SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-4389
THE PERKIN-ELMER CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
New York 06-0490270
(State or Other (I.R.S. Employer
Jurisdiction of Identification Number)
Incorporation or
Organization)
761 Main Avenue,
Norwalk, Connecticut 06859-0001
(Address of Principal Executive Offices, Including Zip Code)
(203) 762-1000
(Registrant's Telephone Number, Including Area Code)
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.
Yes x No ____
Number of shares outstanding of Common Stock, par value $1 per
share, as of May 8, 1998: 49,120,656
<PAGE>
THE PERKIN-ELMER CORPORATION
INDEX
Part I. Financial Information Page
Condensed Consolidated Statements of
Operations for the Three and Nine
Months Ended March 31, 1998 and 1997 1
Condensed Consolidated Statements of Financial
Position at March 31, 1998 and June 30, 1997 2
Condensed Consolidated Statements of Cash
Cash Flows for the Nine Months Ended
March 31,1998 and 1997 3
Notes to Unaudited Condensed Consolidated
Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Part II. Other Information 26
<PAGE>
THE PERKIN-ELMER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net revenues $ 390,802 $ 348,782 $ 1,082,674 $ 999,603
Cost of sales 191,560 170,240 535,856 501,923
Gross margin 199,242 178,542 546,818 497,680
Selling, general and administrative 113,786 103,480 324,594 300,171
Research, development and engineering 38,440 30,920 104,918 89,465
Restructuring and other merger costs 42,866 42,866
Acquired research and development 25,401 28,850 25,401
Operating income 4,150 18,741 45,590 82,643
Gain on sale of investments 806 845 64,005
Interest expense 1,239 1,495 3,940 4,568
Interest income 1,151 2,255 5,051 5,494
Other income (expense), net (236) (279) 1,235 (491)
Income before income taxes 3,826 20,028 48,781 147,083
Provision for income taxes 7,858 10,683 25,422 35,570
Minority interest 2,934 2,934
Net income (loss) $ (6,966) $ 9,345 $ 20,425 $ 111,513
Net income (loss) per share
Basic $ (.14) $ .20 $ .42 $ 2.36
Diluted $ (.14) $ .19 $ .41 $ 2.26
Average shares outstanding
Basic 48,656 47,660 48,342 47,344
Diluted 48,656 49,654 50,050 49,383
</TABLE>
See accompanying Notes to Unaudited Condensed
Consolidated Financial Statements.
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THE PERKIN-ELMER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollar amounts in thousands)
At March 31, At June 30,
1998 1997
Assets (unaudited)
Current assets
Cash and cash equivalents $ 84,946 $ 213,028
Short-term investments 1,226 4,194
Accounts receivable, net 347,638 328,044
Inventories 236,189 211,322
Prepaid expenses and other current assets 132,801 105,863
Total current assets 802,800 862,451
Property, plant and equipment, net 255,115 200,663
Other long-term assets 255,683 175,635
Total assets $ 1,313,598 $ 1,238,749
Liabilities and Shareholders' Equity
Current liabilities
Loans payable $ 43,636 $ 29,916
Accounts payable 142,397 131,413
Accrued salaries and wages 43,669 48,183
Accrued taxes on income 101,709 98,307
Other accrued expenses 193,499 186,771
Total current liabilities 524,910 494,590
Long-term debt 37,522 59,152
Other long-term liabilities 178,530 180,737
Total long-term liabilities 216,052 239,889
Minority interest 42,734
Shareholders' equity
Capital stock 50,148 50,122
Capital in excess of par value 376,144 374,423
Retained earnings 167,545 167,482
Foreign currency translation adjustments (6,033) (5,052)
Net unrealized gain on investments 4,385 3,086
Minimum pension liability adjustment (705) (705)
Treasury stock, at cost (61,582) (85,086)
Total shareholders' equity 529,902 504,270
Total liabilities and shareholders' equity $ 1,313,598 $ 1,238,749
See accompanying Notes to Unaudited Condensed
Consolidated Financial Statements.
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THE PERKIN-ELMER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended
March 31,
<S> 1998 1997
Operating Activities <C> <C>
Net income $ 20,425 $ 111,513
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 37,624 34,896
Long-term compensation programs 4,964 7,002
Deferred income taxes (2,782) (4,385)
Acquired research and development 28,850 25,401
Restructuring and other merger costs 46,966
Gains from the sale of assets (900) (59,250)
Changes in operating assets and liabilities:
Increase in accounts receivable (4,773) (48,555)
Increase in inventories (19,719) (11,460)
Increase in prepaid expenses and other assets (48,866) (3,237)
Increase (decrease) in accounts payable and other liabilities (37,795) 9,030
Net cash provided by operating activities 23,994 60,955
Investing Activities
Additions to property, plant and equipment
(net of disposals of $2,825 and $1,455, respectively) (76,033) (49,071)
Acquisitions/investments, net (94,498) (21,276)
Proceeds from the sale of assets, net 6,532 77,571
Proceeds from the collection of note receivable 9,673 978
Net cash (used) provided by investing activities (154,326) 8,202
Financing Activities
Net change in long-term debt (24,328) 8,125
Net change in loans payable 22,173 364
Dividends (23,232) (22,069)
Purchases of common stock for treasury (15,851)
Proceeds from issuance of equity put warrants 1,846
Proceeds from stock issued for stock plans 25,622 23,532
Net cash provided (used) by financing activities 235 (4,053)
Elimination of PerSeptive results from
July 1, 1997 to September 30, 1997 (see Note 2) 2,590
Effect of exchange rate changes on cash (575) 4,058
Net change in cash and cash equivalents (128,082) 69,162
Cash and cash equivalents beginning of period 213,028 100,745
Cash and cash equivalents end of period $ 84,946 $ 169,907
</TABLE>
See accompanying Notes to Unaudited Condensed
Consolidated Financial Statements.
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<PAGE>
THE PERKIN-ELMER CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The interim condensed consolidated financial statements should be
read in conjunction with the financial statements presented in The
Perkin-Elmer Corporation's (the Company's) 1997 Annual Report to
Shareholders. Significant accounting policies disclosed therein
have not changed.
The unaudited condensed consolidated financial statements reflect,
in the opinion of the Company's management, all adjustments which
are necessary for a fair statement of the results for the interim
periods. All such adjustments are of a normal recurring nature.
These results are, however, not necessarily indicative of the
results to be expected for a full year. 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, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates. Certain amounts in the condensed
consolidated financial statements have been reclassified for
comparative purposes.
The Company recognized one-time royalty revenues of $4.5 million in
the third quarter of fiscal 1998. In addition, legal expenses
relating to the successful defense of certain patents were
capitalized in the third quarter of fiscal 1998. The after-tax
effect of these items increased third quarter net income by
approximately $4.2 million, or $.08 per diluted share.
NOTE 2 - ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
PerSeptive Biosystems, Inc. The merger (the Merger) of Seven
Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of the Company into PerSeptive Biosystems, Inc., a
Delaware corporation (PerSeptive), was consummated on January 22,
1998. PerSeptive develops, manufactures, and markets an integrated
line of proprietary consumable products and advanced instrumentation
systems for the purification, analysis, and synthesis of
biomolecules. As a result of the Merger, PerSeptive, which is the
surviving corporation of the Merger, became a wholly-owned
subsidiary of the Company on that date. Also, as a result of the
Merger, each outstanding share of common stock of PerSeptive
(PerSeptive Common Stock) was converted into shares of common stock
of the Company (Perkin-Elmer Common Stock) at an exchange ratio
equal to 0.1926. Accordingly, the Company issued 4.6 million shares
of its common stock for all outstanding shares of PerSeptive common
stock. Each outstanding option and warrant for shares of PerSeptive
Common Stock was converted into options and warrants for the number
of shares of Perkin-Elmer Common Stock that would have been received
if such options and warrants had been exercised immediately prior to
the effective time of the Merger. All shares of Series A Redeemable
Convertible Preferred Stock of PerSeptive outstanding immediately
prior to the effective time of the Merger were converted
in accordance with their terms into shares of
PerSeptive Common Stock which were then converted
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into Perkin-Elmer Common Stock. As a result of the
Merger, PerSeptive's 8-1/4% Convertible Subordinated Notes
Due 2001 became convertible into Perkin-Elmer Common Stock.
The Company's fiscal year ends June 30 and PerSeptive's fiscal year
ended September 30. The fiscal 1998 condensed consolidated
statement of operations for the nine months ended March 31, 1998
combined the Company's operating results for the nine months ended
March 31, 1998 with PerSeptive's operating results for the six
months ended March 31, 1998 and for the three months ended September
30, 1997 (PerSeptive's fiscal 1997 fourth quarter). The fiscal 1997
condensed consolidated statement of operations for the nine months
ended March 31, 1997 combined the Company's results of operations
for the nine months ended March 31, 1997 with PerSeptive's results
of operations for the nine months ended June 30, 1997. In order to
conform PerSeptive to a June 30 fiscal year end in fiscal 1998,
PerSeptive's results of operations for the three months ended
September 30, 1997 have been reflected in the Company's condensed
consolidated statement of operations for the nine months ended
March 31, 1998 and in the fiscal year ended June 30, 1997.
The Merger qualified as a tax free reorganization and has been
accounted for as a pooling of interests. Accordingly, the Company's
financial results have been restated to include the combined
operations. Combined and separate results of the Company and
PerSeptive during the periods preceding the Merger were as follows:
(Amounts in millions) Perkin-
For the six months ended Elmer PerSeptive Adj. Combined
December 31, 1997
Net revenues $ 639.3 $ 52.6 $ 691.9
Net income (loss) $ 32.2 $ (5.4) $ .6 $ 27.4
The Company's net income for the six months ended December 31, 1997
included $28.9 million of purchased in-process research and
development associated with the purchase of Molecular Informatics,
Inc. Net loss for PerSeptive included a $.8 million before-tax gain
associated with the gain on sale of investments. The adjustment for
the six months ended December 31, 1997 reflects the inclusion of
PerSeptive's operating results within the Company's consolidated tax
provision.
Perkin-
For the nine months ended Elmer PerSeptive Adj. Combined
March 31, 1997
Net revenues $ 929.4 $ 70.2 $ 999.6
Net income $ 93.7 $ 17.8 $ 111.5
The Company's net income for the nine months ended March 31, 1997
included a before-tax gain on the sale of investments of $37.4
million and a before tax charge of $25.4 million for purchased in-
process research and development associated with the purchase of
Genscope, Inc. Net income for PerSeptive included a $26.6 million
before-tax gain on investments.
There were no material intercompany transactions between the Company
and PerSeptive during any period presented.
Tecan AG. The Company acquired a 14.5% interest and approximately
52% of the voting rights in Tecan AG (Tecan) in December 1997.
Tecan is a world leader in the development and manufacturing of
automated sample processors, liquid handling systems, and microplate
photometry. Used in research, industrial, and clinical markets, these
products provide automated solutions for pharmaceutical drug discovery
molecular biology, genomic testing, and clinical diagnostics. The
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acquisition cost was $53.2 million in cash and was accounted
for as a purchase with a minority interest of $41.3
million. The excess purchase price over the fair market value of
the underlying assets was $46.2 million and is being amortized over
15 years.
Molecular Informatics, Inc. During the second quarter of fiscal
1998, the Company acquired Molecular Informatics, Inc., a leader in
the development of infrastructure software for the pharmaceutical,
biotechnology, and agrochemical industries as well as for applied
markets such as forensics and human identification. The acquisition
cost was $53.3 million and was accounted for as a purchase. In
connection with the acquisition, $28.9 million was expensed as
purchased in-process research and development and approximately
$23.9 million was allocated to goodwill and other intangible assets.
Goodwill of $8.2 million is being amortized over 10 years, and
other intangible assets of $15.7 million are being amortized over
periods of 4 to 7 years.
GenScope, Inc. During the third quarter of fiscal 1997, the Company
acquired GenScope, Inc., a company solely engaged in the development
of gene expression technology, for $26.8 million. The acquisition
represented the purchase of technology in the development stage that
was not at the time considered commercially viable in the health
care applications which the Company intends to pursue. As a result,
$25.4 million of the acquisition cost was allocated to purchased in-
process research and development and, in accordance with applicable
accounting rules, was expensed in the third quarter of fiscal 1997.
The results of operations for all of the above acquisitions
accounted for as a purchase have been included in the consolidated
financial statements since the date of acquisition. The pro forma
effect of these acquisitions, individually or in the aggregate, on
the Company's consolidated financial statements was not significant.
Hyseq, Inc. The Company entered into a strategic partnership with
Hyseq, Inc., acquiring a minority equity interest for an initial
cash investment of $5.0 million, during the fourth quarter of fiscal
1997. Hyseq applies proprietary DNA array technology to develop
gene-based therapeutic product candidates and diagnostic products
and tests. In the first quarter of fiscal 1998, the Company
increased its investment by $5.0 million resulting in a 6% total
ownership interest. Under the terms of a collaboration agreement,
the Company also received exclusive worldwide rights to
commercialize sequencing systems utilizing Hyseq's proprietary DNA
HyChip(TM) technology. Each company will contribute additional funds
to support the development of the technology. The collaboration has
an initial term of five years, with provisions for automatic
extension thereafter.
Biometric Imaging, Inc. During the second quarter of fiscal 1998,
the Company increased its minority equity interest in Biometric
Imaging, Inc. to $3.0 million. The Company and Biometric Imaging
are collaborating on the development and manufacturing of a high-
throughput screening system for use by pharmaceutical research
companies to accelerate the drug discovery process. The Company
received exclusive worldwide marketing rights for that market.
Biometric Imaging products are designed to help ensure the integrity
of transfused products, optimize cell therapy procedures, and
monitor disease progression and the efficacy of therapy.
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<PAGE>
DISPOSITIONS (SALE OF INVESTMENTS)
Millennium Pharmaceuticals, Inc. During the first quarter of fiscal
1998, the Company recorded a before-tax gain of $.8 million, or $.02
per diluted share, in connection with the release of a previously
existing contingency on shares of Millennium Pharmaceuticals, Inc.
(Millennium) common stock. During the third quarter of fiscal 1997,
the Company sold approximately 50% of its investment in Millennium
for $12.9 million, and recognized a before-tax gain of $.8 million,
or $.02 per diluted share, on the sale. In the second quarter of
fiscal 1997, the Company exchanged its 34% equity interest in
ChemGenics Pharmaceuticals, Inc. for an approximate 6% equity
interest in Millennium and $4.0 million in cash, resulting in an
aggregate before-tax gain of $25.8 million, or $.52 per diluted
share.
Etec Systems, Inc. During the second quarter of fiscal 1997, the
Company sold its remaining equity interest in Etec Systems, Inc.
(ETEC) for net cash proceeds of $31.6 million. The Company recorded
a before-tax gain of $26.1 million, or $.38 per diluted share after-
tax. During the first quarter of fiscal 1997, the Company sold
part of its equity interest in ETEC for net cash proceeds of $14.2
million, resulting in a before-tax gain of $11.3 million, or $.21
per diluted share after-tax.
NOTE 3 - INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-
out basis) or market. Inventories included the following components:
(Dollar amounts in millions) March 31, June 30,
1998 1997
Raw materials and supplies $ 49.2 $ 33.1
Work-in-process 20.3 18.0
Finished products 166.7 160.2
Total inventories $236.2 $211.3
NOTE 4 - FINANCIAL INSTRUMENTS
The Company operates internationally, with manufacturing and
distribution facilities in various countries throughout the world;
therefore, results continue to be affected by fluctuations in
foreign currency exchange rates and changes in economic conditions
in foreign markets. The Company derived approximately 59% of its
revenues from countries outside of the United States for the nine
months ended March 31, 1998.
Derivatives. The Company utilizes foreign exchange forward and
option contracts and interest rate swap agreements to manage foreign
currency and interest rate exposures. The principal objective of
these contracts is to minimize the risks and/or costs associated
with global financial and operating activities. The Company does
not use derivative financial instruments for trading or other
speculative purposes, nor is the Company a party to leveraged
derivatives.
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Foreign Currency Risk Management. Foreign exchange forward and
option contracts are used primarily to hedge reported and
anticipated cash flows resulting from the sale of products in
foreign locations. Under the foreign exchange option contracts, the
Company has the right, but not the obligation, to purchase or sell
foreign currencies at fixed rates at various maturity dates. These
contracts are utilized primarily when the amount and/or timing of
the foreign currency exposures are not certain. At March 31, 1998
and June 30, 1997, the Company had foreign exchange forward and
option contracts for the sale and purchase of foreign currencies at
fixed rates as summarized in the table below:
(Dollar amounts in millions) March 31, 1998 June 30, 1997
Sale Purchase Sale Purchase
Japanese Yen $ 32.5 $ 2.3 $ 83.5 $ -
French Francs 11.2 18.1
Australian Dollars 4.6 13.7
German Marks 11.8 .6 13.4 2.3
Italian Lira 15.4 5.6 1.2
British Pounds 14.5 .1 8.3
Other 25.0 1.1 15.3
Total $ 115.0 $ 4.1 $ 149.6 $ 11.8
Foreign exchange contracts are accounted for as hedges of net
investments, firm commitments, and foreign currency transactions.
Gains and losses on foreign currency hedge contracts are recognized
in income and offset the foreign exchange gains and losses on the
related transactions.
As part of the Company's hedging program, in April 1998 the Company
entered into foreign exchange forward and option contracts totaling
$241 million to hedge reported and anticipated cash flows.
Interest Rate Risk Management. In fiscal 1997, the Company entered
into an interest rate swap in conjunction with a five year Japanese
Yen debt obligation. The interest rate swap agreement involves the
payment of a fixed rate of interest and the receipt of a floating
rate of interest without the exchange of the underlying notional
amount. Under this contract, the Company will make fixed interest
payments of 2.1% while receiving interest at a LIBOR floating rate.
No other cash payments will be made unless the contract is
terminated prior to maturity, in which case the amount to be paid or
received in settlement is established by agreement at the time of
termination. The agreed upon amount customarily represents the net
present value at the then existing interest rates of the remaining
obligations to exchange payments under the terms of the contract.
Concentrations of Credit Risk. The forward contracts, options, and
swaps used by the Company in managing its foreign currency and
interest rate exposures contain an element of risk that the
counterparties may be unable to meet the terms of the agreements.
However, the Company minimizes such risk exposure by limiting the
counterparties to a diverse group of highly rated domestic and
international financial institutions with which the Company has
other financial relationships. The Company is exposed to
potential losses in the event of non - performance by
these counterparties ; however, the Company does not expect
expect to record any losses as a result of counterparty
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default. The Company does not require and is not required to place
collateral for these financial instruments.
Fair Value. The fair value of foreign currency forward and option
contracts, as well as interest rate swaps, is estimated based on
quoted market prices of comparable contracts and reflects the
amounts the Company would receive or pay to terminate the contracts
at the reporting date. The following table presents the notional
amounts and fair values of the Company's derivatives:
(Dollar amounts in millions) March 31, 1998 June 30, 1997
Notional Fair Notional Fair
Amount Value Amount Value
Forward contracts $89.1 $ .2 $114.0 $(3.7)
Purchased options $30.0 $2.7 $ 47.4 $ .7
Interest rate swap $29.6 $(.8) $ 33.6 $ .2
Fair values of minority equity investments are estimated based on
quoted market prices, if available, or quoted market prices of
financial instruments with similar characteristics. At March 31,
1998, investments in equity securities, which are categorized
as available-for-sale, are stated at a fair value of $34.4 million
versus a cost basis of $30.0 million. Accordingly, an unrealized
holding gain of $4.4 million was reported as a separate component of
equity.
NOTE 5 - RESTRUCTURING AND OTHER MERGER COSTS
Fiscal 1998. During the third quarter of fiscal 1998, the Company
recorded a $47.0 million before-tax charge for restructuring and
other merger costs to integrate PerSeptive into the Company
following the Merger. The objectives of this plan are to lower
PerSeptive's cost structure by reducing excess manufacturing
capacity, achieve broader worldwide distribution of PerSeptive's
products, and combine sales, marketing, and administrative
functions. This charge included: $33.9 million for restructuring the
combined operations; $8.6 million for transaction costs; and $4.1
million of inventory-related write-offs, recorded in cost of sales,
associated with the rationalization of certain product lines.
Additional non-recurring acquisition costs of $.4 million for
training, relocation, and communication were recognized as a period
expense in the quarter, and classified as other acquisition related
costs. The Company expects to incur an additional $8 million to
$10 million of acquisition related costs for training, relocation,
and communication over the next few quarters. These costs will be
recognized as period expenses when incurred and will be
classified as other acquisition related costs.
The $33.9 million restructuring charge includes $13.8 million for
severance related costs and workforce reductions of approximately
170 employees, consisting of 114 employees in production labor and
56 employees in sales and administrative support. The remaining
$20.1 million represents facility consolidation and asset related
write-offs and includes: $11.7 million for contract and lease
terminations and facility related expenses in connection with the
reduction of excess manufacturing capacity; $3.2 million for dealer
termination payments, sales office consolidations, and consolidation
of sales and administrative support functions; and $5.2 million for
the write-off of certain tangible and intangible assets
and the termination of certain contractual obligations.
These restructuring
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actions are expected to be substantially completed by the end of
fiscal 1999. Transaction costs of $8.6 million include
acquisition related investment banking and professional fees.
The following table details the major components of the fiscal 1998
restructuring plan:
Facility
Consolidation
and Asset
Personnel Related Total
(Dollar amounts in millions) Write-offs
Provision
Reduction of excess
European manufacturing capacity $ 5.1 $ 11.7 $ 16.8
Consolidation of sales
and administrative support 8.7 3.2 11.9
Other acquisition costs 5.2 5.2
Total provision $ 13.8 $ 20.1 $ 33.9
Fiscal 1998 activity
Reduction of excess
European manufacturing capacity
Consolidation of sales
and administrative support $ .8 $ .8
Other acquisition costs 4.9 4.9
Total fiscal 1998 activity $ 5.7 $ 5.7
Balance at March 31, 1998
Reduction of excess
European manufacturing capacity $ 5.1 $ 11.7 $ 16.8
Consolidation of sales
and administrative support 8.7 2.4 11.1
Other acquisition costs .3 .3
Balance at March 31, 1998 $ 13.8 $ 14.4 $ 28.2
Fiscal 1997. During the fourth quarter of fiscal 1997, the Company
announced a follow-on phase to the Analytical Instrument Division's
profit improvement program begun by the Company in fiscal 1996. The
restructuring cost for this action was $24.2 million before-tax and
included $19.4 million for costs focused on further improving the
operating efficiency of manufacturing facilities in the United
States, Germany, and the United Kingdom. These actions are designed
to help transition the Analytical Instruments Division from a highly
vertical manufacturing operation to one that relies more heavily on
outsourcing functions not considered core competencies. The
restructuring charge also included $4.8 million to finalize the
consolidation of sales and administrative support, primarily in
Europe where seventeen facilities will be closed.
The workforce reductions under this plan total approximately 285
employees in production labor and 25 employees in sales and
administrative support. The charge included $11.9 million
for severance related costs. The $12.3 million provided for
facility consolidation and asset related write - offs
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included $1.2 million for lease termination payments and $11.1
million for the write-off of machinery, equipment, and tooling
associated with those functions to be outsourced.
These actions are expected to be substantially completed by June
1998. As of March 31, 1998, approximately 293 employees were
separated under the plan and the actions are proceeding as planned.
There have been no adjustments made to increase or decrease the
liabilities originally provided for in this restructuring.
The following table details the major components of the fiscal 1997
restructuring plan:
Facility
Consolidation
and Asset
Personnel Related Total
(Dollar amounts in millions) Write-offs
Provision
Changes in manufacturing operations $ 9.6 $ 9.8 $ 19.4
Consolidation of sales and
administrative support 2.3 2.5 4.8
Total provision $ 11.9 $ 12.3 $ 24.2
Fiscal 1997 activity
Changes in manufacturing operations $ .1 $ 4.6 $ 4.7
Consolidation of sales and
administrative support
Total fiscal 1997 activity $ .1 $ 4.6 $ 4.7
Fiscal 1998 activity
Changes in manufacturing operations $ 5.4 $ 4.7 $ 10.1
Consolidation of sales and
administrative support 2.2 1.4 3.6
Total fiscal 1998 activity $ 7.6 $ 6.1 $ 13.7
Balance at March 31, 1998
Changes in manufacturing operations $ 4.1 $ .5 $ 4.6
Consolidation of sales and
administrative support .1 1.1 1.2
Balance at March 31, 1998 $ 4.2 $ 1.6 $ 5.8
Fiscal 1996. The fiscal 1996 before-tax restructuring charge of
$71.6 million recorded in the third quarter of fiscal 1996 was the
first phase of a plan focused on improving the profitability and
cash flow performance of the Analytical Instruments Division. In
connection with the plan, the division was reorganized into three
vertically integrated, fiscally accountable operating units, a
distribution center in Holland was established to centralize the
European infrastructure for shipping, administration, and related
functions, and a program was implemented to eliminate excess
production capacity in Germany. The charge contemplated worldwide
workforce reductions of 390 positions in manufacturing, sales and
support, and administrative functions at a cost of $37.8 million.
The charge also included $33.8 million for facility consolidation
and asset related write-offs associated with the discontinuation of
various product lines.
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In the fourth quarter of fiscal 1997, the Company finalized the
actions associated with the restructuring plan announced in 1996.
The costs to implement the program were $11.2 million below the
$71.6 million charge recorded in fiscal 1996. As a result, during
the fourth quarter of fiscal 1997, the Company recorded an $11.2
million reduction of charges required to implement the fiscal 1996
plan. As of March 31, 1998, 360 employees were separated under the
plan. The balance for remaining personnel costs at March 31, 1998
represents future severance and deferred payments.
The following table details the major components of the fiscal 1996
restructuring plan:
Facility
Consolidation
and Asset
Personnel Related Total
(Dollar amounts in millions) Write-offs
Provision
Reduction of excess European
manufacturing capacity $ 19.7 $ 23.0 $ 42.7
Reduction of European distribution and
administrative capacity 11.5 6.0 17.5
Other worldwide workforce reductions
and facility closings 6.6 4.8 11.4
Total provision $ 37.8 $ 33.8 $ 71.6
Fiscal 1996 activity
Reduction of excess European
manufacturing capacity $ 2.1 $ 6.7 $ 8.8
Reduction of European distribution and
administrative capacity 1.6 .7 2.3
Other worldwide workforce reductions
and facility closings 1.9 1.6 3.5
Total fiscal 1996 activity $ 5.6 $ 9.0 $ 14.6
Fiscal 1997 activity
Reduction of excess European
manufacturing capacity $ 10.9 $ 6.6 $ 17.5
Adjustment to decrease liabilities
originally accrued for excess European
manufacturing capacity 4.7 6.5 11.2
Reduction of European distribution and
administrative capacity 6.2 4.4 10.6
Other worldwide workforce reductions
and facility closings 1.9 2.0 3.9
Total fiscal 1997 activity $ 23.7 $ 19.5 $ 43.2
Fiscal 1998 activity
Reduction of excess European
manufacturing capacity $ 1.8 $ 1.1 $ 2.9
Reduction of European distribution and
administrative capacity 2.2 .4 2.6
Other worldwide workforce reductions
and facility closings 1.9 .3 2.2
Total fiscal 1998 activity $ 5.9 $ 1.8 $ 7.7
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Balance at March 31, 1998
Reduction of excess European
manufacturing capacity $ .2 $ 2.1 $ 2.3
Reduction of European distribution and
administrative capacity 1.5 .5 2.0
Other worldwide workforce reductions
and facility closings .9 .9 1.8
Balance at March 31, 1998 $ 2.6 $ 3.5 $ 6.1
NOTE 6 - INTANGIBLE ASSETS
The excess purchase price over the net asset value of companies
acquired is amortized on a straight-line method over periods not
exceeding forty years. Patents and trademarks are amortized using
the straight-line method over their expected useful lives. The
Company periodically reviews the recoverability of intangible and
other long-lived assets based upon anticipated cash flows generated
from such underlying assets. At March 31, 1998 and June 30, 1997,
other long-term assets included goodwill, net of accumulated
amortization, of $85.4 million and $32.7 million, respectively.
NOTE 7 - CHANGES IN ACCOUNTING PRINCIPLES
During the second quarter of fiscal 1998 the Company implemented
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share." This statement establishes new standards for
computing and presenting earnings per share and requires
presentation of basic and diluted earnings per share on the face of
the income statement. Basic earnings per share is computed by
dividing net income for the period by the weighted average number of
common shares outstanding. Diluted earnings per share is computed
similarly to the Company's previously disclosed amounts by dividing
net income for the period by the weighted average number of common
shares outstanding and the dilutive effect of outstanding employee
stock options. Earnings per share amounts for all prior periods have
been restated to conform with the provisions of this statement.
The following table presents a reconciliation of basic and diluted
income (loss) per share for the three and nine month periods ended
March 31, 1998 and 1997:
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(Amounts in thousands Three months ended Nine months ended
except per share amounts) March 31, March 31,
1998 1997 1998 1997
Weighted average number of
common shares used in the
calculation of basic
earnings per share 48,656 47,660 48,342 47,344
Common stock equivalents 1,994 1,708 2,039
Shares used in calculating
diluted earnings per share 48,656 49,654 50,050 49,383
Net income (loss) used in
the calculation of basic and
diluted earnings per share $ (6,966) $ 9,345 $ 20,425 $111,513
Net income(loss) per share
Basic $ (.14) $ .20 $ .42 $ 2.36
Diluted $ (.14) $ .19 $ .41 $ 2.26
Options and warrants to purchase 2.6 million shares of the Company's
common stock were outstanding for the quarter ended March 31, 1998,
but not included in the computation of diluted loss per share
because their effect was antidilutive. Options and warrants to
purchase 1.1 million shares of the Company's common stock were
outstanding for the nine month period ended March 31, 1998, but were
not included in the computation of diluted earnings per share
because the exercise prices were greater than the average market
price of the common stock.
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THE PERKIN-ELMER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
condensed consolidated financial statements and related notes
included on pages 1-14 of this report, and "Management's Discussion
and Analysis" appearing on pages 35 - 41 of the Company's 1997
Annual Report to Shareholders. Historical results and percentage
relationships are not necessarily indicative of operating results
for any future periods.
EVENTS IMPACTING COMPARABILITY
Acquisitions and investments. On January 22, 1998, the Company
acquired PerSeptive Biosystems, Inc. (PerSeptive). The acquisition
has been accounted for as a pooling of interests and, accordingly,
the Company's financial results have been restated to include the
combined operations (see Note 2).
The Company acquired a 14.5% interest and approximately 52% of the
voting rights in Tecan AG (Tecan) in December 1997 (see Note 2).
The acquisition has been accounted for as a purchase and,
accordingly, the operating results of Tecan have been included in
the Company's consolidated financial statements since the date of
acquisition.
During the second quarter of fiscal 1998, the Company acquired
Molecular Informatics, Inc. (see Note 2). The acquisition has been
accounted for as a purchase and, accordingly, the operating results
of Molecular Informatics have been included in the Company's
consolidated financial statements since the date of acquisition.
Restructuring and other merger costs. In the third quarter of
fiscal 1998 the Company recorded $47.0 million, or $.85 per diluted
share after-tax, of restructuring and other merger costs to
integrate PerSeptive into the Company (see Note 5). The charge
included $4.1 million of inventory related write-offs, recorded in
cost of sales, associated with the rationalization of certain
product lines.
Acquired research and development. During the second quarter of
fiscal 1998 and third quarter of fiscal 1997, the Company recorded
charges for purchased in-process research and development in
connection with certain acquisitions. The charges recorded in the
second quarter of fiscal 1998 and the third quarter of fiscal 1997
were $28.9 million and $25.4 million, or $.57 and $.51 per diluted
share after-tax, respectively (see Note 2).
Sale of investments. The third quarter of fiscal 1997 included $.8
million of before-tax gains, or $.02 per diluted share after-tax,
from the sale of non-strategic equity investments. For the nine
months ended March 31, 1998 and 1997, before-tax gains of $.8
million and $64.0 million, or $.02 and $1.13 per diluted share after-
tax, respectively, were recorded in connection with the sale of non-
strategic equity investments (see Note 2).
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
The Company reported a net loss of $7.0 million, or $.14 per diluted
share, for the third quarter of fiscal 1998 compared with net income
of $9.3 million, or $.19 per diluted share, in the third quarter of
fiscal 1997. Excluding the special items previously described, net
income for the third quarter of fiscal 1998 increased 4.7% compared
with the third quarter of fiscal 1997 to $35.5 million from $33.9
million, and diluted earnings per share increased to $.71 from $.68.
The effects of foreign currency translation reduced fiscal 1998
third quarter net income by approximately $3.9 million or $.08 per
diluted share.
Net revenues were $390.8 million for the third quarter of fiscal
1998 compared with $348.8 million in the third quarter of fiscal
1997, an increase of 12.0%. Excluding Tecan, revenues increased
5.1% compared with the prior year. The effects of foreign currency
translation decreased net revenues by approximately $14 million, or
3%, in the quarter compared with the prior year, as the U.S. dollar
remained strong against most European and Far Eastern currencies.
Geographically, excluding Tecan, the Company reported revenue growth
of 13.4% in the United States, 7.7% in Europe, and 4.6% in Latin
America and other markets, offsetting a decline of 10.2% in the Far
East. The decline in the Far East was due primarily to economic
uncertainty in Japan and continued weakness in some Southeast Asian
markets. Excluding the effects of currency translation and Tecan,
revenues in Europe would have increased approximately 14%, while
the Far East would have decreased approximately 6%.
On a business segment basis, net revenues of PE Biosystems, the
Company's life sciences division which includes PE Applied
Biosystems, PerSeptive, Molecular Informatics, and Tecan, increased
22.3% to $243.3 million in the third quarter of fiscal 1998, aided
by higher one-time royalty revenues of $4.5 million. Before the
negative effects of currency translation and excluding Tecan,
revenues increased 14% compared with the prior year, as all
geographic markets reported increased revenues, except the Far East
where revenues decreased by 8%. The Company believes the decrease
in the Far East was primarily a result of slower Japanese government
funding due to general economic conditions and a lack of
supplemental budgets which added substantially to the third quarter
of fiscal 1997. Excluding Tecan, net revenues over the prior year's
third quarter increased approximately 17% in the United States and
18% in Europe. Excluding Tecan and the negative effects of currency
translation, revenues in Europe would have increased approximately
25%, while revenues in the Far East would have remained essentially
unchanged compared with the prior year.
During the quarter, the division announced two improved liquid
chromatography/mass spectrometry (LC/MS) products. The Company
believes the introduction of these products has resulted in
pharmaceutical customers shifting from the division's older
products. The Company also believes this has resulted in a timing
issue with respect to the sales of these products, since shipments
of the new instruments will begin in the fourth fiscal quarter. The
Company plans to reach full production capability later in calendar
year 1998. The division also experienced record revenues in
reagents, fueled by strong sales of its DNA analysis products
worldwide.
Net revenues for the Analytical Instruments Division were $147.5
million compared with $149.9 million reported in the prior year's
third quarter. The effects of foreign currency translation reduced
revenues by approximately $7 million, or 5%. Revenues
increased 7.2% in the United States, and
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6.6% in Latin America and other markets while Europe remained
essentially unchanged compared with the prior year. This was
primarily offset by a decline of 23.5% in the Far East due to
weakness in area economies. Excluding the effects of currency,
European revenues, which accounted for 44% of the division's
revenues, would have increased approximately 5%, while the Far East
would have declined approximately 15%. The division experienced
increased demand for its AAnalyst(TM) line of Atomic Absorption
products, the Optima(TM) line of inductively coupled plasma products,
and its recently introduced line of gas chromatography/mass
spectrometry (GC/MS) products.
Gross margin as a percentage of net revenues was 51.0% in the third
quarter of fiscal 1998 compared with 51.2% in the third quarter of
fiscal 1997. The current quarter included $4.1 million of inventory-
related write-offs associated with the rationalization of certain
product lines in connection with the PerSeptive acquisition.
Excluding the write-offs, gross margin increased to 52% in the
quarter compared with the prior year. The improvement was the result
of product mix and higher royalty revenues for PE Biosystems and
restructuring savings realized for the Analytical Instruments
Division.
Selling, general and administrative (SG&A) expenses were $113.8
million in the third quarter of fiscal 1998 compared with $103.5
million in the third quarter of fiscal 1997, an increase of 10.0%.
Excluding Tecan, SG&A expenses increased 2.6% compared with the
prior year. The increase in the quarter was primarily due to
planned spending increases for PE Biosystems, reflecting higher
revenue and order growth. These increases were partially offset by
a decrease in the Analytical Instruments Division's expenses,
reflecting lower expense levels resulting from cost control and
actions of the restructuring program. As a percentage of net
revenues, SG&A expenses declined to 29.1% compared with the 29.7% in
the prior year.
Research, development and engineering (R&D) expenses of $38.4
million increased 24.3% over the prior year. Excluding Tecan, R&D
spending increased 18.8% compared with the prior year. R&D spending
in PE Biosystems increased 41.2% over the prior year and accounted
for over 72% of the Company's R&D expense as the Company continued
its product development efforts for the bioresearch and
pharmaceutical markets. R&D expenses for the Analytical Instruments
Division were constant with the prior year reflecting the objectives
of the restructuring plans. As a percentage of net revenues, the
Company's R&D expenses increased to 9.8% compared with 8.9% for the
prior year.
During the third quarter of fiscal 1998, the Company recorded a
$47.0 million before-tax charge for restructuring and other merger
costs to integrate PerSeptive into the Company following the
Merger (see Note 5). The objectives of this plan are to lower
PerSeptive's cost structure by reducing excess manufacturing
capacity, achieve broader worldwide distribution of PerSeptive's
products, and combine sales, marketing, and administrative
functions. This charge included: $33.9 million for restructuring the
combined operations; $8.6 million for transaction costs; and $4.1
million of inventory-related write-offs, recorded in cost of sales,
associated with the rationalization of certain product lines.
Additional non-recurring acquisition costs of $.4 million for
training, relocation, and communication were recognized as a period
expense in the quarter, and classified as other acquisition related
costs. The Company expects to incur an additional $8 million to
$10 million of acquisition related costs for training, relocation,
and communication over the next few quarters. These costs will be
recognized as period expenses when incurred and will be
classified as other acquisition related costs.
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The $33.9 million restructuring charge includes $13.8 million for
severance related costs and workforce reductions of approximately
170 employees, consisting of 114 employees in production labor and
56 employees in sales and administrative support. The remaining
$20.1 million represents facility consolidation and asset related
write-offs and includes: $11.7 million for contract and lease
terminations and facility related expenses in connection with the
reduction of excess manufacturing capacity; $3.2 million for dealer
termination payments, sales office consolidations, and consolidation
of sales and administrative support functions; and $5.2 million for
the write-off of certain tangible and intangible assets and the
termination of certain contractual obligations. These restructuring
actions are expected to be substantially completed by the end of
fiscal 1999. Transaction costs of $8.6 million include acquisition
related investment banking and professional fees.
The implementation of restructuring actions announced in the fourth
quarter of fiscal 1997 (see Note 5) is proceeding as planned. The
Company achieved approximately $3.3 million in net before-tax
benefits from the program in the third quarter of fiscal 1998.
Total operating expenses were $195.1 million in the third quarter of
fiscal 1998 compared with $159.8 million in the prior year's third
quarter. The Company recorded $42.9 million for restructuring and
other merger costs associated with the integration of PerSeptive in
the third quarter of fiscal 1998 and $25.4 million of purchased in-
process research and development associated with the acquisition of
Genscope, Inc. in the third quarter of fiscal 1997. Excluding the
special items, operating expenses as a percentage of net revenues
for the third quarter of fiscal 1998 remained essentially unchanged
at 39% compared with the third quarter of fiscal 1997.
On a comparable basis, excluding Tecan and the previously mentioned
special items, operating income increased 7% to $47.2 million
compared with $44.1 million in the prior year. The effects of
changes in currency rates decreased operating income in the third
quarter of fiscal 1998 by approximately $5 million. Excluding
Tecan, special items and the effects of currency translation,
operating income would have increased approximately 19% compared
with the prior year.
Interest expense was $1.2 million in the third quarter of fiscal
1998 compared with $1.5 million in the prior year. Interest income
was $1.2 million in the third quarter of fiscal 1998 compared with
$2.3 million in the prior year. The decrease in interest income was
primarily due to lower cash balances.
Net other expense of $.2 million in the third quarter of fiscal 1998
was essentially unchanged from the prior year. The third quarter
of fiscal 1997 also included a before-tax gain of $.8 million for
the sale of certain non-strategic equity investments.
Excluding Tecan in fiscal 1998 and the special items in both years,
the effective income tax rate was 23% in the third quarter of fiscal
1998 compared with 24% in the prior year. Excluding Tecan and
special items, the Company expects its annual tax rate in fiscal
1998 to be approximately 25%.
The Company reported $2.9 million of minority interest in the third
quarter of fiscal 1998 associated with its investment in Tecan.
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RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1998
The Company reported net income of $20.4 million, or $.41 per
diluted share, for the first nine months of fiscal 1998 compared
with net income of $111.5 million, or $2.26 per diluted share, in
the first nine months of the prior year. As previously mentioned,
net income in both years included special items. On a comparable
basis, excluding the special items in both years, net income
increased 11.5% to $90.9 million for the first nine months of fiscal
1998 compared with $81.5 million for the first nine months of fiscal
1997.
Net revenues were $1,082.7 million for the first nine months of
fiscal 1998 compared with $999.6 million in fiscal 1997, an increase
of 8.3%. Excluding Tecan, revenues increased 5.9% compared with the
prior year. The effects of currency rate movements decreased net
revenues approximately $54 million, or 5.4%, compared with the prior
year, as the U.S. dollar strengthened against most European and Far
Eastern currencies. Geographically, the Company reported revenue
growth in all regions compared with the prior year, with the
strongest growth in the United States where revenues increased
17.3%. Excluding the effects of foreign currency translation and
Tecan, revenues in the Far East and Europe would have increased
approximately 9% and 8%, respectively.
Net revenues of PE Biosystems increased 18.9% to $644.3 million for
the first nine months of fiscal 1998 compared with $541.8 million in
the prior year. Excluding Tecan, revenues increased 14.5% over the
prior year. All geographic markets reported increased revenues over
the prior year. The negative effects of a strong U.S. dollar reduced
the division's revenues by approximately $26 million, or 5%. On a
worldwide basis, excluding Tecan and the effects of currency
translation, revenues would have increased approximately 20%
compared with the prior year. Excluding Tecan, net revenues in the
United States and Europe increased 22.6% and 11.9%, respectively.
Net revenues in the Far East increased 4.2% despite a negative
currency impact of approximately $10 million. Excluding the effects
of Tecan and currency translation, revenues in the Far East would
have increased approximately 10% when compared with the first nine
months of fiscal 1997. The Company believes slower Japanese
government funding in the third quarter of fiscal 1998 and the lack
of supplemental budgets, that added substantially to the third
quarter of fiscal 1997, contributed to a lower growth rate in Japan.
Overall, the division experienced increased sales of its reagents
and DNA products worldwide.
Net revenues for the Analytical Instruments Division were $438.4
million for the first nine months of fiscal 1998 compared with
$457.8 million in the prior year, a decrease of 4.2%. Currency rate
movements reduced revenues by approximately $28 million, or 6%.
Excluding currency effects, revenues would have increased
approximately 2%. Geographically, revenues in the United States and
Latin America and other markets increased 2.2% and 8.3%,
respectively. Revenues in Europe and the Far East decreased 10.5%
and 4.0%, respectively. Excluding the effects of currency
translation, revenues in the Far East for the first nine months of
fiscal 1998 increased approximately 7% while revenues in Europe
decreased approximately 2% compared with the first nine months of
fiscal 1997.
Gross margin as a percentage of net revenues was 50.5% in the first
nine months of fiscal 1998 compared with 49.8% in the first nine
months of fiscal 1997. Gross margin for the first nine months of
fiscal 1998 included $4.1 million of inventory related
write - offs associated with the rationalization
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of certain product lines in connection with the acquisition of
PerSeptive. Excluding the write-offs, gross margin increased to 50.9%
of revenues in the first nine months of fiscal 1998 primarily as a
result of benefits realized by the PE Biosystems Division from the
sales of higher margin products and higher royalty revenues.
Improved gross margins for the Analytical Instrument Division in the
U.S. were offset by lower margins in Europe and the Far East.
The negative effects of currency translation offset improved gross
margins from restructuring actions. Excluding the effects of
currency translation, the gross margin percentage for the
Analytical Instruments Division would have increased approximately
2% compared with the first nine months of fiscal 1997.
SG&A expenses were $324.6 million for the first nine months of
fiscal 1998 compared with $300.2 million in the same period of the
prior year. The 8.1% increase in the nine month period was due to
higher planned selling expenses for the PE Biosystems Division,
including Tecan, which was not included in the prior year. SG&A
expenses for the Analytical Instruments Division decreased 4.5%
compared with the prior year, primarily due to lower selling
expenses in Europe, resulting in part from the restructuring plans.
As a percentage of net revenues, SG&A expenses remained essentially
unchanged from the prior year at 30%.
R&D expenses of $104.9 million increased 17.3% over the prior year,
or 14.8% excluding Tecan. R&D spending in the PE Biosystems
Division increased 32.3%, or 28.3% excluding Tecan, over the prior
year as the Company continued its product development efforts in
this segment. The division's spending accounted for 70% of the
Company's R&D expenses. R&D expenses for the Analytical Instruments
Division remained essentially unchanged compared with the prior
year. As a percentage of net revenues, the Company's R&D expenses
increased to 9.7% compared with 9.0% for the prior year.
During the third quarter of fiscal 1998, the Company recorded a
$47.0 million before-tax charge for restructuring and other merger
costs to integrate PerSeptive into the Company following the
Merger (see Note 5). The objectives of this plan are to lower
PerSeptive's cost structure by reducing excess manufacturing
capacity, achieve broader worldwide distribution of PerSeptive's
products, and combine sales, marketing, and administrative
functions. This charge included: $33.9 million for restructuring the
combined operations; $8.6 million for transaction costs; and $4.1
million of inventory-related write-offs, recorded in cost of sales,
associated with the rationalization of certain product lines.
Additional non-recurring acquisition costs of $.4 million for
training, relocation, and communication were recognized as a period
expense in the quarter, and classified as other acquisition related
costs. The Company expects to incur an additional $8 million to
$10 million of acquisition related costs for training, relocation,
and communication over the next few quarters. These costs will be
recognized as period expenses when incurred and will be
classified as other acquisition related costs.
The restructuring plan announced in the fourth quarter of fiscal
1997 is proceeding as planned. These actions focused on the
transition of the Analytical Instruments Division from a vertical
manufacturing operation to one that relies more on outsourcing
functions not considered core competencies. It also included
actions to finalize consolidation of sales and administrative
support, primarily in Europe (see Note 5). For the nine months ended
March 31, 1998, the Company achieved approximately $5.4 million in
before-tax savings attributable to this plan, and expects to achieve
approximately $8 million in before-tax savings from the plan for the
full year, and $16 million in succeeding fiscal years.
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Total operating expenses were $501.2 million in the first nine
months of fiscal 1998 compared with $415.0 million in the prior
year. The first nine months of fiscal 1998 included $42.9 million
for restructuring and other merger costs associated with the merger
of PerSeptive and a $28.9 million charge for purchased in-process
research and development associated with the acquisition of
Molecular Informatics, Inc. (see Note 2). Operating expenses for
the first nine months of fiscal 1997 included a $25.4 million charge
for purchased in-process research and development associated with
the acquisition of Genscope, Inc. (see Note 2). Excluding the
special items, operating expenses as a percentage of revenues
increased to 39.7%, or 39.6% excluding Tecan, compared with 39% in
the prior year.
Operating income rose 12.4% to $121.4 million from $107.6 million in
the first nine months of fiscal 1998, excluding special items in
both years. The effects of currency translation decreased operating
income approximately $19 million compared with prior year. On a
comparable basis excluding the special items and the effects of
currency translation, operating income would have increased
approximately 30%, or 26% excluding Tecan, compared with the prior
year. A combination of strong revenue growth in the PE Biosystems
Division and reduced expense levels in the Analytical Instruments
Division contributed to the improvement.
Interest expense was $3.9 million in the first nine months of fiscal
1998 compared with $4.6 million in the prior year. This decrease
was primarily due to lower interest rates in the first quarter of
fiscal 1998. Interest income was $5.1 million in the first nine
months of fiscal 1998 compared with $5.5 million in the prior year,
reflecting lower cash balances in the second and third quarters of
fiscal 1998 and lower interest rates compared with the prior year.
Net other income for the first nine months of fiscal 1998 was $1.2
million, primarily related to the sale of certain non-operating
assets, compared with net other expense of $.5 million in the prior
year.
The effective income tax rate for the first nine months of fiscal
1998 was 53% compared with 24% in the prior year. Excluding Tecan
in fiscal 1998 and the special items in both years, the effective
income tax rate was 25% for both years.
FINANCIAL RESOURCES AND LIQUIDITY
Significant Changes in The Condensed Consolidated Statements of
Financial Position. Cash and cash equivalents were $84.9 million at
March 31, 1998 compared with $213.0 million at June 30, 1997,
primarily as a result of acquisitions and investments (see Note 2).
Debt to total capitalization decreased from 15% at June 30, 1997 to
13% at March 31, 1998 as a result of the repayment of long-term debt.
Other long-term assets increased 45.6% to $255.7 million at March
31, 1998 from $175.6 million at June 30, 1997. The increase was due
primarily to the addition of approximately $70 million of intangible
assets associated with the investments in and acquisitions of Tecan
and Molecular Informatics, Inc., and minority equity investments of
$5.0 million in Hyseq, Inc. and $3.0 million in Biometric Imaging,
Inc. (see Note 2).
Long-term debt decreased to $37.5 million at March 31, 1998 compared
with $59.2 million at June 30, 1997. This decrease was primarily due
to the redemption of PerSeptive's 8-1/4% Convertible
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Subordinated Notes Due 2001 (the PerSeptive Notes) on March 23,
1998. The redemption price was $1,055.81 per $1,000 principal
amount of the PerSeptive Notes, which represented the redemption
premium and aggregate principal plus accrued and unpaid interest to
the redemption date. The aggregate outstanding principal amount of
the PerSeptive Notes was $27.2 million at March 23, 1998. A total of
$26.1 million was paid in cash representing $24.7 million of
principal and $1.4 million of accrued interest and premium relating
to the PerSeptive Notes. Additionally, $2.5 million of the principal
amount of the PerSeptive Notes was converted by the holders thereof
into 35,557 shares of Perkin-Elmer Common Stock.
At March 31, 1998, $42.7 million of minority interest was recognized
in connection with the December 1997 investment in Tecan AG.
Condensed Consolidated Statements of Cash Flows. Net cash provided
by operating activities was $24.0 million for the first nine months
of fiscal 1998 compared with $61.0 million for the same period in
fiscal 1997. For the first nine months of fiscal 1998, higher net
income related cash flow, excluding the special items in both years,
and lower accounts receivable levels were more than offset by higher
inventory levels, delayed timing on royalty receipts, payments to
fund the Company's benefit plans, and payments related to
restructuring actions (see Note 5).
Net cash used by investing activities was $154.3 million for the
first nine months of fiscal 1998 compared with $8.2 million provided
by investing activities for the first nine months of fiscal 1997.
In the first nine months of fiscal 1998, the Company generated $16.2
million in net cash proceeds from the sale of certain non-operating
assets and the collection of a note receivable, compared with $77.6
million in the prior year generated from the sale of the Company's
equity interests in ETEC and Millennium, and certain non-operating
assets. The fiscal 1998 cash proceeds were more than offset by
capital expenditures of $78.9 million, which included $47.7 million
related to improvement of the Company's information technology
infrastructure, and $94.5 million related to various acquisitions,
investments, and collaborations (see Note 2). The prior year
capital expenditures of $50.5 million included $10.1 million related
to the improvement of the Company's information technology
infrastructure.
Net cash provided by financing activities was $.2 million in fiscal
1998 compared with a net cash use of $4.1 million in fiscal 1997.
In the first nine months of fiscal 1998, the Company received $25.6
million in proceeds from employee stock option plan exercises
compared with $23.5 million in fiscal 1997. The first nine months
of fiscal 1997 included $15.9 million for the purchase of .3 million
shares of common stock for treasury and proceeds of $1.8 million
from the issuance of equity put warrants on shares of the Company's
common stock. During the first nine months of fiscal 1998 there
were no share repurchases of common stock for treasury or sales of
equity put warrants. During the period, short-term borrowings
increased $22.2 million, offset by the redemption of the PerSeptive
Notes.
FOREIGN CURRENCY AND INTEREST RATE RISK
The Company operates internationally, with manufacturing
and distribution facilities in various countries throughout
the world; therefore, results continue to be affected by
fluctuations in foreign currency exchange rates and changes
in economic conditions in foreign markets. The Company
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derived approximately 59% of its revenues from countries outside
of the United States for the nine months ended March 31, 1998.
As more fully described in Note 4 and the Company's 1997 Annual
Report to Shareholders, the Company's risk management strategy
utilizes derivative financial instruments, including forwards, swaps,
and purchased options to hedge certain foreign currency and interest
rate exposures, with the intent of offsetting gains and losses that
occur on the underlying exposures with gains and losses on the
derivatives. The Company does not use derivative financial
instruments for trading or other speculative purposes, nor is the
Company a party to leveraged derivatives.
The Company has performed a sensitivity analysis assuming a
hypothetical 10% adverse movement in foreign currency exchange rates
applied to its outstanding hedge contracts and underlying exposures.
As of March 31, 1998, the analysis indicated that such market
movements would not have had a material effect on the Company's
consolidated financial position, results of operations, or cash
flows. Actual gains and losses in the future may, however,
differ materially from that analysis, based on changes in the timing
and amount of foreign currency exchange rate movements and the
Company's actual exposures and hedges.
Interest rate swaps are used to hedge underlying debt obligations.
In fiscal 1997, the Company entered into an interest rate swap in
conjunction with a five year Japanese Yen debt obligation. Based on
the Company's overall interest rate exposure at March 31, 1998,
including derivative and other interest rate sensitive instruments,
a near-term change in interest rates would not materially effect the
consolidated financial position, results of operations, or cash
flows of the Company.
OUTLOOK
As the underlying demand for life science products continues to
grow, the Company's life science segment is expected to continue to
grow and maintain profitability. The Company continues to expand
this business through increased internal development efforts and
through acquisitions, equity investments, and other collaborations.
The acquisitions, investments, and collaborations in PerSeptive,
Tecan, Molecular Informatics, Inc., Hyseq, Inc., and Biometric
Imaging, Inc. are indicators of the Company's continued focus in
this business segment. While the Company expects to realize benefits
from these acquisitions, the integration of these acquisitions is
complex. The fiscal 1997 and 1996 restructuring actions are
expected to continue to increase the profitability and cash
flow of the Company's analytical instruments segment.
Adverse currency effects remain a concern for the Company because
approximately 59% of its revenues are derived from markets outside
the United States. These adverse effects could continue if the
relationship of the U.S. dollar to certain major European and Far
Eastern currencies is maintained at current levels, or could worsen
if the U.S. dollar continues to strengthen. For the nine months
ended March 31, 1998, the Company absorbed a negative currency
impact of approximately $.29 per diluted share. If currency rates
remain unchanged from present levels, the Company estimates the
negative translation impact in the fourth quarter of the year could
be approximately $.08 per diluted share.
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<PAGE>
On May 9, 1998, the Company, Dr. J. Craig Venter, and The Institute
for Genomic Research (TIGR) announced that they had signed letters
of intent relating to the formation by the Company and Dr. Venter of
a new genomics company. The strategy of the new company will be
centered on a plan to substantially complete the sequencing
of the human genome in three years. The Company is currently
reviewing the business model of the new company and, as of the date
of this filing, has not determined the extent of its effect, if any,
on the Company.
YEAR 2000
The Company is reviewing its existing computer systems and product
offerings to ensure these systems and offerings are adequately able
to address the issues expected to arise in connection with the
upcoming change in the century. The Company has invested, and will
continue to invest, in improving its information technology
infrastructure to ensure that such infrastructure is Year 2000
compliant.
The Company expects to implement successfully the systems and
programming changes necessary to address Year 2000 issues on an
enterprise wide basis and is currently reviewing the cost of such
actions. The Company expects such modifications to its products and
internal systems will be made on a timely basis; however, there can
be no assurance there will not be a delay in, or increased costs
associated with, the implementation of such changes, and the
Company's inability to implement such changes could have an adverse
effect on future results of operations.
The Company has not fully determined the extent to which the
Company's interface systems may be impacted by third parties'
systems, which may not be Year 2000 compliant. While the Company
has begun efforts to seek reassurance from its suppliers, there can
be no assurance that the systems of other companies which the Company
deals with or on which the Company's systems rely will be timely
converted, or that any such failure to convert by another company
could not have an adverse effect on the Company.
FORWARD LOOKING STATEMENTS
Certain statements contained in this report, including the Outlook
section, are forward looking and are subject to a variety of risks
and uncertainties. These statements may be identified by the use of
forward looking words or phrases such as "believe," "expect,"
"anticipate," "should," "planned," "estimated," and "potential,"
among others. These forward looking statements are based upon the
Company's current expectations. The Private Securities Litigation
Reform Act of 1995 provides a "safe harbor" for such forward looking
statements. In order to comply with the terms of the safe harbor,
the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from
the anticipated results or other expectations expressed in such
forward looking statements. The risks and uncertainties that may
affect the operations, performance, development, and results of the
Company's business include, but are not limited to, (1) complexity
and uncertainty regarding the development of new high technology
products; (2) loss of market share through competition; (3)
introduction of competing products or technologies by other
companies; (4) pricing pressures from competitors and/or customers;
(5) changes in the life sciences or analytical instrument
industries; (6) changes in the pharmaceutical, environmental,
research or chemical markets; (7) dependence on customers' capital
spending policies; (8) variable government funding in key
geographical regions and its effect on government sponsored
research; (9) the Company's ability
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<PAGE>
to protect proprietary information and technology or to obtain
necessary licenses on commercially reasonable terms; (10) the loss
of key employees; (11) fluctuations in foreign currency exchange
rates; and (12) other factors which might be described from time
to time in the Company's filings with the Securities and Exchange
Commission.
Other factors that may affect future results include the following:
The development and introduction of new product offerings, such as
LC/MS and DNA sequencing product offerings, pose a challenge for the
effective management of the transition from existing products to new
products and could adversely affect the Company's future operating
results. Product development or manufacturing delays, variations in
product costs, introduction of new product platforms, and delays in
customer purchases of existing products in anticipation of new
product introductions are among the factors that make a smooth
transition from current products to new products difficult.
A significant portion of the Company's life science business
operations are located near major California earthquake faults. The
ultimate impact of earthquakes on the Company, significant suppliers
and the general infrastructure is unknown, but operating results
could be materially affected in the event of a major earthquake.
The Company maintains insurance to reduce its exposure to losses and
interruptions caused by earthquakes.
The Company's strategy to integrate and develop the businesses of
acquired companies following their acquisition involves a number of
elements that management may not be able to implement as expected.
For example, the Company may encounter operational difficulties in
the integration of manufacturing or other facilities such that
expected cost savings may not be realized. In addition,
technological advances resulting from the integration of technologies
may not be achieved as successfully or as rapidly as anticipated, if
at all. The consolidation of operations, technologies, and marketing
and distribution methods present significant managerial challenges.
There can be no assurance that such actions will be accomplished as
successfully or as rapidly as anticipated.
Although the Company believes it has the product offerings and
resources needed for continuing success, future revenue and margin
trends cannot be reliably predicted and may cause the Company to
adjust its operations. Factors external to the Company can result
in volatility of the Company's common stock price. Because of the
foregoing factors, recent trends should not be considered reliable
indicators of future stock prices or financial results.
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<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10(1). PerSeptive Biosystems, Inc. 1989 Stock Plan, as
amended August 1, 1991.
10(2). PerSeptive Biosystems, Inc. 1992 Stock Plan, as
amended January 20, 1997. (Incorporated by
reference to Exhibit 4.1 to the Quarterly Report
on Form 10-Q of PerSeptive Biosystems, Inc. for
the fiscal quarter ended March 29, 1997 (Commission
File No. 0-20032)).
27. Financial Data Schedule.
(b) Reports on Form 8-K.
During the quarter ended March 31, 1998, the Company
filed a Current Report on Form 8-K (the Form 8-K) dated
January 22, 1998 and filed January 23, 1998 to report under
Item 2 thereof that the merger of Seven Acquisition Company,
a wholly-owned subsidiary of the Company, into PerSeptive was
consummated on January 22, 1998. As a result of the merger,
PerSeptive became a wholly-owned subsidiary of the Company
on that date.
An amendment to the Form 8-K (the Amendment) was filed
on April 6,1998 to include the financial statements required
under Item 7 thereof, namely:
Financial Statements of Businesses Acquired:
Consolidated Balance Sheets at December 27, 1997 and
September 30, 1997.
Consolidated Statements of Operations for the Three
months ended December 27, 1997 and December 28, 1996.
Consolidated Statements of Cash Flows for the Three
months ended December 27, 1997 and December 28, 1996.
Notes to Unaudited Consolidated Financial Statements.
Pro Forma Financial Information:
Introduction to Pro Forma Condensed Combined Financial
Statements
Unaudited Pro Forma Condensed Combined Statements of
Financial Position at December 31, 1997.
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<PAGE>
Unaudited Pro Forma Condensed Combined Statements of
Operations for the Six months ended December 31, 1997.
Unaudited Pro Forma Condensed Combined Statements of
Operations for the Six months ended December 31, 1996.
Unaudited Pro Forma Condensed Combined Statements of
Operations for the fiscal years ended June 30, 1997,
1996 and 1995.
Notes to Unaudited Pro Forma Condensed
Combined Financial Statements.
The Amendment also reported under Item 5 thereof the
redemption of the PerSeptive Notes.
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<PAGE>
SIGNATURES
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.
THE PERKIN-ELMER CORPORATION
By: /s/ Dennis L. Winger
Dennis L. Winger
Senior Vice President, Chief
Financial
Officer and Treasurer
By: /s/ Ugo D. DeBlasi
Ugo D. DeBlasi
Corporate Controller (Chief
Accounting Officer)
Dated: May 15, 1998
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<PAGE>
Exhibit No. Exhibit
10(1). PerSeptive
Biosystems, Inc.
1989 Stock Plan, as
amended August 1,
1991.
27. Financial Data
Schedule.
-29-
(As Amended, August 1, 1991)
PERSEPTIVE BIOSYSTEMS, INC.
1989 STOCK PLAN
1. Purpose. This 1989 Stock Plan (the "Plan") is intended
to provide incentives: (a) to the officers and other employees of
PerSeptive Biosystems, Inc. (the "Company"), its parent (if any)
and any present or future subsidiaries of the Company
(collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to
options granted hereunder which qualify as "incentive stock
options" under Section 422A(b) of the Internal Revenue Code of
1986 (the "Code") ("ISO" or "ISOs"); (b) to directors, officers,
employees and consultants of the Company and Related Corporations
by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not
qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"); (c) to directors, officers, employees and consultants
of the Company and Related Corporations by providing them with
awards of stock in the Company ("Awards"); and (d) to directors,
officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct
purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as
an "Option" and collectively as "Options". Options, Awards and
authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms
"parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation", respectively, as those terms are
defined in Section 425 of the Code.
2. Administration of the Plan.
A. Board or Committee Administration. The Plan shall
be administered by the Board of Directors of the Company
(the "Board"). The Board may appoint a Stock Plan Committee
(the "Committee") of three or more of its members to
administer this Plan. Hereinafter, all references in this
Plan to the "Committee" shall mean the Board if no Committee
has been appointed. Subject to ratification of the grant or
authorization of each Stock Right by the Board (if so
required by applicable state law), and subject to the terms
of the Plan, the Committee shall have the authority to
(i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible
under paragraph 3 to receive ISOs) to whom ISOs may be
granted, and to determine (from among the class of
individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make
Purchases) to whom Non-Qualified Options, Awards and
authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or Awards
may be granted or Purchases made; (iii) determine the option
price of shares subject to each Option, which price shall
not be less than the minimum price specified in paragraph 6,
and the purchase price of shares subject to each Purchase;
(iv) determine whether each Option granted shall be an ISO
or a Non-Qualified Option; (v) determine (subject to
paragraph 7) the time or times when each Option shall become
exercisable and the duration of the exercise period;
(vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options,
Awards and Purchases and the nature of such restrictions, if
any, and (vii) interpret the Plan and prescribe and rescind
rules and regulations relating to it. If the Committee
determines to issue a Non-Qualified Option, it shall take
whatever actions it deems necessary, under Section 422A of
the Code and the regulations promulgated thereunder, to
ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any
provisions of the Plan or of any Stock Right granted under
it shall be final unless otherwise determined by the Board.
The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem best.
No member of the Board or the Committee shall be liable for
any action or determination made in good faith with respect
to the Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one
of its members as its chairman, and shall hold meetings at
such time and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in
writing by a majority of the members of the Committee, shall
be the valid acts of the Committee. From time to time the
Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without
cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
C. Grant of Stock Rights to Board Members. Stock
Rights may be granted to members of the Board, but any such
grant shall be made and approved in accordance with
paragraph 2(D), if applicable. All grants of Stock Rights
to members of the Board shall in all other respects be made
in accordance with the provisions of this Plan applicable to
other eligible persons. Members of the Board who are either
(i) eligible for Stock Rights pursuant to the Plan or
(ii) have been granted Stock Rights may vote on any matters
affecting the administration of the Plan or the grant of any
Stock Rights pursuant to the Plan, except that no such
member shall act upon the granting to himself of Stock
Rights, but any such member may be counted in determining
the existence of a quorum at any meeting of the Board during
which action is taken with respect to the granting to him of
Stock Rights.
D. Compliance with Federal Securities Laws. In the
event the Company registers any class of any equity security
pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), any grant of Stock
Rights to a member of the Board (made at any time from the
effective date of such registration until six months after
the termination of such registration) must be approved by a
majority vote of the other members of the Board; provided,
however, that if a majority of the Board is eligible for
selection to participate in the Plan, or has been so
eligible at any time within the preceding year, any grant of
Stock Rights to a member of the Board must be made by, or
only in accordance with the recommendation of, the Committee
or a committee consisting of three or more persons, who may
but need not be directors or employees of the Company,
appointed by the Board but having full authority to act in
the matter, none of whom is eligible to participate in this
Plan, or has been so eligible at any time within the
preceding year. The requirements imposed by the preceding
sentence shall also apply with respect to grants to officers
who are not also directors. Once appointed, such committee
shall continue to serve until otherwise directed by the
Board.
3. Eligible Employees and Others. ISOs may be granted to
any employee of the Company or any Related Corporation. Those
officers and directors of the Company who are not employees may
not be granted ISOs under the Plan. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any
employee, officer or director (whether or not also an employee)
or consultant of the Company or any Related Corporation. The
Committee may take into consideration a recipient's individual
circumstances in determining whether to grant an ISO, a Non-
Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or
entity shall neither entitle that individual or entity to, nor
disqualify him from, participation in any other grant of Stock
Rights.
4. Stock. The stock subject to Options, Awards and
Purchases shall be authorized but unissued shares of Common Stock
of the Company, par value $.01 per share (the "Common Stock"), or
shares of Common Stock reacquired by the Company in any manner.
The aggregate number of shares which may be issued pursuant to
the Plan is 246,000, subject to adjustment as provided in
paragraph 13. Any such shares may be issued as ISOs, Non-
Qualified Options or Awards, or to persons or entities making
Purchases, so long as the number of shares so issued does not
exceed such number, as adjusted. If any Option granted under the
Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable
in whole or in part, or if the Company shall reacquire any
unvested shares issued pursuant to Awards or Purchases, the
unpurchased shares subject to such Options and any unvested
shares so reacquired by the Company shall again be available for
grants of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted
under the Plan at any time on or after June 2, 1989 and prior to
June 2, 1999. The date of grant of a Stock Right under the Plan
will be the date specified by the Committee at the time it grants
the Stock Right; provided, however, that such date shall not be
prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of
the optionee, to convert an ISO granted under the Plan to a Non-
Qualified Option pursuant to paragraph 16.
6. Minimum Option Price; ISO Limitations.
A. Price for Non-Qualified Options. After the
Company's initial public offering, the exercise price per
share specified in the agreement relating to each Non-
Qualified Option granted under the Plan shall in no event be
less than the lesser of (i) the book value per share of
Common Stock as of the end of the fiscal year of the Company
immediately preceding the date of such grant, or (ii) fifty
percent (50%) of the fair market value per share of Common
Stock on the date of such grant, unless specifically
authorized by the Board of Directors.
B. Price for ISOs. The exercise price per share
specified in the agreement relating to each ISO granted
under the Plan shall not be less than the fair market value
per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant.
C. $100,000 Annual Limitation on ISOs. Each eligible
employee may be granted ISOs only to the extent that, in the
aggregate under this Plan and all incentive stock option
plans of the Company and any Related Corporation, such ISOs
do not become exercisable for the first time by such
employee during any calendar year in a manner which would
entitle the employee to purchase more than $100,000 in fair
market value (determined at the time the ISOs were granted)
of Common Stock in that year. Any options granted to an
employee in excess of such amount will be granted as Non-
Qualified Options.
D. Determination of Fair Market Value. If, at the
time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall
be determined as of the last business day for which the
prices or quotes discussed in this sentence are available
prior to the date such Option is granted and shall mean
(i) the average (on that date) of the high and low prices of
the Common Stock on the principal national securities
exchange on which the Common stock is traded, if the Common
Stock is then traded on a national securities exchange; or
(ii) the last reported sale price (on that date) of the
Common Stock on the NASDAQ National Market List, if the
Common Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the
Common Stock is not reported on the NASDAQ National Market
List. However, if the Common Stock is not publicly traded
at the time an Option is granted under the Plan, "fair
market value" shall be deemed to be the fair value of the
Common Stock as determined by the Committee after taking
into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices
of the Common Stock in private transactions negotiated at
arm's length.
7. Option Duration. Subject to earlier termination as
provided in paragraphs 9 and 10, each Option shall expire on the
date specified by the Committee, but not more than (i) ten years
and one day from the date of grant in the case of Non-Qualified
Options, (ii) ten years from the date of grant in the case of
ISOs generally, and (iii) five years from the date of grant in
the case of ISOs granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Related Corporation.
Subject to earlier termination as provided in paragraphs 9 and
10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any
part of such ISO that is converted into a Non-Qualified Option
pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of
paragraphs 9 through 12, each Option granted under the Plan shall
be exercisable as follows:
A. Vesting. The Option shall either be fully
exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Committee may
specify.
B. Full Vesting of Installments. Once an installment
becomes exercisable it shall remain exercisable until
expiration or termination of the Option, unless otherwise
specified by the Committee.
C. Partial Exercise. Each Option or installment may
be exercised at any time or from time to time, in whole or
in part, for up to the total number of shares with respect
to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have
the right to accelerate the date of exercise of any
installment of any Option; provided that the Committee shall
not, without the consent of an optionee, accelerate the
exercise date of any installment of any Option granted to
any employee as an ISO (and not previously converted into a
Non-Qualified Option pursuant to paragraph 16) if such
acceleration would violate the annual vesting limitation
contained in Section 422A(d) of the Code, as described in
paragraph 6(C).
9. Termination of Employment. If an ISO optionee ceases
to be employed by the Company and all Related Corporations other
than by reason of death or disability as defined in paragraph 10,
no further installments of his ISOs shall become exercisable, and
his ISOs shall terminate after the passage of ninety (90) days
from the date of termination of his employment, but in no event
later than on their specified expiration dates, except to the
extent that such ISOs (or unexercised installments thereof) have
been converted into Non-Qualified Options pursuant to
paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as
those attributable to illness, military obligations or
governmental service) provided that the period of such leave does
not exceed 90 days or, if longer, any period during which such
optionee's right to reemployment is guaranteed by statute. A
bona fide leave of absence with the written approval of the
Committee shall not be considered an interruption of employment
under the Plan, provided that such written approval contractually
obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change
of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee
of the Company or any Related Corporation. Nothing in the Plan
shall be deemed to give any grantee of any Stock Right the right
to be retained in employment or other service by the Company or
any Related Corporation for any period of time.
10. Death; Disability.
A. Death. If an ISO optionee ceases to be employed
by the Company and all Related Corporations by reason of his
death, any ISO of his may be exercised, to the extent of the
number of shares with respect to which he could have
exercised it on the date of his death, by his estate,
personal representative or beneficiary who has acquired the
ISO by will or by the laws of descent and distribution, at
any time prior to the earlier of the specified expiration
date of the ISO or 180 days from the date of the optionee's
death.
B. Disability. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by
reason of his disability, he shall have the right to
exercise any ISO held by him on the date of termination of
employment, to the extent of the number of shares with
respect to which he could have exercised it on that date, at
any time prior to the earlier of the specified expiration
date of the ISO or 180 days from the date of the termination
of the optionee's employment. For the purposes of the Plan,
the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or
successor statute.
11. Assignability. No Option shall be assignable or
transferable by the optionee except by will or by the laws of
descent and distribution, and during the lifetime of the optionee
each Option shall be exercisable only by him.
12. Terms and Conditions of Options. Options shall be
evidenced by instruments (which need not be identical) in such
forms as the Committee may from time to time approve. Such
instruments shall conform to the terms and conditions set forth
in paragraphs 6 through 11 hereof and may contain such other
provisions as the Committee deems advisable which are not
inconsistent with the Plan, including restrictions applicable to
shares of Common Stock issuable upon exercise of Options. In
granting any Non-Qualified Option, the Committee may specify that
such Non-Qualified Option shall be subject to the restrictions
set forth herein with respect to ISOs, or to such other
termination and cancellation provisions as the Committee may
determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one
or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized
and directed to take any and all action necessary or advisable
from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the
following events, an optionee's rights with respect to Options
granted to him hereunder shall be adjusted as hereinafter
provided, unless otherwise specifically provided in the written
agreement between the optionee and the Company relating to such
Option:
A. Stock Dividends and Stock Splits. If the shares
of Common Stock shall be subdivided or combined into a
greater or smaller number of shares or if the Company shall
issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of Options shall be
appropriately increased or decreased proportionately, and
appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock
dividend.
B. Consolidations or Mergers. If the Company is to
be consolidated with or acquired by another entity in a
merger, sale of all or substantially all of the Company's
assets or otherwise (an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board"), shall, as to
outstanding Options, either (i) make appropriate provision
for the continuation of such Options by substituting on an
equitable basis for the shares then subject to such Options
the consideration payable with respect to the outstanding
shares of Common Stock in connection with the Acquisition;
or (ii) upon written notice to the optionees, provide that
all Options must be exercised, to the extent then
exercisable, within a specified number of days of the date
of such notice, at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a
cash payment equal to the excess of the fair market value of
the shares subject to such Options (to the extent then
exercisable) over the exercise price thereof.
C. Recapitalization or Reorganization. In the event
of a recapitalization or reorganization of the Company
(other than a transaction described in subparagraph B above)
pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding
shares of Common Stock, an optionee upon exercising an
Option shall be entitled to receive for the purchase price
paid upon such exercise the securities he would have
received if he had exercised his Option prior to such
recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the
foregoing, any adjustments made pursuant to subparagraphs A,
B or C with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in
Section 425 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs, it may refrain
from making such adjustments.
E. Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, each
Option will terminate immediately prior to the consummation
of such proposed action or at such other time and subject to
such other conditions as shall be determined by the
Committee.
F. Issuances of Securities. Except as expressly
provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by
reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be
made for dividends paid in cash or in property other than
securities of the Company.
G. Fractional Shares. No fractional shares shall be
issued under the Plan and the optionee shall receive from
the Company cash in lieu of such fractional shares.
H. Adjustments. Upon the happening of any of the
events described in subparagraphs A, B or C above, the class
and aggregate number of shares set forth in paragraph 4
hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan
shall also be appropriately adjusted to reflect the events
described in such subparagraphs. The Committee or the
Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2,
its determination shall be conclusive.
If any person or entity owning restricted Common Stock
obtained by exercise of a Stock Right made hereunder receives
shares or securities or cash in connection with a corporate
transaction described in subparagraphs A, B or C above as a
result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and
restrictions applicable to the restricted Common Stock with
respect to which such shares or securities or cash were issued,
unless otherwise determined by the Committee or the Successor
Board.
14. Means of Exercising Stock Rights. A Stock Right (or
any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address.
Such notice shall identify the Stock Right being exercised and
specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase
price therefor either (a) in United States dollars in cash or by
check, or (b) at the discretion of the Committee, through
delivery of shares of Common Stock having a fair market value
equal as of the date of the exercise to the cash exercise price
of the Stock Right, or (c) at the discretion of the Committee, by
delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest
applicable Federal rate, as defined in Section 1274(d) of the
Code, or (d) at the discretion of the Committee, by any
combination of (a), (b) and (c) above. If the Committee
exercises its discretion to permit payment of the exercise price
of an ISO by means of the methods set forth in clauses (b), (c),
or (d) of the preceding sentence, such discretion shall be
exercised in writing at the time of the grant of the ISO in
question. The holder of a Stock Right shall not have the rights
of a shareholder with respect to the shares covered by his Stock
Right until the date of issuance of a stock certificate to him
for such shares. Except as expressly provided above in
paragraph 13 with respect to changes in capitalization and stock
dividends, no adjustment shall be made for dividends or similar
rights for which the record date is before the date such stock
certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by
the Board on June 2, 1989, subject (with respect to the
validation of ISOs granted under the Plan) to approval of the
Plan by the stockholders of the Company at the next Meeting of
Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders is not obtained prior to June 2, 1990,
any grants of ISOs under the Plan made prior to that date will be
rescinded. The Plan shall expire at the end of the day on
June 2, 1999 (except as to Options outstanding on that date).
Subject to the provisions of paragraph 5 above, Stock Rights may
be granted under the Plan prior to the date of stockholder
approval of the Plan. The Board may terminate or amend the Plan
in any respect at any time, except that, without the approval of
the stockholders obtained within 12 months before or after the
Board adopts a resolution authorizing any of the following
actions: (a) the total number of shares that may be issued under
the Plan may not be increased (except by adjustment pursuant to
paragraph 13); (b) the provisions of paragraph 3 regarding
eligibility for grants of ISOs may not be modified; (c) the
provisions of paragraph 6(B) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified
(except by adjustment pursuant to paragraph 13); and (d) the
expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may action
of the Board or stockholders alter or impair the rights of a
grantee, without his consent, under any Stock Right previously
granted to him.
16. Conversion of ISOs into Non-Qualified Options;
Termination of ISOs. The Committee, at the written request of
any optionee, may in its discretion take such actions as may be
necessary to convert such optionee's ISOs (or any installments or
portions of installments thereof) that have not been exercised on
the date of conversion into Non-Qualified Options at any time
prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation
at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such ISOs. At
the time of such conversion, the Committee (with the consent of
the optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall not
be inconsistent with this Plan. Nothing in the Plan shall be
deemed to give any optionee the right to have such optionee's
ISOs converted into Non-Qualified Options, and no such conversion
shall occur until and unless the Committee takes appropriate
action. The Committee, with the consent of the optionee, may
also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. Application Of Funds. The proceeds received by the
Company from the sale of shares pursuant to Options granted and
Purchases authorized under the Plan shall be used for general
corporate purposes.
18. Governmental Regulation. The Company's obligation to
sell and deliver shares of the Common Stock under this Plan is
subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such
shares.
19. Withholding of Additional Income Taxes. Upon the
exercise of a Non-Qualified Option, the grant of an Award, the
making of a Purchase of Common Stock for less than its fair
market value, the making of a Disqualifying Disposition (as
defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the
Company, in accordance with Section 3402(a) of the Code, may
require the optionee, Award recipient or purchaser to pay
additional withholding taxes in respect of the amount that is
considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of
an Option, (ii) the grant of an Award, (iii) the making of a
Purchase of Common Stock for less than its fair market value, or
(iv) the vesting of restricted Common Stock acquired by
exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.
20. Notice to Company of Disqualifying Disposition. Each
employee who receives an ISO must agree to notify the Company in
writing immediately after the employee makes a Disqualifying
Disposition of any Common Stock acquired pursuant to the exercise
of an ISO. A Disqualifying Disposition is any disposition
(including any sale) of such Common Stock before the later of
(a) two years after the date the employee was granted the ISO, or
(b) one year after the date the employee acquired Common Stock by
exercising the ISO. If the employee has died before such stock
is sold, these holding period requirements do not apply and no
Disqualifying Disposition can occur thereafter.
21. Lock-up Agreement. The Optionee agrees that the
Optionee will not, for a period of at least 120 days following
the effective date of the Company's initial distribution of
securities in an underwritten public offering to the general
public pursuant to a registration statement filed with the
Securities and Exchange commission, directly or indirectly, sell,
offer to sell or otherwise dispose of the Company's securities
other than any securities which are included in such initial
public offering.
22. Provision of Documentation to Employee. Each employee
participating in the Plan must receive both a copy of the Plan
and the subsequent agreement, if any, relating to the grant of
the employee's Stock Rights. Such documentation must be
furnished prior to the exercise of said Stock Right.
23. Governing Law; Construction. The validity and
construction of the Plan and the instruments evidencing Stock
Rights shall be governed by the laws of the State of Delaware, or
the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this
Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context
otherwise requires.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED MARCH 31, 1998 AND THE CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION AT MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 84,946
<SECURITIES> 0
<RECEIVABLES> 356,942
<ALLOWANCES> (9,304)
<INVENTORY> 236,189
<CURRENT-ASSETS> 802,800
<PP&E> 513,047
<DEPRECIATION> (257,932)
<TOTAL-ASSETS> 1,313,598
<CURRENT-LIABILITIES> 524,910
<BONDS> 0
<COMMON> 50,148
0
0
<OTHER-SE> 479,754
<TOTAL-LIABILITY-AND-EQUITY> 1,313,598
<SALES> 1,082,674
<TOTAL-REVENUES> 1,082,674
<CGS> 535,856
<TOTAL-COSTS> 535,856
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,920
<INTEREST-EXPENSE> 3,940
<INCOME-PRETAX> 48,781
<INCOME-TAX> (25,422)
<INCOME-CONTINUING> 20,425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,425
<EPS-PRIMARY> .42
<EPS-DILUTED> .41
</TABLE>
