,2006
    
    2005
    
    2004Current:US Federal
    
    $
    7,732
    
    
    $
    3,015
    
    
    $
    3,374State
    
    
    1,046
    
    
    
    469
    
    
    
    1,755Foreign
    
    
    1,767
    
    
    
    914
    
    
    
    65010,545
    
    
    
    4,398
    
    
    
    5,779Deferred:US Federal
    
    
    (1,079
    )
    
    
    3,389
    
    
    
    6,089State
    
    
    381
    
    
    
    368
    
    
    
    730Foreign
    
    
    (31
    )
    
    
    425
    
    
    
    180(729
    )
    
    
    4,182
    
    
    
    6,999Total
    
    $
    9,816
    
    
    $
    8,580
    
    
    $
    12,778
  Years ended December 31,2006
    
    2005
    
    2004Income before provisions for income taxes
    
    $
    20,643
    
    
    $
    24,476
    
    
    $
    30,011Income tax at statutory rate (35%)
    
    
    7,225
    
    
    
    8,567
    
    
    
    10,504Non-deductible acquired in-process research and
development
    
    
    
    
    
    
    
    
    
    
    1,750State income tax, net of federal benefit
    
    
    1,180
    
    
    
    555
    
    
    
    1,615Extraterritorial income exclusion benefit
    
    
    (238
    )
    
    
    (414
    )
    
    
    (410
    )Qualified production activities income deduction
    
    
    (123
    )
    
    
    (201
    )
    
    
    Research and development credits
    
    
    (301
    )
    
    
    (301
    )
    
    
    (688
    )Non-deductible stock based compensation expense
    
    
    691
    
    
    
    
    
    
    
    Foreign subsidiary liquidation
    
    
    585
    
    
    
    
    
    
    
    Translation gain on subsidiary liquidation
    
    
    (495
    )
    
    
    
    
    
    
    Adjustment to deferred tax assets relating to non-
deductible intangible assets
    
    
    1,184
    
    
    
    
    
    
    
    Other
    
    
    108
    
    
    
    374
    
    
    
    7$
    9,816
    
    
    $
    8,580
    
    
    $
    12,778
  84




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##### Table of Contents



2006
    
    2005Deferred Tax Assets:Deferred
revenue and reserves not currently deductible
    
    $
    2,210
    
    
    $
    1,127Warranty and accrued expenses
    
    
    2,885
    
    
    
    3,730Stock based compensation
    
    
    1,072
    
    
    
    Depreciation and amortization
    
    
    2,519
    
    
    
    1,562Net operating loss carryforwards
    
    
    
    
    
    
    82Foreign loss carryforwards
    
    
    204
    
    
    
    288Tax credit carryforwards
    
    
    354
    
    
    
    624Intercompany transactions
    
    
    258
    
    
    
    512Other
    
    
    182
    
    
    
    22Total deferred taxes
    
    
    9,684
    
    
    
    7,947Deferred Tax Liabilities:Acquired intangible assets
    
    
    (8,341
    )
    
    
    (4,486
    )Depreciation and amortization
    
    
    
    
    
    
    Other
    
    
    (587
    )
    
    
    Total deferred tax liabilities
    
    
    (8,928
    )
    
    
    (4,486
    )Net deferred tax assets
    
    $
    756
    
    
    $
    3,461
   Note 9. Revolving Credit Facility
  Note 10. Industry Segment, Geographic and Customer Information
  85




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##### Table of Contents



Adjustments andUnited States
    
    International
    
    Eliminations
    
    TotalYear ended December 31, 2004Revenues
    
    $
    134,228
    
    
    $
    44,577
    
    
    $
    (29,710
    )
    
    $
    149,095Income from operations
    
    
    10,118
    
    
    
    1,624
    
    
    
    (151
    )
    
    
    11,591Identifiable assets
    
    
    248,996
    
    
    
    31,577
    
    
    
    (25,344
    )
    
    
    255,229Year ended December 31, 2005Revenues
    
    
    162,345
    
    
    
    59,970
    
    
    
    (40,364
    )
    
    
    181,951Income from operations
    
    
    21,846
    
    
    
    3,150
    
    
    
    95
    
    
    
    25,091Identifiable assets
    
    
    255,146
    
    
    
    33,652
    
    
    
    (31,382
    )
    
    
    257,416Year ended December 31, 2006Revenues
    
    
    164,822
    
    
    
    70,988
    
    
    
    (49,398
    )
    
    
    186,412Income from operations
    
    
    11,288
    
    
    
    4,469
    
    
    
    799
    
    
    
    16,556Identifiable assets
    
    
    261,203
    
    
    
    43,629
    
    
    
    (38,054
    )
    
    
    266,778
  Years Ended December 31,2006
    
    2005
    
    2004Drug discovery
    
    $
    68,198
    
    
    $
    73,074
    
    
    $
    61,691Life sciences research
    
    
    118,214
    
    
    
    108,877
    
    
    
    87,404Total revenues
    
    $
    186,412
    
    
    $
    181,951
    
    
    $
    149,095
  Years Ended December 31,2006
    
    2005
    
    2004North America
    
    $
    103,288
    
    
    $
    106,298
    
    
    $
    91,020Europe
    
    
    49,206
    
    
    
    46,231
    
    
    
    38,515Rest of World
    
    
    33,918
    
    
    
    29,422
    
    
    
    19,560Total revenues
    
    $
    186,412
    
    
    $
    181,951
    
    
    $
    149,095
 Note 11. Related Party Transactions
     86




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##### Table of Contents



Note 12. Subsequent Event
  Note 13. Quarterly Financial Data (Unaudited)
  First
    
    Second
    
    Third
    
    Fourth(in thousands, except per share amounts)Year ended December 31, 2005Revenues
    
    $
    39,230
    
    
    $
    44,727
    
    
    $
    45,305
    
    
    $
    52,689Gross profit
    
    
    24,018
    
    
    
    26,937
    
    
    
    27,763
    
    
    
    32,966Net income
    
    
    1,844
    
    
    
    3,665
    
    
    
    4,631
    
    
    
    5,756Basic net income per share
    
    
    0.11
    
    
    
    0.22
    
    
    
    0.28
    
    
    
    0.35Diluted net income per share
    
    
    0.11
    
    
    
    0.21
    
    
    
    0.27
    
    
    
    0.34Year ended December 31, 2006Revenues
    
    $
    40,159
    
    
    $
    47,643
    
    
    $
    45,765
    
    
    $
    52,845Gross profit
    
    
    24,535
    
    
    
    29,760
    
    
    
    28,678
    
    
    
    33,374Net income
    
    
    2,846
    
    
    
    1,228
    
    
    
    2,782
    
    
    
    3,971Basic net income per share
    
    
    0.17
    
    
    
    0.07
    
    
    
    0.17
    
    
    
    0.24Diluted net income per share
    
    
    0.16
    
    
    
    0.07
    
    
    
    0.17
    
    
    
    0.24
   87




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 Balance at
    
    Charged to Costs and
    
    
    
    
    
    Balance at End ofDescription
    
    Beginning of Year
    
    Expenses
    
    Deductions
    
    Year(In thousands)Allowance for doubtful accounts receivableYear ended December 31, 2004
    
    $
    408
    
    
    $
    436
    (A)
    
    $
    (505
    )
    
    $
    339Year ended December 31, 2005
    
    $
    339
    
    
    $
    255
    
    
    $
    (152
    )
    
    $
    442Year ended December 31, 2006
    
    $
    442
    
    
    $
    82
    
    
    $
    (342
    )
    
    $
    182
 
 (A)
    
    Of this amount, $0.2 million in reserves was associated with receivables acquired from Axon (see Note 4). 88




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##### Table of Contents



EXHIBIT INDEX
 EXHIBITNUMBER
    
    DESCRIPTION OF DOCUMENT2.1(19)
    
    Agreement and Plan of Merger, dated as of January 28, 2007, by and among MDS Inc., a company organized under the laws of Canada,
Monument Acquisition Corp., a Delaware corporation, and an indirect wholly-owned subsidiary of MDS and direct wholly owned
subsidiary of MDS (US) Inc., a Delaware corporation, and Registrant3.1(1)
    
    Amended and Restated Certificate of Incorporation of Registrant3.2(1)
    
    Bylaws of the Registrant3.3(5)
    
    Certificate of Amendment to Certificate of Incorporation3.4(8)
    
    Certificate of Designation of Series A Junior Participating Preferred Stock of Registrant4.1(1)
    
    Specimen Certificate of Common Stock of Registrant4.2(8)
    
    Rights Agreement, dated October 25, 2001, among the Registrant and EquiServe Trust Company, N.A.4.3(19)
    
    Amendment No. 1 to Rights Agreement, dated as of January 28, 2007, by and between Computershare Trust Company, N.A.
(successor-in-interest to EquiServe Trust Company, N.A.) and Registrant.10.1(1)*
    
    1988 Stock Option Plan10.2(1)*
    
    Form of Incentive Stock Option under the 1988 Stock Option Plan10.3(1)*
    
    Form of Supplemental Stock Option under the 1988 Stock Option Plan10.4(5)*
    
    1995 Employee Stock Purchase Plan10.6(1)*
    
    Form of Nonstatutory Stock Option under the 1995 Non-Employee Directors Stock Option Plan10.8(1)*
    
    Form of Incentive Stock Option under the 1995 Stock Option Plan10.9(1)*
    
    Form of Nonstatutory Stock Option under the 1995 Stock Option Plan10.10(1)*
    
    Form of Early Exercise Stock Purchase Agreement under the 1995 Stock Option Plan10.11(1)*
    
    Form of Indemnity Agreement between the Registrant and its Directors and Executive Officers10.19(10)*
    
    Amended Key Employee Agreement for Joseph D. Keegan, Ph.D., dated July 29, 2004.10.20(2)
    
    Exclusive License and Technical Support Agreement, dated August 28, 1998, by and between the Registrant and Affymax10.21(2)*
    
    Employee Offer Letter for Timothy A. Harkness10.24(10)*
    
    1995 Non-Employee Directors Stock Option Plan, as amended10.25(10)*
    
    1995 Stock Option Plan, as amended10.26(3)*
    
    Employee Offer Letter for Patricia Sharp10.27(4)*
    
    LJL BioSystems 1994 Equity Incentive Plan and Forms of Agreements10.28(4)*
    
    LJL BioSystems 1997 Stock Plan and Forms of Agreements10.29(4)*
    
    LJL BioSystems 1998 Directors Stock Option Plan and Forms of Agreements10.33(6)
    
    Lease Agreement, dated May 26, 2000, by and between Aetna Life Insurance Company and the Registrant10.34(7)*
    
    Change in Control Severance Benefit Plan10.37(5)*
    
    Key Employee Agreement for Tom OLenic10.38(10)*
    
    2001 Stock Option Plan, as amended10.39(9)
    
    Lease dated May 28, 2002 by and between The Irvine Company and the Registrant10.40(9)*
    
    Letter Agreement, dated April 11, 2002, by and between the Registrant and Joseph D. Keegan, Ph.D.10.43(11)*
    
    Amended Key Employment Agreement for Timothy A. Harkness10.44(11)*
    
    Employee Offer Letter for Alan Finkel10.45(11)*
    
    Employee Offer Letter for Steven Davenport10.46(11)*
    
    Employee Offer Letter for Jan Hughes10.47(11)*
    
    Amended Employee Offer Letter for Jan Hughes10.50(12)*
    
    Form of Stock Option Agreement for Non-Employee Director under the 1995 Equity Incentive Plan10.51(13)
    
    Asset Purchase Agreement, dated as of March 9, 2005, by and between Molecular Devices Corporation and Xsira Pharmaceuticals, Inc.10.52(14)*
    
    2005 Equity Incentive Plan10.53(14)*
    
    Form of Stock Option Agreement under the 2005 Equity Incentive Plan10.54(15)*
    
    Form of Stock Option Agreement for Non-Employee Director under the 2005 Equity Incentive Plan10.55(16)
    
    First Amendment to Lease, dated January 27, 2006, by and between the Registrant and Moffett Office Park Investors LLC
(successor-in-interest to Aetna Life Insurance Company)10.56(16)
    
    First Amendment to Lease, dated January 30, 2006, by and between the Registrant and The Irvine Company LLC10.57(17)*
    
    Executive Officer Compensation Arrangements10.58(18)*
    
    Non-Employee Director Cash Compensation Arrangements21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm24.1
    
    Power of Attorney (contained on the signature pages hereto)31.1
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(a)31.2
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(a)32.1**
    
    Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
(18 U.S.C 1350)
 
 (1)
    
    Incorporated by reference to the similarly described exhibit in our Registration Statement on Form S-1 (File No. 33-98926), as amended.(2)
    
    Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated September 30, 1998, and filed November 13, 1998. 89




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##### Table of Contents



(3)
    
    Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated September 30, 2000 and filed on November 13, 2000.(4)
    
    Incorporated by reference to the similarly described exhibit filed with LJL BioSystems Registration Statement on Form S-1 (File No. 333-43529) declared effective on March 12, 1998.(5)
    
    Incorporated by reference to the similarly described exhibit in our Form 10-K Annual Report dated December 31, 2001 and filed on April 1, 2002.(6)
    
    Incorporated by reference to the similarly described exhibit in our Form 10-K Annual Report dated December 31, 2000 and filed on March 30, 2001.(7)
    
    Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated March 31, 2001 and filed on May 11, 2001.(8)
    
    Incorporated by reference to the similarly described exhibit in our Current Report on Form 8-K filed October 30, 2001.(9)
    
    Incorporated by reference to the similarly described exhibit in our Form 10-K Annual Report dated December 31, 2003 and filed on March 27, 2003.(10)
    
    Incorporated by reference to the similarly described exhibit in our Form 10-Q Quarterly Report dated September 30, 2004, and filed on November 9, 2004.(11)
    
    Incorporated by reference to the similarly described exhibit in our Form 10-K Annual Report dated December 31, 2004, and filed on March 16, 2005(12)
    
    Incorporated by reference to the similarly described exhibit in our Current Report on Form 8-K filed on April 18, 2005.(13)
    
    Incorporated by reference to the similarly described exhibit in our Quarterly Report on Form 10-Q dated March 31, 2005 and filed on May 4, 2005.(14)
    
    Incorporated by reference to the similarly described exhibit in our Current Report on Form 8-K filed on June 1, 2005.(15)
    
    Incorporated by reference to the similarly described exhibit in our Quarterly Report on Form 10-Q dated November 7, 2006.(16)
    
    Incorporated by reference to the similarly described exhibit in our Form 10-K Annual Report dated December 31, 2005, and filed on March 16, 2006.(17)
    
    Incorporated by reference to the information in our Current Reports on Form 8-K filed on February 15, 2006 and February 6, 2007, as amended.(18)
    
    Incorporated by reference to the information in our Current Report on Form 8-K filed on May 17, 2006.(19)
    
    Incorporated by reference to the similarly described exhibit in our Current Report on Form 8-K filed on January 29, 2007.*
    
    Management contract or compensatory plan or arrangement.
    
    Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.**
    
    The certification attached as Exhibit 32.1 accompanies the Annual Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 90