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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-4389
PE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1534213
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification Number)
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)
The Perkin-Elmer Corporation
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ____
As of the close of business on May 12, 1999, PE Corporation had
25,503,560 shares of Celera Genomics Group Common Stock
outstanding and 51,007,121 shares of PE Biosystems Group Common
Stock outstanding.
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PE CORPORATION
INDEX
Part I. Financial Information Page
Condensed Consolidated Statements of Operations for
the Three and Nine Months Ended March 31, 1999 and 1998 1
Condensed Consolidated Statements of Financial
Position at March 31, 1999 and June 30, 1998 2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 1999 and 1998 3
Notes to Unaudited Condensed Consolidated
Financial Statements 4
Management's Discussion and Analysis
Management's Discussion of Continuing Operations 15
Part II. Other Information 31
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PE 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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net revenues $ 325,825 $ 248,713 $ 869,063 $ 659,959
Cost of sales 150,737 117,533 395,634 307,615
Gross margin 175,088 131,180 473,429 352,344
Selling, general and administrative 89,757 71,167 252,974 198,390
Research, development and engineering 45,416 28,506 120,586 75,896
Merger costs and other special charges 3,209 42,866 6,334 42,866
Acquired research and development 28,850
Operating income (loss) 36,706 (11,359) 93,535 6,342
Gain on investments 2,597 2,597 845
Interest expense 495 1,239 2,635 3,940
Interest income 465 1,151 1,203 5,051
Other income (expense), net 233 (207) (306) 1,084
Income (loss) before income taxes 39,506 (11,654) 94,394 9,382
Provision for income taxes 6,894 4,689 17,475 15,612
Minority interest 1,324 2,934 9,536 2,934
Income (loss) from continuing operations 31,288 (19,277) 67,383 (9,164)
Income from discontinued
operations (net of income taxes) 5,186 12,311 1,149 29,589
Net income (loss) $ 36,474 $ (6,966) $ 68,532 $ 20,425
Income (loss) per share
from continuing operations
Basic $ .62 $ (.40) $ 1.35 $ (.19)
Diluted $ .60 $ (.40) $ 1.32 $ (.19)
Income per share
from discontinued operations
Basic $ .10 $ .26 $ .02 $ .61
Diluted $ .10 $ .26 $ .02 $ .61
Net income (loss) per share
Basic $ .72 $ (.14) $ 1.37 $ .42
Diluted $ .70 $ (.14) $ 1.34 $ .42
Dividends per share $ .17 $ .17 $ .51 $ .51
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
</TABLE>
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PE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollar amounts in thousands)
At March 31, At June 30,
1999 1998
Assets (unaudited)
Current assets
Cash and cash equivalents $ 81,375 $ 82,865
Short-term investments 1,226
Accounts receivable, net 291,882 228,985
Inventories 172,059 137,015
Prepaid expenses and other current assets 71,635 61,973
Current net assets of discontinued operations 165,135 139,959
Total current assets 782,086 652,023
Property, plant and equipment, net 207,531 163,674
Other long-term assets 247,421 241,819
Long-term net assets of discontinued operations 89,805 77,760
Total assets $ 1,326,843 $ 1,135,276
Liabilities and Shareholders' Equity
Current liabilities
Loans payable $ 48,943 $ 12,099
Accounts payable 116,924 119,555
Accrued salaries and wages 31,387 30,036
Accrued taxes on income 75,029 79,860
Other accrued expenses 160,569 122,482
Total current liabilities 432,852 364,032
Long-term debt 33,045 33,726
Other long-term liabilities 140,974 129,513
Total liabilities 606,871 527,271
Minority interest 52,542 43,757
Shareholders' equity
Capital stock 50,649 50,148
Capital in excess of par value 400,679 379,974
Retained earnings 220,364 190,966
Accumulated other comprehensive income (loss) (4,262) (9,513)
Treasury stock, at cost (47,327)
Total shareholders' equity 667,430 564,248
Total liabilities and shareholders' equity $ 1,326,843 $ 1,135,276
See accompanying Notes to Unaudited
Condensed Consolidated Financial Statements.
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PE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended
March 31,
1999 1998
<S> <C> <C>
Operating Activities from continuing operations
Income (loss) from continuing operations $ 67,383 $ (9,164)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 34,332 24,400
Long-term compensation programs 5,571 4,143
Deferred income taxes 2,107 (3,026)
Gain from the sale of assets (2,597) (900)
Acquired research and development 28,850
Restructuring and other merger costs 46,966
Changes in operating assets and liabilities:
Increase in accounts receivable (58,477) (7,219)
Increase in inventories (32,310) (13,343)
Increase in prepaid expenses and other assets (28,430) (27,374)
Increase (decrease) in accounts payable and other liabilities 50,479 (12,802)
Net cash provided by operating activities 38,058 30,531
Investing Activities from continuing operations
Additions to property, plant and equipment
(net of disposals of $780 and $1,013, respectively) (78,557) (46,610)
Acquisitions/investments, net (1,236) (94,498)
Proceeds from the sale of assets, net 20,898 6,532
Proceeds from the collection of note receivable 9,673
Net cash used by investing activities (58,895) (124,903)
Net cash from continuing
operations before financing activities (20,837) (94,372)
Discontinued operations
Net cash used by operating activities (9,109) (6,537)
Net cash used by investing activities (24,106) (29,423)
Net cash used from discontinued operations
before financing activities (33,215) (35,960)
Financing Activities
Net change in loans payable 34,726 22,173
Principal payments on long-term debt (5,297)
Proceeds from long-term debt (24,328)
Dividends (25,479) (23,232)
Proceeds from stock issued for stock plans 54,650 25,622
Net cash provided by financing activities 58,600 235
Elimination of PerSeptive results from
July 1, 1997 to September 30, 1997 2,590
Effect of exchange rate changes on cash (6,038) (575)
Net change in cash and cash equivalents (1,490) (128,082)
Cash and cash equivalents beginning of period 82,865 213,028
Cash and cash equivalents end of period $ 81,375 $ 84,946
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
</TABLE>
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PE 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 PE
Corporation's (the Company's) Annual Report on Form 10K/A for the
fiscal year ended June 30, 1998. 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 interim condensed consolidated financial statements have been
restated to reflect the net assets and operating results of the
Analytical Instruments business as discontinued operations pending
disposition for all periods presented (see Note 11). The net assets
have been reclassified in both the current and long-term asset
sections of the Condensed Consolidated Statements of Financial
Position for all periods presented. The operating results are
reflected in the Condensed Consolidated Statements of Operations as
income from discontinued operations for all periods presented. The
accompanying notes, except Note 11, relate only to continuing
operations.
NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLES
During the first quarter of fiscal 1999, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." The provisions of this statement
require disclosure of total comprehensive income within the
condensed financial statements of interim periods and additional
disclosures of the components of comprehensive income on an annual
basis. Total comprehensive income includes net income, foreign
currency translation adjustments, unrealized gains and losses on
available-for-sale investments, and minimum pension liability
adjustment.
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The provisions of the statement require the
recognition of all derivatives as either assets or liabilities in
the statement of financial position and the measurement of those
instruments at fair value. The accounting for changes in the fair
value of a derivative depends on the intended use of the derivative
and the resulting designation. The Company
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is required to implement the statement in the first quarter of
fiscal 2000. The Company is currently analyzing the statement to
determine the impact, if any, on the consolidated financial
statements.
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
PerSeptive Biosystems, Inc. The merger (the Merger) of Seven
Acquisition Corp., a wholly-owned subsidiary of the Company into
PerSeptive Biosystems, Inc., a Delaware corporation (PerSeptive),
was consummated on January 22, 1998, and PerSeptive became a wholly-
owned subsidiary of the Company on that date. PerSeptive develops,
manufactures, and markets an integrated line of proprietary
consumable products and advanced instrumentation systems for the
purification, analysis, and synthesis of biomolecules. 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.
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.
Molecular Informatics, Inc. During the second quarter of fiscal
1998, the Company acquired Molecular Informatics, Inc. (Molecular
Informatics), 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.
Biometric Imaging, Inc. During the second quarter of fiscal 1998,
the Company increased its minority equity interest in Biometric
Imaging, Inc. (Biometric Imaging) by $1.0 million.
Hyseq, Inc. During the first quarter of fiscal 1998, the Company
increased its investment in Hyseq, Inc. by $5.0 million.
DISPOSITIONS (SALE OF INVESTMENTS)
Analytical Instruments. On March 8, 1999, the Company announced
that it had entered into a definitive agreement to sell its
Analytical Instruments business to EG&G, Inc. for $425 million.
Under the terms of the agreement, the Company will receive $275
million in cash and a $150 million one-year note (see Note 11).
Tecan AG. On March 18, 1999, the Company announced that it is
considering various options to dispose of its stake in Tecan.
Subject to market conditions, it is currently anticipated that the
Company will sell its registered shares, representing 52% of the
voting rights and its 14.5% interest in a public offering in
Switzerland. The Company has reserved the right to offer its stake
in a private sale if the public offering does not occur.
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Biometric Imaging, Inc. During the third quarter of fiscal 1999,
the Company recorded a before-tax gain of $2.6 million on the sale
of its entire equity interest in Biometric Imaging.
Millennium Pharmaceuticals, Inc. During the first quarter of fiscal
1998, the Company recorded a before-tax gain of $.8 million in
connection with the release of a previously existing contingency on
shares of Millennium Pharmaceuticals, Inc. common stock.
NOTE 4 - COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) on the statements of
financial position consists of foreign currency translation
adjustments, unrealized gains and losses on available-for-sale
investments, and minimum pension liability adjustments. Total
comprehensive income for the three and nine month periods ended
March 31, 1999 and 1998 is presented in the following table:
(Dollar amounts in millions) Three months Nine months
ended ended
March 31, March 31,
1999 1998 1999 1998
Net income (loss) $ 36.5 $(7.0) $ 68.5 $ 20.4
Other comprehensive income (loss):
Foreign currency translation
adjustment (4.7) 1.7 .3 (.7)
Unrealized gain (loss) on
investments, net 2.4 4.3 5.0 1.3
Other comprehensive income (loss) (2.3) 6.0 5.3 .6
Comprehensive income (loss) $ 34.2 $(1.0) $ 73.8 $ 21.0
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NOTE 5 - EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted
earnings per share from continuing operations for the three and nine
month periods ended March 31, 1999 and 1998:
(Amounts in thousands Three months ended Nine months ended
except per share amounts) March 31, March 31,
1999 1998 1999 1998
Weighted average number of
common shares used in the
calculation of basic earnings
(loss) per share from
continuing operations 50,508 48,656 49,927 48,342
Common stock equivalents 1,538 1,245
Shares used in the
calculation of diluted
earnings (loss) per share
from continuing operations 52,046 48,656 51,172 48,342
Income (loss) used in the
calculation of basic and diluted
earnings (loss) per share from
continuing operations $ 31,288 $(19,277) $ 67,383 $ (9,164)
Income (loss) per share
from continuing operations
Basic $ .62 $ (0.40) $ 1.35 $ (.19)
Diluted $ .60 $ (0.40) $ 1.32 $ (.19)
Options and warrants to purchase 2.9 million shares of the Company's
common stock were outstanding for the three month period ended March
31, 1998, and options and warrants to purchase 3.1 million shares of
the Company's common stock were outstanding for the nine month
period ended March 31, 1998. These options and warrants were not
included in the computation of diluted loss per share from
continuing operations because their effect was antidilutive.
Antidilutive options and warrants outstanding at March 31, 1999 were
not material.
NOTE 6 - 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,
millions) 1999 1998
Raw materials and supplies $ 54.9 $ 45.2
Work-in-process 14.6 7.3
Finished products 102.6 84.5
Total inventories $ 172.1 $ 137.0
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NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes and significant non-cash
investing and financing activities were as follows:
(Dollar amounts in millions) Nine months
ended
March 31,
1999 1998
Interest $ 2.6 $ 3.8
Income taxes $ 32.1 $ 30.2
Unrealized gains on investments $ 3.6 $ 1.3
Dividends declared not paid $ 8.3
Minority interest assumed $ 41.3
NOTE 8 - FINANCIAL INSTRUMENTS
The Company utilizes foreign exchange forward, option, and synthetic
forward contracts and an interest rate swap agreement 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.
At March 31, 1999 and June 30, 1998, the Company had forward,
option, and synthetic forward contracts outstanding for the sale and
purchase of foreign currencies at fixed rates as summarized in the
table below:
(Dollar amounts in millions)
March 31, 1999 June 30, 1998
Sale Purchase Sale Purchase
Japanese Yen $ 60.7 $ 1.5 $ 99.4 $ -
French Francs 4.4 1.0 16.9 .2
Australian Dollars 4.9 7.5
German Marks 16.9 8.0 17.2
Italian Lira 12.1 1.0 21.4 .8
British Pounds 13.8 10.9 27.0 12.6
Swiss Francs 4.0 7.5 8.2 4.0
Swedish Krona 5.8 6.1
Danish Krona 5.8 .1 5.3
Other 25.6 5.1 21.5 .2
Total $ 154.0 $ 35.1 230.5 $ 17.8
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NOTE 9 - RESTRUCTURING AND OTHER MERGER COSTS
Fiscal 1998. During the third quarter of fiscal 1998, the Company
recorded a $48.1 million before-tax charge for restructuring and
other merger costs to integrate PerSeptive into the Company
following the acquisition. 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 $1.5 million for
training, relocation, and communication were recognized as period
expenses in the third and fourth quarters of fiscal 1998, and
classified as other merger-related costs. During fiscal 1999, the
Company recorded $3.6 million of additional merger-related costs as
part of this plan. The Company expects to incur approximately $1.0
million to $3.0 million of additional merger-related costs for
training, relocation, and communication in the fourth quarter of
fiscal 1999.
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. As of March 31,
1999, approximately 129 employees were separated under the plan.
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The following table details the major components of the fiscal 1998
restructuring plan:
Facility
Consolidation
and Asset
Related
(Dollar amounts in millions) Personnel Write-offs Total
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 $ - $ .4 $ .4
Consolidation of sales
and administrative support .3 1.2 1.5
Other acquisition costs 5.1 5.1
Total fiscal 1998 activity $ .3 $ 6.7 $ 7.0
Fiscal 1999 activity
Reduction of excess
European manufacturing capacity $ .1 $ 6.2 $ 6.3
Consolidation of sales
and administrative support 2.9 1.0 3.9
Other acquisition costs
Total fiscal 1999 activity $ 3.0 $ 7.2 $ 10.2
Balance at March 31, 1999
Reduction of excess
European manufacturing capacity $ 5.0 $ 5.1 $ 10.1
Consolidation of sales
and administrative support 5.5 1.0 6.5
Other acquisition costs .1 .1
Balance at March 31, 1999 $ 10.5 $ 6.2 $ 16.7
NOTE 10 - GOODWILL
At March 31, 1999 and June 30, 1998, other long-term assets included
goodwill, net of accumulated amortization, of $67.1 million and
$69.8 million, respectively. Accumulated amortization of goodwill
was $9.8 million and $6.1 million at March 31, 1999 and June 30,
1998, respectively.
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NOTE 11 - DISCONTINUED OPERATIONS
On March 8, 1999, the Company announced that it had entered into a
definitive agreement to sell its Analytical Instruments business to
EG&G, Inc. for $425 million. Under the terms of the agreement, the
Company will receive $275 million in cash and a $150 million one-
year note.
The Company's Board of Directors has approved the transaction. Its
completion is subject to regulatory approval and other normal
closing conditions. The sale is expected to be completed in the
fourth quarter of fiscal 1999.
Accordingly, the results of this business have been reclassified
from amounts previously reported and are stated separately in the
condensed consolidated financial statements as discontinued
operations pending final disposition. The Company expects to
recognize a gain on disposal. Summary results for the business were
as follows:
(Dollar amounts in millions) For the Nine
Months Ended
March 31,
1999 1998
Net revenues $ 409.5 $ 422.7
Costs and expenses 404.7 383.3
Provision for income taxes 3.7 9.8
Income from discontinued operations $ 1.1 $ 29.6
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The components of net assets of discontinued operations included in
the Condensed Consolidated Statements of Financial Position are as
follows:
(Dollar amounts in millions) At At
March 31, June 30,
1999 1998
Current assets:
Accounts receivable, net $ 158.7 $ 145.9
Inventories 103.7 103.0
Prepaid expenses and other current assets 43.2 35.2
Current liabilities:
Accounts payable 43.6 45.7
Accrued expenses 96.9 98.4
Current net assets 165.1 140.0
Long-term assets:
Property, plant and equipment, net 106.1 95.1
Other long-term assets 41.2 37.7
Long-term liabilities:
Other long-term liabilities 57.5 55.1
Long-term net assets 89.8 77.7
Net assets $ 254.9 $ 217.7
The cash flow used by discontinued operations was as follows:
(Dollar amounts in millions) For the Nine Months
Ended
March 31,
1999 1998
Income from discontinued operations $ 1.1 $ 29.6
Adjustments to reconcile income from
discontinued operations to net cash
used by operating activities from
discontinued operations:
Depreciation and amortization 15.5 13.2
Long-term compensations programs .9 .8
Deferred income taxes (.9) .3
Net change in assets and liabilities (25.7) (50.4)
Net cash used by operating activities
from discontinued operations (9.1) (6.5)
Net cash used by investing activities
from discontinued operations (24.1) (29.4)
Net cash used by discontinued
operations before effect of exchange (33.2) (35.9)
rate changes on cash
Effect of exchange rate changes on cash (2.9) 2.4
Cash flow used by discontinued operations $(36.1) $(33.5)
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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 were
designed to help transition the Analytical Instruments Division from
a highly vertical manufacturing operation to one that relies more 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 17 facilities were closed.
The workforce reductions under this plan totaled 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.
The following table details the major components of the fiscal 1997
restructuring provision:
Facility
Consolidation
and Asset
Related
(Dollar amounts in millions) Personnel Write-offs Total
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 $ 7.8 $ 4.9 $ 12.7
Consolidation of sales and
administrative support 1.3 1.1 2.4
Total fiscal 1998 activity $ 9.1 $ 6.0 $ 15.1
Fiscal 1999 activity
Changes in manufacturing operations $ 1.7 $ .3 $ 2.0
Consolidation of sales and
administrative support 1.0 1.4 2.4
Total fiscal 1999 activity $ 2.7 $ 1.7 $ 4.4
Balance at March 31, 1999
Changes in manufacturing operations $ - $ - $ -
Consolidation of sales and
administrative support - - -
Balance at March 31, 1999 $ - $ - $ -
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NOTE 12 - SUBSEQUENT EVENT
On April 27, 1999, the Company's shareholders voted in favor of a
recapitalization proposal to create two new classes of common stock.
The proposal also resulted in The Perkin-Elmer Corporation becoming
a wholly-owned subsidiary of PE Corporation, a new Delaware
corporation formed by The Perkin-Elmer Corporation to effect the
recapitalization. The recapitalization was effective as of the close
of business on May 5, 1999 when PE Corporation issued separate
securities to track the performance of its PE Biosystems Group and
Celera Genomics Group businesses. Pro forma financial results for
the three and nine months ended March 31, 1999 and March 31, 1998
were as follows:
(Dollar amounts in millions Three months ended Nine months ended
except per share amounts) March 31, March 31,
1999 1998 1999 1998
Net revenues
PE Biosystems Group $ 329.3 $ 247.5 $ 876.7 $ 656.9
Celera Genomics Group 1.8 1.2 7.4 3.1
Eliminations (5.3) (15.0)
Total $ 325.8 $ 248.7 $ 869.1 $ 660.0
Income (loss) from
continuing operations
PE Biosystems Group $ 46.3 $ (17.0) $ 95.4 $ (4.6)
Celera Genomics Group (12.7) (2.3) (25.0) (4.6)
Eliminations (2.3) (3.0)
Total $ 31.3 $ (19.3) $ 67.4 $ (9.2)
Pro forma basic earnings
(loss) per share
from continuing operations
PE Biosystems Group $ .92 $ (.35) $ 1.91 $ (.09)
Celera Genomics Group $ (.50) $ (.10) $ (1.00) $ (.19)
Pro forma diluted earnings
(loss) per share
from continuing operations
PE Biosystems Group $ .89 $ (.35) $ 1.86 $ (.09)
Celera Genomics Group $ (.50) $ (.10) $ (1.00) $ (.19)
PE Biosystems Group results for the three and nine month periods
ended March 31, 1999 included non-recurring before-tax targeted
stock-related expenses of $.8 million and $1.4 million,
respectively, and before-tax merger-related costs of $1.6 million and
$3.6 million, respectively. The three and nine month periods ended
March 31, 1998 included $47.0 million of before-tax merger-related
costs in connection with the acquisition of PerSeptive Biosystems,
Inc. The nine month period ended March 31, 1998 also included
$28.9 million of acquired research and development associated with
the acquisition of Molecular Informatics, Inc.
Celera Genomics Group results for the three and nine month periods
ended March 31, 1999 included non-recurring before-tax targeted
stock-related expenses of $.8 million and $1.3 million,
respectively.
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PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION OF CONTINUING OPERATIONS
You should read this discussion with our condensed consolidated
financial statements and related notes included on pages 1-14 of
this report and "Management's Discussion and Analysis" appearing in
PE Corporation's (the Company's) Annual Report on Form 10K/A for the
fiscal year ended June 30, 1998. Historical results and percentage
relationships are not necessarily indicative of operating results
for any future periods.
Throughout the following discussion of operations we refer to the
impact on our reported results of the movement in foreign currency
exchange rates from one reporting period to another as "foreign
currency translation."
DISCONTINUED OPERATIONS
On January 21, 1999, we announced a plan to sell our Analytical
Instruments business. On March 8, 1999, we announced an agreement
for the sale of this business to EG&G, Inc. for $425 million. Under
the terms of the agreement, we will receive $275 million in cash and
a $150 million one-year note. We expect the sale to close in the
fourth quarter of fiscal 1999, subject to regulatory approval and
other normal closing conditions. Amounts previously reported for
Analytical Instruments have been reclassified and stated as
discontinued operations. See Note 11 to the condensed consolidated
financial statements.
EVENTS IMPACTING COMPARABILITY
Acquisitions and Investments. On January 22, 1998, we acquired
PerSeptive Biosystems, Inc. The acquisition was accounted for as a
pooling of interests and, accordingly, our financial results have
been restated to include the combined operations.
We acquired Molecular Informatics, Inc. and a 14.5% interest, and
approximately 52% of the voting rights, in Tecan AG during the
second quarter of fiscal 1998. Each of these acquisitions was
accounted for as a purchase and has been included in the
consolidated financial statements since the date of acquisition.
Merger Costs. We incurred merger-related period costs of $1.6
million in the third quarter of fiscal 1999 and $3.6 million in the
first nine months of fiscal 1999 in connection with the integration
of PerSeptive into our company. In the third quarter of fiscal 1998,
we recorded before-tax charges of $47.0 million, or $.85 per diluted
share after-tax, to integrate PerSeptive into our company. The
charge included $4.1 million of inventory-related write-offs,
recorded in cost of sales, associated with the rationalization of
certain product lines. See Note 9 to the condensed consolidated
financial statements.
Other Special Charges. For the three and nine months ended March
31, 1999, we recorded non-recurring before-tax expenses of $1.6
million, or $.02 per diluted share after-tax, and $2.7 million, or
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$.04 per diluted share after-tax, respectively, in connection with
the recapitalization of our company. See Note 9 to the condensed
consolidated financial statements.
Acquired Research and Development. In the second quarter of fiscal
1998, we recorded $28.9 million, or $.57 per diluted share after-
tax, of the Molecular Informatics acquisition cost as in-process
research and development.
Gain on Investments. During the third quarter of fiscal 1999, we
recorded a before-tax gain of $2.6 million, or $.03 per diluted
share after-tax, on the sale of our entire equity interest in
Biometric Imaging. We recorded a before-tax gain of $.8 million,
or $.02 per diluted share after-tax, in the first quarter of fiscal
1998 related to the release of contingencies on a minority equity
investment.
RESULTS OF CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1999 COMPARED WITH MARCH 31, 1998
We reported income from continuing operations of $31.3 million, or
$.60 per diluted share, for the third quarter of fiscal 1999
compared with a loss from continuing operations of $19.3 million, or
$.40 per diluted share, for the third quarter of fiscal 1998.
Excluding merger-related costs and other special charges of $3.2
million incurred in the third quarter of fiscal 1999 and before-tax
merger-related costs of $47.0 million recorded in the third quarter
of fiscal 1998, income from continuing operations for the quarter
increased 24.6% compared with the prior year.
Net revenues were $325.8 million for the third quarter of fiscal
1999 compared with $248.7 million for the third quarter of fiscal
1998, an increase of 31%. Excluding the results of Tecan, revenues
increased 34.7%.
Net revenues for PE Biosystems, excluding Tecan, increased 37%
to $305.9 million, compared with $223.3 million in the third
quarter of the prior year. For the quarter, revenues from sales of
ABI PRISMT 3700 DNA Analyzers to Celera Genomics were $3.5 million.
Currency translation increased this quarter's revenues by less than
2%. Geographically, excluding Tecan, PE Biosystems reported
revenue growth of 36% in the United States, 45% in Japan, and 32% in
Europe, compared with the prior year. During the third quarter, PE
Biosystems also began commercial shipments of the 3700 DNA Analyzer,
which was introduced in the first quarter.
PE Biosystems' backlog for the third quarter was $207 million, up
nearly 150% compared with last year. Orders were particularly
strong for genetic analysis and sequence detection systems as well
as mass spectrometry products.PE Biosystems has received nearly 700
orders for the 3700 DNA Analyzer, making this system one of the most
successful new product introductions in our history. Excluding
orders from Celera Genomics, PE Biosystems has received nearly 470
orders for the 3700 DNA Analyzer. Genetic analysis system orders
rose 52%, while orders for sequence detection systems increased 92%.
Orders for reagents supporting genetic analysis systems increased
more than 40%, led by accelerating sales of the Big Dye Terminator
(TM) products. Total mass spectrometry orders rose 69%. Liquid
chromatography/mass spectrometry orders rose 96%, and those for
Electrospray Time of Flight mass spectrometry products increased
more than 250%.
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Gross margin as a percentage of net revenues was 53.7% in the third
quarter of fiscal 1999 compared with 52.7% in the third quarter of
fiscal 1998. The fiscal 1998 gross margin included $4.1 million of
inventory-related write-offs associated with the rationalization of
certain product lines in connection with the acquisition of
PerSeptive.
Selling, general and administrative expenses were $89.8 million in
the third quarter of fiscal 1999 compared with $71.2 million in the
third quarter of fiscal 1998. The 26.1% increase in expenses, or
18.1% excluding Tecan, was due to higher planned expenses for our PE
Biosystems business and expenses associated with establishing
facilities and staff for Celera Genomics. As a percentage of net
revenues, SG&A expenses declined to 28% in the third quarter
compared with 29% in the third quarter of fiscal 1998.
Research, development and engineering expenses were $45.4 million in
the third quarter of fiscal 1999 compared with $28.5 million in the
third quarter of fiscal 1998. The 59.3% increase, or 47.4%
excluding Tecan, included a $10.4 million increase in Celera
Genomics' R&D expenses compared with the prior year. This increase
was primarily associated with continued establishment of the
infrastructure for core sequencing operations and information
systems. As a percentage of net revenues, our R&D expenses
increased to 13.9% compared with 11.5% for the prior year.
We incurred merger-related costs of $1.6 million in the third
quarter of fiscal 1999 for training, relocation, and communication
costs in connection with the integration of PerSeptive. See Note 9
to the condensed consolidated financial statements. We expect to
incur additional merger-related period costs of approximately $1.0
million to $3.0 million in the fourth quarter of fiscal 1999. In
the third quarter of fiscal 1999, we also incurred $1.6 million of
non-recurring before-tax charges associated with the
recapitalization of our company. We expect to incur additional
costs of approximately $5.0 million to $7.0 million in the fourth
quarter of fiscal 1999 as a result of the recapitalization.
Operating income increased to $36.7 million for the third quarter of
fiscal 1999 compared with an operating loss of $11.4 million for the
prior year. On a comparable basis, excluding merger-related costs
and other special charges of $3.2 million in fiscal 1999 and $47.0
million in fiscal 1998, operating income increased 12% compared with
the prior year.
Operating income for PE Biosystems increased 43% compared with the
prior year excluding merger-related and other special charges and
including operating income derived from revenues of $3.5 million
from sales to Celera Genomics. PE Biosystems' operating profit
margins rose to 21 percent of revenues, from 20 percent in last
year's third quarter, as we continued to successfully integrate
businesses acquired last year. Excluding special items and Tecan,
PE Biosystems' operating profits grew 50% compared with the prior
year. The effects of currency translation contributed approximately
3% to the increase in PE Biosystems' operating income.
The PE Biosystems increase in operating income was partially offset
by operating losses associated with Celera Genomics, as we continued
our efforts to establish operations for Celera Genomics during the
third quarter of fiscal 1999. Excluding targeted-stock related
expenses, Celera Genomics incurred a third quarter operating loss of
$17.0 million compared with a loss of $3.4 million for the third
quarter of fiscal 1998.
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During the third quarter of fiscal 1999, we recorded a gain on
investment of $2.6 million on the sale of our entire equity interest
in Biometric Imaging.
Interest expense was $.5 million for the third quarter of fiscal
1999 compared with $1.2 million for the prior year. This decrease was
primarily due to the refinancing of PerSeptive's 8 1/4% Convertible
Subordinated Notes and lower average interest rates. Interest
income was $.5 million for the third quarter of fiscal 1999 compared
with $1.2 million for the prior year, primarily because of lower
cash balances, as well as lower interest rates.
Our effective income tax rate on continuing operations was 17% for
the third quarter of fiscal 1999. Excluding Tecan, the effective
income tax rate was 15% in the third quarter of fiscal 1999. Our
effective income tax rate was 24% in the third quarter of fiscal
1998 excluding Tecan and special items. In fiscal 1999, our
effective tax rate was favorably affected by reduced income in the
United States resulting from the operating losses at Celera
Genomics.
We recognized minority interest expense of $1.3 million in the third
quarter of fiscal 1999 relating to our 14.5% interest in Tecan.
RESULTS OF CONTINUING OPERATIONS FOR THE NINE MONTHS ENDED
MARCH 31, 1999 COMPARED WITH MARCH 31, 1998
We reported income from continuing operations of $67.4 million, or
$1.32 per diluted share, for the first nine months of fiscal 1999
compared with a loss from continuing operations of $9.2 million, or
$.19 per diluted share, for the first nine months of fiscal 1998.
Excluding before-tax merger-related costs and before-tax other
special charges of $6.3 million incurred in fiscal 1999, $47.0
million of merger-related costs in fiscal 1998, and $28.9 million of
acquired research and development costs recorded in fiscal 1998,
income for the first nine months of fiscal 1999 increased 8.8%
compared with the prior year.
Net revenues were $869.1 million for the first nine months of fiscal
1999 compared with $660.0 million for the first nine months of
fiscal 1998, an increase of 31.7%. Excluding the results of Tecan,
which were not included in the first nine months of the prior year,
revenues increased 24% when compared with the prior year.
Geographically, excluding Tecan, PE Biosystems reported revenue
growth in all regions. Revenues increased 27% in the United States,
22% in Europe, 21% in the Far East, and 17% in Latin America and
other markets, compared with the prior year. Demand for PE
Biosystems' new ABI PRISMT (TM) 3700 DNA Analyzer, which began shipping
in the second quarter of fiscal 1999, was strong. Shipments for
PE Biosystems' sequence detection systems and LC/MS products also
contributed to the growth.
Gross margin as a percentage of net revenues was 54.5% for the first
nine months of fiscal 1999 compared with 53.4% for the first nine
months of fiscal 1998. The fiscal 1998 gross margin included $4.1
million of inventory-related write-offs associated with the
rationalization of certain product lines in connection with the
acquisition of PerSeptive. This higher gross margin was primarily
the result of a change in product mix for PE Biosystems
which reported higher unit sales of reagents to support
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genetic analysis systems and increased royalty revenues. Continued
growth in instrument sales of PE Biosystems' higher margin genetic
analysis product offerings, successful integration of acquired
businesses, and increased Celera Genomics contract licensing
revenues also contributed to the growth.
SG&A expenses were $253.0 million in the first nine months of fiscal
1999 compared with $198.4 million in fiscal 1998. Excluding Tecan,
SG&A expenses increased 18% in the first nine months of fiscal 1999
compared with the prior year. This increase was primarily due to
higher planned expenses for PE Biosystems and expenses associated
with establishing facilities and staff for Celera Genomics. As a
percentage of net revenues, SG&A expenses were 29% for fiscal 1999
compared with 30% for the prior year.
R&D expenses increased $44.7 million, or 58.9%, to $120.6 million
compared with $75.9 million in the prior year. Excluding Tecan, R&D
expenses increased 47.4% compared with the prior year. PE
Biosystems' R&D expenses totaled $99.5 million, an increase of 38%
over last year in support of new product launches and to accelerate
product development. Celera Genomics' R&D investments associated
with establishing the infrastructure for core sequencing operations
and information systems contributed to the increase in R&D expense.
As a percentage of net revenues, R&D expenses were 13.9% compared
with 11.5% for the prior year.
We incurred merger-related costs of $3.6 million in the first nine
months of fiscal 1999 for training, relocation, and communication
costs in connection with the integration of PerSeptive. See Note 9
to the condensed consolidated financial statements. We expect to
incur additional merger-related period costs of approximately $1.0
million to $3.0 million in the fourth quarter of fiscal 1999. The
first nine months of fiscal 1999 also included $2.7 million of non-
recurring charges associated with the recapitalization of our
company. We expect to incur additional costs of approximately $5.0
million to $7.0 million in the fourth quarter of fiscal 1999 as a
result of the recapitalization.
Operating income increased to $93.5 million for the third quarter of
fiscal 1999 compared with $6.3 million for the prior year. On a
comparable basis, excluding the results of Tecan and special items in
both years, operating income increased 11% compared with the prior
year. The effects of currency translation contributed less than 1 %
to the increase in operating income for the nine months ended March
31, 1999.
Operating income for PE Biosystems, including operating income
derived from revenues of $15.1 million from sales to Celera
Genomics, increased to $170.5 million compared with $40.5 million in
the prior year. On a comparable basis, excluding Tecan and special
items in both years, PE Biosystems' operating income increased 39.8%
in the first nine months of fiscal 1999 compared with the prior
year. PE Biosystems benefited from higher gross margins and lower
SG&A expenses as a percentage of net revenues. The PE Biosystems'
increase was partially offset by operating losses at Celera
Genomics. Celera Genomics incurred $34.1 million of operating
losses for the first nine months of fiscal 1999 compared with an
operating loss of $6.7 million in the prior year.
During the third quarter of fiscal 1999, we recorded a gain on
investment gain of $2.6 million on the sale of our entire equity
interest in Biometric Imaging.
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Interest expense was $2.6 million for the first nine months of
fiscal 1999 compared with $3.9 million for the prior year. This
decrease was primarily due to the refinancing of PerSeptive's 8 1/4%
Convertible Subordinated Notes and lower average interest rates.
Interest income was $1.2 million for the first nine months of fiscal
1999 compared with $5.1 million for the prior year, primarily
because of lower average cash balances.
Other expense, net in fiscal 1999 was $.3 million, compared with
other income, net of $1.1 million for the prior year. Other expense,
net, included the revaluation of foreign exchange contracts which
was offset by other income related to a legal settlement. The other
income, net for fiscal 1998 resulted from a gain on the sale of
certain non-operating assets.
Our effective income tax rate on continuing operations was 19% for
the first nine months of fiscal 1999. Excluding Tecan and special
items, our effective income tax rate on continuing operations was
22% for the first nine months of fiscal 1999. Excluding Tecan and
special items in fiscal 1998, our effective income tax rate on
continuing operations was 23% for the first nine months of fiscal
1998. The fiscal 1999 tax rate was favorably affected by reduced
income in the United States resulting from the operating losses at
Celera Genomics.
We recognized minority interest expense of $9.5 million in the first
nine months of fiscal 1999 relating to our 14.5% interest in Tecan.
MARKET RISK
We operate internationally, with manufacturing and distribution
facilities in various countries throughout the world. For the nine
months ended March 31, 1999, we derived approximately 52% of our
revenues from countries outside of the United States. Our results
continue to be affected by market risk, including fluctuations in
foreign currency exchange rates and changes in economic conditions
in foreign markets.
As more fully described in Note 8 to the condensed consolidated
financial statements and our Annual Report on Form 10K/A for the
fiscal year ended June 30, 1998, our risk management strategy
utilizes derivative financial instruments, including forwards,
swaps, purchased options, and synthetic forward contracts to hedge
certain foreign currency and interest rate exposures. Our intent is
to offset gains and losses that occur on the underlying exposures
with gains and losses on the derivatives. We do not use derivative
financial instruments for trading or other speculative purposes, nor
are we a party to leveraged derivatives.
We performed a sensitivity analysis as of March 31, 1999. Assuming
a hypothetical adverse change of 10% in March 31, 1999 exchange
rates (i.e., a weakening of the U.S. dollar), we calculated a
hypothetical gain of $2.0 million in future cash flows by comparing
the difference between the change in market value of both the
foreign currency contracts outstanding and the underlying exposures
being hedged. Actual gains and losses in the future could,
however, differ materially from this analysis, based on changes in
the timing and amount of foreign currency exchange rate movements
and our actual exposures and hedges.
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Interest rate swaps are used to hedge underlying debt obligations.
In fiscal 1997, we executed an interest rate swap in conjunction
with a five-year Japanese Yen debt obligation. Under the terms of
the swap agreement, we pay a fixed rate of interest at 2.1% and
receive a floating LIBOR interest rate.
At March 31, 1999, the notional amount of indebtedness covered by
the interest rate swap was Yen 3.8 billion, which was $31.5 million
at March 31, 1999. The maturity date of the swap coincides with the
maturity of the Yen loan in March 2002. A change in interest rates
would have no impact on our reported interest expense and related
cash payments because the floating rate debt and fixed rate swap
contract have the same maturity and are based on the same rate index.
FINANCIAL RESOURCES AND LIQUIDITY
Significant Changes in the Condensed Consolidated Statements of
Financial Position. Cash and cash equivalents were $81.4 million at
March 31, 1999 compared with $82.9 million at June 30, 1998 as a
result of an increase in loans payable to fund current operating
requirements. Total debt was $82.0 million at March 31, 1999
compared with $45.8 million at June 30, 1998. The increase in debt
included $12.6 million of foreign currency translation. Working
capital was $349.2 million at March 31, 1999 compared with $288.0
million at June 30, 1998. Debt to total capitalization increased
to 11% at March 31, 1999 from 8% at June 30, 1998.
Accounts receivable and inventory balances increased by $62.9
million and $35.0 million from June 30, 1998 to March 31, 1999,
respectively, reflecting the growth in PE Biosystems' revenues and
orders.
Other accrued expenses increased $38.1 million to $160.6 million at
March 31, 1999 from $122.5 million at June 30, 1998 as a result of
higher warranty and installation accruals, reflecting the increase
in volume, an increase in deferred revenues and benefit accruals,
and increased production and operating requirements.
We recognized minority interest expense of $52.5 million at March
31, 1999 and $43.8 million at June 30, 1998 relating to our 14.5%
interest in Tecan.
Condensed Consolidated Statements of Cash Flows. Net cash provided
by operating activities from continuing operations was $38.1 million
for the first nine months of fiscal 1999 compared with $30.5 million
for the first nine months of fiscal 1998. Higher operating income,
accounts receivable, and inventory balances in support of the
increased volume were offset by higher accrued liabilities.
Net cash used by investing activities from continuing operations was
$58.9 million for the first nine months of fiscal 1999 compared with
$124.9 million for the first nine months of fiscal 1998. In fiscal
1999, we generated $20.9 million in net cash proceeds from the sale
of certain non-operating assets, compared with $16.2 million in the
prior year from the sale of certain non-operating assets and the
collection of a note receivable. Capital expenditures for our
company totaled $79.3 million. Fiscal 1999 capital expenditures
included $41.7 million for PE Biosystems, which included $9.2
million related to improvement of our information technology
infrastructure, $20.1 million for Celera Genomics, and $17.5 million
for the acquisition of a corporate airplane. For the first nine
months of fiscal 1998, capital expenditures were $47.6 million,
primarily related to improvement of our information technology
infrastructure, and $94.5 million related to various investments and
collaborations, primarily Tecan and Molecular Informatics.
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Net cash provided by financing activities was $58.6 million in the
first nine months of fiscal 1999 compared with $.2 million in the
prior period. In the first nine months of fiscal 1999, we received
$54.7 million in proceeds from employee stock option plan exercises
compared with $25.6 million in fiscal 1998. Loans payable and debt
increased $29.4 million in the first nine months of fiscal 1999 to
fund our current operating requirements.
YEAR 2000
In fiscal 1997, we initiated a worldwide program to assess the
expected impact of the Year 2000 date recognition problem on our
existing internal computer systems; our non-information technology
systems, including embedded and process-control systems; our product
offerings; and our significant suppliers. The purpose of this
program is to ensure the event does not have a material adverse
effect on our business operations.
Regarding our existing internal computer systems, the program
involves a mix of purchasing new systems and modifying existing
systems, with the emphasis on replacement of applications developed
in-house. Replacement projects are currently underway, and are
anticipated to be substantially completed for all business-critical
systems worldwide by December 31, 1999. The program includes
replacement of applications that, for reasons other than Year 2000
noncompliance, had been previously selected for replacement. The
replacement projects, which began in fiscal 1997, are expected to
offer improved functionality and commonality over current systems,
while at the same time addressing the Year 2000 problem.
With respect to our current product offerings, the program involves
performing an inventory of current products, assessing their
compliance status, and constructing a remediation plan where
appropriate. Significant progress has been made in each of these
three phases and we expect our product offerings to be Year 2000
compliant by December 31, 1999. A substantial portion of PE
Biosystems' current product offerings is Year 2000 compliant. All of
Celera Genomics current product offerings are Year 2000 compliant.
The program also addresses the Year 2000 compliance efforts of our
significant suppliers, vendors, and third-party interface systems.
As part of this analysis, we identified and prioritized these
suppliers, vendors, and third parties and have sought written
assurances from them that they will be Year 2000 compliant. There
can be no assurance that the systems of other companies with which
we deal, or on which our systems rely, will be timely converted, or
that any such failure to convert by another company could not have a
material adverse effect on our company. We have not fully
determined the extent to which our interface systems may be impacted
by third parties' systems which may not be Year 2000 compliant but
are addressing this issue in our contingency plans noted below.
As of April 1999, we were over 75 percent complete in accomplishing
the objectives established in our program. Our preliminary estimate
of the total cost for this multi-year program covering 3-4 years is
approximately $150 million. This estimate of total cost includes
amounts previously budgeted for information technology
infrastructure improvements and estimates of remediation costs on
components not yet fully assessed. Incremental spending has not
been and is not expected to be material because most Year 2000
compliance costs will be met with amounts that are normally
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budgeted for procurement and maintenance of our information
systems, production, and facilities equipment. The redirection of
spending to implement Year 2000 compliance plans may in some
instances delay productivity improvements.
We have also engaged a consulting firm to provide periodic
assessments of our Year 2000 project plans and progress. Because of
the importance of addressing the Year 2000 problem, we have created
a Year 2000 business continuity planning team which has developed,
and will continue to develop, business contingency plans to address
any issues that may not be corrected by implementation of our Year
2000 compliance plan in a timely manner. Contingency plans include
identification of systems and third party risks, an analysis of
strategies and available resources to restore operations, and a
recovery program that identifies participants, processes, and
significant equipment. If we are not successful in implementing our
Year 2000 compliance plan, or there are delays in and/or increased
costs associated with implementing required changes, the Year 2000
problem could have a material effect on our consolidated results of
operations and financial condition.
At this stage of the process, we believe that it is difficult to
specifically identify the cause of the most reasonable worst case
Year 2000 scenario. A reasonable worst case Year 2000 scenario would
be the failure of significant suppliers and vendors to have
corrected their own Year 2000 issues which could cause disruption of
our operations and have a material adverse effect on our financial
condition. The impact of such disruption cannot be estimated at this
time. In the event we believe that any of our significant suppliers
or vendors is unlikely to be able to resolve its own Year 2000
issues, our contingency plans include seeking additional sources of
supply.
EURO CONVERSION
A single currency called the euro was introduced in Europe on
January 1, 1999. Eleven of the fifteen member countries of the
European Union agreed to adopt the euro as their common legal
currency on that date. Fixed conversion rates between these
participating countries' existing currencies (the "legacy
currencies") and the euro were established as of that date. The
legacy currencies are scheduled to remain legal tender as
denominations of the euro until at least January 1, 2002, but not
later than July 1, 2002. During this transition period, parties may
settle transactions using either the euro or a participating
country's legal currency.
We are currently evaluating the impact of the euro conversion on our
computer and financial systems, business processes, market risk, and
price competition. We do not expect this conversion to have a
material impact on our results of operations, financial position, or
cash flows.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
The provisions of the statement require the recognition of all
derivatives as either assets or liabilities in the statement of
financial position and the measurement of those instruments at fair
value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting
designation. We are required to implement the statement in the first
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quarter of fiscal 2000. We are currently analyzing the statement
to determine the impact, if any, on the consolidated financial
statements.
The FASB issued the following Statements of Financial Accounting
Standards, which will become effective for our fiscal 1999 annual
financial statements: SFAS No. 132, "Employers' Disclosures about
Pensions and other Postretirement Benefits," which requires
additional disclosures relating to a company's pension and
postretirement benefit plans; and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which requires
certain financial and descriptive information about a company's
reportable operating statements. The adoption of these new
accounting standards may require additional disclosures but should
not have a material effect, if any, on our consolidated financial
statements.
OUTLOOK
On April 27, 1999, the Company's shareholders voted in favor of a
recapitalization proposal to create two new classes of common stock.
The proposal also resulted in The Perkin-Elmer Corporation becoming
a wholly-owned subsidiary of PE Corporation, a new Delaware
corporation formed by The Perkin-Elmer Corporation to effect the
recapitalization. The recapitalization was effective as of the
close of business on May 5, 1999 when PE Corporation issued separate
securities to track the performance of our PE Biosystems Group and
Celera Genomics Group businesses. We believe this targeted stock
structure will provide a number of advantages including: allowing
each business autonomy while capitalizing on the synergies of its
sister business; accommodating investor interests by creating an
equity that closely monitors the performance of a focused business;
providing an efficient acquisition currency; and maintaining the
financial benefits of a single organization such as tax
consolidation and credit availability.
PE Biosystems is expected to continue to grow and maintain
profitability for the remainder of fiscal 1999 on the strength of
robust demand for its existing products and several new products.
Since the introduction of the ABI PRISM (TM) 3700 DNA Analyzer, PE
Biosystems has received more than 700 orders for the 3700 DNA
Analyzer, including the 230 ordered by Celera Genomics, making it
one of the most successful new product launches in our Company's
history. Orders for genetic analysis systems and reagents, sequence
detection systems, and mass spectroscopy products continue to be
strong and we believe strength in these areas will allow us to
achieve our goals for the fourth quarter of fiscal 1999.
We are on schedule in establishing operations at Celera Genomics.
Celera Genomics employed approximately 300 employees as of March 31,
1999, and its laboratories, data center, and related facilities are
nearing completion. Celera Genomics has begun work on sequencing the
Drosophila melanogaster genome. PE AgGen, a part of Celera, formed
a three-year agreement with RhoBio S.A., a joint venture between
Rhone Poulenc Agro and Biogemma, to use expression studies to
discover genes related to traits of importance in maize. Working
with Compaq Computer Corporation, Celera Genomics is establishing a
supercomputing center that will be one of the largest in the world.
Celera entered into five-year subscription agreements with three
early access customers, Amgen, Inc., Pharmacia & Upjohn, Inc., and
Novartis Pharma.
On March 8, 1999, we entered into a definitive agreement to sell our
Analytical Instruments business to EG&G, Inc. The Company's Board
of Directors has approved the transaction, and its completion
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is subject to regulatory approval and other normal closing conditions.
The sale is expected to be completed during the fourth quarter of
fiscal 1999.
We remain concerned about adverse currency effects because
approximately 52% of our revenues were derived from regions outside
the United States for the nine months ended March 31, 1999.
Recently, the U.S. dollar has weakened, which should moderate the
effects of currency translation for fiscal 1999.
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 on our
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,
we note that a variety of factors could cause our 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 our businesses include, but
are not limited to:
FACTORS RELATING TO PE BIOSYSTEMS
Rapidly changing technology in life sciences could make PE Biosystems'
product line obsolete unless it continue to improve existing products
and develop new products. A significant portion of the net revenues
for PE Biosystems each year are derived from products that did not
exist in the prior year. PE Biosystems' future success will depend
on its ability to continually improve its current products and to
develop and introduce, on a timely and cost-effective basis, new
products that address the evolving needs of its customers. PE
Biosystems' products are based on complex technology which is subject
to rapid change as new technologies are developed and introduced
in the marketplace. Unanticipated difficulties or delays in
replacing existing products with new products could adversely affect
PE Biosystems' future operating results.
Significant portion of sales depend on customers' capital spending
policies and government funding which may be subject to significant
and unexpected decreases. A significant portion of PE Biosystems'
instrument products are capital purchases for its customers. PE
Biosystems' customers include pharmaceutical, environmental,
research and chemical companies, and the capital spending policies
of these companies can have a significant effect on the demand for
PE Biosystems' products. These policies are based on a wide variety
of factors, including the resources available to make purchases, the
spending priorities among various types of research equipment and
policies regarding capital expenditures during recessionary periods.
Any decrease in capital spending or change in spending policies of
these companies could significantly reduce the demand for PE
Biosystems' products.
In addition, a substantial portion of PE Biosystems' sales are to
customers at universities or research laboratories whose funding is
dependent on both the level and timing of funding from government
sources. As a result, the timing and amount of revenues from these
sources may vary significantly due
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to factors that can be difficult to forecast. Although research
funding has increased during the past several years, grants have,
in the past, been frozen for extended periods or otherwise
become unavailable to various institutions, sometimes without advance
notice. Budgetary pressures, particularly in the United States and
Japan, may result in reduced allocations to government agencies
that fund research and development activities. If government
funding necessary to purchase PE Biosystems' products were to
become unavailable to researchers for any extended period of time
or if overall research funding were to decrease, the business of
PE Biosystems could be adversely affected.
Due to rapidly-developing technology and lack of legal precedents,
PE Biosystems' products could be subject to claims for patent
infringement. PE Biosystems' products are based on complex, rapidly-
developing technologies. These products could be developed without
knowledge of previously filed but unpublished patent applications
that cover some aspect of these technologies. In addition, there are
relatively few decided court cases interpreting the scope of patent
claims in these technologies. PE Biosystems could be made a party
to litigation regarding intellectual property matters in the future.
PE Biosystems has from time to time been notified that it may be
infringing certain patents and other intellectual property rights of
others. It may be necessary or desirable in the future to obtain
licenses relating to one or more products or relating to current or
future technologies, and we cannot assure you that PE Biosystems
will be able to obtain these licenses or other rights on
commercially reasonable terms.
Since PE Biosystems' business is dependent on foreign sales,
fluctuating currencies will make our revenues and operating results
more volatile. Approximately 52% of PE Biosystems' net revenues
during the nine months ended March 31, 1999 were derived from sales
to customers outside of the United States. The majority of these
sales were based on the relevant customer's local currency. As a
result, PE Biosystems' reported and anticipated operating results
and cash flows are subject to fluctuations due to material changes
in foreign currency exchange rates that are beyond PE Biosystems'
control.
Integrating acquired technologies may be costly and may not result
in technological advances. The future growth of PE Biosystems
depends in part on its ability to acquire complementary technologies
through acquisitions and investments. Since January 1, 1996, PE
Biosystems has acquired a number of companies, including PerSeptive
Biosystems, Inc., Molecular Informatics, Inc., and Tropix, Inc., and
made investments in others. The consolidation of employees,
operations, and marketing and distribution methods presents
significant managerial challenges. For example, PE Biosystems may
encounter operational difficulties in the integration of
manufacturing or other facilities. In addition, technological
advances resulting from the integration of technologies may not be
achieved as successfully or rapidly as anticipated, if at all.
Failure of PE Biosystems' Year 2000 compliance plan or failure of the
compliance plans of PE Biosystems' limited source suppliers could
materially disrupt the sales of affected products. In fiscal 1997,
we initiated a world-wide program to assess the expected impact of
the Year 2000 date recognition problem on our existing computer
systems; non-information technology systems, including embedded and
process-control systems; product offerings; and significant
suppliers. Portions of this program are not expected to be completed
until December 31, 1999. If we are not successful in implementing our
Year 2000 compliance plan, or if our limited source suppliers are
not successful in implementing compliance plans, the Year 2000
problem could materially disrupt PE Biosystems' sales of affected
products.
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Earthquakes could disrupt operations in California. A significant
portion of PE Biosystems' operations is located near major
California earthquake faults. The ultimate impact of earthquakes on
PE Biosystems, significant suppliers and the general infrastructure
is unknown, but operating results could be materially affected in
the event of a major earthquake.
FACTORS RELATING TO CELERA GENOMICS
Celera Genomics may not achieve profitability. Celera Genomics has
earned small amounts of revenues to date and expects that it will
continue to incur net operating losses at least through 2001. As a
new business, Celera Genomics faces significant challenges in
simultaneously launching and integrating its operations, pursuing
key scientific goals, and attracting customers for its information
products and services. Celera Genomics has a small number of
customers, the revenues from which will offset only a small portion
of its expenses. In order to meet its business plan, Celera Genomics
will require additional customers in the next few years. In
addition, even if Celera Genomics is able to enter into contracts
with additional customers, those contracts may be subject to
milestones that may not be achieved. As a result, there is a high
degree of uncertainty that Celera Genomics will be able to achieve
profitable operations.
Celera Genomics' business plan is unique and untested. No
organization has ever attempted to combine in one business
organization all of Celera Genomics' businesses. The creation of a
genomics database targeted at a wide variety of customers, from
pharmaceutical companies to university researchers, has a number of
risks, including pricing and volume issues, technology and access
concerns, computer security, pursuit of key scientific goals, and
protection of intellectual property. As a result, the creation of a
business that includes all of Celera Genomics' businesses has unique
risks.
Shotgun sequencing strategy has not yet been tested on the scale and
complexity of the human genome. Some genomic scientists have
criticized Celera Genomics' sequencing strategy, known as "whole
genome shotgun sequencing," as having limitations when applied on a
large scale in sequencing the human genome. Others have stated that
the human genome cannot be sequenced using whole genome shotgun
sequencing. Although scientists at The Institute for Genomic
Research have used the whole genome shotgun strategy to sequence the
genomes of other organisms, the strategy has not been used to
sequence a genome with the size and complexity of the human genome.
Failure to sequence or assemble the human genome in a timely manner
may have a material adverse effect on Celera Genomics' ability to
satisfy customer requirements and achieve its business goals.
New DNA sequencers may not perform at expected levels and the
integration of over 300 sequencers may be difficult. Celera
Genomics' success is heavily dependent on the successful operation
of PE Biosystems' new DNA sequencer. Celera Genomics plans to use
more than 300 of the new DNA sequencers on a full-time basis, a
scale of operation never before attempted. Failure of the DNA
sequencers to perform at expected levels, or failure of Celera
Genomics to integrate successfully its DNA sequencers in its
laboratory, would materially adversely affect Celera Genomics'
ability to sequence at the rate required to complete the human
genome on a timely basis, to achieve milestones in contracts with
customers, and to perform research services effectively.
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Realizing revenues from polymorphism data may be difficult. Celera
Genomics believes that the polymorphisms it discovers will add
considerable value to its integrated information system.
Polymorphism data reveals information about genetic variability
between individuals. Its use in the testing of new drugs and the
diagnosis of disease,however,is largely untested. Although there has
been some early success in linking certain polymorphisms to
susceptibility to disease and outcomes of drug therapy,
pharmaceutical companies are not yet certain how polymorphism data
can be used, or if it can be used on a cost-effective basis, in
clinical trials or in drug development. Furthermore, public
acceptance of the use of polymorphism data is uncertain. Current and
future patient privacy and health care laws and regulations issued
by the U.S. Food and Drug Administration may also limit the use of
this data.
The ability of Celera Genomics to protect its intellectual property
rights will affect its polymorphism program. Such protection is
uncertain due to the uncertainty of patent law relating to genomics
in general and the novelty of this particular aspect of genomics. In
addition, Celera Genomics will be dependent on new technology,
including technology provided by PE Biosystems, to make the use of
polymorphism information cost-effective so as to make it marketable
to the public. This technology is still in early stages of
development and its application to this area remains uncertain.
Potential initial customers are limited in number and belong to a
single industry. Celera Genomics believes that for the next few
years it will derive a significant portion of its revenues from fees
paid by pharmaceutical companies and larger biotechnology companies
for its information products and services. Celera Genomics has also
had preliminary discussions with certain universities and similar
research organizations about becoming customers, but expects this
market to develop at a slower rate. The number of potential
subscribers for Celera Genomics' products during this period may be
limited due to their nature and price. Pharmaceutical and
biotechnology companies could decide not to subscribe to some or all
of Celera Genomics' information products or services, or could
decide to conduct their own polymorphism discovery and analysis or
work with Celera Genomics' competitors. There have been published
reports of a proposed consortium of pharmaceutical companies to
create and make public polymorphism information.
Scientific and management staff have unique expertise which is key
to Celera Genomics' commercial viability and which would be
difficult to replace. Celera Genomics is highly dependent on the
principal members of its scientific and management staff,
particularly Dr. Venter, its President. For the sequencing and
assembly of the human genome, Celera Genomics believes the following
members of its staff are essential: Dr. Venter; Dr. Mark Adams, Vice
President for Genome Programs; and Drs. Eugene Myers and Granger
Sutton, who are responsible for assembling the genome. Additional
members of its medical, scientific, and bioinformatics staff are
important to the development of information, tools, and services
required for implementation of its business plan, including Dr. Sam
Broder, Executive Vice President and Chief Medical Officer. The loss
of any of these persons' expertise would be difficult to replace and
could have a material adverse effect on Celera Genomics' ability to
achieve its goals, particularly the completion of its information
products.
Celera Genomics' competitive position will depend on patent and
copyright protection, which may not be available for genomics
information and technology. Celera Genomics' ability to compete and
to achieve profitability may be affected by its ability to protect
its proprietary technology and intellectual property. While Celera
Genomics will be primarily dependent on revenues from access fees to
its discovery and information system, obtaining patent protection
may also be important to its
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business. Patent law affecting Celera Genomics' business,
particularly gene sequences and polymorphisms, is uncertain.
Moreover, Celera Genomics may be dependent on protecting, through
copyright law or otherwise, its databases to prevent other
organizations from taking information from databases and copying and
reselling it. Copyright law currently provides uncertain protection
to organizations like Celera Genomics that seek to prevent others
from reselling their data. Changes in copyright and patent law could
expand or reduce the extent to which Celera Genomics and its
customers are able to protect their intellectual property.
Public disclosure of genomic sequence data could jeopardize
intellectual property protection and have an adverse effect on value
of Celera Genomics' products and services. Celera Genomics, the
federally funded Human Genome Project, and others engaged in similar
research have committed to make available to the public basic human
sequence data. The release of sequence data could undermine the
ability of Celera Genomics and its customers to obtain intellectual
property protection. Customers may conclude that uncertainties of
such protection decrease the value of Celera Genomics' information
products and services and, as a result, it may not be able to charge
fees sufficient to allow it to achieve profitability.
Others may succeed in commercializing genomic information before
Celera Genomics. A number of companies, institutions, and government-
financed entities are engaged in various genomics initiatives. At
least two other companies, Genset, S.A. and Incyte Pharmaceuticals,
Inc., have announced their intention to market to the pharmaceutical
industry products and services similar to those being offered by
Celera Genomics. Additional competitors may attempt to compete with
Celera Genomics in the future, including companies that may seek to
resell publicly available genomic data. In addition, there have been
published reports of a proposed consortium of pharmaceutical
companies to create and make public polymorphism information.
Expected rapid growth in the number of our employees could absorb
valuable management resources and be disruptive to the development
of Celera Genomics' business. Celera Genomics expects to grow
significantly, from approximately 160 employees at September 30,
1998 to over 370 by the end of fiscal 1999. This growth will
require substantial effort to hire new employees and train and
integrate them in Celera Genomics' business and to develop and
implement management information systems, financial controls and
facility plans. In addition, Celera Genomics will be required to
create a sales and marketing organization and develop customer
support resources as sales of its information products increase.
Celera Genomics' inability to manage growth effectively would have a
material adverse effect on its future operating results.
Integration of Genscope and AgGen could be difficult and costly. The
success of Celera Genomics depends in part on its ability to
integrate the businesses of GenScope and AgGen, which were
previously operated by PE Biosystems. In particular, we believe that
coordinating the separate scientific research efforts will be a
challenge to Celera Genomics. In addition, integrating the
operations of geographically distant facilities may lead to
unexpected disruptions and costs.
Failure of Celera Genomics' Year 2000 Compliance Plan or failure of
the compliance plans of PE Biosystems' limited source suppliers
could jeopardize Celera Genomic's information products and services.
In fiscal 1997, we initiated a world-wide program to assess the
expected impact of the Year
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2000 date recognition problem on our existing computer
systems; non-information technology systems, including embedded
and process-control systems; product offerings; and significant
suppliers. Portions of this program are not expected
to be completed until December 31, 1999. If we are not
successful in implementing our Year 2000 compliance plan,
customers may encounter difficulty in accessing and searching Celera
Genomics' databases. In addition, if a failure of the compliance
plans of PE Biosystems' limited source suppliers results in the
interruption of the delivery of PE Biosystems' new DNA sequencers,
Celera Genomics' ability to develop its database and other
information products could be adversely affected.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held a Special Meeting of Shareholders on April 27,
1999. At that meeting, the shareholders of the Company approved all
proposals submitted by the Company to shareholders for approval at
the meeting, each as described in the Proxy Statement and Prospectus
dated March 25, 1999. The results of the voting of the shareholders
with respect to these matters is set forth below.
I. Approval of Recapitalization of the Company.
FOR AGAINST ABSTAIN NON-VOTE
37,721,060 5,911,186 165,924 0
II. Approval of the PE Corporation/PE Biosystems Group 1999
Stock Incentive Plan.
FOR AGAINST ABSTAIN NON-VOTE
41,422,806 2,198,828 176,536 0
III. Approval of the PE Corporation/Celera Genomics Group
1999 Stock Incentive Plan.
FOR AGAINST ABSTAIN NON-VOTE
33,959,491 9,660,124 178,555 0
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Certificate of Incorporation of PE Corporation
(Incorporated by reference to Annex II to the Proxy
Statement and Prospectus included in the Company's
Registration Statement on Form S-4 (No. 333-67797)).
3.2 By-laws of PE Corporation (Incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-4 (No. 333-67797)).
3.3 Certificate of Designations for the Series A
Participating Junior Preferred Stock and Series B
Participating Junior Preferred Stock (included as
Exhibits A and B of the Rights Agreement).
4.1 Rights Agreement between PE Corporation and BankBoston,
N.A. (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4 (No. 333-
67797)).
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10.1 PE Corporation 1993 Director Stock Purchase and
Deferred Compensation Plan, as amended through January
21, 1999.
10.2 PE Corporation/PE Biosystems Group 1999 Stock Incentive
Plan (Incorporated by reference to Annex III to the
Proxy Statement and Prospectus included in the
Company's Registration Statement on Form S-4 (No. 333-
67797)).
10.3 PE Corporation/Celera Genomics Group 1999 Stock
Incentive Plan (Incorporated by reference to Annex IV
to the Proxy Statement and Prospectus included in the
Company's Registration Statement on Form S-4 (No. 333-
67797)).
27. Financial Data Schedule.
(b) Reports on Form 8-K.
During the quarter ended March 31, 1999, the Company filed a
Current Report on Form 8-K dated March 8, 1999 and filed
March 16, 1999 to report under Item 5 thereof the issuance
of a press release in which the Company announced that it
had entered into a definitive agreement to sell its
Analytical Instruments Division to EG&G, Inc.
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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.
PE CORPORATION
By: /s/ Dennis L. Winger
Dennis L. Winger
Senior Vice President and Chief
Financial Officer
By: /s/ Ugo D. DeBlasi
Ugo D. DeBlasi
Corporate Controller (Chief
Accounting Officer)
Dated: May 14, 1999
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Exhibit No. Exhibit
10. PE Corporation 1993 Director
Stock Purchase and Deferred
Compensation Plan, as
amended through January 21,
1999.
27. Financial Data Schedule.
PE CORPORATION
1993 DIRECTOR STOCK PURCHASE AND DEFERRED
COMPENSATION PLAN
(as amended through January 21, 1999)
1. OBJECTIVE OF THE PLAN.
The PE Corporation 1993 Director Stock Purchase and
Deferred Compensation Plan (the "Plan") is established
effective October 21, 1993 for the benefit of directors of
PE Corporation (the "Corporation") who are not employees of
the Corporation or any of its subsidiaries. The Corporation
has adopted the Plan in recognition that its long-term
success and achievements are enhanced and the interests of
its shareholders are best served when its outside directors
have a direct and personal stake in the performance of the
Corporation's stock.
2. DEFINITIONS.
As used herein, the following terms have the meanings
hereinafter set forth unless the context clearly indicates
to the contrary:
2.1 "Account" shall mean the deferred Fees
account established for a Participant pursuant to
Section 5.3.
2.2 "Board of Directors" shall mean the board of
directors of the Corporation.
2.3 "Celera Stock" shall mean shares of PE
Corporation - Celera Genomics Group Common Stock, par
value $.01 per share, of the Corporation.
2.4 "Celera Stock Unit" shall mean the
bookkeeping entry representing the equivalent of one
share of Celera Stock.
2.5 "Corporate Secretary" shall mean the person
holding the position of Secretary of the Corporation.
2.6 "Effective Date" shall mean October 21, 1993.
2.7 "Fees" shall mean all retainer, meeting and
committee fees payable to a non-employee director for
service on the Board of Directors for any calendar year
from and after the Effective Date, before any reduction
pursuant to this Plan.
<PAGE>
2.8 "Fees Payment Date" shall mean the first
calendar day of the third month of each fiscal quarter
or, if such date is not a business day for the
Corporation, the next succeeding business day.
2.9 "Participant" shall mean any member of the
Board of Directors who is not also a regular, salaried
employee of the Corporation or any of its subsidiaries.
2.10 "PE Biosystems Stock" shall mean shares of
PE Corporation - PE Biosystems Group Common Stock, par
value $.01 per share, of the Corporation.
2.11 "PE Biosystems Stock Unit" shall mean the
bookkeeping entry representing the equivalent of one
share of PE Biosystems Stock.
2.12 "Stock" shall mean Celera Stock and/or PE
Biosystems Stock.
2.13 "Stock Price" shall mean the simple average
of the high and low sales prices of a share of Celera
Stock or PE Biosystems Stock, as the case may be, as
reported in the report of composite transactions (or
other independent published source designated by the
Board of Directors) on the Fees Payment Date (or if
there shall be no trading on such date, then on the
first previous date on which sales were made on a
national securities exchange). Notwithstanding the
foregoing, if Celera Stock or PE Biosystems Stock is
purchased in the market for purposes of the Plan on a
Fees Payment Date, "Stock Price" shall mean the actual
average cost per share of the aggregate purchases of
Celera Stock or PE Biosystems Stock for the Plan on
such date.
2.14 "Stock Unit" shall mean a Celera Stock Unit
and/or a PE Biosystems Stock Unit.
3. PARTICIPATION.
All members of the Board of Directors who are not also
regular salaried employees of the Corporation or any of its
subsidiaries shall participate in the Plan.
4. PAYMENT OF FEES.
4.1 Automatic Payment of Fees in Stock. Fifty percent
(50%) of the Fees of each Participant payable on and after
the Effective Date, shall be applied to the purchase of
Celera Stock and/or PE Biosystems Stock or, if deferred
pursuant to Section 5.1, credited as Celera Stock Units
and/or PE Biosystems Stock Units, at the applicable Stock
Price on the Fees Payment Date, in each case in the ratio
specified in or established by the Board of Directors
pursuant to Section 4.3. To the extent not deferred
pursuant to Section 5.1, whole shares of Stock purchased in
respect of such Fees shall be issued to the Participant
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as soon as practicable thereafter. Cash shall be paid to a
Participant in lieu of a fractional share of Stock.
4.2 Election to Receive Fees in Stock. A Participant
may elect, by filing the appropriate election form with the
Corporate Secretary before the Fees Payment Date to which
the election applies, to have up to that portion of his or
her Fees payable on and after such Fees Payment Date which
are not automatically paid in Stock pursuant to Section 4.1
or which are not deferred pursuant to Section 5.1, applied
to the purchase of Celera Stock and/or PE Biosystems Stock
at the applicable Stock Price on the Fees Payment Date;
provided, however, that such purchase of Stock of each class
shall be in the ratio specified in or established by the
Board of Directors pursuant to Section 4.3. Whole shares of
Stock purchased in respect of such Fees shall be issued to
the Participant as soon as practicable thereafter. Cash
shall be paid to a Participant in lieu of a fractional share
of Stock.
A Participant may amend or terminate an election under
this Section 4.2 by written notice to the Corporate
Secretary. Such amendment or termination shall be effective
as of the next Fees Payment Date following the date of
delivery of such notice to the Corporate Secretary.
4.3 Allocation Between Stock. Purchases of Stock of
each class under Section 4.1 and Section 4.2 shall be made,
as nearly as practicable, in the ratio of the number of
shares of such class then outstanding to the number of
shares of the other class then outstanding, or in such other
ratio as shall be determined by the Board of Directors from
time to time. The Board of Directors shall allocate each
Participant's purchases of Stock of each class under the
Plan in order to maintain such Participants' holdings in
accordance with this ratio. The Board of Directors may, if
it deems necessary, adopt specific rules consistent with
this Section 4.3.
5. DEFERRAL OF FEES.
5.1 Deferral Election. A Participant may elect to
defer receipt of his or her Fees, including all or any
portion of his or her Fees which are subject to Section 4.1
hereof, by filing the appropriate deferral form with the
Corporate Secretary on or before December 15th of the
calendar year prior to the calendar year in which such
deferral is to be effective or, in the case of any person
elected to the Board of Directors after the Effective Date,
within thirty (30) days after such person first becomes
eligible to participate in the Plan.
Any Participant who has made an effective election to
defer the receipt of Fees which election was in effect on
October 21, 1993 may continue to defer receipt of such Fees
pursuant to such election; provided, however, that such
election and any such deferral which occurs on or after the
Effective Date shall be governed by the terms of this Plan.
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<PAGE>
Notwithstanding the foregoing, no deferral shall be
permitted to the extent prohibited by applicable law.
5.2 Period of Deferral. Subject to Section 5.9, a
Participant may elect to defer receipt of Fees until (a) a
specified date in the future, (b) cessation of the
Participant's service as a member of the Board of Directors
or (c) the end of the calendar year in which cessation of
the Participant's service as a member of the Board of
Directors occurs.
5.3 Deferred Fees Account. There shall be established
an Account in the Participant's name on the books of the
Corporation for each Participant electing to defer Fees
pursuant to this Section 5.
5.4 Investment of Deferrals. Except as provided in
the next sentence, deferrals shall be credited to a
Participant's Account in Celera Stock Units and/or PE
Biosystems Stock Units. With respect to that portion of his
or her deferrals under the Plan which are not subject to
Section 4.1, the Participant may elect under the procedures
set forth in Section 4.2 that such deferrals be credited to
his or her Account in cash or Stock Units.
5.5 Amounts Credited to Accounts.
(a) Investment in Stock Units. To the extent the
deferral of a Participant's Fees is deemed invested in
Stock Units, such amounts shall be credited to his or
her Account in the following manner: on the Fees
Payment Date to which the deferral election applies,
the amount deferred shall be converted into a number of
Stock Units by dividing the amount of Fees payable by
the sum of the Stock Prices as of such date in the
ratio specified in or established by the Board of
Directors pursuant to Section 4.3. The quotient, which
shall be expressed in whole or fractional Stock Units
to the nearest one/one hundredth (1/100th), shall be
credited to the Participant's Account as of such date
in Celera Stock Units and PE Biosystems Stock Units;
provided, however, that if the ratio established by the
Board of Directs pursuant to Section 4.3 is other than
1:1, the number of Stock Units so credited shall be
appropriately adjusted to reflect such ratio.
Whenever cash dividends are paid with respect to
shares of Stock, each Participant's Account shall be
credited on the payment date of such dividend with
additional Stock Units of the same class (including
fractional units to the nearest one/one hundredth
(1/100th)) equal in value to the amount of the cash
dividend paid on a single share of such Stock
multiplied by the number of Stock Units of the same
class (including fractional units) credited to a
Participant's Account as of the date of record for
dividend purposes. For purposes of crediting
dividends, the value of a Stock Unit shall be the
applicable Stock Price as of the payment date of the
dividend.
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The number of Stock Units credited to each
Participant's Account shall be appropriately adjusted
and modified upon the occurrence of any stock split,
stock dividend or stock consolidation affecting the
Celera Stock or PE Biosystems Stock. In the event of a
merger, consolidation or an acquisition involving more
than 50% of the issued and outstanding shares of Celera
Stock or PE Biosystems Stock, the Board of Directors
shall have the authority to amend the Plan to provide
for the conversion of Celera Stock Units or PE
Biosystems Stock Units credited to Participants'
Accounts into units equal to shares of stock of the
resulting or acquiring company (or a related company),
as appropriate, if such stock is publicly traded or, if
not, into cash of equal value on the date of merger,
consolidation or acquisition. If pursuant to the
preceding sentence cash is credited to Participants'
Accounts, income shall be credited thereon from the
date such cash is received to the date of distribution
at the rate determined pursuant to Section 5.5(b). If
units representing publicly traded stock of the
resulting or acquired company (or a related company)
are credited to Participants' Accounts, dividends shall
be credited thereto in the same manner as dividends are
credited on Stock Units credited to such Accounts.
(b) Deferrals in Cash. To the extent not deemed
invested in Stock Units pursuant to Section 5.5(a), the
Account of a Participant will be credited with the
dollar amount of the Participant's deferrals as of the
Fees Payment Date. Subject to Section 5.9, interest
shall be credited thereon from the date such cash is
received to the date of distribution quarterly, at the
end of each calendar quarter, at a rate per annum
(computed on the basis of a 360 day year and a 91 day
quarter) equal to the prime rate announced publicly by
Citibank, N.A. at the end of such calendar quarter.
5.6 Distribution of Deferral Account. Subject to
Section 5.9, distributions of a Participant's Account under
the Plan shall be made as follows:
(a) if a Participant has elected to defer his or
her Fees to a specified date in the future, payment
shall be as of such date and shall be made or shall
commence, as the case may be, within thirty (30) days
after the date specified;
(b) if a Participant has elected to defer his or
her Fees until cessation of his or her service as a
member of the Board of Directors, payment shall be as
of the date of such cessation of service and shall be
made or shall commence, as the case may be, within
thirty (30) days after the cessation of the
Participant's service as a director; and
(c) if a Participant has elected to defer his or
her Fees until the end of the calendar year in which
the cessation of his or her service as a member of the
Board of Directors occurs, payment shall be made or
commence, as the case may be, on or before December
31st of such year.
-5-
<PAGE>
5.7 Payment Upon Death. Notwithstanding any elections
pursuant to Sections 5.2 and/or 5.8 hereof, but subject to
Section 5.9 hereof, in the event of the death of a
Participant prior to the distribution of his or her Account
hereunder, the balance credited to such Participant's
Account as of the date of his or her death shall be paid, as
soon as reasonably possible thereafter, in a single
distribution to the Participant's beneficiary or
beneficiaries designated on such Participant's deferral
election form. If no such election or designation has been
made, such amounts shall be payable to the Participant's
estate.
5.8 Form of Payment. Subject to Section 5.9, a
Participant may elect to have his or her Account under the
Plan paid in a single distribution or equal annual
installments, not to exceed 10 annual installments. To the
extent a Participant's Account is deemed invested in Stock
Units, such Stock Units shall be converted to the applicable
Stock on the distribution date as provided in the next
paragraph. To the extent deemed invested in units of any
other stock, such units shall similarly be converted and
distributed in the form of stock. To the extent invested in
a medium other than Stock Units or other units, each such
distribution hereunder shall be in the medium credited to
the Participant's Account.
To the extent a Participant's Account is deemed
invested in Stock Units, a single distribution shall consist
of the number of whole shares of the applicable Stock equal
to the number of Stock Units credited to the Participant's
Account on the date as of which the distribution occurs.
Cash shall be paid to a Participant in lieu of a fractional
share, determined by reference to the applicable Stock Price
on the date as of which the distribution occurs.
In the event a Participant has elected to receive
annual installment payments, each such payment shall be
determined as follows:
(i) To the extent his or her Account is deemed to
be invested in Stock Units, each such payment shall
consist of the number of whole shares of Stock equal to
the number of Celera Stock Units and PE Biosystems
Stock Units, as the case may be, (in each case
including fractional units) credited to the
Participant's Account on the date as of which the
distribution occurs, divided by the number of annual
installments remaining as of such distribution date.
Cash shall be paid to Participants in lieu of
fractional shares, determined by reference to the
applicable Stock Price on the date as of which the
distribution occurs.
(ii) To the extent his or her Account has been
credited in cash, each such payment shall be calculated
by dividing the value on the date the distribution
occurs of that portion of the Participant's Account
which is in cash by the number of annual installments
remaining as of such distribution date.
Each Participant or beneficiary agrees that prior to
any distribution under the Plan, he or she will make such
representations and execute such documents as are deemed by
the Board of Directors to be necessary to comply with
applicable laws.
-6-
<PAGE>
5.9 Split-Dollar Arrangements. Notwithstanding
anything to the contrary contained herein, in the event that
the Company has paid any premiums under any life insurance
policies purchased in accordance with the terms of any split-
dollar insurance agreement between a Participant and the
Company, the Company shall have no obligation hereunder to
make any distribution to such Participant of that portion of
the balance of such Participant's Account credited in cash
pursuant to Section 5.6 or 5.7 equal to the amount of such
premiums, or to credit any interest on such portion of such
Account pursuant to Section 5.5(b), unless and until such
time as the Company shall be reimbursed in full for the
amount of such premium payments. At such time as the
Company shall have been reimbursed in full for the amount of
such premium payments, the balance of such Participant's
Account so credited in cash shall be distributed as follows:
(i) if such Participant is on the date of such reimbursement
in full a Participant in the Plan, then in accordance with
his or her election pursuant to Sections 5.2 and 5.8, and
(ii) if such Participant is not a Participant in the Plan on
the date of such reimbursement, then in a single
distribution as soon as reasonably possible after such date.
6. ADMINISTRATION OF THE PLAN.
The Board of Directors shall administer the Plan. The
Board of Directors shall have plenary authority in its
discretion to interpret the Plan; to prescribe, amend and
rescind rules and regulations relating to it; to determine
the terms of Fees deferral agreements executed and delivered
under the Plan, including such terms and provisions as shall
be requisite in the judgment of the Board of Directors to
conform to any change in any law or regulation applicable
thereto; and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
The Board of Directors' determination on the foregoing
matters shall be conclusive.
7. TERMINATION AND AMENDMENT OF THE PLAN.
The Board of Directors may at any time terminate the
Plan or make such modification or amendment of the Plan as
it shall deem advisable; provided, however, that no
amendment may be made, without the approval by the holders
of the Stock, which would (i) materially increase the
benefits accruing to Participants under the Plan, (ii)
increase the maximum number of shares reserved for issuance
under the Plan, or (iii) amend the requirements as to the
class of persons eligible to participate in the Plan and,
provided further, that no modification or amendment of the
Plan shall reduce any amount already credited to a
Participant's Account as of the effective date of such
modification or amendment. This Plan may be amended without
shareholder approval in order to ensure that this Plan, in
form and operation, complies with regulations issued under
Section 16 of the Securities Exchange Act of 1934. In no event
may Paragraphs 3, 4 and 5 of the Plan be amended more than
once every six months other than to comport with changes in
-7-
<PAGE>
the Internal Revenue Code of 1986, as amended, or the
Employee Retirement Income Security Act of 1974, as
amended.
8. STOCK RESERVED FOR THE PLAN.
One hundred thousand (100,000) shares of authorized but
unissued PE Biosystems Stock are reserved for issuance and
may be issued pursuant to the terms of the Plan. Fifty
thousand (50,000) shares of authorized but unissued Celera
Stock are reserved for issuance and may be issued pursuant
to the terms of the Plan.
In lieu of such unissued shares, the Corporation may,
in its discretion, transfer to Participants under the terms
of the Plan treasury shares, reacquired shares or shares
bought in the market for the purposes of the Plan, provided
that (subject to the provisions of the next paragraph) the
total number of shares which may be issued under the Plan
shall not exceed 100,000 shares of PE Biosystems Stock and
50,000 shares of Celera Stock.
In the event of any changes in the outstanding Celera
Stock or PE Biosystems Stock by reason of stock dividends,
split-ups, spin-offs, recapitalizations, mergers,
consolidations, combinations or exchanges of shares and the
like, the aggregate number and class of shares available
under the Plan shall be appropriately adjusted.
9. NO INTEREST IN ASSETS.
No Participant or any other person shall have any
interest in any specific asset of the Corporation by reason
of any amount credited to him or her hereunder, nor any
right to receive any distribution under the Plan except as
and to the extent expressly provided in the Plan. There
shall be no funding of any benefits which may become payable
hereunder. No trust shall be created by the execution or
adoption of this Plan or be required to be created in
connection herewith. Any amounts which become payable
hereunder shall be paid from the general assets of the
Corporation. Nothing in the Plan shall be deemed to give
any member of the Board of Directors any right to
-8-
<PAGE>
participate in the Plan, except in accordance with the
provisions of the Plan.
10. RESTRICTION AGAINST ASSIGNMENT.
The Corporation shall pay all amounts payable hereunder
only to the person or persons designated by the Plan as
Participant or beneficiary, as appropriate, and not to any
other person or corporation. No part of a Participant's
Account shall be liable for the debts, contracts or
engagements of any Participant, his or her beneficiaries or
successors in interest, nor shall it be subject to execution
by levy, attachment or garnishment or by any other legal or
equitable proceeding, nor shall any such person have any
right to alienate, anticipate, commute, pledge, encumber or
assign any benefits or payments hereunder in any manner
whatsoever.
11. GOVERNMENT REGULATIONS.
The Plan, and the deferral of Fees and purchase of
Stock thereunder, and the obligation of the Corporation to
issue, sell and deliver shares, as applicable, under the
Plan, shall be subject to all applicable laws, rules and
regulations.
12. GOVERNING LAW.
This Plan shall be construed, regulated and
administered under the internal laws of the State of
Delaware.
13. SHAREHOLDER APPROVAL.
This Plan shall be without force and effect unless
approved by the Corporation's shareholders.
-9-
<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, 1999 AND THE CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION AT MARCH 31, 1999 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-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 81,375
<SECURITIES> 0
<RECEIVABLES> 295,946
<ALLOWANCES> (4,064)
<INVENTORY> 172,059
<CURRENT-ASSETS> 782,086
<PP&E> 352,595
<DEPRECIATION> (145,064)
<TOTAL-ASSETS> 1,326,843
<CURRENT-LIABILITIES> 432,852
<BONDS> 0
<COMMON> 50,649
0
0
<OTHER-SE> 616,781
<TOTAL-LIABILITY-AND-EQUITY> 1,326,843
<SALES> 869,063
<TOTAL-REVENUES> 869,063
<CGS> 395,634
<TOTAL-COSTS> 395,634
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,128
<INTEREST-EXPENSE> 2,635
<INCOME-PRETAX> 94,394
<INCOME-TAX> (17,475)
<INCOME-CONTINUING> 67,383
<DISCONTINUED> 1,149
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,532
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.34
</TABLE>
