<PAGE> 1
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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 OCTOBER 1, 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 NOVEMBER 9, 2000
----- -------------------------------
<S> <C>
Common Stock, $1 par value 49,922,052
(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 NINE MONTHS ENDED
------------------------ ------------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SALES......................................... $431,863 $388,413 $1,232,854 $935,888
Cost of Sales................................. 251,967 243,202 734,948 601,804
Revaluations of Acquired Inventories (Note
3).......................................... 909 7,393 2,037 9,857
-------- -------- ---------- --------
Total Cost of Sales........................... 252,876 250,595 736,985 611,661
Research and Development Expenses............. 21,155 20,311 63,814 49,972
In-Process Research and Development Charges
(Note 3).................................... 24,300 -- 32,400 23,000
Selling, General and Administrative
Expenses.................................... 105,963 95,650 297,845 218,908
Restructuring Charges (Credits), Net (Note
4).......................................... -- 11,520 (3,900) 11,520
Asset Impairment Charges (Note 5)............. -- 18,000 -- 18,000
Gains on Dispositions (Note 6)................ (3,133) (7,335) (12,345) (15,813)
-------- -------- ---------- --------
OPERATING INCOME (LOSS) FROM CONTINUING
OPERATIONS.................................. 30,702 (328) 118,055 18,640
Other Expense, Net (Note 7)................... (13,094) (8,604) (29,604) (19,433)
-------- -------- ---------- --------
Income (Loss) From Continuing Operations
Before Income Taxes......................... 17,608 (8,932) 88,451 (793)
Provision (Benefit) for Income Taxes.......... 15,528 (3,131) 39,008 (309)
-------- -------- ---------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS...... 2,080 (5,801) 49,443 (484)
Income From Discontinued Operations, Net of
Income Taxes (Note 8)....................... -- 3,278 -- 15,665
Gain on Disposition of Discontinued
Operations, Net of Income Taxes (Note 8).... -- 106,296 4,453 106,296
-------- -------- ---------- --------
NET INCOME.................................... $ 2,080 $103,773 $ 53,896 $121,477
======== ======== ========== ========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing Operations.................... $ .04 $ (.13) $ 1.01 $ (.01)
Discontinued Operations.................. -- 2.40 .09 2.69
-------- -------- ---------- --------
Net Income............................... $ .04 $ 2.27 $ 1.10 $ 2.68
======== ======== ========== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing Operations.................... $ .04 $ (.13) $ .97 $ (.01)
Discontinued Operations.................. -- 2.40 .09 2.69
-------- -------- ---------- --------
Net Income............................... $ .04 $ 2.27 $ 1.06 $ 2.68
======== ======== ========== ========
Weighted Average Shares of Common Stock
Outstanding:
Basic.................................... 49,250 45,725 48,916 45,303
Diluted.................................. 51,423 45,725 50,877 45,303
Cash Dividends Per Common Share............... $ .14 $ .14 $ .42 $ .42
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
2
<PAGE> 3
PERKINELMER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 2,
2000 2000
----------- ----------
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents.............................. $ 132,887 $ 126,650
Accounts Receivable (Note 9)........................... 359,249 346,160
Inventories (Note 10).................................. 233,589 201,724
Other Current Assets................................... 161,224 140,560
---------- ----------
TOTAL CURRENT ASSETS........................................ 886,949 815,094
---------- ----------
Property, Plant and Equipment:
At Cost (Note 11)...................................... 556,408 496,347
Accumulated Depreciation and Amortization.............. (274,810) (268,313)
---------- ----------
Net Property, Plant and Equipment........................... 281,598 228,034
---------- ----------
Intangible Assets (Note 12)................................. 969,392 592,438
Other Assets................................................ 117,505 79,074
---------- ----------
TOTAL ASSETS................................................ $2,255,444 $1,714,640
========== ==========
Current Liabilities:
Short-Term Debt (Note 13).............................. $ 294,795 $ 382,162
Accounts Payable....................................... 118,248 119,737
Accrued Restructuring Costs (Note 4)................... 57,910 41,759
Accrued Expenses (Note 14)............................. 331,508 308,840
---------- ----------
TOTAL CURRENT LIABILITIES................................... 802,461 852,498
---------- ----------
Long-Term Debt (Note 13).................................... 579,319 114,855
Other Long-Term Liabilities................................. 195,452 196,511
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 October 1, 2000
and 60,102,000 shares at January 2, 2000............. 61,744 60,102
Capital in Excess of Par Value......................... 84,147 --
Retained Earnings...................................... 806,231 762,009
Accumulated Other Comprehensive Loss (Note 15)......... (35,165) (14,040)
Cost of Shares Held in Treasury; 12,489,000 shares at
October 1, 2000 and 13,736,000 shares at January 2,
2000................................................. (238,745) (257,295)
---------- ----------
Total Stockholders' Equity.................................. 678,212 550,776
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $2,255,444 $1,714,640
========== ==========
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
PERKINELMER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
OCTOBER 1, OCTOBER 3,
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 53,896 $121,477
Deduct net income from discontinued operations............ -- (15,665)
Deduct net gain on disposition of discontinued
operations.............................................. (4,453) (106,296)
--------- --------
Income (loss) from continuing operations.................. 49,443 (484)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by continuing
operations:
Revaluations of acquired inventories.................... 2,037 9,857
In-process research and development charges............. 32,400 23,000
Noncash portion of restructuring charges................ -- 2,300
Asset impairment charges................................ -- 18,000
Amortization of debt discount and issuance costs........ 3,447 97
Depreciation and amortization........................... 56,747 52,192
Gains on dispositions and sales of investments, net..... (12,401) (18,864)
Changes in assets and liabilities which provided (used)
cash, excluding effects from companies purchased and
divested:
Accounts receivable................................... 5,472 (29,934)
Inventories........................................... (18,899) 11,092
Accounts payable and accrued expenses................. 10,189 9,182
Accrued restructuring costs........................... (29,545) (8,233)
Prepaid expenses and other............................ (15,619) (15,288)
--------- --------
Net Cash Provided by Continuing Operations.................. 83,271 52,917
Net Cash Provided by Discontinued Operations................ -- 530
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 83,271 53,447
--------- --------
INVESTING ACTIVITIES:
Capital expenditures...................................... (44,910) (25,536)
Proceeds from dispositions of businesses and sales of
property, plant and equipment, net...................... 25,158 27,044
Cost of acquisitions, net of cash acquired................ (397,384) (295,685)
Purchases of investments.................................. (15,308) (1,266)
Other..................................................... 1,567 75
--------- --------
Net Cash Used in Continuing Operations...................... (430,877) (295,368)
Net Cash Provided by Discontinued Operations................ 1,652 238,259
--------- --------
NET CASH USED IN INVESTING ACTIVITIES....................... (429,225) (57,109)
--------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of convertible debt................ 448,000 --
Increase (decrease) in commercial paper borrowings........ 145,000 (38,000)
Increase (decrease) in other debt......................... (233,573) 34,979
Proceeds from issuance of common stock.................... 31,603 20,843
Purchases of common stock................................. (10,546) (952)
Cash dividends............................................ (20,594) (19,048)
--------- --------
Net Cash Provided by (Used in) Continuing Operations........ 359,890 (2,178)
Net Cash Provided by Discontinued Operations................ -- --
--------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 359,890 (2,178)
--------- --------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... (7,699) (1,296)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 6,237 (7,136)
Cash and Cash Equivalents at Beginning of Period............ 126,650 95,565
--------- --------
Cash and Cash Equivalents at End of Period.................. $ 132,887 $ 88,429
========= ========
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.
4
<PAGE> 5
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) NATURE OF OPERATIONS
PerkinElmer, Inc. (the Company) is a high-technology company operating in
four businesses -- Life Sciences, Optoelectronics, Instruments and Fluid
Sciences. The Company has operations in over 125 countries and is a component of
the S&P 500 Index. Further information pertaining to the Company can be obtained
at www.perkinelmer.com.
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: Offers 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: Solves critical sealing and sealing system needs for
customers in aerospace, semiconductor processing and power generation
equipment manufacturing. 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 improve equipment efficiency and reliability,
lower cost-of-ownership of equipment, reduce harmful emissions and prevent
contamination.
(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
5
<PAGE> 6
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reporting period. The results of operations for the nine months ended October 1,
2000 are not necessarily indicative of the results for the entire year.
(3) ACQUISITIONS
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 sciences 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. 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%. These short-term borrowings were repaid in
early August with proceeds from the issuance of long-term convertible debentures
(see Note 13).
NEN's operations, included in the consolidated results of the Company from
the date of acquisition, are reported in the Life Sciences segment. The
acquisition was accounted for as a purchase under Accounting Principles Board
(APB) Opinion No. 16, Business Combinations. In accordance with APB Opinion No.
16, the Company allocated the purchase price of NEN 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 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 $24.3 million for
acquired in-process research and development (R&D) for projects that had not
reached technological feasibility as of the acquisition date and for which no
alternative use existed. This allocation represents the estimated fair value
based on risk-adjusted cash flows related to the in-process R&D projects; these
costs were expensed in the third quarter of 2000. Other acquired intangibles
totaling $75.9 million included the fair value of trade names, trademarks,
patents and developed technology. Goodwill of $278 million resulting from the
acquisition of NEN is being amortized over 20 years. Approximately $5 million
has been recorded as accrued restructuring costs in connection with the
acquisition of NEN. The restructuring plans include initiatives to integrate the
operations of the Company and NEN, and reduce overhead. The primary components
of these plans related to employment costs, consolidation of certain facilities,
and the termination of certain leases and other contractual obligations.
Management is in the process of developing its restructuring plans related to
NEN, and accordingly, the amounts recorded are based on management's current
estimate of these costs. The Company will finalize these plans during 2000, and
the majority of the restructuring actions are expected to occur during 2001.
6
<PAGE> 7
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of NEN's purchase price and preliminary allocation are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Consideration and acquisition costs:
Cash paid to NEN....................................... $348,918
Debt assumed........................................... 48,262
Acquisition costs...................................... 13,647
Fair value of warrants issued.......................... 6,940
--------
Total............................................. $417,767
========
Preliminary allocation of purchase price
Current assets......................................... 34,327
Property, plant & equipment............................ 59,755
Other assets........................................... 739
Identifiable intangible assets......................... 75,900
In-process R&D......................................... 24,300
Goodwill............................................... 278,000
Liabilities............................................ (55,254)
--------
Total............................................. $417,767
========
</TABLE>
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 twelve months ended September 30, 1999.
Vivid's operations, included in the consolidated results of the Company from the
date of acquisition, are reported in the Instruments segment. The acquisition
was accounted for as a purchase under APB Opinion No. 16. 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 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 had not reached
technological feasibility as of the acquisition date and for which no
alternative use existed. This allocation represents the estimated fair value
based on risk-adjusted cash flows related to the in-process R&D projects; 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.
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.
7
<PAGE> 8
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma operating results for the Company, assuming the
acquisitions of NEN and AI were completed as of January 4, 1999, are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------
OCTOBER 1, 2000 OCTOBER 3, 1999
---------------- ----------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales........................................ $1,302,698 $1,228,376
Income (loss) from continuing operations..... 55,802 (38,691)
Net income................................... 60,255 82,786
Basic earnings per share..................... 1.23 1.83
Diluted earnings per share................... 1.18 1.83
</TABLE>
The pro forma amounts in the table above exclude acquisition related
charges of $24.3 million and $23 million for purchased in-process R&D related to
NEN and AI, respectively. 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. Details are discussed in the Company's 1998 and 1999
Forms 10-K.
During the third quarter of 1999, the Company reevaluated its 1998
restructuring plans due to the substantial completion of the respective actions.
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. During the second quarter of 2000,
the Company recognized a restructuring credit of $6 million related to its 1998
restructuring plans. This resulted from the Company's strategic review during
the second quarter of 2000 of its portfolio of businesses, actions taken to
improve performance at costs lower than originally estimated, and the sale of
certain businesses originally included in the restructuring plans.
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.
The following table summarizes restructuring activity from continuing
operations related to the 1998 and 1999 plans:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 1, 2000
-----------------
(IN MILLIONS)
<S> <C>
Accrued restructuring costs at beginning of period...... $27.2
Provisions.............................................. 2.4
Reversals............................................... (6.3)
Charges/writeoffs....................................... (11.4)
-----
Accrued restructuring costs at end of period............ $11.9
=====
</TABLE>
8
<PAGE> 9
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the second quarter of 2000, the Company finalized its original
estimates of the goodwill and restructuring plans related to the acquired AI
business. As a result of a strategic review of the acquired business, continued
aggressive actions by the Company to improve the cost structure of the acquired
business, and 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.
Approximately $5 million was recorded as accrued restructuring costs in
connection with the NEN acquisition in the third quarter of 2000 (see Note 3).
The following table summarizes restructuring activity from continuing
operations related to the Lumen, AI, Vivid and NEN acquisitions:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 1, 2000
-----------------
(IN MILLIONS)
<S> <C>
Accrued restructuring costs at beginning of period...... $ 14.1
Provisions.............................................. 48.5
Charges/writeoffs....................................... (16.6)
------
Accrued restructuring costs at end of period............ $ 46.0
======
</TABLE>
Cash outlays during the nine months ended October 1, 2000 were
approximately $28 million for all of these plans. The Company expects to incur
approximately $7 to $10 million of cash outlays in connection with these plans
throughout the remainder of fiscal 2000. The majority of the actions remaining
at October 1, 2000 are expected to occur during 2001.
(5) ASSET IMPAIRMENT CHARGES
During the third quarter of 1999, the Company conducted a strategic review
of certain units within its business segments. The strategic review triggered an
impairment review of long-lived assets of certain business units that were
expected to be disposed. The Company calculated the present value of expected
cash flows of the business units to determine the fair value of those assets.
Accordingly, in the third quarter of 1999, the Company recorded noncash
impairment charges and wrote down goodwill by $15 million in the Instruments
segment and $3 million in the Optoelectronics segment.
(6) 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. During the third quarter of 2000, the Company
recorded pre-tax gains totaling $3.1 million from an insurance settlement and
disposition of a building.
During the second quarter of 1999, the Company sold its Structural
Kinematics business for cash of $15 million, resulting in a pre-tax gain of $4.3
million. During the first nine months of 1999, in connection with the 1998
dispositions of its Sealol Industrial Seals and Rotron divisions, the Company
recognized $11.5 million of pre-tax gains from the previously deferred sales
proceeds as a result of the favorable resolution of certain events and
contingencies.
9
<PAGE> 10
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) OTHER EXPENSE
Other income (expense), net, consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income............................ $ 944 $ 505 $ 2,613 $ 2,331
Interest expense........................... (12,137) (9,140) (28,774) (20,981)
Gains on sales of investments.............. -- 520 947 595
Other...................................... (1,901) (489) (4,390) (1,378)
-------- ------- -------- --------
$(13,094) $(8,604) $(29,604) $(19,433)
======== ======= ======== ========
</TABLE>
(8) 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 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 a 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 NINE MONTHS ENDED
OCTOBER 3, 1999 OCTOBER 3, 1999
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
Sales............................................... $69,871 $302,327
Costs and expenses.................................. 63,689 277,793
------- --------
Operating income from discontinued operations....... 6,182 24,534
Other income........................................ 144 1,147
------- --------
Income from discontinued operations before income
taxes............................................. 6,326 25,681
Provision for income taxes.......................... 3,048 10,016
------- --------
Income from discontinued operations, net of income
taxes............................................. $ 3,278 $ 15,665
======= ========
</TABLE>
(9) ACCOUNTS RECEIVABLE
Accounts receivable were net of reserves for doubtful accounts of $13.9
million and $12.9 million as of October 1, 2000 and January 2, 2000,
respectively.
(10) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 2,
2000 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Finished goods..................................... $ 86,835 $ 87,177
Work in process.................................... 56,498 26,342
Raw materials...................................... 90,256 88,205
-------- --------
$233,589 $201,724
======== ========
</TABLE>
10
<PAGE> 11
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 2,
2000 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land............................................... $ 34,094 $ 28,724
Buildings and leasehold improvements............... 149,950 127,908
Machinery and equipment............................ 372,364 339,715
-------- --------
$556,408 $496,347
======== ========
</TABLE>
(12) 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 $718 million and $417 million at October 1, 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 $251 million and $175
million at October 1, 2000 and January 2, 2000, respectively.
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 2,
2000 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Goodwill.......................................... $ 785,278 $477,072
Other identifiable intangible assets.............. 288,692 182,550
---------- --------
1,073,970 659,622
Accumulated amortization.......................... (104,578) (67,184)
---------- --------
$ 969,392 $592,438
========== ========
</TABLE>
The increase in intangible assets resulted primarily from the NEN and Vivid
acquisitions and the finalization of accrued restructuring costs related to the
AI acquisition, as discussed in Note 4.
(13) DEBT
Short-term debt at October 1, 2000 was $295 million, consisting primarily
of commercial paper borrowings. Long-term debt at October 1, 2000 was
approximately $579 million, consisting primarily of $115 million of unsecured
notes which mature in 2005 and $463 million of convertible debentures. In early
August 2000, the Company sold zero coupon senior convertible debentures with an
aggregate purchase price of $460 million. The Company used the offering's net
proceeds of approximately $448 million to repay a portion of its commercial
paper borrowings, which had been increased temporarily to finance the NEN
acquisition. Deferred issuance costs of $12 million were recorded as a
noncurrent asset and are being amortized over three years. The debentures, which
were offered by a prospectus supplement pursuant to the Company's effective
shelf registration statement, are due August 2020 and were priced with a yield
to maturity of 3.5%. At maturity, the Company will repay $921 million, comprised
of $460 million of original purchase price plus accrued interest. The Company
may redeem some or all of the debentures at any time on or after August 7, 2003
at a redemption price equal to the issue price plus accrued original issue
discount through the redemption date. 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,
11
<PAGE> 12
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as is customary and ordinary for debentures of this nature, at a repurchase
price equal to the initial price plus accrued original issue discount through
the date of repurchase. The debentures are currently convertible into 5.4
million shares of the Company's common stock at approximately $85 per share.
Conversion of the debentures was not assumed in the computation of diluted
earnings per share because the effect of conversion would have been
antidilutive.
(14) ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 2,
2000 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Payroll and incentives............................... $ 35,544 $ 32,720
Employee benefits.................................... 49,587 49,293
Federal, non-U.S. and state income taxes............. 44,319 45,324
Other accrued operating expenses..................... 202,058 181,503
-------- --------
$331,508 $308,840
======== ========
</TABLE>
(15) 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 NINE MONTHS ENDED
----------------------- -----------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income................................. $ 2,080 $103,773 $53,896 $121,477
Other comprehensive income (loss), net of
tax:
Foreign currency translation adjustments... (11,884) 11,006 (29,821) (6,689)
Unrealized gains (losses) on securities:
Gains (losses) arising during the
period................................ 2,052 (734) 8,792 (479)
Reclassification adjustment.............. -- -- (96) --
-------- -------- ------- --------
Net unrealized gains (losses).............. 2,052 (734) 8,696 (479)
-------- -------- ------- --------
(9,832) 10,272 (21,125) (7,168)
-------- -------- ------- --------
Comprehensive income (loss)................ $ (7,752) $114,045 $32,771 $114,309
======== ======== ======= ========
</TABLE>
The components of accumulated other comprehensive loss were as follows:
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 2,
2000 2000
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Foreign currency translation adjustments........... $(44,282) $(14,461)
Unrealized gains on securities..................... 9,117 421
-------- --------
Accumulated other comprehensive loss............... $(35,165) $(14,040)
======== ========
</TABLE>
(16) INDUSTRY SEGMENT INFORMATION
The Company's businesses are reported as four operating 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
12
<PAGE> 13
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 nine months ended October 1, 2000 and October 3, 1999 are
shown in Item 2 of this Quarterly Report on Form 10-Q and are considered an
integral part of this note.
(17) 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 will adopt SFAS No. 133 effective January 1, 2001 and
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.
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 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.
13
<PAGE> 14
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 NINE MONTHS ENDED
----------------------------------- ------------------------------------
OCTOBER 1, OCTOBER 3 INCREASE OCTOBER 1, OCTOBER 3, INCREASE
2000 1999 (DECREASE) 2000 1999 (DECREASE)
---------- --------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LIFE SCIENCES
Sales......................... $ 60,425 $ 37,707 $22,718 $ 141,984 $111,319 $ 30,665
Operating Profit (Loss)....... (17,082) (368) (16,714) (6,666) 7,815 (14,481)
Operating Profit (Loss) %..... (28.3)% (1.0)% (4.7)% 7.0%
Operating Profit % (1)........ 19.9% 16.0% 16.3% 13.8%
OPTOELECTRONICS
Sales......................... $126,349 $111,782 $14,567 $ 361,729 $331,021 $ 30,708
Operating Profit.............. 21,327 4,070 17,257 63,968 24,763 39,205
Operating Profit %............ 16.9% 3.6% 17.7% 7.5%
Operating Profit % (1)........ 18.4% 13.4% 16.1% 12.3%
INSTRUMENTS
Sales......................... $182,686 $182,598 $ 88 $ 544,757 $324,395 $220,362
Operating Profit (Loss)....... 15,580 (16,043) 31,623 34,154 (37,035) 71,189
Operating Profit (Loss) %..... 8.5% (8.8)% 6.3% (11.4)%
Operating Profit % (1)........ 10.1% 6.7% 10.5% 7.1%
FLUID SCIENCES
Sales......................... $ 62,403 $ 56,326 $ 6,077 $ 184,384 $169,153 $ 15,231
Operating Profit.............. 14,158 8,665 5,493 32,829 22,617 10,212
Operating Profit %............ 22.7% 15.4% 17.8% 13.4%
Operating Profit % (1)........ 20.8% 12.7% 18.7% 10.8%
OTHER
Operating Profit (Loss)....... $ (3,281) $ 3,348 $(6,629) $ (6,230) $ 480 $ (6,710)
CONTINUING OPERATIONS
Sales......................... $431,863 $388,413 $43,450 $1,232,854 $935,888 $296,966
Operating Profit (Loss)....... 30,702 (328) 31,030 118,055 18,640 99,415
Operating Profit (Loss) %..... 7.1% (0.1)% 9.6% 2.0%
Operating Profit % (1)........ 14.8% 10.2% 13.3% 9.5%
</TABLE>
---------------
(1) Before nonrecurring items and goodwill/intangibles amortization.
The reported results for the three and nine months ended October 1, 2000
and October 3, 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 third quarter of 2000 increased
11% to $431.9 million versus $388.4 million for the same period of 1999. Organic
growth during the third 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.
14
<PAGE> 15
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 third quarter of 2000 was
$30.7 million, up $31 million versus a reported operating loss of $.3 million in
the same quarter of 1999. The third quarter of 2000 operating income included
purchase accounting charges related to the NEN acquisition of $.9 million for
the revaluation of acquired inventory and a charge of $24.3 million related to
acquired in-process research and development. The third quarter of 2000
operating profit also included: gains totaling $3.1 million from an insurance
settlement and a building sale; and $1.6 million of integration-related costs
attributable to recently acquired businesses. The third quarter of 1999
operating loss of $.3 million included purchase accounting charges from
acquisitions and certain nonrecurring items, as follows: a $7.4 million charge
for the revaluation of acquired inventory; asset impairment charges of $18
million; restructuring charges, net of credits, of $11.5 million; and deferred
gain recognition from 1998 divestitures of $7.3 million. Operating profit before
nonrecurring items for the third quarter of 2000 was $54.4 million, increasing
$23.1 million, or 74%, versus the comparable period of 1999. Strong revenue
growth, Company-wide productivity and quality initiatives, and the effects of
the divestiture of unprofitable businesses drove this increase in operating
income. Discussion of operating profit by segment during the third quarter of
2000 versus 1999 is presented in the Segment Results of Operations section
below. Research and development expenses were $21.2 million during the third
quarter of 2000, an increase of $.9 million over the comparable 1999 period and
were approximately 5% of total sales for both periods.
Sales from continuing operations for the nine months ended October 1, 2000
increased $297 million, or 32%, to $1.2 billion versus the comparable 1999
period. Revenues from acquisitions and strong growth in most segments were
partially offset by the absence of revenues from businesses divested in 1999 and
early 2000. Discussion of sales by segment during the nine months of 2000 and
1999 is presented below in the Segment Results of Operations section. On a
reported basis, operating profit for the nine months of 2000 increased $99.4
million to $118 million versus $18.6 million for the nine months of 1999.
Operating profit for the nine months of 2000 included purchase accounting
charges from recent acquisitions and certain nonrecurring items as follows: $2
million of charges for the revaluation of acquired inventories; $32.4 million of
charges related to acquired in-process R&D; a net restructuring credit of $3.9
million; gains on dispositions of $12.3 million; and charges of $4.2 million for
integration-related costs attributable to recently acquired businesses,
primarily in the Instruments segment. Operating income for the first nine months
of 1999 included certain purchase accounting items and certain nonrecurring
items, as follows: a charge of $9.9 million for the revaluation of acquired
inventory; a charge of $23 million for acquired in-process research and
development; asset impairment charges of $18 million; restructuring charges, net
of credits, of $11.5 million; deferred gain recognition of $11.5 million; and
$3.4 million of other repositioning charges primarily recorded in cost of sales.
Operating profit before nonrecurring items for the first nine months of 2000 was
$139.4 million, increasing $68.8 million, or 97%, versus the comparable period
of 1999. Discussion of operating profit by segment for the nine months of 2000
versus the same period of 1999 is presented in the Segment Results of Operations
section below.
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
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.
15
<PAGE> 16
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 twelve months 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 of
$27.2 million resulting from the acquisition of Vivid is being amortized over 25
years.
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 sciences industry. NEN
generated fiscal year 1999 sales of $104 million. 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. (See Note 3 for additional
information.)
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
third quarter and nine months of 2000 versus the same periods of 1999.
Life Sciences
Sales for the third quarter of 2000 were $60.4 million compared to $37.7
million for the third quarter of 1999, which represents a $22.7 million, or 60%,
increase. The increase was primarily due to the inclusion of revenues from the
NEN acquisition during the quarter. Organic growth of 17% was driven by
increased sales from new products in drug discovery, increased reagent sales and
strong demand in genetic disease screening.
The $17.1 million operating loss for the third quarter of 2000 included
purchase accounting charges and other nonrecurring items. The operating loss
included the following nonrecurring items: a $.9 million charge for the
revaluation of acquired inventory and a $24.3 million charge for acquired
in-process R&D. The third quarter of 1999 operating loss of $.4 million included
net restructuring charges of $5.8 million. Excluding nonrecurring items
discussed above, operating profit of $8.7 million for the third quarter of 2000
increased $3.2 million versus the same period of 1999. The increase was due
primarily to higher revenues discussed above, specifically strong reagent sales
and the sale of new products with higher margins.
16
<PAGE> 17
Sales for the nine months of 2000 increased $30.7 million, or 28%, to $142
million versus the same period of 1999. Revenues from the NEN acquisition,
strong new product sales and increased reagent sales were the primary reasons
for the increase during the nine months of 2000 versus the nine months of 1999.
The $6.7 million operating loss for the nine months of 2000 included
purchase accounting charges and other nonrecurring items. This loss included the
following nonrecurring items: revaluation of acquired inventories of $.9 million
and acquired in-process R&D charges of $24.3 million. Operating profit for the
nine months of 1999 included net restructuring charges of $5.8 million and was
$7.8 million. Operating profit before the nonrecurring items discussed above was
$18.7 million for the nine months of 2000 versus $13.6 million for the
comparable period of 1999, representing an increase of $5.1 million, or 38%.
Higher revenues, including revenues from the NEN acquisition, strong
contributions from newly developed products and increased sales of reagents were
the primary contributors to the increase in the nine months of 2000 versus the
same period of 1999.
Optoelectronics
Sales for the third quarter of 2000 increased $14.5 million to $126.3
million, representing an increase of 13% from sales of $111.8 million for the
same period of 1999. Organic growth in the third quarter of 2000 was 22%. Strong
telecom and imaging revenues drove the increase in the third quarter of 2000
versus 1999.
Operating profit for the third quarter of 2000 was $21.3 million versus
$4.1 million in the comparable period of 1999, representing an increase of $17.2
million, or over 420%. The 1999 operating profit included an asset impairment
charge of $3 million and restructuring charges, net of credits, of $5.5 million.
Before nonrecurring items, operating profit for the third quarter of 2000
increased 69% versus the same period of 1999. Strong revenue growth, benefits of
restructuring actions and the continued transition to lower-cost manufacturing
operations in Asia were the primary contributors to the increase in the third
quarter of 2000 operating profit versus the same period of 1999.
Sales for the nine months of 2000 were $361.7 million versus $331 million
for the same period of 1999, representing an increase of $30.7 million, or 9%.
Higher revenues across all businesses contributed to the increase in the first
nine months of 2000 versus 1999.
Operating profit of $64 million for the nine months of 2000 increased $39.2
million, or over 150%, versus the comparable period of 1999. The operating
profit for the nine months of 2000 included gains on dispositions of $6.7
million and a restructuring credit of $5 million. Operating profit for the nine
months of 1999 included an asset impairment charge of $3 million, restructuring
charges, net of credits, of $5.5 million, and a $2.9 million charge for the
revaluation of acquired inventory related to the Lumen acquisition. Operating
profit before nonrecurring items for the first nine months of 2000 was $52.2
million versus $33.3 million for the same period of 1999, representing an
increase of 57%. Higher revenues across all businesses and benefits from
restructuring and productivity initiatives drove the increase in the nine months
of 2000 versus the same period of 1999.
Instruments
Sales of $182.7 million for the third quarter of 2000 were flat versus the
same period of 1999. Organic growth was 2%. Operating profit for the third
quarter of 2000 was $15.6 million versus an operating loss of $16 million for
the same period of 1999. The 2000 operating profit included a $1.3 million gain
on disposition of a building. The 1999 operating loss included an asset
impairment charge of $15 million, a charge for revaluation of acquired inventory
of $7.4 million and restructuring-related costs of $1.4 million. Operating
profit before nonrecurring items for the third quarter of 2000 was $14.8 million
versus $7.8 million for the comparable period of 1999, representing an increase
of 90%. Benefits from restructuring actions and contributions from higher margin
new products were the primary reasons for the increase in the third quarter of
2000 versus the comparable period of 1999.
Sales for the nine months of 2000 were $544.8 million, increasing $220.4
million, or 68% versus the same period of 1999. Revenues from the AI and Vivid
acquisitions were the primary contributors to the increase.
17
<PAGE> 18
Operating profit for the nine months of 2000 was $34.2 million versus an
operating loss of $37 million for the comparable period of 1999. The 2000
operating profit included the following nonrecurring items: $8.1 million charge
for acquired in-process R&D; $1.1 million charge for revaluation of acquired
inventory; gains on dispositions of $1.3 million; and charges of $3.1 million
for integration-related costs attributable to recently acquired businesses. The
1999 operating profit included an asset impairment charge of $15 million, a
charge for revaluation of acquired inventory of $9.9 million, a charge of $23
million for acquired in-process R&D, and restructuring-related costs of $4.8
million. Operating profit before nonrecurring items for the nine months of 2000
was $45.2 million and increased $29.6 million, or 190%, compared to the nine
months of 1999. Higher revenues discussed above, benefits from restructuring,
and cost improvement programs were the primary reasons for the increase during
the nine months of 2000 versus the same period of 1999.
Fluid Sciences
Sales for the third quarter of 2000 were $62.4 million, increasing $6.1
million, or 11%, versus the comparable period of 1999. Organic growth was 21%.
Higher revenues in the Company's semiconductor and power generation businesses
offset lower revenues in the Company's automotive business.
Operating profit for the third quarter of 2000 was $14.2 million versus
$8.7 million for the same period of 1999, representing an increase of $5.5
million, or 63%. Operating profit for the third quarter of 2000 included a $1.8
million gain from an insurance settlement. The operating profit for the third
quarter of 1999 included a restructuring credit of $2.2 million. Operating
profit before nonrecurring items for the third quarter of 2000 was $12.3
million, increasing 91% versus the same period of 1999. Higher sales volume
discussed above and continued focus on productivity initiatives were the primary
reasons for the increase.
Sales for the nine months of 2000 were $184.4 million versus $169.2 million
for the comparable period of 1999, representing an increase of $15.2 million, or
9%. Continued strength in the Company's semiconductor and power generation
businesses drove the increase in 2000 versus 1999.
Operating profit for the nine months of 2000 was $32.8 million, increasing
$10.2 million, or 45%, versus the comparable period of 1999. Operating profit
for the nine months of 2000 included the following nonrecurring items: gains of
$2.6 million and restructuring charges of $2.4 million. Operating profit for the
nine months of 1999 included the following nonrecurring items: gains on
dispositions of $4.3 million and a restructuring credit of $2.2 million.
Operating profit before nonrecurring items for nine months of 2000 was $32.6
million, increasing $16.5 million, or over 100%, versus the same period of 1999.
Higher revenues and benefits from productivity initiatives were the primary
contributors to the increase.
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. Details are discussed in the Company's 1998 and 1999
Forms 10-K.
During the third quarter of 1999, the Company reevaluated its 1998
restructuring plans due to the substantial completion of the respective actions.
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. During the second quarter of 2000,
the Company recognized a restructuring credit of $6 million related to its 1998
restructuring plans. This resulted from the Company's strategic review during
the second quarter of 2000 of its portfolio of businesses, actions taken to
improve performance at costs lower than originally estimated, and the sale of
certain businesses originally included in the restructuring plans.
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
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<PAGE> 19
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.
The following table summarizes restructuring activity from continuing
operations related to the 1998 and 1999 plans:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 1, 2000
-----------------
(IN MILLIONS)
<S> <C>
Accrued restructuring costs at beginning of period...... $27.2
Provisions.............................................. 2.4
Reversals............................................... (6.3)
Charges/writeoffs....................................... (11.4)
-----
Accrued restructuring costs at end of period............ $11.9
=====
</TABLE>
During the second quarter of 2000, the Company finalized its original
estimates of the goodwill and restructuring plans related to the acquired AI
business. As a result of a strategic review of the acquired business, continued
aggressive actions by the Company to improve the cost structure of the acquired
business, and 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.
Approximately $5 million was recorded as accrued restructuring costs in
connection with the NEN acquisition in the third quarter of 2000 (see Note 3).
The following table summarizes restructuring activity from continuing
operations related to the Lumen, AI, Vivid and NEN acquisitions:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 1, 2000
-----------------
(IN MILLIONS)
<S> <C>
Accrued restructuring costs at beginning of period...... $14.1
Provisions.............................................. 48.5
Charges/writeoffs....................................... (16.6)
-----
Accrued restructuring costs at end of period............ $46.0
=====
</TABLE>
Cash outlays during the nine months ended October 1, 2000 were
approximately $28 million for all of these plans. The Company expects to incur
approximately $7 to $10 million of cash outlays in connection with these plans
throughout the remainder of fiscal 2000. The majority of the actions remaining
at October 1, 2000 are expected to occur during 2001.
OTHER EXPENSE
Other expense for the third quarter of 2000 was $13.1 million versus $8.6
million for the comparable period in 1999. Other expense increased to $29.6
million for the first nine months of 2000 from $19.4 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 NEN and AI
acquisitions.
INCOME TAX EXPENSE
Income tax expense as a percent of pre-tax income before nonrecurring items
was 36.6% for the third quarter of 2000 versus 27.4% for the third quarter of
1999. The third-quarter of 2000 expense reflects a cumulative catch-up
adjustment to adjust the full-year rate to 32.5% from 30%. The increase in the
forecasted effective tax rate for 2000 is principally caused by the non-tax
deductible goodwill associated with the NEN acquisition.
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The third-quarter of 1999 expense before nonrecurring items reflects a
cumulative catch-up adjustment to adjust the full-year rate to 32% from 36%. The
decrease in the 1999 income tax rate was largely attributable to changes in the
taxing jurisdictions in which income is recognized as a result of 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 and the gain on
disposition were segregated from continuing operations and reported as separate
line items on the Company's Consolidated Income Statements. As a result of a
post-closing selling price adjustment, the Company recorded an additional
pre-tax gain of $7.3 million on the disposition of discontinued operations in
the second quarter of 2000.
Sales from discontinued operations for the three and nine months ended
October 3, 1999 were $69.9 million and $302.3 million, respectively. Operating
income from discontinued operations was $6.2 million for the three months ended
October 3, 1999 and $24.5 million for the nine months then ended.
FINANCIAL CONDITION
Short-term debt at October 1, 2000 was $295 million, consisting primarily
of commercial paper borrowings. Long-term debt at October 1, 2000 was
approximately $579 million, consisting primarily of $115 million of unsecured
notes which mature in 2005 and $463 million of convertible debentures.
In early August 2000, the Company sold zero coupon senior convertible
debentures with an aggregate purchase price of $460 million. The Company used
the offering's net proceeds of approximately $448 million to repay a portion of
its commercial paper borrowings, which had been increased temporarily to finance
the NEN acquisition. Deferred issuance costs of $12 million were recorded as a
noncurrent asset and are being amortized over three years. The debentures, which
were offered by a prospectus supplement pursuant to the Company's effective
shelf registration statement, are due August 2020 and were priced with a yield
to maturity of 3.5%. At maturity, the Company will repay $921 million, comprised
of $460 million of original purchase price plus accrued interest. The Company
may redeem some or all of the debentures at any time on or after August 7, 2003
at a redemption price equal to the issue price plus accrued original issue
discount through the redemption date. 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 is
customary and ordinary for debentures of this nature, at a repurchase price
equal to the initial price to the public plus accrued original issue discount
through the date of repurchase. The debentures are currently convertible into
5.4 million shares of the Company's common stock at approximately $85 per share.
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%. These short-term borrowings were repaid in early August
with proceeds from the issuance of long-term convertible debentures, as
discussed above.
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 increased by $6.2 million to $132.9 million at
the end of the third quarter of 2000. Net cash provided by operating activities
was $83.3 million during the first nine months of 2000 and was comprised of net
income from continuing operations of $49.4 million, noncash acquisition charges
of $34.4 million, amortization of debt discount and issuance costs of $3.4
million, depreciation and amortization of $56.7 million, partially offset by a
$3.2 million change in working capital accounts and accrued expenses, a
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<PAGE> 21
$29.5 million decrease in accrued restructuring costs, gains on dispositions and
sales of investments of $12.4 million and net changes in other assets and
liabilities of $15.5 million. During the first nine months of 2000, capital
expenditures were $44.9 million, and the Company 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
approximately $15 million. During the fourth quarter of 2000, the Company
expanded its equity stake in Bragg Photonics to 26%.
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 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, and those discussed in Exhibit
99.1 to the Quarterly Report on Form 10-Q filed August 16, 2000, which are
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
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
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<PAGE> 22
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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PART II. OTHER INFORMATION
PERKINELMER, INC. AND SUBSIDIARIES
ITEMS 1-5. 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)
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 (SEC) on August 1, 2000 regarding the Company's completion of its
acquisition of NEN Life Sciences, Inc.
A Current Report on Form 8-K was filed with the SEC on August 4, 2000 for
the purpose of filing as exhibits the underwriting agreement, pricing agreement,
form of supplemental indenture and form of debenture in connection with the
filing of a prospectus supplement and the public offering of debentures.
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<PAGE> 24
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: November 15, 2000
24
