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 September 30, 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 of (I.R.S. Employer
Incorporation or Organization) Identification Number)
761 Main Avenue,
Norwalk, Connecticut 06859-0001
(Address of Principal Executive Offices, Including Zip Code)
(203) 762-1000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ____
As of the close of business on November 11, 1999, there were 103,073,602 shares
of PE Corporation - PE Biosystems Group Common Stock and 25,972,082 shares of PE
Corporation - Celera Genomics Group Common Stock outstanding.
<PAGE>
PE CORPORATION
INDEX
<TABLE>
<S> <C> <C> <C>
Part I. Financial Information Page
A. PE Biosystems Group
Item 1. Financial Statements
Condensed Combined Statements of Operations for the
Three Months Ended September 30, 1999 and 1998 1
Condensed Combined Statements of Financial Position at
September 30, 1999 and June 30, 1999 2
Condensed Combined Statements of Cash Flows for the
Three Months Ended September 30, 1999 and 1998 3
Notes to Unaudited Condensed Combined Financial Statements 4 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 17
B. Celera Genomics Group
Item 1. Financial Statements
Condensed Combined Statements of Operations for the
Three Months Ended September 30, 1999 and 1998 18
Condensed Combined Statements of Financial Position at
September 30, 1999 and June 30, 1999 19
Condensed Combined Statements of Cash Flows for the
Three Months Ended September 30, 1999 and 1998 20
Notes to Unaudited Condensed Combined Financial Statements 21 - 22
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 23 - 30
C. PE Corporation Consolidated
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1999 and 1998 31
<PAGE>
Condensed Consolidated Statements of Financial Position at
September 30, 1999 and June 30, 1999 32
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1999 and 1998 33
Notes to Unaudited Condensed Consolidated Financial Statements 34 - 39
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 40 - 49
Part II. Other Information 50
</TABLE>
<PAGE>
PE BIOSYSTEMS GROUP
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
(Dollar amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998
----------------- -----------------
<S> <C> <C>
Net Revenues $ 292,255 $ 251,204
Cost of sales 137,499 112,229
----------------- -----------------
Gross Margin 154,756 138,975
----------------- -----------------
Selling, general and administrative 77,737 72,687
Research, development and engineering 32,032 32,297
Merger costs 938
----------------- -----------------
Operating Income 44,987 33,053
Interest expense 2,213 802
Interest income 4,245 490
Other (expense) income, net (4,580) 1,706
----------------- -----------------
Income Before Income Taxes 42,439 34,447
Provision for income taxes 12,732 9,842
Minority interest 3,108
----------------- -----------------
Income From Continuing Operations 29,707 21,497
Loss From Discontinued
Operations, Net of Income Taxes (879)
----------------- -----------------
Net Income $ 29,707 $ 20,618
================= =================
Net Income per Share (see Note 4)
Basic $ .29
Diluted $ .28
Dividends per Share $ .085
</TABLE>
See accompanying notes to the PE Biosystems group unaudited condensed combined
financial statements.
1
<PAGE>
PE BIOSYSTEMS GROUP
CONDENSED COMBINED STATEMENTS OF FINANCIAL POSITION
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At September 30, At June 30,
1999 1999
------------------ -----------------
Assets (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 162,665 $ 236,530
Note receivable 150,000 150,000
Accounts receivable, net 322,823 306,225
Inventories 164,352 149,670
Prepaid expenses and other current assets 92,777 75,801
------------------ -----------------
Total current assets 892,617 918,226
Property, plant and equipment, net 187,774 182,183
Other long-term assets 285,839 247,141
------------------ -----------------
Total Assets $ 1,366,230 $ 1,347,550
================== =================
Liabilities and Group Equity
Current liabilities
Loans payable $ 10,057 $ 3,911
Note payable to the Celera Genomics group 150,000 150,000
Tax benefit payable to the Celera Genomics group 7,490 9,935
Accounts payable 132,136 147,704
Accrued salaries and wages 29,027 43,316
Accrued taxes on income 127,971 132,170
Other accrued expenses 151,281 156,552
------------------ -----------------
Total current liabilities 607,962 643,588
Long-term debt 35,745 31,452
Other long-term liabilities 115,026 138,178
------------------ -----------------
Total Liabilities 758,733 813,218
Group Equity 607,497 534,332
------------------ -----------------
Total Liabilities and Group Equity $ 1,366,230 $ 1,347,550
================== =================
</TABLE>
See accompanying notes to the PE Biosystems group unaudited condensed combined
financial statements.
2
<PAGE>
PE BIOSYSTEMS GROUP
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998
------------ -----------
<S> <C> <C>
Operating Activities from Continuing Operations
Income from continuing operations $ 29,707 $ 21,497
Adjustments to reconcile income from continuing operations
to net cash used by operating activities
Depreciation and amortization 13,153 8,994
Long-term compensation programs 2,137 642
Deferred income taxes 4,025 (1,741)
Changes in operating assets and liabilities
Increase in accounts receivable (6,753) (1,971)
Increase in inventories (10,465) (19,097)
Increase in prepaid expenses and other assets (24,997) (5,110)
Decrease in accounts payable and other liabilities (69,050) (19,430)
------------ -----------
Net Cash Used by Operating Activities (62,243) (16,216)
------------ -----------
Investing Activities from Continuing Operations
Additions to property, plant and equipment
(net of disposals of $372 and $506, respectively) (14,522) (21,583)
Investment, net (125)
Proceeds from the sale of assets, net 14,301
------------ -----------
Net Cash Used by Investing Activities (14,647) (7,282)
------------ -----------
Net Cash Used by Continuing Operations Before Financing Activities (76,890) (23,498)
------------ -----------
Discontinued Operations
Net cash (used) provided by operating activities (4,561) 1,542
Net cash used by investing activities (19,276)
------------ -----------
Net Cash Used by Discontinued Operations
Before Financing Activities (4,561) (17,734)
------------ -----------
Financing Activities
Net change in loans payable 5,537 43,837
Principal payments on long-term debt (5,297)
Dividends (8,748) (8,396)
Proceeds from stock issued for stock plans 7,335 6,375
Net cash allocated to the Celera Genomics group (8,535)
------------ -----------
Net Cash Provided by Financing Activities 4,124 27,984
------------ -----------
Effect of Exchange Rate Changes on Cash 3,462 2,231
------------ -----------
Net Change in Cash and Cash Equivalents (73,865) (11,017)
Cash and Cash Equivalents Beginning of Period 236,530 82,865
------------ -----------
Cash and Cash Equivalents End of Period $ 162,665 $ 71,848
============ ===========
</TABLE>
See accompanying notes to the PE Biosystems group unaudited condensed combined
financial statements.
3
<PAGE>
PE BIOSYSTEMS GROUP
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 - INTERIM CONDENSED COMBINED FINANCIAL STATEMENTS
The interim condensed combined financial statements should be read in
conjunction with the financial statements presented in PE Corporation's ("PE's"
or the "Company's") 1999 Annual Report to Stockholders. Significant accounting
policies disclosed therein have not changed.
The unaudited condensed combined 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 combined financial statements have been
reclassified for comparative purposes.
The PE Biosystems group's and the Celera Genomics group's condensed combined
financial statements should be read in conjunction with the Company's
consolidated financial statements.
NOTE 2 - DISCONTINUED OPERATIONS
Effective May 28, 1999, the Company completed the sale of its Analytical
Instruments business to EG&G, Inc. Analytical Instruments, formerly a unit of
the Company's PE Biosystems group, develops, manufactures, markets, sells, and
services analytical instruments used in a variety of markets. As part of the
sale, the rights to the "Perkin-Elmer" name were transferred to EG&G. The
transaction is subject to post-closing adjustments pursuant to the terms of the
agreement with EG&G.
The PE Biosystems group's combined financial statements were restated to reflect
the operating results of the Analytical Instruments business as discontinued
operations for the three months ended September 30, 1998.
NOTE 3 - COMPREHENSIVE INCOME
Accumulated other comprehensive income included in Group Equity on the Condensed
Combined 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 month period ended September 30, 1999 and 1998 is presented
in the following table:
4
<PAGE>
PE BIOSYSTEMS GROUP
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
<TABLE>
<CAPTION>
(Dollar amounts in millions) Three months ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Net income $ 29.7 $ 20.6
Other comprehensive income, net of tax
Foreign currency translation adjustment 12.9 6.2
Unrealized gain (loss) on investments, net 32.6 (4.0)
-------- --------
Other comprehensive income 45.5 2.2
-------- --------
Comprehensive income $ 75.2 $ 22.8
======== ========
</TABLE>
NOTE 4 - EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted income per
share:
<TABLE>
<CAPTION>
Three months ended
(Amounts in thousands September 30,
except per share amounts) 1999
----------
<S> <C>
Weighted average number of common
shares used in the calculation of basic
earnings per share 102,852
Common stock equivalents 3,635
---------
Shares used in the calculation of diluted
earnings per share 106,487
=========
Net income used in the calculation of
basic and diluted earnings per share $ 29,707
=========
Net income per share
Basic $ .29
Diluted $ .28
</TABLE>
On May 6, 1999, The Perkin-Elmer Corporation was merged with a subsidiary of PE
Corporation, a new Delaware corporation. The recapitalization resulted in the
issuance of two new classes of common stock called PE Corporation-PE Biosystems
Group Common Stock and PE Corporation-Celera Genomics Group Common Stock.
Therefore, the reconciliation for the three months ended September 30, 1998 is
omitted since PE Biosystems Group Common Stock was not part of the capital
structure of the Company during such period.
5
<PAGE>
PE BIOSYSTEMS GROUP
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis) or
market. Inventories included the following components:
<TABLE>
<CAPTION>
(Dollar amounts in millions) September 30, June 30,
1999 1999
--------- ---------
<S> <C> <C>
Raw materials and supplies $ 42.7 $ 42.8
Work-in-process 8.5 10.3
Finished products 113.2 96.6
--------- ---------
Total inventories $ 164.4 $ 149.7
========= =========
</TABLE>
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes and significant non-cash investing and
financing activities were as follows:
<TABLE>
<CAPTION>
(Dollar amounts in millions) Three months ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Interest $ .3 $ .6
Interest paid to the Celera Genomics group $ 2.0
Income taxes $ .6 $ 5.7
Tax benefits paid to the Celera Genomics group $ 9.9
Significant non-cash investing
and financing activities
Unrealized gain (loss) on investments $ 32.6 $ (4.0)
</TABLE>
NOTE 7 - FINANCIAL INSTRUMENTS
The PE Biosystems group 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 PE Biosystems group does not use derivative financial
instruments for trading or other speculative purposes, nor is the PE Biosystems
group a party to leveraged derivatives.
6
<PAGE>
PE BIOSYSTEMS GROUP
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
At September 30, 1999 and June 30, 1999, 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 following table:
<TABLE>
<CAPTION>
(Dollar amounts in millions) September 30, 1999 June 30, 1999
Sale Purchase Sale Purchase
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Japanese Yen $ 102.0 $ .5 $ 104.2 $ 6.0
French Francs 1.3 4.3
Australian Dollars 8.3 12.0
German Marks 19.3 3.5 25.4
Italian Lira 2.5 10.4 2.6
British Pounds 16.1 41.2 18.6 50.6
Swiss Francs 7.3 .7 7.5 .7
Swedish Krona 9.7 8.9
Danish Krona 6.7 8.1
Singapore Dollars 4.5 4.7 9.3 3.3
Netherland Guilders 16.1
Euro 32.0 39.1 28.2
Other 13.5 .7 17.1
--------- -------- --------- --------
Total $ 223.2 $ 90.4 $ 254.0 $ 79.3
========= ======== ========= ========
</TABLE>
NOTE 8 - RESTRUCTURING AND OTHER MERGER COSTS
At September 30, 1999, the remaining accrual balance related to the fiscal 1998
restructuring charge for the integration of PerSeptive Biosystems, Inc. was $5.0
million, consisting of $3.0 million relating to personnel costs and $2.0 million
relating to facility consolidation and asset related write-off costs (see Note
10 to the PE Biosystems group's combined financial statements in the Company's
1999 Annual Report to Stockholders).
7
<PAGE>
PE BIOSYSTEMS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion of Operations
The following discussion should be read in conjunction with the PE Biosystems
group's condensed combined financial statements and related notes and PE
Corporation's ("PE's" or the "Company's") condensed consolidated financial
statements and related notes included in this report; the PE Biosystems group's
"Management's Discussion and Analysis" appearing on pages 38 - 47 of the
Company's Annual Report to Stockholders; and PE Corporation's "Management's
Discussion and Analysis" appearing on pages 97 - 109 of the Company's 1999
Annual Report to Stockholders. 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."
Events Impacting Comparability
Discontinued Operations. Effective May 28, 1999, we completed the sale of our
Analytical Instruments business to EG&G, Inc. Analytical Instruments, formerly a
unit of the PE Biosystems group, develops, manufactures, markets, sells, and
services analytical instruments used in a variety of markets. As part of the
sale, the rights to the "Perkin-Elmer" name were transferred to EG&G. The
transaction is subject to post-closing adjustments pursuant to the terms of the
agreement with EG&G.
Amounts previously reported for Analytical Instruments have been reclassified
and stated as discontinued operations. See Note 15 to the PE Biosystems group's
combined financial statements included in the Company's 1999 Annual Report to
Stockholders.
Disposition. During the fourth quarter of fiscal 1999, we divested our interest
in Tecan AG.
Merger-related costs. The Company incurred merger-related period costs of $.9
million in the first quarter of fiscal 1999 in connection with the integration
of PerSeptive into the Company. See Note 10 to the PE Biosystems group's
combined financial statements included in the Company's 1999 Annual Report to
Stockholders.
Results of Continuing Operations for the Three Months Ended September 30, 1999
Compared with the Three Months Ended September 30, 1998
The PE Biosystems group reported income from continuing operations of $29.7
million for the first quarter of fiscal 2000 compared with $21.5 million for the
first quarter of fiscal 1999. On a comparable basis, excluding Tecan and the $.9
million of merger-related period costs incurred in the first quarter of fiscal
1999, income from continuing operations increased 33.2% to $29.7 million for the
first quarter of fiscal 2000 compared with $22.3 million for the prior period.
This increase is attributable to the growth in net revenues and lower operating
expenses as a percent
8
<PAGE>
PE BIOSYSTEMS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
of net revenues. Offsetting the lower operating expenses were non-operating
costs related to the PE Biosystems group's foreign currency management program.
Net revenues were $292.3 million for the first quarter of fiscal 2000 compared
with $251.2 million for the first quarter of fiscal 1999. Excluding the results
of Tecan in the prior year, revenues increased 30.7% compared with the prior
year. The effects of foreign currency translation increased net revenues by
approximately 2% compared with the prior year. Net revenues from shipments to
the Celera Genomics group were $11.7 million for the first quarter of fiscal
2000, or 4% of the PE Biosystems group's net revenues, as compared with $.4
million for the first quarter of fiscal 1999.
Geographically, excluding the net revenues of Tecan for the first quarter of
fiscal 1999, the PE Biosystems group reported revenue growth in all regions for
the first quarter of fiscal 2000 compared with the first quarter of fiscal 1999.
Revenues increased 25.2% in the United States, 23.1% in Europe, 65.8% in the Far
East and 29.2% in Latin America and other markets, compared with the first
quarter of the prior fiscal year. Increased demand for genetic analysis
products, sequence detection systems, and liquid chromatography/mass
spectrometry ("LC/MS") products contributed to the growth.
Gross margin as a percentage of net revenues was 53.0% for the first quarter of
fiscal 2000 compared with 55.3% for the first quarter of fiscal 1999. The
decrease was primarily the result of a change in product mix. Higher unit sales
of reagents to support genetic analysis systems and increased royalty and
contract licensing revenues were the primary contributors for the higher gross
margin percentage for the first quarter of fiscal 1999.
SG&A expenses were $77.7 million for the first quarter of fiscal 2000 compared
with $72.7 million for the first quarter of fiscal 1999, an increase of 6.9%.
Excluding Tecan, SG&A expenses for the PE Biosystems group increased 20.7% for
the first quarter of fiscal 2000 compared with the first quarter of the prior
year. This increase was due to higher planned expenses, reflecting the growth in
sales and orders. As a percentage of net revenues, excluding Tecan, SG&A
expenses were 26.6% for the first quarter of fiscal 2000 compared with 28.8% for
the prior year.
R&D expenses were $32.0 million for the first quarter of fiscal 2000 compared
with $32.3 million for the prior year. Excluding Tecan, R&D expenses increased
9.9% compared with first quarter of the prior year. As a percentage of net
revenues, excluding Tecan, R&D expenses were 11.0% for the first quarter of
fiscal 2000 compared with 13.1% for the first quarter of the prior year.
The Company incurred merger-related period costs of $.9 million for the first
quarter of fiscal 1999 for training, relocation, and communication in connection
with the integration of PerSeptive into the Company. See Note 10 to the PE
Biosystems group's combined financial statements included in the Company's 1999
Annual Report to Stockholders.
Operating income increased to $45.0 million for the first quarter of fiscal 2000
compared with $33.1 million for the prior year. On a comparable basis, excluding
the results of Tecan and the merger-
9
<PAGE>
PE BIOSYSTEMS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
related period costs incurred in the first quarter of fiscal 1999, operating
income increased 52.5% for the first quarter of fiscal 2000 compared with the
prior year. The PE Biosystems group benefited from increased revenues primarily
as a result of strong demand for several new products introduced over the past
year. The PE Biosystems group also benefited from lower operating expenses as a
percentage of net revenues, partially as a result of slower than planned ramp-up
in staffing. Operating income as a percentage of net revenues, excluding the
results of Tecan and merger-related costs for the first quarter of fiscal 1999,
increased to 15.4% for the first quarter of fiscal 2000 compared with 13.2% for
the prior year.
Interest expense was $2.2 million for the first quarter of fiscal 2000 compared
with $.8 million for the prior year. This increase was primarily due to the
interest on the note payable to the Celera Genomics group, as well as slightly
higher average interest rates. Interest income was $4.2 million for the first
quarter of fiscal 2000 compared with $.5 million for the prior year, which
included interest on the note receivable from EG&G relating to the sale of the
Analytical Instruments business. The increase was also due to higher cash
balances and higher interest rates.
Other expense, net for the first quarter of fiscal 2000 was $4.6 million,
primarily related to costs associated with the Company's traditional foreign
currency hedging program of its projected cash flows. Other income, net was $1.7
million for the first quarter of fiscal 1999, and primarily related to a legal
settlement.
The effective income tax rate was 30% for the first quarter of fiscal 2000
compared with 29% for the prior year. Excluding Tecan and the special items in
the first quarter of fiscal 1999, the effective income tax rate was 28%. See
Note 1 to the PE Biosystems group combined financial statements in the Company's
1999 Annual Report to Stockholders for a discussion of allocations of federal
and state income taxes.
For the first quarter of fiscal 1999, the PE Biosystems group incurred minority
interest expense of $3.1 million relating to the Company's 14.5% financial
interest in Tecan.
Market Risk
The PE Biosystems group operates internationally, with manufacturing and
distribution facilities in various countries throughout the world. For the first
quarter of fiscal 2000 and fiscal 1999, the PE Biosystems group derived
approximately 49% and 47%, respectively, of its revenues from countries outside
of the United States. Results continue to be affected by market risk, including
fluctuations in foreign currency exchange rates and changes in economic
conditions in foreign markets.
The risk management strategy for the PE Biosystems group utilizes derivative
financial instruments, including forwards, swaps, purchased options, and
synthetic forward contracts to hedge certain foreign currency and interest rate
exposures, with the intent of offsetting losses and gains that occur on the
underlying exposures with gains and losses on the derivatives. The PE Biosystems
group does not use derivative financial instruments for trading or other
speculative purposes, nor is the PE
10
<PAGE>
PE BIOSYSTEMS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Biosystems group a party to leveraged derivatives. At September 30, 1999 and
June 30, 1999, outstanding hedge contracts covered approximately 80% of the
estimated exposures related to foreign currency cash flows to be realized over
the next twelve months. The outstanding hedges were a combination of forward,
option, and synthetic forward contracts maturing over the next twelve months.
The Company performed sensitivity analyses as of September 30, 1999 and June 30,
1999. Assuming a hypothetical adverse change of 10% in foreign exchange rates in
relation to the U.S. Dollar at September 30, 1999, the Company calculated a
hypothetical loss of $17.6 million when comparing the change in fair value of
both the foreign currency contracts outstanding and the underlying exposures
being hedged at September 30, 1999. Performing the same hypothetical calculation
at June 30, 1999, the Company calculated a hypothetical loss of $6.1 million.
These hypothetical analyses exclude the impact of foreign currency translation
on PE Biosystems group's operations. Actual gains and losses in the future
could, however, differ materially from these analyses, based on changes in the
timing and amount of foreign currency exchange rate movements, actual exposures
and hedges.
Interest rate swaps are used to hedge underlying debt obligations. In fiscal
1997, PE executed an interest rate swap, allocated to the PE Biosystems group,
in conjunction with PE entering into a five-year Japanese Yen debt obligation.
Under the terms of the swap agreement, PE pays a fixed rate of interest at 2.1%
and receives a floating LIBOR interest rate. At September 30, 1999, the notional
amount of indebtedness covered by the interest rate swap was Yen 3.8 billion or
$35.7 million. 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 Combined Statements of Financial Position.
Cash and cash equivalents were $162.7 million at September 30, 1999 compared
with $236.5 million at June 30, 1999, with total debt of $195.8 million at
September 30, 1999 compared with $185.4 million at June 30, 1999. Working
capital was $284.7 million at September 30, 1999 compared with $274.6 million at
June 30, 1999. Debt to total capitalization decreased to 24% at September 30,
1999 from 26% at June 30, 1999.
Other long-term assets increased $38.7 million to $285.8 million at September
30, 1999 from $247.1 million at June 30, 1999, primarily as a result of a net
increase in value of the Company's minority equity investments.
Accounts payable decreased $15.6 million to $132.1 million at September 30, 1999
from $147.7 million at June 30, 1999. Payments for higher purchases incurred
during the fourth quarter of fiscal
11
<PAGE>
PE BIOSYSTEMS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
1999, which were made to support increased production and operating
requirements, contributed to the decrease.
Accrued salaries and wages decreased $14.3 million to $29.0 million at September
30, 1999 from $43.3 million at June 30, 1999 reflecting timing of payments.
Condensed Combined Statements of Cash Flows. Net cash used by operating
activities from continuing operations was $62.2 million for the first three
months of fiscal 2000 compared with $16.2 million for the same period in fiscal
1999. For the first three months of fiscal 2000, higher income-related cash flow
was more than offset by higher payments to suppliers and payments of certain
compensation accruals, as well as higher prepaid expenses and other assets,
and accounts receivable.
Net cash used by investing activities from continuing operations was $14.6
million for the first three months of fiscal 2000 compared with $7.3 million for
the first three months of fiscal 1999. In the first quarter of fiscal 2000, the
PE Biosystems group's capital expenditures were $14.9 million, which included
$2.8 million related to improvement of its information technology
infrastructure. For the first quarter of fiscal 1999, the PE Biosystems group
generated $14.3 million in net cash proceeds from the sale of certain
non-operating assets. The fiscal 1999 cash proceeds were more than offset by
capital expenditures of $22.1 million, which included $1.3 million related to
improvement of the information technology infrastructure, and $17.5 million for
the acquisition of a corporate airplane.
Net cash used by discontinued operations was $4.6 million for the first three
months of fiscal 2000 compared with $17.7 million for the first three months of
fiscal 1999. The fiscal 2000 use of $4.6 million was for transaction-related
payments and other cash outlays associated with the divestiture of the
analytical instruments business. The Company expects additional cash outlays
over the balance of the fiscal year.
Net cash provided by financing activities was $4.1 million for the first quarter
of fiscal 2000 compared with $28.0 million for the prior period. For the first
quarter of fiscal 2000, the PE Biosystems group received $7.3 million in
proceeds from employee stock option exercises compared with $6.4 million for the
prior period. Loans payable increased $5.5 million for the first quarter of
fiscal 2000 compared with an increase of $43.8 million for the prior year. The
first quarter of fiscal 1999 included a payment of $5.3 million for the
retirement of foreign debt and $8.5 million of cash allocated to the Celera
Genomics group.
Year 2000
In fiscal 1997, PE 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.
12
<PAGE>
PE BIOSYSTEMS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
The operations of the PE Biosystems group are included within this program. At
this time, PE is not able to determine the relative resources required to
implement this program in the PE Biosystems group. However, PE believes that a
substantial portion of the resources required were allocated to the PE
Biosystems group.
Regarding PE's 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 PE's 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 PE expects the PE Biosystems group's
current product offerings to be Year 2000 compliant by December 31, 1999. A
substantial portion of the PE Biosystems group's current product offerings is
Year 2000 compliant.
The program also addresses the Year 2000 compliance efforts of PE's significant
suppliers, vendors, and third-party interface systems. As part of this analysis,
PE has identified and prioritized these suppliers, vendors, and third parties
and has sought written assurances from them that they will be Year 2000
compliant. The vast majority of PE's third-party suppliers and vendors have met
the standards of the program; however, PE is aggressively pursuing the few
remaining companies that have compliance end dates in the last calendar quarter
of 1999. There can be no assurance that the systems of other companies with
which PE deals, or on which PE's systems rely will be timely converted, or that
any such failure to convert by another company could not have a material adverse
effect on PE. PE has not fully determined the extent to which PE's interface
systems may be impacted by third parties' systems, which may not be Year 2000
compliant but is addressing this issue in our contingency plans noted below.
As of the date of this filing, PE was over 95% complete in accomplishing the
objectives established in its program. Remediation of all business-critical
applications has been completed. PE's preliminary estimate of the total cost for
this multi-year program covering 3-4 years is approximately $150 million. This
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 have been met with amounts that are
normally budgeted for procurement and maintenance of PE's information systems,
production, and facilities equipment. The redirection of spending to implement
Year 2000 compliance plans has in some instances delayed productivity
improvements.
13
<PAGE>
PE BIOSYSTEMS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
PE has also engaged a consulting firm to provide periodic assessments of PE's
Year 2000 project plans and progress. Because of the importance of addressing
the Year 2000 problem, PE has created a Year 2000 business continuity planning
team which has developed, and will continue to develop, business contingency
plans to address issues that may not be corrected by implementation of PE's 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 PE is not
successful in implementing its Year 2000 compliance plan, or there are delays in
and/or increased costs associated with implementing such changes, the Year 2000
problem could have a materially adverse effect on PE's consolidated results of
operations and financial condition.
At this stage of the process, PE believes 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 PE's operations and have a materially adverse effect on PE's
financial condition. The impact of such disruption cannot be estimated at this
time. In the event PE believes that any of its significant suppliers or vendors
are unlikely to be able to resolve their own Year 2000 issues, PE's 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.
The PE Biosystems group is currently evaluating the impact the euro conversion
may have on its computer and financial systems, business processes, market risk,
and price competition. The PE Biosystems group does not expect this conversion
to have a material impact on its 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
14
<PAGE>
PE BIOSYSTEMS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
derivative and the resulting designation. The PE Biosystems group is required to
implement the statement in the first quarter of fiscal 2001. Management is
currently analyzing the statement to determine the impact, if any, on the
combined financial statements.
Outlook
The PE Biosystems group expects to continue to grow and maintain profitability
for fiscal 2000 on the strength of robust demand and several new products.
Fiscal 2000 will focus on growing product lines across a broad array of base
technologies and exploring the needs of evolving markets. Orders were
particularly strong for market-leading products for gene expression and SNP
(single nucleotide polymorphism) analysis from sequence detection systems.
Compared with last year's first quarter, orders for these products grew more
than 100 percent. The Group continued to receive strong order growth for its
mass spectrometry products, genetic analysis systems, and products used in
standardized testing, such as forensics, that are driven by molecular
biology-based reagents. PE Biosystems also reported very strong growth in its
Japanese business, in part from increases in government funding for genomic
research projects. At September 30, 1999, backlog increased slightly as compared
with June 30, 1999.
We remain concerned about adverse currency effects because approximately 50% of
the PE Biosystems group's revenues were derived from regions outside the United
States 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:
Rapidly changing technology in life sciences could make PE Biosystems' product
line obsolete unless it continues to improve existing products and develop new
products. A significant portion of the net revenues for PE Biosystems each year
is 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
15
<PAGE>
PE BIOSYSTEMS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
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.
A significant portion of sales depends on customers' capital spending policies
and government funding which may be subject to significant and unexpected
decreases. A significant portion of PE Biosystems' instrument product sales are
capital purchases by 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 is 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 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.
16
<PAGE>
PE BIOSYSTEMS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Since PE Biosystems' business is dependent on foreign sales, fluctuating
currencies will make our revenues and operating results more volatile.
Approximately 50% of PE Biosystems' net revenues during fiscal 1999 were derived
from sales to customers outside of the United States. The majority of these
sales was 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 could present
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, PE Biosystems 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.
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.
17
<PAGE>
CELERA GENOMICS GROUP
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
(Dollar amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998
------------------ ------------------
<S> <C> <C>
Net Revenues $ 8,279 $ 3,916
Costs and Expenses
Research and development 32,164 4,677
Selling, general and administrative 8,407 4,792
------------------ ------------------
Operating Loss (32,292) (5,553)
Interest expense 51
Interest income 2,033
------------------ ------------------
Loss Before Income Taxes (30,310) (5,553)
Benefit for income taxes 10,912 1,944
------------------ ------------------
Net Loss $ (19,398) $ (3,609)
================== ==================
Net Loss per Share (see Note 2)
Basic and diluted $ (.75)
</TABLE>
See accompanying notes to the Celera Genomics group unaudited condensed combined
financial statements.
18
<PAGE>
CELERA GENOMICS GROUP
CONDENSED COMBINED STATEMENTS OF FINANCIAL POSITION
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At September 30, At June 30,
1999 1999
----------------- -----------------
Assets (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 80,052 $ 71,491
Note receivable from the PE Biosystems group 150,000 150,000
Tax benefit receivable from the PE Biosystems group 7,490 9,935
Accounts receivable, net 6,645 3,276
Prepaid expenses and other current assets 7,743 3,454
----------------- -----------------
Total current assets 251,930 238,156
Property, plant and equipment, net 107,542 104,192
Other long-term assets 2,253 2,372
----------------- -----------------
Total Assets $ 361,725 $ 344,720
================= =================
Liabilities and Group Equity
Current liabilities
Loans payable $ 46,000 $ -
Accounts payable 9,870 19,861
Accrued salaries and wages 3,027 4,179
Deferred revenues 9,043 12,032
Other accrued expenses 8,795 9,281
----------------- -----------------
Total current liabilities 76,735 45,353
Other long-term liabilities 5,511 5,500
----------------- -----------------
Total Liabilities 82,246 50,853
Group Equity 279,479 293,867
----------------- -----------------
Total Liabilities and Group Equity $ 361,725 $ 344,720
================= =================
</TABLE>
See accompanying notes to the Celera Genomics group unaudited condensed combined
financial statements.
19
<PAGE>
CELERA GENOMICS GROUP
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998
---------------- ----------------
<S> <C> <C>
Operating Activities
Net loss $ (19,398) $ (3,609)
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation and amortization 4,487 411
Deferred income taxes (3,422)
Changes in operating assets and liabilities
Decrease (increase) in tax benefit receivable
from the PE Biosystems group 2,445 (1,944)
Increase in accounts receivable (3,369) (2,477)
Increase in prepaid expenses and other assets (829) (8)
Decrease in deferred revenues (2,989)
(Decrease) increase in accounts payable and other liabilities (3,518) 1,331
---------------- ----------------
Net Cash Used by Operating Activities (26,593) (6,296)
---------------- ----------------
Investing Activities
Additions to property, plant and equipment (14,069) (2,239)
---------------- ----------------
Net Cash Used by Investing Activities (14,069) (2,239)
---------------- ----------------
Financing Activities
Net change in loans payable 46,000
Net cash allocated from the PE Biosystems group 8,535
Proceeds from stock issued for Celera Genomics group stock plans 3,223
---------------- ----------------
Net Cash Provided by Financing Activities 49,223 8,535
---------------- ----------------
Net Change in Cash and Cash Equivalents 8,561
Cash and Cash Equivalents Beginning of Period 71,491
---------------- ----------------
Cash and Cash Equivalents End of Period $ 80,052 $ -
================ ================
</TABLE>
See accompanying notes to the Celera Genomics group unaudited condensed combined
financial statements.
20
<PAGE>
CELERA GENOMICS GROUP
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 - INTERIM CONDENSED COMBINED FINANCIAL STATEMENTS
The interim condensed combined financial statements should be read in
conjunction with the financial statements presented in PE Corporation's ("PE's"
or the "Company's") 1999 Annual Report to Stockholders. Significant accounting
policies disclosed therein have not changed.
The unaudited condensed combined 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 combined financial statements have been
reclassified for comparative purposes.
The Celera Genomics group's and the PE Biosystems group's combined financial
statements should be read in conjunction with the Company's consolidated
financial statements.
NOTE 2 - LOSS PER SHARE
The following table presents a reconciliation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
Three months ended
(Amounts in thousands September 30,
except per share amounts) 1999
----------
<S> <C>
Weighted average number of common
shares used in the calculation of basic
loss per share 25,733
Common stock equivalents -
---------
Shares used in the calculation of
diluted loss per share 25,733
=========
Net loss used in the calculation of
basic and diluted loss per share $(19,398)
=========
Net loss per share
Basic and diluted $ (.75)
</TABLE>
21
<PAGE>
CELERA GENOMICS GROUP
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
On May 6, 1999, The Perkin-Elmer Corporation was merged with a subsidiary of PE
Corporation, a new Delaware corporation. The recapitalization resulted in the
issuance of two new classes of common stock called PE Corporation-Celera
Genomics Group Common Stock and PE Corporation-PE Biosystems Group Common Stock.
Therefore, the reconciliation for the three months ended September 30, 1998 is
omitted since Celera Genomics Group Common Stock was not part of the capital
structure of the Company during such period.
Options and warrants to purchase 6.9 million shares of Celera Genomics Group
Common stock were outstanding at September 30, 1999, but were not included in
the computation of diluted loss per share because the effect was antidilutive.
NOTE 4 - LOANS PAYABLE
Loans payable consisted of $46 million of commercial paper with an average
interest rate of 5.7% at September 30, 1999.
22
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion of Operations
The following discussion should be read in conjunction with the Celera Genomics
group's condensed combined financial statements and related notes and PE
Corporation's ("PE's" or the "Company's") condensed consolidated financial
statements and related notes included in this report; the Celera Genomics
group's "Management's Discussion and Analysis" appearing on pages 74 - 79 of the
Company's 1999 Annual Report to Stockholders; and PE Corporation's "Management's
Discussion and Analysis" appearing on pages 97 - 109 of the Company's 1999
Annual Report to Stockholders. Historical results and percentage relationships
are not necessarily indicative of operating results for any future periods.
Results of Operations for the Three Months Ended September 30, 1999 compared
with the Three Months Ended September 30, 1998
The Celera Genomics group reported a net loss of $19.4 million for the first
quarter of fiscal 2000, compared with a net loss of $3.6 million for the first
quarter of fiscal 1999. The increase in the net loss reflected the continued
establishment of operations to support the expanded sequencing, data management,
and software development activities of the business.
Net revenues for the Celera Genomics group were $8.3 million for the first
quarter of fiscal 2000 compared with $3.9 million for the first quarter of
fiscal 1999. The increased revenues were primarily a result of subscriptions
initiated during the second half of fiscal 1999. Revenues for genotyping and
genomic contract services remained essentially unchanged with the prior year.
R&D expenses increased $27.5 million to $32.2 million for the first quarter of
fiscal 2000 from $4.7 million for the first quarter of fiscal 1999 primarily as
a result of establishing and operating the sequencing facility and computing
center of the genomic database business. Increased staffing related to
sequencing operations also contributed to the increase in R&D expenses.
SG&A expenses were $8.4 million for the first quarter of fiscal 2000 compared
with $4.8 million for the first quarter of fiscal 1999. The increase was
primarily related to the start-up and ongoing operations of the genomic database
business. Corporate expenses and administrative shared services were $1.4
million for the first quarter of fiscal 2000 compared with $1.0 million for the
first quarter of fiscal 1999.
Interest expense was $.1 million for the first quarter of fiscal 2000 as a
result of the Company's financing for the purchase of the Rockville, Maryland
facilities. Interest income was $2.0 million for the first quarter of fiscal
2000, which was primarily attributable to interest on the $150 million note
receivable from the PE Biosystems group.
23
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
The effective income tax rate was 36% for the first quarter of fiscal 2000 and
35% for the first quarter of fiscal 1999. See Note 1 to the Celera Genomics
group's combined financial statements in the Company's 1999 Annual Report to
Stockholders for a discussion of allocations of federal and state income taxes.
Financial Resources and Liquidity
Significant Changes in the Condensed Combined Statements of Financial Position.
Cash and cash equivalents were $80.1 million at September 30, 1999 compared with
$71.5 million at June 30, 1999. During the first quarter of fiscal 2000, the
Company secured financing of $46 million specifically for the purchase of the
Celera Genomics group's Rockville, Maryland facilities. The Celera Genomics
group anticipates the $46 million financing to remain outstanding beyond the
current fiscal year.
Accounts receivable, net increased $3.3 million to $6.6 million at September 30,
1999, compared with $3.3 million at June 30, 1999 primarily as a result of
increased revenue from early access subscriptions.
Prepaid expenses and other current assets increased $4.2 million to $7.7 million
at September 30, 1999 compared with $3.5 million at June 30, 1999. The increase
included a deferred tax asset of $3.4 million resulting from the Celera Genomics
group's operating losses.
Accounts payable decreased $10.0 million to $9.9 million at September 30, 1999
compared with $19.9 million at June 30, 1999 as a result of payments for
purchases incurred during the fourth quarter of fiscal 1999, which were made to
support the establishment of the Celera Genomics group's infrastructure.
Condensed Combined Statements of Cash Flows. Cash used by operating activities
was $26.6 million for the first three months of fiscal 2000 compared with $6.3
million for the same period in the prior year. The increase in cash used by
operating activities resulted primarily from higher net operating losses.
Net cash used by investing activities for capital expenditures was $14.1 million
for the first three months of fiscal 2000 compared with $2.2 million for the
first three months of fiscal 1999. Fiscal 2000 capital expenditures included
payments for data management software licenses acquired during the fourth
quarter of fiscal 1999 and expenditures associated with the continued
construction of the laboratories, facilities, and data center at the Rockville,
Maryland facilities.
Net cash provided by financing activities was $49.2 million for the first
quarter of fiscal 2000 compared with $8.5 million for same period in the prior
year. During the first quarter of fiscal 2000, the Company secured financing of
$46 million specifically for the Rockville, Maryland facilities. In
24
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
the first quarter of fiscal 2000, the Celera Genomics group received $3.2
million in proceeds from employee stock option exercises.
Year 2000
In fiscal 1997, PE 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
operations of the Celera Genomics group are included within this program. The
purpose of this program is to ensure the event does not have a material adverse
effect on our business operations.
Regarding PE's 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 PE's current product offerings, the program involves performing
an inventory of current products, assessing their compliance status, and
constructing a remediation plan where appropriate. All of the Celera Genomics
group's current product offerings are Year 2000 compliant.
The program also addresses the Year 2000 compliance efforts of PE's significant
suppliers, vendors, and third-party interface systems. As part of this analysis,
PE has identified and prioritized these suppliers, vendors, and third parties
and has sought written assurances from them that they will be Year 2000
compliant. The vast majority of PE's third-party suppliers and vendors have met
the standards of the program; however, PE is aggressively pursuing the few
remaining companies that have compliance end dates in the last calendar quarter
of 1999. There can be no assurance that the systems of other companies with
which PE deals, or on which PE's systems rely will be timely converted, or that
any such failure to convert by another company could not have a material adverse
effect on PE. PE has not fully determined the extent to which PE's interface
systems may be impacted by third parties' systems, which may not be Year 2000
compliant, but is addressing this issue in our contingency plans noted below.
As of the date of this filing, PE was over 95% complete in accomplishing the
objectives established in its program. Remediation of all business-critical
applications has been completed. PE's preliminary estimate of the total cost for
this multi-year program covering 3-4 years is approximately $150 million. This
includes amounts previously budgeted for information technology infrastructure
improvements and estimates of remediation costs on components not yet fully
assessed. Incremental
25
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
spending has not been and is not expected to be material because most Year 2000
compliance costs have been met with amounts that are normally budgeted for
procurement and maintenance of PE's information systems, production, and
facilities equipment. The redirection of spending to implement Year 2000
compliance plans has in some instances delayed productivity improvements.
PE has also engaged a consulting firm to provide periodic assessments of PE's
Year 2000 project plans and progress. Because of the importance of addressing
the Year 2000 problem, PE has created a Year 2000 business continuity planning
team which has developed, and will continue to develop, business contingency
plans to address issues that may not be corrected by implementation of PE's 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 PE is not
successful in implementing its Year 2000 compliance plan, or there are delays in
and/or increased costs associated with implementing such changes, the Year 2000
problem could have a materially adverse effect on PE's consolidated results of
operations and financial condition.
At this stage of the process, PE believes 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 PE's operations and have a materially adverse effect on PE's
financial condition. The impact of such disruption cannot be estimated at this
time. In the event PE believes that any of its significant suppliers or vendors
are unlikely to be able to resolve their own Year 2000 issues, PE's contingency
plans include seeking additional sources of supply.
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. The Celera
Genomics group is required to implement the statement in the first quarter of
fiscal 2001. The Celera Genomics group currently believes the statement will not
have a material impact on its combined financial statements.
Outlook
The Celera Genomics group expects to see an expansion in the customer base for
the new genomic information and database products, with corresponding increases
in revenues throughout fiscal 2000. Additionally, the group expects to benefit
from a three-year gene discovery agreement with Rhone-Poulenc Rorer (RPR) to
identify therapeutic targets for a variety of human diseases by applying its
GeneTag proprietary technology to RPR's disease model systems. Despite the
potential for increased
26
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
revenues in fiscal 2000, the Celera Genomics group expects that it will continue
to incur significant operating losses for such year.
Operating expenses will continue to increase in the second quarter, as the
Celera Genomics group targets an increase in its headcount to more than 450
people. Also, over the balance of the fiscal year, the Celera Genomics group
plans to bring its sequencing operations up to full capacity and install
additional hardware and software designed to accelerate product development and
support its information delivery systems.
The Celera Genomics group recently achieved significant milestones by completing
the sequencing phase in deciphering the genome of Drosophila melanogaster,
the fruit fly, and beginning the sequencing phase of the human genome. In
October 1999 Celera Genomics announced that it had sequenced and delivered to
its subscribers approximately 1.2 billion base pairs, letters of genetic code,
of human DNA. The Celera Genomics group has filed provisional patent
applications disclosing more than 10,000 pieces of unique genetic data that
could be used in developing novel medicines to combat or prevent the formation
of human diseases. The Celera Genomics group will perform further research and
investigation to provide additional sequence information and function to a
subset of these discoveries in order to develop a patent portfolio and
collaborative relationships covering the commercially important portions of the
initial discoveries.
The Company believes the Celera Genomics group has adequate funding to meet its
working capital requirements through 2001.
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:
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
27
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
will offset only a portion of its expenses. In order to meet its business plan,
Celera Genomics will require additional customers over 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 the whole genome shotgun strategy has been used 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.
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 among 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.
28
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
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 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
29
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
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 continue to increase the number of its
employees. 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 materially adverse effect on its future operating results.
Failure of Celera Genomics' Year 2000 Compliance Plan compliance 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 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.
30
<PAGE>
PE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Dollar amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998
------------------ -----------------
<S> <C> <C>
Net Revenues $ 288,843 $ 254,720
Cost of sales 132,551 112,229
------------------ -----------------
Gross Margin 156,292 142,491
------------------ -----------------
Selling, general and administrative 86,144 77,479
Research, development and engineering 56,660 36,574
Merger costs 938
------------------ -----------------
Operating Income 13,488 27,500
Interest expense 394 802
Interest income 4,408 490
Other (expense) income, net (4,580) 1,706
------------------ -----------------
Income Before Income Taxes 12,922 28,894
Provision for income taxes 2,843 7,898
Minority interest 3,108
------------------ -----------------
Income from Continuing Operations 10,079 17,888
Loss from Discontinued
Operations, Net of Income Taxes (879)
------------------ -----------------
Net Income $ 10,079 $ 17,009
================== =================
PE Biosystems Group
Income from Continuing Operations $ 29,707 $ 21,497
Basic per share $ .29
Diluted per share $ .28
Loss from Discontinued Operations $ (879)
Basic per share
Diluted per share
Net Income $ 29,707 $ 20,618
Basic per share $ .29
Diluted per share $ .28
Dividends per Share $ .085
Celera Genomics Group
Net Loss $ (19,398) $ (3,609)
Basic and diluted per share $ (.75)
PE Corporation
Income from Continuing Operations
Basic per share $ .36
Diluted per share $ .36
Loss from Discontinued Operations
Basic per share $ (.02)
Diluted per share $ (.02)
Net Income
Basic per share $ .34
Diluted per share $ .34
Dividends per Share $ .17
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
31
<PAGE>
PE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At September 30, At June 30,
1999 1999
------------------ -----------------
Assets (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 242,717 $ 308,021
Note receivable 150,000 150,000
Accounts receivable, net 325,569 307,056
Inventories 164,352 149,670
Prepaid expenses and other current assets 100,520 79,255
------------------ -----------------
Total current assets 983,158 994,002
Property, plant and equipment, net 285,526 275,792
Other long-term assets 288,092 249,513
------------------ -----------------
Total Assets $ 1,556,776 $ 1,519,307
================== =================
Liabilities and Stockholders' Equity
Current liabilities
Loans payable $ 56,057 $ 3,911
Accounts payable 138,107 165,120
Accrued salaries and wages 32,054 47,495
Accrued taxes on income 125,085 128,261
Other accrued expenses 169,119 177,865
------------------ -----------------
Total current liabilities 520,422 522,652
Long-term debt 35,745 31,452
Other long-term liabilities 120,537 143,678
------------------ -----------------
Total Liabilities 676,704 697,782
Stockholders' Equity
Capital stock
PE Corporation - PE Biosystems group 1,030 1,027
PE Corporation - Celera Genomics group 259 257
Capital in excess of par value 519,810 507,341
Retained earnings 318,246 317,720
Accumulated other comprehensive income 40,727 (4,820)
------------------ -----------------
Total Stockholders' Equity 880,072 821,525
------------------ -----------------
Total Liabilities and Stockholders' Equity $ 1,556,776 $ 1,519,307
================== =================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
32
<PAGE>
PE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998
---------------- ----------------
<S> <C> <C>
Operating Activities From Continuing Operations
Income from continuing operations $ 10,079 $ 17,888
Adjustments to reconcile income from continuing operations
to net cash used by operating activities
Depreciation and amortization 16,847 9,405
Long-term compensation programs 2,137 642
Deferred income taxes 603 (1,741)
Changes in operating assets and liabilities
Increase in accounts receivable (8,668) (4,448)
Increase in inventories (10,465) (19,097)
Increase in prepaid expenses and other assets (25,826) (5,118)
Decrease in accounts payable and other liabilities (73,543) (20,043)
---------------- ----------------
Net Cash Used by Operating Activities (88,836) (22,512)
---------------- ----------------
Investing Activities From Continuing Operations
Additions to property, plant and equipment
(net of disposals of $372 and $506, respectively) (28,591) (23,822)
Investment, net (125)
Proceeds from the sale of assets, net 14,301
---------------- ----------------
Net Cash Used by Investing Activities (28,716) (9,521)
---------------- ----------------
Net Cash from Continuing Operations Before Financing Activities (117,552) (32,033)
---------------- ----------------
Discontinued Operations
Net cash (used) provided by operating activities (4,561) 1,542
Net cash used by investing activities (19,276)
---------------- ----------------
Net Cash Used by Discontinued Operations
Before Financing Activities (4,561) (17,734)
---------------- ----------------
Financing Activities
Net change in loans payable 51,537 43,837
Principal payments on long-term debt (5,297)
Dividends (8,748) (8,396)
Proceeds from stock issued for stock plans 10,558 6,375
---------------- ----------------
Net Cash Provided by Financing Activities 53,347 36,519
---------------- ----------------
Effect of Exchange Rate Changes on Cash 3,462 2,231
---------------- ----------------
Net Change in Cash and Cash Equivalents (65,304) (11,017)
Cash and Cash Equivalents Beginning of Period 308,021 82,865
---------------- ----------------
Cash and Cash Equivalents End of Period $ 242,717 $ 71,848
================ ================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
33
<PAGE>
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 ("PE's"
or the "Company's") 1999 Annual Report to Stockholders. 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 consolidated financial statements
have been reclassified for comparative purposes.
The PE Biosystems group's and Celera Genomics group's condensed combined
financial statements should be read in conjunction with the Company's condensed
consolidated financial statements.
NOTE 2 - DISCONTINUED OPERATIONS
Effective May 28, 1999, the Company completed the sale of its Analytical
Instruments business to EG&G, Inc. Analytical Instruments, formerly a unit of
the Company's PE Biosystems group, develops, manufactures, markets, sells, and
services analytical instruments used in a variety of markets. As part of the
sale, the rights to the "Perkin-Elmer" name were transferred to EG&G. The
transaction is subject to post-closing adjustments pursuant to the terms of the
agreement with EG&G.
The Company's consolidated financial statements were restated to reflect the
operating results of the Analytical Instruments business as discontinued
operations for the three months ended September 30, 1998.
34
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
NOTE 3 - COMPREHENSIVE INCOME
Accumulated other comprehensive income on the Condensed Consolidated 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 month
period ended September 30, 1999 and 1998 is presented in the following table:
<TABLE>
<CAPTION>
(Dollar amounts in millions) Three months ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Net income $ 10.1 $ 17.0
Other comprehensive income:
Foreign currency translation adjustment 12.9 6.2
Unrealized gain (loss) on investments, net 32.6 (4.0)
-------- --------
Other comprehensive income 45.5 2.2
-------- --------
Comprehensive income $ 55.6 $ 19.2
======== ========
</TABLE>
35
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
NOTE 4 - EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted income per
share from continuing operations:
<TABLE>
<CAPTION>
Three Month
Period Ended
Three Month Period Ended September 30,
September 30, 1999 1998
------------------------ --------------
Celera
(Amounts in thousands PE Biosystems Genomics PE
except per share amounts) Group Group Corporation
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average number of common
shares used in the calculation of basic
earnings per share
from continuing operations 102,852 25,733 49,377
Common stock equivalents 3,635 1,052
---------- ---------- ----------
Shares used in the calculation of
diluted earnings per share
from continuing operations 106,487 25,733 50,429
========== ========== ==========
Income from continuing operations
used in the calculation of basic
and diluted earnings per share
from continuing operations $ 29,707 $(19,398) $ 17,888
========== ========== ==========
Income per share from
continuing operations
Basic $ .29 $ (.75) $ .36
Diluted $ .28 $ (.75) $ .36
</TABLE>
On May 6, 1999, The Perkin-Elmer Corporation was merged with a subsidiary of PE
Corporation, a new Delaware corporation. The recapitalization resulted in the
issuance of two new classes of common stock called PE Corporation-PE Biosystems
Group Common Stock and PE Corporation-Celera Genomics Group Common Stock.
Options and warrants to purchase 6.9 million shares of Celera Genomics Group
Common Stock were outstanding at September 30, 1999, but were not included in
the computation of diluted loss per share because the effect was antidilutive.
Options and warrants to purchase 1.4 million shares of the Company's common
stock were outstanding at September 30, 1998, but were not included in the
computation of diluted earnings per share because the effect was antidilutive.
36
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis) or
market. Inventories included the following components:
<TABLE>
<CAPTION>
(Dollar amounts in millions) September 30, June 30,
1999 1999
---------- ----------
<S> <C> <C>
Raw materials and supplies $ 42.7 $ 42.8
Work-in-process 8.5 10.3
Finished products 113.2 96.6
---------- ----------
Total inventories $ 164.4 $ 149.7
========== ==========
</TABLE>
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes and significant non-cash investing and
financing activities were as follows:
<TABLE>
<CAPTION>
(Dollar amounts in millions) Three months ended
September 30,
1999 1998
-------- --------
<S> <C> <C>
Interest $ .3 $ .6
Income taxes $ .6 $ 5.7
Significant non-cash investing
and financing activities
Unrealized gain (loss) on investments $ 32.6 $ (4.0)
</TABLE>
37
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
NOTE 7 - 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 September 30, 1999 and June 30, 1999, 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 following table:
<TABLE>
<CAPTION>
(Dollar amounts in millions) September 30, 1999 June 30, 1999
Sale Purchase Sale Purchase
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Japanese Yen $ 102.0 $ .5 $ 104.2 $ 6.0
French Francs 1.3 4.3
Australian Dollars 8.3 12.0
German Marks 19.3 3.5 25.4
Italian Lira 2.5 10.4 2.6
British Pounds 16.1 41.2 18.6 50.6
Swiss Francs 7.3 .7 7.5 .7
Swedish Krona 9.7 8.9
Danish Krona 6.7 8.1
Singapore Dollars 4.5 4.7 9.3 3.3
Netherland Guilders 16.1
Euro 32.0 39.1 28.2
Other 13.5 .7 17.1
--------- -------- --------- --------
Total $ 223.2 $ 90.4 $ 254.0 $ 79.3
========= ======== ========= ========
</TABLE>
NOTE 8 - RESTRUCTURING AND OTHER MERGER COSTS
At September 30, 1999, the remaining accrual balance related to the fiscal 1998
restructuring charge for the integration of Perseptive Biosystems, Inc. was $5.0
million, consisting of $3.0 million relating to personnel costs and $2.0 million
relating to facility consolidation and asset related write-off costs (see Note
10 to PE Corporation's consolidated financial statements included in the
Company's 1999 Annual Report to Stockholders).
38
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
NOTE 9 - SEGMENT INFORMATION
The following table presents summarized segment financial information for the
three months ended September 30:
<TABLE>
<CAPTION>
PE Celera
(Dollar amounts Biosystems Genomics
in millions) Group Group Other Consolidated
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1999
Net revenues from
external customers $ 280.5 $ 8.3 $ $ 288.8
Intersegment revenues 11.7 (11.7)
--------- --------- --------- ---------
Total revenues $ 292.2 $ 8.3 $ (11.7) $ 288.8
========= ========= ========= =========
Operating income (loss) $ 45.0 $ (32.3) $ .8 $ 13.5
1998
Net revenues from
external customers $ 250.8 $ 3.9 $ - $ 254.7
Intersegment revenues .4 (.4)
--------- --------- --------- ---------
Total revenues $ 251.2 $ 3.9 $ (.4) $ 254.7
========= ========= ========= =========
Operating income (loss) $ 33.1 $ (5.6) $ - $ 27.5
</TABLE>
See Note 6 to PE Corporation's consolidated financial statements included in the
Company's 1999 Annual Report to Stockholders.
NOTE 10 - LOANS PAYABLE
Loans payable included $46 million of commercial paper allocated to the
Celera Genomics Group with an average interest rate of 5.7% at
September 30, 1999.
39
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion of Operations
The following discussion should be read in conjunction with the PE Corporation's
("PE's" or the "Company's") condensed consolidated financial statements and
related notes included in this report and "Management's Discussion and Analysis"
appearing on pages 97 - 109 of the Company's 1999 Annual Report to Stockholders.
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."
Events Impacting Comparability
Discontinued Operations. Effective May 28, 1999, we completed the sale of our
Analytical Instruments business to EG&G, Inc. Analytical Instruments, formerly a
unit of our PE Biosystems group, develops, manufactures, markets, sells, and
services analytical instruments used in a variety of markets. As part of the
sale, the rights to the "Perkin-Elmer" name were transferred to EG&G. The
transaction is subject to post-closing adjustments pursuant to the terms of the
agreement with EG&G.
Amounts previously reported for Analytical Instruments have been reclassified
and stated as discontinued operations. See Note 15 to PE Corporation's
consolidated financial statements included in the Company's 1999 Annual Report
to Stockholders.
Disposition. During the fourth quarter of fiscal 1999, we divested our interest
in Tecan AG.
Merger-related costs. The Company incurred merger-related period costs of $.9
million in the first quarter of fiscal 1999 in connection with the integration
of PerSeptive into the Company. See Note 10 to PE Corporation's consolidated
financial statements included in the Company's 1999 Annual Report to
Stockholders.
40
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Results of Continuing Operations for the Three Months Ended September 30, 1999
Compared with the Three Months Ended September 30, 1998
PE Corporation reported income from continuing operations of $10.1 million for
the first quarter of fiscal 2000 compared with $17.9 million for the first
quarter of fiscal 1999. On a segment basis, the PE Biosystems group reported
income from continuing operations of $29.7 million for the first quarter of
fiscal 2000 compared with $21.5 million for the first quarter of fiscal 1999. On
a comparable basis, excluding Tecan and the $.9 million of merger-related period
costs incurred in the first quarter of fiscal 1999, the PE Biosystems group's
income from continuing operations for the quarter increased 33.2% to $29.7
million for the first quarter of fiscal 2000 compared with $22.3 million for the
prior period. This increase is attributable to the growth in net revenues and
lower operating expenses as a percent of net revenues. Offsetting the lower
operating expenses were non-operating costs related to the PE Biosystems group's
foreign currency management program. The Celera Genomics group reported a net
loss of $19.4 million for the first quarter of fiscal 2000 compared with a net
loss of $3.6 million for the first quarter of fiscal 1999. The increase in the
net loss reflected the continued establishment of operations to support the
expanded sequencing, data management, and software development activities of the
business.
Net revenues for the Company were $288.8 million for the first quarter of fiscal
2000 compared with $254.7 million for the first quarter of fiscal 1999, an
increase of 13.4%. On a segment basis, net revenues for the PE Biosystems group
increased 16.4% to $292.3 million for the first quarter of fiscal 2000, compared
with $251.2 million for the prior year. The Celera Genomics group reported net
revenues of $8.3 million for the first quarter of fiscal 2000, compared with
$3.9 million for the first quarter of fiscal 1999.
Net revenues for the PE Biosystems group, excluding the results of Tecan,
increased 30.7% compared with the prior year. The effects of foreign currency
translation increased net revenues by approximately 2% compared with the prior
year. Net revenues from shipments to the Celera Genomics group were $11.7
million for the first quarter of fiscal 2000, or 4% of the group's net revenues,
as compared with $.4 million for the first quarter of fiscal 1999.
Geographically, excluding the first quarter of fiscal 1999 net revenues of
Tecan, the PE Biosystems group reported revenue growth in all regions for the
first quarter of fiscal 2000 compared with the first quarter of fiscal 1999.
Revenues increased 25.2% in the United States, 23.1% in Europe, 65.8% in the Far
East and 29.2% in Latin America and other markets, compared with the first
quarter of the prior fiscal year. Increased demand for genetic analysis
products, sequence detection systems, and liquid chromatography/mass
spectrometry ("LC/MS") products contributed to the growth.
Net revenues for the Celera Genomics group were $8.3 million for the first
quarter of fiscal 2000 compared with $3.9 million for the first quarter of
fiscal 1999, an increase of $4.4 million. The increased revenues were primarily
a result of subscriptions initiated during the second half of fiscal 1999.
Revenues for genotyping and genomic contract services remained essentially
unchanged with the prior year.
41
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Gross margin as a percentage of net revenues for the Company was 54.1% for the
first quarter of fiscal 2000 compared with 55.9% for the first quarter of fiscal
1999. Gross margin for the PE Biosystems group as a percentage of net revenues
was 53.0% for the first quarter of fiscal 2000 compared with 55.3% for the first
quarter of fiscal 1999. The decrease was primarily the result of a change in
product mix compared with the prior year. Higher unit sales of reagents to
support genetic analysis systems and increased royalty and contract licensing
revenues were the primary contributors for the higher gross margin percentage
for the first quarter of fiscal 1999.
SG&A expenses for the Company were $86.1 million for the first quarter of fiscal
2000 compared with $77.5 million for the first quarter of fiscal 1999. On a
segment basis, SG&A expenses were $77.7 million and $72.7 million for the first
quarter of fiscal 2000 and 1999, respectively, for the PE Biosystems group, and
$8.4 million and $4.8 million for the first quarter of fiscal 2000 and 1999,
respectively, for the Celera Genomics group.
SG&A expenses for the PE Biosystems group, excluding Tecan, increased 20.7% for
the first quarter of fiscal 2000 compared with the first quarter of the prior
year. This increase was due to higher planned expenses, reflecting the growth in
sales and orders. As a percentage of net revenues, excluding Tecan, SG&A
expenses were 26.6% for the first quarter of fiscal 2000 compared with 28.8% for
the prior year.
The Celera Genomics group's SG&A expenses increased $3.6 million for the first
quarter of fiscal 2000 compared with the first quarter of the prior year. The
increase was primarily related to the start-up and ongoing operations of the
genomic database business.
R&D expenses for the Company increased to $56.7 million for the first quarter of
fiscal 2000 compared with $36.6 million for the prior year. R&D expenses for the
PE Biosystems group were $32.0 million for the first quarter of fiscal 2000
compared with $32.3 million for the prior year. Excluding Tecan, the PE
Biosystems group's R&D expenses increased 9.9% compared with first quarter of
the prior year. As a percentage of net revenues, excluding Tecan, R&D expenses
were 11.0% for the first quarter of fiscal 2000 compared with 13.1% for the
first quarter of the prior year. The Celera Genomics group's R&D expenses
increased to $32.2 million for the first quarter of fiscal 2000 compared with
$4.7 million for the first quarter of fiscal 1999, primarily as a result of
establishing and operating the sequencing facility and computing center of the
genomic database business. Increased staffing related to sequencing operations
also contributed to the increase in the Celera Genomics group's R&D expenses.
The Company incurred merger-related period costs of $.9 million in the first
quarter of fiscal 1999 for training, relocation, and communication in connection
with the integration of PerSeptive into the Company. See note 10 to PE
Corporation's consolidated financial statements included in the Company's 1999
Annual Report to Stockholders.
42
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Operating income was $13.5 million for the first quarter of fiscal 2000 compared
with $27.5 million for the prior year. On a segment basis, operating income for
the PE Biosystems group increased to $45.0 million for the first quarter of
fiscal 2000 compared with $33.1 million for the prior year. On a comparable
basis, excluding the results of Tecan and the merger-related period costs
incurred in the first quarter of fiscal 1999, operating income increased 52.5%
for the first quarter of fiscal 2000 compared with the prior year. The PE
Biosystems group benefited from increased revenues primarily as a result of
strong demand for several new products introduced over the past year. The PE
Biosystems group also benefited from lower operating expenses as a percentage of
net revenues, partially as a result of slower than planned ramp-up in staffing.
Operating income as a percentage of net revenues, excluding the results of Tecan
and merger-related costs for the first quarter of fiscal 1999, increased to
15.4% for the first quarter of fiscal 2000 compared with 13.2% for the prior
year.
Operating loss for the Celera Genomics group was $32.3 million for the first
quarter of fiscal 2000 compared with $5.6 million for the first quarter of
fiscal 1999. The increase in the operating loss reflected the continued
establishment of operations to support the expanded sequencing, data management,
and software development activities of the business.
Interest expense was $.4 million for the first quarter of fiscal 2000 compared
with $.8 million for the prior year. This decrease was primarily due to lower
outstanding debt balances. Interest income was $4.4 million for the first
quarter of fiscal 2000 compared with $.5 million for the prior year, which
included interest on the note receivable from EG&G relating to the sale of the
Analytical Instruments business. The increase was also due to higher cash
balances and higher interest rates.
Other expense, net for the Company for the first quarter of fiscal 2000 was $4.6
million, primarily related to costs associated with the PE Biosystems group's
traditional foreign currency hedging program of its projected cash flows. Other
income, net was $1.7 million for the first quarter of fiscal 1999, which
primarily related to a legal settlement.
The Company's effective income tax rate was 22.0% for the first quarter of
fiscal 2000 compared with 27% for the prior year. Excluding Tecan in fiscal
1999, the effective income tax rate was 26%. The reduced tax rate is due
primarily to tax benefits resulting from the higher operating losses of the
Celera Genomics group which operates primarily in the United States.
In the first quarter of fiscal 1999, minority interest expense of $3.1 million
was recognized relating to the Company's 14.5% financial interest in Tecan.
Market Risk
The PE Biosystems group of our company operates internationally, with
manufacturing and distribution facilities in various countries throughout the
world. For the first quarter of fiscal 2000
43
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
and fiscal 1999, approximately 49% and 47%, respectively, of revenues were
derived from countries outside of the United States. Results continue to be
affected by market risk, including fluctuations in foreign currency exchange
rates and changes in economic conditions in foreign markets.
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, with the intent of
offsetting losses and gains 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 is our company a party to
leveraged derivatives. At September 30, 1999 and June 30, 1999, outstanding
hedge contracts covered approximately 80% of the estimated exposures related to
foreign currency cash flows to be realized over the next twelve months. The
outstanding hedges were a combination of forward, option, and synthetic forward
contracts maturing over the next twelve months.
We performed sensitivity analyses as of September 30, 1999 and June 30, 1999.
Assuming a hypothetical adverse change of 10% in foreign exchange rates in
relation to the U.S. Dollar at September 30, 1999, we calculated a hypothetical
loss of $17.6 million when comparing the change in fair value of both the
foreign currency contracts outstanding and the underlying exposures being hedged
at September 30, 1999. Performing the same hypothetical calculation at June 30,
1999, we calculated a hypothetical loss of $6.1 million. These hypothetical
analyses exclude the impact of foreign currency translation on the Company's
operations. Actual gains and losses in the future could, however, differ
materially from these analyses, based on changes in the timing and amount of
foreign currency exchange rate movements, actual exposures and hedges.
Interest rate swaps are used to hedge underlying debt obligations. In fiscal
1997, we executed an interest rate swap, allocated to the PE Biosystems group,
in conjunction with our entering into 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 September 30, 1999, the notional
amount of indebtedness covered by the interest rate swap was Yen 3.8 billion or
$35.7 million. 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 $242.7 million at September 30, 1999
compared with $308.0 million at June 30, 1999, with total debt of $91.8 million
at September 30, 1999 compared with $35.4 million at June 30, 1999. Working
capital was $462.7 million at September 30, 1999 compared with $471.4 million at
June 30, 1999. Debt to total capitalization increased to 9% at September 30,
1999 from 4% at June 30, 1999 as a result of an increase in loans payable.
During the first quarter of fiscal 2000, the Celera
44
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Genomics group secured financing of $46 million specifically for the purchase of
its Rockville, Maryland facilities. The Company anticipates the $46 million
financing to remain outstanding beyond the current fiscal year.
Other long-term assets increased $38.6 million to $288.1 million at September
30, 1999 from $249.5 million at June 30, 1999, primarily as a result of a net
increase in value of the Company's minority equity investments.
Accounts payable decreased $27.0 million to $138.1 million at September 30, 1999
from $165.1 million at June 30, 1999. Payments for higher purchases incurred
during the fourth quarter of fiscal 1999, which were made to support increased
production and operating requirements, contributed to the decrease.
Accrued salaries and wages decreased $15.4 million to $32.1 million at September
30, 1999 from $47.5 million at June 30, 1999 reflecting timing of payments.
Condensed Consolidated Statements of Cash Flows. Net cash used by operating
activities from continuing operations was $88.8 million for the first three
months of fiscal 2000 compared with $22.5 million for the same period in fiscal
1999. For the first three months of fiscal 2000, income related cash flow was
more than offset by higher payments to suppliers and payments of certain
compensation accruals, as well as higher prepaid expenses and other assets,
and accounts receivable.
Net cash used by investing activities from continuing operations was $28.7
million for the first three months of fiscal 2000 compared with $9.5 million for
the first three months of fiscal 1999. In the first quarter of fiscal 2000, the
Company had capital expenditures of $29.0 million. Capital expenditures were
$14.9 million for the PE Biosystems group, which included $2.8 million related
to improvement of its information technology infrastructure, and $14.1 million
for the Celera Genomics group. Capital expenditures for the Celera Genomics
Group increased $11.8 million over the prior year due to continued construction
of laboratories, facilities, and the data center at the Rockville, Maryland
facilities. In the first quarter of fiscal 1999, the Company generated $14.3
million in net cash proceeds from the sale of certain non-operating assets. The
fiscal 1999 cash proceeds were more than offset by capital expenditures of $24.3
million, which included $1.3 million related to improvement of the Company's
information technology infrastructure, and $17.5 million for the acquisition of
a corporate airplane.
Net cash used by discontinued operations was $4.6 million for the first three
months of fiscal 2000 compared with $17.7 million for the first three months of
fiscal 1999. The fiscal 2000 use of $4.6 million was for transaction-related
payments and other cash outlays associated with the divestiture of the
Analytical Instruments business. The Company expects additional cash outlays
over the balance of the fiscal year.
45
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Net cash provided by financing activities was $53.3 million for the first
quarter of fiscal 2000 compared with $36.5 million for the prior period. In the
first quarter of fiscal 2000, the Company received $10.6 million in proceeds
from employee stock option exercises compared with $6.4 million in fiscal 1999.
Loans payable increased $51.5 million in the first quarter of fiscal 2000
compared with an increase of $43.8 million for the prior year. The first quarter
of fiscal 1999 included a payment of $5.3 million for the retirement of foreign
debt.
Year 2000
In fiscal 1997, the Company 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 the Company's 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 the Company's 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 the Company expects its current
product offerings to be Year 2000 compliant by December 31, 1999. A substantial
portion of the PE Biosystems group's current product offerings is Year 2000
compliant. All of Celera Genomics group's current product offerings are Year
2000 compliant.
The program also addresses the Year 2000 compliance efforts of the Company's
significant suppliers, vendors, and third-party interface systems. As part of
this analysis, the Company identified and prioritized these suppliers, vendors,
and third parties and has sought written assurances from them that they will be
Year 2000 compliant. The vast majority of the Company's third-party suppliers
and vendors have met the standards of the program; however, the Company is
aggressively pursuing the few remaining companies that have compliance end dates
in the last calendar quarter of 1999. There can be no assurance that the systems
of other companies with which the Company deals, or on which the Company's
systems rely will be timely converted, or that any such failure to convert by
another company could not have a material adverse effect on the Company. The
Company has not fully determined the extent to which the Company's interface
systems may be impacted by third parties'
46
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
systems, which may not be Year 2000 compliant but is addressing this issue in
our contingency plans noted below.
As of the date of this filing, the Company was over 95% complete in
accomplishing the objectives established in its program. Remediation of all
business-critical applications has been completed. The Company's preliminary
estimate of the total cost for this multi-year program covering 3-4 years is
approximately $150 million. This 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 have
been met with amounts that are normally budgeted for procurement and maintenance
of the Company's information systems, production and facilities equipment. The
redirection of spending to implement Year 2000 compliance plans has in some
instances delayed productivity improvements.
The Company has also engaged a consulting firm to provide periodic assessments
of the Company's Year 2000 project plans and progress. Because of the importance
of addressing the Year 2000 problem, the Company has created a Year 2000
business continuity planning team which has developed, and will continue to
develop, business contingency plans to address issues that may not be corrected
by implementation of the Company's 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 the Company is not successful in implementing its Year 2000
compliance plan, or there are delays in and/or increased costs associated with
implementing such changes, the Year 2000 problem could have a materially adverse
effect on the Company's consolidated results of operations and financial
condition.
At this stage of the process, the Company believes 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 the Company's operations and have a material
adverse effect on the Company's financial condition. The impact of such
disruption cannot be estimated at this time. In the event the Company believes
that any of its significant suppliers or vendors are unlikely to be able to
resolve their own Year 2000 issues, the Company's contingency plan would 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
47
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
later than July 1, 2002. During this transition period, parties may settle
transactions using either the euro or a participating country's legal currency.
The Company is currently evaluating the impact the euro conversion may have on
its computer and financial systems, business processes, market risk, and price
competition. The Company does not expect this conversion to have a material
impact on its 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. The Company is
required to implement the statement in the first quarter of fiscal 2001. The
Company is currently analyzing the statement to determine the impact, if any, on
the consolidated financial statements.
Outlook
The PE Biosystems group expects to continue to grow and maintain profitability
for fiscal 2000 on the strength of robust demand and several new products.
Fiscal 2000 will focus on growing product lines across a broad array of base
technologies and exploring the needs of evolving markets. Orders were
particularly strong for market-leading products for gene expression and SNP
(single nucleotide polymorphism) analysis from the group's sequence detection
systems. Compared with last year's first quarter, orders for these products grew
more than 100 percent. The group continued to receive strong order growth for
its mass spectrometry products, genetic analysis systems, and products used in
standardized testing, such as forensics, that are driven by molecular
biology-based reagents. The PE Biosystems group also reported very strong growth
in its Japanese business, in part from increases in government funding for
genomic research projects. At September 30, 1999, backlog increased slightly as
compared to June 30, 1999.
We remain concerned about adverse currency effects because approximately 50% of
the PE Biosystems group's revenues were derived from regions outside the United
States for fiscal 1999.
The Celera Genomics group expects to see an expansion in the customer base for
the new genomic information and database products, with corresponding increases
in revenues throughout fiscal 2000. Additionally, the group expects to benefit
from a three-year gene discovery agreement with Rhone-Poulenc Rorer (RPR) to
identify therapeutic targets for a variety of human diseases by applying its
GeneTag proprietary technology to RPR's disease model systems. Despite the
potential for increased revenues in fiscal 2000, the Celera Genomics group
expects that it will continue to incur significant operating losses for such
year.
48
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Operating expenses will continue to increase in the second quarter, as the
Celera Genomics group targets an increase in its headcount to more than 450
people. Also, over the balance of the fiscal year, the Celera Genomics group
plans to bring its sequencing operations up to full capacity and install
additional hardware and software designed to accelerate product development and
support its information delivery systems.
The Celera Genomics group recently achieved significant milestones by completing
the sequencing phase in deciphering the genome of Drosophila melanogaster,
the fruit fly, and beginning the sequencing phase of the human genome. In
October 1999 Celera Genomics announced that it had sequenced and delivered to
its subscribers approximately 1.2 billion base pairs, letters of genetic code,
of human DNA. The Celera Genomics group has filed provisional patent
applications disclosing more than 10,000 pieces of unique genetic data that
could be used in developing novel medicines to combat or prevent the formation
of human diseases. The Celera Genomics group will perform further research and
investigation to provide additional sequence information and function to a
subset of these discoveries in order to develop a patent portfolio and
collaborative relationships covering the commercially important portions of the
initial discoveries.
The Company believes the Celera Genomics group has adequate funding to meet its
working capital requirements through 2001.
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. For
information concerning the risks and uncertainties that may affect the
operations, performance, development and results of the PE Biosystems Group see
"PE Biosystems Group - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward-Looking Statements" on pages 15 to
17 of this report. For information concerning the risks and uncertainties that
may affect the operations, performance, development and results of the Celera
Genomics Group see "Celera Genomics Group - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Forward-Looking Statements"
on pages 27 to 30 of this report.
49
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on October 21,
1999. At that meeting, the stockholders of the Company elected all of the
nominees for director and approved all other proposals submitted by the Company
to stockholders for approval at the meeting, each as described in the Notice of
Annual Meeting and Proxy Statement dated September 10, 1999. The results of the
voting of the stockholders with respect to these matters is set forth below.
I. Election of Directors.
<TABLE>
<CAPTION>
Total Vote
Total Vote Withheld From
Each Director Each Director
------------- -------------
<S> <C> <C>
Richard H. Ayers 99,734,576 370,301
Jean-Luc Belingard 99,739,928 364,949
Robert H. Hayes 99,742,397 362,479
Arnold J. Levine 99,740,279 364,598
Theodore E. Martin 99,736,962 367,915
Georges C. St. Laurent, Jr. 99,722,992 381,885
Carolyn W. Slayman 99,741,516 363,361
Orin R. Smith 99,730,532 374,344
James R. Tobin 99,727,909 376,968
Tony L. White 99,740,344 364,533
</TABLE>
II. Ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending June
30, 2000.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
<S> <C> <C> <C>
99,846,158 48,227 210,491 0
</TABLE>
III. Approval of the Company's 1999 Employee Stock Purchase Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
<S> <C> <C> <C>
97,454,522 2,214,166 436,188 0
</TABLE>
50
<PAGE>
IV. Approval of amendments to the PE Corporation/PE Biosystems Group
1999 Stock Incentive Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
<S> <C> <C> <C>
91,315,721 8,274,165 514,990 0
</TABLE>
V. Approval of amendments to the PE Corporation/Celera Genomics Group
1999 Stock Incentive Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
<S> <C> <C> <C>
95,457,454 4,115,700 531,722 0
</TABLE>
Item 5. Other Information.
At a meeting of the Board of Directors of the Company held immediately
following the Annual Meeting of Stockholders referred to in Item 4, above, the
Board of Directors elected the following persons as officers of the Company:
<TABLE>
<S> <C>
Tony L. White Chairman, President and Chief Executive Officer
Peter Barrett Vice President
Samuel E. Broder Vice President
Ugo D. DeBlasi Assistant Controller
Ronald D. Edelstein Vice President
Elaine J. Heron Vice President
Michael W. Hunkapiller Senior Vice President and President, PE Biosystems Group
Vikram Jog Corporate Controller
Thomas P. Livingston Assistant Secretary
Joseph E. Malandrakis Vice President
Robert A. Millman Assistant Secretary
John S. Ostaszewski Treasurer
William B. Sawch Senior Vice President, General Counsel and Secretary
Gregory T. Schiffman Assistant Controller
Joseph H. Smith Assistant Secretary
Joyce A. Sziebert Vice President
J. Craig Venter Senior Vice President and President, Celera Genomics Group
Dennis L. Winger Senior Vice President and Chief Financial Officer
</TABLE>
51
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Performance Unit Bonus Plan, as amended as of June 17, 1999.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which
this report is being filed.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PE CORPORATION
By: /s/ Dennis L. Winger
---------------------------------
Dennis L. Winger
Senior Vice President and Chief
Financial Officer
By: /s/ Vikram Jog
---------------------------------
Vikram Jog
Corporate Controller (Chief
Accounting Officer)
Dated: November 15, 1999
53
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<S> <C>
10.1 PE Corporation Performance Unit Bonus Plan, as
amended as of June 17, 1999.
27. Financial Data Schedule.
</TABLE>
54
PE CORPORATION
PERFORMANCE UNIT BONUS PLAN
(as amended as of June 17, 1999)
1. Purpose of the Plan.
The purpose of the PE Corporation Performance Unit Bonus Plan (the
"Plan") is to increase stockholder value and to advance the interests of PE
Corporation and its subsidiaries (collectively, the "Corporation") by providing
financial incentives designed to attract, retain, and motivate key employees of
the Corporation.
2. Definitions.
As used herein, the following terms have the meanings hereinafter set
forth unless the context clearly indicates to the contrary:
2.1 "Cause" means (a) willful malfeasance or willful misconduct by the
employee in connection with his or her employment, (b) continuing refusal by the
employee to perform his or her duties at the Corporation or any lawful direction
by either the Board of Directors or the Chief Executive Officer of the
Corporation (other than due to the employee's physical or mental incapacity),
after a demand for substantial performance is delivered to the employee which
identifies the manner in which the employee has not performed his or her duties,
(c) the willful engaging by the employee in conduct which is materially
injurious to the Corporation, or (d) the indictment of the employee for any
felony or misdemeanor involving moral turpitude.
2.2 "Celera Stock" means the PE Corporation - Celera Genomics Group
Common Stock, par value $.01 per share.
2.3 "Committee" means the Management Resources Committee of the Board
of Directors of the Corporation, or any successor thereto or committee
designated thereby.
2.4 "Common Stock" means Celera Stock and PE Biosystems Stock and
either of them as the context requires.
2.5 "Good Reason" means the occurrence of any of the following, other
than with the employee's consent: (a) a reduction of 10% or more by the
Corporation in the employee's base salary without a substantially similar
reduction to all other executives of comparable level to the employee, (b) any
material breach by the Corporation of its contractual obligations to the
employee, and (c) the Corporation's requiring the employee to be based more than
50 miles from his or her then principal place of employment with the Corporation
without the employee's consent, except for required travel on the Corporation's
business to an extent substantially consistent with the business travel
obligations of the employee.
1
<PAGE>
2.6 "Participant" means an employee to whom an award of Performance
Units has been granted under the Plan.
2.7 "PE Biosystems Stock" means the PE Corporation - PE Biosystems
Group Common Stock, par value $.01 per share.
2.8 "Stock Incentive Plan" means any of the Corporation's stock
incentive plans under which options for shares of Common Stock may be granted.
2.9 "Stock Price Targets" means the stock price targets applicable to a
series of Performance Units established by the Committee at the time of such
award. For purposes hereof, a stock price target shall be deemed attained at
such time as the fair market value (as defined in the applicable Stock Incentive
Plan) of a share of Celera Stock or PE Biosystems Stock, as the case may be,
averages such stock price target over a period of 90 consecutive calendar days.
2.10 "Unit Value" means the value of a Performance Unit as determined
pursuant to Section 4.
2.11 "Vesting Period" means the vesting period applicable to a series
of Performance Units established by the Committee at the time of such award.
3. Administration of the Plan.
The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan, to administer the Plan. The
Committee shall also have plenary authority in its discretion to interpret the
Plan, to prescribe, amend, and rescind rules and regulations relating to it, and
to make any and all other determinations and take any and all actions deemed
necessary or advisable for the administration of the Plan. The Committee's
determination on the foregoing matters shall be conclusive and binding.
4. Awards of Performance Units.
At the time of grant of stock options under a Stock Incentive Plan, the
Committee may grant to any employee to whom options have been so granted such
number of Performance Units up to the number of stock options so granted.
Performance Units may be granted in one or more series, each series containing
such terms and conditions consistent with the Plan as the Committee shall
determine. The term of each Performance Unit shall be the term of the related
stock option, subject to earlier termination as hereinafter provided, and the
Unit Value of each Performance Unit shall be the purchase price of the related
option. Each Performance Unit granted hereunder shall be evidenced by an
agreement containing such terms and conditions consistent with the Plan as the
Committee shall determine.
5. Conditions to Payment of Performance Units.
A Participant's right to receive payment of the Unit Value of
Performance Units awarded to him or her shall, except as provided below, be
subject to the attainment of the Stock Price Targets and satisfaction of the
Vesting Period applicable to such Performance Units. Performance Units shall not
2
<PAGE>
be affected by any change of duties or position so long as the holder thereof
continues to be an employee of the Corporation.
6. Payment of Performance Units.
6.1 Terms of Payment. Payment of the aggregate Unit Value of
Performance Units shall be made to Participants as soon as practicable following
the satisfaction of the applicable Stock Price Targets and Vesting Period and
shall, in the discretion of the Committee, be made in cash, Common Stock, or a
combination thereof. Notwithstanding the foregoing, if payment is to be made in
shares of Common Stock, or a combination of such shares and cash, any such
issuance of shares of Common Stock may be made subject to all applicable laws
and regulations and to the approval of all governmental authorities required in
connection with the authorization, issuance, sale, or transfer of shares of
Common Stock.
6.2 Deferrals. Notwithstanding the provisions of Section 6.1 above, to
the extent otherwise permissible under the terms of any deferred compensation
plan then offered by the Corporation, and subject to the terms thereof, a
Participant may elect to defer payment of the dollar value of the Unit Value
payable with respect to any Performance Units.
7. Payment Upon Termination of Employment.
7.1 Termination of Employment Prior to Attainment of Stock Price
Targets. In the event that the employment of a Participant shall terminate for
any reason prior to any Stock Price Targets having been attained, all
Performance Units granted to such Participant shall immediately terminate
without the payment of any consideration therefor.
7.2 Termination of Employment Following Attainment of Stock Price
Targets. In the event that the employment of a Participant shall terminate
following the attainment of one or more applicable Stock Price Targets but prior
to satisfaction of the applicable Vesting Period, the Performance Units
corresponding to such Stock Price Targets shall be payable as follows:
7.2.1 Termination by Participant Other than for Good Reason or
by the Corporation For Cause. In the event of termination of employment
by Participant due to Participant's choice, such choice not being
supported by Good Reason, or due to the Corporation's terminating said
employment for Cause, then all Performance Units granted to such
Participant shall immediately terminate without the payment of any
consideration therefor.
7.2.2 Termination by Participant for Good Reason or by the
Corporation Other than For Cause. In the event of termination of
employment by Participant for Good Reason or by the Corporation other
than for Cause, then the Performance Units as to which the Stock Price
Targets have been attained as of the date of such termination shall be
paid to the Participant at such time as payment of the Unit Value of
the Performance Units would otherwise be made pursuant to Section 6.1
hereof.
7.2.3 Termination Upon Retirement, Death, or Disability. In
the event of termination of employment due to retirement from the
Corporation in accordance with the
3
<PAGE>
terms of any pension plan provided by the Corporation, or if a
Participant shall die while employed by the Corporation or become
totally and permanently disabled, then the Performance Units as to
which the Stock Price Targets have been attained as of the date of such
termination shall be paid to the Participant at such time as payment of
the Unit Value of the Performance Units would otherwise be made
pursuant to Section 6.1 hereof.
8. Rights as a Stockholder.
A Participant shall not be entitled to any rights or privileges of a
stockholder of the Corporation, except that such Participant shall be entitled
to receive dividend equivalents on the Performance Units if, as, and when paid
on shares of Celera Stock or PE Biosystems Stock, as applicable; provided,
however, that, except as otherwise provided by the Committee, Participants shall
not be entitled to receive dividend equivalents on more than one series of
Performance Units at any one time. For purposes of the payment of such dividend
equivalent, each Performance Unit shall be deemed equivalent to one share of
Celera Stock or PE Biosystems Stock, as the case may be (subject to adjustment
as provided below).
9. Acceleration Upon a Change of Control.
Notwithstanding any other provision of the Plan or any Performance Unit
granted hereunder, all Stock Price Targets shall be deemed attained and all
Vesting Periods satisfied (i) in the event that a tender offer or exchange offer
(other than an offer by the Corporation) for the Common Stock representing more
than 25% of the combined voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the election of directors
("Voting Securities") is made by any "person" within the meaning of Section
14(d) of the Securities Exchange Act of 1934, as amended from time to time (the
"Act"), and not withdrawn within ten (10) days after the commencement thereof;
provided, however, that the Committee may by action taken prior to the end of
such ten (10) day period extend such ten (10) day period; and, provided further,
that the Committee may by further action taken prior to the end of such extended
period declare all Stock Price Targets to have been attained and all Vesting
Periods to have been satisfied, or (ii) in the event of a Change in Control (as
hereinafter defined).
For purposes of this Section 9, a "Change in Control" means an event
that would be required to be reported (assuming such event has not been
"previously reported") in response to Item 1(a) of the Current Report on Form
8-K, as in effect on the effective date of the Plan, pursuant to Section 13 or
15(d) of the Act; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred at such time as (a) any "person" within
the meaning of Section 14(d) of the Act becomes the "beneficial owner" as
defined in Rule 13d-3 thereunder, directly or indirectly, of more than 25% of
the combined voting power of the then outstanding Voting Securities, (b) during
any two-year period, individuals who constitute the Board of Directors (the
"Incumbent Board") as of the beginning of the period cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director during such period whose election or nomination for election by the
Corporation's stockholders was approved by a vote of at least three-quarters of
the Incumbent Board (either by a specific vote or by approval of the proxy
statement of the Corporation in which such person is named as a nominee for
director without objection to such nomination, other than in response to an
actual or threatened Change in Control or proxy contest) shall be, for purposes
of this clause (b), considered as though such person were a member of the
Incumbent Board, or (c) the
4
<PAGE>
approval by the Corporation's stockholders of the sale of all or substantially
all of the stock or assets of the Corporation. The Committee may adopt such
procedures as to notice and exercise as may be necessary to effectuate the
acceleration of the payment of the Unit Value of Performance Units as described
above.
10. Performance Units Not Transferable.
Performance Units may not be sold, assigned, bequeathed, transferred,
pledged, hypothecated, or otherwise disposed of in any way by the recipient
thereof. Any attempt to sell, pledge, assign, or transfer such rights shall be
void and unenforceable against the Corporation or any affiliate.
11. Time of Granting Performance Units.
Nothing contained in the Plan or in any resolution adopted by the Board
of Directors or the holders of Common Stock shall constitute the grant of any
Performance Units hereunder. A Performance Unit shall be deemed to have been
granted on the date on which the name of the recipient and the terms of the
Performance Unit are set forth in an Agreement and delivered to the recipient,
unless otherwise provided in the Agreement.
12. No Right to Continued Employment.
Nothing contained in the Plan shall confer upon any employee the right
to continue in the employ of the Corporation or any subsidiary or interfere with
the right of the Corporation or such subsidiary to terminate such employee's
employment at any time.
13. Adjustment Upon Changes in Capitalization.
Notwithstanding any other provision of the Plan, in the event of
changes in the outstanding Celera Stock or PE Biosystems Stock, as the case may
be, by reason of stock dividends, stock splits, recapitalizations, combinations
or exchanges of shares, corporate separations or divisions (including, but not
limited to, split-ups, split-offs, or spin-offs), reorganizations (including,
but not limited to, mergers or consolidations), liquidations, or other similar
events, the aggregate number of Performance Units granted under the Plan, the
dividend equivalent payments payable thereon, and the applicable Stock Price
Targets shall be adjusted in such manner as the Committee in its discretion
deems appropriate.
14. Termination and Amendment of the Plan; Amendment of Awards.
The Board of Directors may terminate the Plan at any time or make such
modification or amendment to the Plan as it shall deem advisable. The Committee
may amend the terms of any award of Performance Shares granted hereunder,
including, without limitation, to permit the payment of the Unit Value of any
Performance Units to Participants under circumstances other than those set forth
in Section 7 above; provided, however, that no such amendment shall adversely
affect in any material manner any right of any Participant without his or her
consent.
5
<PAGE>
15. Miscellaneous.
15.1 Withholding for Taxes. The Corporation shall have the right to
deduct from all payments under the Plan, or withhold from any distribution of
shares of Common Stock under the Plan, any taxes required by law to be withheld
with respect to such payments.
15.2 Unfunded Status. The Plan is intended and at all times shall be an
unfunded and unsecured deferred compensation plan that is limited to key
management and other highly-compensated employees of the Corporation. Any
payments made under the Plan shall be paid from the general funds of the
Corporation, and no provision shall at any time be made with respect to
segregating assets of the Corporation for such payment hereunder. No Participant
or other person shall have any interest in any particular assets of the
Corporation by reason of a right to receive any payment or benefit under the
Plan, and any such Participant or other person shall have only the rights of a
general unsecured creditor of the Corporation with respect to any rights under
the Plan.
15.3 Compliance with Laws. Notwithstanding anything to the contrary
contained in the Plan or otherwise, the Corporation shall not be obligated to
pay the Unit Amount of any Performance Unit to the extent that the aggregate
amount payable would cause the Company to violate any law or violate or breach
any term of any loan, credit, or any other material agreement of the Corporation
or to which it or any of its assets are bound or subject. If any payments are
precluded from being made by reason of the first sentence of this Section 15.3,
such payments otherwise due shall be made on a pro rata basis as and to the
extent such applicable laws or agreements shall permit.
15.4 Governing Law. The Plan shall be construed, regulated, and
administered under the internal laws of the State of Delaware.
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Condensed Consolidated Statement of Operations for the Three Months
Ended September 30, 1999 and the Unaudited Condensed Consolidated Statement of
Financial Position at September 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 242,717
<SECURITIES> 0
<RECEIVABLES> 329,861
<ALLOWANCES> (4,292)
<INVENTORY> 164,352
<CURRENT-ASSETS> 983,158
<PP&E> 430,726
<DEPRECIATION> 145,200
<TOTAL-ASSETS> 1,556,776
<CURRENT-LIABILITIES> 520,422
<BONDS> 0
0
0
<COMMON> 1,289
<OTHER-SE> 878,783
<TOTAL-LIABILITY-AND-EQUITY> 1,556,776
<SALES> 288,843
<TOTAL-REVENUES> 288,843
<CGS> 132,551
<TOTAL-COSTS> 132,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 272
<INTEREST-EXPENSE> 394
<INCOME-PRETAX> 12,922
<INCOME-TAX> 2,843
<INCOME-CONTINUING> 10,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,079
<EPS-BASIC> 0 <F1>
<EPS-DILUTED> 0 <F2>
<FN>
<F1>
Basic earnings per share - PE Biosystems Group 0.29
Basic loss per share - Celera Genomics Group (0.75)
<F2>
Diluted earnings per share - PE Biosystems Group 0.28
Diluted loss per share - Celera Genomics Group (0.75)
</FN>
</TABLE>
