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 December 31, 1997
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 Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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 February 11, 1998: 48,541,195
<PAGE>
THE PERKIN-ELMER CORPORATION
INDEX
Part I. Financial Information Page
Condensed Consolidated Statements of Operations for the
Six Months Ended December 31, 1997 and 1996 1
Condensed Consolidated Statements of Financial Position at
December 31, 1997 and June 30, 1997 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1997 and 1996 3
Notes to Unaudited Condensed Consolidated Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II. Other Information 20
<PAGE>
THE PERKIN-ELMER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Dollar amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net revenues $ 342,894 $ 330,791 $ 639,259 $ 606,527
Cost of sales 164,974 167,301 315,697 308,303
Gross margin 177,920 163,490 323,562 298,224
Selling, general and administrative 99,167 94,735 189,098 177,181
Research, development and engineering 31,258 27,566 58,451 51,421
Acquired research and development 28,850 28,850
Operating income 18,645 41,189 47,163 69,622
Gain on sale of investment 26,120 37,420
Interest expense 629 609 1,048 1,289
Interest income 1,344 1,499 3,327 2,587
Other income (expense), net 1,165 (135) 932 (135)
Income before income taxes 20,525 68,064 50,374 108,205
Provision for income taxes 12,344 17,124 18,181 24,887
Net income $ 8,181 $ 50,940 $ 32,193 $ 83,318
Basic earnings per share $ .19 $ 1.18 $ .73 $ 1.93
Diluted earnings per share $ .18 $ 1.14 $ .71 $ 1.88
Dividends per share $ .17 $ .17 $ .34 $ .34
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
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<PAGE>
THE PERKIN-ELMER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At December 31, At June 30,
1997 1997
<S> (unaudited)
Assets <C> <C>
Current assets
Cash and cash equivalents $ 78,983 $ 194,745
Short-term investments 1,226 1,226
Accounts receivable, net 336,978 307,230
Inventories 206,661 188,720
Prepaid expenses and other current assets 110,959 102,263
Total current assets 734,807 794,184
Property, plant and equipment, net 219,006 173,037
Other long-term assets 210,307 137,577
Total assets $ 1,164,120 $ 1,104,798
.
Liabilities and Shareholders' Equity
Current liabilities
Loans payable $ 17,296 $ 18,054
Accounts payable 142,633 115,374
Accrued salaries and wages 33,904 46,470
Accrued taxes on income 100,295 97,307
Other accrued expenses 163,655 177,988
Total current liabilities 457,783 455,193
Long-term debt 31,966 33,599
Other long-term liabilities 179,010 179,134
Total long-term liabilities 210,976 212,733
Minority interest 40,784
Shareholders' equity
Capital stock 45,600 45,600
Capital in excess of par value 198,981 198,570
Retained earnings 296,490 278,760
Foreign currency translation adjustments (1,907) (267)
Net unrealized loss on investments (2,043)
Minimum pension liability adjustment (705) (705)
Treasury stock, at cost (81,839) (85,086)
Total shareholders' equity 454,577 436,872
Total liabilities and shareholders' equity $ 1,164,120 $ 1,104,798
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
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<PAGE>
THE PERKIN-ELMER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Six months ended
December 31,
<S> 1997 1996
Operating Activities <C> <C>
Net income $ 32,193 $ 83,318
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 21,431 19,506
Long-term compensation programs 3,039 2,846
Deferred income taxes (1,247) (3,633)
Acquired research and development 28,850
Gains from the sale of assets (900) (37,420)
Changes in operating assets and liabilities:
Increase in accounts receivable (16,076) (31,192)
Increase in inventories (16,241) (8,997)
Increase in prepaid expenses and other assets (26,638) (99)
Increase (decrease) in accounts payable and other liabilities (5,078) 7,282
Net cash provided by operating activities 19,333 31,611
Investing Activities
Additions to property, plant and equipment
(net of disposals of $1,447 and $1,204, respectively) (54,837) (25,018)
Acquisitions/investments, net (90,633)
Proceeds from the sale of assets, net 6,532 65,239
Proceeds from the collection of note receivable 9,673 978
Net cash (used) provided by investing activities (129,265) 41,199
Financing Activities
Principal payments on long-term debt (892)
Net change in loans payable 2,979 4,865
Dividends (14,992) (14,648)
Purchases of common stock for treasury (15,851)
Proceeds from issuance of equity put warrants 1,846
Proceeds from stock issued for stock plans 5,454 11,847
Net cash used by financing activities (6,559) (12,833)
Effect of exchange rate changes on cash 729 2,530
Net change in cash and cash equivalents (115,762) 62,507
Cash and cash equivalents beginning of period 194,745 95,361
Cash and cash equivalents end of period $ 78,983 $ 157,868
</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.
NOTE 2 - 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) December 31, June 30,
1997 1997
Raw materials and supplies $ 33.3 $ 23.7
Work-in-process 15.6 15.7
Finished products 157.8 149.3
Total inventories $ 206.7 $ 188.7
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
PerSeptive Biosystems, Inc. On January 22, 1998, the Company
announced the completion of a merger with PerSeptive Biosystems,
Inc. (PerSeptive). PerSeptive 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, shares of
PerSeptive were converted into shares of the Company's common stock
at an exchange ratio of 0.1926 of a share of the Company's common
stock for each share of PerSeptive common stock. Accordingly, the
Company issued 4.6 million shares of its common stock for all
outstanding shares of PerSeptive common stock. Under terms of the
merger, outstanding options, warrants, and convertible securities
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of PerSeptive will remain outstanding following the merger but will
become exercisable for, or convertible into, the Company's common
stock in accordance with their terms. The merger qualifies as a tax
free reorganization and will be accounted for as a pooling of
interests. The Company's consolidated results reported herein do
not include the results of PerSeptive.
The following supplemental unaudited pro forma consolidated
financial information combines the results of the Company and
PerSeptive as though the merger occurred as of the beginning of each
period presented:
Three months Six months
ended ended
December 31, December 31,
(In millions except per share amounts) 1997 1996 1997 1996
Net revenues $369.2 $351.8 $691.9 $646.9
Net income $ 6.0 $ 47.2 $ 27.4 $ 59.5
Basic earnings per share $ .11 $ 1.00 $ .56 $ 1.27
Diluted earnings per share $ .11 $ .96 $ .54 $ 1.22
The above amounts do not include a one-time charge to earnings of
approximately $45 million to $50 million before-taxes expected to be
finalized and announced before the end of the Company's third fiscal
quarter in connection with the implementation of an integration
plan for PerSeptive. The plan will include the integration of certain
sales, distribution, and administrative support functions as well
as the consolidation of certain manufacturing facilities. The Company
also expects to announce other charges associated with the merger
that are not eligible for inclusion in the initial accrual. These
integration expenses are expected to be approximately $8 million
to $10 million and will be recognized as period expenses over
the next three to four quarters.
Tecan AG. The Company acquired a 14.5% interest and approximately
52% of the voting rights in Tecan AG in December 1997. Tecan is a
world leader in the development and manufacturing of automated
sample processors, liquid handling systems, microplate photometry,
and major components. Used in research, industrial, and clinical
markets, these products provide automated solutions for
pharmaceutical drug discovery, molecular biology, genomic testing
and clinical diagnostics. The acquisition cost was approximately
$54 million in cash and was accounted for as a purchase with a
minority interest of approximately $41 million. The excess purchase
price over the fair market value of the underlying assets is
approximately $47 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 approximately $53 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 $24 million was allocated to goodwill and other
intangible assets. Goodwill of approximately $8 million is being
amortized over 10 years, and other intangible assets of $16 million
are being amortized over periods of 4 to 7 years.
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<PAGE>
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
will also collaborate 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.
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 $.42 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 $.23
per diluted share after-tax.
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 59.6% of its revenues from
countries outside of the United States for the six months ended
December 31, 1997.
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.
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
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<PAGE>
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 December 31,
1997 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) December 31, 1997 June 30, 1997
Sold Purchased Sold Purchased
Japanese Yen $ 56.0 $ - $ 83.5 $ -
French Francs 20.3 18.1
Australian Dollars 7.7 13.7
German Marks 18.3 4.0 13.4 2.3
Italian Lira 17.2 5.6 1.2
British Pounds 10.7 2.6 8.3
Other 38.4 15.3
Total $ 168.6 $ 6.6 $ 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.
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 to record any losses as a
result of counterparty 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:
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<PAGE>
(Dollar amounts in millions) December 31, 1997 June 30, 1997
Notional Fair Notional Fair
Amount Value Amount Value
Forward contracts $ 116.4 $ 1.5 $ 114.0 $ (3.7)
Purchased options $ 58.8 $ 3.9 $ 47.4 $ .7
Interest rate swap $ 29.4 $ (.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. Investments in
equity securities, which are categorized as available-for-sale, are
stated at a fair value of $17.5 million with a cost basis of $19.5
million at December 31, 1997. Accordingly, an unrealized holding
loss of $2.0 million was reported as a separate component of equity.
NOTE 5 - RESTRUCTURING
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 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 changes are scheduled to be substantially completed by June
1998. As of December 31, 1997, approximately 200 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 this restructuring.
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<PAGE>
The following table details the major components of the fiscal 1997
restructuring plan:
Facility
Consolidation
and Asset
(Dollar amounts in millions) Personnel Related Total
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 $ 3.0 $ 4.4 $ 7.4
Consolidation of sales and
administrative support 1.9 .5 2.4
Total fiscal 1998 activity $ 4.9 $ 4.9 $ 9.8
Balance at December 31, 1997
Changes in manufacturing operations $ 6.5 $ .8 $ 7.3
Consolidation of sales and
administrative support .4 2.0 2.4
Balance at December 31, 1997 $ 6.9 $ 2.8 $ 9.7
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.
In the fourth quarter of fiscal 1997, the Company finalized the
actions associated with the restructuring plan announced in 1996.
Workforce reductions are now expected to total 360 employees. 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 December 31, 1997, approximately 360 employees were separated
under the plan. The balance for remaining personnel costs at
December 31, 1997 represents future severance and deferred payments
which will extend through fiscal 1998.
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The following table details the major components of the fiscal 1996
restructuring plan:
Facility
Consolidation
and Asset
(Dollar amounts in millions) Personnel Related Total
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 $ .8 $ 2.6
Reduction of European distribution and
administrative capacity 1.9 .3 2.2
Other worldwide workforce reductions
and facility closings .5 .2 .7
Total fiscal 1998 activity $ 4.2 $ 1.3 $ 5.5
Balance at December 31, 1997
Reduction of excess European
manufacturing capacity $ .2 $ 2.4 $ 2.6
Reduction of European distribution and
administrative capacity 1.8 .6 2.4
Other worldwide workforce reductions
and facility closings 2.3 1.0 3.3
Balance at December 31, 1997 $ 4.3 $ 4.0 $ 8.3
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NOTE 6 - 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
earnings per share for the three and six month periods ended
December 31, 1997 and 1996:
(Amounts in thousands Three months ended Six months ended
except per share amounts) December 31, December 31,
1997 1996 1997 1996
Weighted average number of
common shares used in the
calculation of basic
earnings per share 43,932 43,176 43,885 43,072
Common stock equivalents 1,217 1,357 1,222 1,357
Shares used in calculating
diluted earnings per share 45,149 44,533 45,107 44,429
Net income used in the
calculation of basic
and diluted earnings
per share $ 8,181 $50,940 $32,193 $83,318
Basic earnings per share $ .19 $ 1.18 $ .73 $ 1.93
Diluted earnings per share $ .18 $ 1.14 $ .71 $ 1.88
Options to purchase .9 million shares of the Company's common stock
at prices ranging from $68.56-$80.44 per share were outstanding at
December 31, 1997, but were not included in the computation of
diluted earnings per share because the options' 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 - 11 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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
The Company reported net income of $8.2 million, or $.18 per diluted
share, for the second quarter of fiscal 1998 compared with net
income of $50.9 million, or $1.14 per diluted share, in the second
quarter of fiscal 1997. The second quarter of fiscal 1998 included
a $28.9 million before-tax charge, or $.64 per diluted share after-
tax, for purchased in-process research and development associated
with the acquisition of Molecular Informatics, Inc. (see Note 3).
The prior year's second quarter included a before-tax gain of $26.1
million, or $.42 per diluted share after-tax, resulting from the
sale of the Company's remaining equity interest in Etec Systems,
Inc. (ETEC). On a comparable basis, excluding the special items,
net income for the second quarter of fiscal 1998 increased 14.7%
over the second quarter of fiscal 1997.
Net revenues were $342.9 million for the second quarter of fiscal
1998, an increase of 3.7% over the $330.8 million reported for the
second quarter of fiscal 1997. The effects of foreign currency
translation decreased net revenues by approximately $22 million, or
6%, in the quarter compared with the prior year, as the U.S. dollar
continued to strengthen against most European and Far Eastern
currencies. Geographically, the Company reported revenue growth of
13.6% in the United States, 8.0% in the Far East, and 11.0% in Latin
America and other markets, offsetting a decline of 7.2% in Europe.
Excluding the effects of currency translation, revenues in the Far
East and Europe would have increased approximately 21% and 2%,
respectively.
On a business segment basis, net revenues for the Applied Biosystems
Division increased 13.3% to $183.7 million for the second quarter of
fiscal 1998. The negative effects of a strong U.S. dollar reduced
the division's revenues by approximately $10 million, or 6%. All
geographic markets reported increased revenues over the prior year.
Net revenues increased in the United States 20.1%, Europe 2.0%, the
Far East 11.2% and Latin America and other markets 26.5% over the
prior year's second quarter. Excluding the effect of currency
translation, revenues in Europe and Far East would have increased
approximately 20% and 24%, respectively, over the prior year.
Demand for the division's line of automated DNA sequencing systems,
including its sequencing chemistries, and polymerase chain reaction
(PCR) products, primarily accounted for the 13.3% increase in net
revenues.
Net revenues for the Analytical Instruments Division were $159.1
million, a decrease of 5.6% from the $168.6 million reported in the
prior year's second quarter. Currency rate movements reduced
revenues by approximately $12 million, or 7%. Excluding the effects
of currency translation, revenues would have increased approximately
1.5%. Revenues in the Far East and in Latin America
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and other markets increased 3.8% and 5.0%,respectively. This was offset
primarily by a decline of 13.7% in Europe. European revenues, which
generally account for over 40% of the division's revenues, decreased
as a result of currency translation and a weak economy. Demand for
the division's Aanalyst (TM) line of atomic absorption products and
its Optima (TM) inductively coupled plasma product were strong
in the quarter.
Gross margin as a percentage of net revenues was 51.9% in the second
quarter of fiscal 1998 compared with 49.4% in the second quarter of
fiscal 1997. The improvement was the result of increased volume of
higher margin instrument units and product line mix for the Applied
Biosystems Division. This was partially offset by slightly lower
margins in the Analytical Instruments Division's Far East and
European regions. The lower margins were primarily a result of
currency and product mix.
Selling, general and administrative (SG&A) expenses were $99.2
million in the second quarter of fiscal 1998 compared with $94.7
million in the second quarter of fiscal 1997. The increase in the
quarter was primarily due to planned spending increases for the
Applied Biosystems Division, 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 remained
constant with the prior year at approximately 29%.
Research, development and engineering (R&D) expenses of $31.3
million increased 13.4% over the prior year. R&D spending in the
Applied Biosystems Division increased 36.6% over the prior year as
the Company continued its product development efforts for the
bioresearch and pharmaceutical markets. The division's spending
accounted for 66% of the Company's R&D expense. R&D expenses for
the Analytical Instruments Division decreased 5.7% compared 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 9.1% compared with 8.3% for the prior year.
The implementation of restructuring actions announced in the fourth
quarter of fiscal 1997 (see Note 5) is proceeding as planned. The
Company achieved approximately $1 million in before-tax benefits
from the program in the second quarter of fiscal 1998.
Total operating expenses were $159.3 million in the second quarter
of fiscal 1998 compared with $122.3 million in the prior year's
second quarter. During the second quarter of fiscal 1998 the Company
recorded a $28.9 million charge for acquired in-process research and
development associated with the acquisition of Molecular
Informatics, Inc. (see Note 3). Excluding this charge, operating
expenses as a percentage of net revenues increased from 37% in the
second quarter of fiscal 1997 to 38% in fiscal 1998.
On a comparable basis, excluding the charge for in-process
research and development, operating income increased 15.3% to $47.5
million compared with $41.2 million in the prior year. The effects
of currency rate movements decreased operating income by
approximately $8 million. Excluding the charge and the effects of
currency translation, operating income would have increased
approximately 34% compared with the prior year.
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<PAGE>
Interest expense was $.6 million in the second quarter of fiscal
1998 and remained essentially unchanged compared with prior year.
Interest income was $1.3 million in the second quarter of fiscal
1998 compared with $1.5 million in the prior year.
Net other income was $1.2 million in the second quarter of fiscal
1998 compared with net other expense of $.1 million in the prior
year. The net other income in the second quarter of fiscal 1998
resulted primarily from a gain on the sale of certain non-operating
assets.
The effective income tax rate for the second quarter of fiscal 1998
was 60.1% compared with 25.2% for the second quarter of fiscal 1997.
Excluding the special items in both years, the effective income tax
rate was 25% in the second quarter of fiscal 1998 compared with 23%
in the prior year.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED DECEMBER 31, 1997
The Company reported net income of $32.2 million, or $.71 per
diluted share, for the first six months of fiscal 1998 compared with
net income of $83.3 million, or $1.88 per diluted share, in the
first half of the prior year. Net income in both years included
special items. Net income for the first six months of fiscal 1998
included a $28.9 million charge, or $.64 per diluted share after-
tax, for purchased in-process research and development associated
with the acquisition of Molecular Informatics, Inc. (see Note 3).
Net income for the first six months of fiscal 1997 included a before-
tax gain of $37.4 million, or $.65 per diluted share after-tax, from
the sale of the Company's equity interest in ETEC. On a comparable
basis, excluding the special items in both years, net income
increased 11.9% to $61.0 million for the first six months of fiscal
1998 compared with $54.5 million for the first six months of fiscal
1997.
Net revenues were $639.3 million for the first six months of fiscal
1998 compared with $606.5 million in fiscal 1997, an increase of
5.4%. The effects of currency rate movements decreased net revenues
approximately $39 million, or 6%, compared with the prior year, as
the U.S. dollar strengthened against most European and Far Eastern
currencies. Geographically, the Company reported revenue growth of
13.3% in the United States, 12% in the Far East and 13.7% in Latin
America and other markets, offsetting a decline of 5.6% in Europe.
Excluding the effects of foreign currency translation, revenues in
the Far East and Europe would have increased approximately 23% and
5%, respectively.
Net revenues for the Applied Biosystems Division increased 16.7% to
$348.4 million for the first six months of fiscal 1998 compared with
$298.6 million in the prior year. The negative effects of a strong
U.S. dollar reduced the division's revenues by approximately $18
million, or 6%. All geographic markets reported increased revenues
over the prior year. Net revenues in the United States and Europe
increased 21.4% and 8.1%, respectively. Excluding the effects of
currency translation, revenues in Europe would have increased
approximately 20% compared with the prior year. Net revenues in the
Far East increased 16.1% despite a negative currency impact of
approximately $6 million. Excluding the effects of currency
translation, revenues in the Far East would have increased
approximately 27% when compared with the first six months of fiscal
1997. Increased demand for genetic analysis, liquid chromatography-
mass spectrometry (LC/MS), and PCR product lines were the primary
contributors.
-14-
<PAGE>
Net revenues for the Analytical Instruments Division were $290.9
million in the first six months of fiscal 1998 compared with $307.9
million in the prior year, a decrease of 5.5%. Currency rate
movements reduced revenues by approximately $21 million, or 7%.
Excluding currency effects, revenues would have increased
approximately 1%. Geographically, revenues in the United States
remained essentially unchanged, the Far East increased 7% and Latin
America and other markets increased 9.4%. The increases were more
than offset by decreased revenues in Europe of 14.9%. Excluding the
effects of currency translation, revenues in Europe decreased
approximately 5% compared with the first six months of fiscal 1997.
Gross margin as a percentage of net revenues was 50.6% in the first
six months of fiscal 1998 compared with 49.2% in first six months of
fiscal 1997. Benefits realized by the Applied Biosystems Division
from sales of higher margin products were partially offset by the
Analytical Instruments Division. Improved gross margins for the
Analytical Instrument Division in the U.S., Europe and Latin America
and other markets were more than offset by lower margins in the Far
East. The lower margins in the Far East were primarily a result of
adverse currency translation effects. Excluding the effects of
currency translation, the gross margin percentage for the Analytical
Instruments Division would have increased slightly compared with the
first six months of fiscal 1997.
SG&A expenses were $189.1 million for the first six months of fiscal
1998 compared with $177.2 million in the same period of the prior
year. The 6.7% increase in the six month period was primarily due
to higher planned selling expenses for the Applied Biosystems
Division. SG&A expenses for the Analytical Instruments Division
decreased 4.0% 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 approximately 30%.
R&D expenses of $58.5 million increased 13.7% over the prior year.
R&D spending in the Applied Biosystems Division increased 30.2% over
the prior year as the Company continued its product development
efforts in this segment. The division's spending accounted for
nearly 65% of the Company's R&D expenses. R&D expenses for the
Analytical Instruments Division decreased 2.4% compared with the
prior year. As a percentage of net revenues, the Company's R&D
expenses increased to 9.1% compared with 8.5% for the prior year.
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 six months ended
December 31, 1997, the Company achieved approximately $2 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.
Total operating expenses were $276.4 million in the first six months
of fiscal 1998 compared with $228.6 million in the prior year. The
first six months of fiscal 1998 included a $28.9 million charge for
acquired in-process research and development expense associated with
the purchase of Molecular Informatics, Inc. (see Note 3). Excluding
this special item, operating income increased 9.2% to $76.0 million
compared with $69.6 million in the prior year. The effects of
currency translation decreased operating income approximately $14
million. On a comparable basis excluding the special item and
-15-
<PAGE>
the effects of currency translation, operating income would have
increased approximately 29% compared with the prior year.
Net other income for the first six months of fiscal 1998 was $.9
million, primarily related to the sale of certain non-operating
assets, compared with net other expense of $.1 million in the prior
year.
Interest expense was $1.0 million in the first six months of fiscal
1998 compared with $1.3 million in the prior year. This decrease
was primarily due to lower interest rates in the first quarter of
fiscal 1998. Interest income was $3.3 million in the first six
months of fiscal 1998 compared with $2.6 million in the prior year,
primarily as a result of higher average cash balances during the
first six months of fiscal 1998.
The effective income tax rate for the first six months of fiscal
1998 was 36.1% compared with 23% in the prior year. Excluding the
special item in fiscal 1998, the effective income tax rate was 25%.
The Company expects the tax rate for the balance of fiscal 1998 to
be approximately 25%.
FINANCIAL RESOURCES AND LIQUIDITY
Significant Changes in The Condensed Consolidated Statements of
Financial Position. Cash and cash equivalents were $79.0 million at
December 31, 1997 compared with $194.7 million at June 30, 1997.
Debt to total capitalization decreased from 11% at June 30, 1997 to
10% at December 31, 1997.
Other long-term assets increased 52.9% to $210.3 million at December
31, 1997 from $137.6 million at June 30, 1997. The increase was due
primarily to the addition of approximately $71 million of intangible
assets associated with the investments in and acquisitions of Tecan
AG 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 3).
At December 31, 1997, approximately $41 million of minority interest
was recognized in connection with the second quarter investment
in Tecan AG.
Condensed Consolidated Statements of Cash Flows. Net cash provided
by operating activities was $19.3 million for the first six months
of fiscal 1998 compared with $31.6 million for the same period in
fiscal 1997. For the first six months of fiscal 1998, higher income
related cash flow was offset by higher seasonal payments, including
payments to fund the Company's benefit plans, increased inventory
and receivable levels, and payments related to restructuring actions
(see Note 5).
Net cash used by investing activities was $129.3 million for the
first six months of fiscal 1998 compared with $41.2 million provided
by investing activities for the first six months of fiscal 1997. In
the first six 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 $66.2
million in the prior year generated from the sale of the Company's
equity interest in ETEC and certain non-operating assets. The
fiscal 1998 cash proceeds were more than offset by capital
expenditures of $56.3 million, which included $39.5 million related
to improvement of the Company's information technology
infrastructure, and $90.6 million related to various acquisitions,
-16-
<PAGE>
investments and collaborations associated with the life science
business (see Note 3). The prior year capital expenditures of $26.2
million included $8.9 million related to the improvement of the
Company's information technology infrastructure.
Net cash used by financing activities was $6.6 million in fiscal
1998 compared with $12.8 million in fiscal 1997. In the first six
months of fiscal 1998 the Company received $5.5 million in proceeds
from employee stock plan option exercises compared with $11.8
million in fiscal 1997. The first half 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 half of fiscal 1998 there were no share repurchases of
common stock for treasury or sales of equity put warrants.
OUTLOOK
As the underlying demand for life science products continues to
grow, the Company's life science segment is expected to continue its
revenue growth and maintain profitability. The Company continues to
grow this business through increased internal development efforts and
through acquisitions, equity investments, and other collaborations.
The Company's recent investments and collaborations are indicators of
the Company's continued focus in this business segment. The Company
believes the fiscal 1997 and 1996 restructuring actions will increase
the profitability and cash flow of the Company's analytical
instruments segment.
Adverse currency effects remain a concern for both divisions, since
the Company derives approximately 60% of its revenues 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 six
months ended December 31, 1997, the Company absorbed a negative
currency impact of approximately $.23 per diluted share. If
currency rates remain unchanged from present levels, the Company
estimates the negative translation impact in the second half of the
year could be approximately $.17 per diluted share. If the U.S.
dollar continues to strengthen to the extent forecasted by a leading
bank, earnings per share for the second half of this fiscal year
could be impacted by approximately $.27 per diluted share.
On January 22, 1998, the Company announced that it was finalizing an
integration plan for PerSeptive Biosystems. The plan
will include the integration of certain sales, distribution, and
administrative support functions as well as the consolidation of
certain manufacturing facilities. The details and costs of this
plan are expected to be finalized and announced before the end of
the Company's third fiscal quarter and are expected to result in
a charge to earnings of approximately $45 million to $50 million
before-taxes. The Company also expects to announce at the same time
other charges associated with the merger that are not eligible
for inclusion in the initial accrual. These charges are expected to
be approximately $8 million to $10 million and will be recognized
as period expenses over the next three to four quarters. Before the
impact of the special charges related to this merger, the Company
currently estimates the impact of mergers and acquisitions
to reduce earnings per share by approximately $.30 per
diluted share for the balance of this fiscal year and may reduce
earnings per share by approximately $.15 per diluted share in
fiscal 1999.
-17-
<PAGE>
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, and will continue
to, actively 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 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) variable government
funding in key geographical regions; (8) the Company's ability to
protect proprietary information and technology or to obtain
necessary licenses on commercially reasonable terms; (9) the loss of
key employees; (10) fluctuations in foreign currency exchange rates;
and (11) other factors which might be described from time to time in
the Company's filings with the Securities and Exchange Commission.
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
-18-
<PAGE>
in the event of a major earthquake. The Company maintains insurance
to reduce its exposure to losses and interruptions caused by
earthquakes.
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.
-19-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3(i) Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on
Form S-3 (No. 333-39549)).
10 (1). Deferred Compensation Plan, as amended
and restated effective as of January 1,
1998 (Incorporated by reference to Exhibit
4 to the Company's Registration Statement
on Form S-8 (No. 333-45187)).
10 (2). 1997 Stock Incentive Plan
(Incorporated by reference to Exhibit 99 to
the Company's Registration Statement on
Form S-8 (No. 333-38713)).
27. Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the
quarter for which this report is being filed.
-20-
<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: February 16, 1998
-21-
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION AT DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 78,983
<SECURITIES> 0
<RECEIVABLES> 343,693
<ALLOWANCES> (6,715)
<INVENTORY> 206,661
<CURRENT-ASSETS> 734,807
<PP&E> 461,611
<DEPRECIATION> (242,605)
<TOTAL-ASSETS> 1,164,120
<CURRENT-LIABILITIES> 457,783
<BONDS> 0
<COMMON> 45,600
0
0
<OTHER-SE> 408,977
<TOTAL-LIABILITY-AND-EQUITY> 1,164,120
<SALES> 639,259
<TOTAL-REVENUES> 639,259
<CGS> 315,697
<TOTAL-COSTS> 315,697
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 714
<INTEREST-EXPENSE> 1,048
<INCOME-PRETAX> 50,374
<INCOME-TAX> (18,181)
<INCOME-CONTINUING> 32,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,193
<EPS-PRIMARY> .73
<EPS-DILUTED> .71
</TABLE>
