<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-5075
PERKINELMER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2052042
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
45 WILLIAM STREET, WELLESLEY, MASSACHUSETTS 02481
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(781) 237-5100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT AUGUST 9, 2000
----- -----------------------------
<S> <C>
Common Stock, $1 par value 49,332,575
(Excluding treasury shares)
</TABLE>
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PERKINELMER, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SALES........................................... $398,705 $304,258 $800,991 $547,475
Cost of Sales................................... 237,394 200,365 484,109 361,066
Research and Development Expenses............... 21,359 16,264 42,659 29,661
In-Process Research and Development Charges
(Note 3)...................................... -- 23,000 8,100 23,000
Selling, General and Administrative Expenses.... 96,203 71,167 191,882 123,258
Restructuring Charges (Credits), Net (Note 4)... (6,300) -- (3,900) --
Gains on Dispositions (Note 5).................. (1,416) (8,478) (9,212) (8,478)
-------- -------- -------- --------
OPERATING INCOME FROM CONTINUING OPERATIONS..... 51,465 1,940 87,353 18,968
Other Expense, Net (Note 6)..................... (7,935) (6,197) (16,510) (10,829)
-------- -------- -------- --------
Income (Loss) From Continuing Operations Before
Income Taxes.................................. 43,530 (4,257) 70,843 8,139
Provision (Benefit) for Income Taxes............ 12,410 (1,532) 23,480 2,822
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS........ 31,120 (2,725) 47,363 5,317
Income From Discontinued Operations, Net of
Income Taxes (Note 7)......................... -- 6,342 -- 12,387
Gain on Disposition of Discontinued Operations,
Net of Income Taxes (Note 7).................. 4,453 -- 4,453 --
-------- -------- -------- --------
NET INCOME...................................... $ 35,573 $ 3,617 $ 51,816 $ 17,704
======== ======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing Operations......................... $ .63 $ (.06) $ .97 $ .12
Discontinued Operations....................... .09 .14 .09 .27
-------- -------- -------- --------
Net Income.................................... $ .72 $ .08 $ 1.06 $ .39
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing Operations......................... $ .61 $ (.06) $ .93 $ .12
Discontinued Operations....................... .09 .14 .09 .27
-------- -------- -------- --------
Net Income.................................... $ .70 $ .08 $ 1.02 $ .39
======== ======== ======== ========
Weighted Average Shares of Common Stock
Outstanding:
Basic......................................... 49,035 45,275 48,749 45,092
Diluted....................................... 50,796 46,298 50,604 45,958
Cash Dividends Per Common Share................. $ .14 $ .14 $ .28 $ .28
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
1
<PAGE> 3
PERKINELMER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 2, JANUARY 2,
2000 2000
-------------- -------------
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents................................. $ 109,271 $ 126,650
Accounts Receivable (Note 8).............................. 324,557 346,160
Inventories (Note 9)...................................... 227,914 201,724
Other Current Assets...................................... 158,857 140,560
---------- ----------
TOTAL CURRENT ASSETS........................................ 820,599 815,094
---------- ----------
Property, Plant and Equipment:
At Cost (Note 10)......................................... 497,532 496,347
Accumulated Depreciation and Amortization................. (270,444) (268,313)
---------- ----------
Net Property, Plant and Equipment........................... 227,088 228,034
---------- ----------
Intangible Assets (Note 11)................................. 637,963 592,438
Other Assets................................................ 106,692 79,074
---------- ----------
TOTAL ASSETS................................................ $1,792,342 $1,714,640
========== ==========
Current Liabilities:
Short-Term Debt (Notes 12 and 17)......................... $ 335,398 $ 382,162
Accounts Payable.......................................... 116,183 119,737
Accrued Restructuring Costs (Note 4)...................... 62,297 41,759
Accrued Expenses (Note 13)................................ 292,429 308,840
---------- ----------
TOTAL CURRENT LIABILITIES................................... 806,307 852,498
---------- ----------
Long-Term Debt (Note 17).................................... 114,850 114,855
Other Long-Term Liabilities................................. 197,204 196,511
Contingencies Stockholders' Equity:
Preferred Stock -- $1 par value, authorized 1,000,000
shares; none issued or outstanding..................... -- --
Common Stock -- $1 par value, authorized 100,000,000
shares; issued 61,744,000 shares at July 2, 2000 and
60,102,000 shares at January 2, 2000................... 61,744 60,102
Capital in Excess of Par Value............................ 70,585 --
Retained Earnings......................................... 811,122 762,009
Accumulated Other Comprehensive Loss (Note 14)............ (25,333) (14,040)
Cost of Shares Held in Treasury; 12,672,000 shares at July
2, 2000 and 13,736,000 shares at January 2, 2000....... (244,137) (257,295)
---------- ----------
Total Stockholders' Equity.................................. 673,981 550,776
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $1,792,342 $1,714,640
========== ==========
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
2
<PAGE> 4
PERKINELMER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JULY 2, JULY 4,
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 51,816 $ 17,704
Deduct net income from discontinued operations............ -- (12,387)
Deduct net gain on disposition of discontinued
operations.............................................. (4,453) --
--------- ---------
Income from continuing operations......................... 47,363 5,317
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
In-process research and development charges............. 8,100 23,000
Depreciation and amortization........................... 37,805 29,720
Gains on dispositions and sales of investments, net..... (10,877) (11,386)
Changes in assets and liabilities which provided (used)
cash, excluding effects from companies purchased and
divested:
Accounts receivable................................... 18,350 (13,859)
Inventories........................................... (26,880) 6,813
Accounts payable and accrued expenses................. 4,251 1,042
Accrued restructuring costs........................... (20,713) (8,555)
Prepaid expenses and other............................ (16,725) (15,699)
--------- ---------
Net Cash Provided by Continuing Operations.................. 40,674 16,393
Net Cash Provided by Discontinued Operations................ -- 22,168
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 40,674 38,561
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures...................................... (29,377) (15,309)
Proceeds from dispositions of businesses and sales of
property, plant and equipment, net...................... 24,550 26,966
Cost of acquisitions, net of cash acquired................ 13,340 (295,685)
Purchases of investments.................................. (15,226) (1,146)
Other..................................................... 1,571 75
--------- ---------
Net Cash Used by Continuing Operations...................... (5,142) (285,099)
Net Cash Provided by Discontinued Operations................ 3,987 --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES....................... (1,155) (285,099)
--------- ---------
FINANCING ACTIVITIES:
Increase in commercial paper borrowings................... 187,264 126,000
Increase (decrease) in other debt......................... (236,429) 82,266
Proceeds from issuance of common stock.................... 21,188 15,230
Purchases of common stock................................. (10,486) (185)
Cash dividends paid on common stock....................... (13,624) (12,604)
--------- ---------
Net Cash Provided by (Used in) Continuing Operations........ (52,087) 210,707
Net Cash Provided by Discontinued Operations................ -- --
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... (52,087) 210,707
--------- ---------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... (4,811) (1,275)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (17,379) (37,106)
Cash and Cash Equivalents at Beginning of Period............ 126,650 95,565
--------- ---------
Cash and Cash Equivalents at End of Period.................. $ 109,271 $ 58,459
========= =========
Supplemental Disclosures of Noncash Investing and Financing
Activities:
Common stock and options issued in connection with the
acquisition of Vivid Technologies, Inc.................. $ 65,937 $ --
One-year 5% promissory notes issued to PE Corp. in
connection with the acquisition of the Analytical
Instruments Division.................................... $ -- $ 150,000
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
3
<PAGE> 5
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) NATURE OF OPERATIONS
PerkinElmer, Inc. is a high-technology company operating in four
businesses -- Life Sciences, Optoelectronics, Instruments and Fluid Sciences.
The Company has operations in over 100 countries and is a component of the S&P
500 Index.
The operating segments and their principal products and services are:
Life Sciences: Helps solve the complex analytical problems
encountered in bio-screening and population screening laboratories by
providing chemical reagents, sample handling and measuring instruments, and
computer software. Within the field of bio-screening, Life Sciences focuses
on customers engaged in drug discovery and has established a strong
presence in high throughput screening technologies. In population
screening, the subject of the screen is a human patient; customers include
public health authorities in the United States as well as in many European
countries.
Optoelectronics: A broad spectrum of optoelectronic products,
including high-volume and high-performance specialty lighting sources,
detectors, telecom products which include optical fiber communication
components, emitters, receivers and mux arrays, imaging devices and large
area amorphous silicon detectors.
Instruments: Develops, manufactures and markets sophisticated
analytical instruments and imaging detection systems for research
laboratories, academia, medical institutions, government agencies and a
wide range of industrial applications designed to provide industry-specific
solutions. Analytical Instruments provide world class analytical solutions
employing technologies such as molecular and atomic spectroscopies, high
pressure liquid chromatography, gas chromatography, and thermal and
elemental analysis. Detection Systems provide a broad range of products,
including walk through weapons detection systems, advanced explosive
detection systems, and large cargo inspection systems.
Fluid Sciences: Static and dynamic seals, sealing systems, solenoid
valves, bellows devices, advanced pneumatic components, systems and
assemblies and sheet metal-formed products for original equipment
manufacturers and end users.
(2) BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information in footnote
disclosures normally included in financial statements has been condensed or
omitted in accordance with the rules and regulations of the SEC. These
statements should be read in conjunction with the Company's Annual Report for
the year ended January 2, 2000, filed on Form 10-K with the SEC (the 1999 Form
10-K). The balance sheet amounts at January 2, 2000 in this report were
extracted from the Company's audited 1999 financial statements included in the
1999 Form 10-K. Certain prior period amounts have been reclassified to conform
to the current-year financial statement presentation. The information set forth
in these statements may be subject to normal year-end adjustments. The
information reflects all adjustments that, in the opinion of management, are
necessary to present fairly the Company's results of operations, financial
position and cash flows for the periods indicated. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The results of operations for the six
months ended July 2, 2000 are not necessarily indicative of the results for the
entire year.
4
<PAGE> 6
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACQUISITIONS
On January 14, 2000, the Company completed its acquisition of Vivid
Technologies, Inc. (Vivid) for an aggregate purchase price of approximately $67
million. The transaction was a stock merger whereby the shareholders of Vivid
received one share of the Company's common stock for each 6.2 shares of Vivid
common stock; approximately 1.6 million shares were issued in connection with
the acquisition. Vivid, which is a leading supplier of automated explosive
detection systems utilized in airports and high-security facilities worldwide,
generated sales of $21 million for the fiscal year ended September 30, 1999.
Vivid's operations, included in the consolidated results of the Company from the
date of acquisition, are reported in the Company's Instruments segment. The
transaction was accounted for as a purchase in accordance with Accounting
Principles Board (APB) Opinion No. 16, Business Combinations. In accordance with
APB Opinion No. 16, the Company allocated the purchase price of Vivid based on
the fair values of the net assets acquired and liabilities assumed. The
allocation of the purchase price has not yet been finalized, however, the
Company does not expect any material changes. Portions of the purchase price,
including intangible assets, were valued by independent appraisers utilizing
customary valuation procedures and techniques. These intangible assets included
approximately $8.1 million for acquired in-process research and development
(R&D) for projects that did not have future alternative uses. This allocation
represents the estimated fair value based on risk-adjusted cash flows related to
the in-process R&D projects. At the date of the acquisition of Vivid, the
development of these projects had not yet reached technological feasibility, and
the R&D in process had no alternative future uses. Accordingly, these costs were
expensed in the first quarter of 2000. Other acquired intangibles totaling $6.4
million included the fair value of developed technology. This intangible asset
is being amortized over its estimated useful life of 10 years. Goodwill of $27.2
million resulting from the acquisition of Vivid is being amortized over 25
years. Approximately $0.3 million has been recorded as accrued restructuring
charges in connection with the acquisition of Vivid.
On May 28, 1999, the Company completed its acquisition of the Analytical
Instruments Division (AI) of PE Corp. The AI acquisition is discussed in detail
in the 1999 Form 10-K and in a Current Report on Form 8-K filed by the Company
with the SEC on August 11, 1999. Unaudited pro forma operating results for the
Company for the six months ended July 4, 1999, assuming the acquisition of AI
occurred on December 29, 1997, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA)
------------------------------------
<S> <C>
Sales....................................................... $ 762,309
Net income.................................................. 13,922
Basic earnings per share.................................... .31
Diluted earnings per share.................................. .30
</TABLE>
The pro forma amounts in the table above exclude the acquired in-process
R&D charge for AI of $23 million. Pro forma amounts for the Vivid acquisition
are not included as their effect is not material to the Company's consolidated
financial statements.
(4) RESTRUCTURING CHARGES
The Company developed restructuring plans during 1998 to integrate and
consolidate its businesses and recorded restructuring charges in the first and
second quarters of 1998. During the first quarter of 1998, management developed
a plan to restructure certain businesses that resulted in a pre-tax
restructuring charge of $30.5 million. During the second quarter of 1998, the
Company expanded its continuing effort to restructure certain businesses to
further improve performance. The plan resulted in additional pre-tax
restructuring charges of $19.5 million. The specific details of the actions and
charges by operating segment are discussed more fully in the 1999 Form 10-K.
5
<PAGE> 7
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the third quarter of 1999, due to the substantial completion of the
actions of the 1998 restructuring plans, the Company reevaluated its 1998
restructuring plans. As a result of this review, costs associated with the
previously planned shutdown of two businesses were no longer required due to
actions taken to improve performance. Therefore, the Company recognized a
restructuring credit of $12 million during the third quarter of 1999, which
primarily affected the Fluid Sciences and Optoelectronics segments.
During the second quarter of 2000, the Company performed a strategic review
of its portfolio of businesses within its Life Sciences, Optoelectronics,
Instruments and Fluid Science segments. Specifically in the Optoelectronics
segment, the Company reevaluated and shifted its strategy and plans to operate
around three business enterprises. During the second quarter of 2000, the
Company also strengthened and realigned its senior management teams within its
Optoelectronics and Instruments segments. In connection with these events, the
Company reevaluated its 1998 restructuring plans. As a result of the strategic
review, actions taken to improve performance at costs lower than originally
estimated, and the sale of certain businesses originally included in the
restructuring plans, costs for certain actions within the 1998 restructuring
plans were no longer required. Therefore the Company recognized a restructuring
credit of $6 million in the second quarter of 2000, which primarily affected
Optoelectronics.
The Company's acquisitions in 1998 and 1999 and the Company's 1999
divestiture of its Technical Services segment (exiting government services) were
strategic milestones in the Company's transition to a commercial high-technology
company. Consistent with the strategic direction of the Company and concurrent
with the reevaluation of existing restructuring plans during the third quarter
of 1999, the Company developed additional plans during the third quarter of 1999
to restructure certain businesses to continue to improve the Company's
performance. These plans resulted in a pre-tax restructuring charge of $23.5
million recorded in the third quarter of 1999. The specific details of the
actions and charges by operating segment are discussed more fully in the 1999
Form 10-K. Due to increases in employee separation costs in certain of the
Company's non-U.S. operations, during the first quarter of 2000 the Company
increased the restructuring liability estimate by $2.4 million.
The following table summarizes restructuring activity from continuing
operations related to the 1998 and 1999 plans:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 2, 2000
----------------
(IN MILLIONS)
<S> <C>
Accrued restructuring costs at beginning of period.......... $27.2
Provisions.................................................. 2.4
Reversals................................................... (6.3)
Charges/writeoffs........................................... (6.5)
-----
Accrued restructuring costs at end of period................ $16.8
=====
</TABLE>
Approximately $28 million was recorded as accrued restructuring costs in
connection with the May 1999 AI acquisition, and approximately $5 million was
recorded as accrued restructuring costs in connection with the December 1998
Lumen acquisition. The specific details of the actions are discussed in the 1999
Form 10-K.
6
<PAGE> 8
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes restructuring activity from continuing
operations related to the Vivid, AI and Lumen acquisitions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 2, 2000
----------------
(IN MILLIONS)
<S> <C>
Accrued restructuring costs at beginning of period.......... $ 14.1
Provisions.................................................. 43.5
Charges/writeoffs........................................... (12.2)
------
Accrued restructuring costs at end of period................ $ 45.4
======
</TABLE>
During the second quarter of 2000, in connection with the one-year
anniversary of the AI acquisition, the Company finalized its original estimates
of the goodwill and restructuring plans related to the acquired AI business. As
a result of continued aggressive actions by the Company to improve the cost
structure of the acquired business and due to increased costs related primarily
to employment integration, the Company adjusted its original estimate of
restructuring costs recorded at the acquisition date in connection with purchase
accounting. Accordingly, accrued restructuring costs were increased by
approximately $40 million during the second quarter of 2000.
Cash outlays during the six months ended July 2, 2000 were approximately
$19 million for all of these plans. The Company expects to incur approximately
$20 million of cash outlays in connection with these plans throughout the
remainder of fiscal 2000. The majority of the actions remaining at July 2, 2000
are expected to occur in fiscal 2000.
(5) GAINS ON DISPOSITIONS
During the first quarter of 2000, the Company sold its micromachined
sensors and specialty semiconductor businesses for cash of $24.3 million,
resulting in a pre-tax gain of $6.7 million. Combined financial results of the
divested businesses for the first quarters of 2000 and 1999 were not material to
the consolidated results of the Company. During the first six months of 2000,
primarily in connection with the 1999 disposition of the Company's Structural
Kinematics business and the 1998 dispositions of its Sealol Industrial Seals and
Rotron divisions, the Company recognized $2.5 million of pre-tax gains from the
previously deferred sales proceeds as a result of the favorable resolution of
certain events and contingencies.
(6) OTHER EXPENSE
Other income (expense), net, consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ --------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income........................... $ 894 $ 1,230 $ 1,669 $ 1,826
Interest expense.......................... (8,105) (6,292) (16,637) (11,841)
Gains on sales of investments............. 900 -- 947 75
Other..................................... (1,624) (1,135) (2,489) (889)
------- ------- -------- --------
$(7,935) $(6,197) $(16,510) $(10,829)
======= ======= ======== ========
</TABLE>
(7) DISCONTINUED OPERATIONS
On August 20, 1999, the Company sold the assets of its Technical Services
segment. Additional details are disclosed in the Company's 1999 Form 10-K. The
Company accounted for the sale of its Technical Services segment as a
discontinued operation in accordance with APB Opinion No. 30, Reporting the
Results of Operations, and, accordingly, the results of operations of the
Technical Services segment have been
7
<PAGE> 9
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
segregated from continuing operations and reported as a separate line item on
the Company's Consolidated Income Statements. The Company recorded an additional
pre-tax gain of $7.3 million on the disposition of discontinued operations as a
result of the final post-closing selling price settlement in the second quarter
of 2000.
Summary operating results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 4, 1999 JULY 4, 1999
------------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
Sales............................................. $118,186 $232,456
Costs and expenses................................ 108,624 214,104
-------- --------
Operating income from discontinued operations..... 9,562 18,352
Other income...................................... 347 1,003
-------- --------
Income from discontinued operations before income
taxes........................................... 9,909 19,355
Provision for income taxes........................ 3,567 6,968
-------- --------
Income from discontinued operations, net of income
taxes........................................... $ 6,342 $ 12,387
======== ========
</TABLE>
(8) ACCOUNTS RECEIVABLE
Accounts receivable were net of reserves for doubtful accounts of $12.2
million and $12.9 million as of July 2, 2000 and January 2, 2000, respectively.
(9) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JULY 2, JANUARY 2,
2000 2000
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Finished goods.............................................. $ 82,728 $ 87,177
Work in process............................................. 52,787 26,342
Raw materials............................................... 92,399 88,205
-------- --------
$227,914 $201,724
======== ========
</TABLE>
(10) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following:
<TABLE>
<CAPTION>
JULY 2, JANUARY 2,
2000 2000
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 28,064 $ 28,724
Buildings and leasehold improvements........................ 128,189 127,908
Machinery and equipment..................................... 341,279 339,715
-------- --------
$497,532 $496,347
======== ========
</TABLE>
8
<PAGE> 10
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) INTANGIBLE ASSETS
Intangible assets consist mainly of goodwill from acquisitions accounted
for using the purchase method of accounting, representing the excess of cost
over the fair market value of the net assets of the acquired businesses.
Goodwill is being amortized over periods of 10 to 40 years. Goodwill, net of
accumulated amortization, was $460 million and $417 million at July 2, 2000 and
January 2, 2000, respectively. Other identifiable intangible assets from
acquisitions include patents, trademarks, trade names and developed technology
and are being amortized over periods of 10 to 40 years. Other identifiable
intangible assets, net of accumulated amortization, were $178 million and $175
million at July 2, 2000 and January 2, 2000, respectively. Intangible assets
consisted of the following:
<TABLE>
<CAPTION>
JULY 2, JANUARY 2,
2000 2000
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Goodwill.................................................... $522,518 $477,072
Other identifiable intangible assets........................ 212,538 182,550
-------- --------
735,056 659,622
Accumulated amortization.................................... (97,093) (67,184)
-------- --------
$637,963 $592,438
======== ========
</TABLE>
The increase in intangible assets resulted primarily from the Vivid
acquisition and the finalization of accrued restructuring costs related to the
AI acquisition, as discussed in Note 4.
(12) SHORT-TERM DEBT
Short-term debt at July 2, 2000 was $335 million, consisting primarily of
commercial paper borrowings. (See Note 17).
(13) ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JULY 2, JANUARY 2,
2000 2000
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Payroll and incentives...................................... $ 23,933 $ 32,720
Employee benefits........................................... 42,960 49,293
Federal, non-U.S. and state income taxes.................... 38,345 45,324
Other accrued operating expenses............................ 187,191 181,503
-------- --------
$292,429 $308,840
======== ========
</TABLE>
9
<PAGE> 11
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) COMPREHENSIVE INCOME
Comprehensive income presented in accordance with Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, consisted
of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ --------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income................................ $35,573 $ 3,617 $ 51,816 $ 17,704
Other comprehensive income (loss), net of
tax:
Foreign currency translation
adjustments............................. (7,144) (6,054) (17,937) (17,695)
Unrealized gains on securities:
Gains arising during the period......... 6,670 265 6,740 255
Reclassification adjustment............. (96) -- (96) --
------- ------- -------- --------
Net unrealized gains...................... 6,574 265 6,644 255
------- ------- -------- --------
(570) (5,789) (11,293) (17,440)
------- ------- -------- --------
Comprehensive income (loss)............... $35,003 $(2,172) $ 40,523 $ 264
======= ======= ======== ========
</TABLE>
The components of accumulated other comprehensive loss were as follows:
<TABLE>
<CAPTION>
JULY 2, JANUARY 2,
2000 2000
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Foreign currency translation adjustments.................... $(32,398) $(14,461)
Unrealized gains on securities.............................. 7,065 421
-------- --------
Accumulated other comprehensive loss........................ $(25,333) $(14,040)
======== ========
</TABLE>
(15) INDUSTRY SEGMENT INFORMATION
The Company's businesses are reported as four reportable segments which
reflect the Company's management and structure under four strategic business
units (SBUs). The segments' principal products and services are described in
Note 1 of this Form 10-Q. The accounting policies of the reportable segments are
the same as those described in Note 1 of the 1999 Form 10-K. The Company
evaluates the performance of its operating segments based on operating profit.
Intersegment sales and transfers are not significant. Unaudited sales and
operating profit information by segment for the three and six months ended July
2, 2000 and July 4, 1999 are shown in Item 2 of this Quarterly Report on Form
10-Q and are considered an integral part of this note.
(16) NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
(as amended by SFAS Nos. 137 and 138) is now effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000; earlier adoption is allowed.
The statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. The
Company has not yet determined the effect that adoption of SFAS No. 133 will
have. However, the Company currently expects that, due to its relatively limited
use of derivative instruments, adoption of the statement will not have a
material effect on the Company's results of operations or financial position.
10
<PAGE> 12
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The SEC released Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements, on December 3, 1999. This SAB provides
additional guidance on the accounting for revenue recognition, including both
broad conceptual discussions as well as certain industry-specific guidance. The
new guidance that is most likely to have a potential impact on the Company
concerns customer acceptance and installation terms. The Company is in the
process of accumulating the information necessary to quantify the potential
impact of this new guidance. The guidance is effective for the fourth quarter of
fiscal 2000 and is required to be adopted effective January 3, 2000 by recording
the effect of any prior year revenue transactions affected as a "cumulative
effect of a change in accounting principle" as of January 3, 2000. Quarterly
financial statements within fiscal 2000 would be restated to conform to the new
guidance as necessary.
The Financial Accounting Standards Board issued Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation, in March 2000.
The interpretation clarifies how companies should apply APB Opinion No. 25,
Accounting for Stock Issued to Employees. The interpretation will be applied
prospectively to new awards, modifications to outstanding awards and changes in
employee status on or after July 1, 2000, with earlier implementation dates for
certain transactions. Currently, there are no awards previously granted by the
Company that would result in an adjustment at July 1, 2000 as a result of the
interpretation.
(17) SUBSEQUENT EVENTS
On July 31, 2000, the Company completed its acquisition of NEN Life
Sciences, Inc. (NEN), a provider of state-of-the-art drug discovery products,
services, reagents and technologies to the life science industry. Details of the
transaction and pro forma financial information were reported on a Current
Report on Form 8-K filed by the Company with the SEC on August 1, 2000. The
Company purchased NEN from an investor group led by Genstar Capital LLC for an
aggregate purchase price of approximately $400 million, and the transaction will
be accounted for as a purchase in accordance with APB Opinion No. 16. In
connection with the acquisition, the Company paid approximately $350 million in
cash and issued warrants to purchase approximately 300,000 shares of the
Company's common stock in exchange for all of the outstanding shares, options
and warrants of NEN. In addition, the Company repaid approximately $50 million
of outstanding indebtedness of NEN. The Company financed the acquisition and
repayment of the outstanding indebtedness with $410 million of commercial paper
borrowings with a weighted-average interest rate of 7%.
In early August 2000, the Company sold zero coupon senior convertible
debentures with an aggregate purchase price of $460 million. The debentures,
which were offered by a prospectus supplement pursuant to the Company's
effective shelf registration statement, are due August 2020 and are priced with
a yield to maturity of 3.5%. Holders of the debentures may require the Company
to repurchase some or all of the debentures in August 2003 and August 2010, or
at any time when there is a change in control of the Company, as defined in the
indenture under which the debentures were issued, at repurchase prices equal to
the initial price to the public plus accrued original issue discount through the
date of repurchase. The debentures are currently convertible into shares of the
Company's common stock at approximately $85 per share. The Company used the
offering's net proceeds of approximately $448 million to repay a portion of its
commercial paper borrowings.
11
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SALES AND OPERATING PROFIT
Sales and operating profit by segment are shown in the table below. The
following unaudited segment information is presented as an aid to better
understand the Company's operating results:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
JULY 2, JULY 4, INCREASE JULY 2, JULY 4, INCREASE
2000 1999 (DECREASE) 2000 1999 (DECREASE)
(IN THOUSANDS) -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
LIFE SCIENCES
Sales............................. $ 41,933 $ 38,555 $ 3,378 $ 81,559 $ 73,612 $ 7,947
Operating Profit.................. 6,141 4,556 1,585 10,416 8,183 2,233
Operating Profit %................ 14.6% 11.8% 2.8% 12.3% 11.1% 1.2%
Operating Profit Before
Nonrecurring Items.............. 5,741 4,556 1,185 10,016 8,183 1,833
Operating Profit % Before
Nonrecurring Items.............. 13.7% 11.8% 1.9% 12.3% 11.1% 1.2%
OPTOELECTRONICS
Sales............................. $120,915 $108,641 $12,274 $235,380 $219,239 $ 16,141
Operating Profit.................. 22,484 12,039 10,445 42,641 20,693 21,948
Operating Profit %................ 18.6% 11.1% 7.5% 13.1% 9.4% 3.7%
Operating Profit Before
Nonrecurring Items.............. 17,484 12,039 5,445 30,901 20,693 10,208
Operating Profit % Before
Nonrecurring Items.............. 14.5% 11.1% 3.4% 13.1% 9.4% 3.7%
INSTRUMENTS
Sales............................. $175,526 $ 98,240 $77,286 $362,071 $141,797 $220,274
Operating Profit (Loss)........... 12,747 (25,515) 38,262 18,574 (20,992) 39,566
Operating Profit (Loss) %......... 7.3% -26.0% -33.3% 5.1% -14.8% -19.9%
Operating Profit Before
Nonrecurring Items.............. 15,840 3,349 12,491 30,331 7,872 22,459
Operating Profit % Before
Nonrecurring Items.............. 9.0% 3.4% 5.6% 8.4% 5.6% 2.8%
FLUID SCIENCES
Sales............................. $ 60,331 $ 58,822 $ 1,509 $121,981 $112,827 $ 9,154
Operating Profit.................. 10,184 9,940 244 18,671 13,952 4,719
Operating Profit %................ 16.9% 16.9% -- 15.3% 12.4% 2.9%
Operating Profit Before
Nonrecurring Items.............. 10,184 5,640 4,544 20,242 9,652 10,590
Operating Profit % Before
Nonrecurring Items.............. 16.9% 9.6% 7.3% 16.6% 8.6% 8.0%
OTHER
Operating Profit (Loss)........... (91) 920 (1,011) (2,949) (2,868) (81)
Operating Profit (Loss) Before
Nonrecurring Items.............. (3,407) (3,258) (149) (6,492) (7,046) 554
CONTINUING OPERATIONS
Sales............................. $398,705 $304,258 $94,447 $800,991 $547,475 $253,516
Operating Profit.................. 51,465 1,940 49,525 87,353 18,968 68,385
Operating Profit %................ 12.9% 0.6% 12.3% 10.9% 3.5% 7.4%
Operating Profit Before
Nonrecurring Items.............. 45,842 22,326 23,516 84,998 39,354 45,644
Operating Profit % Before
Nonrecurring Items.............. 11.5% 7.3% 4.2% 10.6% 7.2% 3.4%
</TABLE>
12
<PAGE> 14
The reported results for the three and six months ended July 2, 2000 and
July 4, 1999 include certain nonrecurring items which are discussed in detail in
the Discussion of Consolidated Results of Operations and Segment Results of
Operations sections to follow herein.
DISCUSSION OF CONSOLIDATED RESULTS OF OPERATIONS
Sales from continuing operations for the second quarter of 2000 increased
31% to $398.7 million versus $304.3 million for the same period of 1999. Organic
growth during the second quarter of 2000 was 12%. The Company defines organic
growth as growth in historical businesses plus growth in acquired businesses
assuming they were owned in prior periods, adjusted for the effects of exited
businesses and foreign exchange. Revenues from acquisitions, net of
divestitures, during the second quarter of 2000 were approximately $132 million.
The organic revenue growth was driven by strength in all of the Company's
segments as discussed in further detail below in the Segment Results of
Operations section.
On a reported basis, operating profit for the second quarter of 2000 was
$51.5 million, up $49.5 million versus the same quarter of 1999. The second
quarter of 2000 operating income included a $.6 million purchase accounting
charge related to the Vivid acquisition, a restructuring credit of $6.3 million,
deferred gains of $2.4 million from prior periods' divestitures and
restructuring-related and repositioning charges of $2.5 million. The second
quarter of 1999 operating income included purchase accounting charges for the AI
acquisition related to acquired in-process research and development (R&D) of $23
million and $2.5 million for the revaluation of acquired inventory, and also
included gains from dispositions of $8.5 million and restructuring-related and
repositioning charges of $3.4 million. Operating profit before these
nonrecurring items for the second quarter of 2000 was $45.8 million, increasing
$23.5 million, or over 100%, versus the comparable period of 1999. Strong
revenue growth and Company-wide productivity and quality initiatives drove this
increase in operating income. Discussion of operating profit by segment during
the second quarter of 2000 versus 1999 is presented in the Segment Results of
Operations section below. Research and development expenses were $21.4 million
during the second quarter of 2000, an increase of $5.1 million over the
comparable 1999 period and were approximately 5% of total sales for both
periods. The second quarter increase during 2000 versus 1999 was due primarily
to the inclusion of the acquired AI and Vivid businesses and increased
investments in new product development. This was partially offset by lower R&D
spending during the second quarter of 2000 associated with the Optoelectronics'
Amorphous Silicon business, as the Company transitioned successfully from an R&D
stage to full-scale production.
Sales from continuing operations for the six months ended July 2, 2000
increased $253.5 million, or 46%, to $801 million versus the comparable 1999
period. Organic growth for the six months of 2000 was approximately 11%.
Revenues from acquisitions and strong growth in most segments were offset by the
effects of businesses divested in 1999 and the first quarter of 2000. Discussion
of sales by segment during the six months of 2000 and 1999 is presented below in
the Segment Results of Operations section. On a reported basis, operating profit
for the six months of 2000 increased $68.4 million to $87.4 million from $19
million for the six months of 1999. The six months of 2000 operating income
included the following items: Vivid purchase accounting charges of $1.1 million
related to the revaluation of acquired inventory and $8.1 million related to
acquired in-process R&D; a net restructuring credit of $3.9 million; gains on
dispositions of $10.2 million and restructuring-related and repositioning
charges of $2.5 million. The six months of 1999 operating income included the
following items: AI acquisition charges of $2.5 million related to the
revaluation of acquired inventory and $23 million related to acquired in-process
R&D; gains on dispositions of $8.5 million; restructuring-related and
repositioning costs of $3.4 million. Operating profit before these nonrecurring
items for the first six months of 2000 was $85 million, up $45.6 million, or
116%, versus the same period of 1999. Discussion of operating profit by segment
during the six months of 2000 and 1999 is presented below in the Segment Results
of Operations section.
ACQUISITIONS AND DIVESTITURES
The Company acquired PE Corp.'s Analytical Instruments Division (AI) on May
28, 1999 for an aggregate purchase price of approximately $425 million plus
acquisition costs. The AI acquisition is discussed in detail in the 1999 Form
10-K and in a Current Report on Form 8-K filed by the Company with the
13
<PAGE> 15
Securities and Exchange Commission (SEC) on August 11, 1999. AI is a leading
producer of high-quality analytical testing instruments and consumables, and
generated 1998 fiscal year sales of $569 million.
On August 20, 1999, the Company sold its Technical Services segment. The
Company accounted for the sale of its Technical Services segment as a
discontinued operation in accordance with Accounting Principles Board (APB)
Opinion No. 30 and, accordingly, the results of operations of the Technical
Services segment have been segregated from continuing operations and reported as
a separate line item on the Company's Consolidated Income Statements.
On January 14, 2000, the Company completed its acquisition of Vivid
Technologies, Inc. (Vivid) for an aggregate purchase price of approximately $67
million. The transaction was a stock merger whereby the shareholders of Vivid
received one share of the Company's common stock for each 6.2 shares of Vivid
common stock; approximately 1.6 million shares were issued in connection with
the acquisition. Vivid, which is a leading supplier of automated explosive
detection systems utilized in airports and high-security facilities worldwide,
generated sales of $21 million for the fiscal year ended September 30, 1999.
Vivid's operations, included in the consolidated results of the Company from the
date of acquisition, are reported in the Company's Instruments segment. The
transaction was accounted for as a purchase in accordance with APB Opinion No.
16, Business Combinations. In accordance with APB Opinion No. 16, the Company
allocated the purchase price of Vivid based on the fair values of the net assets
acquired and liabilities assumed. The allocation of the purchase price has not
yet been finalized, however, the Company does not expect any material changes.
Portions of the purchase price, including intangible assets, were valued by
independent appraisers utilizing customary valuation procedures and techniques.
These intangible assets included approximately $8.1 million for acquired
in-process R&D for projects that did not have future alternative uses. This
allocation represents the estimated fair value based on risk-adjusted cash flows
related to the in-process R&D projects. At the date of the acquisition of Vivid,
the development of these projects had not yet reached technological feasibility,
and the R&D in process had no alternative future uses. Accordingly, these costs
were expensed in the first quarter of 2000. Other acquired intangibles totaling
$6.4 million included the fair value of developed technology. This intangible
asset is being amortized over its estimated useful life of 10 years. Goodwill
resulting from the acquisition of Vivid is being amortized over 25 years.
Approximately $0.3 million has been recorded as accrued restructuring charges in
connection with the acquisition of Vivid.
During the first quarter of 2000, the Company divested its micromachined
sensors and specialty semiconductor businesses for cash of $24.3 million,
resulting in a pre-tax gain of approximately $6.7 million. Combined financial
results of the divested businesses for the first quarters of 2000 and 1999 were
not material to the consolidated results of the Company.
On July 31, 2000, the Company completed its acquisition of NEN Life
Sciences, Inc. (NEN). NEN is a provider of state-of-the-art drug discovery
products, services, reagents and technologies to the life science industry.
Details of the transaction and pro forma financial information were reported on
a Current Report on Form 8-K filed by the Company with the SEC on August 1,
2000. NEN generated fiscal year 1999 sales of $104 million.
SEGMENT RESULTS OF OPERATIONS
The Company's continuing businesses are reported as four operating
segments, which reflect the Company's management methodology and structure under
its Strategic Business Units (SBUs). The Company evaluates performance based on
operating profit of the respective segments. The discussion that follows is a
summary analysis of the primary changes in operating results by segment for the
second quarter and six months of 2000 versus the same periods of 1999.
Life Sciences
Sales for the second quarter of 2000 were $41.9 million compared to $38.6
million for the second quarter of 1999, which represents a $3.3 million, or 9%,
increase. Organic growth was 15%. The increase was primarily due to increased
sales from new products in drug discovery and strong demand in genetic disease
screening.
14
<PAGE> 16
Operating profit increased 35% to $6.1 million for the second quarter of
2000 versus the same period of 1999. Operating profit before nonrecurring items
was $5.7 million for the second quarter of 2000 versus $4.6 million for the
second quarter of 1999, representing a 24% increase. Higher volume discussed
above and operational improvements were the primary contributors to the increase
in 2000 operating profit versus 1999.
Sales for the six months of 2000 increased 11% to $81.6 million versus
$73.6 million for the six months of 1999. Organic growth was 16%. Strong demand
in the Company's drug discovery and genetic disease screening businesses,
increased sales of new products and higher reagent sales were the primary
reasons for the increase.
Operating profit for the six months of 2000 was $10.4 million, increasing
$2.2 million, or 27%, compared to the six months of 1999. Operating profit
before nonrecurring items in the first six months of 2000 was $10 million versus
$8.2 million in the same period of 1999. The increase was due to primarily
higher revenues discussed above, and lower expense levels due to selling,
general and administrative cost structure improvements.
Optoelectronics
Sales for the second quarter of 2000 were $120.9 million, representing an
increase of $12.3 million, or 11%, versus the comparable period of 1999. Organic
growth was 20%. Strong growth across all business units was fueled by increased
demand and new product introductions, specifically in the Company's telecom
unit.
Reported operating profit for the second quarter of 2000 was $22.5 million
versus $12 million for the same period of 1999, representing an increase of
$10.5 million, or 88% during 2000. Operating profit for the second quarter of
2000 included a restructuring credit of approximately $5 million. Operating
profit before nonrecurring items for the second quarter of 2000 was $17.5 versus
$12 million, increasing $5.5 million, or 46%, compared to the same period of
1999. The increase was primarily due to higher revenues discussed above, effects
of Six Sigma initiatives, the transition of the Company's Amorphous Silicon
business from an R&D stage to full-scale production during the first quarter of
2000, and the benefits of shifting selected production to the Far East.
Sales for the first six months of 2000 increased $16.1 million, or 7%, to
$235.4 million versus $219.2 million for the comparable period of 1999. Organic
growth was 21%. Strong revenue growth from all business contributed to the
increase and partially offset the absence of revenues from divested businesses.
Reported operating profit for the first six months of 2000 increased to
$42.6 million compared to $20.7 million for the same 1999 period, representing a
106% increase. Operating profit for the first six months of 2000 included gains
of $6.7 million and a restructuring credit of approximately $5 million. The 1999
operating profit included a $2.9 million charge for the revaluation of acquired
inventory related to the Lumen acquisition. Higher revenues, operational
improvements and the effects of divesting unprofitable businesses primarily
drove the income increase during 2000.
Instruments
Sales for the second quarter of 2000 were $175.5 million, increasing $77.3
million or 79%, versus the comparable period of 1999. Organic growth was 5%. The
inclusion of AI revenues for a full quarter in 2000 and revenues from the Vivid
business acquired in January 2000 comprised the majority of the increase. This
offset the effects of some industry-wide softness in certain markets.
Reported operating profit for the second quarter of 2000 was $12.7 million,
increasing $38.3 million compared to an operating loss of $25.5 million in the
comparable period of 1999. The second quarter of 2000 operating profit included
$.6 million of amortization of the write-up to fair value of acquired inventory
and $2.5 million of restructuring-related and repositioning costs. The 1999
operating profit included AI acquisition charges of $23 million related to
acquisition in-process R&D and $2.5 million of amortization of the write-up to
fair value of acquired inventory, and restructuring-related and repositioning
charges of $3.4 million. Excluding these nonrecurring items, operating profit
for the second quarter of 2000 was $15.8 million versus $3.3 million in 1999,
representing an increase of $12.5 million or over 370%. Higher revenues
discussed above
15
<PAGE> 17
and a more favorable product mix of acquired businesses, cost structure
improvement, and acquisition integration synergies were the primary contributors
to the increase.
Sales for the first six months of 2000 were $362.1 million, increasing
$220.3 million, or over 150%, compared to the same period of 1999. Revenues from
acquired businesses offset the effects of flat market conditions in certain U.S.
markets. Organic revenue growth was approximately 2%.
Reported operating profit for the first six months of 2000 was $18.6
million compared to an operating loss of $21 million in the comparable period of
1999. The six months of 2000 included the following items: Vivid acquisition
charges of $8.1 million related to acquired in-process R&D and $1.1 million of
amortization of the write-up to fair value of acquired inventory, and $2.5
million of restructuring-related and repositioning costs. The 1999 operating
profit included AI acquisition charges of $23 million related to acquired
in-process R&D and $2.5 million of amortization of the write-up to fair value of
acquired inventory, and $3.4 million of restructuring-related and repositioning
costs. Excluding these nonrecurring items, operating profit for the first six
months of 2000 was $30.3 million versus $7.9 million for the same period of
1999, representing an increase of $22.5 million, or 284%. Higher revenues
discussed above, sales of higher-margin new products and cost structure
improvements were the primary reasons for the increase in 2000 versus the 1999
period.
Fluid Sciences
Sales for the second quarter of 2000 were $60.3 million versus $58.8
million for the comparable 1999 period, representing an increase of $1.5
million, or 3%. Organic revenue growth of 19% was driven by strength in the
Company's semiconductor and power generation businesses.
Reported operating profit for the second quarter of 2000 was $10.2 million
versus $9.9 million in the same period of 1999. The 1999 operating profit
included $4.3 million of gains on dispositions. Excluding this nonrecurring
item, operating profit for the second quarter of 2000 of $10.2 million increased
82% compared with $5.6 million in the same period of 1999. Higher volume, the
effects of the sale of unprofitable businesses and operational efficiencies
contributed to the increase during the second quarter of 2000 versus the
comparable period of 1999.
Sales for the six months of 2000 were $122 million, increasing $9.2 million
versus the same period of 1999. Organic revenue growth was 26%. Higher revenues
across all businesses drove the increase during 2000 versus 1999.
Reported operating profit for the first six months of 2000 increased $4.7
million, or 34%, and was $18.7 million versus $14 million for the first six
months of 1999. The first six months of 2000 operating profit included
restructuring charges of $2.4 million and gains on dispositions of $.8 million.
The operating profit for the first six months of 1999 included gains on
dispositions of $4.3 million. Excluding these nonrecurring items, operating
profit for the first six months of 2000 was $20.2 million, increasing $10.5
million, or 108%, versus the operating profit of $9.7 million for the first six
months of 1999. Higher sales, the divestiture of unprofitable businesses and the
effects of lean manufacturing programs drove the increase in the first six
months of 2000 versus 1999.
RESTRUCTURING CHARGES
The Company developed restructuring plans during 1998 to integrate and
consolidate its businesses and recorded restructuring charges in the first and
second quarters of 1998. During the first quarter of 1998, management developed
a plan to restructure certain businesses that resulted in a pre-tax
restructuring charge of $30.5 million. During the second quarter of 1998, the
Company expanded its continuing effort to restructure certain businesses to
further improve performance. The plan resulted in additional pre-tax
restructuring charges of $19.5 million. The specific details of the actions and
charges by operating segment are discussed more fully in the 1999 Form 10-K.
During the third quarter of 1999, due to the substantial completion of the
actions of the 1998 restructuring plans, the Company reevaluated its 1998
restructuring plans. As a result of this review, costs associated with the
previously planned shutdown of two businesses were no longer required due to
actions
16
<PAGE> 18
taken to improve performance. Therefore, the Company recognized a restructuring
credit of $12 million during the third quarter of 1999, which primarily affected
the Fluid Sciences and Optoelectronics segments.
During the second quarter of 2000, the Company performed a strategic review
of its portfolio of businesses within its Life Sciences, Optoelectronics,
Instruments and Fluid Science segments. Specifically in the Optoelectronics
segment, the Company reevaluated and shifted its strategy and plans to operate
around three business enterprises. During the second quarter of 2000, the
Company also strengthened and realigned its senior management teams within its
Optoelectronics and Instruments segments. In connection with these events, the
Company reevaluated its 1998 restructuring plans. As a result of the strategic
review, actions taken to improve performance at costs lower than originally
estimated, and the sale of certain businesses originally included in the
restructuring plans, costs for certain actions within the 1998 restructuring
plans were no longer required. Therefore the Company recognized a restructuring
credit of $6 million in the second quarter of 2000, which primarily affected
Optoelectronics.
The Company's acquisitions in 1998 and 1999 and the Company's 1999
divestiture of its Technical Services segment (exiting government services) were
strategic milestones in the Company's transition to a commercial high-technology
company. Consistent with the strategic direction of the Company and concurrent
with the reevaluation of existing restructuring plans during the third quarter
of 1999, the Company developed additional plans during the third quarter of 1999
to restructure certain businesses to continue to improve the Company's
performance. These plans resulted in a pre-tax restructuring charge of $23.5
million recorded in the third quarter of 1999. The specific details of the
actions and charges by operating segment are discussed more fully in the 1999
Form 10-K. Due to increases in employee separation costs in certain of the
Company's non-U.S. operations, during the first quarter of 2000 the Company
increased the restructuring liability estimate by $2.4 million.
The following table summarizes restructuring activity from continuing
operations related to the 1998 and 1999 plans:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 2, 2000
----------------
(IN MILLIONS)
<S> <C>
Accrued restructuring costs at beginning of period.......... $27.2
Provisions.................................................. 2.4
Reversals................................................... (6.3)
Charges/writeoffs........................................... (6.5)
-----
Accrued restructuring costs at end of period................ $16.8
=====
</TABLE>
Approximately $28 million was recorded as accrued restructuring costs in
connection with the May 1999 AI acquisition, and approximately $5 million was
recorded as accrued restructuring costs in connection with the December 1998
Lumen acquisition. The specific details of the actions are discussed in the 1999
Form 10-K.
The following table summarizes restructuring activity from continuing
operations related to the Vivid, AI and Lumen acquisitions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 2, 2000
----------------
(IN MILLIONS)
<S> <C>
Accrued restructuring costs at beginning of period.......... $ 14.1
Provisions.................................................. 43.5
Charges/writeoffs........................................... (12.2)
------
Accrued restructuring costs at end of period................ $ 45.4
======
</TABLE>
During the second quarter of 2000, in connection with the one-year
anniversary of the AI acquisition, the Company finalized its original estimates
of the goodwill and restructuring plans related to the acquired AI
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business. As a result of continued aggressive actions by the Company to improve
the cost structure of the acquired business and due to increased costs related
primarily to employment integration, the Company adjusted its original estimate
of restructuring costs recorded at the acquisition date in connection with
purchase accounting. Accordingly, accrued restructuring costs were increased by
approximately $40 million during the second quarter of 2000.
Cash outlays during the six months ended July 2, 2000 were approximately
$19 million for all of these plans. The Company expects to incur approximately
$20 million of cash outlays in connection with these plans throughout the
remainder of fiscal 2000. The majority of the actions remaining at July 2, 2000
are expected to occur in fiscal 2000.
OTHER EXPENSE
Other expense for the second quarter of 2000 was $7.9 million versus $6.2
million for the comparable period in 1999. Other expense increased to $16.5
million for the first six months of 2000 from $10.8 million for the comparable
period of 1999. These increases were primarily due to the impact of higher
interest expense on increased debt levels resulting from the AI acquisition.
INCOME TAX EXPENSE
Reported income tax expense as a percent of pre-tax income was 33% and 35%
for the first six months of 2000 and 1999, respectively. Income tax expense as a
percent of pre-tax income before nonrecurring items was 30% for the first six
months of 2000 versus 36% for the first six months of 1999. The reduction in the
rate of income tax is largely attributable to changes in the taxing
jurisdictions in which income is recognized as a result of recent acquisitions
and dispositions.
DISCONTINUED OPERATIONS
On August 20, 1999, the Company sold its Technical Services segment. The
Company accounted for the sale of its Technical Services segment as a
discontinued operation in accordance with APB Opinion No. 30 and, accordingly,
the results of operations of the Technical Services segment have been segregated
from continuing operations and reported as a separate line item on the Company's
Consolidated Income Statements. As a result of the final post-closing selling
price adjustment that was settled in the second quarter of 2000, the Company
recorded an additional pre-tax gain of $7.3 million on the disposition of
discontinued operations.
Sales from discontinued operations for the three and six months ended July
4, 1999 were $118.2 million and $232.5 million, respectively. Operating income
from discontinued operations was $9.6 million for the three months ended July 4,
1999 and $18.4 million for the six months then ended.
FINANCIAL CONDITION
Short-term debt at July 2, 2000 was $335 million, primarily consisting of
commercial paper borrowings. Long-term debt at July 2, 2000 was $115 million
consisting primarily of unsecured notes. During the first six months of 2000,
the net paydown of debt was approximately $49 million.
In March 2000, the Company's $250 million revolving credit facility was
refinanced and increased to a $300 million revolving credit facility that
expires in March 2001. The Company has an additional revolving credit agreement
for $100 million that expires in March 2002.
Cash and cash equivalents decreased by $17.4 million to $109.3 million at
the end of the second quarter of 2000. Net cash provided by operating activities
was $40.7 million during the first six months of 2000 and was comprised of net
income from continuing operations of $47.4 million, depreciation and
amortization of $37.8 million, change in working capital accounts and accrued
expenses of $4.3 million, a $20.7 million decrease in accrued restructuring,
gains on dispositions and sales of investments of $10.9 million and other
changes of $8.6 million. During the first six months of 2000, capital
expenditures were $29.4 million, and the Company
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<PAGE> 20
completed strategic alliances with Genomic Solutions, a leader in genetic
screening, and Bragg Photonics, a maker of key fiber optic components, with
equity investments totaling $15.2 million.
In connection with the completion of the NEN acquisition on July 31, 2000,
the Company paid approximately $350 million in cash and issued warrants to
purchase approximately 300,000 shares of the Company's common stock in exchange
for all of the outstanding shares, options and warrants of NEN. In addition, the
Company repaid approximately $50 million of outstanding indebtedness of NEN. The
Company financed the acquisition and repayment of the outstanding indebtedness
with $410 million of commercial paper borrowings with a weighted-average
interest rate of 7%.
In early August 2000, the Company sold zero coupon senior convertible
debentures with an aggregate purchase price of $460 million. The debentures,
which were offered by a prospectus supplement pursuant to the Company's
effective shelf registration statement, are due August 2020 and are priced with
a yield to maturity of 3.5%. Holders of the debentures may require the Company
to repurchase some or all of the debentures in August 2003 and August 2010, or
at any time when there is a change in control of the Company, as defined in the
indenture under which the debentures were issued, at repurchase prices equal to
the initial price to the public plus accrued original issue discount through the
date of repurchase. The debentures are currently convertible into shares of the
Company's common stock at approximately $85 per share. The Company used the
offering's net proceeds of approximately $448 million to repay a portion of its
commercial paper borrowings.
REVENUE RECOGNITION
The SEC released Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements, on December 3, 1999. This SAB provides
additional guidance on the accounting for revenue recognition, including both
broad conceptual discussions as well as certain industry-specific guidance. The
new guidance that is most likely to have a potential impact on the Company
concerns customer acceptance and installation terms. The Company is in the
process of accumulating the information necessary to quantify the potential
impact of this new guidance. The guidance is effective for the fourth quarter of
fiscal 2000 and is required to be adopted effective January 3, 2000 by recording
the effect of any prior year revenue transactions affected as a "cumulative
effect of a change in accounting principle" as of January 3, 2000. Quarterly
financial statements within fiscal 2000 would be restated to conform to the new
guidance as necessary.
FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE
This Quarterly Report contains "forward-looking statements." For this
purpose, any statements contained in this Quarterly Report that are not
statements of historical fact may be deemed to be forward-looking statements.
Words such as "believes," "anticipates," "plans," "expects," "will" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the results of PerkinElmer to
differ materially from those indicated by these forward-looking statements.
These factors include, without limitation, those set forth in "Item 7.
Management's Discussions and Analysis of Financial Condition and Results of
Operations -- Forward-Looking Information and Factors Affecting Future
Performance" of the Company's 1999 Form 10-K,which are expressly incorporated by
reference herein, as well as those discussed in Exhibit 99.1 to this Quarterly
Report, which discussion is expressly incorporated by reference herein.
ITEM 3. MARKET RISK
Market Risk: The Company is exposed to market risk, including changes in
interest rates and currency exchange rates. To manage the volatility relating to
these exposures, the Company enters into various derivative transactions
pursuant to the Company's policies to hedge against known or forecasted market
exposures.
Foreign Exchange Risk Management: As a multinational corporation, the
Company is exposed to changes in foreign exchange rates. As the Company's
international sales grow, exposure to volatility in exchange rates could have a
material adverse impact on the Company's financial results. The Company's risk
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<PAGE> 21
from exchange rate changes is primarily related to non-dollar denominated sales
in Europe and Asia. The Company uses foreign currency forward and option
contracts to manage the risk of exchange rate fluctuations. The Company uses
these derivative instruments to reduce its foreign exchange risk by essentially
creating offsetting market exposures. The instruments held by the Company are
not leveraged and are not held for trading purposes. The Company uses forward
exchange contracts to hedge its net asset (balance sheet) position. The success
of the hedging program depends on forecasts of transaction activity in the
various currencies. To the extent that these forecasts are over or understated
during periods of currency volatility, the Company could experience
unanticipated currency gains or losses. The principal currencies hedged are the
British Pound, Canadian Dollar, Euro, Japanese Yen and Singapore Dollar. In
those currencies where there is a liquid, cost-effective forward market, the
Company maintains hedge coverage between minimum and maximum percentages of its
anticipated transaction exposure for periods not to exceed one year. The gains
and losses on these contracts offset changes in the value of the related
exposure.
Interest Rate Risk: The Company maintains an investment portfolio
consisting of securities of various issuers, types and maturities. The
investments are classified as available for sale. These securities are recorded
on the balance sheet at market value, with any unrealized gain or loss recorded
in comprehensive income. These instruments are not leveraged, and are not held
for trading purposes.
Value-At-Risk: The Company utilizes a Value-at-Risk (VAR) model to
determine the maximum potential loss in the fair value of its interest rate and
foreign exchange sensitive derivative financial instruments within a 95%
confidence interval. The Company's computation was based on the
interrelationships between movements in interest rates and foreign currencies.
These interrelationships were determined by observing historical interest rate
and foreign currency market changes over corresponding periods. The assets and
liabilities, firm commitments and anticipated transactions, which are hedged by
derivative financial instruments, were excluded from the model. The VAR model
estimates were made assuming normal market conditions and a 95% confidence
level. The Company's computations are based on the Monte Carlo simulation. The
VAR model is a risk analysis tool and does not purport to represent actual gains
or losses in fair value that will be incurred by the Company. The Company does
not anticipate any material changes to the VAR model's estimated maximum loss in
market value through December 31, 2000 as discussed in the 1999 Form 10-K.
Management periodically reviews its interest rate and foreign currency
exposures and evaluates strategies to manage such exposures in the near future.
The Company implements changes, when deemed necessary, in the management of
hedging instruments which mitigate its exposure.
Since the Company utilizes interest rate and foreign currency sensitive
derivative instruments for hedging, a loss in fair value for those instruments
is generally offset by increases in the value of the underlying transaction.
It is the Company's policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet its objectives as
stated above. The Company does not enter into foreign currency or interest rate
transactions for speculative purposes.
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<PAGE> 22
PART II. OTHER INFORMATION
PERKINELMER, INC. AND SUBSIDIARIES
ITEMS 1-3. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on April 25, 2000.
Proxies for the meeting were solicited pursuant to Regulation 14A, and there
were no solicitations in opposition to management's nominees for Directors. All
of such nominees (ten) were elected for terms of one year each.
<TABLE>
<CAPTION>
SHARES SHARES
FOR WITHHELD
---------- --------
<S> <C> <C>
Tamara J. Erickson.......................................... 43,027,501 164,226
Kent F. Hansen.............................................. 43,028,734 162,993
John F. Keane............................................... 43,026,316 165,411
Nicholas A. Lopardo......................................... 43,054,410 137,317
Greta E. Marshall........................................... 43,055,880 135,847
Michael C. Ruettgers........................................ 43,053,176 138,551
Gabriel Schmergel........................................... 43,050,275 141,452
Gregory L. Summe............................................ 43,051,692 140,035
John Larkin Thompson........................................ 43,015,935 175,792
G. Robert Tod............................................... 43,017,270 174,457
</TABLE>
There were no broker non-votes with respect to the election of directors.
ITEM 5. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Part I Exhibits:
Exhibit 27.1 -- Financial data schedule (submitted in electronic format
only)
Exhibit 99.1 -- Risk Factors
Part II Exhibits:
None
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on June 21, 2000 regarding the Company's agreement to acquire NEN
Life Sciences, Inc.
Subsequent to the end of the second quarter of 2000, a Current Report on
Form 8-K was filed with the Securities and Exchange Commission on August 1, 2000
regarding the Company's completion of its acquisition of NEN Life Sciences, Inc.
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<PAGE> 23
PERKINELMER, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PerkinElmer, Inc.
By: /s/ ROBERT F. FRIEL
------------------------------------
Robert F. Friel
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 16, 2000
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