<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 2000
REGISTRATION NO. 333-95771
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)
06-1534213
(I.R.S. Employer Identification No.)
761 MAIN AVENUE
NORWALK, CONNECTICUT 06859-1000
(203) 762-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
WILLIAM B. SAWCH
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
PE CORPORATION
761 MAIN AVENUE
NORWALK, CONNECTICUT 06859-0001
(203) 762-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
ANDREW R. KELLER PATRICK O'BRIEN
SIMPSON THACHER & BARTLETT ROPES & GRAY
425 LEXINGTON AVENUE ONE INTERNATIONAL PLACE
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02110
PHONE: (212) 455-2000 PHONE: (617) 951-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED FEBRUARY 11, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
3,230,000 SHARES
[LOGO]
PE CORPORATION
CELERA GENOMICS GROUP
COMMON STOCK
-----------------
PE CORPORATION IS OFFERING 3,230,000 SHARES OF ITS CELERA GENOMICS STOCK. CELERA
GENOMICS STOCK IS A CLASS OF OUR COMMON STOCK INTENDED TO REFLECT THE
PERFORMANCE OF OUR CELERA GENOMICS BUSINESS.
-------------------
PE CORPORATION'S CELERA GENOMICS STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "CRA." ON FEBRUARY 10, 2000, THE REPORTED LAST SALE PRICE OF
THE CELERA GENOMICS STOCK ON THE NEW YORK STOCK EXCHANGE WAS $131 9/16 PER
SHARE, AFTER GIVING EFFECT TO THE TWO-FOR-ONE STOCK SPLIT PAYABLE FEBRUARY 18,
2000.
-------------------
INVESTING IN THE CELERA GENOMICS STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
-----------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS TO CELERA GENOMICS
------------------- ------------------- -------------------
<S> <C> <C> <C>
PER SHARE................................ $ $ $
TOTAL.................................... $ $ $
</TABLE>
PE CORPORATION HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN
ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON
, 2000.
-------------------
MORGAN STANLEY DEAN WITTER GOLDMAN, SACHS & CO.
SG COWEN
ING BARINGS
BEAR, STEARNS & CO. INC.
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Special Note Regarding
Forward-Looking Statements......... 21
Use of Proceeds...................... 21
Price Range of and Dividends on
Celera Genomics Group Stock........ 22
Capitalization....................... 23
Celera Genomics Group--Selected
Combined Financial Information..... 24
Celera Genomics Group--Management's
Discussion and Analysis............ 25
Business of the Celera Genomics
Group.............................. 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PE Corporation--Selected Consolidated
Financial Information.............. 53
PE Corporation--Management's
Discussion and Analysis............ 55
Description of Capital Stock......... 73
Management and Allocation Policies... 84
Certain United States Tax
Consequences....................... 89
Underwriters......................... 93
Legal Matters........................ 95
Experts.............................. 95
Where You Can Find Additional
Information........................ 95
Index to Financial Statements........ F-1
</TABLE>
In this prospectus, "we," "us" and "our" refer to PE Corporation and its
subsidiaries; "Celera Genomics group," "Celera Genomics," "Celera" and the
"Group" refer to PE Corporation's Celera Genomics group, and "PE Biosystems
group" or "PE Biosystems" refers to PE Corporation's PE Biosystems group. You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of the Celera Genomics stock.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE DECIDING TO INVEST IN CELERA
GENOMICS STOCK. YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
"RISK FACTORS" SECTION, THE FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS, AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
PE CORPORATION
PE Corporation conducts its businesses through the Celera Genomics group and
the PE Biosystems group. PE Corporation is offering shares of its Celera
Genomics stock, a class of its common stock intended to reflect the performance
of its Celera Genomics business.
CELERA GENOMICS GROUP
Since its formation, Celera Genomics has become a recognized leader in the
generation, sale and support of genomic information and enabling data management
and analysis software. Celera Genomics' customers use the information for
commercial applications in the pharmaceutical and life sciences industries. The
specific applications include target identification, drug discovery, and drug
development.
Celera Genomics' mission is to become the definitive source of genomic and
related medical and biological information. Celera's initial strategy is to
complete the sequencing and assembly of the human genome, which will provide a
foundation for advanced biological understanding. Through the use of PE
Biosystems' high-throughput sequencing equipment and Celera Genomics' advanced
sequencing strategies, Celera Genomics has compiled DNA sequence information in
its database that covers 90% of the human genome and we believe approximately
97% of all genes in the human genome are represented. As a result of Celera's
successful sequencing and assembly of DROSOPHILA and the accelerated
availability of data from public human genome sequencing efforts, Celera
believes that it can sequence and assemble the human genome on an accelerated
basis. Celera Genomics expects to complete the sequencing phase of the human
genome by mid-2000 and the assembly phase by the end of 2000, or one year ahead
of its original schedule.
Celera Genomics' progress to date has placed it well ahead of its original
schedule. Consequently, Celera Genomics intends to make significant new
investments to aggressively expand beyond the genome and to take advantage of
what it believes will be substantial new market opportunities in the emerging
fields of functional genomics, in particular proteomics, and personalized
health/medicine. Celera believes these efforts are critical to further enhance
the understanding and practical applications of genomic information. New revenue
opportunities in these fields range from expansion of Celera's information and
service businesses to the licensing of proprietary discoveries resulting from
the new information.
Functional genomics is the understanding of gene and protein function and
expression. Specifically, it entails determining the location, level, and timing
of expression as well as the functions of proteins and genes. Functional
genomics should provide the pharmaceutical industry with the information to more
rapidly identify high-quality, validated targets. Through proteomics, new
protein drugs may be identified or new markers discovered that will be important
to the diagnosis of disease. As a result, such capabilities should also lead to
important discoveries that will permit better monitoring and treatment of
diseases.
Another significant opportunity is to extend the reach of genomic and
functional genomic information to physicians and consumers through its use in
the emerging market of personalized health/medicine. Genomic information,
specifically genetic variability among individuals, known as polymorphisms or
SNPs, and its correlation to relevant medical and health information, will be
used to develop diagnostic tests which profile the genetic make-up of an
individual. These correlations to individual genetic profiles may be an
important basis for interaction between consumers, physicians and solution
providers, enabling
3
<PAGE>
customized treatment and health planning. In addition, this information may have
many other applications for drug development, therapeutics and patient care.
Through the use of Celera Genomics' comprehensive and flexible technology
platform, it expects to have the capability to package and market life sciences
information solutions specific to the needs of customers that seek to use the
information for commercial applications in the pharmaceutical and life sciences
industries. Because this information will be delivered via the Internet and
customer Intranets, Celera Genomics intends to take advantage of portal
opportunities that may create e-commerce revenue opportunities. These may
include the promotion and sale of third party products, such as custom assay
systems, research reagents, and specialized genomic diagnostic products in
conjunction with other companies such as PE Biosystems.
Celera Genomics believes it has competitive advantages that differentiate it
from other genomic companies. These advantages have enabled Celera to rapidly
sequence and assemble large and complex genomes and should allow it to leverage
these capabilities to market the use of this information and discoveries in the
new business segments of functional genomics and personalized health/medicine.
These advantages include the expertise of Celera's key scientific personnel, a
proven sequencing strategy, the world's largest DNA sequencing and genotyping
facility, access to proprietary comprehensive genomic information, extensive
supercomputing infrastructure and bioinformatic capabilities, and Celera's
strategic relationships and affiliations with PE Biosystems, Compaq Computer and
others.
Particularly, Celera's relationship with PE Biosystems will allow it early
access to important new technologies as Celera develops its functional genomics
and personalized health/medicine capabilities. Currently, technologies from PE
Biosystems' pending acquisition of Third Wave Technologies and its
collaborations with Illumnia and Alcara BioSciences are expected to be used in
the area of SNP analysis. PE Biosystems' technologies in mass spectrometry
should meet the high-throughput and information requirements necessary to create
the foundation for proteomics.
For fiscal 1999, the Celera Genomics group had net revenues of
$12.5 million and a net loss of $44.9 million. For the six months ended
December 31, 1999, the Celera Genomics group had net revenues of $16.6 million
and a net loss of $43.7 million. Its total assets at December 31, 1999 were
$349.5 million.
PE BIOSYSTEMS GROUP
The PE Biosystems group is a world leader in the development, manufacture,
sale, and service of instrument systems and associated consumable products for
life science research and related applications. Its products are used in various
applications including the synthesis, amplification, purification, isolation,
analysis, and sequencing of nucleic acids, proteins, and other biological
molecules.
For fiscal 1999, the PE Biosystems group had net revenues of $1.2 billion,
and income from continuing operations of $148.4 million. For the six months
ended December 31, 1999, the PE Biosystems group had net revenues of
$628.2 million and income from continuing operations of $73.5 million. Its total
assets at December 31, 1999 were $1.5 billion.
------------------------
PE Corporation was incorporated in Delaware in 1998 and succeeded by
recapitalization to the business of The Perkin-Elmer Corporation in May 1999.
Our principal executive offices are located at 761 Main Avenue, Norwalk,
Connecticut 06859, and our telephone number is (203) 762-1000. PE Corporation's
Internet address is www.pecorporation.com and the Celera Genomic group's
Internet address is www.celera.com. The information contained on these websites
is not incorporated by reference in this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Celera Genomics stock offered............. 3,230,000
Celera Genomics stock to be outstanding
after this offering..................... 55,537,172
Over-allotment option..................... 484,500
Use of Proceeds........................... The net proceeds we will receive from this offering are
estimated to be approximately $407.8 million, assuming a
public offering price of $131 9/16 per share. If the
underwriters' over-allotment option is exercised in
full, we estimate that the net proceeds to us would be
approximately $469.1 million. We intend to use the net
proceeds from this offering primarily to fund our new
product and technology development activities in
functional genomics, with an emphasis on proteomics, and
personalized health/medicine. We will also use the net
proceeds for general corporate purposes, including
possible acquisitions, alliances or collaborations.
New York Stock Exchange symbol............ CRA
</TABLE>
On January 20, 2000, we announced a two-for-one split of the Celera Genomics
stock to be distributed as a 100% stock dividend on February 18, 2000 to holders
of record on February 4, 2000. All the information in this prospectus gives
effect to the stock split.
The number of shares of Celera Genomics stock to be outstanding after this
offering does not take into account, as of December 31, 1999, 14.0 million
shares of Celera Genomics stock issuable upon the exercise of outstanding stock
options at a weighted average exercise price of $6.88 per share.
The Celera Genomics Group Common Stock is one of two classes of PE
Corporation common stock, the other being the PE Biosystems Group Common Stock.
The Celera Genomics stock and the PE Biosystems stock are intended to provide
stockholders of PE Corporation with separate securities reflecting the
performance of the Celera Genomics group and the PE Biosystems group.
We have not paid any cash dividends on the Celera Genomics stock, and do not
anticipate paying cash dividends on the Celera Genomics stock for the forseeable
future. The Board of Directors of PE Corporation bases its dividend policy for
the Celera Genomics stock on the financial condition and results of operations
of the Celera Genomics group, although it has no obligation under Delaware law
to do so. In determining its dividend policy with respect to the Celera Genomics
stock, the Board will rely on the separate financial statements of the Celera
Genomics group.
A portion of PE Corporation's corporate assets and liabilities are
attributed to each of the Celera Genomics group and the PE Biosystems group.
Although the financial statements of the Celera Genomics group and the PE
Biosystems group separately report assets, liabilities (including contingent
liabilities) and stockholders' equity of PE Corporation attributed to each such
group, such attribution does not affect legal title to such assets or
responsibility for such liabilities. Holders of Celera Genomics stock and PE
Biosystems stock are stockholders of PE Corporation, which continues to be
responsible for all liabilities of the Celera Genomics group and the PE
Biosystems group. Financial impacts arising from either the Celera Genomics
group or the PE Biosystems group which affect PE Corporation's overall cost of
capital could affect the results of operations and financial condition of both
groups. Accordingly, the PE Corporation consolidated financial information
should be read in connection with the Celera Genomics group financial
information.
For information concerning legal restrictions on the payment of dividends on
the Celera Genomics stock and other terms thereof and certain management and
accounting policies with respect to the Celera Genomics group, see "Risk
Factors," "Description of Capital Stock" and "Management and Allocation
Policies."
5
<PAGE>
CELERA GENOMICS GROUP
SUMMARY COMBINED FINANCIAL INFORMATION
The following summary combined financial information has been derived from
the combined financial statements of the Celera Genomics group for each of the
three fiscal years in the period ended June 30, 1999 and the six month periods
ended December 31, 1998 and 1999. The information set forth below should be read
in conjunction with the Celera Genomics group "Management's Discussion and
Analysis" and combined financial statements and notes thereto included in this
prospectus; the PE Corporation "Management's Discussion and Analysis" included
in this prospectus; and the PE Corporation consolidated financial statements and
notes thereto contained in the PE Corporation Annual Report to Stockholders for
the year ended June 30, 1999 and in the PE Corporation Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1999, each incorporated
herein by reference. The data for the six month periods ended December 31, 1998
and 1999 have been derived from unaudited financial statements which, in the
opinion of management, reflect all adjustments necessary for a fair presentation
of results for the periods covered.
On January 20, 2000, we announced a two-for-one split of the Celera Genomics
stock to be distributed as a 100% stock dividend payable on February 18, 2000 to
stockholders of record on February 4, 2000. All information in this prospectus
gives effect to the stock split.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
FOR THE FISCAL YEARS ENDED JUNE 30, ENDED DECEMBER 31,
------------------------------------ -------------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1997 1998 1999 1998 1999
- ------------------------------------------------------ ---------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net revenues..................................... $ 903 $ 4,211 $ 12,541 $ 5,631 $ 16,625
Net loss......................................... (30,247) (8,315) (44,894) (12,216) (43,676)
Per share of common stock
Basic and diluted............................ $ (.89) $ (.84)
OTHER INFORMATION
Cash and cash equivalents........................ $ -- $ -- $ 71,491 $ -- $ 53,955
Note receivable from the PE Biosystems group..... -- -- 150,000 310,852 150,000
Working capital (deficit)........................ (421) (1,160) 192,803 308,579 152,448
Capital expenditures............................. 411 3,648 94,541 17,380 19,867
Total assets..................................... 2,983 6,339 344,720 338,531 349,529
Total debt....................................... -- -- -- -- 46,000
Group equity (deficit)........................... (3,464) (1,259) 293,867 325,060 260,297
</TABLE>
6
<PAGE>
PE CORPORATION
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial information has been derived
from the consolidated financial statements of PE Corporation for each of the
three fiscal years in the period ended June 30, 1999 and the six month periods
ended December 31, 1998 and 1999. The information set forth below should be read
in conjunction with the PE Corporation "Management's Discussion and Analysis"
included in this prospectus; and the PE Corporation consolidated financial
statements and notes thereto contained in the PE Corporation Annual Report to
Stockholders for the year ended June 30, 1999, and in the PE Corporation
Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1999,
each incorporated herein by reference. The data for the six month periods ended
December 31, 1998 and 1999 have been derived from unaudited financial statements
which, in the opinion of management, reflect all adjustments necessary for a
fair presentation of results for the periods covered.
On January 20, 2000, we announced a two-for-one split of the Celera Genomics
stock and the PE Biosystems stock to be distributed as a 100% stock dividend
payable on February 18, 2000 to stockholders of record on February 4, 2000. All
information in this prospectus gives effect to the stock split.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FOR THE FISCAL YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------ -----------------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1997 1998 1999 1998 1999
- ------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net revenues.......................................... $ 768,368 $ 944,306 $1,216,897 $ 543,238 $ 616,207
Income from continuing operations..................... 102,492 15,694 96,797 36,095 29,254
Per share of common stock
Basic............................................. 2.16 .32 .73
Diluted........................................... 2.07 .31 .71
Income (loss) from discontinued operations
(net of income taxes)............................... 27,906 40,694 79,058 (4,037) --
Net income............................................ 130,398 56,388 175,855 32,058 29,254
Per share of common stock
Basic............................................. 2.74 1.16 .65
Diluted........................................... 2.63 1.12 .63
Dividends per share................................... .68 .68 .51 .34
PE BIOSYSTEMS GROUP
Income from continuing operations..................... $ 148,365 $ 73,541
Per share of common stock
Basic............................................. .74 .36
Diluted........................................... .72 .34
Income from discontinued operations
(net of income taxes)............................... 79,058 --
Net income............................................ 227,423 73,541
Per share of common stock
Basic............................................. 1.13 .36
Diluted........................................... 1.10 .34
Dividends per share................................... .0425 .085
CELERA GENOMICS GROUP
Net loss.............................................. $ (44,894) $ (43,676)
Per share of common stock
Basic and diluted................................. (.89) (.84)
OTHER INFORMATION
Cash and short-term investments....................... $ 217,222 $ 84,091 $ 308,021 $ 75,479 $ 349,481
Working capital....................................... 354,742 287,991 471,350 330,015 467,966
Capital expenditures.................................. 58,057 71,820 176,035 49,984 51,107
Total assets.......................................... 1,006,793 1,135,276 1,519,307 1,241,051 1,681,244
Long-term debt........................................ 59,152 33,726 31,452 35,548 37,102
Total debt............................................ 89,068 45,825 35,363 66,839 118,351
Stockholders' equity.................................. 504,270 564,248 821,525 622,229 906,264
</TABLE>
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE CELERA GENOMICS GROUP'S AND PE CORPORATION'S BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY
AFFECTED BY ANY OF THESE RISKS. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES
FACING THE CELERA GENOMICS GROUP AND PE CORPORATION. THE TRADING PRICE OF THE
CELERA GENOMICS STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE
ALL OR PART OF YOUR INVESTMENT.
RISKS RELATING TO THE CELERA GENOMICS GROUP
CELERA GENOMICS HAS INCURRED NET LOSSES TO DATE AND MAY NOT ACHIEVE
PROFITABILITY
The Celera Genomics group has accumulated net losses of $129.7 million as of
December 31, 1999 and expects that it will continue to incur additional net
losses for the foreseeable future. These losses may increase as Celera expands
its investments in new technology and product development, including the
development of our functional genomics and personalized health/medicine efforts.
As an early stage business, the Celera Genomics group faces significant
challenges in simultaneously expanding its operations, pursuing key scientific
goals and attracting customers for its information products and services. As a
result, there is a high degree of uncertainty that the Celera Genomics group
will be able to achieve profitable operations.
CELERA GENOMICS' BUSINESS PLAN IS UNIQUE AND EXPANDING
No organization has ever attempted to combine in one business organization
all of the Celera Genomics group's businesses. In addition, as Celera Genomics
nears completion of the sequencing of the human genome, it is expanding its
business plan to enter into new markets: functional genomics and personalized
health/medicine. The creation of a genomics database, and the offering of
functional genomics and personalized health/medicine capabilities 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. The addition of the functional
genomics and personalized health/medicine efforts will add further complexity
and require additional management attention and resources as these new markets
are addressed.
CELERA GENOMICS' BUSINESS PLAN DEPENDS HEAVILY ON TIMELY COMPLETION OF THE
SEQUENCING AND ASSEMBLY OF THE HUMAN GENOME
The Celera Genomics group's efforts to complete the sequencing and assembly
of the human genome are not yet complete. Some genomic scientists have
criticized the Celera Genomics group's sequencing strategy, known as "whole
genome shotgun sequencing," as having limitations when applied on a large scale
in sequencing the human genome. Others have stated that the human genome cannot
be sequenced using whole genome shotgun sequencing. Although scientists at The
Institute for Genomic Research have used the whole genome shotgun strategy to
sequence the genomes of other organisms, the strategy has not been used to
sequence a genome with the size and complexity of the human genome. Although the
Celera Genomics group has been successful in sequencing and assembling the
DROSOPHILA genome, once the human genome has been fully sequenced, there can be
no assurance that the Celera Genomics group will be successful in its assembly
of the human genome. Celera Genomics group's ability to retain its existing
customers and attract new customers is heavily dependent upon the completion of
the sequencing and assembly of the human genome within the expected time frames.
In addition, completion of the sequencing and assembly of the human genome is
essential to the functional genomics and personalized medicine components of
Celera Genomics' business strategy in which Celera Genomics intends to make
substantial investments in the near future. As a result, failure to complete the
sequencing and assembly effort in a timely manner may have a material adverse
effect on the Celera Genomics group's business.
8
<PAGE>
CELERA GENOMICS' REVENUE GROWTH DEPENDS ON RETAINING EXISTING AND ADDING NEW
CUSTOMERS
The Celera Genomics group has a small number of customers, the revenues from
which will offset only a small portion of its expenses. In order to generate
significant additional revenues, the Celera Genomics group must obtain
additional customers and retain its existing customers. Celera Genomics' ability
to retain existing and add new customers depends upon customers' continued
belief that Celera Genomics' products can help accelerate their drug discovery
and development efforts and fundamental discoveries in biology. Although
customer agreements typically have multi-year terms, there can be no assurance
that any will be renewed upon expiration. The Celera Genomics group's future
revenues are also affected by the extent to which existing customers expand
their agreements to include new services and database products. In some cases,
the Celera Genomics group may accept milestone payments or future royalties on
products developed by its customers as consideration for access to Celera
Genomics' databases and products in lieu of a portion of subscription fees. Such
arrangements are unlikely to produce revenue for Celera Genomics group for a
number of years, if ever, and depend heavily on the research and product
development, sales and marketing and intellectual property protection abilities
of the customer.
USE OF GENOMICS INFORMATION TO DEVELOP OR COMMERCIALIZE PRODUCTS IS UNPROVEN
The development of new drugs and the diagnosis of disease based on genomic
information is unproven. Few therapeutic or diagnostic products based on genomic
discoveries have been developed and commercialized and to date no one has
developed or commercialized any therapeutic, diagnostic or agricultural products
based on the Celera Genomic group's technologies. If the Group's customers are
unsuccessful in developing and commercializing products based on the Group's
databases or other products or services, customers and the Group may be unable
to generate sufficient revenues and its business may suffer as a result.
Development of such products will be subject to risks of failure, including that
such products will be found to be toxic, be found to be ineffective, fail to
receive regulatory approvals, fail to be developed prior to the successful
marketing of similar products by competitors or infringe on proprietary rights
of third parties.
THE GENOMICS INDUSTRY IS INTENSELY COMPETITIVE AND EVOLVING
There is intense competition among entities attempting to sequence segments
of the human genome and identify genes associated with specific diseases and
develop products and services based on these discoveries. Celera Genomics faces
competition in these areas from genomic, pharmaceutical, biotechnology and
diagnostic companies, academic and research institutions and government or other
publicly-funded agencies, both in the United States and abroad. A number of
companies, other institutions and government-financed entities are engaged in
gene sequencing, gene discovery, gene expression analysis, positional cloning,
the study of genetic variation, and other genomic service businesses. Some of
these competitors are developing databases containing gene sequence, gene
expression, genetic variation or other genomic information and are marketing or
plan to market their data to pharmaceutical companies. Additional competitors
may attempt to establish databases containing this information in the future.
The Celera Genomics group has licensed some of its key technology on a
non-exclusive basis, including the Human Genome Index licensed from The
Institute for Genomic Research, and therefore such technology may be available
for license by our competitors.
Competitors may also discover, characterize or develop important genes, drug
targets or leads, drug discovery technologies or drugs in advance of Celera
Genomics or its customers or which are more effective than those developed by
Celera Genomics or its customers, or may obtain regulatory approvals of their
drugs more rapidly than Celera Genomics' customers do, any of which could have a
material adverse effect on any of Celera Genomics' similar programs. Moreover,
these competitors may obtain patent protection or other intellectual property
rights that would limit Celera Genomics' rights or its customers' ability to use
Celera Genomics' products to commercialize therapeutic, diagnostic or
agricultural products.
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In addition, a customer may use the Celera Genomic group's services to develop
products that compete with products separately developed by the Group or its
other customers.
Future competition will come from existing competitors as well as other
companies seeking to develop new technologies for drug discovery based on gene
sequencing, target gene identification, bioinformatics and related technologies.
In addition, certain pharmaceutical and biotechnology companies have significant
needs for genomic information and may choose to develop or acquire competing
technologies to meet such needs. Celera Genomics also faces competition from
providers of software. A number of companies have announced their intent to
develop and market software to assist pharmaceutical companies and academic
researchers in managing and analyzing their own genomic data and publicly
available data.
CELERA GENOMICS' CURRENT AND POTENTIAL CUSTOMERS ARE PRIMARILY FROM, AND ARE
SUBJECT TO RISKS FACED BY, THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES
The Celera Genomics group derives a substantial portion of its revenues from
fees paid by pharmaceutical companies and larger biotechnology companies for its
information products and services, including Amgen Inc., Novartis Pharma AG,
Pharmacia & Upjohn and Pfizer Inc. The Group expects that pharmaceutical
companies and larger biotechnology companies will continue to be the Group's
primary source of revenues for the foreseeable future. As a result, the Group is
subject to risks and uncertainties that affect the pharmaceutical and
biotechnology industries and to reduction and delays in research and development
expenditures by companies in these industries.
In addition, the Celera Genomics group's future revenues may be adversely
affected by mergers and consolidation in the pharmaceutical and biotechnology
industries, which will reduce the number of the Group's potential customers.
Large pharmaceutical and biotechnology customers could also decide to conduct
their own genomics programs or seek other providers instead of using Celera's
products and services.
CELERA GENOMICS RELIES HEAVILY ON ITS STRATEGIC RELATIONSHIP WITH PE
BIOSYSTEMS
The Celera Genomics group believes that its strategic relationship with the
PE Biosystems group has provided it with a significant competitive advantage in
its efforts to date to sequence the human genome. Celera Genomics' timely
completion of that work and successful extension of its business into the
functional genomics and personalized health/medicine arenas will depend heavily
on the PE Biosystems group's ability to continue to provide leading edge,
proprietary technology and products, including technologies relating to genetic
analysis, protein analysis and high-throughput screening. If PE Biosystems is
unable to supply these technologies, Celera will need to obtain access to
alternative technologies, which may not be available, or may only be available
on unfavorable terms. Any change in the relationship with the PE Biosystems
group that adversely affects the Celera Genomic group's access to
PE Biosystems' technology or failure by PE Biosystems to continue to develop new
technologies or protect its proprietary technology could adversely affect Celera
Genomic's business.
INTRODUCTION OF NEW PRODUCTS MAY EXPOSE CELERA GENOMICS TO PRODUCT LIABILITY
CLAIMS
New products developed by Celera Genomics could expose Celera Genomics to
potential product liability risks which are inherent in the testing,
manufacturing and marketing of human therapeutic and diagnostic products.
Product liability claims or product recalls, regardless of the ultimate outcome,
could require Celera Genomics to spend significant time and money in litigation
and to pay significant damages.
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CELERA COULD INCUR LIABILITIES RELATING TO HAZARDOUS MATERIALS THAT IT USES
IN ITS RESEARCH AND DEVELOPMENT ACTIVITIES
Celera Genomics' research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. In the
event of an accidental contamination or injury from these materials, Celera
could be held liable for damages in excess of its resources.
CELERA GENOMICS' SALES CYCLE IS LENGTHY AND IT MAY SPEND CONSIDERABLE
RESOURCES ON UNSUCCESSFUL SALES EFFORTS OR MAY NOT BE ABLE TO COMPLETE DEALS
ON THE SCHEDULE ANTICIPATED
The Celera Genomics group's ability to obtain new customers for genomic
information products and value-added programs depends on its customers' belief
that the Group can help accelerate their drug discovery efforts. The Celera
Genomics group's sales cycle is typically lengthy because the Group needs to
educate potential customers and sell the benefits of its products and services
to a variety of constituencies within such companies. In addition, each
agreement involves the negotiation of unique terms. Celera may expend
substantial funds and management effort with no assurance that an agreement will
result. Actual and proposed consolidations of pharmaceutical companies have
affected and may in the future affect the timing and progress of the Group's
sales efforts.
SCIENTIFIC AND MANAGEMENT STAFF HAVE UNIQUE EXPERTISE WHICH IS KEY TO CELERA
GENOMICS' COMMERCIAL VIABILITY AND WHICH WOULD BE DIFFICULT TO REPLACE
The Celera Genomics group 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, the Celera Genomics group
believes the following members of its staff are essential: Dr. Venter; Dr. Mark
Adams, Vice President for Genome Programs; and Dr. Eugene Myers, who is
responsible for the group assembling the genome. None of these individuals are
party to employment agreements, non-competition agreements or non-solicitation
agreements with the Celera Genomics group. Additional members of the Celera
Genomics group's medical, scientific and bioinformatics staff are important to
the development of information, tools and services required for implementation
of its business plan. The loss of any of these persons' expertise would be
difficult to replace and could have a material adverse effect on the Celera
Genomics group's ability to achieve its goals.
CELERA GENOMICS' COMPETITIVE POSITION MAY DEPEND ON PATENT AND COPYRIGHT
PROTECTION, WHICH MAY NOT BE SUFFICIENTLY AVAILABLE
The Celera Genomics group's ability to compete and to achieve profitability
may be affected by its ability to protect its proprietary technology and other
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, in that Celera Genomics
would be able to prevent competitors from making, using or selling any of its
technology for which it obtains a patent. Patent law affecting Celera Genomics'
business, particularly gene sequences and polymorphisms, is uncertain, and as a
result, the Group is uncertain as to its ability to prevent competitors from
developing similar subject matter. Patents may not issue from patent
applications that the Group may own or license. In addition, because patent
applications in the United States are maintained in secrecy until patents issue,
third parties may have filed patent applications for technology used by Celera
Genomics or covered by Celera Genomics' pending patent applications without
Celera Genomics being aware of such applications.
Moreover, the Celera Genomics group may be dependent on protecting, through
copyright law or otherwise, its databases to prevent other organizations from
taking information from such databases and copying and reselling it. Copyright
law currently provides uncertain protection regarding the copying and resale of
factual data. As such, Celera Genomics is uncertain whether it could prevent
such copying or
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resale. Changes in copyright and patent law could either expand or reduce the
extent to which the Celera Genomics group and its customers are able to protect
their intellectual property.
CELERA GENOMICS' POSITION MAY DEPEND ON ITS ABILITY TO PROTECT TRADE SECRETS
The Celera Genomics group relies on trade secret protection for its
confidential and proprietary information and procedures, including procedures
related to sequencing genes and to searching and identifying important regions
of genetic information. The Celera Genomics group currently protects such
information and procedures as trade secrets. The Celera Genomics group protects
its trade secrets through recognized practices, including access control,
confidentiality agreements with employees, consultants, collaborators, and
customers, and other security measures. These confidentiality agreements may be
breached, however, and the Group may not have adequate remedies for any such
breach. In addition, the Group's trade secrets may otherwise become known or be
independently developed by competitors.
PUBLIC DISCLOSURE OF GENOMICS SEQUENCE DATA COULD JEOPARDIZE CELERA'S
INTELLECTUAL PROPERTY PROTECTION AND HAVE AN ADVERSE EFFECT ON THE VALUE OF
OUR PRODUCTS AND SERVICES
The Celera Genomics group, the federally funded Human Genome Project and
others engaged in similar research have committed to make available to the
public basic human sequence data. Such disclosures might limit the scope of the
Celera Genomics group's claims or make subsequent discoveries related to
full-length genes unpatentable. While the Celera Genomics group believes that
the publication of sequence data will not preclude it or others from being
granted patent protection on genes, there can be no assurance that such
publication has not affected and will not affect the ability to obtain patent
protection. Customers may conclude that uncertainties of such protection
decrease the value of the Celera Genomics group's information products and
services and as a result, it may be required to reduce the fees it charges for
such products and services.
CELERA GENOMICS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES AND MAY BECOME INVOLVED IN EXPENSIVE INTELLECTUAL PROPERTY
LITIGATION
The intellectual property rights of biotechnology companies, including
Celera Genomics, are generally uncertain and involve complex legal, scientific
and factual questions. Celera Genomics' success in the functional genomics field
may depend, in part, on its ability to operate without infringing on the
intellectual property rights of others and to prevent others from infringing on
its intellectual property rights.
There has been substantial litigation regarding patents and other
intellectual property rights in Celera Genomics' industry. The Group may become
a party to patent litigation or proceedings at the U.S. Patent and Trademark
Office to determine its patent rights with respect to third parties which may
include subscribers to Celera Genomics' database information services.
Interference proceedings may be necessary to establish which party was the first
to discover such intellectual property. Celera Genomics may become involved in
patent litigation against third parties to enforce the Group's patent rights, to
invalidate patents held by such third parties, or to defend against such claims.
The cost to Celera Genomics of any patent litigation or similar proceeding could
be substantial, and it may absorb significant management time. If an
infringement litigation against Celera Genomics is resolved unfavorably to
Celera Genomics, Celera Genomics may be enjoined from manufacturing or selling
certain of its products or services without a license from a third party. Celera
Genomics may not be able to obtain such a license on commercially acceptable
terms, or at all.
The U.S. Patent and Trademark Office has issued at least one patent to a
third party relating to a SNP. If other important SNPs receive patents, Celera
Genomics will need to obtain rights to those important SNPs in order to develop,
use and sell related assays. Such licenses may not be available to Celera
Genomics on commercially acceptable terms, or at all.
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CELERA GENOMICS' BUSINESS IS DEPENDENT ON THE CONTINUOUS, EFFECTIVE,
RELIABLE AND SECURE OPERATION OF ITS COMPUTER HARDWARE, SOFTWARE AND
INTERNET APPLICATIONS AND RELATED TOOLS AND FUNCTIONS
Because the Celera Genomics group's business requires manipulating and
analyzing large amounts of data, and communicating the results of such analysis
to customers via the Internet, the Group depends on the continuous, effective,
reliable and secure operation of its computer hardware, software, networks,
Internet servers and related infrastructure. To the extent that the Group's
hardware or software malfunctions or the Group's customers' access to products
through the Internet is interrupted, its business could suffer. The Group's
computer and communications hardware is protected through physical and software
safeguards. However, it is still vulnerable to fire, storm flood, power loss,
earthquakes, telecommunications failures, physical or software break-ins and
similar events. In addition, Celera Genomics' database products are complex and
sophisticated, and as such, could contain data, design or software errors that
could be difficult to detect and correct. Software defects could be found in
current or future products. If the Group fails to maintain and further develop
the necessary computer capacity and data to support its computational needs and
its customers' drug discovery efforts, it could result in loss of or delay in
revenues and market acceptance. In addition, any sustained disruption in
Internet access provided by third parties could adversely impact the Group's
business.
CELERA GENOMICS' RESEARCH AND PRODUCT DEVELOPMENT DEPENDS ON ACCESS TO
TISSUE SAMPLES AND OTHER BIOLOGICAL MATERIALS
To continue to build its database products, Celera Genomics will need access
to normal and diseased human and other tissue samples, other biological
materials and related clinical and other information, which may be in limited
supply. Celera Genomics may not be able to obtain or maintain access to these
materials and information on acceptable terms. In addition, government
regulation in the United States and foreign countries could result in restricted
access to, or use of, human and other tissue samples. If Celera Genomics loses
access to sufficient numbers or sources of tissue samples, or if tighter
restrictions are imposed on its use of the information generated from tissue
samples, its business may be harmed.
IF ETHICAL, LEGAL AND SOCIAL ISSUES RELATED TO THE USE OF GENETIC
INFORMATION AND GENETIC TESTING MAY CAUSE LESS DEMAND FOR OUR PRODUCTS
Genetic testing has raised issues regarding confidentiality and the
appropriate uses of the resulting information. For example, concerns have been
expressed towards insurance carriers and employers using such tests to
discriminate on the basis of such information, resulting in barriers to the
acceptance of such tests by consumers. This could lead to governmental
authorities calling for limits on or regulation of the use of genetic testing or
prohibit testing for genetic predisposition to certain diseases, particularly
those that have no known cure. Any of these scenarios could reduce the potential
markets for our products.
CELERA GENOMICS MAY NEED TO RAISE ADDITIONAL FUNDS IN THE FUTURE
The Celera Genomics group believes that the net proceeds of this offering
together with existing cash and marketable securities and anticipated cash flow
from operations will be sufficient to fund its current plans to expand its
business into functional genomics and personalized health/medicine. However, the
Celera Genomics group may choose to accelerate its entry into these new
businesses, in response to competitive pressures or otherwise, or to invest in
new technologies, or it may choose to raise additional capital due to market
conditions or strategic considerations even if it has sufficient funds for its
current operating plan. This additional financing may not be available when
needed, or, if available, may not be available on favorable terms. If additional
financing is obtained through additional public or private equity offerings,
existing shareholders may suffer dilution.
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EXPECTED RAPID GROWTH IN THE NUMBER OF OUR EMPLOYEES COULD ABSORB VALUABLE
MANAGEMENT RESOURCES AND BE DISRUPTIVE TO THE DEVELOPMENT OF CELERA
GENOMICS' BUSINESS
The Celera Genomics group expects to grow significantly, from approximately
450 employees at December 31, 1999 to over 600 by June 30, 2000. This growth
will require substantial effort to hire new employees and train and integrate
them in the Celera Genomics group's business and to develop and implement
management information systems, financial controls and facility plans. In
addition, the Celera Genomics group will be required to create a sales and
marketing organization and expand customer support resources as sales of its
information products increase. The Celera Genomics group's inability to manage
growth effectively would have a material adverse effect on its future operating
results.
THE USE OF CELERA GENOMICS' PRODUCTS AND SERVICES BY ITS CUSTOMERS MAY BE
SUBJECT TO GOVERNMENT REGULATION
Within the field of functional genomics, the use of Celera's database
products by pharmaceutical and biotechnology customers may be subject to certain
U.S. Food and Drug Administration or other regulatory approvals. For example,
any new drug developed by the efforts of Celera's customers as a result of their
use of Celera's databases must undergo an extensive regulatory review process.
This process can take many years and require substantial expense.
Within the field of personalized health/medicine, current and future patient
privacy and health care laws and regulations issued by the FDA may limit the use
of polymorphism data. To the extent that use of Celera's databases is limited or
additional costs are imposed on Celera's customers due to regulation, our
business may be adversely affected.
Furthermore, Celera Genomics may be directly subject to regulations as a
provider of diagnostic information. To the extent that such regulations restrict
the sale of Celera's products or impose other costs, Celera's business may be
materially adversely affected.
FUTURE ACQUISITIONS MAY ABSORB SIGNIFICANT RESOURCES AND MAY BE UNSUCCESSFUL
As part of the Celera Genomics group's strategy, it expects to pursue
acquisitions, investments and other relationships and alliances. Acquisitions
may involve significant cash expenditures, debt incurrence, additional operating
losses, dilutive issuances of equity securities, and expenses that could have a
material adverse effect on Celera Genomics' financial condition and results of
operations. For example, to the extent that we elect to pay the purchase price
for such acquisitions in shares of Celera Genomics stock, such issuance of
additional shares of Celera Genomics stock will be dilutive to Celera's
stockholders. Acquisitions involve numerous other risks, including:
- difficulties integrating acquired technologies and personnel into Celera's
business;
- diversion of management from daily operations;
- inability to obtain required financing on favorable terms;
- entering new markets in which Celera has little previous experience;
- potential loss of key employees or customers of acquired companies;
- assumption of the liabilities and exposure to unforseen liabilities of
acquired companies; and
- amortization of the intangible assets of acquired companies.
It may be difficult for Celera to complete such transactions quickly and to
integrate such businesses efficiently into its current business. Any such
acquisitions or investments by Celera may ultimately have a negative impact on
its business and financial condition.
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CELERA GENOMICS STOCK PRICE IS HIGHLY VOLATILE
The market price of Celera Genomics stock has been and may continue to be
highly volatile due to the risks and uncertainties described in this section of
the prospectus, as well as other factors, including:
- conditions and publicity regarding the genomics or life sciences
industries generally;
- failure to complete the sequencing and assembly of human genome within
expected time frames;
- price and volume fluctuations in the stock market at large which do not
relate to the Group's operating performance; and
- comments by securities analysts, or the Group's failure to meet market
expectations.
The stock market has from time to time experienced extreme price and volume
fluctuations that are unrelated to the operating performance of particular
companies. In the past, companies that have experienced volatility have
sometimes been the subject of securities class action litigation. If litigation
were instituted on this basis, it could result in substantial costs and a
diversion of management's attention and resources.
NEW INVESTORS WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Celera Genomic stock offered by this prospectus will incur
an immediate and substantial dilution of approximately $119.53 per share in net
tangible book value based on an assumed public offering price of $131 9/16 per
share. Additional dilution is likely to occur upon the exercise of outstanding
options.
CELERA GENOMICS HAS VERY BROAD DISCRETION AS TO THE APPLICATION OF THE
PROCEEDS OF THIS OFFERING
Celera Genomics has not yet determined the amount of net proceeds to be used
for each of the purposes indicated in this prospectus. Accordingly, management
will retain broad discretion in the allocation of the net proceeds and may also
use a portion of the net proceeds to fund acquisitions of complementary
technologies, products or businesses, although we have no current agreement or
commitments for any such acquisitions.
RISKS RELATING TO A CAPITAL STRUCTURE WITH TWO SEPARATE CLASSES OF COMMON STOCK
YOU WILL BE STOCKHOLDERS OF ONE COMPANY AND, THEREFORE, FINANCIAL EFFECTS ON
ONE GROUP COULD ADVERSELY AFFECT THE OTHER
Holders of Celera Genomics stock will be stockholders of PE Corporation,
which consists of Celera Genomics group and PE Biosystems group. The Celera
Genomics group and the PE Biosystems group are not separate legal entities. As a
result, stockholders will continue to be subject to all of the risks of an
investment in PE Corporation, including PE Biosystems. The risks and
uncertainties that may affect the operations, performance, development, and
results of PE Biosystems businesses include but are not limited to rapidly
changing technology and dependence on new products, dependence of sales on
customers' capital spending policies and government-sponsored research, claims
for patent infringement, significant overseas operations, future growth strategy
and earthquakes. The assets attributed to the Celera Genomics group could be
subject to the liabilities of the PE Biosystems group, whether such liabilities
arise from lawsuits, contracts or indebtedness that we attribute to the PE
Biosystems group. If we are unable to satisfy the PE Biosystems group's
liabilities out of the assets attributed to it, we may be required to satisfy
those liabilities with assets attributed to the Celera Genomics group.
Financial effects from the PE Biosystems group that affect our consolidated
results of operations or financial condition could, if significant, affect the
results of operations or financial condition of the Celera Genomics group and
the market price of the Celera Genomics stock. A substantial portion of the
Celera
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Genomics group's equity is represented by a $150 million demand note of the PE
Biosystems group. In addition, net losses of the PE Biosystems group and
dividends or distributions on, or repurchases of, PE Biosystems stock or
repurchases of certain preferred stock will reduce the funds we can pay as
dividends on the Celera Genomics stock under Delaware law. For these reasons,
you should read our consolidated financial information with the financial
information we provide for each group.
HOLDERS OF CELERA GENOMICS STOCK WILL HAVE LIMITED RIGHTS RELATED TO THE
CELERA GENOMICS GROUP
Holders of Celera Genomics stock have only the rights customarily held by
common stockholders. They will have only the following rights related to the
Celera Genomics group:
- certain rights with regard to dividends and liquidation;
- requirements for a mandatory dividend, redemption or conversion upon the
disposition of all or substantially all of the assets of the Celera
Genomics group; and
- a right to vote on matters as a separate voting class in the limited
circumstances provided under Delaware law, by stock exchange rules or as
determined by our board of directors.
We will not hold separate meetings for holders of Celera Genomics stock and
PE Biosystems stock.
LIMITS EXIST ON VOTING POWER OF GROUP COMMON STOCK
- CELERA GENOMICS STOCK MAY NOT INITIALLY HAVE ANY INFLUENCE ON THE OUTCOME
OF STOCKHOLDER VOTING
PE Biosystems stock currently has a substantial majority of the voting power
of the common stock. Except in limited circumstances requiring separate class
voting, either class of common stock that is entitled to more than the number of
votes required to approve any stockholder action could control the outcome of
such vote--even if the matter involves a divergence or conflict of the interests
of the holders of the Celera Genomics stock and the PE Biosystems stock. These
matters may include mergers and other extraordinary transactions.
- A CLASS OF GROUP COMMON STOCK WITH LESS THAN MAJORITY VOTING POWER CAN
BLOCK ACTION IF A CLASS VOTE IS REQUIRED
If Delaware law, stock exchange rules or our board of directors requires a
separate vote on a matter by the holders of either the Celera Genomics stock or
the PE Biosystems stock, those holders could prevent approval of the
matter--even if the holders of a majority of the total number of votes cast or
entitled to cast, voting together as a class, were to vote in favor of it.
- HOLDERS OF CELERA GENOMICS STOCK CANNOT ENSURE THAT THEIR VOTING POWER
WILL BE SUFFICIENT TO PROTECT THEIR INTERESTS
Since the relative voting power per share of Celera Genomics stock and PE
Biosystems stock will fluctuate based on the market values of the two classes of
common stock, the relative voting power of Celera Genomics stock could decrease.
As a result, holders of shares of Celera Genomics stock cannot ensure that their
voting power will be sufficient to protect their interests.
STOCKHOLDERS MAY NOT HAVE ANY REMEDIES FOR BREACH OF FIDUCIARY DUTIES IF ANY
ACTION BY DIRECTORS AND OFFICERS HAS A DISADVANTAGEOUS EFFECT ON EITHER
CLASS OF COMMON STOCK
Stockholders may not have any remedies if any action or decision of our
directors or officers has a disadvantageous effect on the Celera Genomics stock
or the PE Biosystems stock compared to the other class of common stock.
Recent cases in Delaware involving tracking stocks have established that
decisions by directors or officers involving differing treatment of tracking
stocks are judged under the principle known as "the
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business judgment rule" unless self-interest is shown. In addition, principles
of Delaware law established in cases involving differing treatment of two
classes of capital stock or two groups of holders of the same class of capital
stock provide that a board of directors owes an equal duty to all stockholders
regardless of class or series. Under these principles of Delaware law, absent
abuse of discretion, a good faith business decision made by a disinterested and
adequately informed board of directors, board of directors' committee or officer
with respect to any matter having different effects on holders of Celera
Genomics stock and holders of PE Biosystems stock would be a defense to any
challenge to such determination made by or on behalf of the holders of either
class of common stock.
STOCK OWNERSHIP COULD CAUSE DIRECTORS AND OFFICERS TO FAVOR ONE GROUP OVER
THE OTHER
As a policy, our board of directors periodically monitors the ownership of
shares of Celera Genomics stock and shares of PE Biosystems stock by our
directors and senior officers as well as their option holdings and other
benefits so that their interests are not misaligned with the two classes of
common stock and with their duty to act in the best interests of PE Corporation
and our stockholders as a whole. However, because the actual value of their
interests in the Celera Genomics stock and PE Biosystems stock is anticipated to
vary significantly, it is possible that they could favor one group over the
other due to their stock and other benefits.
NUMEROUS POTENTIAL CONFLICTS OF INTEREST EXIST BETWEEN THE CLASSES OF COMMON
STOCK WHICH MAY BE DIFFICULT TO RESOLVE BY OUR BOARD OR WHICH MAY BE
RESOLVED ADVERSELY TO ONE OF THE CLASSES
- ALLOCATION OF CORPORATE OPPORTUNITIES COULD FAVOR ONE GROUP OVER THE OTHER
Our board of directors may be required to allocate corporate opportunities
between the groups. In some cases, our directors could determine that a
corporate opportunity, such a business that we are acquiring or a new business,
should be shared by the groups or be allocated to one group over the other. Any
such decisions could favor one group to the detriment of the other.
- THE GROUPS MAY COMPETE WITH EACH OTHER TO THE DETRIMENT OF THEIR
BUSINESSES
The existence of two separate classes of common stock will not prevent PE
Biosystems group and the Celera Genomics group from competing with each other.
Any competition between the groups could be detrimental to businesses of either
or both of the groups. Under a board of directors' policy, groups will generally
not engage in the principal businesses of the other, except for joint
transactions with each other. However, our Chief Executive Officer or our board
of directors will permit indirect competition between the groups, such as one
group doing business with a competitor of the other group, based on his or its
good faith business judgment that such competition is in the best interests of
PE Corporation and all of our stockholders as a whole. In addition, the groups
may compete in a business that is not a principal business of the other group.
- OUR BOARD OF DIRECTORS MAY PAY MORE OR LESS DIVIDENDS ON GROUP COMMON
STOCK THAN IF THAT GROUP WERE A SEPARATE COMPANY
Subject to the limitations referred to below, our board of directors has the
authority to declare and pay dividends on the Celera Genomics stock and the PE
Biosystems stock in any amount and could, in its sole discretion, declare and
pay dividends exclusively on the Celera Genomics stock, exclusively on the PE
Biosystems stock, or on both, in equal or unequal amounts. Our board of
directors is not required to consider the amount of dividends previously
declared on each class, the respective voting or liquidation rights of each
class or any other factor. The performance of one group may cause our board of
directors to pay more or less dividends on the common stock relating to the
other group than if that other group was a stand-alone corporation. In addition,
Delaware law and our certificate of incorporation impose limitations on the
amount of dividends which may be paid on each class of common stock.
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- PROCEEDS OF MERGERS OR CONSOLIDATIONS MAY BE ALLOCATED UNFAVORABLY
Our board of directors will determine how consideration to be received by
holders of common stock in connection with a merger or consolidation involving
PE Corporation is to be allocated among holders of each class of common stock.
Such percentage may be materially more or less than that which might have been
allocated to such holders had our board of directors chosen a different method
of allocation.
- HOLDERS OF EITHER CLASS OF COMMON STOCK MAY BE ADVERSELY AFFECTED BY A
CONVERSION OF GROUP COMMON STOCK
Our board of directors could, in its sole discretion and without stockholder
approval, determine to convert shares of PE Biosystems stock into shares of
Celera Genomics stock, or vice versa, at any time, including when either or both
classes of common stock may be considered to be overvalued or undervalued. If
our board of directors chose to issue Celera Genomics stock in exchange for PE
Biosystems stock, such conversion would dilute the interests in PE Corporation
of the holders of Celera Genomics stock. If the board of directors were to
choose to issue PE Biosystems stock in exchange for Celera Genomics stock, such
conversion could give holders of shares of Celera Genomics stock a greater or
lesser premium than any premium that was paid or might be paid by a third-party
buyer of all or substantially all of the assets of the Celera Genomics group.
- PROCEEDS OF NEWLY ISSUED CELERA GENOMICS STOCK IN THE FUTURE COULD BE
ALLOCATED TO THE PE BIOSYSTEMS GROUP
If and to the extent the PE Biosystems group has an equity interest in the
Celera Genomics group in the form of "Celera Genomics Designated Shares" at the
time of any future sale of Celera Genomics stock, our board of directors could
allocate some or all of the proceeds of that sale to the PE Biosystems group.
Any such decision could favor one group over the other group. For example, the
decision to allocate the proceeds to the PE Biosystems group may adversely
affect the Celera Genomics group's ability to obtain funds to finance its growth
strategies. There are no Celera Genomics Designated Shares outstanding as of the
date of this prospectus.
OUR BOARD MAY CHANGE OUR MANAGEMENT AND ALLOCATION POLICIES WITHOUT
STOCKHOLDER APPROVAL TO THE DETRIMENT OF EITHER GROUP
Our board of directors may modify or rescind our policies with respect to
the allocation of corporate overhead, taxes, debt, interest and other matters,
or may adopt additional policies, in its sole discretion without stockholder
approval. A decision to modify or rescind these policies, or adopt additional
policies, could have different effects on holders of Celera Genomics stock and
holders of PE Biosystems stock or could result in a benefit or detriment to one
class of stockholders compared to the other class. Our board of directors will
make any such decision in accordance with its good faith business judgment that
the decision is in the best interests of PE Corporation and all of our
stockholders as a whole.
EITHER GROUP MAY FINANCE THE OTHER GROUP ON TERMS UNFAVORABLE TO ONE OF THE
GROUPS
From time to time, we anticipate that we will transfer cash and other
property between groups to finance their business activities. When this occurs
the group providing the financing will be subject to the risks relating to the
group receiving the financing. We will account for those transfers in one of the
following ways:
- as a reallocation of pooled debt or preferred stock;
- as a short-term or long-term loan between groups or as a repayment of a
previous borrowing;
- as an increase or decrease in the PE Biosystems group's equity interest,
if any, in the Celera Genomics group; or
18
<PAGE>
- as a sale of assets between groups.
Our board of directors has not adopted specific criteria for determining
when we will transfer cash or other property as a loan or repayment, an increase
or decrease in equity interest or a sale of assets. These determinations,
including the terms of any transactions accounted for as debt, may be
unfavorable to either the group transferring or receiving the cash or other
property. Our board of directors expects to make these determinations, either in
specific instances or by setting generally applicable policies, after
considering the financing requirements and objectives of the receiving group,
the investment objectives of the transferring group and the availability, cost
and time associated with alternative financing sources, prevailing interest
rates and general economic conditions.
We cannot assure you that any terms that we fix for debt will approximate
those that could have been obtained by the borrowing group if it were a
stand-alone corporation.
THE CELERA GENOMICS GROUP MAY NOT BE FULLY REIMBURSED FOR THE PE BIOSYSTEMS
GROUP'S USE OF ITS TAX BENEFITS AND COULD BE CHARGED WITH HIGHER FUTURE
TAXES THAN IF IT WERE A STAND-ALONE TAXPAYER
Our management and allocation policies provide that tax benefits generated
but not used by the Celera Genomics group may be used by the PE Biosystems
group. The aggregate amount reimbursed to the Celera Genomics group for such use
may not exceed $75 million. All subsequent tax benefits in excess of this amount
will not be credited to the Celera Genomics group and the Celera Genomics group
will not be reimbursed for those tax benefits, unless the Celera Genomics group
can use those tax benefits. Accordingly, any tax benefits that can not be used
by the Celera Genomics group will not be carried forward to reduce its future
taxes. This could result in the Celera Genomics group being charged a greater
portion of the total corporate tax liability in the future than would have been
the case if the Celera Genomics group had retained its tax benefits.
HOLDERS OF CELERA GENOMICS STOCK MAY RECEIVE LESS CONSIDERATION UPON A SALE
OF ASSETS THAN IF THE CELERA GENOMICS GROUP WERE A SEPARATE COMPANY
Our certificate of incorporation provides that if a disposition of all or
substantially all of the assets of the Celera Genomics group occurs, we must,
subject to certain exceptions:
- distribute to holders of the Celera Genomics stock an amount equal to the
net proceeds of such disposition, or
- convert at a 10% premium the Celera Genomics stock into shares of PE
Biosystems stock.
If the Celera Genomics group were a separate, independent company and its shares
were acquired by another person, certain costs of that disposition, including
corporate level taxes, might not be payable in connection with that acquisition.
As a result, stockholders of the Celera Genomics group as a separate,
independent company might receive a greater amount than the net proceeds that
would be received by holders of Celera Genomics stock if the assets of the
Celera Genomics group were sold. In addition, we can not assure you that the net
proceeds per share of Celera Genomics stock will be equal to or more than the
market value per share of Celera Genomics stock prior to or after announcement
of a disposition.
OUR CAPITAL STRUCTURE AND VARIABLE VOTE PER SHARE MAY DISCOURAGE
ACQUISITIONS OF THE CELERA GENOMICS GROUP OR CELERA GENOMICS STOCK
A potential acquiror could acquire control of PE Corporation by acquiring
shares of common stock having a majority of the voting power of all shares of
common stock outstanding. Such a majority could be obtained by acquiring a
sufficient number of shares of both classes of common stock or, if one class of
common stock has a majority of such voting power, only shares of that class.
Currently, the PE Biosystems stock has a substantial majority of the voting
power. As a result, it might be possible for an acquiror to obtain control by
purchasing only shares of PE Biosystems stock.
19
<PAGE>
DECISIONS BY DIRECTORS AND OFFICERS THAT AFFECT MARKET VALUES COULD
ADVERSELY AFFECT VOTING AND CONVERSION RIGHTS
The relative voting power per share of each class of common stock and the
number of shares of one class of common stock issuable upon the conversion of
the other class of common stock will vary depending upon the relative market
values of the Celera Genomics stock and the PE Biosystems stock. The market
value of either or both classes of common stock could be adversely affected by
market reaction to decisions by our board of directors or our management that
investors perceive as affecting differently one class of common stock compared
to the other. These decisions could involve changes to our management and
allocation policies, transfers of assets between groups, allocations of
corporate opportunities and financing resources between groups and changes in
dividend policies.
INVESTORS MAY NOT VALUE CELERA GENOMICS STOCK BASED ON CELERA GENOMICS GROUP
FINANCIAL INFORMATION AND POLICIES
We can not assure you that investors will value the Celera Genomics stock
based on the reported financial results and prospects of the Celera Genomics
group or the dividend policies established by our board of directors with
respect to the Celera Genomics group.
RECENT CLINTON ADMINISTRATION PROPOSAL COULD HAVE ADVERSE TAX CONSEQUENCES FOR
US OR FOR HOLDERS OF CELERA GENOMICS STOCK.
The Clinton Administration recently proposed legislation dealing with
tracking stock such as the Celera Genomics stock. Such proposal would, among
other things, grant authority to the Internal Revenue Service to treat tracking
stock as something other than stock or as stock of another entity. If this
proposal is enacted, it could have adverse tax consequences for us or for
holders of Celera Genomics stock. A similar proposal was made in 1999. Congress
did not act on the 1999 proposal, and it is impossible to predict whether
Congress will act upon this proposal or any other proposal relating to tracking
stock.
If there are adverse U.S. federal income tax law developments, we may
convert the Celera Genomics stock or the PE Biosystems stock into shares of the
other class without any premium. The proposal of the Clinton Administration
would be such an adverse development if it is implemented or receives certain
legislative action.
PROVISIONS GOVERNING COMMON STOCK COULD DISCOURAGE A CHANGE OF CONTROL AND THE
PAYMENT OF A PREMIUM FOR STOCKHOLDERS' SHARES
Our stockholder rights plan could prevent stockholders from profiting from
an increase in the market value of their shares as a result of a change in
control of PE Corporation by delaying or preventing such change in control. The
existence of two classes of common stock could also present complexities and
could, in certain circumstances, pose obstacles, financial and otherwise, to an
acquiring person. In addition, certain provisions of the Delaware law, the new
certificate of incorporation and the new by-laws may also deter hostile takeover
attempts.
20
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus, including the "Celera
Genomics Group--Management's Discussion and Analysis" and "PE
Corporation--Management's Discussion and Analysis" sections, 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, those described under
"Risk Factors."
USE OF PROCEEDS
The net proceeds we will receive from the sale of 3,230,000 shares of Celera
Genomics stock offered by us are estimated to be approximately $407.8 million,
assuming a public offering price of $131 9/16 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us. If the underwriters' over-allotment option is exercised in full, we
estimate that the net proceeds to us would be approximately $469.1 million.
Celera intends to use the net proceeds from this offering primarily to fund
its new product and technology development activities in functional genomics,
with an emphasis on proteomics, and personalized health/medicine. These
activities will require increased investment in Celera's laboratory,
computational resources, software systems and business and product development
operations. Celera also intends to use the net proceeds of this offering for
general corporate purposes, including possible acquisitions, alliances or
collaborations.
Pending such uses, Celera intends to invest the net proceeds of this
offering in interest-bearing,
investment-grade securities.
21
<PAGE>
PRICE RANGE OF AND DIVIDENDS ON CELERA GENOMICS GROUP STOCK
The Celera Genomics stock is listed on the New York Stock Exchange, the
NYSE, under the symbol "CRA." The following table sets forth the range of high
and low closing sale prices of the Celera Genomics stock as reported on the NYSE
Composite tape since May 6, 1999, the effective date of the change of PE
Corporation's then outstanding common stock into PE Biosystems stock and Celera
Genomics stock, two new classes of common stock. On January 20, 2000, we
announced a two-for-one split of the Celera Genomics stock to be effected in the
form of a 100 percent stock dividend payable to stockholders of record on
February 4, 2000. The distribution date of the stock dividend is February 18,
2000, and the table below gives effect to the stock split.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1999
Fourth Quarter (from May 6, 1999)......................... $ 11 1/4 $ 7 3/32
FISCAL YEAR ENDED JUNE 30, 2000
First Quarter............................................. 26 29/32 7 7/8
Second Quarter............................................ 96 13/32 15 3/16
Third Quarter (through February 10, 2000)................. 135 73
</TABLE>
On February 10, 2000, the reported last sale price of the Celera Genomics
stock on the NYSE was $131 9/16 per share after giving effect to the two-for-one
split discussed above. There were approximately 6,000 record holders of Celera
Genomics stock as of December 31, 1999.
We have not paid any cash dividends on the Celera Genomics stock, and we do
not anticipate paying cash dividends on the Celera Genomics stock for the
foreseeable future.
Our board of directors does not currently intend to pay cash dividends on
the Celera Genomics stock but reserves the right to do so at any time based
primarily on the financial condition, results of operations and business
requirements of the Celera Genomics group and of our company as a whole. In
making its dividend decisions regarding the Celera Genomics stock, our board of
directors will rely on the financial statements of the Celera Genomics group.
See the historical financial statements of the Celera Genomics group included in
this prospectus. Future dividends on the Celera Genomics stock will be payable
when, as and if declared by our board of directors out of the lesser of (1) all
funds of our company legally available therefor and (2) the Celera Genomics
group's Available Dividend Amount. The Celera Genomic group's Available Dividend
Amount is intended to be similar to the amount that would be legally available
for the payment of dividends on the stock for that group under Delaware law if
that group were a separate company. See "Description of Capital Stock--Celera
Genomics Group Stock--Dividends."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Celera Genomics
group and the consolidated capitalization of PE Corporation as of December 31,
1999, and as adjusted to give effect to the offering (assuming no exercise of
the over-allotment option). The net proceeds of the offering will be reflected
entirely in the financial statements of the Celera Genomics group and not in
those of the PE Biosystems group. As a matter of policy, PE Corporation manages
most financial activities on a centralized, consolidated basis. For information
concerning attribution of debt and equity to the Celera Genomics group, see
"Celera Genomics Group--Selected Combined Financial Information," "Celera
Genomics Group--Management's Discussion and Analysis" and "Management and
Allocation Policies."
The table does not include 14.0 million shares of Celera Genomics stock
issuable upon the exercise of outstanding stock options at a weighted average
exercise price of $6.88 per share at December 31, 1999 after giving effect to
the two-for-one stock split payable February 18, 2000.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
(DOLLAR AMOUNTS IN MILLIONS) -------- -----------
(UNAUDITED)
<S> <C> <C>
CELERA GENOMICS GROUP:
Short-term debt........................................... $ 46.0 $ 46.0
Group equity(a)........................................... 260.3 668.1
-------- --------
Total capitalization...................................... $ 306.3 $714.1
======== ========
PE CORPORATION:
Short-term debt........................................... $ 81.2 $ 81.2
Long-term debt due after one year......................... 37.1 37.1
Stockholders' equity(b)................................... 906.3 1,314.1
-------- --------
Total capitalization...................................... $1,024.6 1$,432.4
======== ========
</TABLE>
- ------------------------
(a) If the over-allotment option is exercised in full, the Group equity, as
adjusted, for the Celera Genomics group would be $729.4 million.
(b) If the over-allotment option is exercised in full, the stockholders' equity,
as adjusted, for PE Corporation would be $1,375.4 million.
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<PAGE>
CELERA GENOMICS GROUP
SELECTED COMBINED FINANCIAL INFORMATION
The following selected combined financial information has been derived from
the combined financial statements of the Celera Genomics group for each of the
four fiscal years in the period ended June 30, 1999 and the six month periods
ended December 31, 1998 and 1999. The information set forth below should be read
in conjunction with the Celera Genomics group "Management's Discussion and
Analysis" and combined financial statements and notes thereto included in this
prospectus; the PE Corporation "Management's Discussion and Analysis" included
in this prospectus; and the PE Corporation consolidated financial statements and
notes thereto contained in the PE Corporation Annual Report to Stockholders for
the year ended June 30, 1999, and in the PE Corporation Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1999, each incorporated
herein by reference. There is no selected combined financial information for
fiscal 1995 since the Celera Genomics group commenced business in fiscal 1996.
The data for the six month periods ended December 31, 1998 and 1999 have been
derived from unaudited financial statements which, in the opinion of management,
reflect all adjustments necessary for a fair presentation of results for the
periods covered.
On May 6, 1999, PE Corporation recapitalized its former common stock into PE
Corporation - Celera Genomics Group Common Stock and PE Corporation - PE
Biosystems Group Common Stock. Therefore, no Celera Genomics stock was issued or
outstanding for periods prior to May 6, 1999.
On January 20, 2000, the Board of Directors announced a two-for-one stock
split of Celera Genomics stock. The two-for-one split will be effected in the
form of a 100% stock dividend payable on February 18, 2000 to stockholders of
record as of the close of business on February 4, 2000. All Celera Genomics
group share and per share data reflect this split.
Items impacting the comparability of information presented for these periods
included acquired research and development charges of $2.1 million for fiscal
1996 and $26.8 million for fiscal 1997, relating to the acquisition of Zoogen
Inc. in fiscal 1996 and the acquisition of GenScope and Linkage in fiscal 1997,
and $5.6 million and $.6 million of charges for fiscal 1999 and the six months
ended December 31, 1998, respectively, relating to the recapitalization and
transformation of PE Corporation.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
FOR THE FISCAL YEARS ENDED JUNE 30, ENDED DECEMBER 31,
----------------------------------------- -------------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1997 1998 1999 1998 1999
- ------------------------------------------------------ -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net revenues.................................... $ 159 $ 903 $ 4,211 $ 12,541 $ 5,631 $ 16,625
Net loss........................................ (2,589) (30,247) (8,315) (44,894) (12,216) (43,676)
Per share of common stock
Basic and diluted........................... $ (.89) $ (.84)
OTHER INFORMATION
Cash and cash equivalents....................... $ -- $ -- $ -- $ 71,491 $ -- $ 53,955
Note receivable from the PE Biosystems Group.... -- -- -- 150,000 310,852 150,000
Working (deficit) capital....................... (340) (421) (1,160) 192,803 308,579 152,448
Capital expenditures............................ 1,073 411 3,648 94,541 17,380 19,867
Total assets.................................... 977 2,983 6,339 344,720 338,531 349,529
Total debt...................................... -- -- -- -- -- 46,000
Group equity (deficit).......................... 611 (3,464) (1,259) 293,867 325,060 260,297
</TABLE>
24
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CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION OF OPERATIONS
The Celera Genomics group includes the business and operations of GenScope
and AgGen. GenScope provides genomic-related contract research and discovery
services, utilizing AFLP-based gene expression profiling technology. AgGen is a
provider of genetic analysis services for plant and animal breeding. The
purchases of Linkage Genetics, Inc. in 1997 and Zoogen Inc. in 1996 were
combined with our applied agriculture unit to form AgGen. In fiscal 1999, these
businesses were integrated into the core business of providing genomic
information and related gene discovery and genomic services.
Operations prior to September 30, 1998 were principally funded from working
capital, collaborative arrangements and contract research services. Net losses
for fiscal 1997, 1998, and 1999 were $30.2 million, $8.3 million, and
$44.9 million, respectively. Net losses for the six months ended December 31,
1998 and 1999, were $12.2 million and $43.7 million, respectively. Results for
the six months ended December 31, 1998 and 1999, and the fiscal year ended
June 30, 1999 reflected the significant increase in R&D expenditures to support
the genomic sequencing efforts. Fiscal 1999 and the six months ended
December 31, 1998 included non-recurring before-tax costs of $4.6 million and
$.6 million, respectively, incurred in connection with the recapitalization of
PE Corporation. Fiscal 1999 included $1.0 million for costs related to the
acceleration of certain long-term compensation programs. Results through fiscal
1998 primarily reflected the operations of GenScope and AgGen. Fiscal 1997
results included charges of $26.8 million for purchased in-process research and
development.
The following discussion with respect to fiscal years 1997, 1998, and 1999,
and the six months ended December 31, 1998 and 1999, should be read in
conjunction with the Celera Genomics group's combined financial statements and
related notes included in this prospectus and PE Corporation's consolidated
financial statements and related notes incorporated by reference herein; and PE
Corporation's "Management's Discussion and Analysis" included in this
prospectus. Historical results and percentage relationships are not necessarily
indicative of operating results for any future periods.
EVENTS IMPACTING COMPARABILITY
ACQUISITIONS AND INVESTMENTS
During the third quarter of fiscal 1999, PE Corporation acquired a 49%
interest in Agrogene S.A. for $1.2 million. The investment complements the
Celera Genomics group's automated DNA sequencing and genotyping services in the
agricultural field.
During the fourth quarter of fiscal 1997, PE Corporation acquired
Linkage, Inc., a provider of genetic analysis services in the agriculture
industry. At the acquisition date, the technological feasibility of the acquired
technology had not been established and the acquired technology had no future
alternative uses. The acquisition cost of $1.4 million was expensed as purchased
in-process research and development.
During the third quarter of fiscal 1997, PE Corporation acquired
GenScope, Inc. for $26.8 million. GenScope, founded in 1995, represented a
development stage venture with no operating history. GenScope had effectively no
revenues and only limited R&D contract services. At the acquisition date,
technological feasibility of the acquired technology right had not been
established and the acquired technology right had no future alternative uses.
The Celera Genomics group obtained the right to utilize AFLP-based gene
expression profiling technology in the field of human health, but did not obtain
any core technology or other rights. GenScope's limited balance sheet, with
assets of approximately $.2 million, had yet to deliver commercial value.
Therefore, of the $26.8 million paid for GenScope, $25.4 million was charged to
purchased in-process technology and $1.4 million was allocated to technology
rights attributable to GenScope's AFLP-based gene expression profiling
technology. AFLP is an enhancement of the polymerase chain reaction ("PCR")
process that allows selective analysis of any portion of genetic material
25
<PAGE>
without the specific, prior sequence information normally required for PCR. Of
the $25.4 million expensed as in-process research and development, $5.5 million
represented a contingent liability due on the issuance of a process patent for
technology under development. Through June 30, 1999, GenScope incurred
approximately $12.2 million in additional research and development costs to
further develop the AFLP technology in the field of human health. The Celera
Genomics group anticipates spending an additional $2.2 million in fiscal 2000 to
substantially complete such project.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH
THE SIX MONTHS ENDED DECEMBER 31, 1998
The Celera Genomics group reported a net loss of $43.7 million for the first
six months of fiscal 2000, compared with a net loss of $12.2 million for the
first six months of fiscal 1999. The increase in the net loss reflected the
increased sequencing activity and increased operating expenses required to
support the expanded data management and software and business development
activities.
Net revenues for the Celera Genomics group were $16.6 million for the first
six months of fiscal 2000 compared with $5.6 million for the first six months of
fiscal 1999. The increased revenues were primarily a result of database
subscription agreements initiated during the second half of fiscal 1999 and an
increase in genomics services revenues. Revenues for plant and animal genotyping
services remained essentially unchanged.
R&D expenses increased $57.4 million to $70.3 million for the first six
months of fiscal 2000 from $12.9 million for the first six months of fiscal 1999
primarily as a result of a full six months of sequencing operations and
significantly expanded bioinformatics and software development capabilities.
SG&A expenses were $17.9 million for the first six months of fiscal 2000
compared with $10.6 million for the first six months of fiscal 1999. The
increase was related to the planned scale-up in business development, marketing
and administrative activities in support of the database business. Corporate
expenses and administrative shared services were $4.1 million for the first six
months of fiscal 2000 compared with $2.4 million for the first six months of
fiscal 1999. The increase is a result of corporate expenses attributable to the
Celera Genomics group. 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 corporate overhead and administrative shared
services.
The Celera Genomics group was allocated a non-recurring before-tax charge of
$.6 million in the first six months of fiscal 1999. These costs were incurred in
connection with the recapitalization of PE Corporation. The Celera Genomics
group and the PE Biosystems group were each allocated 50% of the $1.2 million
total recapitalization costs incurred during the first six months of fiscal
1999.
Interest expense was $.7 million for the first six months of fiscal 2000 as
a result of PE Corporation's financing of the purchase of the Rockville,
Maryland facilities. Interest income was $5.1 million for the first six months
of fiscal 2000, which was primarily attributable to interest on the
$150 million note receivable from the PE Biosystems group, as well as interest
received on cash balances.
The effective income tax rate was 35% for the first six months of fiscal
2000 and 34% for the first six months of fiscal 1999. Excluding special items
for the first six months of fiscal 1999, the effective income tax rate was 35%.
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.
RESULTS OF OPERATIONS--1999 COMPARED WITH 1998
The Celera Genomics group reported a net loss of $44.9 million for fiscal
1999 compared with a net loss of $8.3 million for fiscal 1998. The significant
increase in the net loss reflected the establishment and
26
<PAGE>
start-up of operations to support the expanded sequencing, data management, and
software development activities of the business.
Net revenues for the Celera Genomics group were $12.5 million for fiscal
1999 compared with $4.2 million for fiscal 1998. Net revenues for agricultural
genotyping and gene discovery services were $8.4 million for fiscal 1999, an
increase of $4.5 million over the prior period. The increase included
$3.2 million attributable to a three-year contract to provide expression-based
gene discovery services in the agricultural market. The contract commenced in
the first quarter of fiscal 1999. Revenues from the Celera Genomics group's new
genomic information and database products were $2.8 million for fiscal 1999,
mainly from early access subscriptions. Revenues for genomics contract services
increased $1.0 million for fiscal 1999 as a result of increased contract
research services using AFLP technology.
R&D expenses increased $38.1 million to $48.4 million for fiscal 1999 from
$10.3 million for fiscal 1998 primarily as a result of establishing and
operating the sequencing facility and computing center of the new genomics
information business.
SG&A expenses were $28.3 million for fiscal 1999 compared with $6.7 million
for the prior year. The increase resulted from expenses associated with the
start-up and ongoing operations of the new genomic information business.
Corporate overhead and administrative shared services were $5.1 million for
fiscal 1999 compared with $1.7 million for fiscal 1998. Fiscal 1999 SG&A
expenses included $1.0 million for costs related to the acceleration of certain
long-term compensation programs as a result of the recapitalization of our
company and the attainment of performance targets.
During fiscal 1999, the Celera Genomics group was allocated a before-tax
special charge of $4.6 million for costs incurred in connection with the
recapitalization of our company. The Celera Genomics group and the PE Biosystems
group were each allocated 50% of the $9.2 million total recapitalization costs
incurred by our company. These costs included investment banking and
professional fees.
Interest income was $1.2 million for fiscal 1999. Interest income included
$.5 million of interest on cash balances and $.7 million of interest on the
$150 million note receivable from the PE Biosystems group.
The effective income tax rate was 34% for fiscal 1999 and 35% for fiscal
1998. See Note 1 to the Celera Genomics group combined financial statements
included in this prospectus for a discussion of allocations of federal and state
income taxes.
RESULTS OF OPERATIONS--1998 COMPARED WITH 1997
The Celera Genomics group reported a net loss of $8.3 million for fiscal
1998 compared with a net loss of $30.2 million for the prior year, or a net loss
of $3.4 million excluding the $26.8 million for purchased in-process research
and development charged in connection with the GenScope and Linkage
acquisitions.
Net revenues for the Celera Genomics group were $4.2 million for fiscal 1998
compared with $.9 million for fiscal 1997. Revenues for genetic analysis
services increased to $3.9 million for fiscal 1998 primarily from the animal
business. Revenues were $.3 million in fiscal 1998 from contract research
utilizing AFLP-based gene expression profiling technology. Fiscal 1997 revenues
were entirely attributable to genetic analysis services.
R&D expenses were $10.3 million for fiscal 1998 compared with $4.0 million
for fiscal 1997. Fiscal 1997 included the operations of Linkage and GenScope
from the date of acquisition.
SG&A expenses were $6.7 million for fiscal 1998 compared with $2.2 million
for fiscal 1997. Fiscal 1998 included $1.7 million of corporate overhead and
administrative shared services. The amount of
27
<PAGE>
allocated corporate overhead and shared services for fiscal 1997 was
$.2 million. Fiscal 1997 included the operations of Linkage and GenScope from
the date of acquisition.
The effective income tax rate was 35% for both fiscal 1998 and fiscal 1997.
Fiscal 1997 included a tax benefit of $1.9 million on a before-tax loss of
$32.1 million. The fiscal 1997 charge of $26.8 million for acquired research and
development was not deductible for tax purposes. See Note 1 to the Celera
Genomics group combined financial statements included in this prospectus for a
discussion of allocations of federal and state income taxes.
MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY
The development of the Celera Genomics group's products and services
requires substantial funding. No organization has ever attempted to combine in
one business organization all of the Celera Genomics group's businesses. At
September 30, 1998, we allocated to the Celera Genomics group a $330 million
short-term note receivable from the PE Biosystems group. The $330 million note
represented an allocation of our capital to the Celera Genomics group and did
not result in the PE Biosystems group holding an equity interest in the Celera
Genomics group. Accordingly, no interest was ascribed to the note. The
allocation of capital represented management's decision to allocate a portion of
our capital to the Celera Genomics group and the remaining capital to the PE
Biosystems group prior to the effective date of the recapitalization. The note
receivable was liquidated on May 28, 1999 in exchange for a portion of the
proceeds received from the sale of the Analytical Instruments business and a new
note receivable from the PE Biosystems group for $150 million was established.
The new note receivable was for a term of one year, bears an interest rate of 5%
per annum, and is payable on demand without penalty. At December 31, 1999, the
outstanding balance of the note receivable was $150 million.
PE Corporation intends to allocate tax benefits to the Celera Genomics group
for losses incurred, resulting in up to $75 million of additional cash resources
for the Celera Genomics group. PE Corporation also secured financing of
$46 million in the first quarter of fiscal 2000 specifically for the Rockville,
Maryland facilities acquired in fiscal 1999. Management believes that the
remaining balance of the $330 million funding and allocated tax benefits, and
the financing for the facilities and anticipated revenues of the Celera Genomics
group, should be sufficient to fund its original business objectives, which were
largely based on the sequencing and assembly of the human genome.
In addition, our board of directors has adopted a financing policy,
discussed in Note 1 to the Celera Genomics group combined financial statements,
which will permit the PE Biosystems group to make loans to the Celera Genomics
group and to make equity contributions to the Celera Genomics group in exchange
for an equity interest in the Celera Genomics group.
SIGNIFICANT CHANGES IN THE COMBINED STATEMENTS OF FINANCIAL POSITION
Cash and cash equivalents were $54.0 million at December 31, 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. PE Corporation
anticipates that the $46 million financing will remain outstanding beyond the
current fiscal year.
At December 31, 1999 and June 30, 1999, the Celera Genomics group had a
$9.4 million and $9.9 million tax benefit receivable from the PE Biosystems
group. These amounts represent the tax benefits for the second quarter of fiscal
2000 and the fourth quarter of fiscal 1999, respectively. The tax benefit
receivable is settled on a quarterly basis. See Note 1 to the Celera Genomics
group combined financial statements included in this prospectus for a discussion
of allocations of federal and state income taxes.
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Accounts receivable increased $6.5 million to $9.8 million at December 31,
1999, from $3.3 million at June 30, 1999, primarily as a result of increased
database subscriptions and genomics service revenue.
Prepaid expenses and other current assets increased $9.5 million to
$13.0 million at December 31, 1999 from $3.5 million at June 30, 1999. The
increase included a deferred tax asset of $6.6 million resulting from the Celera
Genomics group's operating losses.
Net property, plant and equipment increased $100.0 million to
$104.2 million at June 30, 1999 from $4.2 million at June 30, 1998. The increase
was primarily a result of significant capital expenditures to establish the
Celera Genomics group's Rockville, Maryland facilities.
Accounts payable decreased $5.2 million to $14.7 million at December 31,
1999 from $19.9 million at June 30, 1999 primarily as a result of software
license fees incurred during the fourth quarter of fiscal 1999. Accounts payable
increased by $19.4 million to $19.9 million at June 30, 1999 from $.5 million at
June 30, 1998 as a result of the Celera Genomics group establishing its
infrastructure. The balance at June 30, 1999 included $9.0 million for capital
expenditures, as previously described, and $5.2 million for purchases from the
PE Biosystems group.
Accrued salaries and wages increased $4.0 million to $4.2 million at
June 30, 1999 from $.2 million at June 30, 1998. The increase reflected the
growth in the number of employees during fiscal 1999 and the timing of payments.
Deferred revenues decreased $.2 million to $11.8 million at December 31,
1999 compared with $12.0 million at June 30, 1999 due to revenue recognized
under database subscription contracts offset by timing of payments received for
subscription and gene discovery agreements. Deferred revenues were
$12.0 million at June 30, 1999 compared with $.3 million at June 30, 1998. The
increase pertained primarily to early access subscriptions to the new genomic
information database product.
Other accrued expenses decreased $2.6 million to $6.6 million at
December 31, 1999 compared with $9.3 million at June 30, 1999 as a result of
payments for fiscal year-end accruals. Other accrued expenses were $9.3 million
at June 30, 1999, an increase of $8.2 million from $1.1 million at June 30,
1998. At June 30, 1999, the Celera Genomics group accrued a liability of
$2.5 million for its portion of costs associated with the recapitalization of PE
Corporation and a liability of $1.3 million for certain long-term compensation
program costs.
COMBINED STATEMENTS OF CASH FLOWS
Cash used by operating activities was $46.9 million for the first six months
of fiscal 2000 compared with $10.3 million for the same period in the prior
year. The increase in cash used by operating activities resulted primarily from
higher net operating losses. Cash used by operating activities was
$22.8 million for fiscal 1999 compared with $6.9 million for the prior year. The
increase in cash used by operating activities resulted primarily from net
operating losses and the tax benefit receivable from the PE Biosystems group.
This was offset partially by an increase of $11.7 million in deferred revenues
and an increase of $19.4 million in accounts payable. For fiscal 1998, net cash
used by operating activities was $6.9 million compared with $3.1 million for
fiscal 1997 reflecting higher net operating losses for fiscal 1998.
Net cash used by investing activities for capital expenditures was
$19.9 million for the first six months of fiscal 2000 compared with
$17.4 million for the first six months of fiscal 1999. Fiscal 2000 capital
expenditures included payments for software licenses acquired during the fourth
quarter of fiscal 1999 and expenditures associated with the continued
development of the laboratories, facilities, and data center at the Rockville,
Maryland facilities. The capital spending for the first six months of fiscal
1999 included $7.8 million of purchases for the PE Biosystems group's ABI
Prism-Registered Trademark- 3700 DNA Analyzers and $.5 million for other
instrumentation purchased from the PE Biosystems group. The Celera Genomics
group's investments during the first six months of fiscal 2000 included
acquisitions of the Panther-TM- technology from Molecular Applications Group and
a 47.5% equity interest in Shanghai GeneCore BioTechnologies
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Co., Ltd. Net cash used by investing activities of $95.8 million for fiscal 1999
was comprised of capital expenditures of $94.5 million and an equity investment
in Agrogene of $1.2 million. Capital expenditures were $3.6 million for fiscal
1998. Capital expenditures increased significantly as a result of the
establishment and start-up of operations at the Celera Genomics group's
Rockville, Maryland facilities. Included in the increase was $46.3 million for
land and buildings to house its headquarters and $22.9 million for improvements
thereon. Additionally, the increase included $9.0 million for assets received
but not yet paid, $8.1 million related to data management software licenses and
$.9 million for facility-related items. Fiscal 1999 capital expenditures also
included $8.4 million for the PE Biosystems group's ABI
Prism-Registered Trademark- 3700 DNA Analyzers and $1.6 million for other
instrumentation purchased from the PE Biosystems group. Net cash used by
investing activities of $3.6 million for fiscal 1998 primarily reflected our
capital investment in the genomics services business. Net cash used by investing
activities for fiscal 1997 was $23.1 million and related to the acquisition of
GenScope in the third quarter of fiscal 1997 and Linkage in the fourth quarter
of fiscal 1997. See Note 2 to the Celera Genomics group combined financial
statements included in this prospectus.
Net cash provided by financing activities was $52.2 million for the first
six months of fiscal 2000 compared with $27.7 million for same period in the
prior year. During the first quarter of fiscal 2000, PE Corporation secured
financing of $46 million specifically for the Rockville, Maryland facilities. In
the first six months of fiscal 2000, the Celera Genomics group received
$6.2 million in proceeds from employee stock option exercises. Net cash provided
by financing activities for the first six months of fiscal 1999 was
$27.7 million, attributable entirely to the funding of that year's operations by
PE Corporation. Net cash provided by financing activities was $190.0 million for
fiscal 1999 reflecting the initial capitalization of $330 million offset
partially by the note receivable of $150 million. Net cash provided by financing
activities for fiscal 1998 was $10.5 million, attributable entirely to the
funding of that year's operations by PE Corporation.
YEAR 2000
In fiscal 1997, PE Corporation 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 has been to ensure the event does not have
a material adverse effect on our business operations.
While not all possible Year 2000 date related disruption scenarios have been
experienced, and there is a possibility of disruptions in the future, through
the date of this prospectus, we have experienced no material disruption or other
significant problems. We will continue to evaluate and mitigate our exposure in
areas where appropriate. Based on currently available information, we continue
to believe that Year 2000 related disruptions or other problems, if any, will
not have a material adverse effect on our operations or financial condition.
However, we cannot be certain that Year 2000 issues will not have a material
adverse effect on PE Corporation, since the evaluation process is not yet
complete and it is early in the Year 2000.
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
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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. During the second quarter of
fiscal 2000, the Celera Genomics group entered into a five-year comprehensive
genomics agreement with Pfizer Inc. which includes a subscription to all of
Celera Genomics group's current database products and a collaborative gene
discovery agreement. Pfizer's database subscription gives it access to five
databases developed by the Celera Genomics group until 2005. All of these
databases integrate the Celera Genomics group's proprietary information with
publicly available sources. 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.
Operating expenses will increase over the balance of the fiscal year as the
Celera Genomics group continues to improve its sequencing throughput and
installs additional hardware and software designed to accelerate product
development and support for its information delivery systems.
The Celera Genomics group recently completed the sequencing phase in
deciphering the genome of DROSOPHILA, the fruit fly. In January, 2000, the
Celera Genomics group announced it had compiled DNA sequence in its database
that covers 90% of the human genome. As a result of the extensive sequence
coverage of the 23 pairs of human chromosomes and based on statistical analysis,
the Celera Genomics group believes that greater than 97% of all human genes are
now represented in its database. As a result of Celera's successful sequencing
and assembly of DROSOPHILA and the accelerated availability of data from public
human genome sequencing efforts, Celera believes that it can sequence and
assemble the human genome on an accelerated basis. Celera Genomics expects to
complete the sequencing phase of the human genome by mid-2000 and the assembly
phase by the end of 2000, or one year ahead of its original schedule.
Celera Genomics' progress to date has placed it well ahead of its original
schedule. Consequently, Celera Genomics intends to make significant new
investments to expand beyond the genome and to take advantage of what it
believes will be new market opportunities in the emerging fields of functional
genomics, in particular proteomics, and personalized health/medicine. New
revenue opportunities in these fields range from expansion of Celera's
information and service businesses to the licensing of proprietary discoveries
resulting from the new information.
On January 31, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for a follow-on public offering of
1.6 million shares of its Celera Genomics stock. Celera intends to use the net
proceeds from this offering primarily to fund its new product and technology
development activities in functional genomics, with an emphasis on proteomics,
and personalized health/ medicine. These activities will require increased
investment in Celera's laboratory, computational resources, software systems and
business and product development operations. Celera also intends to use the net
proceeds of this offering for general corporate purposes, including possible
acquisitions, alliances or collaborations. Pending such uses, Celera intends to
invest the net proceeds of this offering in interest-bearing, investment-grade
securities.
We believe that Celera Genomics' existing cash and cash equivalents and the
note receivable and tax benefit receivable from the PE Biosystems group are
sufficient to fund its operating expenses and capital requirements related to
its original business plan, which relates to the sequencing and assembly of the
human genome and the development of informational products and services based on
the resultant data. While we intend to use the net proceeds of the Celera
Genomics stock offering to fund Celera's expansion into functional genomics and
personalized health/medicine, such funds may not be sufficient to support these
new business activities as they develop. Celera's actual future capital uses and
requirements with respect to its new activities will depend on many factors,
including those discussed under "Risk Factors."
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BUSINESS OF THE CELERA GENOMICS GROUP
OVERVIEW
The Celera Genomics group is engaged principally in:
- the generation, sale and support of genomic, proteomic and related
biological and medical information and supporting related information
management and analysis software tools;
- the discovery, validation and licensing of proprietary gene products,
genetic markers and information concerning genetic variability and
functional genomics; and
- related consulting and contract research and development services.
We and Dr. J. Craig Venter, a leading genomic scientist and founder of The
Institute for Genomic Research ("TIGR"), formed the Celera Genomics business for
the purpose of generating and commercializing genomic, proteomic and related
biological and medical information to accelerate the understanding of biological
processes and to assist pharmaceutical, biotechnology and life science research
entities in areas of research including:
- new drugs and improved drug development processes;
- novel genes and factors that regulate and control gene expression;
- understanding basic biological processes;
- interrelationships between genetic variability, disease and drug response;
and
- personalized health/medicine.
There are three components to the Celera Genomic group's strategy of
delivering valuable genomic, proteomic and related biological and medical
information in the form of an integrated information and discovery system. The
first component, the sequencing of the human genome, lays the foundation for the
two additional components, functional genomics and personalized health/medicine.
The system will include increasing layers of functional information, such as
gene and protein expression data, comparative data from other model organisms,
such as DROSOPHILA (fruit fly) and mouse, genetic variation and, ultimately,
linkage to medical associations. Users of the system will have the ability to
view, browse and analyze the data in an integrated way that should assist
scientists and commercial enterprises in accelerating their understanding of the
human genetic code. The Group anticipates using its genomic and proteomic data
as a platform upon which to develop related databases, software tools, and
services. The Group anticipates that this biological data, together with such
databases, tools and services, will become a comprehensive scientific and
medical resource for a wide range of customers, including companies in the
pharmaceutical and biotechnology industries and ultimately, physicians and
individuals.
INDUSTRY BACKGROUND
Genomics is the study of all the genetic information of a species and its
relationship to disease. Its use in identifying targets for drug development is
a relatively new and evolving field. Industry analysts expect genomics to lead a
medical "revolution" in the identification and treatment of disease based on
growing evidence that genes play a significant role among most major diseases.
The human genome governs all cellular function, which, in turn, determines
all human physiology, such as metabolism, susceptibility to disease and
reactions to certain drugs. The human genome is organized into 23 pairs of
chromosomes, which include the X and Y chromosomes that determine sex. These
chromosomes, in turn, comprise strands of DNA molecules that consist of long
chains of chemical subunits, called nucleotides. There are four
nucleotides--adenine, cytosine, guanine, and thymine often abbreviated with
their first letters A, C, G, and T. DNA molecules consist of two long chains of
nucleotides bound together by base pairing of the nucleotides. Approximately
3.2 billion nucleotide base pairs, or
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6.4 billion total bases, make up the entire human genome. It is the unique
sequence of the nucleotide arrangement that determines cellular structure and
function.
Certain sequences of nucleotides, called genes, carry the specific
information necessary to construct proteins that regulate every aspect of human
life. Most importantly, genes not only regulate human physiology but are also an
important determinant of human health and disease pathways. Genes may contain
from several dozen to millions of nucleotides. The Celera Genomics group
believes the best scientific evidence to date indicates that the number of genes
in the human genome is between 50,000 and 80,000, although some have estimated
the number to be as high as 150,000. Less than 10,000 genes have been well
"characterized." Some genes have been partially tagged through partial gene
sequencing (ESTs, also known as expressed sequence tags), although most of these
are not from regions that code for proteins and are without known function.
Despite what has been discovered to date, only a limited amount is understood
about the human genome, and significant additional discoveries are necessary to
develop a more comprehensive understanding of the genome, its genes and
regulatory mechanisms.
Bases that vary between any two individuals are referred to as single
nucleotide polymorphisms or SNPs. Different forms of the same gene are known as
alleles. Since genes determine protein characteristics, alleles might be
responsible for differences in proteins. Most of these differences do not
influence gene function; therefore, they have no medical significance. For
example, alleles might lead to differences in eye color without affecting the
ability to see. However, some polymorphisms might be associated with diseases,
proclivity to disease or predictable responses to pharmaceuticals through the
modification of associated proteins.
Some diseases (e.g., muscular dystrophy) are caused by DNA variation in a
single gene and are described as monogenic. There are a few thousand monogenic
diseases which have been found by studying family genetic attributes, as these
diseases frequently leave a hereditary trace. Far more common and widespread
diseases (e.g., diabetes, cancer, obesity) which are caused by DNA variation in
more than one gene are described as polygenic. Understanding polygenic diseases
requires the genetic analysis of a large population of unrelated individuals and
the association of polymorphisms with such environmental factors as diet,
lifestyle and exposure to toxic substances.
Each SNP is a potential genetic marker. Genetic linkage maps are constructed
from patterns of genetic markers. The process of following the pattern left by
genetic markers in individuals with an inherited disease but absent in
individuals without the disease is called linkage analysis. This process
requires determining the genetic composition or "genotyping" of numerous DNA
samples from populations of healthy individuals and those diagnosed with a
disease. A genotype is associated with a disease through a complex, statistical
comparison of genetic markers. SNP analysis can be used to measure the
association of a genotype and a disease.
The use of gene maps, linkage analysis, positional cloning and genotyping
are essential tools of SNP analysis. The diagnosis and treatment of monogenic
diseases have benefitted greatly from SNP analysis. Advancements in information
technology, high-throughput sequencing and phenotyping have enabled genomics
researchers to pursue the study of more complex polygenic diseases.
Understanding the numerous genetic and environmental factors associated with
these diseases is expected to accelerate the development of diagnostic tests,
pharmaceutical therapies and prevention programs.
Celera believes that the healthcare and life sciences industry will rely on
SNP analysis to improve the efficacy and safety of pharmaceuticals and the
development of more reliable tests for diseases with known genetic traits.
Although the role of genetics in medicine is widely understood to be
significant, the information and analytical tools available to the industry have
been limited. Celera believes that the wealth of information generated through
its sequencing operations with the application of SNP technologies will enable
manufacturers to develop and introduce a far greater volume of better
therapeutic and diagnostic products at a lower cost and faster pace.
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FUNCTIONAL GENOMICS
The basis for understanding cellular process starts with a genome, the
complete cataloging of genetic complements of a species. As more information
about the genome is completed and most genes are identified, research into which
genes are responsible for cellular functions can be accelerated. The field of
functional genomics aims to address this question by the direct identification
and characterization of various gene/protein expression patterns that modulate
the cellular process.
Gene expression is the process by which a gene's coded information is
translated into the production of proteins within a cell. While all cells
contain the full set of DNA, different cells express different sets of genes
depending on cell type and environmental conditions. Certain diseases also arise
from the "over" or "under" expression of genes.
Expression is comprised of two phases: transcription and translation.
Transcription is the generation of RNA, which is the message sent by DNA to make
protein. Translation is the production of the protein from the RNA. Expression
analysis can be performed by looking at changes in the quantity of RNA produced,
or by identifying and characterizing the proteins that are translated. Further,
protein formation also involves post-translational modifications. Many of these
modifications have profound effects on the cellular differentiation,
proliferation and other biological processes.
A very important goal for biology and pharmaceutical research and
development is to establish a direct correlation between the "sequence"
information of the human genome and the "sequence" information in proteins. This
field is generally referred to as proteomics. Proteins are large complex
molecules that control and mediate most of the cell's activities. Success in
drug discovery is a function of the amount known about the structure and
function of a particular protein.
Genomics yields novel protein drug targets by the initial identification of
the genes that encode them. Proteomics seeks to determine what proteins are
being made where, in what amount and under what conditions. By integrating gene
and protein information together, researchers are able to trace amino acid
sequences back to corresponding gene sequences. That in turn enables them to
take data on the quantities of proteins present in samples and link it to the
gene expression data, providing a new level of detail on how genes actually
regulate proteins in cells.
PERSONALIZED HEALTH/MEDICINE
The Celera Genomics group expects that genomic information will be used to
develop molecular diagnostic tests to identify the genetic make-up of
individuals. These diagnostic tests will contribute to a more personalized
approach to medicine. For example, there are many types of cancer that have
similar disease manifestations. Because these disease manifestations may be
similar between one type of cancer and another, it may be important to
differentiate between the actual type of disease rather than just the symptoms
in prescribing an effective treatment. It is believed that, rather than
prescribing a drug based solely on disease manifestations, physicians will be
able to use a molecular diagnostic test to help select the most effective drug
with fewer negative side effects. As a result, this approach should benefit the
patient with more customized care, reduced illness length, and ultimately,
better treatment results.
VALUE OF GENOMICS AND FUNCTIONAL GENOMICS
The Celera Genomics group believes that the fields of genomics, functional
genomics and personalized health/medicine will significantly benefit the
following areas of research:
TARGET IDENTIFICATION AND DRUG DISCOVERY. One of the most important factors
limiting the development of new drugs is the limited number of known disease
target molecules for which new drugs can be developed. Disease target molecules
are those which can be affected by a drug and cause a subsequent, desired
biological reaction in the body. Historically, the process of discovering new
target molecules has been extremely slow and very expensive due to reliance on
trial and error approaches to discovery. The Celera Genomics group expects
genomics to play a long-term role in the discovery of targets for new small
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molecule drugs and protein drugs. A typical pharmaceutical is an organic
chemical that provides therapeutic benefit by specifically interacting with a
protein in the body whose action causes or contributes to a disease. Success in
drug discovery is a function of the amount known about the structure and
function of a particular protein. Celera believes functional genomics will
provide the pharmaceutical industry and others with high-quality validated
targets. The Celera Genomics group expects that discoveries of targets for new
small molecule drugs and novel protein drugs will have a substantial impact on
the treatment of virtually all diseases, including cardiovascular diseases,
infectious diseases, neuropsychiatric disorders, asthma, obesity, diabetes and
cancers.
PHARMACOGENOMICS AND DRUG DEVELOPMENT. Pharmacogenomics, an outgrowth of
genomic research, is also a rapidly evolving field and focuses on identifying
genetic variability factors that may affect an individual's response to a
specific drug. In the United States, approximately 2.2 million people per year
are admitted to hospitals as a result of adverse side effects from drugs; more
than 100,000 die annually from these side effects. Organ-specific gene
expression profiles for drugs already available will enable researchers to study
toxicity of new drug compounds with more certainty. In addition, gene expression
data, combined with polymorphism information related to metabolic pathways, will
provide important indications regarding how people individually react to drugs
of various dosage levels. The Celera Genomics group expects that this approach
will allow a more personalized approach to medicine that will incorporate
tailoring therapeutic modalities and dosage determination to maximize efficacy
with minimum toxicity in treating disease and disorder processes.
In addition, pharmacogenomics may be applied to the following:
- Increasing the success rate of clinical trials by improving the process of
patient population selection;
- Identifying new uses for existing drugs; and
- "Rescuing" drugs that have failed previous drug trials by identifying more
appropriate populations for using the drug; candidates for rescued drugs
include those where particular sub-populations react adversely to these
drugs.
DIAGNOSTICS AND DISEASE MANAGEMENT. As the understanding of genetic causes
of disease improves, the Celera Genomics group expects genomics and the use of
protein markers to enhance a physician's ability to diagnose and predict
susceptibility to particular diseases. As a result, such capabilities should
also lead to better treatment and monitoring of diseases.
Diagnostic risk assessment has historically focused on measuring general
indicators in the body, such as blood pressure and cholesterol levels. These
measurements are based on general symptoms rather than the specific genetic
basis of disease. As a consequence, Celera Genomics believes that these
diagnostic tests do not address the underlying cause of disease and can result
in compromised medical care for patients and increased risk of litigation. New
diagnostics will focus on determining an individual's risk to develop a
particular disease by looking at specific genes or proteins and any
disease-related changes in a particular patient. These new diagnostics will
likely lead to better preventative care by offering more accurate assessments of
a patient's potential risk for developing a particular disease.
The Celera Genomics group expects that the risk assessment areas of
diagnostics will benefit from its efforts. Celera Genomics expects the
information it develops to become the cornerstone for the development of new
diagnostic tests. Protein information can be used as a marker for disease
detection once the correlation between the appropriate protein and its level is
made with a disease. Polymorphism information should be important in developing
tests to predict safety and efficacy of pharmaceuticals and individuals'
susceptibility to diseases.
Knowing individual genomic information including allele variation, gene
expression levels, patterns and protein expression patterns, levels and
modifications should allow physicians to prescribe more appropriate treatment
strategies. Individuals may also want access to this information to better
understand the correlation between their specific genetic information and their
susceptibility to disease.
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GENOMIC RESEARCH EFFORTS
Most early genomic research was funded under the auspices of the Human
Genome Project, a worldwide coordinated effort to sequence the human genome,
undertaken largely by governments and nonprofit organizations in the United
States, England, Japan, France and other nations. In the United States, most
public funding for the Human Genome Project has come from the National
Institutes of Health ("NIH") and the Department of Energy. The Human Genome
Project has generated interest in genomics and encouraged the development of
technology for and commercial interest in genomic research. Commercialization of
genomic research began in the early 1990's and led to the development of
privately-funded gene discovery initiatives focused on supplementing drug
discovery efforts within the pharmaceutical industry. After the announcement by
the Celera Genomics group of its goals, the NIH and one private foundation
announced their intention to accelerate the projected completion date for
sequencing the entire human genome to 2003. The NIH subsequently announced its
decision to reallocate funding in order to further accelerate the Human Genome
Project's sequencing effort and to attempt to achieve a "working draft" of the
genome by spring of 2000.
The underlying strategy of the public effort to sequence the human genome is
based on breaking up the genome into discrete sections of DNA that are mapped to
chromosomes and then sequenced one section at a time. This strategy is intended
to provide a map of the genome upon which areas can be incrementally sequenced.
The Celera Genomics group believes the public approach has commercial
limitations in addition to its high cost:
- The human genome sequence information will be available at a slower rate;
and
- It will not produce polymorphism information to support the study of
genetic variability that would result from sequencing the entire genome
from multiple individuals.
The NIH recently announced a program relying, in part, on Human Genome
Project data to address the absence of polymorphism information. The Celera
Genomics group believes that the NIH's funded efforts to generate a significant
amount of information will be limited by its sequencing and polymorphism
detection strategies.
A number of companies are sequencing segments of the human genome. However,
these efforts have been limited to small, targeted areas of the genome due to
the technical and financial hurdles associated with sequencing the entire human
genome.
The first genomics companies generally relied on the expressed sequence tag
("EST") approach, a shortcut sequencing strategy using partial gene sequences as
markers, developed by Dr. Venter when he was at the NIH. ESTs are derived from
tissues in which individual genes are expressed and help identify specific genes
that may be involved in particular diseases. Due to the nature of the EST
approach, the genes identified are typically more highly expressed genes. Rarely
expressed genes that may be of more interest in studying disease are not as
likely to be identified by the EST approach. Although the EST approach has been
considerably faster than other methods and successful in identifying some genes,
it provides only a starting point in the gene identification process.
Some genomics companies use ESTs in a strategy known as "gene mapping." Gene
mapping refers to the process by which DNA samples are taken from members of
families with high incidences of a particular disease. These samples are used to
identify ESTs to help locate the exact position in the genome of a gene that may
be partially or fully responsible for the disease. Gene mapping offers the
advantage of much higher certainty in associating a gene with a particular
disease, but it tends to be a considerably slower and more expensive process of
gene identification than the EST method alone.
Some genomics companies offer fee-based access to their genomics databases.
These databases are built primarily with data sequenced using the EST and gene
mapping techniques. By not sequencing the entire genome, the Celera Genomics
group believes these companies are not as likely to identify rarely expressed
genes, which the Celera Genomics group believes are likely to provide medically
significant
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information. These companies typically require customers that access their data
to share intellectual property rights on discoveries made from the data provided
by the database company, regardless of the database company's involvement in a
discovery.
Other companies are developing detailed maps of the human genome, but these
maps are expected to show substantially less than all of the sequences in the
genome. These maps are being used to discover genes and their relevance to
broader patient populations. Some companies use genomic maps and special
techniques to identify limited polymorphisms and other data to be used in
pharmacogenomics.
Even with the use of partial genomic information, private genomic companies
have achieved the following:
- Numerous partnering and collaborative relationships with pharmaceutical
companies involving significant research funding; and
- Significant gene discoveries from both the EST and gene mapping methods.
By focusing their efforts on identifying specific genes and disease targets,
however, genomic companies have identified only a fraction of the 3%-5% of the
human genome believed to be responsible for gene coding. Although many believe
that the remaining 95% to 97% is composed of "junk" DNA, the Celera Genomics
group believes that gaining an understanding of the whole human genome will
yield valuable biological and medical information. Such information includes
novel genes, polymorphisms and gene timing and tissue localization instructions
not found in gene transcripts, i.e., cDNA and EST sequences. The Celera Genomics
group believes that it will create a foundation for discovery from the genomic
information that cannot be discovered through the EST or gene mapping approaches
alone. Moreover, the Celera Genomics group believes that by overlaying the
expression profiles for different tissues and multiple species, it can
facilitate accurate pathway identification and the determination of possible
gene function. These discoveries, in turn, should lead to a more comprehensive
understanding of the genome and the genomic factors influencing diseases and
drug responses in patients.
CELERA GENOMICS' APPROACH TO GENOMICS AND SCIENTIFIC PROGRESS TO DATE
Since the early 1990's, with the commencement of the Human Genome Project,
scientists have generally believed that technology would limit the pace at which
the entire human genome might be sequenced. The combination of the PE Biosystems
Group's higher-throughput sequencing equipment, and the advanced sequencing
strategy techniques developed by Dr. Venter and his scientific team at TIGR, has
resulted in the Group's announcement in January 2000 that Celera had compiled
90% of the human genome. The Group started sequencing of the human genome in
September 1999. This began after the completion of the sequencing of DROSOPHILA,
Celera's first sequencing project, carried out in cooperation with the Berkeley
Dropsophila Genome Project (BDGP). Drosophila was chosen because it is an
important organism for biomedical and agricultural research, and because it is
believed that its large and complex nature would demonstrate the operational
capability of Celera's facilities and the efficacy of the whole genome shotgun
technique in deciphering other large and complex genomes like the human genome.
The DROSOPHILA genome, the largest sequenced to date and 77 times as large as
the first genome completed in 1995, was sequenced in the same period of time as
that of the first genome--four months. In the process, the utility of the whole
genome shotgun technique for gene discovery was also demonstrated. Fully 40% of
the discovered genes had never been identified in the extensive public databases
using the EST approach. Upon completion of the sequencing of the DROSOPHILA
genome, Celera undertook the task of using its computational approach to
assemble the genome into its proper order. This task has been completed and
scientific publications presenting the result and further in depth analysis are
expected to be published with the BDGP this spring.
As a result of the DROSOPHILA assembly work, Celera now believes that it may
not be necessary to sequence the human genome as extensively as originally
planned in order to achieve a highly accurate consensus genome. Celera's
original plan was to sequence the human genome ten times to insure accurate
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coverage. Our experience gained from the sequencing and assembling of DROSOPHILA
indicates that this level of coverage may not be required. The reduction in
needed sequence data, combined with a recent increase in publicly available
human genome data, has enabled Celera to accelerate its estimated completion
date for the assembly of the human genome from the end of 2001 to the end of
2000. Once sequencing is completed, the Group intends to focus on the annotation
and assembly of the sequencing data.
The Group believes that its shotgun sequencing strategy has accelerated the
discovery of new genes, and has generated genomic information that has not yet
been the focus of research. This information includes rarely expressed genes and
the proteins they code for and other factors, such as regulatory regions, that
control gene expression. This data is forming the basis of the Group's human
genome database. Information from this database is being delivered on a
bi-weekly basis to the Group's current subscribers.
After completion of sequencing and assembly, the Celera Genomics group
expects to release a detailed ordered consensus human genome assembly. The data
that the Celera Genomics group releases publicly will be available, in a
searchable format, via its web site. The ultimate form of data release will be
affected by, among other things, the evolution of intellectual property law and
the Celera Genomics group's assessment of the likelihood that other
organizations may seek to obtain the Celera Genomics group's data and resell it
in competition with Celera to their own customers. The Celera Genomics group
believes that current efforts by some companies to obtain data made publicly
available for the purpose of private resale may continue, and that the need to
protect the value of its information while honoring its intention to share this
data with the research community will affect its data disclosure strategy.
The Celera Genomics group believes that disclosing consensus assembled
sequence data will not affect the value of its information products and services
to customers and will encourage researchers to use its data and ultimately
become the Celera Genomics group's customers. The Celera Genomics group will
make available to its customers, on a subscription basis, the assets that are
most responsible for the value of its products and services: extensive
integrated genomic information systems, including proprietary annotations,
certain polymorphism information, comparative genomics information, protein
expression information, search tools and algorithms, and assay and other
services.
BUSINESS STRATEGY
The Celera Genomics group's mission is to become the definitive source of
genomic, proteomic and related biological and medical information that will
facilitate a better understanding of human biological processes and accelerate
future improvements in health care. The Celera Genomics group intends to use the
genomic information derived from its human genome sequencing program as a
platform upon which to develop an integrated information and discovery system.
The Celera Genomics group believes that its information platform, along with
the assay and services systems it will develop, will be used by pharmaceutical,
biotechnology, diagnostic and other private entities and academic and other life
science research institutions. The Celera Genomics group will seek to make its
discovery and information system the fundamental resource in molecular medicine
for acceleration of the development of new drugs and targeted diagnostics. In
addition, this information may provide the foundation for personalized medicine
and be used by physicians and individuals.
Key elements of the Celera Genomics group's strategy include:
DEVELOPMENT OF AN INTEGRATED DISCOVERY SYSTEM BASED ON GENOMIC AND
FUNCTIONAL GENOMIC INFORMATION
The Celera Genomics group intends to develop an integrated information
system that will include the most comprehensive and integrated databases of
genomic and related biological and medical information available. The Celera
Genomics group expects to integrate its proprietary information with information
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from external sources. The discovery and information system will also include
software tools that provide the ability to view, browse and analyze this
information in an integrated way to facilitate discovery. The Celera Genomics
group also expects to offer a variety of services to customers to assist in the
analysis and interpretation of the data.
The Celera Genomics group intends to supplement the base-level human genome
sequence data it generates with other information to increase the value of its
information system. This additional information may include comparative genomic
information and associated tissue-specific gene and protein expression profiles
from human and other model organisms. Comparative genomic information from model
organisms, such as DROSOPHILA and mouse, are often used as a mechanism by which
to better analyze specific areas of the genome and develop the
interrelationships of the genetic code to disease and drug response. This
information, which will permit better understanding of how genes are controlled
by regulatory elements, has significant implications for better molecular
control of genes and gene therapy.
For example, the Celera Genomics group has already sequenced the DROSOPHILA
genome. This sequence information represents the first level of the Celera
Genomics group's comparative genomic information and is intended to add to the
understanding of human genomic data, particularly in furthering the
understanding of neurological function.
DEVELOPMENT OF COMPREHENSIVE POLYMORPHIC INFORMATION FOR DRUG DEVELOPMENT
AND PERSONALIZED HEALTH/MEDICINE
The Celera Genomics group believes that its sequencing efforts using the DNA
from multiple individuals will likely result in the discovery of millions of
polymorphic sites. This level of discovery should significantly exceed the
efforts of its competitors. Polymorphic sites are locations on the genome where
variations in genetic sequence can occur and which may lead to the development
of certain diseases or influence the effect of a drug on a patient. Scientists
believe that polymorphism information is important in understanding the
relationship of genetic factors to disease and how and why certain patients
react favorably to certain drugs while others do not. Because the identification
of polymorphic sites is very difficult using current methods and few polymorphic
discovery programs exist, the Celera Genomics group believes that the
polymorphisms it discovers will add considerable value to its integrated
information system. Using polymorphism data from sequencing efforts, the Celera
Genomics group intends to develop information on specific associations between
genetic variances that may predispose individuals to diseases, such as diabetes,
heart disease, stroke, cancer and obesity, and their interactions with specific
drugs.
COMPETITIVE ADVANTAGES
The Celera Genomics group believes that it has competitive advantages that
differentiate it from other genomic companies. These advantages should enable it
to sequence and assemble the large and complex human genome faster and more
accurately than any other organization attempting this challenge. After
accomplishing this undertaking, the Celera Genomics group believes it will be
well positioned to build and market its sequences, functional genomics and
personalized health/medicine information products and services. The competitive
advantages that differentiate Celera's efforts from other genomics efforts
include:
EXPERTISE OF KEY SCIENTIFIC PERSONNEL
The Celera Genomics group has recruited a team of leading scientists, led by
Dr. Venter, with substantial expertise and experience in genomics, functional
genomics, bioinfomatics and medicine. Dr. Venter and certain of these
scientists, while employed by TIGR, participated in its sequencing of the entire
genome of the first living organism in 1995. Subsequently, TIGR sequenced and
published the genetic maps of eleven other whole microbial genomes. The team
also includes personnel who joined Celera from PE Biosystems, TIGR and other
respected organizations with expertise in gene discovery, computational biology
and other technical disciplines needed for the difficult tasks of assembling and
analyzing genomic sequence data. In addition, individuals with medical expertise
are now employed by the organization to focus on the medical applications of
genomic information.
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PROVEN SEQUENCING STRATEGY
The Celera Genomics group will continue to use the whole genome shotgun
approach to sequence the complete genomes of human and other biomedically
important species. The shotgun method will be employed to create tiny, random
fragments of different lengths. These fragments are sequenced, assembled into
contiguous blocks using proven algorithms, and assigned to the correct location
in the genome. This approach was successfully employed to sequence and assemble
the DROSOPHILA genome. Having nearly fully sequenced the human genome, the
Celera Genomics group will begin its efforts to assemble the human genome. The
Celera Genomics group believes its approach will produce the highest quality
data available on the human genome.
ACCESS TO COMPREHENSIVE GENOMIC SEQUENCE INFORMATION UNAVAILABLE ELSEWHERE
The rapid production of genomic information by the Celera Genomics group is
expected to provide pharmaceutical and biotechnology manufacturers and the
scientific research community with the ability to mine this data for novel
genomic information and to pursue intellectual property rights on potential
discoveries. The Celera Genomics Group plans to significantly increase the level
and quality of genomic information made available to the pharmaceutical and
biotechnology industry and to the scientific research community. As more
information is generated by the operations of the Group, it will develop and
refine the genomic map through a continuing process of rigorous annotation,
including using EST data, to enable users to gain a better understanding of the
location, function and interrelationships of genomic material.
WORLD'S LARGEST GENOME SEQUENCING AND COMPUTATIONAL COMPLEX
The Celera Genomics group has established the world's largest
high-throughput sequencing facility, using 300 PE Biosystems 3700 DNA
sequencers. Production capacity is estimated to approach two billion base pairs
per month. Supporting these instruments requires the use of automation to pick
approximately 150,000 bacterial colonies per day that have human DNA spliced
into them. The whole set of processes is set up as a high capacity routine
production facility that minimizes waste while optimizing output.
The vast amount of sequence information is captured in a supercomputing
facility that was created in partnership with Compaq Computer Corporation.
Celera believes this facility is one of the world's most powerful non-defense
computing centers. This center currently houses 848 interconnected Alpha TRU 64
bit processors and has 50 terabytes of disk storage capacity. The center
provides the processing power for complex scientific applications and the
computational capacity for analyzing sequencing output.
AFFILIATION WITH PE BIOSYSTEMS
PE Biosystems has extensive customer relationships in the pharmaceutical and
biotechnology industry which have proven useful to the Celera Genomics group. PE
Biosystems is a global technology leader in the life sciences market for DNA and
protein synthesis and analysis. As important to the Celera Genomics group are
the technologies which PE Biosystems can supply. Examples of technologies which
the Celera Genomics group intends to utilize in creating functional genomic and
polymorphic information from PE Biosystems include:
MASS SPECTROSCOPY. PE Biosystems is the leading provider of certain key
technologies, such as mass spectrometry that are essential to proteomics. Mass
spectrometry provides protein identification and characterization, as well as
the analysis of post-translational protein modifications that may hold the key
to cellular function. Current and planned mass spectrometry and tandem mass
spectrometry technology are expected to meet the high throughput and information
requirements necessary to correlate the expressed protein information to the
corresponding gene sequences.
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THIRD WAVE. In January 2000, PE Biosystems signed a definitive merger
agreement under which PE Biosystems has agreed to acquire Third Wave
Technologies, Inc. in a stock-for-stock transaction, subject to regulatory
approvals and customary closing conditions. Third Wave has developed the
innovative Invader-Registered Trademark- nucleic acid detection technology, a
highly sensitive and accurate assay that can rapidly detect differences among
genetic sequences important for the analysis of SNPs. The Invader assay
technology is expected to accelerate the understanding, diagnosis and treatment
of disease by enabling rapid, large-scale testing of SNPs. This technology is
expected to be initially used with PE Biosystems' Sequence Detection Systems
(SDS), a proprietary technology for real-time analysis of genetic information.
It is anticipated that the Invader assays on the SDS platform should allow
researchers to: (1) accelerate experiments designed to link SNPs to diseases and
drug responses and (2) create and use thousands of individual tests needed for
drug discovery and clinical trials. These developments are expected to lead to
diagnostic advances in patient profiling and personalized medicine.
ILLUMINA. In November 1999, PE Biosystems and Illumina, Inc. entered into a
strategic collaboration to develop and commercialize array-based systems for
high-throughput genetic analysis. The companies will jointly develop systems
based on Illumina's BeadArray-TM- technology and PE Biosystems' proprietary
ZipCode-TM- chemistries. SNP analysis will be one of the first applications of
the collaboration, which expects to provide pharmaceutical researchers with new
tools to analyze SNP genotypes at lower cost and with superior performance.
ACLARA. In April 1999, PE Biosystems and Aclara BioSciences, Inc. entered
into a strategic collaboration to develop and commercialize microfluidic
screening systems for the cost-effective high-throughput screening of massive
libraries of drug candidates. The advanced drug-screening systems will combine
Aclara's proprietary microfluidic technology and microfabrication techniques
with PE Biosystems' market-leading instrumentation and reagents. PE Biosystems
has developed multiple generations of DNA sequencers incorporating capillary
electrophoresis and fluorescent detection. It will contribute, in addition, the
separation and systems engineering strengths of its PerSeptive Biosystems
division and the biological assay development and high-throughput screening
expertise of its Tropix division.
PE Biosystems also provides systems integration encompassing informatics,
high-throughput screening and protein-protein interactions.
COMMERCIAL APPLICATIONS; PRODUCTS AND SERVICES
The Celera Genomics group expects that the use of the information it
develops and discoveries it makes will help transform life science research by
increasing the understanding of biological processes, thus enabling scientists
to accelerate the discovery and development process. The Celera Genomics group
also believes this information will ultimately facilitate the development of
individual genetic profiles that will be used for personal health planning by
the medical and consumer markets. The commercial markets that the Celera
Genomics group believes will benefit from its information include pharmaceutical
drug discovery and development, medical, consumer and other markets.
The Celera Genomics group expects that its primary revenue sources will come
from selling access to its information through subscriptions, collaborative
services and licensing its intellectual property. For certain information
products, the Celera Genomics group does not expect to seek ownership of
intellectual property developed by its customers on such use. For these
products, this policy should promote use of its information by a wide variety of
users and will distinguish the Celera Genomics group from other genomics
companies that seek intellectual property rights in their customers' discoveries
based solely upon access to those companies' database information.
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The structure of customer subscriptions, including the databases to be
offered, functionality of the system, the access fees to be charged, the
intellectual property terms, and the nature of any services provided to
customers, will vary according to customer requirements and are expected to
change over time.
The following describe the products and services that the Celera Genomics
group expects to offer:
INFORMATION PRODUCTS
The Celera Genomics group intends to build a comprehensive database that
provides subscribers with information access over the Internet and includes the
following:
- A set of evolving, integrated databases comprised of both genome and
functional genomics information.
- A comprehensive set of bioinformatics tools that allow users to search,
browse, visualize and analyze information and information relationships.
- The ability to integrate internal (customer) and external data sources
into the overall system.
- The capability to perform comparative analysis with other genomes,
including those of DROSOPHILA and mouse, to permit researchers to better
understand gene function and the ways in which genes and proteins operate
within cells.
The Celera Genomics group is currently offering or plans to offer the
following genome and functional genomics database options as part of the Life
Science Research System. Access to these databases will be configurable to allow
for multiple product configurations and pricing plans targeted to specific
customer needs.
DROSOPHILA GENOME DATABASE. The first complete sequence of available data
generated by the Celera Genomics group's sequencing activity is the DROSOPHILA
genome. Scientists have widely studied DROSOPHILA, which has been shown to share
similar genes with humans. This new genomic information will allow comparisons
of both sequences and genes for the drug discovery process. The content of the
DROSOPHILA database includes DNA sequence information and assemblies of the
genome generated by the Celera Genomics group. Over time, the Celera Genomics
group intends to supplement this data with data obtained from other accessible
resources. The database will include, at a minimum, the following annotations:
DNA and protein matches, gene predictions, predicted gene function, identified
protein domains, EST matches and marker locations on chromosome maps.
HUMAN GENE INDEX. The Celera Genomics group expects that this database will
represent the most current view available of the set of human genes. It will be
the extension of the TIGR Human Gene Index, which has been in development at
TIGR for over three years and licensed to the Celera Genomics group on a
non-exclusive basis. The database will be derived from transcripts derived from
genomic sequences, assemblies of ESTs and related data used to develop the ESTs.
This database is expected to contain an extensive network of links to other
sources of biological information, including information from mapping data,
genomic sequences, expression data and the Human Genome Project's databases.
HUMAN GENOME DATABASE. Celera Genomics believes this information base will
be a foundation for developing an information and discovery source that
ultimately links genomic data to relevant biological and medical information.
The Celera Genomics group currently has over 90% of the human genome in its
databases and anticipates completion of sequencing by mid 2000. The process of
assembling the genome is expected to be completed by the end of 2000. In
addition, Celera intends to incorporate existing data from third party sources.
Concurrent with the sequencing project, separate teams will be designated for
annotating specific chromosomes. The Human Genome Database is expected to
include the same types of annotations as those of the DROSOPHILA genome.
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MOUSE GENOME DATABASE. Celera intends to begin sequencing the mouse genome
in early summer of 2000 and expects to complete its work by the end of 2000.
Celera believes that the mouse is a very important model organism for studying
gene function, having been the subject of extensive genetic studies. In
addition, mice are available with specific genes disabled, allowing further
functional characterization. These genes can be easily correlated with their
human counterparts and thus can be used to study human health. The Mouse Genome
Database is expected to contain the same types of annotations as those of the
human and DROSOPHILA genomes. In addition, the mouse and human genomes will be
overlaid to allow comparative studies of their respective structures, the
functions of their genes, and their common regulatory mechanisms.
FUNCTIONAL GENOMICS DATABASES
GENE EXPRESSION DATABASES. These databases are expected to consist of human
and animal gene expression information to provide rapid, in-depth analysis of
where genes are expressed and in what quantities. This will include the
GeneTag-TM- rat database, which is the largest rat gene database in the world.
It contains over 40,000 identified unique GeneTags-TM-. Celera Genomics believes
the rat is an important model organism for studying drug toxicity in
pharmaceutical discovery and development.
HUMAN PROTEIN DATABASE. The Celera Genomics group plans for this database to
represent the most comprehensive view of protein expression in humans. Protein
data is expected to be available for whole tissues, cellular and sub-cellular
fractions from several individuals. Celera Genomics believes this information
will become a foundation of protein reference information to which comparative
studies in various disease states and aging studies can be compared. This data
will be correlated to provide an enhanced understanding of key biological
processes, from gene to function.
SNP DATABASE. The Celera Genomics group believes that as it continues to
sequence the DNA from multiple individuals it will likely discover millions of
SNP sites. Celera believes this level of discovery will significantly exceed the
efforts of its competitors. SNP sites are locations on the genome where
variations in genetic sequence can occur and which may lead to the development
of certain diseases or influence the effect of a drug on a patient. Scientists
believe that polymorphism information is important in understanding the
relationship of genetic factors to disease and how and why certain patients
react favorably to certain drugs while others do not. Because the identification
of polymorphic sites is very difficult using current methods and few polymorphic
discovery programs exist, the Celera Genomics group believes that the SNPs it
discovers will add considerable value to its integrated information system.
GENOTYPE/PHENOTYPE DATABASE. Celera Genomics expects the development of an
information base that links SNP information to phenotype information to be a key
asset for both therapeutic development and medical and diagnostic applications
and will enable personalized health planning. Celera intends to work with major
clinical centers to collect individual genetic profiles and correlate them with
medical and phenotype information. This information is expected to become a
reference source for understanding drug safety, drug toxicity, and genetic
susceptibility to disease, and should serve as important diagnostic markers. The
assay systems that the Celera Genomics group intends to use will be flexible
systems that allow for this study of genetic variances at various levels of
detail. The Celera Genomics group believes that through its relationship with
the PE Biosystems group and early access to its developing technologies, it will
be able to reduce the cost of this technology to a level that will permit
widespread application of polymorphism studies and diagnostics.
PERSONALIZED HEALTH/MEDICINE
The Celera Genomics group expects that genomic information will be used to
develop molecular diagnostic tests to identify the genetic make-up of
individuals. These diagnostic tests will contribute to a more personalized
approach to medicine. For example, there are many types of cancer that have
similar disease manifestations. Because these disease manifestations may be
similar between one type of cancer
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and another, it may be important to differentiate between the actual type of
disease rather than just the disease manifestations in prescribing an effective
treatment. It is believed that, rather than prescribing a drug based solely on
disease manifestations, physicians will be able to use a molecular diagnostic
test to help select the most effective drug with fewer negative side effects. As
a result, this approach should benefit the patient with more customized care,
reduced illness length, and ultimately, better treatment results.
Celera believes that the consumer market is evolving towards a more
pro-active, self-directed approach to both medical and non-medical healthcare.
This shift is evidenced by the growing number of consumers seeking information
from health based internet portals that are building eBusiness networks to
connect consumers, physicians, solution providers and payers. This evolution to
more self-directed health care is creating more informed and prepared consumers
and Celera is positioned to augment this trend.
Celera believes that an important component of pro-active, self-directed
health care will be knowledge of individual genetic profiles. These profiles arm
consumers with actionable information that will result in personalized health
plans tailored to their specific health characteristics. Celera believes that
consumers and physicians equipped with this knowledge will be able to anticipate
health issues and then target the most effective health solutions (e.g. diet and
fitness programs, monitoring, treatments) to optimize the individual's health
and well-being.
It is believed that the genetic profile information that Celera intends to
develop provides a key basis for interactions and transactions between the
consumer, physicians and solution providers. Consumer controlled access to this
information by physicians and solution providers will enable more effective and
efficient application of health solutions that may ultimately result in reduced
health care costs. Further, Celera anticipates that the aggregation of the
identified genetic profiles will provide pharmaceutical and biotechnology
companies with a rich demographic database to enhance the research process.
Celera intends to make this information available to these communities under
various conditions that will provide revenues to the company.
VALUE ADDED SERVICE PROGRAMS
The Celera Genomics group believes that its investment in staff and
technology and its integrated information systems should permit it to expand its
business into providing value added service programs. These additional areas may
include licensing of proprietary intellectual property rights from its own
discovery efforts and collaborative endeavors and establishment of collaborative
relationships to develop information related to specific customer needs.
The Celera Genomics group intends to conduct its own discovery initiatives
as part of its analysis of genomic and functional genomic information generated
through its efforts. The Celera Genomics group currently intends to pursue
intellectual property protection on such discoveries. If the Celera Genomics
group is successful in making novel discoveries and generally establishing
intellectual property rights, it expects to license most of its discoveries
broadly.
The Celera Genomics group may also enter into other collaborative
arrangements with customers to develop information specific to a particular
customer's interest. Such arrangements could involve an extensive population
genetics study on behalf of a pharmaceutical company or the sequencing of
certain plant, animal or insect genomes on behalf of customers. In addition,
customers may build proprietary gene expression databases using GeneTag-TM-
sequencing technology through a collaborative arrangement. These arrangements
may also include providing customers biological materials, such as full length
cDNA clones, and sequencing of clones of novel genes. The Celera Genomics group
anticipates that the terms of these collaborative arrangements will generally
provide for up-front license fees, research fees and Celera or joint ownership
of any discoveries or royalties and milestone payments. In addition, the
intention of such collaborations will be to incorporate information generated
during the research into Celera's databases.
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Celera anticipates offering the following services:
GENE DISCOVERY. Through its expertise in sequencing and bioinformatics,
Celera offers programs to SNP to discover novel genes of interest.
FULL LENGTH CLONING. Celera Genomics is creating a high-throughput facility
for the generation of full-length cDNA's for pharmaceutically relevant genes.
This capability is expected to increase the value of the intellectual property
filed on genes and be a valuable tool for Celera's subscribers to develop
biological assays for specific gene targets.
GENE EXPRESSION. GeneTag-TM- technology provides the Celera Genomics group
with additional capabilities in the field of gene discovery. This provides gene
expression profiling technology that simultaneously discovers novel genes,
including rarely-expressed genes, and monitors known genes for applications such
as molecular toxicology, gene discovery and pharmacagenomics.
PROTEIN EXPRESSION SERVICES AND ANALYSIS. The proposed development of a
high-throughput facility for protein expression is intended to provide the
capability to perform specific research programs for customers wanting to
compare Celera's reference information to specific development projects. Celera
intends to create comprehensive analysis capabilities for proteins. These
capabilities will be utilized within customer programs and Celera intends to
analyze the protein reference information as it is generated to identify and
seek intellectual property protection on diagnostic markers, novel genes and
therapeutic proteins. The study of protein-protein interactions can also be used
to help identify protein function. They can be elucidated in a number of ways,
including computational methods (co-evolution analysis, conservation of domains,
etc.) or laboratory studies (correlated expression levels of mRNA or protein).
In addition, the ability to generate antibodies to any protein coded by the
genome will also expedite the identification of specific protein complexes and
their functions. These methods, along with comparative genomics techniques
correlating protein function across species, are expected to allow researchers
to map out the biological pathways in any given cell in the body.
HUMAN POLYMORPHISM SERVICES AND ANALYSIS. Celera intends to use the
information it creates on polymorphisms combined with high-throughput genotyping
technology to provide services to detect and analyze individual genome profiles.
Celera has the capability of performing high-throughput sequencing of specific
genes or genomic regions across populations of interest.
INFORMATICS SERVICES. Celera believes that the quantity of genomics and
related data and the application of sophisticated bioinformatics tools will
drive users of this information to require knowledge management, computing and
storage solutions. Celera, with its strategic partners, will be in a unique
position to supply customized combinations of bioinformatics tools and computer
bandwidth to users of our information.
INTELLECTUAL PROPERTY
Through its internal research programs and collaborative programs Celera
Genomics group anticipates that it will develop an ever-increasing portfolio of
intellectual property. Celera Genomics group intends to license such
intellectual property to customers for some combination of license fees,
milestones and royalty payments.
CUSTOMERS
Currently, the Celera Genomics group offers its information products on a
subscription basis for multiple year subscriptions. Celera Genomics group's
major customers for its integrated information and discovery systems include
Amgen, Novartis, Pharmacia & Upjohn and Pfizer. These customers have access to
Celera's base product offering of our Drosophila Genome Database, Human Gene
Index and Human
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Genome Database. Certain contracts also provide for future access to a Mouse
Genome and SNP database products. As additional databases are made available,
the Group's subscribers will be offered such additional information on an
incremental fee basis. The subscriptions to Celera's databases also include
access to associated bioinformatics systems and tools for viewing, browsing and
analyzing genomic information. The following table sets forth certain
information relating to our key customer subscription agreements.
<TABLE>
<CAPTION>
DROSOPHILA
GENOME HUMAN GENE HUMAN GENOME MOUSE GENOME SNP
SUBSCRIBER DATABASE INDEX DATABASE DATABASE DATABASE
- ---------- ----------- ------------ --------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Amgen............................................ X X X X
Novartis......................................... X X X X
Pharmacia & Upjohn............................... X X X
Pfizer........................................... X X X X X
</TABLE>
Amgen, Novartis and Pfizer have also contracted with Celera for
collaborative services. These include specialized research activities where
Celera will focus on specific scientific programs such as gene discovery,
full-length cloning and sequencing. For such colloborative services and, in some
cases, for exclusive or non-exclusive licenses to developed intellectual
property, these customers provide the Celera Genomics group with various
combinations of research fees, up-front payments, research and development
milestone payments and royalties in the event of commercial sales.
The next phase of Celera's business development will focus on leveraging the
life science information solutions available from its integrated information
system. The expanded efforts will be to focus in the following areas:
UNIQUE AND EVOLVING CONTENT. Additional genomic and functional genomics
databases will be offered, as they become available.
ANALYSIS TOOLS. Celera anticipates broadening its analysis capability by
incorporating more sophisticated search, query and navigation software tools.
SERVICES. Celera anticipates providing additional scientific and knowledge
management, hosting and computing services as part of its product offerings.
The Celera Genomics group believes the customers in this phase are also
likely to be pharmaceutical, biotechnology and agricultural companies. Targeted
customers will also include universities and other research institutions with
substantial genomic research interests. Celera will offer database
subscriptions, but they will be packaged solutions at different price points as
customer needs evolve.
COLLABORATIONS AND OTHER GENOMICS PROGRAMS
COLLABORATIONS
GEMINI. Celera has entered into a research collaboration with Gemini
Research Limited to discover genes and genetic polymorphisms associated with
common, chronic, age-related diseases. The collaboration combines Celera's DNA
sequence information and computational gene discovery capabilities with Gemini's
clinical genetics approach. Celera and Gemini intend to commercialize the
results of the collaboration by jointly licensing the rights to discoveries to
third parties in the development of gene-based therapeutics and diagnostic
products. Both parties will share in revenues received from licensing fees,
milestone payments and royalties resulting from the collaboration.
RHONE-POULENC. Celera has also entered into a three-year agreement with
Rhone-Poulenc Rorer to identify therapeutic targets for a variety of human
diseases, including asthma, cancer and cardiovascular disorders, by applying
Celera's proprietary GeneTag-TM- technology to Rhone-Poulenc's disease model
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systems. The agreement includes up front fees as well as milestones and
royalties to Celera in connection with the commercialization of any drugs
resulting from this collaboration. This agreement was entered into prior to
Celera's database subscription offerings, and as such is strictly a
collaborative research agreement without access to Celera's proprietary
information.
RHOBIO. Celera has formed a three-year agreement with RhoBio SA, a joint
venture between Rhone Poulenc Agro and Biogemna, to use expression studies to
discover genes related to traits of importance in maize. This agreement provides
Celera with a combination of technology access fees, research and development
milestone payments and royalties resulting from sales of any products developed
through this research-based alliance.
STRATEGIC ALLIANCES AND ACQUISITIONS
PARACEL. Celera has acquired or entered into arrangements which will
enhance our bioinformatic capabilities. The Group will collaborate with
Paracel Inc. on the development of high-resolution informatics tools. Scientists
from both companies will focus on EST clustering and whole genome data mining
capabilities, while leveraging technology for sequencing quality estimation and
similarity searching. These tools and hardware provided by Paracel are used in
our scaled up gene discovery process.
PANTHER TECHNOLOGY. Celera has acquired the Panther technology from the
Molecular Applications Group. Panther is a software tool designed for rapid and
accurate determination of gene and protein function. As a part of the agreement,
a key group of bioinformatics experts who developed the technology have joined
Celera.
SHANGHAI GENECORE. Celera acquired a 47.5% equity interest in Shanghai
Genecore Biotechnologies Co. Ltd. Shanghai Genecore is a genomic service company
providing services in China in the areas of nucleotide synthesis, DNA
sequencing, bioinformatics analysis and mutation detection. This acquisition
provides Celera with access to ongoing research collaborations with government
agencies and research institutions and access to a broad customer base of
academic institutions and biopharmaceutical companies.
RAW MATERIALS
The Celera Genomic group's operations require a variety of raw materials,
such as chemical and biochemical materials, and other supplies, some of which
are occasionally in short supply. The Celera Genomics group depends on the PE
Biosystems group for several critical materials, including reagents and
capillary arrays, required for sequencing. For certain of these materials, the
PE Biosystems group is the sole supplier, and for other materials the Celera
Genomics group believes that the PE Biosystems group provides the highest
quality materials available. Any interruption in the availability of these
materials could adversely affect and, in come cases, shut down sequencing
operations.
PATENTS, LICENSES AND FRANCHISES
The Celera Genomics group's business and competitive position is dependent,
in part, upon its ability to protect its database information, proprietary gene
sequence methods, software technology and the novel genes it identifies. The
Celera Genomics group's commercial success will be affected by, but is not
directly dependent on, the ability to obtain patent protection on genes,
polymorphisms and proteins discovered by it and/or by the Celera Genomics
group's customers on their own behalf and by collaborators. The Celera Genomics
group plans to seek intellectual property protection, including copyright
protection, for the information and discovery system including its content, the
software and methods it creates to manage, store, analyze and search novel
information.
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The Celera Genomics group's current plan is to apply for patent protection
upon the identification of candidate novel genes, novel gene fragments and their
biological function or utility. Although obtaining patent protection based on
partial gene sequences might enhance the Celera Genomics group's business, the
Celera Genomics group does not believe that its commercial success will be
materially dependent on its ability to do so. Depending on the nature of the
arrangement, when gene discovery or analysis is performed on behalf of customers
or collaborators, any resulting patent rights will be owned solely by Celera,
jointly owned by the Celera Genomics group and the customer or collaborator, or
owned solely by the customer or collaborator. If a gene product is developed,
the Celera Genomics group anticipates it will receive various forms of
consideration including license fees, milestone payments and royalty payments on
sales of the gene product and related products.
Celera will use a combination of strategies in order to protect its
intellectual property assets involving SNP discovery, validation and
functionation. Celera recognizes that many of the intellectual property laws are
directly suitable for application to SNP discoveries while other protections may
not be available or extend to cover SNP-based discoveries.
During sequencing and early assembly phase of human genome, Celera will
maintain proprietary protection of its SNP discoveries using a combination of
confidential treatment of the information /access control and establishing the
beginning of a patent portfolio. During later stages of assembly and gene
annotation, Celera may seek broader patent protections of its discoveries. Such
an approach will be utilized to establish commercial applications and patentable
utility for such SNP discoveries.
The granting of patents on genomic discoveries is uncertain worldwide and is
currently under review and revision in many countries. Moreover, publication of
information concerning partial gene sequences prior to the time that the Celera
Genomics group applies for patent protection based on the full-length gene
sequences or different partial gene sequences in the same gene may affect the
Celera Genomics group's ability to obtain patent protection. Certain court
decisions suggest that disclosure to the applicable agency of a partial sequence
may not be sufficient to allow or support the patentability of a full-length
sequence and that patent claims to a partial sequence may not cover a
full-length sequence inclusive of that partial sequence. Currently, the U.S.
Patent and Trademark Office requires an adequate disclosure of a specific and
substantial utility, such as gene function, in order to support the
patentability of a gene sequence.
In January 1997, TIGR, in collaboration with the National Center for
Biological Information, disclosed full-length DNA sequences assembled from ESTs
available in publicly accessible databases or sequenced at TIGR. The National
Human Genome Research Institute also plans to release sequence information to
the public. Such disclosures might limit the scope of the Celera Genomics
group's claims or make subsequent discoveries related to full-length genes
unpatentable. While the Celera Genomics group believes that the publication of
sequence data will not preclude it or others from being granted patent
protection on genes, there can be no assurances that such publication has not
affected and will not affect the ability to obtain patent protection.
The Celera Genomics group can not ensure that any changes to, or
interpretations of, the patent laws will not adversely affect its patent
position. The Celera Genomics group anticipates that there will be significant
litigation in the industry regarding genomic patent and other intellectual
property rights. If the Celera Genomics group becomes involved in such
litigation, it could consume a substantial portion of the Celera Genomics
group's resources, and Celera Genomics may not prevail ultimately. If Celera
Genomics does not prevail in a patent litigation dispute, it may be required to
pay damages or royalties or to take measures to avoid any future infringement,
or Celera may not be able to stop a competitor from making, using, or selling
similar products or technology.
The Celera Genomics group also intends to rely on trade secret protection
for its confidential and proprietary information. The Celera Genomics group
believes it has developed proprietary procedures for sequencing and analyzing
genes and for assembling the genes in their naturally occurring order. In
addition, the Celera Genomics group believes it has developed novel methods for
searching and identifying
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particularly important regions of genetic information or whole genes of
interest. The Celera Genomics group currently protects these methods and
procedures as trade secrets and has sought patent protection for some of the
proprietary methods.
The Celera Genomics group has taken security measures to protect its
databases concerning genes identified by it, including entering confidentiality
agreements with employees and academic collaborators who are provided or have
access to confidential or proprietary information. The Celera Genomics group
continues to explore ways to further enhance the security for its data,
including copyright protection for its databases.
COMPETITION
The Celera Genomics group's principal competitors will be those public and
private entities that are currently or intend to become involved in providing
genomic sequences, polymorphism information, gene expression, protein expression
and related analysis capabilities in such areas as genetic variability and drug
target discovery. The Celera Genomics group's market and financial success will
be dependent, in large part, upon its ability to maintain a competitive position
in each of these areas. Entities with which the Celera Genomics group will be
directly competing in certain segments include Curagen, Gene Logic,
Genset, Inc., Incyte Pharmaceuticals, Inc., Affymetrix, Millennium
Pharmaceuticals, Genaissance Pharmaceuticals Inc., Orchid Biocomputer and the
SNP Consortium. The SNP consortium is a non-profit collaboration that was
established in April 1999 and is supported by a group of ten major
pharmaceutical companies, the Wellcome Trust, IBM and Motorola, Inc. Its mission
is to develop up to 300,000 SNPs of which 150,000 will be mapped to within
100,000 base pair of their actual location. To date, about 9,000 have been
mapped with low resolution. The SNP Consortium's objective is to develop, patent
and make public a group of 300,000 SNPs over the next two years. There are also
several small public and private companies with which the Celera Genomics group
will indirectly compete in particular lines of business, such as in gene
discovery and the development of drug targets. In addition, some of the Celera
Genomics group's potential customers, such as pharmaceutical companies, may
choose to develop technologies and information similar to those offered by the
Celera Genomics group. In addition, a customer may use the Celera Genomics
group's services to develop products that compete with products separately
developed by the Group or its other customers. Finally, new technologies that
improve the gene analysis and discovery process may emerge over time and could
compete with those being developed by the Celera Genomics group, or otherwise
affect its business strategy.
The Celera Genomics group does not believe it is competing with the U.S.
government's efforts to sequence the human genome, and has sought to coordinate
its efforts with those funded by the U.S. government. The acceleration of the
Human Genome Project may assist the Celera Genomics group in its own sequencing
and assembly effort.
RESEARCH AND DEVELOPMENT
The Celera Genomics group is actively engaged in basic and applied research
and development programs designed to develop new products. Research and
development expenditures for the Celera Genomics group totaled $70.3 million for
the six months ended December 31, 1999, $48.4 million in fiscal 1999 and
$10.3 million in fiscal 1998.
The Celera Genomics group's new products will originate from three sources:
internal research and development programs, external collaborative efforts or
alliances, and business and technology acquisitions.
ENVIRONMENTAL MATTERS
Celera Genomics group is subject to federal, state, and local laws and
regulations regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, in those jurisdictions
where the Celera Genomics group operates or maintains facilities. The Celera
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Genomics group believes any liability and compliance with all environmental
regulations will have no material effect on its business, and no material
capital expenditures are expected for environmental control.
EMPLOYEES
The Celera Genomics group had approximately 450 employees as of
December 31, 1999. None of the Celera Genomics group's employees are subject to
collective bargaining agreements.
PROPERTIES
The Celera Genomics group's headquarters are in Rockville, Maryland, where
its administrative facilities, sequencing facility, laboratories, and
bioinformatics facilities are located. The headquarters are located in two
adjacent buildings in Rockville, Maryland with approximately 220,000 square
feet. The Celera Genomics group also subleases from PE Biosystems Group
approximately 30,000 square feet in Foster City, California, which sublease
expires in January, 2008, and leases space in Davis, California, from third
parties as follows: approximately 13,000 square feet, which lease expires in
June 2001, and 15,000 square feet, which lease expires in July 2000.
LEGAL PROCEEDINGS
PE Corporation has been named as a defendant in several legal actions,
including patent, commercial, and environmental, arising from the conduct of
normal business activities. Although the amount of any liability that might
arise with respect to any of these matters cannot be accurately predicted, the
resulting liability, if any, will not in the opinion of management have a
material adverse effect on the financial statements of the Celera Genomics group
or PE Corporation.
The holders of Celera Genomics stock are stockholders of PE Corporation and
will continue to be subject to all of the risks associated with an investment in
PE Corporation, including any legal proceeding and claims affecting the PE
Biosystems Group.
SCIENTIFIC STAFF AND MANAGEMENT
The Celera Genomics group's senior scientific staff and management include
the following persons:
J. CRAIG VENTER, PH.D., President and Chief Scientific Officer, was the
founder and President of TIGR, a not-for-profit genomics research institution,
from 1992 until August 1998. He also was a scientific founder of Human Genome
Sciences, Inc. Dr. Venter has been Chief Scientific Officer at TIGR since
August 1998, and remains Chairman of the Board of TIGR since being appointed in
1992. Prior to 1992, he was a Section Chief and a Lab Chief in the National
Institute of Neurological Disorders and Strokes at the NIH. At the NIH,
Dr. Venter developed the EST method, a new strategy for gene discovery. Using
this method at TIGR, Dr. Venter and other TIGR scientists discovered and
published one half of all human genes that have been sequenced. Using new
algorithms developed at TIGR, TIGR developed the whole genome shotgun method
that led TIGR to completing the first three genomes ever sequenced.
MARK ADAMS, PH.D., Vice President for Genome Programs, was Director of DNA
Sequencing at TIGR from 1992 until August 1998 and Director of Eukaryotic
Genomes from 1996 to 1998. Prior to joining TIGR, Dr. Adams was a post doctoral
fellow in Dr. Venter's lab at NIH and is a co-developer of the EST method of
sequencing. He also participates in projects devoted to sequencing and
characterization of other eukaryotic and prokaryotic genomes.
PETER BARRETT, PH.D., Executive Vice President and Chief Business Officer,
was Vice President, Corporate Planning and Business Development of PE
Corporation from 1995 to 1998. Dr. Barrett was a member of the team of corporate
officers responsible for PE Corporation's direction and management, focusing on
strategic planning, mergers and acquisitions, and new business development for
life science businesses. Dr. Barrett joined PE Corporation in 1979 and has held
a number of managerial positions in
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the United States and Europe, including executive management in our company's
life science business from 1990 to 1995.
SAMUEL BRODER, M.D., Executive Vice President and Chief Medical Officer, was
Senior Vice President for Research and Development at IVAX Corporation, from
1995 until August 1998. Dr. Broder was the Presidentially-appointed director of
the National Cancer Institute ("NCI") at NIH, which had over 2,000 employees and
an annual budget of more than $2 billion, from 1989 to 1995. His laboratory
played a major role in the discovery or development of several marketed drugs.
As NCI director, he initiated and directed several large-scale clinical studies
in the prevention, diagnosis and treatment of cancer.
UGO D. DEBLASI, Vice President of Finance was Corporate Controller for PE
Corporation from December 1996 until January 1999. Before joining Celera,
Mr. DeBlasi had 10 years of experience in PE's Corporation's finance group in
positions of increasing responsibility. During his tenure, Mr. DeBlasi worked on
major acquisitions and divestitures, financial system implementations, and was
responsible for accounting, public and management reporting, and
PE Corporation's planning and budgeting functions worldwide.
KATHY GIACALONE, Vice President of Human Resources, joined Celera with
10 years of experience in managing various aspects of the human resources
function at Marriott Corporation. Most recently, she served as Director of
Strategic Staffing and Communications at Host Marriott Services, a $1.3 billion
company, where she aligned staffing and communications functions with the
company's business initiatives. Prior to that, she held positions of increasing
responsibility in human resources planning and development, career development,
employment practices, and unemployment compensation. Before joining Marriott,
Ms. Giacalone spent 10 years at The Frick Company in Westbury, NY, a management
consulting firm, where she held various positions in operations management.
EUGENE W. MYERS, JR., PH.D., Vice President of Informatics Research, was a
professor and scientist at University of Arizona from 1983 until 2000 working in
the field of computational biology. His work has focused primarily on developing
efficient sequence analysis and sequence assembly algorithms, and he co-proposed
use of the whole genome shotgun approach for sequencing the human genome in
1996. Dr. Myers is also widely known for being one of the co-developers of
BLAST, one of the most widely used analysis tools for genomics.
JAMES M. PECK, Vice President of Product Development joined Celera from
LEXIS-NEXIS, a pioneer in on-line research, where he held various positions from
1990 until January 2000, including Vice President of Electronic Publishing. At
LEXIS-NEXIS, Mr. Peck, developed both internal and end-user software
applications. Most recently, Mr. Peck led the development of Lexis.com legal
research system and Lexis' intranet based knowledge management tools. Mr. Peck
also held positions at General Motors Corporation in Detroit.
MARSHALL PETERSON, Vice President of Infrastructure Technology, was a
program manager at Digital Equipment Corporation responsible for complex mission
critical systems implementations for its customers. Prior to this, he was a
solutions architect and project manager responsible for developing and
implementing hardware and software solutions for a variety of industries,
including manufacturing, defense and finance. The applications included process
control and monitoring, document management, management information and
messaging, as well as flight and battlefield simulations.
HAMILTON O. SMITH, M.D., Senior Director of DNA Resources, was Professor of
Molecular Biology and Genetics at the Johns Hopkins School of Medicine until
mid-1998. He is best known for the discovery of the first Type II restriction
enzyme, for which he received a Nobel Prize in 1968, soon after joining the
Hopkins faculty. He has made a number of contributions to nucleic acid
biochemistry and microbial genetics. In the past 20 years, he and his laboratory
co-workers have isolated and characterized more than a dozen genes involved in
the DNA transformation mechanism of the bacterium, HAEMOPHILUS INFLUENZAE. He
was also a part time investigator at TIGR from 1997 to 1998, prior to joining
the Celera Genomics group.
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SCIENTIFIC ADVISORY BOARD
The Celera Genomics group's scientific advisory board consists of the
following persons:
ARTHUR L. CAPLAN, PH.D., is a renowned scholar and leading authority on
ethical issues surrounding biomedical advances and scientific discovery. Since
1994 Dr. Caplan has served as Director of the Center for Bioethics and as
Trustee Professor of Bioethics at the University of Pennsylvania. He is, in
addition, Professor of Molecular and Cellular Engineering, Professor of
Philosophy and Chief, Division of Bioethics, University of Pennsylvania Medical
Center. Dr. Caplan is Chairman of the Advisory Committee to the U.S. Department
of Health and Human Services, Centers for Disease Control and the U.S. Food and
Drug Administration.
ARNOLD J. LEVINE, PH.D., is a cancer biologist and is President of
Rockefeller University. Previously, Dr. Levine was the Harry C. Wiess Professor
of the Life Sciences at Princeton University, where he founded the University's
molecular biology department during a 12-year tenure that saw the department
grow to include two research laboratories and 35 faculty members. Prior to his
work at Princeton, Dr. Levine was chairman at SUNY/Stony Brook School of
Medicine. Dr. Levine is also a director of PE Corporation.
VICTOR A. MCKUSICK, M.D., is University Professor of Medical Genetics at The
Johns Hopkins University and a physician at Johns Hopkins Hospital. Previously,
he was Director of the Division of Medical Genetics in the Department of
Medicine at The Johns Hopkins University School of Medicine. Dr. McKusick is
editor-in-chief of the journal "Medicine" and founding editor of "Genomics", the
international journal of gene mapping and nucleotide sequencing emphasizing
analyses of the human and other complex genomes. He served as founder president
of The Human Genome Organization from 1988 to 1990.
RICHARD J. ROBERTS, PH.D., Chairman of the Scientific Advisory Board, is a
research director at New England Biolabs in Beverly, Massachusetts. He was
awarded the Nobel Prize for Physiology Medicine in 1993 and is a leading pioneer
in the applications of computer methods in protein and nucleic acid sequence
analysis. From 1972 to 1992, Dr. Roberts held a series of senior research
positions at Cold Spring Harbor Laboratory.
MELVIN I. SIMON, PH.D., is chairman and professor, Division of Biology, at
California Institute of Technology with which he has been associated since 1982.
Previously, he was with the University of California, San Diego where he served
as assistant professor, associate professor, and professor in the Department of
Biology from 1965 to 1982. Dr. Simon serves on a number of boards including
those of the Agouron Institute where he is chairman.
NORTON D. ZINDER, PH.D., is the John D. Rockefeller, Jr. professor and head
of the Laboratory of Genetics of The Rockefeller University. An internationally
acclaimed expert in molecular biology, Dr. Zinder was first chairman of the
NIH's Program Advisory Committee on the Human Genome.
PE CORPORATION MANAGEMENT
Because the Celera Genomics group and the PE Biosystems group are part of PE
Corporation, overall responsibility for the management and operation of each
group resides in the board of directors and management of PE Corporation. In
particular, PE Corporation has established an Executive Committee which has
overall responsibility, subject to the direction of the board of directors, for
the management and strategic direction of the Celera Genomics group and the PE
Biosystems group. The current members of that committee are:
TONY L. WHITE, Chairman, President and Chief Executive Officer, PE
Corporation.
MICHAEL W. HUNKAPILLER, PH.D., Senior Vice President and President, PE
Biosystems Group.
KENNETH D. NOONAN, PH.D., Senior Vice President, Corporate Development, PE
Corporation.
WILLIAM B. SAWCH, Senior Vice President, General Counsel and Secretary, PE
Corporation.
JOYCE A. SZIEBERT, Vice President, Human Resources, PE Corporation.
J. CRAIG VENTER, PH.D., Senior Vice President and President, Celera Genomics
Group.
DENNIS L. WINGER, Senior Vice President and Chief Financial Officer, PE
Corporation.
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PE CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information has been derived from
the consolidated financial statements of PE Corporation for each of the five
fiscal years in the period ended June 30, 1999 and the six month periods ended
December 31, 1998 and 1999. The information set forth below should be read in
conjunction with the PE Corporation "Management's Discussion and Analysis"
included in this prospectus; and the PE Corporation consolidated financial
statements and notes thereto contained in the PE Corporation Annual Report to
Stockholders for the year ended June 30, 1999, and in the PE Corporation
Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1999,
each incorporated herein by reference. The data for the six month periods ended
December 31, 1998 and 1999 have been derived from unaudited financial statements
which, in the opinion of management, reflect all adjustments necessary for a
fair presentation of results for the periods covered.
On May 6, 1999, PE Corporation recapitalized its former common stock into PE
Corporation--PE Biosystems Group Common Stock and PE Corporation--Celera
Genomics Group Common Stock. Therefore, neither the PE Biosystems stock nor the
Celera Genomics stock was issued or outstanding for the periods prior to May 6,
1999.
On June 17, 1999, the Board of Directors announced a two-for-one split of PE
Biosystems stock. The two-for-one stock split was effected in the form of a 100%
stock dividend paid to stockholders of record as of the close of business on
July 12, 1999. All PE Biosystems group share and per share data reflect this
split.
On January 20, 2000, the Board of Directors announced a two-for-one stock
split of PE Biosystems stock and Celera Genomics stock. The two-for-one stock
splits will be effected in the form of a 100% stock dividend payable on
February 18, 2000 to stockholders of record as of the close of business on
February 4, 2000. All PE Biosystems group and Celera Genomics group share and
per share data reflect this split.
A number of items affect the comparability of this information. Before-tax
amounts include:
- Restructuring and other special charges of $15.5 million for fiscal 1995,
$17.5 million for fiscal 1996, $48.1 million for fiscal 1998,
$6.1 million for fiscal 1999, and $2.0 million for the six months ended
December 31, 1998 (unaudited);
- A restructuring reserve adjustment of $9.2 million for fiscal 1999
relating to excess fiscal 1998 restructuring liabilities;
- Gains on investments of $20.8 million for fiscal 1995, $11.7 million for
fiscal 1996, $64.9 million for fiscal 1997, $1.6 million for fiscal 1998,
$6.1 million for fiscal 1999, and $25.8 million for the six months ended
December 31, 1999 (unaudited);
- Acquired research and development charges of $33.9 million for fiscal 1996
and $26.8 million for fiscal 1997, and $28.9 million for fiscal 1998;
- Charges for the impairment of assets of $9.9 million for fiscal 1996,
$.7 million for fiscal 1997, and $14.5 million for fiscal 1999;
- Tax benefit and valuation allowance reductions of $22.2 million for fiscal
1999;
- A charge of $3.5 million for a donation to PE Corporation's charitable
foundation for fiscal 1999;
- Charges of $9.2 million relating to the recapitalization of PE Corporation
for fiscal 1999 and $1.2 million for the six months ended December 31,
1998 (unaudited); and
- Charges relating to the acceleration of certain long-term compensation
programs as a result of the attainment of performance targets of
$10.1 million for fiscal 1999 and $21.6 million for the six months ended
December 31, 1999 (unaudited).
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PE CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FOR THE FISCAL YEARS ENDED JUNE 30, DECEMBER 31,
(DOLLAR AMOUNTS IN THOUSANDS ---------------------------------------------------------- -----------------------
EXCEPT PER SHARE AMOUNTS) 1995 1996 1997 1998 1999 1998 1999
- ------------------------------------------- -------- -------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net revenues............................... $543,945 $642,218 $ 768,368 $ 944,306 $1,216,897 $ 543,238 $ 616,207
Income from continuing operations.......... 38,569 1,310 102,492 15,694 96,797 36,095 29,254
Per share of common stock
Basic.................................. .87 .03 2.16 .32 .73
Diluted................................ .85 .03 2.07 .31 .71
Income (loss) from discontinued operations
(net of income taxes).................... 7,738 (37,833) 27,906 40,694 79,058 (4,037) --
Net income (loss).......................... 46,307 (36,523) 130,398 56,388 175,855 32,058 29,254
Per share of common stock
Basic.................................. 1.04 (.80) 2.74 1.16 .65
Diluted................................ 1.02 (.77) 2.63 1.12 .63
Dividends per share........................ .68 .68 .68 .68 .51 .34
PE BIOSYSTEMS GROUP
Income from continuing operations.......... $ 148,365 $ 73,541
Per share of common stock
Basic.................................. .74 .36
Diluted................................ .72 .34
Income from discontinued operations
(net of income taxes).................... 79,058 --
Net income................................. 227,423 73,541
Per share of common stock
Basic.................................. 1.13 .36
Diluted................................ 1.10 .34
Dividends per share........................ .0425 .085
CELERA GENOMICS GROUP
Net loss................................... $ (44,894) $ (43,676)
Per share of common stock
Basic and diluted...................... (.89) (.84)
OTHER INFORMATION
Cash and short-term investments............ $103,826 $121,145 $ 217,222 $ 84,091 $ 308,021 $ 75,479 $ 349,481
Working capital............................ 256,607 229,639 354,742 287,991 471,350 330,015 467,966
Capital expenditures....................... 33,891 28,198 58,057 71,820 176,035 49,984 51,107
Total assets............................... 797,970 809,856 1,006,793 1,135,276 1,519,307 1,241,051 1,681,244
Long-term debt............................. 64,524 33,694 59,152 33,726 31,452 35,548 37,102
Total debt................................. 123,224 89,801 89,068 45,825 35,363 66,839 118,351
Stockholders' equity....................... 369,807 373,727 504,270 564,248 821,525 622,229 906,264
</TABLE>
54
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PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION OF CONTINUING OPERATIONS
The following discussion with respect to fiscal years 1997, 1998 and 1999,
and the six months ended December 31, 1998 and 1999 should be read in connection
with the information presented in the PE Corporation selected consolidated
financial information included in this prospectus and the financial statements
and related notes in the PE Corporation Annual Report to Stockholders on
Form 10-K for the fiscal year ended June 30, 1999, and in the PE Corporation
Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, each
incorporated herein by reference. Historical results and percentage
relationships are not necessarily indicative of operating results for any future
periods.
Throughout the following discussion of operations we refer to the impact on
our reported results of the movement in foreign currency exchange rates from one
reporting period to another as "foreign currency translation."
DISCONTINUED OPERATIONS
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 aggregate consideration we received was $425 million, consisting of
$275 million in cash and one-year secured promissory notes in the aggregate
principal amount of $150 million which bear interest at a rate of 5% per annum.
We recognized a net gain on disposal of discontinued operations of
$100.2 million, net of $87.8 million of income taxes. 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 our 1999 Annual
Report to Stockholders.
EVENTS IMPACTING COMPARABILITY
ACQUISITIONS, INVESTMENTS, AND DISPOSITIONS
On January 22, 1998, we acquired PerSeptive Biosystems, Inc. The acquisition
was accounted for as a pooling of interests and, accordingly, our financial
results were restated to include the combined operations.
We acquired Molecular Informatics, Inc. and a 14.5% interest, and
approximately 52% of the voting rights, in Tecan AG during the second quarter of
fiscal 1998, and GenScope, Inc. during the third quarter of fiscal 1997. The
results of operations for these acquisitions, each of which was accounted for as
a purchase, have been included in the consolidated financial statements since
the date of each respective acquisition. During the fourth quarter of fiscal
1999, we divested our interest in Tecan. A before-tax gain of $1.6 million was
recognized on the sale.
A discussion of significant acquisitions, investments and dispositions is
provided in Note 2 to the PE Corporation's consolidated financial statements
included in our 1999 Annual Report to Stockholders.
RESTRUCTURING AND OTHER SPECIAL CHARGES
For the six month period ended December 31, 1998 and for the fiscal year
ended June 30, 1999, non-recurring before-tax costs of $1.2 million and
$9.2 million, respectively, were incurred in connection
55
<PAGE>
with the recapitalization of PE Corporation. See Note 1 to the PE Corporation's
consolidated financial statements included in our 1999 Annual Report to
Stockholders for a discussion of the recapitalization.
During fiscal 1998, $48.1 million of before-tax charges were recorded for
restructuring and other merger costs to integrate PerSeptive into PE Corporation
following the acquisition. The objectives of the integration plan were to lower
PerSeptive's cost structure by reducing excess manufacturing capacity, achieve
broader worldwide distribution of PerSeptive's products, and combine sales,
marketing, and administrative functions. The charge included: $33.9 million for
restructuring the combined operations; $8.6 million for transaction costs; and
$4.1 million of inventory-related write-offs, recorded in cost of sales,
associated with the rationalization of certain product lines. Additional
merger-related period costs of $6.1 million for fiscal 1999, $1.5 million for
fiscal 1998, and $2.0 million for the first six months of fiscal 1999 were
incurred for training, relocation, and communication in connection with the
integration.
During the fourth quarter of fiscal 1999, we completed the restructuring
actions. The costs to implement the program were $9.2 million below the
$48.1 million charge recorded for fiscal 1998. As a result, during the fourth
quarter of fiscal 1999, we recorded a $9.2 million reduction of charges required
to implement the fiscal 1998 plan. A discussion of our restructuring program is
provided in Note 10 to the PE Corporation's consolidated financial statements
included in our 1999 Annual Report to Stockholders.
ACQUIRED RESEARCH AND DEVELOPMENT
During fiscal 1998 and 1997, we recorded charges of $28.9 million and
$26.8 million, respectively, for purchased in-process research and development
in connection with certain acquisitions. See Note 2 to the PE Corporation's
consolidated financial statements included in our 1999 Annual Report to
Stockholders.
In the second quarter of fiscal 1998, we expensed $28.9 million of the
Molecular Informatics acquisition cost as in-process research and development,
representing 53.6% of the purchase price. This amount was attributed to and
supported by a discounted probable cash flow analysis on a project-by-project
basis. At the acquisition date, the technological feasibility of the acquired
technology had not been established and the acquired technology had no future
alternative uses.
We attributed approximately 10% of the in-process research and development
value to BioLIMS, a software system that manages data, initiates analysis
programs, and captures the results in a centralized, relational database for
sequencing instruments; 6% to GA SFDB, a client-side add-on product to several
existing gene sequencing instruments; 38% to BioMERGE, a client-server
management and integration system that organizes proprietary, public and
third-party results in a single relational database for the drug discovery and
genomic research markets; 9% to BioCLINIC, a client-server management and
integration system that organizes proprietary, public and third-party results
generated from DNA and protein sequence analysis in a single database for the
clinical trials phase of drug development; and 37% to SDK, an open architecture
software platform from which all of Molecular Informatics' future software
applications were expected to be derived.
As of the acquisition date, all of the major functionality for BioLIMS 2.0
had been completed and the product was subsequently released in September 1998.
As of the acquisition date, BioLIMS 3.0 was in the design and scoping phase. As
of the acquisition date, GA SFDB was in early alpha phase and had been completed
concurrent with the development of BioLIMS 2.0 and was released in
September 1998. As of the acquisition date, BioMERGE's 3.0 functional scope was
defined and the requirements assessment had been completed and was subsequently
released in November 1998. As of the acquisition date, the BioCLINIC product
requirements had been specified and discussions had begun with two potential
customers to begin the specific software modifications. Development efforts were
terminated in April 1998 due to unsuccessful marketing efforts. As of the
acquisition date, the SDK requirements assessment had been completed and the
functional scope had been defined.
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We attributed $11.8 million of the purchase price to core technology and
existing products, primarily related to the BioMERGE product. We applied a
risk-adjusted discount to the project's cash flows of 20% for existing
technology and 23% for in-process technology. The risk premium of 3% for
in-process technologies was determined by management based on the associated
risks of releasing these in-process technologies versus the existing
technologies for the emerging bioinformatics software industry. The significant
risks associated with these products include the limited operating history of
Molecular Informatics, uncertainties surrounding the market acceptance of such
in-process products, competitive threats from other bioinformatics companies and
other risks. Management is primarily responsible for estimating the fair value
of such existing and in-process technology.
During the third quarter of fiscal 1997, we acquired GenScope for
$26.8 million. GenScope, founded in 1995, represented a development stage
venture with no operating history. GenScope had effectively no revenues and only
limited R&D contract services. At the acquisition date, technological
feasibility of the acquired technology right had not been established and the
acquired technology right had no future alternative uses. We obtained the right
to utilize AFLP-based gene expression profiling technology in the field of human
health, but did not obtain any core technology or other rights. GenScope's
limited balance sheet, with assets of approximately $.2 million, had yet to
deliver commercial value. Accordingly, we recorded a charge of $25.4 million
attributable to the in-process technology purchased. We based this amount upon
the early development stage of this life science business acquired, the
technological hurdles to apply this technology to the field of human health and
the underlying cash flow projections. The acquisition represented the purchase
of development stage technology, not at the time considered commercially viable
in the health care applications that we intend to pursue. Our intent was to
first develop the technology into a set of molecular screening tools for use in
the enhancement of pharmaceutical product development. We allocated
$1.4 million of the purchase price to technology rights attributable to
GenScope's AFLP-based gene expression profiling technology. AFLP is an
enhancement of the polymerase chain reaction ("PCR") process that allows
selective analysis of any portion of genetic material without the specific,
prior sequence information normally required for PCR. Of the $25.4 million
expensed as in-process research and development, $5.5 million represented a
contingent liability due on the issuance of a process patent for technology
under development.
Through June 30, 1999, we incurred approximately $12.2 million in additional
research and development costs to further develop the AFLP technology in the
field of human health. We anticipate spending an additional $2.2 million in
fiscal 2000 to substantially complete such project. Such costs approximate those
anticipated at the date of acquisition.
ASSET IMPAIRMENT
During the fourth quarter of fiscal 1999, we incurred a $14.5 million charge
to cost of sales for the impairment of intangible assets associated with the
Molecular Informatics business. This impairment resulted primarily from a
decline in management's assessment of future cash flows from this business which
included the discontinuance of certain product lines in the fourth quarter.
During fiscal 1997, a $.7 million charge was recorded to cost of sales for
the write-down of certain impaired assets.
See Note 1 to PE Corporation's consolidated financial statements included in
our 1999 Annual Report to Stockholders.
GAIN ON INVESTMENTS
Fiscal 1997, 1998, 1999, and the six months ended December 31, 1999
(unaudited) included before-tax gains of $64.9 million, $1.6 million,
$4.5 million, and $25.8 million, respectively, related to the sale and release
of contingencies on minority equity investments. As previously described, fiscal
1999 also included
57
<PAGE>
a before-tax gain of $1.6 million related to the sale of our interest in Tecan.
See Note 2 to PE Corporation's consolidated financial statements included in our
1999 Annual Report to Stockholders.
OTHER EVENTS IMPACTING COMPARABILITY
During the fourth quarter of fiscal 1999, a $10.1 million charge was
recorded to selling, general and administrative expenses for costs related to
the acceleration of certain long-term compensation programs as a result of the
recapitalization of our company and the attainment of performance targets.
During the fourth quarter of fiscal 1999, we made a $3.5 million donation to
our company's charitable foundation, which supports educational and other
charitable programs. The charge was recorded to selling, general and
administrative expenses.
The effective income tax rate for fiscal 1999 included certain tax benefit
and valuation allowance reductions of $22.2 million. See Note 4 to PE
Corporation's consolidated financial statements included in our 1999 Annual
Report to Stockholders.
During the second quarter of fiscal 2000, PE Corporation recorded a
before-tax charge of $21.6 million in selling, general and administrative
expenses, for costs related to the acceleration of certain long-term
compensation programs as a result of the attainment of performance targets.
RESULTS OF CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
COMPARED WITH THE SIX MONTHS ENDED DECEMBER 31, 1998
PE Corporation reported income from continuing operations of $29.3 million
for the first six months of fiscal 2000 compared with $36.1 million for the
first six months of fiscal 1999. On a segment basis, the PE Biosystems group
reported income from continuing operations of $73.5 million for the first six
months of fiscal 2000 compared with $49.1 million for the first six months of
fiscal 1999. On a comparable basis, excluding the special items previously
described and Tecan, income from continuing operations increased 44.4% to
$73.5 million for the first six months of fiscal 2000 compared with
$50.9 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.
Partially offsetting the lower operating expenses were increased non-operating
costs related to the PE Biosystems group's foreign currency management program.
The Celera Genomics group reported a net loss of $43.7 million for the first six
months of fiscal 2000, compared with a net loss of $12.2 million for the first
six months of fiscal 1999. The increase in the net loss reflected the increased
sequencing activity and increased operating expenses required to support the
expanded data management and software and business development activities.
Net revenues for PE Corporation were $616.2 million for the first six months
of fiscal 2000 compared with $543.2 million for first six months of fiscal 1999,
an increase of 13.4%. On a segment basis, net revenues for the PE Biosystems
group increased 14.8% to $628.2 million for the first six months of fiscal 2000,
compared with $547.4 million for the prior year. The Celera Genomics group
reported net revenues of $16.6 million for the first six months of fiscal 2000,
compared with $5.6 million for the first six months of fiscal 1999.
Net revenues for the PE Biosystems group, excluding the results of Tecan for
the prior year, increased 28.2% compared with the prior year. The effects of
foreign currency translation increased net revenues by approximately
$2.4 million compared with the prior year. Revenues from leased instruments and
shipments of consumables and project materials to the Celera Genomics group were
$28.6 million for the first six months of fiscal 2000, or 4.6% of the PE
Biosystems group's net revenues. For the first six months of fiscal 1999,
revenues from shipments of instruments and consumables to the Celera Genomics
group were $9.8 million. Geographically, excluding the net revenues of Tecan for
the first six months of fiscal 1999, the PE Biosystems group reported revenue
growth in all regions for the first six months of fiscal 2000 compared with the
first six months of fiscal 1999. Revenues increased 29.9% in the United States,
21.2% in
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Europe, 31% in the Far East and 60.3% in Latin America and other markets,
compared with the first six months of the prior fiscal year. Increased demand
for genetic analysis products, sequence detection systems, and polymerase chain
reaction product lines was the primary contributor.
Net revenues for the Celera Genomics group were $16.6 million for the first
six months of fiscal 2000 compared with $5.6 million for the first six months of
fiscal 1999. The increased revenues were primarily a result of database
subscription agreements initiated during the second half of fiscal 1999 and an
increase in genomics services revenues. Revenues for plant and animal genotyping
services remained essentially unchanged with the prior year.
Gross margin as a percentage of net revenues for PE Corporation was 54.6%
for the first six months of fiscal 2000 compared with 55.3% for the first six
months of fiscal 1999. Excluding Tecan for the prior year, the gross margin as a
percentage of net revenues was 53.7%. Gross margin for the PE Biosystems group
as a percentage of net revenues was 53.4% for the first six months of fiscal
2000 compared with 55.3% for the first six months of fiscal 1999.
SG&A expenses for PE Corporation were $201.5 million for the first six
months of fiscal 2000 compared with $163.2 million for the first six months of
fiscal 1999. On a segment basis, SG&A expenses were $183.6 million, including
the long-term compensation charge, and $152.6 million for the first six months
of fiscal 2000 and 1999, respectively, for the PE Biosystems group, and
$17.9 million and $10.6 million for the first six months of fiscal 2000 and
1999, respectively, for the Celera Genomics group.
SG&A expenses for the PE Biosystems group, excluding the long-term
compensation charge for the current year and Tecan from the prior year,
increased 20.2% for the first six months of fiscal 2000 compared with the first
six months of the prior year. This increase was due to higher planned expenses,
reflecting the growth in sales. As a percentage of net revenues, excluding the
long-term compensation charge and Tecan, SG&A expenses were 25.8% for the first
six months of fiscal 2000 compared with 27.5% for the prior year.
The Celera Genomics group's SG&A expenses increased $7.3 million for the
first six months of fiscal 2000 compared with the first six months of the prior
year. The increase related to the planned scale-up in business development,
marketing and administrative activities in support of the database business.
R&D expenses for PE Corporation increased to $117.4 million for the first
six months of fiscal 2000 compared with $77.1 million for the prior year. R&D
expenses for the PE Biosystems group were $63.4 million for the first six months
of fiscal 2000 compared with $65.6 million for the prior year. Excluding Tecan,
R&D expenses increased 11% compared with second quarter of the prior year. As a
percentage of net revenues, excluding Tecan, R&D expenses were 10.1% for the
first six months of fiscal 2000 compared with 11.6% for the first six months of
the prior year. The prior year's R&D expense level was higher as a percentage of
sales due to the release of new products introduced later in fiscal 1999. The
Celera Genomics group's R&D expenses increased $57.4 million to $70.3 million
for the first six months of fiscal 2000 from $12.9 million for the first six
months of fiscal 1999 primarily as a result of a full six months of sequencing
operations and significantly expanded bioinformatics and software development
capabilities.
PE Corporation incurred merger-related period costs of $2.0 million for the
first six months of fiscal 1999 for training, relocation, and communication in
connection with the integration of PerSeptive into the PE Biosystems group. See
note 10 to PE Corporation's consolidated financial statements included in
PE Corporation's 1999 Annual Report to Stockholders. During the first six months
of fiscal 1999, we recorded a non-recurring charge of $1.2 million for costs
incurred in connection with the recapitalization of PE Corporation.
Operating income was $17.5 million for the first six months of fiscal 2000
compared with $56.8 million for the first six months of the prior year. On a
segment basis, operating income for the PE Biosystems group increased to
$88.5 million for the first six months of fiscal 2000 compared with
$82.1 million for the first six months of the prior year. On a comparable basis,
excluding the special items previously described
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and Tecan, operating income increased 49.2% for the first six months of fiscal
2000 compared with the first six months of 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 special items and Tecan,
increased to 17.5% for the first six months of fiscal 2000 compared with 15.1%
for the first six months of the prior year.
Operating loss for the Celera Genomics group was $71.6 million for the first
six months of fiscal 2000 compared with $18.5 million for the first six months
of fiscal 1999. The increase in the operating loss reflected the increase in
sequencing activity and increased operating expenses required to support the
expanded data management and software and business development activities.
We recognized a before-tax gain of $25.8 million in the second quarter of
fiscal 2000 related to the sale of a portion of PE Corporation's interest in a
minority equity investment.
Interest expense was $1.3 million for the first six months of fiscal 2000
compared with $2.1 million for the prior year. This decrease was primarily due
to lower average interest rates. Interest income was $9.6 million for the first
six months of fiscal 2000 compared with $.7 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 PE Corporation for the first six months of fiscal
2000 was $8.9 million, primarily related to costs associated with a portion of
our traditional foreign currency management program that provides hedge coverage
for projected cash flows. Other expense, net was $.5 million for the first six
months of fiscal 1999, which related to costs associated with a portion of our
traditional foreign currency hedging program offset by income from a legal
settlement.
Our effective income tax rate was 32% for the first six months of fiscal
2000 compared with 19% for the prior year. Excluding special items in fiscal
2000 and fiscal 1999, and Tecan in fiscal 1999, the effective income tax rate
was 24% for the first six months of 2000 compared with 18% for the prior year.
In the first six months of fiscal 1999, minority interest expense of
$8.2 million was recognized relating to our 14.5% financial interest in Tecan.
RESULTS OF CONTINUING OPERATIONS--1999 COMPARED WITH 1998
We reported income from continuing operations of $96.8 million for fiscal
1999 compared with $15.7 million for fiscal 1998. On a segment basis, the PE
Biosystems group reported income from continuing operations of $148.4 million
for fiscal 1999 compared with $24.0 million for fiscal 1998 and the Celera
Genomics group reported a net loss of $44.9 million for fiscal 1999, compared
with $8.3 million for fiscal 1998.
Income from continuing operations for PE Corporation, on a comparable basis
excluding the special items previously described, increased 4.0% to
$91.4 million for fiscal 1999 compared with $87.9 million for fiscal 1998. On a
segment basis, the PE Biosystems group, excluding the special items, reported an
increase of 44.8% in income from continuing operations for fiscal 1999 compared
with the prior year. Excluding the fiscal 1999 special items allocated to the
Celera Genomics group of $4.6 million for costs incurred in connection with the
recapitalization and $1.0 million for costs related to the acceleration of
certain compensation programs, the Celera Genomics group reported a net loss of
$39.6 million compared with $8.3 million for fiscal 1998.
Net revenues were $1,216.9 million for fiscal 1999 compared with
$944.3 million for fiscal 1998, an increase of 28.9%. On a segment basis, net
revenues for the PE Biosystems group increased 30.0% to
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$1,221.7 million for fiscal 1999, compared with $940.1 million for the prior
year. The Celera Genomics group reported net revenues of $12.5 million for
fiscal 1999, compared with $4.2 million for fiscal 1998.
Net revenues for the PE Biosystems group, excluding the results of Tecan,
increased 25.9% compared with the prior year. The effects of foreign currency
translation increased net revenues by less than 1% compared with the prior year.
Net revenues from shipments to the Celera Genomics group were $17.3 million for
fiscal 1999 and represented less than 2% of the group's net revenues. There were
no revenues to the Celera Genomics group for fiscal 1998. Geographically,
excluding the net revenues of Tecan, the PE Biosystems group reported revenue
growth in all regions for fiscal 1999 compared with the prior year. Revenues
increased 32.5% in the United States, 19.5% in Europe, 20.9% in the Far East and
12.6% in Latin America and other markets, compared with the prior year. Demand
for the PE Biosystems group's new ABI Prism-Registered Trademark- 3700 DNA
Analyzer, which began shipping in the second quarter of fiscal 1999, was strong.
Shipments for sequence detection systems and liquid chromatography/mass
spectrometry ("LC/MS") products also contributed to the growth.
Net revenues for the Celera Genomics group increased $8.3 million for fiscal
1999 compared with the prior year. Revenues for contract research services
increased $4.5 million, relating primarily to expression-based gene discovering
services in the agricultural market, and $2.8 million from the group's new
genomic information and database products, mainly from early access
subscriptions.
Gross margin for PE Corporation as a percentage of net revenues was 54.1%
for fiscal 1999, compared with 54.3% for the prior year. The PE Biosystems
group's fiscal 1999 gross margin included $14.5 million for the impairment of
intangible assets associated with the Molecular Informatics business. Fiscal
1998 gross margin included $4.1 million of inventory-related write-offs
associated with the rationalization of certain product lines in connection with
the acquisition of PerSeptive. On a comparable basis, excluding the special
items for both years, gross margin as a percentage of net revenues was 55.1% for
fiscal 1999 and 54.5% for fiscal 1998. The improved gross margin was primarily
the result of a change in product mix. Increased unit sales of reagents to
support genetic analysis systems, increased royalty revenues, and continued
demand in instrument sales of higher margin genetic analysis product offerings
contributed to the growth.
SG&A expenses for PE Corporation were $364.1 million for fiscal 1999,
compared with $283.4 million for fiscal 1998, an increase of 28.5%. On a segment
basis, SG&A expenses were $335.9 million compared with $276.7 million for fiscal
1999 and 1998, respectively, for the PE Biosystems group, and $28.3 million
compared with $6.7 million for fiscal 1999 and 1998, respectively, for the
Celera Genomics group.
SG&A expenses for the PE Biosystems group, excluding Tecan, increased 15.6%
for fiscal 1999 compared with the prior year. Fiscal 1999 expenses included a
charge of $9.1 million for costs related to the acceleration of certain
long-term compensation programs as a result of the recapitalization of
PE Corporation and the attainment of performance targets. Fiscal 1999 expenses
also included $3.5 million for a contribution to our charitable foundation which
supports educational and other charitable programs. On a comparable basis,
excluding the special items, SG&A expenses increased 10.8%. This increase was
due to higher planned expenses, reflecting the growth in sales and orders. As a
percentage of net revenues, excluding Tecan and the special items, SG&A expenses
were 25.9% for fiscal 1999 compared with 29.4% for the prior year.
The Celera Genomics group's SG&A expenses increased $21.5 million for fiscal
1999 compared with the prior year. The increase was primarily related to the
start-up and ongoing operations of the new genomic information business. SG&A
expenses for fiscal 1999 included $1.0 million for costs related to the
acceleration of certain compensation programs as a result of the
recapitalization of PE Corporation and the attainment of performance targets.
R&D expenses for PE Corporation were $179.3 million for fiscal 1999 compared
with $115.8 million for fiscal 1998, an increase of 54.9%. R&D expenses for the
PE Biosystems group increased 26.6%
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compared with the prior year to $133.5 million for fiscal 1999. Excluding Tecan,
expenses increased 19.5% compared with the prior year in support of the
introduction of new products and the acceleration of product development. As a
percentage of net revenues, excluding Tecan, R&D expenses were 10.7% for fiscal
1999 compared with 11.2% for the prior year. The Celera Genomics group's R&D
expenses increased to $48.4 million for fiscal 1999 compared with $10.3 million
for fiscal 1998, primarily as a result of establishing and operating the
sequencing facility and computing center of the new genomic information
business.
During fiscal 1998, $48.1 million of before-tax charges were recorded for
restructuring and other merger costs to integrate PerSeptive into the PE
Biosystems group following the acquisition. The objectives of the integration
plan were to lower PerSeptive's cost structure by reducing excess manufacturing
capacity, achieve broader worldwide distribution of PerSeptive's products, and
combine sales, marketing, and administrative functions. The charge included:
$33.9 million for restructuring the combined operations; $8.6 million for
transaction costs; and $4.1 million of inventory-related write-offs, recorded in
cost of sales, associated with the rationalization of certain product lines.
Additional merger-related period costs of $6.1 million for fiscal 1999 and
$1.5 million for fiscal 1998 were incurred for training, relocation, and
communication costs.
The $33.9 million restructuring charge included $13.8 million for
severance-related costs and workforce reductions of approximately 170 employees,
consisting of 114 employees in production labor and 56 employees in sales and
administrative support. The remaining $20.1 million represented facility
consolidation and asset-related write-offs that included: $11.7 million for
contract and lease terminations and facility-related expenses in connection with
the reduction of excess manufacturing capacity; $3.2 million for dealer
termination payments, sales office consolidations, and consolidation of sales
and administrative support functions; and $5.2 million for the write-off of
certain tangible and intangible assets and the termination of certain
contractual obligations. Transaction costs of $8.6 million included
acquisition-related investment banking and professional fees.
During the fourth quarter of fiscal 1999, we completed the restructuring
actions. The costs to implement the program were $9.2 million below the
$48.1 million charge recorded for fiscal 1998. As a result, during the fourth
quarter of fiscal 1999, the PE Biosystems group recorded a $9.2 million
reduction of charges required to implement the fiscal 1998 plan. See Note 10 to
PE Corporation's consolidated financial statements included in our 1999 Annual
Report to Stockholders.
During fiscal 1999, we recorded a before-tax special charge of $9.2 million
for costs incurred in connection with the recapitalization of PE Corporation.
These costs included investment banking and professional fees. On a segment
basis the PE Biosystems group and the Celera Genomics group were each allocated
50% of the total costs.
Fiscal 1998 included $28.9 million of purchased in-process research and
development associated with our company's acquisition of Molecular Informatics
for the PE Biosystems group.
OPERATING INCOME
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1998 1999
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Operating income before special items....................... $117.6 $142.8
Asset impairment.......................................... -- (14.5)
Long-term compensation programs........................... -- (10.1)
Charitable foundation contribution........................ -- (3.5)
Restructuring and other merger costs, net................. (48.1) 3.1
Recapitalization costs.................................... -- (9.2)
Acquired research and development......................... (28.9) --
------ ------
Operating income............................................ $ 40.6 $108.6
====== ======
</TABLE>
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Operating income for PE Corporation increased to $108.6 million for fiscal
1999 compared with $40.6 million for fiscal 1998. On a comparable basis
excluding the special items previously described, operating income increased
21.4% to $142.8 million for fiscal 1999 compared with $117.6 million for the
prior year.
On a segment basis, operating income for the PE Biosystems group increased
to $187.9 million for fiscal 1999 compared with $53.4 million for the prior
year. On a comparable basis, excluding the results of Tecan and the special
items previously described, operating income increased 60.7% for fiscal 1999
compared with the prior year. The PE Biosystems group benefited from increased
revenues, higher gross margins, and lower operating expenses as a percentage of
net revenues. Higher operating income from sequencing, mapping systems, and
LC/MS products were the primary contributors. The effects of currency
translation for the PE Biosystems group increased operating income by less than
1% for fiscal 1999 compared with the prior year. Operating income as a
percentage of net revenues, excluding the results of Tecan and the special
items, increased to 17.6% for fiscal 1999 compared with 13.8% for the prior
year.
Operating loss for the Celera Genomics group was $68.8 million for fiscal
1999 compared with $12.8 million for fiscal 1998. Excluding the $4.6 million of
special charges for costs incurred in connection with the recapitalization and
the $1.0 million of costs related to the acceleration of certain long-term
compensation programs, the operating loss was $63.2 million for fiscal 1999.
For fiscal 1999 and 1998, the PE Biosystems group recorded gains of
$4.5 million and $1.6 million, respectively, on the sale and release of
contingencies on minority equity investments. Fiscal 1999 also included a gain
of $1.6 million related to the sale of our interest in Tecan.
Interest expense was $3.8 million for fiscal 1999 compared with
$4.9 million for the prior year. This decrease was primarily due to the
refinancing of PerSeptive's 8 1/4% Convertible Subordinated Notes (the
"PerSeptive Notes") and lower average interest rates. Interest income was
$2.9 million for fiscal 1999 compared with $5.9 million for the prior year,
primarily because of lower average cash balances during the year.
Other income, net for fiscal 1999 was $.5 million compared with
$3.1 million for the prior year. Fiscal 1999 other income, net primarily related
to the revaluation of foreign exchange contracts and a legal settlement that
were partially offset by the loss on the disposal of certain assets and other
non-operating costs. The other income, net for fiscal 1998 resulted from a gain
on the sale of certain operating and non-operating assets.
The effective income tax rate was 4% for fiscal 1999 and 54% for fiscal
1998. Excluding Tecan and the special items, the effective income tax rate was
25% for fiscal 1999 and 24% for fiscal 1998. The effective income tax rate for
fiscal 1999 included the release of valuation allowances of $17.4 million. The
valuation allowance was reduced because management believes, now that the sale
of the Analytical Instruments business has been completed, that it is more
likely than not that the deferred tax assets to which the valuation allowance
related will be realized. An analysis of the differences between the federal
statutory income tax rate and the effective tax rate is provided in Note 4 to PE
Corporation's consolidated financial statements included in our 1999 Annual
Report to Stockholders.
The PE Biosystems group incurred minority interest expense of $13.4 million
for fiscal 1999 and $5.6 million for fiscal 1998 relating to our 14.5% financial
interest in Tecan. As previously indicated, we divested our interest in Tecan
during the fourth quarter of fiscal 1999.
RESULTS OF CONTINUING OPERATIONS--1998 COMPARED WITH 1997
We reported income from continuing operations of $15.7 million for fiscal
1998 compared with $102.5 million for the prior year. On a comparable basis,
excluding the special items previously described, income from continuing
operations was $87.9 million for fiscal 1998 compared with $73.7 million for
fiscal 1997.
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On a segment basis, the PE Biosystems group reported income from continuing
operations of $24.0 million for fiscal 1998 compared with $132.7 million for
fiscal 1997. On a comparable basis, excluding the special items previously
described, income from continuing operations increased 23.2% to $95.0 million
for fiscal 1998 compared with $77.1 million for fiscal 1997. The Celera Genomics
group reported a net loss of $8.3 million for fiscal 1998 compared with
$30.2 million for the prior year, or $3.4 million excluding the $26.8 million
for purchased research and development charged in connection with the GenScope
acquisition.
Net revenues for PE Corporation were $944.3 million for fiscal 1998 compared
with $768.4 million for the prior year, an increase of $22.9%. On a segment
basis, net revenues for the PE Biosystems group were $940.1 million for fiscal
1998 compared with $767.5 million for fiscal 1997, an increase of 22.5%. Celera
Genomics group's net revenues increased from $.9 million for fiscal 1997 to
$4.2 million for fiscal 1998, primarily related to AgGen.
Net revenues for the PE Biosystems group, excluding Tecan, increased 15.9%
compared with the prior year. The effects of currency translation decreased net
revenues by approximately $33 million, or 4%, compared with the prior year, as
the U.S. dollar strengthened against most European and Far Eastern currencies.
On a worldwide basis, excluding Tecan and the effects of currency translation,
revenues would have increased approximately 20% compared with the prior year.
Increased demand for genetic analysis, LC/MS, and polymerase chain reaction
product lines was the primary contributor. All geographic markets for the PE
Biosystems group reported increased revenues over the prior year. Excluding
Tecan, net revenues in the United States, Europe, and the Far East increased
24.0%, 10.7%, and 4.6%, respectively. Before the effects of currency
translation, and excluding Tecan, revenues in Europe and the Far East would have
increased approximately 18% and 14%, respectively, compared with the prior year.
The PE Biosystems group believes slower Japanese government funding in the
second half of fiscal 1998 and the lack of a supplemental budget, which added to
fiscal 1997 revenues, contributed to a lower growth rate of only 3% in the
Japanese market.
Gross margin for PE Corporation as a percentage of net revenues was 54.3%
for fiscal 1998 compared with 53.0% for fiscal 1997. The PE Biosystems group's
fiscal 1998 gross margin included $4.1 million of inventory-related write-offs
associated with the rationalization of certain product lines in connection with
the acquisition of PerSeptive. Fiscal 1997 included a charge of $.7 million for
the write-down of certain other assets. Excluding the special items, gross
margin as a percentage of net revenues increased to 54.5% for fiscal 1998.
Benefits realized from the sale of higher-margin genetic analysis products and
increased royalty revenues in the United States more than offset the negative
effects of currency translation.
SG&A expenses for PE Corporation were $283.4 million for fiscal 1998
compared with $229.9 million for fiscal 1997, an increase of 23.3%. On a segment
basis, the PE Biosystems group's SG&A expenses increased to $276.7 million for
fiscal 1998 compared with $227.7 million for the prior year. The 21.5% increase
in expenses, or 14.7% excluding Tecan, was due to higher planned worldwide
selling and marketing expenses commensurate with the substantially higher
revenue and order growth. Before the effects of currency translation and
excluding Tecan, SG&A expenses increased approximately 18% compared with the
prior year. As a percentage of net revenues, SG&A expenses for the PE Biosystems
group were essentially unchanged at 29.4% for fiscal 1998 compared with 29.7%
for the prior year. SG&A expenses for the Celera Genomics group increased from
$2.2 million for fiscal 1997 to $6.7 million for fiscal 1998, primarily
reflecting the operations of the AgGen and GenScope businesses.
R&D expenses for PE Corporation increased to $115.8 million for fiscal 1998
from $82.1 million for fiscal 1997. On a segment basis, R&D expenses for the PE
Biosystems group of $105.5 million increased 35.0% over the prior year, or 27.7%
excluding Tecan. R&D spending increased 40.6%, or 33.3% excluding Tecan, over
the prior year as the PE Biosystems group continued its product development
efforts and preparation for new product launches. As a percentage of net
revenues, the PE Biosystems group's R&D expenses increased to 11.2% compared
with 10.2% for the prior year. Celera Genomics group's R&D
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expenses were $10.3 million for fiscal 1998 compared with $4.0 million for
fiscal 1997. Fiscal 1997 included the operations of GenScope and Linkage from
the dates of acquisition.
During fiscal 1998, $48.1 million of before-tax charges were recorded for
restructuring and other merger costs to integrate PerSeptive into the PE
Biosystems group following the acquisition. Additional merger-related period
costs of $1.5 million for training, relocation, and communication costs were
recognized in the third and fourth quarters of fiscal 1998.
Fiscal 1998 included $28.9 million of purchased in-process research and
development associated with the acquisition of Molecular Informatics for the PE
Biosystems group. Fiscal 1997 included a charge of $26.8 million for in-process
research and development, related to the acquisitions of GenScope and Linkage
for the Celera Genomics group.
OPERATING INCOME
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Operating income before special items....................... $ 95.7 $117.6
Asset impairment.......................................... (.7) --
Restructuring and other merger costs...................... -- (48.1)
Acquired research and development......................... (26.8) (28.9)
------ ------
Operating income............................................ $ 68.2 $ 40.6
====== ======
</TABLE>
Operating income for PE Corporation was $40.6 million for fiscal 1998
compared with $68.2 million for fiscal 1997. On a comparable basis, excluding
the items previously described, operating income increased to $117.6 million for
fiscal 1998 compared with $95.7 million for the prior year, an increase of
22.9%.
On a segment basis, operating income for the PE Biosystems group decreased
to $53.4 million for fiscal 1998 compared with $100.3 million for fiscal 1997.
Excluding the special charges for restructuring and other merger costs, acquired
research and development, and the impairment of assets, operating income
increased $29.4 million, or 29.1%, primarily as a result of increased volume and
improved margins. A 23.5% increase in operating income from higher-margin
sequencing and mapping systems was the primary contributor. Excluding Tecan,
operating income before special items increased 21.6% compared with the prior
year. Before the effects of currency translation and excluding Tecan, fiscal
1998 operating income increased 38.5% compared with the prior year.
Geographically, excluding Tecan, fiscal 1998 operating income before special
items increased 48.0% in the United States, 20.1% in the Far East, and 8.0% in
Europe compared with fiscal 1997. As a percentage of net revenues, operating
income before special items increased to 13.9% for fiscal 1998 compared with
13.2% for the prior year.
Operating loss for the Celera Genomics group was $12.8 million for fiscal
1998 compared with $32.1 million for fiscal 1997. On a comparable basis,
excluding the $26.8 million charge for acquired research and development, the
operating loss for fiscal 1997 was $5.3 million.
For fiscal 1998 and 1997, the PE Biosystems group recorded gains of
$1.6 million and $64.9 million, respectively, on the sale and release of
contingencies on minority equity investments. See Note 2 to PE Corporation's
consolidated financial statements included in our 1999 Annual Report to
Stockholders.
Interest expense was $4.9 million for fiscal 1998 compared with
$5.9 million for the prior year. The decrease was primarily due to the
refinancing of the PerSeptive Notes together with slightly lower outstanding
debt balances and lower average interest rates. Interest income was
$5.9 million for fiscal 1998 compared with $8.8 million for the prior year,
primarily because of lower cash balances resulting from the use of cash to fund
the PE Biosystems group's continued investments and acquisitions, as well as
from lower interest rates.
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Other income, net for fiscal 1998 of $3.1 million, primarily related to the
sale of certain operating and non-operating assets, compared with other income,
net of $1.9 million for the prior year.
Our effective income tax rate was 54% for fiscal 1998 and 26% for fiscal
1997. Excluding Tecan in fiscal 1998, and special items in fiscal 1998 and
fiscal 1997, the effective income tax rate was 24% for fiscal 1998 compared with
27% for fiscal 1997. Increased earnings in low tax jurisdictions reduced our tax
rate for fiscal 1998. An analysis of the differences between the federal
statutory income tax rate and the effective rate is provided in Note 4 to PE
Corporation's consolidated financial statements included in our 1999 Annual
Report to Stockholders.
Minority interest expense of $5.6 million was recognized in fiscal 1998, by
the PE Biosystems group, relating to our 14.5% financial interest in Tecan. See
Note 2 to PE Corporation's consolidated financial statements included in our
1999 Annual Report to Stockholders.
MARKET RISK
The PE Biosystems group operates internationally, with manufacturing and
distribution facilities in various countries throughout the world. For the first
six months of fiscal 2000 and fiscal 1999, the PE Biosystems group derived
approximately 49% 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.
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, respectively, on the derivatives. We do not use derivative financial
instruments for trading or other speculative purposes, nor are we a party to
leveraged derivatives. At December 31, 1999, outstanding hedge contracts covered
approximately 75% of the estimated exposures related to foreign currency cash
flows to be realized over the next nine months. The outstanding hedges were a
combination of forward, option, and synthetic forward contracts maturing over
the next nine months.
We performed sensitivity analyses as of December 31, 1999 and June 30, 1999.
Assuming a hypothetical adverse change of 10% in foreign exchange rates in
relation to the U.S. Dollar at December 31, 1999, we calculated a hypothetical
loss of $9.0 million when comparing the change in fair value of both the foreign
currency contracts outstanding and the underlying exposures being hedged at
December 31, 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 our 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 December 31, 1999, the notional
amount of indebtedness covered by the interest rate swap was Yen 3.8 billion or
$37.1 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.
MANAGEMENT'S DISCUSSION OF FINANCIAL RESOURCES AND LIQUIDITY
The following discussion of financial resources and liquidity focuses on the
Consolidated Statements of Financial Position and the Consolidated Statements of
Cash Flows of PE Corporation.
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Cash and cash equivalents were $349.5 million at December 31, 1999,
$308.0 million at June 30, 1999, and $82.9 million at June 30, 1998, with total
debt of $118.4 million at December 31, 1999, $35.4 million at June 30, 1999, and
$45.8 million at June 30, 1998.
Working capital was $468.0 million at December 31, 1999, $471.4 million at
June 30, 1999, and $288.0 million at June 30, 1998. Excluding the current net
assets of discontinued operations at June 30, 1998, working capital was
$148.0 million.
Debt to total capitalization increased to 12% at December 31, 1999 from 4%
at June 30, 1999 as a result of an increase in loans payable. Debt to total
capitalization decreased to 4% at June 30, 1999 from 8% at June 30, 1998, as a
result of a decrease in loans payable. During the first quarter of fiscal 2000,
we secured financing of $46 million specifically for the purchase of the Celera
Genomic group's Rockville, Maryland facilities. We anticipate that the
$46 million financing will remain outstanding beyond the current fiscal year.
The increase in loans payable for the PE Biosystems group is primarily a result
of our decision to discontinue our receivables factoring program in a foreign
subsidiary.
SIGNIFICANT CHANGES IN THE CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Effective May 28, 1999, we completed the sale of our Analytical Instruments
business to EG&G. The aggregate consideration received by our company was
$425 million, consisting of $275 million in cash and one-year secured promissory
notes in the aggregate principal amount of $150 million which bear interest at a
rate of 5% per annum.
Accounts receivable increased by $78.1 million and the inventory balance
increased by $12.7 million from June 30, 1998 to June 30, 1999. On a comparable
basis, excluding Tecan from the June 30, 1998 balances, accounts receivable and
inventory levels increased by $99.6 million and $22.4 million, respectively,
from June 30, 1998 to June 30, 1999, reflecting the growth in net revenues and
backlog of the PE Biosystems group.
Prepaid expenses and other current assets increased to $79.3 million at
June 30, 1999 from $62.0 million at June 30, 1998, or $57.2 million excluding
Tecan. The increase of $22.1 million, excluding Tecan, was related primarily to
growth in non-trade receivables, royalties and prepaid dealer commissions.
Other long-term assets increased $51.4 million to $300.9 million at
December 31, 1999 from $249.5 million at June 30, 1999, primarily as a result of
a net increase in value of our minority equity investments. Other long-term
assets decreased to $249.5 million at June 30, 1999 from $264.1 million at
June 30, 1998. Excluding Tecan from the June 30, 1998 balance, other long-term
assets increased $32.8 million. The change was primarily a result of a
$9.4 million increase in prepaid pension assets, a net $17.0 million increase in
our equity investments, a $15.6 million increase in non-current deferred tax
asset, offset by the write-off of $14.5 million of impaired intangible assets
associated with the Molecular Informatics business.
We reduced our total deferred tax asset and related valuation allowance from
$115.5 million and $62.8 million at June 30, 1998 to $112.1 million and
$37.5 million at June 30, 1999. This resulted in an overall increase to the
total deferred tax asset after valuation allowance of $21.9 million. The
valuation allowance relates primarily to foreign and domestic tax loss
carryforwards, domestic tax credit carryforwards and other domestic deferred tax
assets. A portion of the valuation allowance is attributable to tax loss and
credit carryforwards and other deferred tax assets which we acquired as part of
the purchase of PerSeptive in fiscal 1998. In evaluating our need for a
valuation allowance, we considered all available positive and negative evidence,
including historical information supplemented by information about future years.
We evaluate the need for the valuation allowance periodically for each
tax-paying component in each tax jurisdiction. The following factors
significantly influenced our conclusion regarding the need for a valuation
allowance: (1) the limitation under the Internal Revenue Code on the amount of
annual
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utilization of domestic loss carryforwards and credits of PerSeptive, and
(2) the various expiration dates of the foreign loss carryforwards.
Accounts payable decreased $20.0 million to $145.1 million at December 31,
1999 from $165.1 million at June 30, 1999. Payments for higher purchases made in
the fourth quarter of fiscal 1999, which were made to support increased
production and operating requirements, contributed to the decrease. Accounts
payable increased to $165.1 million at June 30, 1999 from $119.6 million at
June 30, 1998. Excluding Tecan from the June 30, 1998 balance, accounts payable
increased $50.0 million. The increase resulted primarily from higher purchases
to support production and operating requirements of the PE Biosystems group and
the rapid progress in establishing the infrastructure of the Celera Genomics
group.
Accrued salaries and wages increased $14.6 million to $62.1 million at
December 31, 1999 from $47.5 million at June 30, 1999. The increase reflects the
accrual of the charge for the acceleration of certain long-term compensation
programs as a result of the attainment of performance targets, partially offset
by the timing of recurring payments. Accrued salaries and wages increased
$17.5 million to $47.5 million at June 30, 1999 from $30.0 million at June 30,
1998. Excluding Tecan from the June 30, 1998 balance, accrued salaries and wages
increased $20.7 million reflecting the timing of payments for both groups and
the increased headcount of the Celera Genomics group.
Accrued taxes on income increased $48.4 million to $128.3 million at
June 30, 1999 from $79.9 million at June 30, 1998. Excluding Tecan from the
June 30, 1998 balance, accrued taxes on income increased $52.2 million as a
result of the tax on the gain from the sale of the Analytical Instruments
business in foreign tax jurisdictions.
Other accrued expenses increased by $55.4 million to $177.9 million at
June 30, 1999 from $122.5 million at June 30, 1998. Excluding Tecan from the
June 30, 1998 balance, other accrued expenses increased by $61.7 million as a
result of higher warranty and installation accruals, reflecting the increase in
volume of the PE Biosystems group, an increase in deferred revenues, and higher
benefit and certain compensation accruals of both groups.
At June 30, 1998, $43.8 million of minority interest was recognized in
connection with Tecan. During the fourth quarter of fiscal 1999 we divested our
interest in Tecan.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net cash used by operating activities from continuing operations was
$16.0 million for the first six months of fiscal 2000 compared with net cash
provided by operating activities of $15.9 million for the same period in fiscal
1999. For the first six 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 current assets.
Operating activities from continuing operations generated $69.1 million of
cash for fiscal 1999 compared with $68.1 million for fiscal 1998 and
$73.4 million for fiscal 1997. For fiscal 1999, higher income-related cash flow
and increased operating liabilities were only partially offset by cash used for
operating assets.
Net cash used by investing activities from continuing operations was
$31.5 million for the first six months of fiscal 2000 compared with
$35.1 million for the first six months of fiscal 1999. In the first six months
of fiscal 2000, PE Corporation had capital expenditures of $51.1 million.
Capital expenditures were $31.2 million for the PE Biosystems group, which
included $4.3 million related to improvement of its information technology
infrastructure, and $19.9 million for the Celera Genomics group. Investments
during the first six months of fiscal 2000 included minority investments in
Illumina, Inc. and Epoch Pharmaceuticals, Inc. for the PE Biosystems group. The
Celera Genomics group's investments during the first six months of fiscal 2000
included acquisitions of the Panther-TM- technology from Molecular Applications
Group and a 47.5% equity interest in Shanghai GeneCore BioTechnologies Co., Ltd.
In the
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first six months of fiscal 2000, we realized approximately $31.1 million from
the sale of a portion of a minority investment. In the first six months of
fiscal 1999, we 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 $50.0 million, which included $4.7 million
related to improvement of our information technology infrastructure, and
$17.5 million for the acquisition of a corporate airplane.
For fiscal 1999, net cash provided by investing activities from continuing
operations was $154.1 million, compared with net cash used of $129.3 million for
fiscal 1998. During fiscal 1999, we generated $325.8 million in net cash
proceeds from the sale of various assets. Net cash proceeds included
$275.0 million from the sale of the Analytical Instruments business,
$30.0 million from the sale of Tecan, and $20.8 million from the sale of
minority equity investments and certain non-operating assets. The proceeds were
partially offset by $176.0 million of capital expenditures. Fiscal 1999 capital
expenditures were $92.1 million for the PE Biosystems group, which included
$12.9 million as part of the strategic program to improve our information
technology infrastructure, $17.5 million for the acquisition of an airplane, and
$10.6 million of capital equipment leased to the Celera Genomics group. Capital
expenditures for the Celera Genomics group were $94.5 million for fiscal 1999.
The capital expenditures included $46.3 million for the purchase of land and
buildings in Rockville, Maryland and $22.9 million for improvements thereon. For
fiscal 1999, $5.3 million was used for various acquisitions and investments. See
Note 2 to PE Corporation's consolidated financial statements included in our
1999 Annual Report to Stockholders.
For fiscal 1998, net cash used by investing activities from continuing
operations was $129.3 million compared with net cash provided by investing
activities of $24.7 million for fiscal 1997. During fiscal 1998, the PE
Biosystems group generated $19.5 million in net cash proceeds from the sale of
assets and $9.7 million from the collection of a note receivable. The proceeds
were more than offset by $71.8 million of capital expenditures by our company,
which included $33.7 million as part of the strategic program to improve our
information technology infrastructure, and $98.0 million for acquisitions and
investments, primarily Tecan and Molecular Informatics.
For fiscal 1997, we generated $99.7 million in net cash proceeds from the
sale of our equity interests in Etec Systems, Inc. and Millennium
Pharmaceuticals, Inc. and from the sale of certain other non-operating assets.
These proceeds were partially offset by $5.0 million used for acquisitions and
$58.1 million for capital expenditures that included $9.5 million for
information technology infrastructure improvements and $12.1 million for the
acquisition of an airplane.
Net cash used by discontinued operations was $7.4 million for the first six
months of fiscal 2000 compared with $26.4 million for the first six months of
fiscal 1999. The fiscal 2000 use of $7.4 million was for transaction-related
payments and other cash outlays associated with the divestiture of the
Analytical Instruments business. We expect additional cash outlays over the
balance of the fiscal year.
Net cash provided by financing activities was $93.9 million for the first
six months of fiscal 2000 compared with $40.6 million for the prior period. For
the first six months of fiscal 2000, we received $27.7 million in proceeds from
employee stock option exercises compared with $37.9 million in fiscal 1999.
Loans payable increased $75.0 million in the first six months of fiscal 2000
compared with an increase of $15.6 million for the prior year. The first six
months of fiscal 1999 included a payment of $5.3 million for the retirement of
foreign debt.
Net cash provided by financing activities was $43.6 million for fiscal 1999
compared with net cash used of $37.7 million for fiscal 1998. For fiscal 1999,
we received $96.4 million of proceeds from employee stock option plan exercises
compared with $33.6 million for fiscal 1998. Fiscal 1999 included $2.2 million
for the purchase of shares of common stock for treasury. No shares were
repurchased during fiscal 1998. Dividends paid were $34.2 million for fiscal
1999 and $39.1 million for fiscal 1998. Reduction in loans payable and principal
payments on long-term debt were $16.4 million for fiscal 1999, compared with
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$32.2 million for fiscal 1998. The fiscal 1998 principal payment on long-term
debt included $24.7 million for the redemption of PerSeptive's 8 1/4 %
Convertible Subordinated Notes due 2001.
During fiscal 1997, we generated $1.8 million from the sale of equity put
warrants and $33.6 million of proceeds from employee stock plan exercises. These
were offset by stockholder dividends of $29.5 million. Fiscal 1997 included
$25.1 million for the purchase of shares of common stock for treasury. Purchases
of common stock for treasury were made in support of various stock plans.
During fiscal 1999, we made cash payments of $8.1 million for obligations
related to restructuring plans and other merger costs. Restructuring liabilities
remaining at June 30, 1999 were $5.8 million for the fiscal 1998 plan. See
Note 10 to PE Corporation's consolidated financial statements included in our
1999 Annual Report to Stockholders. The funding for the remaining restructuring
liabilities will be from current cash balances and funds generated from
operating activities.
We believe our cash and short-term investments, funds generated from
operating activities, and available borrowing facilities are sufficient to
provide for our anticipated financing needs over the next two years. At December
31, 1999, we had unused credit facilities totaling $354 million.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation and changing prices are continually monitored. We attempt to
minimize the impact of inflation by improving productivity and efficiency
through continual review of both manufacturing capacity and operating expense
levels. When operating costs and manufacturing costs increase, we attempt to
recover such costs by increasing, over time, the selling price of our products
and services. We believe the effects of inflation have been appropriately
managed and therefore have not had a material impact on our historic operations
and resulting financial position.
YEAR 2000
In fiscal 1997, we initiated a worldwide program to assess the expected
impact of the Year 2000 date recognition problem on our existing internal
computer systems; our non-information technology systems, including embedded and
process control systems; our product offerings; and our significant suppliers.
The purpose of this program has been to ensure the event does not have a
material adverse effect on our business operations.
While not all possible Year 2000 date related disruption scenarios have been
experienced, and there is a possibility of disruptions in the future, through
the date of this prospectus, we have experienced no material disruption or other
significant problems. We will continue to evaluate and mitigate our exposure in
areas where appropriate. Based on currently available information, we continue
to believe that Year 2000 related disruptions or other problems, if any, will
not have a material adverse effect on our operations or financial condition.
However, we cannot be certain that Year 2000 issues will not have a material
adverse effect on PE Corporation, since the evaluation process is not yet
complete and it is early in the Year 2000.
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.
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PE Corporation is currently evaluating the impact the euro conversion may
have on its computer and financial systems, business processes, market risk, and
price competition. PE Corporation 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. We are
required to implement the statement in the first quarter of fiscal 2001. We are
currently analyzing the statement to determine the impact, if any, on the
consolidated financial statements.
We continue to apply APB No. 25 in accounting for our stock-based
compensation plans. Accordingly, no compensation expense has been recognized for
these plans, as all options have been issued at fair value. The effect of
accounting for such plans at fair value, under SFAS No. 123, "Accounting for
Stock Based Compensation," would be to decrease fiscal 1999 income from
continuing operations by $23.1 million. The effect of accounting for such plans
at fair value would be to decrease the PE Biosystems group's fiscal 1999 income
from continuing operations by $.20 per diluted share, and to increase the Celera
Genomics group's fiscal 1999 net loss by $.10 per diluted share. The method used
to determine the fair value is the Black-Scholes option pricing model.
Accordingly, changes in dividend yield, volatility, interest risks and option
life could have a material effect on the fair value. See Note 8 to the
consolidated financial statements included in our 1999 Annual Report to
Stockholders for a more detailed discussion regarding the accounting for
stock-based compensation at fair value.
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. As public
funding for basic life science research continues to expand and more progress is
made in uncovering structured genomic information, pharmaceutical companies,
recognizing the opportunity that this information may provide, are placing
greater emphasis on research and development in these areas. PE Biosystems
should continue to benefit from its customers' needs for more efficient and cost
effective systems that can analyze and commercialize the volume of genomic
information being created.
Sales of the PE Biosystems group's genetic analysis systems are increasingly
moving beyond the basic research markets to a wider group of commercial
customers and public agencies. The PE Biosystems group also should benefit in
spring 2000 from shipments of new high throughput screening products such as the
FMAT-TM- 8100 HTS System, the NorthStar-TM- HTS Workstation, and the ABI
Prism-TM- 6700 Automated Nucleic Acid Workstation, now that the final versions
have been shipped to test site customers. Additionally, the PE Biosystems group
should also benefit from new products expected to be introduced during this
period for drug characterization, as well as instruments and software for drug
screening.
On January 24, 2000, PE Corporation announced the signing of a definitive
merger agreement under which the PE Biosystems group has agreed to acquire Third
Wave Technologies, Inc. in a stock-for-stock transaction. The transaction, which
has been approved by the Boards of Directors of both companies, is structured as
a tax-free pooling of interests. All of the equity of Third Wave will be
exchanged for an aggregate of approximately 1,972,000 shares of PE
Corporation-PE Biosystems Group Common Stock, before giving effect to the
two-for-one stock dividend declared January 20, 2000 for distribution on
February 18, 2000. The transaction is subject to customary closing conditions
and regulatory approvals. Third Wave has developed the
Invader-Registered Trademark- nucleic acid (DNA and RNA) detection technology.
The Invader-Registered Trademark- assays detect differences among genetic
sequences important for the analysis of SNPs. SNPs are
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single genetic code changes thought to account for individual differences
ranging from predispositions for certain diseases to particular responses to
drug treatment. This technology will be used with the PE Biosystems group's
Sequence Detection Systems, a proprietary technology for real-time analysis of
genetic information.
We remain concerned about adverse currency effects because approximately 49%
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. During the second quarter of
fiscal 2000, the Celera Genomics group entered into a five-year comprehensive
genomics agreement with Pfizer Inc. which includes a subscription to all of
Celera Genomics group's current database products and a collaborative gene
discovery agreement. Pfizer's database subscription gives it access to five
databases developed by the Celera Genomics group until 2005. All of these
databases integrate the Celera Genomics group's proprietary information with
publicly available sources. 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.
Operating expenses will increase over the balance of the fiscal year as the
Celera Genomics group continues to improve its sequencing throughput and
installs additional hardware and software designed to accelerate product
development and support for its information delivery systems.
The Celera Genomics group recently completed the sequencing phase in
deciphering the genome of DROSOPHILA, the fruit fly. In January, 2000, the
Celera Genomics group announced it had compiled DNA sequence in its database
that covers 90% of the human genome. As a result of the extensive sequence
coverage of the 23 pairs of human chromosomes and based on statistical analysis,
the Celera Genomics group believes that greater than 97% of all human genes are
now represented in its database. As a result of Celera's successful sequencing
and assembly of DROSOPHILA and the accelerated availability of data from public
human genome sequencing efforts, Celera believes that it can sequence and
assemble the human genome on an accelerated basis. Celera Genomics expects to
complete the sequencing phase of the human genome by mid-2000 and the assembly
phase by the end of 2000, or one year ahead of its original schedule.
Celera Genomics' progress to date has placed it well ahead of its original
schedule. Consequently, Celera Genomics intends to make significant new
investments to expand beyond the genome and to take advantage of what it
believes will be new market opportunities in the emerging fields of functional
genomics, in particular proteomics, and personalized health/medicine. New
revenue opportunities in these fields range from expansion of Celera's
information and service businesses to the licensing of proprietary discoveries
resulting from the new information.
On January 31, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for a follow-on public offering of
1.6 million shares of its Celera Genomics stock. Celera intends to use the net
proceeds from this offering primarily to fund its new product and technology
development activities in functional genomics, with an emphasis on proteomics,
and personalized health/ medicine. These activities will require increased
investment in Celera's laboratory, computational resources, software systems and
business and product development operations. Celera also intends to use the net
proceeds of this offering for general corporate purposes, including possible
acquisitions, alliances or collaborations. Pending such uses, Celera intends to
invest the net proceeds of this offering in interest-bearing, investment-grade
securities.
We believe that Celera Genomics' existing cash and cash equivalents and the
note and tax benefit receivable from the PE Biosystems group are sufficient to
fund its operating expenses and capital requirements related to its original
business plan, which relates to the sequencing and assembly of the human genome
and the development of informational products and services based on the
resultant data. While we intend to use the net proceeds of the Celera Genomics
stock offering to fund Celera's expansion into functional genomics and
personalized health/medicine, such funds may not be sufficient to support these
new business activities as they develop. Celera's actual future capital uses and
requirements with respect to its new activities will depend on many factors,
including those discussed under "Risk Factors."
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DESCRIPTION OF CAPITAL STOCK
The following is a description of the terms of the capital stock of PE
Corporation. This description does not purport to be complete and is qualified
in its entirety by reference to PE Corporation's Certificate of Incorporation
which has been incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part.
GENERAL
Our certificate of incorporation authorizes us to issue 735,000,000 shares
of stock as follows: 500,000,000 shares of a class of common stock, designated
as PE Corporation--PE Biosystems group common stock, 225,000,000 shares of a
class of common stock, designated as PE Corporation--Celera Genomics group
common stock, and 10,000,000 shares of preferred stock. Shares of each class of
stock have a par value of $.01 per share. We will be able to issue shares of
preferred stock in series, without stockholder approval. Of the 10,000,000
authorized shares of preferred stock, our board of directors has designated a
total of 80,000 shares of two series of participating junior preferred stock for
use in connection with our stockholder rights plan. See "--Rights Agreement."
As of February 7, 2000, there were no shares of preferred stock, 26,153,586
shares of Celera Genomics Stock and 103,692,648 shares of PE Biosystems stock
issued and outstanding prior to giving effect to the two-for-one stock split
announced by PE Corporation of both Celera Genomics stock and PE Biosystems
stock which is to be effected on February 18, 2000 in the form of a 100% stock
dividend payable to the Celera Genomics stockholders and PE Biosystems
stockholders, respectively, of record on February 4, 2000.
CELERA GENOMICS GROUP STOCK
DIVIDENDS
Dividends on the Celera Genomics stock will be limited to an amount not
greater than the Available Dividend Amount for the Celera Genomics group. The
Available Dividend Amount for the Celera Genomics group is intended to be
similar to the amount that would be legally available for the payment of
dividends on the Celera Genomics stock if the group were a separate company. In
calculating the Available Dividend Amount for the Celera Genomics group, the
amount of net income or loss of PE Corporation that is attributed to the Celera
Genomics group in accordance with generally accepted accounting principles will
be reduced by any unused federal tax benefits in excess of $75 million generated
by the Celera Genomics group from July 1, 1998. See "Management and Allocation
Policies--Taxes" and Note 1 to the Celera Genomics group combined financial
statements included in this prospectus.
Delaware law limits the amount of distributions on our capital stock to our
legally available funds, which are determined on the basis of our entire
company, and not only the respective groups. As a result, the amount of legally
available funds will reflect the amount of any net losses of each group, any
distributions on Celera Genomics stock, PE Biosystems stock or any preferred
stock and any repurchases of Celera Genomics stock, PE Biosystems stock or
certain preferred stock. Dividend payments on the Celera Genomics stock could be
precluded because legally available funds of PE Corporation are not available
under Delaware law, even though the Available Dividend Amount test for the
Celera Genomics group was met. We can not assure you that there will be an
Available Dividend Amount for the Celera Genomics group or, if met, that PE
Corporation will have available funds to pay such a dividend.
Subject to the prior payment of dividends on any outstanding shares of
preferred stock and the limitations described above, our board of directors will
be able, in its sole discretion, to declare and pay dividends exclusively on the
PE Biosystems stock, exclusively on the Celera Genomics stock or on both, in
equal or unequal amounts. In making its dividend decisions, our board of
directors will not be required to
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take into account the relative available dividend amounts for the two groups,
the amount of prior dividends declared on either class, the respective voting or
liquidation rights of either class or any other factor.
CONVERSION AND REDEMPTION
MANDATORY DIVIDEND, REDEMPTION OR CONVERSION OF COMMON STOCK IF DISPOSITION
OF CELERA GENOMICS GROUP ASSETS OCCURS. If we sell, transfer, assign or
otherwise dispose of, in one transaction or a series of related transactions,
all or substantially all of the properties and assets attributed to Celera
Genomics group (a "disposition"), we are required, except as described below,
to:
- pay a dividend in cash and/or securities or other property to the holders
of shares of Celera Genomics stock having a fair value equal to the net
proceeds of the disposition;
- if the disposition involves all, but not merely substantially all, of such
properties and assets, redeem all outstanding shares of Celera Genomics
stock in exchange for cash and/or securities or other property having a
fair value equal to the net proceeds of the disposition;
- if the disposition involves substantially all, but not all, of such
properties and assets, redeem that number of whole shares of Celera
Genomics stock as have in the aggregate an average market value, during
the period of ten consecutive trading days beginning on the 26th trading
day immediately succeeding the consummation date, closest to the net
proceeds of the disposition; and the redemption price will be cash and/or
securities or other property having a fair value equal to such net
proceeds; or
- convert each outstanding share of Celera Genomics stock into a number of
shares of PE Biosystems stock equal to 110% of the ratio of the average
market value of one share of Celera Genomics stock to the average market
value of one share of PE Biosystems stock during the 10-trading day period
beginning on the 26th trading day following the disposition date.
We may only pay a dividend or redeem shares of Celera Genomics stock as set
forth above if we have legally available funds under Delaware law and the amount
to be paid to holders is less than or equal to the available dividend amount for
the Celera Genomics group. We are required to pay such dividend or complete such
redemption or conversion on or prior to the 95th trading day following the
disposition.
For purposes of determining whether a disposition has occurred,
"substantially all of the properties and assets" attributed to the Celera
Genomics group means a portion of such properties and assets:
- that represents at least 80% of the then fair value of the properties and
assets attributed to the Celera Genomics group; or
- from which were derived at least 80% of the aggregate revenues of the
Celera Genomics group for the immediately preceding twelve fiscal
quarterly periods.
The "net proceeds" of a disposition means an amount equal to what remains of
the gross proceeds of the disposition after any payment of, or reasonable
provision is made as determined by our board of directors for:
- any taxes payable by us, or which would have been payable but for the
utilization of tax benefits attributable to the PE Biosystems group, in
respect of the disposition or in respect of any resulting dividend or
redemption;
- any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses; and
- any liabilities of or attributed to the Celera Genomics group, including,
without limitation, any liabilities for deferred taxes, any indemnity or
guarantee obligations incurred in connection with the disposition or
otherwise, any liabilities for future purchase price adjustments and any
preferential
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amounts plus any accumulated and unpaid dividends in respect of the
preferred stock attributed to the Celera Genomics group.
We may elect to pay the dividend or redemption price in connection with a
disposition either in the same form as the proceeds of the disposition were
received or in any other combination of cash, securities or other property that
our board of directors or, in the case of securities that have not been publicly
traded for a period of at least 15 months, an independent investment banking
firm, determines will have an aggregate market value of not less than the fair
value of the net proceeds.
THE FOLLOWING ILLUSTRATION DEMONSTRATES THE PROVISIONS REQUIRING A MANDATORY
DIVIDEND, REDEMPTION OR CONVERSION IF A DISPOSITION OCCURS. If:
- 50 million shares of Celera Genomics stock and 200 million shares of PE
Biosystems stock were outstanding,
- the net proceeds of the disposition of substantially all, but not all, of
the assets of the Celera Genomics group equals $500 million, and
- the average market values of the Celera Genomics stock and the PE
Biosystems stock during the 10-trading day valuation period were $100 and
$75 per share, respectively,
then we could do any of the following:
(1) pay a dividend to the holders of shares of Celera Genomics stock equal to:
<TABLE>
<C> <C> <S>
=
net proceeds
-------------------------
number of outstanding shares
of Celera Genomics stock
= $10 per share
$500 million
-------------------------
50 million shares
</TABLE>
(2) redeem for $100 per share a number of shares of Celera Genomics stock equal
to:
<TABLE>
<C> <C> <S>
=
net proceeds
-------------------------
average market value
of Celera Genomics stock
= 5,000,000 shares
$500 million
-------------------------
$100 per share
</TABLE>
(3) convert each outstanding share of Celera Genomics stock into a number of
shares of PE Biosystems stock equal to:
<TABLE>
<C> <C> <S> <C>
1.1 x average market value =
of Celera Genomics stock
-------------------------
average market value
of PE Biosystems stock
1.1 x $100 per share = 1.46667 shares
-------------------------
$75 per share
</TABLE>
EXCEPTIONS TO THE DIVIDEND, REDEMPTION OR CONVERSION REQUIREMENT IF A
DISPOSITION OCCURS. We are not required to take any of the above actions for
any disposition of all or substantially all of the properties and
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assets attributed to the Celera Genomics group in a transaction or series of
related transactions that results in our receiving for such properties and
assets primarily equity securities of any entity which:
- acquires such properties or assets or succeeds to the business conducted
with such properties or assets or controls such acquirer or successor; and
- is primarily engaged or proposes to engage primarily in one or more
businesses similar or complementary to the businesses conducted by the
Celera Genomics group prior to the disposition, as determined by our board
of directors.
The purpose of this exception is to enable us technically to "dispose" of
properties or assets of the Celera Genomics group to other entities engaged or
proposing to engage in businesses similar or complementary to those of the
Celera Genomics group without requiring a dividend on, or a conversion or
redemption of, the Celera Genomics stock, so long as we hold an equity interest
in that entity. A joint venture in which we own a direct or indirect equity
interest is an example of such an acquirer. We are not required to control that
entity, whether by ownership or contract provisions.
We are also not required to effect a dividend, redemption or conversion if
the disposition is:
- of all or substantially all of our properties and assets in one
transaction or a series of related transactions in connection with our
dissolution, liquidation or winding up and the distribution of our assets
to stockholders;
- on a pro rata basis, such as in a spin-off, to the holders of all
outstanding shares of the Celera Genomics stock; or
- made to any person or entity controlled by us, as determined by our board
of directors.
NOTICES IF DISPOSITION OF CELERA GENOMICS GROUP OR PE BIOSYSTEMS GROUP
ASSETS OCCURS. Not later than the 20th trading day after the consummation of a
disposition, we will announce publicly by press release:
- the estimated net proceeds of the disposition;
- the number of shares outstanding of Celera Genomics stock; and
- the number of shares of Celera Genomics stock into or for which
convertible securities are then convertible, exchangeable or exercisable
and the conversion, exchange or exercise price thereof.
Not earlier than the 36th trading day and not later than the 40th trading
day after the consummation of the disposition, we will announce publicly by
press release whether we will pay a dividend or redeem shares of common stock
with the net proceeds of the disposition or convert the shares of Celera
Genomics stock into PE Biosystems stock.
We are required to cause to be mailed to each holder of shares of Celera
Genomics stock the additional notices and other information required by our
certificate of incorporation.
CONVERSION OF CELERA GENOMICS STOCK AT OUR OPTION AT ANY TIME. Our board of
directors may at any time convert each share of Celera Genomics stock into a
number of shares of PE Biosystems stock equal to 110% of the ratio of the
average market values of the Celera Genomics stock to the PE Biosystems stock
over a 20-trading day period. We will calculate the ratio as of the fifth
trading day prior to the date we mail the conversion notice to holders.
However, if a Tax Event occurs at any time, a factor of 100% rather than
110% will be applied to the ratio of the average market values. This means that
the holders of Celera Genomics stock will not receive any premium in such
conversion.
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"Tax Event" means the receipt by PE Corporation of an opinion of its tax
counsel that, as a result of:
- any amendment to, or change in, the laws or regulations interpreting such
laws of the United States or any political subdivision or taxing
authority, including any announced proposed change by an applicable
legislative committee or its chair in such laws or by an administrative
agency in such regulations, or
- any official or administrative pronouncement, action or judicial decision
interpreting or applying such laws or regulations,
it is more likely than not that for United States federal income tax purposes:
- PE Corporation or our stockholders are, or, at any time in the future,
will be subject to tax upon the issuance of shares of either Celera
Genomics stock or PE Biosystems stock, or
- either Celera Genomics stock or PE Biosystems stock is not or, at any time
in the future, will not be treated solely as stock of PE Corporation.
For purposes of rendering such an opinion, tax counsel will assume that any
legislative or administrative proposals will be adopted or enacted as proposed.
These provisions allow us the flexibility to recapitalize the two classes of
common stock into one class of common stock that would, after such
recapitalization, represent an equity interest in all of our businesses. The
optional conversion or redemption could be exercised at any future time if our
board of directors determines that, under the facts and circumstances then
existing, an equity structure consisting of two classes of common stock was no
longer in the best interests of all of our stockholders. Such exchange could be
exercised, however, at a time that is disadvantageous to the holders of one of
the classes of common stock. See "Risk Factors--Stockholders may not have any
remedies for breach of fiduciary duties if any action by directors and officers
has a disadvantageous effect on either class of common stock" and "--Numerous
potential conflicts of interest exist between the classes of common stock which
may be difficult to resolve by our board or which may be resolved adversely to
one of the classes."
Many factors could affect the market values of the Celera Genomics stock or
the PE Biosystems stock, including our results of operations and those of each
of the groups, trading volume and general economic and market conditions. Market
values could also be affected by decisions by our board of directors or our
management that investors perceive to affect differently one class of common
stock compared to the other. These decisions could include changes to our
management and allocation policies, transfers of assets between groups,
allocations of corporate opportunities and financing resources between the
groups and changes in dividend policies.
THE FOLLOWING ILLUSTRATION DEMONSTRATES THE CALCULATION OF THE NUMBER OF
SHARES ISSUABLE UPON CONVERSION OF CELERA GENOMICS STOCK INTO SHARES OF PE
BIOSYSTEMS STOCK AT OUR OPTION. If:
- a Tax Event has not occurred,
- 50 million shares of Celera Genomics stock and 200 million shares of PE
Biosystems stock were outstanding immediately prior to a conversion, and
- the average market value of one share of the Celera Genomics stock and of
one share of PE Biosystems stock over the 20-trading day valuation period
was $100 and $75, respectively,
then each share of Celera Genomics stock could be converted into 1.46667 shares
of PE Biosystems stock based on the following calculation:
<TABLE>
<C> <C> <C> <S>
1.1 x $100 = 1.46667 shares
----
$75
</TABLE>
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REDEMPTION IN EXCHANGE FOR STOCK OF SUBSIDIARY. Our board of directors may
redeem on a pro rata basis all of the outstanding shares of Celera Genomics
stock for shares of the common stock of one or more of our wholly-owned
subsidiaries which own all of the assets and liabilities attributed to the
Celera Genomics group. We may redeem shares of common stock for subsidiary stock
only if we have legally available funds under Delaware law.
These provisions are intended to give us increased flexibility with respect
to spinning-off the assets of the Celera Genomics group by transferring the
assets of that group to one or more wholly-owned subsidiaries and redeeming the
shares of Celera Genomics stock in exchange for stock of such subsidiary or
subsidiaries. As a result of any such redemption, or a redemption of the PE
Biosystems stock under a similar provision for that stock, holders of each class
of common stock would hold securities of separate legal entities operating in
distinct lines of business. Such a redemption could be authorized by our board
of directors at any time in the future if it determines that, under the facts
and circumstances then existing, an equity structure comprised of the Celera
Genomics stock and the PE Biosystems stock is no longer in the best interests of
all of our stockholders as a whole.
SELECTION OF SHARES FOR REDEMPTION. If less than all of the outstanding
shares of Celera Genomics stock are to be redeemed, we will redeem such shares
proportionately from among the holders of outstanding shares of Celera Genomics
stock or by such method as may be determined by our board of directors to be
equitable.
FRACTIONAL INTERESTS; TRANSFER TAXES. We will not be required to issue
fractional shares of any capital stock or any fractional securities to any
holder of Celera Genomics stock upon any conversion, redemption, dividend or
other distribution described above. If a fraction is not issued to a holder, we
will pay cash instead of such fraction.
We will pay all documentary, stamp or similar issue or transfer taxes that
may be payable in respect of the issue or delivery of any shares of capital
stock and/or other securities on conversion or redemption of shares.
VOTING RIGHTS
The entire voting power of our stockholders will be vested in the holders of
common stock, who will be entitled to vote on any matter on which our
stockholders are entitled to vote, except as otherwise required by our board of
directors or provided by law or stock exchange rules, by the terms of any
outstanding preferred stock or by any provision our new certificate of
incorporation restricting the power to vote on a specified matter to other
stockholders.
Holders of Celera Genomics stock and PE Biosystems stock will vote as a
single class on each matter on which holders of common stock are generally
entitled to vote.
On all matters as to which both Celera Genomics stock and PE Biosystems
stock will vote together as a single class, each share of Celera Genomics stock
will have a number of votes equal to the quotient of the average market value of
a share of Celera Genomics stock over the 20-trading day period ending on the
10th trading day prior to the record date for determining the holders of common
stock entitled to vote, divided by the average market value of a share of PE
Biosystems stock over the same period, while each share of PE Biosystems stock
will have one vote.
Accordingly, the relative per share voting rights of the PE Biosystems stock
and the Celera Genomics stock will fluctuate depending on changes in the
relative market values of shares of such classes of common stock.
The PE Biosystems stock currently has a substantial majority of the voting
power because the aggregate market value of the outstanding shares of PE
Biosystems stock is substantially greater than the aggregate market value of the
outstanding shares of Celera Genomics stock.
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We will set forth the number of outstanding shares of PE Biosystems stock
and Celera Genomics stock in our Annual Report on Form 10-K and our Quarterly
Reports on Form 10-Q filed under the Securities Exchange Act of 1934. We will
disclose in any proxy statement for a stockholders' meeting the number of
outstanding shares and per share voting rights of the Celera Genomics stock.
If shares of only Celera Genomics stock are outstanding, each share will
have one vote. If Celera Genomics stock is entitled to vote as a separate class
with respect to any matter, each share will, for purpose of such vote, have one
vote on such matter.
Fluctuations in the relative voting rights of the Celera Genomics stock and
the PE Biosystems stock could influence an investor interested in acquiring and
maintaining a fixed percentage of the voting power of our stock to acquire such
percentage of both classes of common stock, and would limit the ability of
investors in one class to acquire for the same consideration relatively more or
less votes per share than investors in the other class.
The holders of Celera Genomics stock and PE Biosystems stock will not have
any rights to vote separately as a class on any matter coming before our
stockholders, except for certain limited class voting rights provided under
Delaware law. In addition to the approval of the holders of a majority of the
voting power of all shares of common stock voting together as a single class,
the approval of a majority of the outstanding shares of the Celera Genomics
stock or the PE Biosystems stock, voting as a separate class, would be required
under Delaware law to approve any amendment to our certificate of incorporation
that would change the par value of the shares of the class or alter or change
the powers, preferences or special rights of the shares of such class so as to
affect them adversely. As permitted by Delaware law, our certificate of
incorporation provides that an amendment to our certificate of incorporation
that increases or decreases the number of authorized shares of Celera Genomics
stock or PE Biosystems stock will only require the approval of the holders of a
majority of the voting power of all shares of common stock, voting together as a
single class, and will not require the approval of the holders of the class of
common stock affected by such amendment, voting as a separate class.
THE FOLLOWING ILLUSTRATION DEMONSTRATES THE CALCULATION OF THE NUMBER OF
VOTES EACH SHARE OF CELERA GENOMICS STOCK WOULD BE ENTITLED ON ALL MATTERS ON
WHICH HOLDERS OF CELERA GENOMICS STOCK AND PE BIOSYSTEMS STOCK VOTE AS A SINGLE
CLASS. If the average market value for the 20-trading day valuation period was
$100 for the Celera Genomics stock and $75 for the PE Biosystems stock, each
share of PE Biosystems stock would have one vote and each share of Celera
Genomics stock would have 1.333 votes based on the following calculation:
<TABLE>
<C> <C> <S>
$100 = 1.333 votes
----
$75
</TABLE>
Assuming 200 million shares of PE Biosystems stock and 50 million shares of
Celera Genomics stock were outstanding, the shares of PE Biosystems stock would
represent approximately 75% of our total voting power and the shares of Celera
Genomics stock would represent approximately 25% of our total voting power.
LIQUIDATION
Under our certificate of incorporation, in the event of our dissolution,
liquidation or winding up, after payment or provision for payment of the debts
and other liabilities and full preferential amounts to which holders of any
preferred stock are entitled, regardless of the group to which such shares of
preferred stock were attributed, the holders of Celera Genomics stock and PE
Biosystems stock will be entitled to receive our assets remaining for
distribution to holders of common stock on a per share basis in proportion to
the liquidation units per share of such class. After giving effect to the
two-for-one stock splits on Celera Genomics stock and PE Biosystems stock
declared on January 20, 2000, each share of Celera Genomics
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stock will have .0725 liquidation units and each share of PE Biosystems stock
will have 0.25 liquidation units.
The number of liquidation units to which each share of Celera Genomics stock
is entitled will not be changed without the approval of holders of the class of
common stock adversely affected except as described below. As a result, the
liquidation rights of the holders of the respective classes of common stock may
not bear any relationship to the relative market values or the relative voting
rights of the two classes.
No holder of PE Biosystems stock will have any special right to receive
specific assets of the PE Biosystems group and no holder of Celera Genomics
stock will have any special right to receive specific assets of the Celera
Genomics group in the case of our dissolution, liquidation or winding up.
Neither a merger nor consolidation of PE Corporation into or with any other
corporation, nor any sale, transfer or lease of all or any part of our assets,
will, alone, be deemed a liquidation or winding up of PE Corporation, or cause
the dissolution of PE Corporation, for purposes of these liquidation provisions.
DETERMINATIONS BY THE BOARD OF DIRECTORS
Any determinations made in good faith by our board of directors under any
provision described under "Description Capital Stock," and any determinations
with respect to any group or the rights of holders of shares of Celera Genomics
stock or PE Biosystems stock, will be final and binding on all of our
stockholders, subject to the rights of stockholders under applicable Delaware
law and under the federal securities laws.
PREEMPTIVE RIGHTS
The holders of the Celera Genomics stock will not have any preemptive rights
or any rights to convert their shares into any other securities of PE
Corporation.
CELERA GENOMICS DESIGNATED SHARES
The PE Biosystems group may hold in the future an equity interest in the
Celera Genomics group in the form of "Celera Genomics Designated Shares" as a
result of future contributions of cash or property to the Celera Genomics group
described below. Our board of directors could create Celera Genomics Designated
Shares if it determines that (1) the Celera Genomics group requires additional
equity capital to finance its business and (2) the PE Biosystems group should
supply that capital.
Celera Genomics Designated Shares are authorized shares of Celera Genomics
stock that are not issued and outstanding, but which our board of directors,
pursuant to the management and allocation policies, may from time to time issue
without allocating the proceeds or other benefits of such issuance to the Celera
Genomics group. The Celera Genomics Designated Shares are not eligible to
receive dividends and can not be voted.
The number of Celera Genomics Designated Shares are currently zero but from
time to time will be:
- increased by a number equal to the quotient obtained by dividing (1) the
fair value of all cash or other property that PE Biosystems group
contributes to the Celera Genomics group by (2) the average market value
of Celera Genomics stock over the 20-trading day period immediately prior
to the date of contribution;
- decreased by a number equal to the quotient obtained by dividing (1) the
fair value of all cash or other property that Celera Genomics group
transfers to the PE Biosystems group to reduce the number of Celera
Genomics Designated Shares by (2) the average market value of Celera
Genomics stock over the 20-trading day period immediately prior to the
date of transfer;
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- decreased by the number of newly issued shares of Celera Genomics stock,
the proceeds of which have been allocated to the PE Biosystems group, or
issued as a dividend or distribution or by reclassification, exchange or
otherwise to holders of PE Biosystems stock; and
- adjusted as appropriate to reflect subdivisions and combinations of the
Celera Genomics stock and dividends or distributions of shares of Celera
Genomics stock to holders of Celera Genomics stock and other
reclassifications of Celera Genomics stock.
PE BIOSYSTEMS STOCK
DIVIDENDS
The holders of shares of PE Biosystems stock shall be paid dividends in a
manner similar to that described above under "Celera Group Stock--Dividends."
CONVERSION AND REDEMPTION
The holders of shares of PE Biosystems stock shall have conversion and
redemption rights similar to those described above under "Celera Group
Stock--Conversion and Redemption," except as noted below.
REDEMPTION FOR STOCK OF A SUBSIDIARY. As discussed above, our board of
directors may redeem on a pro rata basis all of the outstanding shares of PE
Biosystems Stock or Celera Genomics stock for shares of common stock of one or
more of our wholly-owned subsidiaries which own all of the assets or liabilities
attributed to the relevant group. If at the time of any such redemption of PE
Biosystems stock, the PE Biosystems group is entitled to Celera Genomics
Designated Shares, we will also issue an equal number of shares of Celera
Genomics stock either to (1) the holders of PE Biosystems stock or (2) one or
more of those PE Biosystems group subsidiaries.
VOTING RIGHTS
The holders of shares of PE Biosystems stock have the voting rights
described above under the caption "Celera Genomics Stock--Voting Rights," except
that each share of PE Biosystems stock will have one vote on all matters as to
which both classes of common stock vote together as a simple class.
LIQUIDATION
In the event of our liquidation, dissolution or termination, the holders of
shares of PE Biosystems stock are entitled to receive funds in the amounts
described above under "Celera Genomics Stock--Liquidation," except that each
share of PE Biosystems stock will have 0.25 liquidation unit.
RIGHTS AGREEMENT
We have issued participating preferred stock purchase rights (the "existing
rights") to all holders of Celera Genomics stock under our rights agreement
dated as of April 28, 1999 with our rights agent, BankBoston, N.A. Each existing
right entitles the holder to purchase shares of participating junior preferred
stock as follows:
- one right for each share of PE Biosystems stock (a "PE Biosystems Right"),
which will allow holders to purchase shares of a newly designated
Series A participating junior preferred stock of PE Corporation if a
"distribution date" occurs; and
- one right for each share of Celera Genomics stock (a "Celera Genomics
Right"), which will allow holders to purchase shares of a newly designated
Series B participating junior preferred stock of PE Corporation if a
"distribution date" occurs.
We refer to the PE Biosystems Rights and the Celera Genomics Rights as the
"Rights."
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A "distribution date" will occur upon the earlier of:
- the tenth day after a public announcement that a person or group of
affiliated or associated persons other than us or our employee benefit
plans (an "acquiring person") has acquired beneficial ownership of
(1) 15% or more of the shares of PE Biosystems stock then outstanding or
(2) 15% or more of the shares of Celera Genomics stock then outstanding;
or
- the tenth business day or a later day determined by our board of directors
following the commencement of a tender or exchange offer that would result
in such person or group beneficially owning such number of shares.
Until the distribution date, the Rights will be transferred only with the common
stock.
Following the distribution date, holders of Rights will be entitled to
purchase from PE Corporation:
- in the case of a PE Biosystems Right, one one-thousandth of a share of
Series A participating junior preferred stock at a purchase price of $425,
subject to adjustment (the "Series A Purchase Price"); and
- in the case of a Celera Genomics Right, one one-thousandth of a share of
Series B participating junior preferred stock at a purchase price of $125,
subject to adjustment (the "Series B Purchase Price").
If any person or group becomes an acquiring person:
- a PE Biosystems Right will entitle its holder to purchase, at the
Series A Purchase Price, a number of shares of PE Biosystems stock with a
market value equal to twice the Series A Purchase Price; and
- a Celera Genomics Right will entitle its holder to purchase, at the
Series B Purchase Price, a number of shares of Celera Genomics stock with
a market value equal to twice the Series B Purchase Price.
In certain circumstances after the Rights have been triggered, we may
exchange the Rights, other than Rights owned by an acquiring person, at an
exchange ratio of one share of PE Biosystems stock per PE Biosystems Right and
one share of Celera Genomics stock per Celera Genomics Right.
If, following the time a person becomes an acquiring person:
- PE Corporation is acquired in a merger or other business combination
transaction and PE Corporation is not the surviving Corporation;
- any person consolidates or merges with PE Corporation and all or part of
the common stock is converted or exchanged for securities, cash or
property of any other person; or
- 50% or more of PE Corporation's assets or earnings power is sold or
transferred,
each PE Biosystems Right and each Celera Genomics Right will entitle its holder
to purchase, for the Series A Purchase Price or Series B Purchase Price, a
number of shares of common stock of the surviving entity in any such merger,
consolidation or other business combination or the purchaser in any such sale or
transfer with a market value equal to twice the Series A Purchase Price or
Series B Purchase Price.
The Rights will expire on April 28, 2009 unless we extend or terminate them
as described below.
At any time until a person becomes an acquiring person, our board of
directors may redeem all of the Rights at a price of $.01 per Right. On the
redemption date, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive this price.
A holder of a Right will not have any rights as a stockholder of PE
Corporation, including the right to vote or to receive dividends, until a Right
is exercised.
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At any time prior to the time that any person becomes an acquiring person,
we may, without the approval of any holders of Rights, supplement or amend any
provision of the new rights agreement in any manner, whether or not such
supplement or amendment is adverse to any holders of the Rights. From and after
the time a person becomes an acquiring person, we may, without the approval of
any holders of Rights, supplement or amend the rights agreement:
- to cure any ambiguity,
- to correct or supplement any provision that may be defective or
inconsistent, or
- in any manner that we may deem necessary or desirable and which does not
adversely affect the interests of the holders of Rights, other than an
acquiring person.
Our rights agreement contains provisions designed to prevent the inadvertent
triggering of the Rights. For example, it gives a person who has inadvertently
acquired 15% or more of the outstanding shares of a class of common stock and
does not have any intention of changing or influencing the control of PE
Corporation the opportunity to sell a sufficient number of shares so that such
acquisition would not trigger the Rights. In addition, the Rights will not be
triggered and a divestiture of shares will not be required by our repurchase of
shares of common stock outstanding which could raise the proportion of shares
held by a person to over the applicable 15% threshold. However, any person who
exceeds such threshold as a result of our stock repurchases will trigger the
Rights if such person subsequently acquires any additional shares of common
stock.
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MANAGEMENT AND ALLOCATION POLICIES
Because the Celera Genomics group and the PE Biosystems group are each part
of a single company, PE Corporation has also carefully considered a number of
other issues with respect to the financing of the Celera Genomics group and the
PE Biosystems group, including competition between groups, inter-group business
transactions, access to technology and know-how and corporate opportunities and
the allocation of debt, corporate overhead, interest, taxes and other charges
between the Celera Genomics group and the PE Biosystems group. Our board of
directors and management have established policies to separate the business and
operations of the Celera Genomics group from those of the PE Biosystems group
and to operate each group on a stand-alone basis. The financial statements of
the Celera Genomics group reflect the application of these management and
allocation policies adopted by the board of directors. These policies, which are
summarized below, establish guidelines to allocate costs and charges between the
two groups on an objective basis and, except as described below, help ensure
that transactions between the Celera Genomics group and the PE Biosystems group
are made on terms that approximate the terms that could be obtained from
unaffiliated third parties.
Our board of directors may modify or rescind these policies, or may adopt
additional policies, in its sole discretion, although it has no present plans to
do so. A board of directors' decision to modify or rescind such policies, or
adopt additional policies could have different effects upon holders of Celera
Genomics stock and holders of PE Biosystems stock or could result in a benefit
or detriment to one class of stockholders compared to the other class. Our board
of directors would make any such decision in accordance with its good faith
business judgment that such decision is in the best interests of PE Corporation
and all of our stockholders as a whole. Under Delaware law, absent an abuse of
discretion, a director or officer will be deemed to have satisfied his or her
fiduciary duties to PE Corporation and our stockholders if that person is
disinterested and acts in accordance with his or her good faith business
judgment in the interests of PE Corporation and all of our stockholders as a
whole.
MANAGEMENT
Each of the Celera Genomics group and the PE Biosystems group has separate
management teams to ensure that the efforts of each team of managers are focused
on the business and operations for which they have responsibility.
COMMON STOCK OWNERSHIP OF DIRECTORS AND SENIOR OFFICERS
As a policy, our board of directors periodically monitors the ownership of
shares of Celera Genomics stock and shares of PE Biosystems stock by our
directors and senior officers as well as their option holdings and other
benefits so that their interests are not misaligned with the two classes of
common stock and with their duty to act in the best interests of PE Corporation
and our stockholders as a whole. However, because of the differences in trading
values between the Celera Genomics stock and the PE Biosystems stock, the actual
value of their interests in the Celera Genomics stock and PE Biosystems stock
will vary significantly. Accordingly, it is possible that directors or senior
officers could favor one group over the other due to their stock and other
benefits.
FINANCING ACTIVITIES
We manage most financial activities on a centralized basis. These activities
include the investment of surplus cash and the issuance and repurchase of any
debt or preferred stock. If we transfer cash or other property allocated to one
group to the other group, we will account for such transfer in one of the
following ways, as determined by our board of directors:
- As a reallocation of "pooled" debt or preferred stock, as described under
"Company Debt and Preferred Stock" below;
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- As a short-term or long-term loan from one group to the other, or as a
repayment of a previous borrowing, as described under "Inter-Group Loans"
below;
- As an increase or decrease in the number of Celera Genomics Designated
Shares, as described under "Future Equity Contributions to be Reflected as
Celera Genomics Designated Shares" below; or
- As a sale of assets between the two groups.
There are no specific criteria to determine which of the foregoing will be
applied to a particular transfer of cash or property from one group to the
other. Our board of directors will make these determinations, in the exercise of
its business judgment based on all relevant circumstances, including the
financing needs and objectives of the receiving group, the investment objectives
of the transferring group, the availability, cost and time associated with
alternative financing sources, prevailing interest rates and general economic
conditions. We will make all transfers of material assets from one group to the
other on a fair value basis for the foregoing purposes, as determined by our
board of directors. See "--Transfers of Assets Between Groups."
Although we may allocate our debt and preferred stock between groups, the
debt and preferred stock will remain our obligations and all of our stockholders
will be subject to the risks associated with those obligations. See "Risk
Factors--You will be stockholders of one company and, therefore, financial
effects on one group could adversely affect the other."
COMPANY DEBT AND PREFERRED STOCK. We will allocate our debt between the
groups or, if we so determine, in its entirety to a particular group. We will
allocate preferred stock, if issued, in a similar manner. We refer to such debt
and preferred stock as being "pooled."
Cash allocated to one group that is used to repay pooled debt or redeem
pooled preferred stock will decrease such group's allocated portion of the
pooled debt or preferred stock. Cash or other property allocated to one group
that is transferred to the other group will, if so determined by our board of
directors, decrease the transferring group's allocated portion of the pooled
debt or preferred stock and, correspondingly, increase the recipient group's
allocated portion of the pooled debt or preferred stock.
Pooled debt will bear interest for group financial statement purposes at a
rate equal to the weighted average interest rate of the debt calculated on a
quarterly basis and applied to the average pooled debt balance during the
period. Preferred stock, if issued and if pooled in a manner similar to the
pooled debt, will bear dividends for group financial statement purposes at a
rate based on the weighted average dividend rate of the preferred stock
similarly calculated and applied. Any expense related to increases in pooled
debt or preferred stock will be reflected in the weighted average interest or
dividend rate of such pooled debt or preferred stock as a whole.
If we allocate debt for a particular financing in its entirety to one group,
that debt will bear interest for group financial statement purposes at the rate
that we determine. If we allocate preferred stock in its entirety to one group,
we will charge the dividend cost to that group in a similar manner. If the
interest or dividend cost is higher than our actual cost, the other group will
receive a credit for an amount equal to the difference as compensation for the
use of our credit capacity. Any expense related to debt or preferred stock that
is allocated in its entirety to a group will be allocated in whole to that
group.
INTER-GROUP LOANS. Cash or other property that we allocate to one group
that is transferred to the other group, could, if so determined by our board of
directors, be accounted for either as a short-term loan or as a long-term loan.
Short-term loans will bear interest at a rate equal to the weighted average
interest rate of our pooled debt. If we do not have any pooled debt, our board
of directors will determine the rate of interest for such loan. Our board of
directors will establish the terms on which long-term loans between the groups
will be made, including interest rate, amortization schedule, maturity and
redemption terms.
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FUTURE EQUITY CONTRIBUTIONS TO BE REFLECTED AS CELERA GENOMICS DESIGNATED
SHARES. Cash or other property that we allocate to the PE Biosystems group that
is contributed as additional equity to the Celera Genomics group will increase
the number of Celera Genomics Designated Shares. Cash or other property that we
allocate to the Celera Genomics group that is transferred to the PE Biosystems
group will, if so determined by our board of directors, decrease the number of
Celera Genomics Designated Shares.
EQUITY ISSUANCES AND REPURCHASES AND DIVIDENDS. We will reflect all
financial effects of issuances and repurchases of shares of Celera Genomics
stock or shares of PE Biosystems stock entirely in the financial statements of
that group except as described in the next sentence. We will reflect all
financial effects of issuances of additional shares of Celera Genomics stock,
which have been reflected as a reduction in the number of Celera Genomics
Designated Shares, entirely in the financial statements of the PE Biosystems
group. We will reflect financial effects of dividends or other distributions on,
and purchases of, shares of Celera Genomics stock or PE Biosystems stock
entirely in the respective financial statements of the Celera Genomics group and
the PE Biosystems group.
COMPETITION BETWEEN GROUPS
Neither the PE Biosystems group nor the Celera Genomics group will engage in
each other's principal businesses, except for joint transactions with each
other. Joint transactions may include joint ventures or other collaborative
arrangements to develop, market, sell and support new products and services.
Third parties may also participate in such joint transactions. See "--Transfers
of Assets Between Groups--Joint Transactions." The terms of any joint
transactions will be determined by our chief executive officer or, in
appropriate circumstances, our board of directors.
Our chief executive officer or, in appropriate circumstances, our board of
directors will make decisions whether to permit indirect competition between the
groups. Indirect competition could occur if and when:
- one group uses products of third parties in that group's products rather
than using the other group's products;
- a third party uses a product of one group in the third party's products
which compete with the other group's products; or
- a group licenses technology allocated to that group to a third party that
is a competitor of the other group.
The groups may compete in a business which is not a principal business of
the other group.
TRANSFERS OF ASSETS BETWEEN GROUPS
Our certificate of incorporation permits the transfer of assets between
groups without stockholder approval. Our board of directors has determined that
all such transfers will be made at fair value, as determined by our board of
directors, except as described below. The consideration for such transfers may
be paid by one group to the other in cash or other consideration, as determined
by our board of directors.
Our board of directors has adopted specific policies for the sale of
products and services between groups and joint transactions with each other and
third parties as set forth below.
SALES OF PRODUCTS AND SERVICES BETWEEN GROUPS. A group will sell products or
services to the other group on terms that would be available from third parties
in commercial transactions. If terms for such transactions are not available
from a third party, the purchasing group will
(1) pay for such products at fair value as determined by our board of
directors and
(2) pay for such services at fair value, as determined by our board of
directors, or at the cost, including overhead, of the selling group.
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For fiscal 1999, the Celera Genomics group's R&D expenses included
$15.2 million for purchases of instruments, lease payments on instruments and
the purchase of consumables, and $2.1 million of contracted R&D services from
the PE Biosystems group.
JOINT TRANSACTIONS. The groups may from time to time engage in transactions
jointly, including with third parties, as described under "--Competition Between
Groups." Research and development and other services performed by one group for
a joint venture or other collaborative arrangement will be charged at fair
value, as determined by our board of directors.
ACCESS TO TECHNOLOGY AND KNOW-HOW
Each group will have free access to all of our technology and know-how,
excluding products and services of the other group, that may be useful in that
group's business, subject to obligations and limitations applicable to PE
Corporation and to such exceptions that our board of directors may determine.
The groups will consult with each other on a regular basis concerning technology
issues that affect both groups.
REVIEW OF CORPORATE OPPORTUNITIES
Our board of directors will review any matter which involves the allocation
of a corporate opportunity to either the Celera Genomics group or the PE
Biosystems group or in part to the Celera Genomics group and in part to the PE
Biosystems group. In accordance with Delaware law, our board of directors will
make its determination with regard to the allocation of any such opportunity and
the benefit of such opportunity in accordance with their good faith business
judgment of the best interests of PE and all of our stockholders as a whole.
Factors that our board of directors would consider in making this allocation
include:
- whether a particular corporate opportunity is principally related to the
business of the Celera Genomics group or the PE Biosystems group;
- whether one group, because of its managerial or operational expertise,
will be better positioned to undertake the corporate opportunity; and
- existing contractual agreements and restrictions.
FINANCIAL STATEMENTS; ALLOCATION MATTERS
We prepare financial statements in accordance with generally accepted
accounting principles, consistently applied, for the Celera Genomics group and
the PE Biosystems group, and these financial statements, taken together,
comprise all of the accounts included in the PE Corporation consolidated
financial statements. The financial statements of each of the Celera Genomics
group and the PE Biosystems group reflect the financial condition, results of
operations and cash flows of the businesses included therein.
Group financial statements also include allocated portions of the PE
Corporation debt, interest, corporate overhead and costs of administrative
shared services and taxes. We make these allocations for the purpose of
preparing each group's financial statements; however, holders of Celera Genomics
stock and PE Biosystems stock will continue to be subject to all of the risks
associated with an investment in PE corporation and all of our businesses,
assets and liabilities.
CORPORATE OVERHEAD AND ADMINISTRATIVE SHARED SERVICES
We allocate a portion of our corporate overhead to the Celera Genomics group
and the PE Biosystems group based upon the use of services by that group.
Corporate overhead includes costs of our executive management, human resources,
legal, accounting and auditing, tax, treasury, strategic planning
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and environmental services functions. We allocate in a similar manner a portion
of our costs of administrative shared services, such as information technology
services. Where determinations based on use alone are not practical, we will use
other methods and criteria that we believe are equitable and provide a
reasonable estimate of the cost attributable to the groups.
TAXES
We will determine the federal income taxes of PE Corporation and our
subsidiaries which own assets allocated between the groups on a consolidated
basis. We allocate consolidated federal income tax provisions and related tax
payments or refunds between the groups based principally on the taxable income
and tax credits directly attributable to each group. Such allocations will
reflect each group's contribution, whether positive or negative, to PE
Corporation's consolidated federal taxable income and the consolidated federal
tax liability and tax credit position. We will credit tax benefits that cannot
be used by the group generating those benefits but can be used on a consolidated
basis to the group that generated such benefits. Inter-group transactions will
be treated as taxed as if each group was a stand-alone company. Tax benefits
generated by the Celera Genomics group commencing July 1, 1998, which can then
be utilized on a consolidated basis, will be credited to the Celera Genomics
group up to a maximum amount of $75 million. Through December 31, 1999,
$39.5 million has been credited to the Celera Genomics group.
Had the groups filed separate tax returns, the provision for income taxes
and net income or loss for each group would not have differed from the amounts
reported in the groups' statements of income for the year ended June 30, 1999 or
for the three-month periods ended December 31, 1998 and 1999. However, the
amounts of current and deferred taxes and taxes payable or refundable allocated
to each group in these historical financial statements may differ from those
that would have been allocated to each group had they filed separate income tax
returns.
Depending on the tax laws of the respective jurisdictions, we calculate
state and local income taxes on either a consolidated or combined basis or on a
separate corporation basis. We will allocate state income tax provisions and
related tax payments or refunds determined on a consolidated or combined basis
between the groups based on their respective contributions to such consolidated
or combined state taxable incomes. We will allocate state and local income tax
provisions and related tax payments which we determine on a separate corporation
basis between the groups in a manner designed to reflect the respective
contributions of the groups to the corporation's separate state or local taxable
income.
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CERTAIN UNITED STATES TAX CONSEQUENCES
The following discussion is a summary of the material United States federal
income tax consequences of the ownership of Celera Genomics stock. This
discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Department regulations, published positions of the Internal
Revenue Service (the "IRS") and court decisions now in effect, all of which are
subject to change. In particular Congress could enact legislation affecting the
treatment of stock with characteristics similar to Celera Genomics stock, or the
Treasury Department could issue regulations that change current law. Any future
legislation or regulations could apply retroactively to the offering of Celera
Genomics stock.
This discussion deals only with Celera Genomics stock held as a capital
asset. This discussion does not represent a detailed description of the U.S.
federal income tax consequences applicable to you if you are subject to special
treatment under the U.S. federal income tax laws (including if you are a dealer
in securities or currencies, a financial institution, an insurance company, a
tax-exempt organization, a person holding the Celera Genomics stock as part of a
hedging, integrated or conversion transaction, constructive sale or straddle, a
trader in securities that has elected the mark-to-market method of accounting
for your securities or a U.S. person whose "functional currency" is not the U.S.
dollar). YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH REGARD TO THE APPLICATION
OF THE FEDERAL INCOME TAX LAWS, AS WELL AS TO THE APPLICABILITY AND EFFECT OF
ANY STATE, LOCAL OR FOREIGN TAX LAWS TO WHICH YOU MAY BE SUBJECT.
In the opinion of Simpson Thacher & Bartlett, our counsel, for federal
income purposes, Celera Genomics stock will be considered stock of PE
Corporation. Accordingly, for federal income tax purposes, we believe that we
will not recognize any income, gain or loss as a result of the issuance of
Celera Genomics stock.
No ruling has been sought from the IRS. The IRS has announced that it will
not issue advance rulings on the classification of an instrument whose dividend
rights are determined by reference to the earnings of a segregated portion of
the issuing corporation's assets, including assets held by a subsidiary. Simpson
Thacher & Bartlett's opinion is not binding on the IRS. In addition, there are
no court decisions or other authorities bearing directly on the classification
of instruments with characteristics similar to those of Celera Genomics stock.
It is possible, therefore, that the IRS could assert that the issuance of the
Celera Genomics stock could result in taxation to us. Simpson Thacher &
Bartlett, however, is of the opinion that the IRS would not prevail in such an
assertion.
The Clinton Administration recently proposed legislation dealing with
tracking stock such as the Celera Genomics stock. Such proposal would, among
other things, grant authority to the IRS to treat tracking stock as something
other than stock or as stock of another entity. If this proposal is enacted, it
could have adverse tax consequences for us or for holders of Celera Genomics
stock. A similar proposal was made in 1999. Congress did not act on the 1999
proposal, and it is impossible to predict whether Congress will act upon this
proposal or any other proposal relating to tracking stock. Under our certificate
of incorporation, we may convert the Celera Genomics stock or the PE Biosystems
stock into shares of the other class without any premium if, based on the legal
opinion of our tax counsel, it is more likely than not as a result of the
enactment of legislative changes or administrative proposals or changes that we
or our stockholders will be subject to tax upon issuances of Celera Genomics
stock or PE Biosystems stock or such stock will not be treated as stock of PE
Corporation. Under current law, such an exchange should qualify as a tax-free
recapitalization such that no gain or loss is required to be recognized by us or
by holders of the stock to be exchanged.
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BACKUP WITHHOLDING
Certain non-corporate holders of Celera Genomics stock could be subject to
backup withholding at a rate of 31% on the payment of dividends on or proceeds
from the sale of such stock. Backup withholding will apply only if the
stockholder:
- fails to furnish its taxpayer identification number ("TIN"), which, for an
individual would be his or her social security number;
- furnishes an incorrect TIN;
- is notified by the IRS that it has failed to properly report payments of
interest or dividends; or
- under certain circumstances, fails to certify under penalties of perjury
that it has furnished a correct TIN and has not been notified by the IRS
that it is subject to backup withholding for failure to report payments of
interest or dividends.
Stockholders should consult their tax advisors regarding their qualification
for exemption from backup withholding and the procedures for obtaining such
exemption if applicable. The amount of any backup withholding from a payment to
a holder of Celera Genomics stock will be allowed as a credit against such
stockholder's federal income tax liability and may entitle such holder to a
refund, provided that the required information is furnished to the IRS.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a summary of the material United States federal income and
estate tax consequences of the ownership and disposition of Celera Genomics
stock to Non-United States holders. This discussion does not deal with all
aspects of United States income and estate taxation and does not deal with
foreign, state and local tax consequences that may be relevant to Non-United
States holders in light of their personal circumstances. Furthermore, this
discussion is based on the Code, Treasury regulations, published positions of
the IRS and court decisions now in effect, all of which are subject to change.
Each prospective Non-United States holder should consult its own tax advisor
with regard to the application of the federal income tax laws, as well as to the
applicability and effect of any state, local or foreign tax laws to which it may
be subject.
As used in this section, a "United States holder" means a beneficial owner
of stock that is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the United States;
- an estate the income of which is subject to United States federal income
taxation regardless of its source;
- a trust that:
- is subject to the supervision of a court within the United States and the
control of one or more United States persons; or
- has a valid election in effect under applicable United States Treasury
regulations to be treated as a United States person.
A "Non-United States holder" is a holder that is not a United States holder.
DIVIDENDS
Generally, any dividend paid to a Non-United States holder will be subject
to United States withholding tax either at a rate of 30% of the gross amount of
the dividend or at a lesser applicable treaty
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rate. However, dividends that are effectively connected with the conduct of a
trade or business within the United States and, where a tax treaty applies, that
are attributable to a United States permanent establishment are not subject to
the withholding tax but instead are subject to United States federal income tax
on a net income basis at applicable graduated individual or corporate rates.
Certain certification and disclosure requirements must be complied with in
order to be exempt from withholding under the effectively connected income
exemption. Any effectively connected dividends received by a foreign corporation
may, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or a lesser applicable treaty rate.
Until January 1, 2001, dividends paid to an address outside the United
States are presumed to be paid to a resident of that country, unless the payer
has knowledge to the contrary, for purposes of the withholding tax discussed
above and, under the current interpretation of the United States Treasury
regulations, for purposes of determining the applicability of a tax treaty rate.
However, under United States Treasury regulations, if you wish to claim the
benefit of an applicable treaty rate and avoid backup withholding, as discussed
below, for dividends paid after December 31, 2000, you will be required to
satisfy applicable certification and other requirements.
If you are eligible for a reduced treaty rate of United States withholding
tax pursuant to an income tax treaty, you may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the Internal
Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
If you are a Non-United States holder, you will generally not be subject to
United States federal income tax with respect to gain recognized on a sale or
other disposition of Celera Genomics stock unless:
- the gain is effectively connected with a trade or business in the United
States and, where a tax treaty provides, the gain is attributable to a
United States permanent establishment;
- if you are an individual and hold Celera Genomics stock as a capital
asset, you are present in the United States for 183 or more days in the
taxable year of the sale or other disposition and certain other conditions
are met; or
- we are or have been a "United States real property holding corporation"
for United States federal income tax purposes.
We believe that we are not, and do not anticipate becoming, a "United States
real property holding corporation" for United States federal income tax
purposes. If we were to become a United States real property holding
corporation, so long as Celera Genomics stock continues to be regularly traded
on an established securities market, you would be subject to federal income tax
on any gain from the sale or other disposition of such stock only if you
actually or constructively owned, during the five-year period preceding such
disposition, more than 5% of Celera Genomics stock.
Special rules may apply to certain Non-United States holders, such as
"controlled foreign corporations," "passive foreign investment companies,"
"foreign personal holding companies" and corporations that accumulate earnings
to avoid federal income tax, that are subject to special treatment under the
Code. These entities should consult their own tax advisors to determine the
United States federal, state, local and other tax consequences that may be
relevant to them.
BACKUP WITHHOLDING AND INFORMATION REPORTING
We must report annually to the Internal Revenue Service and to you the
amount of dividends paid to you and the tax withheld with respect to these
dividends, regardless of whether withholding was required. Copies of the
information returns reporting the dividends and withholding may also be made
available to
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<PAGE>
the tax authorities in the country in which you reside under the provisions of
an applicable income tax treaty.
Under current law, backup withholding at the rate of 31% generally will not
apply to dividends paid to you at an address outside the United States, unless
the payer has knowledge that you are a United States person. Under the final
regulations effective December 31, 2000, however, you will be subject to backup
withholding unless applicable certification requirements are met.
Payment of the proceeds of a sale of Celera Genomics stock within the United
States or conducted through certain U.S. related financial intermediaries is
subject to both backup withholding and information reporting unless you certify
under penalties of perjury that you are a Non-U.S. Holder, and the payer does
not have actual knowledge that you are a United States person, or you otherwise
establish an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against your United States federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
ESTATE TAX
Common stock held by an individual Non-United States holder at the time of
death will be included in that holder's gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., SG Cowen
Securities Corporation, ING Barings LLC and Bear, Stearns & Co. Inc. are acting
as representatives, have severally agreed to purchase, and PE Corporation has
agreed to sell to them, severally, the number of shares of Celera Genomics stock
indicated below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- -----------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Goldman, Sachs & Co.........................................
SG Cowen Securities Corporation.............................
ING Barings LLC.............................................
Bear, Stearns & Co. Inc.....................................
-----------
Total................................................. 3,230,000
===========
</TABLE>
The underwriters are offering the shares of Celera Genomics stock subject to
their acceptance of the shares from PE Corporation and subject to prior sale.
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of Celera Genomics
stock offered by this prospectus are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of Celera Genomics stock offered
by this prospectus if any such shares are taken. However, the underwriters are
not required to take or pay for the shares covered by the underwriters
over-allotment option described below.
The underwriters initially propose to offer part of the shares of Celera
Genomics stock directly to the public at the public offering price listed on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. Any underwriter may allow, and such dealers may reallow, a
concession not in excess of $ a share to other underwriters or to
certain dealers. After the initial offering of the shares of Celera Genomics
stock, the offering price and other selling terms may from time to time be
varied by the representatives.
PE Corporation has granted to the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to an aggregate of
484,500 additional shares of Celera Genomics stock at the public offering price
listed on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose of
covering overallotments, if any, made in connection with the offering of the
shares of Celera Genomics stock offered by this prospectus. To the extent the
option is exercised, each underwriter will become obligated, subject to certain
conditions, to purchase about the same percentage of the additional shares of
Celera Genomics stock as the number listed next to the underwriter's name in the
preceding table bears to the total number of shares of Celera Genomics stock
listed next to the names of all underwriters in the preceding table. If the
underwriters' option is exercised in full, the total price to the public would
be $ , the total underwriters' discounts and commissions would be
$ and total proceeds to PE Corporation would be $ .
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Each of PE Corporation and the directors and certain executive officers has
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, it will not, during the period
ending 90 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend or otherwise transfer or dispose of directly
or indirectly, any shares of Celera Genomics stock or any securities
convertible into or exercisable or exchangeable for Celera Genomics stock
(other than shares of PE Biosystems stock); or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
Celera Genomics stock, whether any transaction described above is to be
settled by delivery of Celera Genomics stock or such other securities, in
cash or otherwise.
The restrictions described in this paragraph do not apply to:
- the sale of shares to the underwriters;
- the issuance by PE Corporation of shares of Celera Genomics stock in
connection with acquisitions under certain circumstances;
- the issuance by PE Corporation of shares of Celera Genomics stock upon the
exercise of an option or a warrant or the conversion of a security
outstanding on the date of this prospectus of which the underwriters have
been advised in writing;
- transactions by any person other than PE Corporation relating to shares of
Celera Genomics stock or other securities acquired in open market
transactions after the completion of the offering of the shares;
- the issuance by PE Corporation of additional options to purchase Celera
Genomics stock under its existing stock option plans, provided such
options are not exercisable during such 90-day period; or
- the issuance by PE Corporation of shares of Celera Genomics stock under
its employee and director stock purchase plans.
In order to facilitate the offering of the Celera Genomics stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Celera Genomics stock. Specifically, the underwriters
may over-allot in connection with the offering, creating a short position in the
Celera Genomics stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the Celera Genomics stock, the
underwriters may bid for, and purchase, shares of Celera Genomics stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Celera Genomics stock
in the offering, if the syndicate repurchases previously distributed Celera
Genomics stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Celera Genomics stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
PE Corporation and the underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
From time to time, Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co.,
SG Cowen Securities Corporation and Bear, Stearns & Co. Inc. have provided, and
may continue to provide, investment banking services to PE Corporation for which
they have received customary compensation.
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LEGAL MATTERS
The validity of the issuance of the Celera Genomics Stock will be passed
upon for PE Corporation by Simpson Thacher & Bartlett, New York, New York.
Certain legal matters will be passed upon for the underwriters by Ropes & Gray,
Boston, Massachusetts.
EXPERTS
The consolidated financial statements of PE Corporation and the combined
financial statements of the PE Biosystems group as of June 30, 1999 and 1998 and
for each of the three years in the period ended June 30, 1999, incorporated in
this Prospectus by reference to the Annual Report on Form 10-K for the year
ended June 30, 1999 and the combined financial statements of the Celera Genomics
group as of June 30, 1999 and 1998 and for each of the three years in the period
ended June 30, 1999 included in this prospectus, have been so incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
A registration statement on Form S-3 with respect to the Celera Genomics
stock offered hereby (together with any amendments, exhibits and schedules
thereto) has been filed with the Securities and Exchange Commission under the
Securities Act. This prospectus does not contain all of the information
contained in such registration statement on Form S-3, certain portions of which
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. For further information with respect to PE Corporation, the
Celera Genomics group and the Celera Genomics stock offered hereby, reference is
made to the registration statement on Form S-3. Statements contained in this
prospectus regarding the contents of any contract or any other documents are not
necessarily complete and, in each instance, reference is hereby made to the copy
of such contract of document filed as an exhibit to the Annual Report on
Form 10-K or to the registration statement on Form S-3. The registration
statement may be inspected without charge at the Securities and Exchange
Commission's principal office in Washington D.C., and copies of all of any part
thereof may be obtained from the Public Reference section, Securities and
Exchange Commission, Washington D.C., 20549, upon payment of prescribed fees.
We also file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information we file with the SEC at its Public Reference Room at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the public
reference facilities maintained by the Commission at 75 Park Place, New York,
New York 10007, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms. Our SEC filings are available to
the public over the Internet at the SEC's web site at http://www.sec.gov. Our
stock is listed on the New York Stock Exchange. You can inspect and copy our
reports and other information at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005. You can also obtain
additional information at the PE Corporation website at www.pecorporation.com
and the Celera Genomics group website at www.celera.com.
The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information.
We incorporate by reference our documents listed below and any future
filings we make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, prior to the termination of this offering:
(a) Annual Report on Form 10-K for the fiscal year ended June 30, 1999.
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<PAGE>
(b) Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
(c) Quarterly Report on Form 10-Q for the quarter ended December 31, 1999.
(d) The descriptions of our common stock and rights to purchase
participating junior preferred stock set forth in our registration
statements filed pursuant to Section 12 of the Exchange Act and any
amendment or report filed for purpose of updating any of those
descriptions.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our 10-Q, 8-K and 10-K reports to the Securities and Exchange
Commission. Also note that we provide a cautionary discussion of risks and
uncertainties relevant to our business in the "Risk Factors" section of this
prospectus. These are factors that we think could cause our actual results to
differ materially from expected results. Other factors besides those listed here
could also adversely affect us. This discussion is provided as permitted by the
Private Securities Litigation Reform Act of 1995.
We will provide you, without charge, on your written or oral request, a copy
of any or all of the information incorporated by reference in this prospectus,
other than exhibits to such information (unless such exhibits are specifically
incorporated by reference into the information that this prospectus
incorporates). Requests for such copies should be directed to the Secretary, PE
Corporation, 761 Main Avenue, Norwalk, Connecticut 06859 (telephone:
203-762-1000).
96
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Celera Genomics Group
Report of Independent Accountants......................... F-2
Combined Statements of Operations for the Years Ended
June 30, 1997, 1998, and 1999, and for the Six Months
Ended December 31, 1998 and 1999 (unaudited)............ F-3
Combined Statements of Financial Position at June 30, 1998
and 1999, and at December 31, 1999 (unaudited).......... F-4
Combined Statements of Cash Flows for the Years Ended
June 30, 1997, 1998, and 1999, and for the Six Months
Ended December 31, 1998 and 1999 (unaudited)............ F-5
Combined Statements of Group Equity at June 30, 1996,
1997, 1998, and 1999, and December 31, 1999
(unaudited)............................................. F-6
Notes to Combined Financial Statements.................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
PE Corporation
The stock split described in Note 1 to the combined financial statements has
not been consummated at February 10, 2000. When it has been consummated, we will
be in a position to furnish the following report:
"In our opinion, the accompanying combined statements of financial
position and the related combined statements of operations, of group equity,
and of cash flows present fairly, in all material respects, the financial
position of the Celera Genomics group of PE Corporation at June 30, 1999 and
1998, and the results of its operations and its cash flows for each of the
three fiscal years in the period ended June 30, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the management of PE Corporation; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As described above and more fully in Note 1 to the Celera Genomics group
combined financial statements, the Celera Genomics group is a group of
PE Corporation; accordingly, the combined financial statements of the Celera
Genomics group should be read in conjunction with the audited financial
statements of PE Corporation."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
July 30, 1999
F-2
<PAGE>
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED DECEMBER 31,
(DOLLAR AMOUNTS IN THOUSANDS ------------------------------ -------------------
EXCEPT PER SHARE AMOUNTS) 1997 1998 1999 1998 1999
- ------------------------------------------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $ 903 $ 4,211 $ 12,541 $ 5,631 $ 16,625
COSTS AND EXPENSES.........................
Research and development................... 3,976 10,279 48,448 12,937 70,333
Selling, general and administrative........ 2,228 6,725 28,255 10,606 17,932
Special charges............................ -- -- 4,616 573 --
Acquired research and development.......... 26,801 -- -- -- --
-------- -------- -------- -------- --------
OPERATING LOSS............................. (32,102) (12,793) (68,778) (18,485) (71,640)
Interest expense........................... -- -- -- -- 661
Interest income............................ -- -- 1,245 -- 5,107
-------- -------- -------- -------- --------
LOSS BEFORE INCOME TAXES................... (32,102) (12,793) (67,533) (18,485) (67,194)
Benefit for income taxes................... 1,855 4,478 22,639 6,269 23,518
-------- -------- -------- -------- --------
NET LOSS................................... $(30,247) $ (8,315) $(44,894) $(12,216) $(43,676)
======== ======== ======== ======== ========
NET LOSS PER SHARE (SEE NOTE 1)
Basic and diluted...................... $ (.89) $ (.84)
</TABLE>
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP
COMBINED FINANCIAL STATEMENTS.
F-3
<PAGE>
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
AT JUNE 30, AT
------------------- DECEMBER 31,
(DOLLAR AMOUNTS IN THOUSANDS) 1998 1999 1999
- ------------------------------------------------------------ -------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ -- $ 71,491 $ 53,955
Note receivable from the PE Biosystems group (see
Note 6)................................................. -- 150,000 150,000
Tax benefit receivable from the PE Biosystems group (see
Note 1)................................................. -- 9,935 9,413
Accounts receivable....................................... 756 3,276 9,788
Prepaid expenses and other current assets................. 138 3,454 13,017
-------- -------- --------
Total current assets........................................ 894 238,156 236,173
Property, plant and equipment, net.......................... 4,198 104,192 109,043
Other long-term assets...................................... 1,247 2,372 4,313
-------- -------- --------
TOTAL ASSETS................................................ $ 6,339 $344,720 $349,529
======== ======== ========
LIABILITIES AND GROUP EQUITY
Current liabilities
Loans payable............................................. $ -- $ -- $ 46,000
Accounts payable.......................................... 488 19,861 14,711
Accrued salaries and wages................................ 236 4,179 4,542
Deferred revenues......................................... 250 12,032 11,826
Other accrued expenses.................................... 1,080 9,281 6,646
-------- -------- --------
Total current liabilities................................... 2,054 45,353 83,725
Other long-term liabilities................................. 5,544 5,500 5,507
-------- -------- --------
Total liabilities........................................... 7,598 50,853 89,232
-------- -------- --------
Commitments and contingencies (see Note 9)
Group equity (deficit)...................................... (1,259) 293,867 260,297
-------- -------- --------
TOTAL LIABILITIES AND GROUP EQUITY.......................... $ 6,339 $344,720 $349,529
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP
COMBINED FINANCIAL STATEMENTS.
F-4
<PAGE>
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED JUNE 30, ENDED DECEMBER 31,
------------------------------ -------------------
(DOLLAR AMOUNTS IN THOUSANDS) 1997 1998 1999 1998 1999
- -------------------------------------------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................... $(30,247) $(8,315) $(44,894) $(12,216) $(43,676)
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation and amortization........... 241 650 3,757 659 10,966
Deferred income taxes................... -- -- -- -- (6,615)
Long-term compensation programs......... -- -- 2,802 -- --
Acquired research and development....... 26,801 -- -- -- --
Changes in operating assets and liabilities
(Increase) decrease in tax benefit
receivable from the PE Biosystems
group................................... -- -- (9,935) (4,325) 522
Increase in accounts receivable........... (379) (354) (2,520) (182) (6,512)
Increase in prepaid expenses and other
assets.................................. (82) (4) (3,458) (112) (2,051)
Increase in accounts payable and other
liabilities............................. 581 1,151 31,496 5,873 479
-------- ------- -------- -------- --------
NET CASH USED BY OPERATING ACTIVITIES....... (3,085) (6,872) (22,752) (10,303) (46,887)
-------- ------- -------- -------- --------
INVESTING ACTIVITIES
Additions to property, plant and
equipment................................. (411) (3,648) (94,541) (17,380) (19,867)
Acquisitions and investments, net........... (22,676) -- (1,236) -- (3,000)
-------- ------- -------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES....... (23,087) (3,648) (95,777) (17,380) (22,867)
-------- ------- -------- -------- --------
FINANCING ACTIVITIES
Net change in loans payable................. -- -- -- -- 46,000
Net cash allocated from the PE Biosystems
group..................................... 26,172 10,520 188,535 27,683 --
Proceeds from stock issued for Celera
Genomics group stock plans................ -- -- 1,485 -- 6,218
-------- ------- -------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES... 26,172 10,520 190,020 27,683 52,218
-------- ------- -------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS..... -- -- 71,491 -- (17,536)
CASH AND CASH EQUIVALENTS BEGINNING OF
PERIOD.................................... -- -- -- -- 71,491
-------- ------- -------- -------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD..... $ -- $ -- $ 71,491 $ -- $ 53,955
======== ======= ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP
COMBINED FINANCIAL STATEMENTS.
F-5
<PAGE>
CELERA GENOMICS GROUP
COMBINED STATEMENTS OF GROUP EQUITY
<TABLE>
<CAPTION>
ACCUMULATED GROUP
(DOLLAR AMOUNTS IN THOUSANDS) OTHER DEFICIT EQUITY
- ------------------------------------------------------------ -------- ----------- --------
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1996.................................... $ 3,200 $ (2,589) $ 611
Net loss.................................................... -- (30,247) (30,247)
Net cash allocated from the PE Biosystems group............. 26,172 -- 26,172
-------- --------- --------
BALANCE AT JUNE 30, 1997.................................... 29,372 (32,836) (3,464)
Net loss.................................................... -- (8,315) (8,315)
Net cash allocated from the PE Biosystems group............. 10,520 -- 10,520
-------- --------- --------
BALANCE AT JUNE 30, 1998.................................... 39,892 (41,151) (1,259)
Net loss.................................................... -- (44,894) (44,894)
Net cash allocated from the PE Biosystems group............. 8,535 -- 8,535
Allocated capital from the PE Biosystems group.............. 330,000 -- 330,000
Issuances under Celera Genomics group stock plans........... 1,485 -- 1,485
-------- --------- --------
BALANCE AT JUNE 30, 1999.................................... 379,912 (86,045) 293,867
Net loss.................................................... -- (43,676) (43,676)
Issuances under Celera Genomics group stock plans........... 6,218 -- 6,218
Other....................................................... 3,888 -- 3,888
-------- --------- --------
BALANCE AT DECEMBER 31, 1999 (UNAUDITED).................... $390,018 $(129,721) $260,297
======== ========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CELERA GENOMICS GROUP
COMBINED FINANCIAL STATEMENTS.
F-6
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES AND PRACTICES
BASIS OF PRESENTATION
The PE Corporation ("PE" or the "Company") is comprised of two separate
business segments in continuing operations: the Celera Genomics group and the PE
Biosystems group. The Celera Genomics group is engaged principally in the
generation, sale and support of genomic information databases and related
information management and analysis software; discovery, validation and
licensing of proprietary gene products, genetic markers and information
regarding genetic variability; and related consulting and contract research and
development services. The PE Biosystems group manufactures and markets
biochemical instrument systems and associated consumable products for life
science research and related applications.
RECAPITALIZATION
On May 6, 1999, The Perkin-Elmer Corporation was merged into a subsidiary of
PE Corporation, a new Delaware corporation. The recapitalization of the Company
resulted in the issuance of two new classes of common stock called PE
Corporation-Celera Genomics Group Common Stock ("Celera Genomics stock") and PE
Corporation-PE Biosystems Group Common Stock ("PE Biosystems stock"). Celera
Genomics stock is intended to reflect separately the performance of the Celera
Genomics business ("Celera Genomics group"), and PE Biosystems stock is intended
to reflect separately the performance of the established PE Biosystems' life
sciences and the discontinued Analytical Instruments businesses ("PE Biosystems
group"). Each share of common stock of The Perkin-Elmer Corporation was
converted into 0.5 of a share of Celera Genomics stock and one share of PE
Biosystems stock.
The combined financial statements of the Celera Genomics group and the PE
Biosystems group (individually referred to as a "group") comprise all of the
accounts included in the corresponding consolidated financial statements of the
Company. Intergroup transactions between the Celera Genomics group and the PE
Biosystems group have not been eliminated in the Celera Genomics group combined
financial statements but have been eliminated in the PE Corporation consolidated
financial statements. The Celera Genomics group and the PE Biosystems group
combined financial statements have been prepared on a basis that management
believes to be reasonable and appropriate and reflect (1) the financial
position, results of operations, and cash flows of businesses that comprise each
of the groups, with all significant intragroup transactions and balances
eliminated, (2) in the case of the Celera Genomics group combined financial
statements, corporate assets and liabilities of the Company and related
transactions identified with the Celera Genomics group, including allocated
portions of the Company's debt and selling, general and administrative costs,
and (3) in the case of the PE Biosystems group combined financial statements,
all other corporate assets and liabilities and related transactions of the
Company, including allocated portions of the Company's debt and selling, general
and administrative costs.
Holders of Celera Genomics stock and PE Biosystems stock are stockholders of
the Company. The Celera Genomics group and the PE Biosystems group are not
separate legal entities. As a result, stockholders are subject to all of the
risks associated with an investment in the Company and all of its businesses,
assets, and liabilities. The issuance of Celera Genomics stock and PE Biosystems
stock and the allocations of assets and liabilities between the Celera Genomics
group and the PE Biosystems group did not result in a distribution or spin-off
of any assets or liabilities of the Company or otherwise affect ownership of any
assets or responsibility for the liabilities of the Company or any of its
subsidiaries. The assets the Company attributes to one group could be subject to
the liabilities of the other group, whether such liabilities arise from
lawsuits, contracts or indebtedness attributable to the other group. If the
Company is unable to satisfy one group's liabilities out of assets attributed to
it, the Company may be required to satisfy these liabilities with assets
attributed to the other group.
F-7
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Financial effects arising from one group that affect the Company's results
of operations or financial condition could, if significant, affect the results
of operations or financial condition of the other group and the market price of
the class of common stock relating to the other group. Any net losses of the
Celera Genomics group or the PE Biosystems group and dividends or distributions
on, or repurchases of, Celera Genomics stock or PE Biosystems stock or
repurchases of preferred stock of the Company will reduce the assets of the
Company legally available for payment of dividends.
The management and allocation policies applicable to the preparation of the
financial statements of the Celera Genomics group and the PE Biosystems group
may be modified or rescinded, or additional policies may be adopted, at the sole
discretion of the Board of Directors at any time without approval of the
stockholders. The Celera Genomics group's combined financial statements reflect
the application of the management and allocation policies adopted by the Board
to various corporate activities, as described below. The Celera Genomics group's
combined financial statements should be read in conjunction with the Company's
consolidated financial statements.
FINANCING ACTIVITIES
As a matter of policy, the Company manages most financial activities of the
Celera Genomics group and the PE Biosystems group on a centralized basis. These
activities include the investment of surplus cash, the issuance and repayment of
short-term and long-term debt and the issuance and repayment of any preferred
stock. As the financing activities of the Celera Genomics group were not
significant for any of the periods prior to the recapitalization, all historical
cash and debt balances for those periods presented were allocated to the PE
Biosystems group.
The Board has adopted the following financing policy which will affect the
combined statements of the Celera Genomics group and the PE Biosystems group.
The Company will allocate the Company's debt between the Celera Genomics
group and the PE Biosystems group ("pooled debt") or, if the Company so
determines, in its entirety to a particular group. The Company will allocate
preferred stock, if issued, in a similar manner.
Cash allocated to one group that is used to repay pooled debt or redeem
pooled preferred stock will decrease such group's allocated portion of the
pooled debt or preferred stock. Cash or other property allocated to one group
that is transferred to the other group will, if so determined by the Board,
decrease the transferring group's allocated portion of the pooled debt or
preferred stock and, correspondingly, increase the recipient group's allocated
portion of the pooled debt or preferred stock.
Pooled debt will bear interest for group financial statement purposes at a
rate equal to the weighted average interest rate of the debt calculated on a
quarterly basis and applied to the average pooled debt balance during the
period. Preferred stock, if issued and if pooled in a manner similar to the
pooled debt, will bear dividends for group financial statement purposes at a
rate based on the weighted average dividend rate of the preferred stock
similarly calculated and applied. Any expense related to increases in pooled
debt or preferred stock will be reflected in the weighted average interest or
dividend rate of such pooled debt or preferred stock as a whole.
If the Company allocates debt for a particular financing in its entirety to
one group, that debt will bear interest for group financial statement purposes
at the rate determined by the Board. If the Company allocates preferred stock in
its entirety to one group, the Company will charge the dividend cost to that
group in a similar manner. If the interest or dividend cost is higher than the
Company's actual cost, the other group will receive a credit for an amount equal
to the difference as compensation for the use of the
F-8
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Company's credit capacity. Any expense related to debt or preferred stock of the
Company that is allocated in its entirety to a group will be allocated in whole
to that group.
Cash or other property that the Company allocates to one group that is
transferred to the other group, could, if so determined by the Board, be
accounted for either as a short-term loan or as a long-term loan. Short-term
loans will bear interest at a rate equal to the weighted average interest rate
of the Company's pooled debt. If the Company does not have any pooled debt, the
Board will determine the rate of interest for such loan. The Board will
establish the terms on which long-term loans between the groups will be made,
including interest rate, amortization schedule, maturity and redemption terms.
Although the Company may allocate its debt and preferred stock between
groups, the debt and preferred stock will remain obligations of the Company and
all stockholders of the Company will be subject to the risks associated with
those obligations.
In addition, cash allocated to the PE Biosystems group may be contributed to
the Celera Genomics group in exchange for an equity interest in the Celera
Genomics group.
ALLOCATION OF CORPORATE OVERHEAD AND ADMINISTRATIVE SHARED SERVICES
A portion of the Company's corporate overhead (such as executive management,
human resources, legal, accounting, auditing, tax, treasury, strategic planning
and environmental services) has been allocated to the Celera Genomics group
based upon the use of services by that group. A portion of the Company's costs
of administrative shared services (such as information technology services) has
been allocated in a similar manner. Where determination based on use alone is
not practical, other methods and criteria were used that management believes are
equitable and provide a reasonable estimate of the cost attributable to the
Celera Genomics group. The total of these allocations was $.2 million,
$1.7 million, $5.1 million, $2.4 million and $4.1 million for fiscal 1997, 1998,
and 1999, and the six months ended December 31, 1998 and 1999 (unaudited),
respectively. It is not practicable to provide a detailed estimate of the
expenses which would be recognized if the Celera Genomics group were a separate
legal entity.
ALLOCATION OF FEDERAL AND STATE INCOME TAXES
The federal income taxes of the Company and its subsidiaries which own
assets allocated between the groups are determined on a consolidated basis.
Consolidated federal income tax provisions and related tax payments or refunds
are allocated between the groups based principally on the taxable income and tax
credits directly attributable to each group. Such allocations reflect each
group's contribution (positive or negative) to the Company's consolidated
federal taxable income and the consolidated federal tax liability and tax credit
position. Tax benefits that cannot be used by the group generating those
benefits but can be used on a consolidated basis are credited to the group that
generated such benefits. Intergroup transactions are taxed as if each group were
a stand alone company. Tax benefits generated by the Celera Genomics group
commencing July 1, 1998, which then can be utilized on a consolidated basis,
will be credited to the Celera Genomics group up to a maximum limit of
$75 million. The Celera Genomics group generated $22.6 million of tax benefits
for the year ended June 30, 1999.
Had the groups filed separate tax returns, the provision (benefit) for
income taxes and net income (loss) for each group would not have differed from
the amounts reported in the groups' combined statements of operations for the
years ended June 30, 1997, 1998, and 1999. However, the amount of current and
deferred taxes and taxes payable or refundable allocated to each group in these
historical combined financial statements may differ from those that would have
been allocated to each group had they filed separate income tax returns.
F-9
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Depending on the tax laws of the respective jurisdictions, state and local
income taxes are calculated on either a consolidated or combined basis between
the groups based on their respective contribution to such consolidated or
combined state taxable incomes. State and local income tax provisions and
related tax payments or refunds which are determined on a separate corporation
basis will be allocated between the groups in a manner designed to reflect the
respective contributions of the groups to the Company's separate or local
taxable income.
The discussion of the Celera Genomics group's income taxes (see Note 3)
should be read in conjunction with the Company's consolidated financial
statements and the notes thereto included in PE Corporation's 1999 Annual Report
to Stockholders.
TRANSFERS OF ASSETS BETWEEN GROUPS
Transfers of assets can be made between groups without stockholder approval.
Such transfers will be made at fair value, as determined by the Company's Board
of Directors. The consideration for such transfers may be paid by one group to
the other in cash or other consideration, as determined by the Company's Board
of Directors.
DIVIDENDS
For purposes of the historical (periods prior to the recapitalization)
combined financial statements of the Celera Genomics group and the PE Biosystems
group, all dividends declared and paid by the Company were allocated to the PE
Biosystems group.
PRINCIPLES OF COMBINATION
The Celera Genomics group's combined financial statements have been prepared
in accordance with generally accepted accounting principles and, taken together
with the PE Biosystems group's combined financial statements, comprise all the
accounts included in the corresponding consolidated financial statements of the
Company. Intergroup transactions between the Celera Genomics group and the PE
Biosystems group have not been eliminated in the Celera Genomics group's
combined financial statements but have been eliminated in the PE Corporation
consolidated financial statements. The combined financial statements of each
group reflect the financial condition, results of operations, and cash flows of
the businesses included therein. The combined financial statements of the Celera
Genomics group include the assets and liabilities of the Company specifically
identified with or allocated to the Celera Genomics group. The preparation of
the combined 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 and notes have been reclassified for comparative purposes.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited combined interim financial statements reflect, in
the opinion of the Celera Genomics group'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 interim results are,
however, not necessarily indicative of the results to be expected for a full
year. The Celera Genomics group's combined financial statements should be read
in conjunction with the Company's consolidated financial statements included in
Form 10-Q for the quarterly period ended December 31, 1999, incorporated herein
by reference.
F-10
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
RECENT 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.
EARNINGS PER SHARE
Earnings per share information prior to the recapitalization is omitted from
the Celera Genomics group's Combined Statements of Operations because Celera
Genomics stock was not part of the capital structure of the Company until fiscal
1999. Basic loss per share is computed by dividing net loss for the period by
the weighted average number of shares of Celera Genomics stock outstanding.
Diluted loss per share is computed by dividing net loss for the period by the
weighted average number of shares of Celera Genomics stock outstanding including
the dilutive effect of Celera Genomics stock equivalents.
The table below presents a reconciliation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED SIX MONTHS ENDED
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) JUNE 30, 1999 DECEMBER 31, 1999
- ------------------------------------------------------------ ------------- -----------------
(UNAUDITED)
<S> <C> <C>
Weighted average number of common shares used in the
calculation of basic loss per share....................... 50,200 51,695
Common stock equivalents.................................... -- --
-------- --------
Shares used in the calculation of diluted loss per share.... 50,200 51,695
======== ========
Net loss used in the calculation of basic and diluted loss
per share................................................. $(44,894) $(43,676)
======== ========
Basic and diluted net loss per share........................ $ (.89) $ (.84)
======== ========
</TABLE>
The reconciliation for fiscal 1997 and 1998 and the six months ended
December 31, 1998 is omitted since Celera Genomics stock was not part of the
capital structure of the Company.
Options and warrants to purchase 11.2 million and 14.0 million shares of
Celera Genomics stock were outstanding at June 30, 1999 and December 31, 1999
(unaudited), respectively, but were not included in the computation of diluted
loss per share because the effect was antidilutive.
On January 20, 2000, the Board of Directors announced a two-for-one split of
Celera Genomics stock. The two-for-one stock split will be effected in the form
of a 100% stock dividend payable on February 18, 2000 to stockholders of record
as of the close of business on February 4, 2000. All Celera Genomics share and
per share data reflect this split.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid debt instruments, time deposits,
and certificates of deposit with original maturities of three months or less.
F-11
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
INVESTMENTS
The Company's investment in Agrogene is accounted for on the equity method.
PROPERTY, PLANT AND EQUIPMENT, AND DEPRECIATION
Property, plant and equipment are recorded at cost and consisted of the
following at June 30, 1998 and 1999:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1998 1999
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Land........................................................ $ -- $ 10.0
Buildings and leasehold improvements........................ 4.2 66.4
Machinery and equipment..................................... 1.7 33.3
------ ------
Property, plant and equipment, at cost...................... 5.9 109.7
Accumulated depreciation and amortization................... 1.7 5.5
------ ------
Property, plant and equipment, net.......................... $ 4.2 $104.2
====== ======
</TABLE>
Major renewals and improvements that significantly add to productive
capacity or extend the life of an asset are capitalized. Repairs, maintenance,
and minor renewals and improvements are expensed when incurred.
Provisions for depreciation of owned property, plant and equipment are based
upon the expected useful lives of the assets and computed primarily by the
straight-line method. Leasehold improvements are amortized over their estimated
useful lives or the term of the applicable lease, whichever is less, using the
straight-line method. Internal-use software costs are amortized primarily over
the expected useful lives, not to exceed seven years.
Machinery and equipment included $8.1 million of data management software
licenses at June 30, 1999. There were no corresponding amounts at June 30, 1998.
INTANGIBLE ASSETS
The excess of purchase price over the net asset value of companies acquired
is amortized on a straight-line method over periods not exceeding 40 years.
Purchased technology rights are amortized using the straight-line method over
their expected useful lives.
There was no goodwill at June 30, 1998. At June 30, 1999, and December 31,
1999 (unaudited), other long-term assets included goodwill, net of accumulated
amortization, of $.9 million and $1.8 million, respectively. Accumulated
amortization of goodwill was $.1 million at June 30, 1999 and December 31, 1999.
At June 30, 1998 and 1999, and December 31, 1999 (unaudited), other
long-term assets included purchased technology rights, net of accumulated
amortization, of $1.2 million, $1.1 million, and $1.5 million, respectively.
Accumulated amortization of purchased technology rights was $.2 million,
$.3 million and $.3 million at June 30, 1998 and 1999, and December 31, 1999
(unaudited), respectively.
REVENUES
Subscription fees for access to the Company's genome databases are
recognized ratably over the contracted period in accordance with the provisions
of the contract. Contract research service revenues are earned and recognized
generally on a percentage of completion or as contract research costs are
incurred according to the provisions of the underlying agreement. In some
instances revenue recognition may be
F-12
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
contingent upon the achievement of certain milestones at each anniversary date.
Amounts received in advance of performance are recorded as deferred revenue.
RESEARCH AND DEVELOPMENT
Costs incurred for internal, contract and grant-sponsored research and
development are expensed when incurred. Grant-sponsored research and development
expense was $.2 million for the year ended June 30, 1999.
SUPPLEMENTAL CASH FLOW INFORMATION
Significant non-cash investing and financing activities were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
DECEMBER 31,
FISCAL
(DOLLAR AMOUNTS IN MILLIONS) 1999 1998 1999
- ------------------------------------------------------------ -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Interest.................................................... -- -- $ .7
Capital expenditures liability.............................. $ 8.9 -- --
Note receivable from the PE Biosystems group................ $150.0 $310.9 --
</TABLE>
NOTE 2 ACQUISITIONS
GENSCOPE, INC.
During the third quarter of fiscal 1997, the Company acquired
GenScope, Inc., for $26.8 million. GenScope, founded in 1995, represented a
development stage venture with no operating history. GenScope had effectively no
revenues and only limited R&D contract services. At the acquisition date,
technological feasibility of the acquired technology right had not been
established and the acquired technology right had no future alternative uses.
The Company obtained the right to utilize AFLP-based gene expression profiling
technology in the field of human health, but did not obtain any core technology
or other rights. GenScope's limited balance sheet, with assets of approximately
$.2 million, had yet to deliver commercial value. Accordingly, the Company
recorded a charge of $25.4 million attributable to the in-process technology
purchased. The Company based this amount upon the early development stage of
this life science business acquired, the technological hurdles to apply this
technology to the field of human health and the underlying cash flow
projections. The acquisition represented the purchase of development stage
technology, not at the time considered commercially viable in the health care
applications that the Company intends to pursue. The Company's intent was to
first develop the technology into a set of molecular screening tools for use in
the enhancement of pharmaceutical product development. The Company allocated
$1.4 million of the purchase price to technology rights attributable to
GenScope's AFLP-based gene expression profiling technology. AFLP is an
enhancement of the polymerase chain reaction ("PCR") process that allows
selective analysis of any portion of genetic material without the specific,
prior sequence information normally required for PCR. Of the $25.4 million
expensed as in-process research and development, $5.5 million represented a
contingent liability due on the issuance of a process patent for technology
under development.
F-13
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 2 ACQUISITIONS (CONTINUED)
OTHER ACQUISITIONS
The Company acquired Linkage Genetics, Inc., a provider of genetic analysis
services in the agriculture industry, during the fourth quarter of fiscal 1997.
At the acquisition date, the technological feasibility of the acquired
technology had not been established and the acquired technology had no future
alternative uses. The cash acquisition cost of $1.4 million was accounted for as
a purchase. The entire acquisition cost was expensed as purchased in-process
research and development.
During the third quarter of fiscal 1999, the Company acquired a 49% interest
in Agrogene S.A., an agricultural DNA testing laboratory in France for $1.2
million. The investment complements the Celera Genomics group's automated DNA
sequencing and genotyping services in the agricultural field. The excess of cost
over net assets acquired of $1.0 million is being amortized on a straight-line
basis over a 3 year period.
During the second quarter of fiscal 2000, the Celera Genomics group acquired
the Panther-TM- technology from Molecular Applications Group. Panther-TM- is a
software tool designed for rapid and accurate determination of gene and protein
function. As part of the agreement, members of the Molecular Applications Group
research team who developed the Panther-TM- technology became employees of the
Celera Genomics group. The cost of this acquisition was $2.5 million.
The net assets and results of operations for all of the above acquisitions
were accounted for under the purchase method and have been included in the
combined financial statements of the Celera Genomics group since the date of
each acquisition. The pro forma effect of these acquisitions, individually or in
the aggregate, on the Celera Genomics group combined financial statements was
not significant.
During the second quarter of fiscal 2000, the Celera Genomics group acquired
a 47.5% equity interest in Shanghai GeneCore BioTechnologies Co., Ltd. from Axys
Pharmaceuticals, Inc. The PE Biosystems group also owns a 47.5% equity interest
in Shanghai GeneCore. Shanghai GeneCore is a genomics service company with
expertise in nucleotide synthesis, DNA sequencing, bioinformatics analysis, and
mutation detection. Shanghai GeneCore has ongoing research collaborations with
several Chinese government agencies and research institutes. This investment
will be accounted for under the equity method of accounting.
NOTE 3 INCOME TAXES
The income tax benefit included the Celera Genomics group's allocated
portion of the Company's consolidated provision for income taxes.
Loss before income taxes, consisting of losses generated in the United
States, for fiscal 1997, 1998, 1999, and the six months ended December 31, 1998
and 1999 (unaudited), was $32.1 million, $12.8 million, $67.5 million,
$18.5 million and $67.2 million, respectively. The current domestic income tax
benefit for fiscal 1997, 1998, 1999, and the six months ended December 31, 1998
and 1999 (unaudited), was $1.9 million, $4.5 million, $22.6 million,
$6.3 million and $23.5 million, respectively.
F-14
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 3 INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory tax to the Celera Genomics group's
tax benefit for fiscal 1997, 1998, and 1999 is set forth in the following table:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS) 1997 1998 1999
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Federal statutory rate...................................... 35% 35% 35%
Tax at federal statutory rate............................... $11.2 $ 4.5 $23.6
Recapitalization costs...................................... -- -- (1.6)
Acquired research and development........................... (9.3) -- --
Miscellaneous............................................... -- -- .6
----- ----- -----
Benefit for income taxes.................................... $ 1.9 $ 4.5 $22.6
===== ===== =====
</TABLE>
NOTE 4 RETIREMENT AND OTHER BENEFITS
PENSION
The Company maintains or sponsors a pension plan that covers certain
employees of the Celera Genomics group. Pension benefits earned are generally
based on years of service and compensation during active employment. Pension
plan assets are administered by a trustee and are principally invested in equity
and fixed income securities. The funding of the pension plan is determined in
accordance with statutory funding requirements.
The Company's domestic pension plans cover a substantial portion of the U.S.
employees. During fiscal 1999, the plan was amended to terminate the accrual of
benefits under the plan as of June 30, 2004 and to improve the benefit for
participants who retire between the ages of 55 and 60. The pension plan is not
available to employees hired on or after July 1, 1999.
Pension expense, consisting primarily of service cost, allocated to the
Celera Genomics group was less than $.1 million for fiscal 1997, $.1 million for
fiscal 1998, and $.1 million for fiscal 1999.
RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS
The postretirement plan provides certain health care and life insurance
benefits to domestic employees hired prior to January 1, 1993, who retire and
satisfy certain service and age requirements. Generally, medical coverage pays a
stated percentage of most medical expenses, reduced for any deductible and for
payments made by Medicare or other group coverage. The cost of providing these
benefits is shared with retirees. The plan is unfunded. The postretirement
benefit expense allocated to the Celera Genomics group was not material for
fiscal 1997, 1998, and 1999. Amounts allocated to the Celera Genomics group were
less than $.05 million for all periods presented.
SAVINGS PLAN
The Company provides a 401(k) savings plan, for domestic employees, with
automatic Company contributions of 2% of eligible compensation and a
dollar-for-dollar matching contribution of up to 4% of eligible compensation.
The Company contributions allocated to the Celera Genomics group for fiscal
1997, 1998, and 1999 were $.1 million, $.2 million and $.5 million,
respectively.
F-15
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 4 RETIREMENT AND OTHER BENEFITS (CONTINUED)
POSTEMPLOYMENT BENEFITS
The Company provides certain postemployment benefits to eligible employees.
These benefits generally include severance, disability, and medical-related
costs paid after employment but before retirement.
NOTE 5 SEGMENT, GEOGRAPHIC, AND CUSTOMER INFORMATION
BUSINESS SEGMENTS AND GEOGRAPHIC
In fiscal 1999, the Celera Genomics group adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The statement
established annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products and services, geographic
areas, and major customers. The adoption of the statement did not affect the
results of operations or financial position of the Celera Genomics group.
The Celera Genomics group operates in one business segment, which is engaged
principally in the generation, sale and support of genomic information database
and related information management and analysis software; discovery, validation
and licensing of proprietary gene products, genetic markers and information
concerning genetic variability; and related consulting and contract research and
development services. The Celera Genomics group operates primarily in the United
States.
CUSTOMER INFORMATION
Revenues from any single customer, comprising 10% or more of the total
revenues of the Celera Genomics group, were $.2 million, $.4 million, and
$3.1 million, for fiscal 1997, 1998, and 1999, respectively.
NOTE 6 GROUP EQUITY AND NOTE RECEIVABLE
Celera Genomics stock represents a separate class of the Company's common
stock. Additional shares of Celera Genomics stock may be issued from time to
time upon exercise of stock options or at the discretion of the Company's Board
of Directors. There were no repurchases of Celera Genomics stock for fiscal
1999.
NOTE RECEIVABLE FROM THE PE BIOSYSTEMS GROUP
The initial capitalization of the Celera Genomics group included a
$330 million short-term note receivable from the PE Biosystems group established
at September 30, 1998. The $330 million note represented an allocation of the
Company's capital to the Celera Genomics group and did not result in the PE
Biosystems group holding an equity interest in the Celera Genomics group.
Accordingly, no interest was ascribed to the note. The allocation of capital
represented management's decision to allocate a portion of the Company's capital
to the Celera Genomics group and the remaining capital to the PE Biosystems
group prior to the effective date of the recapitalization. The group financial
statements do not include any intergroup equity interests. The note receivable
was liquidated on May 28, 1999 in exchange for a portion of the proceeds
received from the sale of the Analytical Instruments business and a new note
receivable from the PE Biosystems group for $150 million was established. The
new note receivable is for a term of one-year, bears an interest rate of 5% per
annum, and is payable on demand without penalty. At December 31, 1999
(unaudited), the outstanding balance of the note receivable was $150 million.
F-16
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 6 GROUP EQUITY AND NOTE RECEIVABLE (CONTINUED)
TAX BENEFIT RECEIVABLE FROM THE PE BIOSYSTEMS GROUP
The Company reimburses the Celera Genomics group for tax benefits generated
which then can be utilized on a consolidated basis. These reimbursements are
intended to provide additional cash resources to the Celera Genomics group up to
a maximum of $75 million. For fiscal 1999 and the six months ended December 31,
1999 (unaudited), the Celera Genomics group generated reimbursable tax benefits
of $22.6 million and $16.9 million, respectively. At June 30, 1999 and
December 31, 1999 (unaudited), the tax benefit receivable was $9.9 million and
$9.4 million, respectively.
THIRD PARTY EQUITY TRANSACTION
On June 30, 1999, the Company granted an option to purchase 2.6 million
shares of Celera Genomics group stock to a third party and entered into a one
year non-compete agreement with such party. The fair value of such option
approximated $7.2 million and will be amortized over the life of the non-compete
agreement.
STOCK PURCHASE WARRANTS
On January 22, 1998, the Company acquired PerSeptive Biosystems, Inc. The
acquisition was accounted for as a pooling of interests, and the PE Biosystems
group's financial results were restated to include the combined operations. As a
result of the merger each outstanding warrant for shares of PerSeptive common
stock was converted into warrants for the number of shares of the Company's
common stock that would have been received by the holder if such warrants had
been exercised immediately prior to the effective time of the merger.
As a result of the recapitalization, each outstanding warrant for shares of
PerSeptive common stock was further converted into warrants to acquire .1926
share of Celera Genomics stock and .7704 share of PE Biosystems stock. The
warrants are not separately exercisable into solely Celera Genomics stock or PE
Biosystems stock. The exercise price and expiration date of each warrant were
not affected by the recapitalization.
At June 30, 1999 and December 31, 1999 (unaudited), there were warrants
outstanding to purchase 215,196 shares of PE Biosystems stock and 53,800 shares
of Celera Genomics stock at an exercise price of $16.44. The warrants expire in
September, 2003.
STOCKHOLDERS' PROTECTION RIGHTS PLAN
In connection with the recapitalization, the Company adopted a new
Stockholder Rights Plan (the "Rights Agreement") to protect stockholders against
abusive takeover tactics. Under the Rights Agreement, the Company will issue one
right for each share of Celera Genomics stock (a "Celera Genomics Right"), which
will allow holders to purchase one-thousandth of a share of a newly designated
Series B participating junior preferred stock of the Company at a purchase price
of $125, subject to adjustment (the "Series B Purchase Price"), and one right
for each share of PE Biosystems stock (a "PE Biosystems Right"), which will
allow holders to purchase one-thousandth of a share of a newly designated
Series A participating junior preferred stock of the Company at a purchase price
of $425, subject to adjustment (the "Series A Purchase Price").
A Celera Genomics Right or PE Biosystems Right will be exercisable only if a
person or group ("Acquiring Person"): (a) acquires 15% or more of the shares of
Celera Genomics stock then outstanding
F-17
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 6 GROUP EQUITY AND NOTE RECEIVABLE (CONTINUED)
or 15% or more of the shares of PE Biosystems stock then outstanding or
(b) commences a tender offer that would result in such person or group owning
such number of shares.
If any person or group becomes an Acquiring Person, each Celera Genomics
Right and each PE Biosystems Right will entitle its holder to purchase, for the
Series B Purchase Price or the Series A Purchase Price, a number of shares of
the related class of common stock of the Company having a market value equal to
twice such purchase price.
If following the time a person or group becomes an Acquiring Person, the
Company is acquired in a merger or other business combination transaction and
the Company is not the surviving corporation; any person consolidates or merges
with the Company and all or part of the common stock is converted or exchanged
for securities, cash or property of any other person; or 50% or more of the
Company's assets or earnings power is sold or transferred, each Celera Genomics
Right and each PE Biosystems Right will entitle its holder to purchase, for the
Series B Purchase Price or Series A Purchase Price, a number of shares of common
stock of the surviving entity in any such merger, consolidation or business
combination or the purchaser in any such sale or transfer having a market value
equal to twice the Series A Purchase Price or Series B Purchase Price.
The rights are redeemable at the Company's option at one cent per right to a
person or group becoming an Acquiring Person.
CAPITAL STOCK
The Company's authorized capital stock consists of 225 million shares of PE
Corporation-Celera Genomics Group Common Stock, 500 million shares of PE
Corporation-PE Biosystems Group Common Stock and 10 million shares of PE
Corporation preferred stock. Of the 10 million shares of preferred stock at
June 30, 1999, the Company had designated 80,000 shares of two series of
participating junior preferred stock in connection with the Company's
stockholders' protection rights plan as previously described.
NOTE 7 STOCK PLANS
STOCK OPTION PLANS
Under the Company's stock option plans, officers and other key employees may
be, and directors are, granted options, each of which allows for the purchase of
existing common stock at a price of not less than 100% of fair market value at
the date of grant. Prior to the recapitalization, most option grants had a
two-year vesting schedule, whereby 50% of the option grant vested at the end of
each year from the date of grant. The Board of Directors has extended that
schedule for most options granted subsequent to the recapitalization whereby 25%
will vest annually, resulting in 100% vesting after four years. Options
generally expire ten years from the date of grant.
F-18
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 7 STOCK PLANS (CONTINUED)
Transactions relating to the stock option plans are summarized as follows:
<TABLE>
<CAPTION>
PE CORPORATION
--------------------------
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
FISCAL 1997
Outstanding at June 30, 1996................................ 3,822,535 $34.05
Granted..................................................... 1,595,528 $59.78
Exercised................................................... 1,167,179 $29.73
Cancelled................................................... 95,281 $43.17
--------- ------
Outstanding at June 30, 1997................................ 4,155,603 $45.03
Exercisable at June 30, 1997................................ 2,254,052 $35.24
FISCAL 1998
Granted..................................................... 1,997,041 $70.41
Exercised................................................... 780,994 $34.76
Cancelled................................................... 154,686 $71.42
--------- ------
Outstanding at June 30, 1998................................ 5,216,964 $55.51
Exercisable at June 30, 1998................................ 2,936,389 $43.12
FISCAL 1999
Granted..................................................... 37,000 $86.61
Exercised................................................... 1,549,364 $45.74
Cancelled................................................... 108,914 $67.92
--------- ------
Outstanding at May 5, 1999.................................. 3,595,686 $60.23
Exercisable at May 5, 1999.................................. 2,639,696 $55.43
</TABLE>
F-19
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 7 STOCK PLANS (CONTINUED)
<TABLE>
<CAPTION>
CELERA GENOMICS GROUP
---------------------------
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
FISCAL 1999
Outstanding at May 6, 1999.................................. 3,595,686 $5.52
Granted..................................................... 7,952,036 $8.72
Exercised................................................... 281,788 $5.25
Cancelled................................................... 132,606 $6.67
---------- -----
Outstanding at June 30, 1999................................ 11,133,328 $7.81
Exercisable at June 30, 1999................................ 3,636,232 $6.39
</TABLE>
As a result of the recapitalization, each outstanding stock option under the
Company's stock option plans was converted into separately exercisable options
to acquire one share of PE Biosystems stock and 0.5 of a share of Celera
Genomics stock. The exercise price for the resulting PE Biosystems stock options
and Celera Genomics stock options was calculated by multiplying the exercise
price under the original option from which they were converted by a fraction,
the numerator of which was the opening price of PE Biosystems stock or Celera
Genomics stock, as the case may be, on May 6, 1999 (the first date such stocks
were traded on the New York Stock Exchange) and the denominator of which was the
sum of such PE Biosystems stock and Celera Genomics stock prices. However, the
aggregate intrinsic value of the options was not increased, and the ratio of the
exercise price per option to the market value per share was not reduced. In
addition, the vesting provision and option periods of the original grants has
remained the same on conversion.
The following table summarizes information regarding options outstanding and
exercisable for the Celera Genomics group at June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
----------------------
CONTRACTUAL
LIFE
NUMBER OF REMAINING EXERCISE
(OPTION PRICES PER SHARE) OPTIONS IN YEARS PRICE
- ------------------------------------------------------------ --------- ----------- --------
<S> <C> <C> <C>
Options Outstanding
At $.37--$12.10........................................... 1,200,588 5.1 $ 3.48
At $12.11--$15.13......................................... 1,923,568 7.8 $ 6.70
At $15.14--$17.12......................................... 7,304,928 9.5 $ 8.56
At $17.13--$30.26......................................... 704,244 9.8 $10.50
Options Exercisable
At $.37--$12.10........................................... 1,157,532 5.1 $ 3.49
At $12.11--$15.13......................................... 1,046,264 7.8 $ 6.57
At $15.14--$17.12......................................... 1,410,040 9.5 $ 8.55
At $17.13--$30.26......................................... 22,396 9.8 $11.33
</TABLE>
1999 STOCK INCENTIVE PLANS
The PE Corporation/PE Biosystems Group 1999 Stock Incentive Plan (the "PE
Biosystems plan") and the PE Corporation/Celera Genomics Group 1999 Stock
Incentive Plan (the "Celera Genomics plan") were approved in April 1999. The
Celera Genomics plan authorizes grants of stock options, stock awards
F-20
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 7 STOCK PLANS (CONTINUED)
and performance shares with respect to Celera Genomics stock. The PE Biosystems
plan authorizes grants of stock options, stock awards and performance shares
with respect to PE Biosystems stock. Directors and certain officers and key
employees with responsibilities involving both the PE Biosystems group and the
Celera Genomics group may be granted awards under both incentive plans in a
manner which reflects their responsibilities. The Board of Directors believes
that granting participants awards tied to performance of the group in which the
participants work and, in certain cases the other group, is in the best interest
of the Company and its stockholders.
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan offers domestic and certain foreign
employees the right to purchase shares of Celera Genomics stock and/or PE
Biosystems stock on a quarterly basis. The purchase price in the United States
is equal to the lower of 85% of the average market price of such class of common
stock on the offering date or 85% of the average market price of the applicable
class of common stock on the last day of the purchase period. Provisions of the
plan for employees in foreign countries vary according to local practice and
regulations.
Common stock issued under the Employee Stock Purchase Plan during fiscal
1997, 1998, and 1999 totaled 111,000 shares, 174,000 shares, and 168,000 shares,
respectively, of PE Corporation (predecessor) common stock. Additionally, 24,000
shares of Celera Genomics stock and 98,000 shares of PE Biosystems stock were
issued during fiscal 1999.
DIRECTOR STOCK PURCHASE AND DEFERRED COMPENSATION PLAN
The Company has a Director Stock Purchase and Deferred Compensation Plan
that requires non-employee directors of the Company to apply at least 50% of
their annual retainer to the purchase of common stock. Purchases of Celera
Genomics stock and PE Biosystems stock are made in a ratio approximately equal
to the number of shares of Celera Genomics stock and PE Biosystems stock
outstanding. The purchase price is the fair market value on the date of
purchase. At June 30, 1999, the Company had approximately 86,000 shares of
Celera Genomics stock and approximately 170,000 shares of PE Biosystems stock
available for issuance.
RESTRICTED STOCK
As part of the Company's stock incentive plans, key employees may be, and
non-employee directors are, granted shares of restricted stock that will vest
when certain continuous employment/service restrictions and/or specified
performance goals are achieved. The fair value of shares granted is generally
expensed over the restricted periods, which may vary depending on the estimated
achievement of performance goals.
As a result of the recapitalization, each share of restricted stock held was
redesignated as 0.5 of a share of Celera Genomics stock and one share of PE
Biosystems stock. Restricted stock granted prior to the recapitalization to key
employees and non-employee directors during fiscal 1997, 1998, and 1999 totaled
42,000 shares, 4,350 shares, and 42,900 shares, respectively, of PE Corporation
(predecessor) common stock.
F-21
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 7 STOCK PLANS (CONTINUED)
PERFORMANCE UNIT BONUS PLAN
The Company has a Performance Unit Bonus Plan whereby employees may be
awarded performance units in conjunction with an equal number of stock options.
A performance unit represents the right to receive a cash or stock payment from
the Company at a specified date in the future. The amount of the payment is
equal to the fair market value of a share of common stock on the date of the
grant. The performance units vest upon shares of the Company's common stock
attaining and maintaining specified stock price levels for a specified period,
and are payable on or after a specified future date subject to continued
employment through the date of payment. As of June 30, 1999 two series of
performance units totaling 498,399 units had been granted under the plan.
Compensation expense, pertaining to the first of the series, for the Celera
Genomics group was $.3 million for fiscal 1999.
At June 30, 1999, all stock price targets applicable to the first series of
performance units, totaling 294,499 units, net of cancellations, units initially
granted to members of senior management under the plan had been attained and the
Company became obligated to make payments under the plan. In recognition of the
efforts of the participants in reaching these performance targets and the change
in the underlying securities of the Company as a result of the recapitalization
of the Company, the Board of Directors decided to accelerate these payments to
fiscal year 2000. The related stock options were not accelerated. Compensation
expense recognized by the Celera Genomics group as a result of the acceleration
of these payments totaled $1.0 million for fiscal 1999.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," is applied in accounting for stock-based compensation plans.
Accordingly, no compensation expense has been recognized for its stock option
and employee stock purchase plans, as all options have been issued at fair
market value.
Pro forma net income and earnings per share information, as required by SFAS
No. 123, "Accounting for Stock-Based Compensation," have been determined for
employee stock plans under the statement's fair value method. The fair value of
the options was estimated at grant date using a Black-Scholes option pricing
model with the following weighted average assumptions for the Celera Genomics
group:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1999
- ------------------------------------------------------------ --------
<S> <C>
Dividend yield.............................................. --%
Volatility.................................................. 34.40%
Risk-free interest rates.................................... 5.0%
Expected option life in years............................... 5.23
</TABLE>
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period.
F-22
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 7 STOCK PLANS (CONTINUED)
Pro forma information for the Celera Genomics group for fiscal 1999 is
presented below:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1999
- ------------------------------------------------------------ --------
<S> <C>
Net loss
As reported............................................... $(44.9)
Pro forma................................................. $(47.5)
Basic and diluted loss per share
As reported............................................... $ (.89)
Pro forma................................................. $ (.95)
</TABLE>
For the fiscal years ended June 30, 1997 and 1998, the net loss was
$30.2 million and $8.3 million, respectively. Pro forma information for fiscal
1997 and 1998 is omitted since Celera Genomics stock was not part of the capital
structure of the Company.
The weighted average fair value of PE Corporation options granted was
$20.17, $24.83, and $33.54 per share for fiscal 1997, 1998, and 1999,
respectively. The weighted average fair value of Celera Genomics options granted
was $4.13 for fiscal 1999.
Since Celera Genomics stock and PE Biosystems were not part of the capital
structure of the Company prior to May 6, 1999, there were no stock options
outstanding prior to that date. Therefore, the pro forma effect of Celera
Genomics stock options is not representative of what the effect will be in
future years.
NOTE 8 RELATED PARTY TRANSACTIONS
SALES OF PRODUCTS AND SERVICES BETWEEN GROUPS
A group will sell products or services to the other group on terms that
would be available from third parties in commercial transactions. If terms for
such transaction are not available, the purchasing group will pay fair value as
determined by the Board of Directors for such products and services or at the
cost (including overhead) of the selling group. For fiscal 1999, R&D expenses
included $15.2 million for purchases of instruments, lease payments on
instruments and the purchase of consumables, and $2.1 million of contracted R&D
services from the PE Biosystems group. For the six months ended December 31,
1999, R&D expenses included $25.5 million for lease payments on instruments and
the purchase of consumables and project materials and $.5 million for R&D
services contracted from the PE Biosystems group.
ACCESS TO TECHNOLOGY AND KNOW-HOW
Each group will have free access to all Company technology and know-how
(excluding products and services of the other group) that may be useful in that
group's business, subject to obligations and limitations applicable to the
Company and to such exceptions that the Board of Directors may determine. The
groups will consult with each other on a regular basis concerning technology
issues that affect both groups. The costs of developing this technology remain
in the group responsible for its development.
F-23
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 9 COMMITMENTS AND CONTINGENCIES
Future minimum payments at June 30, 1999 under non-cancelable operating
leases for real estate and equipment were as follows:
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN MILLIONS)
- ------------------------------------------------------------
<S> <C>
2000........................................................ $20.7
2001........................................................ 18.3
2002........................................................ 1.6
2003........................................................ --
2004........................................................ --
2005 and thereafter......................................... --
-----
Total................................................... $40.6
=====
</TABLE>
Rental expense was $.1 million for fiscal 1997, $.3 million for fiscal 1998,
and $8.5 million for fiscal 1999.
Loans payable consisted of $46 million of commercial paper with an average
interest rate of 5.65% at December 31, 1999.
On March 13, 1998, the Company filed a patent infringement action against
American Pharmacia Biotech, Inc. ("Amersham") and Molecular Dynamics, Inc. in
the United States District Court for the Northern District of California. The
Company asserts that two of its patents (U.S. 5,207,886 and U.S. 4,811,218) are
infringed by reason of Molecular Dynamics' and Amersham's sale of certain DNA
analysis systems (e.g., the MegaBACE 1000 System). In response, the defendants
have asserted various affirmative defenses and several counterclaims, including
that the Company is infringing two patents (U.S. 5,091,652 and U.S. 5,459,325)
owned by or licensed to Molecular Dynamics by selling the ABI PRISM(R) 377 DNA
Sequencing Systems.
On April 2, 1998, Amersham filed a patent infringement action against the
Company in the United States District Court for the Northern District of
California. The complaint alleges that the Company is directly, contributorily
or by inducement infringing U.S. Patent No. 5,688,648 ("the '648 patent"),
entitled "Probes Labeled with Energy Transfer Coupled Dyes." The complaint seeks
declaratory judgment that the use of the PE BigDye(TM) Primer and BigDye(TM)
Terminator kits would infringe the '648 patent, as well as injunctive and
monetary relief. The Company answered the complaint, alleging that the '648
patent is invalid and that the Company has not infringed the '648 patent.
On May 21, 1998, Amersham filed a patent infringement action against the
Company in the United States District Court for the Southern District of New
York. The complaint alleges that the Company is infringing, contributing to the
infringement and inducing the infringement of U.S. Patent No. 4,707,235 ("the
'235 patent") entitled "Electrophoresis Method and Apparatus having Continuous
Detection Means." The complaint seeks injunctive and monetary relief. The
Company answered the complaint, alleging that the '235 patent is invalid and
that the Company does not infringe the '235 patent.
The Company has been named as a defendant in several legal actions,
including patent, commercial, and environmental, arising from the conduct of
normal business activities. Although the amount of any liability that might
arise with respect to any of these matters cannot be accurately predicted, the
resulting liability, if any, will not in the opinion of management have a
material adverse effect on the financial statements of the Celera Genomics group
or the Company.
F-24
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 9 COMMITMENTS AND CONTINGENCIES (CONTINUED)
The holders of Celera Genomics stock are stockholders of the Company and
will continue to be subject to all of the risks associated with an investment in
the Company, including any legal proceeding and claims affecting the PE
Biosystems group.
NOTE 10 QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
The following is a summary of quarterly financial results:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE -------------- -------------- -------------- --------------
AMOUNTS) 1998 1999 1998 1999 1998 1999 1998 1999
- -------------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.......................... $ .6 $ 3.9 $ 1.2 $ 1.7 $ 1.3 $ 1.8 $ 1.1 $ 5.1
Operating loss........................ (1.4) (5.6) (2.1) (12.9) (3.6) (19.3) (5.7) (31.0)
Net loss.............................. (.9) (3.6) (1.4) (8.6) (2.3) (12.8) (3.7) (19.9)
Net loss per share
Basic and diluted................... $ (.39)
Price range of common stock
High................................ $ 11(1/4)
Low................................. $ 7(3/32)
</TABLE>
There were no dividends on Celera Genomics stock for the periods presented.
Fiscal 1999 price ranges are for the period from May 6, 1999 through
June 30, 1999. On May 6, 1999, The Perkin-Elmer Corporation was merged into PE
Corporation, a new Delaware corporation. The recapitalization of the Company
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.
EVENTS IMPACTING COMPARABILITY--FISCAL 1999
Second, third, and fourth quarter results included before-tax costs of
$.6 million, $.8 million, and $3.2 million, respectively in connection with the
recapitalization of the Company. Fourth quarter results also included before-tax
costs of $1.0 million for the Company's long-term compensation programs. The
aggregate after-tax effect of these items increased second, third, and fourth
quarter net loss by $.6 million, $.8 million, and $3.9 million, respectively,
and increased fourth quarter net loss by $.08 per diluted share.
NOTE 11 SUBSEQUENT EVENT
On January 31, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for a follow-on public offering of
1.6 million shares of its PE Corporation-Celera Genomics Group Common Stock. The
Company will also grant the underwriters a 15% over-allotment option. The number
of shares to be sold does not reflect the two-for-one stock split of PE
Corporation-Celera Genomics Group Common Stock, discussed in Note 1.
F-25
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with this
offering are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $
Stock exchange listing fees................................. *
National Association of Securities Dealers filing fee.......
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Transfer Agent's fees and expenses.......................... *
Blue sky expenses and fees.................................. *
Miscellaneous expenses...................................... *
----------
Total..................................................... $1,250,000
==========
</TABLE>
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits the
company's board of directors to indemnify any person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with any threatened, pending or
completed action (except settlements or judgments in derivative suits), suit or
proceeding in which such person is made a party by reason of his or her being or
having been a director, officer, employee or agent of the company, in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended (the "Securities Act"). The DGCL provides
that indemnification pursuant to its provisions is not exclusive of other rights
of indemnification to which a person may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors, or otherwise.
Our certificate of incorporation and by-laws provide for indemnification of
its directors and officers to the fullest extent permitted by law.
As permitted by sections 102 and 145 of the DGCL, our certificate of
incorporation eliminates a director's personal liability for monetary damages to
the company and its stockholders arising from a breach or alleged breach of a
director's fiduciary duty except for liability under section 174 of the DGCL,
for liability for any breach of the director's duty of loyalty to the company or
its stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction
which the director derived an improper personal benefit.
The directors and officers of our company are covered by insurance policies
indemnifying against certain liabilities, including certain liabilities arising
under the Securities Act which might be incurred by them in such capabilities
and against which they cannot be indemnified by the company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.1 Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31,
1999 (Commission file number 1-4389)).
4.2 Rights Agreement between Registrant and BankBoston, N.A.
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-4 (No.
333-67797)).
5.1* Opinion of Simpson Thacher & Bartlett as to the legality of
the securities.
8.1* Opinion of Simpson Thacher & Bartlett regarding tax matters.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Simpson Thacher & Bartlett (included in Exhibit
5.1).
24.1** Power of Attorney.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
its registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Norwalk, State of Connecticut, on
February 11, 2000.
<TABLE>
<S> <C> <C>
PE CORPORATION
By: /s/ WILLIAM B. SAWCH
-----------------------------------------
Name: William B. Sawch
Title: Senior Vice President,
General Counsel and Secretary
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board of Directors,
/s/ TONY L. WHITE* President and Chief Executive
---------------------------------- Officer (principal executive February 11, 2000
Tony L. White officer)
/s/ DENNIS L. WINGER* Senior Vice President and Chief
---------------------------------- Financial Officer (principal February 11, 2000
Dennis L. Winger financial officer)
/s/ VIKRAM JOG* Corporate Controller (principal
---------------------------------- accounting officer) February 11, 2000
Vikram Jog
/s/ RICHARD H. AYERS* Director
---------------------------------- February 11, 2000
Richard H. Ayers
/s/ JEAN-LUC BELINGARD* Director
---------------------------------- February 11, 2000
Jean-Luc Belingard
/s/ ROBERT H. HAYES* Director
---------------------------------- February 11, 2000
Robert H. Hayes
/s/ ARNOLD J. LEVINE* Director
---------------------------------- February 11, 2000
Arnold J. Levine
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THEODORE E. MARTIN* Director
---------------------------------- February 11, 2000
Theodore E. Martin
/s/ GEORGES C. ST. LAURENT, JR.* Director
---------------------------------- February 11, 2000
Georges C. St. Laurent, Jr.
/s/ CAROLYN W. SLAYMAN* Director
---------------------------------- February 11, 2000
Carolyn W. Slayman
/s/ ORIN R. SMITH* Director
---------------------------------- February 11, 2000
Orin R. Smith
/s/ JAMES R. TOBIN* Director
---------------------------------- February 11, 2000
James R. Tobin
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ WILLIAM B. SAWCH
-----------------------------
William B. Sawch
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT TABLE
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
4.1 Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31,
1999 (commission file number 1-4389)).
4.2 Rights Agreement between Registrant and BankBoston, N.A.
(incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-4
(No. 333-67797)).
5.1* Opinion of Simpson Thacher & Bartlett as to the legality of
the securities.
8.1* Opinion of Simpson Thacher & Bartlett regarding tax matters.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Simpson Thacher & Bartlett (included in Exhibit
5.1).
24.1** Power of Attorney.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of PE Corporation of our reports dated July 30, 1999
relating to the combined financial statements of PE Biosystems Group, the
combined financial statements of Celera Genomics Group and the consolidated
financial statements of PE Corporation, which appear in the 1999 Annual Report
to Stockholders of PE Corporation, which is incorporated by reference in PE
Corporation's Annual Report on Form 10-K for the year ended June 30, 1999. We
also consent to the incorporation by reference of our reports dated July 30,
1999 relating to the Financial Statement Schedules, which appears in such Annual
Report on Form 10-K. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 10, 2000
