SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 1-4389
PE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1534213
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
761 Main Avenue,
Norwalk, Connecticut 06859-0001
(Address of Principal Executive Offices, Including Zip Code)
(203) 762-1000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ____
As of the close of business on November 10, 2000, there were 210,374,688 shares
of PE Corporation - PE Biosystems Group Common Stock and 60,783,948 shares of PE
Corporation - Celera Genomics Group Common Stock outstanding.
<PAGE>
PE CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
<S> <C> <C> <C>
A. Applied Biosystems
Item 1. Financial Statements
Condensed Combined Statements of Operations for the
Three Months Ended September 30, 1999 and 2000 1
Condensed Combined Statements of Financial Position at
June 30, 2000 and September 30, 2000 2
Condensed Combined Statements of Cash Flows for the
Three Months Ended September 30, 1999 and 2000 3
Notes to Unaudited Condensed Combined Financial Statements 4-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
B. Celera Genomics Group
Item 1. Financial Statements
Condensed Combined Statements of Operations for the
Three Months Ended September 30, 1999 and 2000 18
Condensed Combined Statements of Financial Position at
June 30, 2000 and September 30, 2000 19
Condensed Combined Statements of Cash Flows for the
Three Months Ended September 30, 1999 and 2000 20
Notes to Unaudited Condensed Combined Financial Statements 21-24
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 25-38
</TABLE>
<PAGE>
PE CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information (continued) Page
<S> <C> <C> <C>
C. PE Corporation Consolidated
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1999 and 2000 39
Condensed Consolidated Statements of Financial Position at
June 30, 2000 and September 30, 2000 40
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1999 and 2000 41
Notes to Unaudited Condensed Consolidated Financial Statements
42-49
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 50-57
Part II. Other Information 58
</TABLE>
The PE Biosystems group is currently doing business as Applied Biosystems. The
Company received stockholder approval at its 2000 Annual Meeting of a change of
the group's name to the Applied Biosystems group and a change of PE
Corporation's name to Applera Corporation. These name changes are expected to
become effective during the second quarter of fiscal 2001. The PE Biosystems
group is referred to in this Report as Applied Biosystems.
<PAGE>
APPLIED BIOSYSTEMS
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
(Dollar amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 2000
-------------- --------------
<S> <C> <C>
Net Revenues $ 292,255 $ 363,572
Cost of sales 137,499 169,625
-------------- --------------
Gross Margin 154,756 193,947
Selling, general and administrative 77,737 89,975
Research, development and engineering 32,032 46,115
-------------- --------------
Operating Income 44,987 57,857
Gain on investment 12,004
Interest expense 2,213 267
Interest income 4,245 4,381
Other expense, net (4,580) (2,913)
-------------- --------------
Income Before Income Taxes 42,439 71,062
Provision for income taxes 12,732 21,918
-------------- --------------
Net Income $ 29,707 $ 49,144
============== ==============
Net Income per Share (see Note 4)
Basic $ .14 $ .23
Diluted $ .14 $ .22
Dividends per Share $ .0425 $ .0425
</TABLE>
The PE Biosystems group is currently doing business as Applied Biosystems. The
Company received stockholder approval at its 2000 Annual Meeting of a change of
the group's name to the Applied Biosystems group. The change is expected to
become effective during the second quarter of fiscal 2001.
See accompanying notes to the Applied Biosystems unaudited condensed combined
financial statements.
1
<PAGE>
APPLIED BIOSYSTEMS
CONDENSED COMBINED STATEMENTS OF FINANCIAL POSITION
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At June 30, At September 30,
2000 2000
--------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 394,608 $ 277,722
Accounts receivable, net 367,370 356,732
Inventories 154,491 155,963
Prepaid expenses and other current assets 81,338 88,015
--------------- ---------------
Total current assets 997,807 878,432
Property, plant and equipment, net 230,940 289,666
Other long-term assets 469,409 451,523
--------------- ---------------
Total Assets $ 1,698,156 $ 1,619,621
=============== ===============
Liabilities and Group Equity
Current liabilities
Loans payable $ 15,693 $ 13,885
Tax benefit payable to the Celera Genomics group 16,702 6,478
Accounts payable 173,631 134,706
Accrued salaries and wages 79,409 39,774
Accrued taxes on income 149,505 122,106
Other accrued expenses 167,718 164,021
--------------- ---------------
Total current liabilities 602,658 480,970
Long-term debt 36,115 35,326
Other long-term liabilities 125,019 134,112
--------------- ---------------
Total Liabilities 763,792 650,408
Group Equity 934,364 969,213
--------------- ---------------
Total Liabilities and Group Equity $ 1,698,156 $ 1,619,621
=============== ===============
</TABLE>
The PE Biosystems group is currently doing business as Applied Biosystems. The
Company received stockholder approval at its 2000 Annual Meeting of a change of
the group's name to the Applied Biosystems group. The change is expected to
become effective during the second quarter of fiscal 2001.
See accompanying notes to the Applied Biosystems unaudited condensed combined
financial statements.
2
<PAGE>
APPLIED BIOSYSTEMS
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 2000
-------------- --------------
<S> <C> <C>
Operating Activities from Continuing Operations
Net income $ 29,707 $ 49,144
Adjustments to reconcile net income to net cash
used by operating activities
Depreciation and amortization 13,153 13,866
Long-term compensation programs 2,137 1,618
Gain on sale of assets (12,004)
Deferred income taxes 4,025
Changes in operating assets and liabilities
Increase in accounts receivable (6,753) (655)
Increase in inventories (10,465) (3,336)
Increase in prepaid expenses and other assets (24,997) (13,847)
Decrease in accounts payable and other liabilities (69,050) (89,402)
-------------- --------------
Net Cash Used by Operating Activities (62,243) (54,616)
-------------- --------------
Investing Activities from Continuing Operations
Additions to property, plant and equipment
(net of disposals of $372 and $148, respectively) (14,522) (71,707)
Investments (125) (3,006)
Proceeds from the sale of assets 12,004
-------------- --------------
Net Cash Used by Investing Activities (14,647) (62,709)
-------------- --------------
Net Cash Used by Continuing Operations
Before Financing Activities (76,890) (117,325)
-------------- --------------
Net Cash Used by Operating Activities
From Discontinued Operations (4,561) (1,228)
-------------- --------------
Financing Activities
Net change in loans payable 5,537 (1,462)
Dividends (8,748) (8,860)
Proceeds from stock issued for stock plans 7,335 17,626
-------------- --------------
Net Cash Provided by Financing Activities 4,124 7,304
-------------- --------------
Effect of Exchange Rate Changes on Cash 3,462 (5,637)
-------------- --------------
Net Change in Cash and Cash Equivalents (73,865) (116,886)
Cash and Cash Equivalents Beginning of Period 236,530 394,608
-------------- --------------
Cash and Cash Equivalents End of Period $ 162,665 $ 277,722
============== ==============
</TABLE>
The PE Biosystems group is currently doing business as Applied Biosystems. The
Company received stockholder approval at its 2000 Annual Meeting of a change of
the group's name to the Applied Biosystems group. The change is expected to
become effective during the second quarter of fiscal 2001.
See accompanying notes to the Applied Biosystems unaudited condensed combined
financial statements.
3
<PAGE>
APPLIED BIOSYSTEMS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 - INTERIM CONDENSED COMBINED FINANCIAL STATEMENTS
The PE Biosystems group is currently doing business as Applied Biosystems. PE
Corporation (the "Company") received stockholder approval at its 2000 Annual
Meeting of a change of the group's name to the Applied Biosystems group and a
change of the Company's name to Applera Corporation. These name changes are
expected to become effective during the second quarter of fiscal 2001. The PE
Biosystems group is referred to as Applied Biosystems.
The interim condensed combined financial statements should be read in
conjunction with the financial statements presented in the Company's 2000 Annual
Report to Stockholders. Significant accounting policies disclosed therein have
not changed.
The unaudited condensed combined financial statements reflect, in the opinion of
the Company's management, all adjustments that are necessary for a fair
statement of the results for the interim periods. All such adjustments are of a
normal recurring nature. These results are, however, not necessarily indicative
of the results to be expected for a full year. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. Certain amounts in the combined financial statements have been
reclassified for comparative purposes.
Applied Biosystems' condensed combined financial statements should be read in
conjunction with the Company's consolidated financial statements.
NOTE 2 - 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 could be utilized on a consolidated basis, have
been credited to the Celera Genomics group up to a limit of $75 million. As of
September 30, 2000, the Celera Genomics group had generated $77.9 million of tax
benefits that were utilized by Applied Biosystems since July 1, 1998. The
amounts utilized by Applied Biosystems in excess of the $75 million limit are
not reimbursed to the Celera Genomics group and are recorded to group equity in
Applied Biosystems' Condensed Combined Statements of Financial Position. See
Note 1 of Applied Biosystems' combined financial statements
4
<PAGE>
APPLIED BIOSYSTEMS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
included in the Company's 2000 Annual Report to Stockholders for a further
discussion of the tax allocation policy.
NOTE 3 - COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) included in Group Equity on the
Condensed Combined Statements of Financial Position consists of foreign currency
translation adjustments, unrealized gains and losses on foreign currency and
interest rate hedge contracts, unrealized gains and losses on available-for-sale
investments, and minimum pension liability adjustments. Total comprehensive
income for the three month periods ended September 30, 1999 and 2000 is
presented in the following table:
<TABLE>
<CAPTION>
(Dollar amounts in millions) Three months ended
September 30,
1999 2000
----------- ------------
<S> <C> <C>
Net income $ 29.7 $ 49.1
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment 12.9 (12.6)
Unrealized gains on hedge contracts 4.4
Unrealized gain (loss) on
investments, net 32.6 (22.2)
Reclassification adjustment for gains
included in net income (7.8)
----------- ------------
Other comprehensive income (loss) 45.5 (38.2)
----------- ------------
Comprehensive income $ 75.2 $ 10.9
=========== ============
</TABLE>
5
<PAGE>
APPLIED BIOSYSTEMS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
NOTE 4 - EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted income per
share:
<TABLE>
<CAPTION>
(Amounts in thousands Three months ended
except per share amounts) September 30,
1999 2000
------------ -----------
<S> <C> <C>
Weighted average number of common
shares used in the calculation of basic
earnings per share 205,704 209,127
Common stock equivalents 7,270 12,046
------------ -----------
Shares used in the calculation of diluted
earnings per share 212,974 221,173
============ ===========
Net income used in the calculation of
basic and diluted earnings per share $ 29,707 $ 49,144
============ ===========
Net income per share
Basic $ .14 $ .23
Diluted $ .14 $ .22
</TABLE>
Options to purchase 6.1 million shares of PE Corporation-PE Biosystems Group
Common Stock were outstanding at September 30, 2000, but were not included in
the computation of diluted income per share because the effect was antidilutive.
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis) or
market. Inventories included the following components:
<TABLE>
<CAPTION>
(Dollar amounts in millions) June 30, September 30,
2000 2000
----------- -----------
<S> <C> <C>
Raw materials and supplies $ 51.2 $ 51.9
Work-in-process 6.3 6.4
Finished products 97.0 97.7
----------- -----------
Total inventories $ 154.5 $ 156.0
=========== ===========
</TABLE>
6
<PAGE>
APPLIED BIOSYSTEMS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
Significant non-cash investing and financing activities were as follows:
<TABLE>
<CAPTION>
Three months ended
(Dollar amounts in millions) September 30,
1999 2000
------------- --------------
<S> <C> <C>
Utilization of tax benefits generated by the
Celera Genomics group $ - $ 2.9
Tax benefit related to employee stock options $ - $ 14.6
Dividends declared not paid $ - $ 8.9
</TABLE>
NOTE 7 - FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," amended in June 2000 by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
The statements require the recognition of all derivative financial instruments
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 is driven by the intended use of the derivative
and the resulting designation. Applied Biosystems adopted the statements
effective July 1, 2000. The cumulative effect of adoption resulted in an
immaterial adjustment for a change in accounting principle in both the Condensed
Combined Statements of Operations and in accumulated other comprehensive income
in the Condensed Combined Statements of Financial Position.
Applied Biosystems' foreign currency risk management strategy utilizes
derivative instruments to hedge certain foreign currency forecasted revenues and
to offset the impact of changes in foreign currency exchange rates on certain
net asset positions. The principal objective of this strategy is to minimize the
risks and/or costs associated with Applied Biosystems' global financial and
operating activities. Applied Biosystems utilizes foreign exchange forward,
option, and range forward contracts to manage its foreign currency exposures,
and an interest rate swap agreement to manage its interest rate exposure.
Applied Biosystems does not use derivative financial instruments for trading
purposes, nor is it a party to leveraged derivatives.
The fair value of all foreign currency derivative contracts is recorded in
prepaid expenses and other current assets and other accrued expenses. The fair
value of the interest rate swap agreement is recorded in other long-term
liabilities.
7
<PAGE>
APPLIED BIOSYSTEMS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
Cash Flow Hedges
Applied Biosystems' international sales are typically denominated in the
customers' local (non-U.S. dollar) currency. Applied Biosystems uses foreign
exchange forward, option and range forward contracts to hedge a portion of these
forecasted sales not denominated in U.S. dollars. These contracts are designated
as cash flow hedges and the effective portion of the change in the fair value of
these contracts is recorded in other comprehensive income in the Condensed
Combined Statements of Financial Position until the underlying external
forecasted transaction affects earnings. At that time, the gain or loss on the
derivative instrument, which had been deferred in other comprehensive income, is
reclassified to net revenues in the Condensed Combined Statements of Operations.
Applied Biosystems recognized a net gain of $1.1 million in net revenues from
derivative instruments designated as cash flow hedges of anticipated sales
during the first quarter of fiscal 2001. At September 30, 2000, $7.6 million of
derivative gains ($4.8 million net of deferred taxes) recorded in other
comprehensive income are expected to be reclassified to earnings during the next
twelve months. For the three months ended September 30, 2000, Applied Biosystems
recognized an expense of $1.7 million, included in other expense in the
Condensed Combined Statements of Operations, which represented the change in the
time value component of the fair value of option contracts designated as cash
flow hedges. The time value component is not included in the assessment of hedge
effectiveness, and as a result, any changes are recognized in earnings in the
period in which they occur.
Applied Biosystems maintains an interest rate swap in conjunction with a
five-year Japanese yen debt obligation. The interest rate swap agreement
involves the payment of a fixed rate of interest and the receipt of a floating
rate of interest without the exchange of the underlying notional loan principal
amount. Under the terms of this contract, Applied Biosystems will make fixed
interest payments of 2.1% while receiving interest at a LIBOR floating rate. No
other cash payments will be made unless the contract is terminated prior to
maturity, in which case the amount to be paid or received in settlement will be
established by agreement at the time of termination. The agreed upon amount
would usually represent the net present value at current interest rates of the
remaining obligation to exchange payments under the terms of the contract.
Other Hedges
Applied Biosystems also uses derivative financial instruments to hedge against
the adverse effects that foreign currency exchange rate fluctuations may have on
its foreign currency denominated net asset positions. The gains and losses on
these derivatives are expected to largely offset transaction losses and gains,
respectively, on the underlying foreign currency denominated assets and
liabilities, both of which are recorded in other expense.
8
<PAGE>
APPLIED BIOSYSTEMS
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
At June 30, 2000 and September 30, 2000, the Company had forward, option, and
range forward contracts outstanding for the sale and purchase of foreign
currencies as summarized in the following table:
<TABLE>
<CAPTION>
(Dollar amounts in millions) June 30, 2000 September 30, 2000
------------- ------------------
Sale Purchase Sale Purchase
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Japanese Yen $ 92.3 $ - $ 104.2 $ -
Euro 43.8 8.0 64.8 16.5
British Pounds 31.1 26.4 33.3 16.5
Singapore Dollars 10.0 .8 9.5
Australian Dollars 3.1 8.0
Other 4.7 6.2
----------- ---------- ----------- ----------
Total $ 185.0 $ 35.2 $ 226.0 $ 33.0
=========== ========== =========== ==========
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
Sales of Products and Services Between Groups. For the three month periods ended
September 30, 1999 and 2000, net revenues from leased instruments, shipments of
consumables and project materials, and contracted R&D services to the Celera
Genomics group totaled $11.7 million and $14.5 million, respectively.
9
<PAGE>
APPLIED BIOSYSTEMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion of Operations
The PE Biosystems group is currently doing business as Applied Biosystems. PE
Corporation (the "Company") received stockholder approval at its 2000 Annual
Meeting of a change of the group's name to the Applied Biosystems group and a
change of the Company's name to Applera Corporation. These name changes are
expected to become effective during the second quarter of fiscal 2001. The PE
Biosystems group is referred to as Applied Biosystems.
The following discussion should be read in conjunction with Applied Biosystems'
condensed combined financial statements and related notes and the Company's
condensed consolidated financial statements and related notes included in this
report; the Applied Biosystems' "Management's Discussion and Analysis" appearing
on pages 10 - 19 of the Company's 2000 Annual Report to Stockholders; and the
Company's "Management's Discussion and Analysis" appearing on pages 73 - 87 of
the Company's 2000 Annual Report to Stockholders. Historical results and
percentage relationships are not necessarily indicative of operating results for
any future periods.
Throughout the following discussion of operations the impact on the Company's
reported results of the movement in foreign currency exchange rates from one
reporting period to another is referred to as "foreign currency translation."
Events Impacting Comparability
Gain on investments. The first quarter of fiscal 2001 included a before-tax gain
of $12.0 million related to the sale of a minority equity investment.
Results of Operations for the Three Months Ended September 30, 2000 Compared
With the Three Months Ended September 30, 1999
Applied Biosystems reported net income of $49.1 million for the first quarter of
fiscal 2001 compared with $29.7 million for the first quarter of fiscal 2000. On
a comparable basis, excluding the gain on the sale of a minority equity
investment from the first quarter of fiscal 2001, net income increased 39% as
compared with the first quarter of fiscal 2000. This increase was attributable
to the growth in net revenues and lower operating expenses as a percentage of
net revenues.
Net revenues were $363.6 million for the first quarter of fiscal 2001 compared
with $292.3 million for the first quarter of fiscal 2000, an increase of 24%.
The effects of foreign currency had approximately a $7 million, or 2%, negative
impact on net revenues compared with the prior year as weakness in the euro and
British pound was only partially offset by strengthening of the Japanese yen.
Revenues from leased instruments and shipments to the Celera Genomics group were
$14.5 million and $11.7 million for the first quarter of fiscal 2001 and fiscal
2000, respectively.
10
<PAGE>
APPLIED BIOSYSTEMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Geographically, Applied Biosystems reported revenue growth in all regions for
the first quarter of fiscal 2001 compared with the first quarter of fiscal 2000.
Revenues increased 30.7% in the United States, 18.5% in Europe, 17.3% in the Far
East, and 16.7% in Latin America and other markets, compared with the first
quarter of the prior fiscal year. Excluding the effects of currency translation,
revenues grew approximately 14.8% in the Far East and approximately 30.0% in
Europe. Contributors to the increase in net revenues were the ABI Prism(R) 3700
and ABI Prism(R) 3100 DNA analyzers; Sequence Detection Systems instruments and
reagents for gene expression and SNP analysis; license agreements; high-end mass
spectrometer instruments for proteomics; DNA sequencing consumables; consumables
for DNA forensic analysis; and custom oligonucleotide synthesis.
Gross margin as a percentage of net revenues was 53.3% for the first quarter of
fiscal 2001 compared with 53.0% for the first quarter of fiscal 2000. The slight
increase in the gross margin as a percentage of net revenues was primarily
attributable to a change in product mix.
SG&A expenses were $90.0 million for the first quarter of fiscal 2001 compared
with $77.7 million for the first quarter of fiscal 2000, an increase of 15.7%.
This increase was due to higher planned worldwide selling and marketing expenses
reflecting the growth in sales and orders. As a percentage of net revenues, SG&A
expenses were 24.7% for the first quarter of fiscal 2001 compared with 26.6% for
the first quarter of fiscal 2000.
R&D expenses were $46.1 million for the first quarter of fiscal 2001 compared
with $32.0 million for the prior year, an increase of 44.0%, as a result of
investment in new products and technologies. As a percentage of net revenues,
R&D expenses were 12.7% for the first quarter of fiscal 2001 compared with 11.0%
for the first quarter of fiscal 2000.
Operating income increased to $57.9 million for the first quarter of fiscal 2001
compared with $45.0 million for the prior year. Applied Biosystems benefited
from increased revenues as a result of strong worldwide demand and lower SG&A
expenses as percentage of net revenues. Operating income as a percentage of net
revenues increased to 15.9% for the first quarter of fiscal 2001 compared with
15.4% for the prior year.
During the first quarter of fiscal 2001, Applied Biosystems recorded a
before-tax gain of $12.0 million on the sale of a minority equity investment.
Interest expense was $.3 million for the first quarter of fiscal 2001 compared
with $2.2 million for the prior year. The first quarter of fiscal 2000 included
interest on the $150 million note payable to the Celera Genomics group. The note
was paid in the fourth quarter of fiscal 2000. Interest income was $4.4 million
for the first quarter of fiscal 2001 compared with $4.2 million for the prior
year. The increase was due to higher cash balances and higher interest rates for
fiscal 2001 compared with fiscal 2000. The first quarter of fiscal 2000 included
interest income on the $150 million note receivable
11
<PAGE>
APPLIED BIOSYSTEMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
relating to the sale of the Analytical Instruments business. The note was
collected in the fourth quarter of fiscal 2000.
Other expense, net was $2.9 million for the first quarter of fiscal 2001
compared with $4.6 million for the prior year. These amounts were primarily
related to the Company's foreign currency management program.
The effective income tax rate was 31% for the first quarter of fiscal 2001
compared with 30% for the prior year. Excluding the sale of a minority equity
investment in fiscal 2001, the effective income tax rate was 30%. See Note 1 to
Applied Biosystems combined financial statements in the Company's 2000 Annual
Report to Stockholders for a discussion of allocations of federal and state
income taxes.
Market Risk
Applied Biosystems operates internationally, with manufacturing and distribution
facilities in various countries throughout the world. For fiscal 2000, Applied
Biosystems derived approximately 50% 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.
Applied Biosystems performed sensitivity analyses as of September 30, 2000 and
June 30, 2000 on its foreign currency derivative financial instruments. Assuming
a hypothetical adverse change of 10% in foreign exchange rates in relation to
the U.S. dollar at September 30, 2000, Applied Biosystems calculated a
hypothetical loss of $3.5 million when comparing the change in fair value of
both the foreign currency contracts outstanding and the underlying exposures
being hedged. Performing a similar hypothetical calculation at June 30, 2000,
Applied Biosystems calculated a hypothetical loss of $1.9 million. These
hypothetical analyses exclude the impact of foreign currency translation on
Applied Biosystems' 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 and actual exposures and
hedges. See Note 7 to the condensed combined financial statements for a further
discussion of derivative financial instruments.
Management's Discussion of Financial Resources and Liquidity
The following discussion of financial resources and liquidity focuses on the
Condensed Combined Statements of Financial Position and the Condensed Combined
Statements of Cash Flows.
Significant Changes in the Condensed Combined Statements of Financial Position
Cash and cash equivalents were $277.7 million at September 30, 2000 compared
with $394.6 million at June 30, 2000, with total debt of $49.2 million at
September 30, 2000 compared with $51.8 million at June 30, 2000. Working capital
was $397.5 million at September 30, 2000 compared with $395.1
12
<PAGE>
APPLIED BIOSYSTEMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
million at June 30, 2000. Debt to total capitalization remained unchanged at 5%
at September 30, 2000 compared with June 30, 2000.
Accounts receivable decreased $10.7 million to $356.7 million at September 30,
2000 from $367.4 million at June 30, 2000, primarily due to foreign currency
translation.
Property, plant and equipment, net increased $58.8 million to $289.7 million at
September 30, 2000 from $230.9 million at June 30, 2000 primarily due to Applied
Biosystems' purchase of property in Pleasanton, California.
Other long-term assets decreased $17.9 million to $451.5 million at September
30, 2000 from $469.4 million at June 30, 2000, primarily as a result of a net
decrease in value of the Company's minority equity investments, partially offset
by an increase in purchased license agreements.
The tax benefit payable to the Celera Genomics group decreased $10.2 million to
$6.5 million at September 30, 2000 from $16.7 million at June 30, 2000. The
reimbursable limit of $75 million was reached during the first quarter of fiscal
2001. See Note 2 to the condensed combined financial statements for a further
discussion of the tax allocation policy.
Accounts payable decreased $38.9 million to $134.7 million at September 30, 2000
from $173.6 million at June 30, 2000 primarily due to the timing of vendor
payments.
Accrued salaries and wages decreased $39.6 million to $39.8 million at September
30, 2000 from $79.4 million at June 30, 2000 reflecting the timing of payments
of certain compensation accruals.
Accrued taxes on income decreased $27.4 million to $122.1 million at September
30, 2000 from $149.5 million at June 30, 2000 primarily due to the timing of
certain income tax payments.
Condensed Combined Statements of Cash Flows. Net cash used by operating
activities was $54.6 million for the first three months of fiscal 2001 compared
with $62.2 million for the same period in fiscal 2000. For the first three
months of fiscal 2001 compared with the same period in the prior year, higher
income-related cash flows and lower increases in receivables, inventory and
prepaid expenses and other assets were partially offset by higher payments to
suppliers and payments of certain compensation accruals.
Net cash used by investing activities was $62.7 million for the first three
months of fiscal 2001 compared with $14.6 million for the first three months of
fiscal 2000. In the first three months of fiscal 2001, Applied Biosystems'
capital expenditures were $71.9 million, which included approximately $54
million related to the purchase of property in Pleasanton, California for the
future construction of new office, laboratory and light manufacturing
facilities. In the first quarter of fiscal 2001, Applied Biosystems realized
$12.0 million from the sale of a minority equity investment and invested $3.0
million in an additional minority equity investment.
13
<PAGE>
APPLIED BIOSYSTEMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Net cash used by discontinued operations was $1.2 million for the first three
months of fiscal 2001 compared with $4.6 million for the first three months of
fiscal 2000. The fiscal 2000 and fiscal 2001 uses were for transaction-related
payments and other cash outlays associated with the divestiture of the
Analytical Instruments business. The Company expects additional cash outlays
over the balance of the fiscal year.
Net cash provided by financing activities was $7.3 million for the first three
months of fiscal 2001 compared with $4.1 million for the prior period. For the
first three months of fiscal 2001, Applied Biosystems received $17.6 million in
proceeds from employee stock option exercises compared with $7.3 million for the
prior period. Loans payable decreased $1.5 million for the first three months of
fiscal 2001 compared with an increase of $5.5 million for the prior year.
At September 30, 2000, the Company had unused credit facilities, including the
revolving credit agreement, totaling $333 million, which is available to both
Applied Biosystems and the Celera Genomics group.
Outlook
Applied Biosystems expects to continue to grow and maintain profitability in
fiscal 2001. Applied Biosystems should continue to benefit from its customers in
basic medical research, pharmaceutical development, and applied markets for
sophisticated, automated, and cost-effective life science tools.
Demand is expected to continue for a variety of tools to gather, interpret, and
integrate biological information to achieve a better understanding of human
health and disease. Applied Biosystems should also benefit from the introduction
of new products designed to meet these demands during fiscal 2001. For example,
Applied Biosystems recently announced a new product and initiative in
proteomics. Shipment of the first Maldi TOF/TOF mass spectrometer was made to
the Celera Genomics group in the first quarter of fiscal 2001. Deliveries of
this product to early access customers are expected to begin in the first half
of calendar year 2001.
Recently, the Company announced plans to expand its existing molecular
diagnostics business, which currently is part of Applied Biosystems. This
initiative is anticipated to leverage several technological resources of Applied
Biosystems and the Celera Genomics group. The initiative will start as a part of
Applied Biosystems, with the Celera Genomics group actively participating.
Further details regarding the initiative and its status within the Company's
capital structure are anticipated to be announced in the coming months.
Applied Biosystems remains concerned about adverse currency effects because
approximately 50% of Applied Biosystems' revenues were derived from regions
outside the United States in fiscal 2000.
14
<PAGE>
APPLIED BIOSYSTEMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Forward-Looking Statements
Certain statements contained in this report, including the Outlook section, are
forward-looking and are subject to a variety of risks and uncertainties. These
statements may be identified by the use of forward-looking words or phrases such
as "believe," "expect," "anticipate," "should," "planned," "estimated," and
"potential," among others. These forward-looking statements are based on our
current expectations. The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for such forward-looking statements. In order to comply
with the terms of the safe harbor, we note that a variety of factors could cause
our actual results and experience to differ materially from the anticipated
results or other expectations expressed in such forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development, and results of our businesses include, but are not limited to:
Rapidly changing technology in life sciences could make Applied Biosystems'
product line obsolete unless it continues to improve existing products, develop
new products, and pursue new market opportunities. A significant portion of the
net revenues for Applied Biosystems each year is derived from products that did
not exist in the prior year. Applied Biosystems' future success depends on its
ability to continually improve its current products, develop and introduce, on a
timely and cost-effective basis, new products that address the evolving needs of
its customers, and pursue new market opportunities that develop as a result of
technological and scientific advances in life sciences. Applied Biosystems'
products are based on complex technology which is subject to rapid change as new
technologies are developed and introduced in the marketplace. Unanticipated
difficulties or delays in replacing existing products with new products could
adversely affect Applied Biosystems' future operating results. The pursuit of
new market opportunities will add further complexity and require additional
management attention and resources as these markets are addressed.
A significant portion of sales depends on customers' capital spending policies
which may be subject to significant and unexpected decreases. A significant
portion of Applied Biosystems' instrument product sales are capital purchases by
its customers. Applied Biosystems' customers include pharmaceutical,
environmental, research, and chemical companies, and the capital spending
policies of these companies can have a significant effect on the demand for
Applied Biosystems' products. These policies are based on a wide variety of
factors, including the resources available to make purchases, the spending
priorities among various types of research equipment, and policies regarding
capital expenditures during recessionary periods. Any decrease in capital
spending or change in spending policies of these companies could significantly
reduce the demand for Applied Biosystems' products.
A substantial portion of Applied Biosystems' sales is to customers at
universities or research laboratories whose funding is dependent on both the
level and timing of funding from government sources. As a result, the timing and
amount of revenues from these sources may vary significantly due to factors that
can be difficult to forecast. Although research funding has increased during the
past several years, grants have, in the past, been frozen for extended periods
or otherwise become
15
<PAGE>
APPLIED BIOSYSTEMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
unavailable to various institutions, sometimes without advance notice. Budgetary
pressures, particularly in the United States and Japan, may result in reduced
allocations to government agencies that fund research and development
activities. If government funding necessary to purchase Applied Biosystems'
products were to become unavailable to researchers for any extended period of
time, or if overall research funding were to decrease, the business of Applied
Biosystems could be adversely affected.
Due to rapidly developing technology and lack of legal precedents, Applied
Biosystems' products could be subject to claims for patent infringement and
trade secret theft. Applied Biosystems' products are based on complex, rapidly
developing technologies. These products could be developed without knowledge of
previously filed but unpublished patent applications that cover some aspect of
these technologies. In addition, there are relatively few decided court cases
interpreting the scope of patent claims in these technologies, and Applied
Biosystems' belief that its products do not infringe the technology covered by
patents and patent applications could be successfully challenged by third
parties. Also, in the course of its business, Applied Biosystems may from time
to time have access to confidential or proprietary information of third parties,
and such parties could bring a theft of trade secret claim against Applied
Biosystems asserting that Applied Biosystems' products improperly utilize
technologies which are not patented but which are protected as trade secrets.
Applied Biosystems has been and could be in the future made a party to
litigation regarding intellectual property matters. Applied Biosystems has from
time to time been notified that it may be infringing certain patents and other
intellectual property rights of others. It may be necessary or desirable in the
future to obtain licenses relating to one or more products or relating to
current or future technologies, and we cannot assure you that Applied Biosystems
will be able to obtain these licenses or other rights on commercially reasonable
terms.
Since Applied Biosystems' business is dependent on foreign sales, fluctuating
currencies will make our revenues and operating results more volatile.
Approximately 50% of Applied Biosystems' net revenues during fiscal 2000 were
derived from sales to customers outside of the United States. The majority of
these sales were based on the relevant customer's local currency. As a result,
Applied Biosystems' reported and anticipated operating results and cash flows
are subject to fluctuations due to material changes in foreign currency exchange
rates that are beyond Applied Biosystems' control.
Integrating acquired technologies may be costly and may not result in
technological advances. The future growth of Applied Biosystems depends in part
on its ability to acquire complementary technologies through acquisitions and
investments. The consolidation of employees, operations, and marketing and
distribution methods could present significant managerial challenges. For
example, Applied Biosystems may encounter operational difficulties in the
integration of manufacturing or other facilities. In addition, technological
advances resulting from the integration of technologies may not be achieved as
successfully or rapidly as anticipated, if at all.
16
<PAGE>
APPLIED BIOSYSTEMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Earthquakes could disrupt operations in California. A significant portion of
Applied Biosystems' operations is located near major California earthquake
faults. The ultimate impact of earthquakes on Applied Biosystems, significant
suppliers and the general infrastructure is unknown, but operating results could
be materially affected in the event of a major earthquake.
17
<PAGE>
CELERA GENOMICS GROUP
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
(Dollar amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 2000
------------- -------------
<S> <C> <C>
Net Revenues $ 8,279 $ 18,253
Costs and Expenses
Research and development 32,164 46,744
Selling, general and administrative 8,407 13,030
Amortization of goodwill and intangibles 11,081
------------- -------------
Operating Loss (32,292) (52,602)
Interest expense 51 786
Interest income 2,033 18,186
Other income, net 11
------------- -------------
Loss Before Income Taxes (30,310) (35,191)
Benefit for income taxes 10,912 9,502
------------- -------------
Net Loss $ (19,398) $ (25,689)
============= =============
Net Loss per Share (see Note 5)
Basic and diluted $ (.38) $ (.43)
</TABLE>
See accompanying notes to the Celera Genomics group unaudited condensed combined
financial statements.
18
<PAGE>
CELERA GENOMICS GROUP
CONDENSED COMBINED STATEMENTS OF FINANCIAL POSITION
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At June 30, At September 30,
2000 2000
--------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 569,894 $ 566,548
Short-term investments 541,140 540,745
Tax benefit receivable from Applied Biosystems 16,702 6,478
Accounts receivable, net 14,936 11,514
Inventories, net 3,336 2,806
Prepaid expenses and other current assets 2,283 2,981
--------------- ---------------
Total current assets 1,148,291 1,131,072
Property, plant and equipment, net 111,442 111,426
Other long-term assets 153,524 147,082
--------------- ---------------
Total Assets $ 1,413,257 $ 1,389,580
=============== ===============
Liabilities and Group Equity
Current liabilities
Short-term debt $ - $ 46,000
Accounts payable 21,566 22,088
Accrued salaries and wages 10,251 9,045
Deferred revenues 24,169 16,086
Other accrued expenses 11,266 10,510
--------------- ---------------
Total current liabilities 67,252 103,729
Long-term debt 46,000
Other long-term liabilities 9,189 9,189
--------------- ---------------
Total Liabilities 122,441 112,918
Group Equity 1,290,816 1,276,662
--------------- ---------------
Total Liabilities and Group Equity $ 1,413,257 $ 1,389,580
=============== ===============
</TABLE>
The PE Biosystems group is currently doing business as Applied Biosystems. The
Company received stockholder approval at its 2000 Annual Meeting of a change of
the group's name to the Applied Biosystems group. The change is expected to
become effective during the second quarter of fiscal 2001.
See accompanying notes to the Celera Genomics group unaudited condensed combined
financial statements.
19
<PAGE>
CELERA GENOMICS GROUP
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 2000
------------- --------------
<S> <C> <C>
Operating Activities
Net loss $ (19,398) $ (25,689)
Adjustments to reconcile net loss to
net cash used by operating activities
Depreciation and amortization 4,487 15,961
Long-term compensation program 332
Deferred income taxes (3,422) (3,157)
Changes in operating assets and liabilities
Decrease in tax benefit receivable
from Applied Biosystems 2,445 10,224
(Increase) decrease in accounts receivable (3,369) 3,422
Decrease in inventory 530
(Increase) decrease in prepaid expenses and other assets (829) 503
Decrease in accounts payable and other liabilities (6,507) (9,318)
------------- --------------
Net Cash Used by Operating Activities (26,593) (7,192)
------------- --------------
Investing Activities
Additions to property, plant and equipment (14,069) (4,967)
Purchases of short-term investments, net 622
------------- --------------
Net Cash Used by Investing Activities (14,069) (4,345)
------------- --------------
Financing Activities
Net change in loans payable 46,000
Proceeds from stock issued for stock plans 3,223 8,191
------------- --------------
Net Cash Provided by Financing Activities 49,223 8,191
------------- --------------
Net Change in Cash and Cash Equivalents 8,561 (3,346)
Cash and Cash Equivalents Beginning of Period 71,491 569,894
------------- --------------
Cash and Cash Equivalents End of Period $ 80,052 $ 566,548
============= ==============
</TABLE>
The PE Biosystems group is currently doing business as Applied Biosystems. The
Company received stockholder approval at its 2000 Annual Meeting of a change of
the group's name to the Applied Biosystems group. The change is expected to
become effective during the second quarter of fiscal 2001.
See accompanying notes to the Celera Genomics group unaudited condensed combined
financial statements.
20
<PAGE>
CELERA GENOMICS GROUP
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 - INTERIM CONDENSED COMBINED FINANCIAL STATEMENTS
The PE Biosystems group is currently doing business as Applied Biosystems. PE
Corporation (the "Company") received stockholder approval at its 2000 Annual
Meeting of a change of the group's name to the Applied Biosystems group and a
change of the Company's name to Applera Corporation. These name changes are
expected to become effective during the second quarter of fiscal 2001. The PE
Biosystems group is referred to as Applied Biosystems.
The interim condensed combined financial statements should be read in
conjunction with the financial statements presented in the Company's 2000 Annual
Report to Stockholders. Significant accounting policies disclosed therein have
not changed.
The unaudited condensed combined financial statements reflect, in the opinion of
the Company's management, all adjustments that are necessary for a fair
statement of the results for the interim periods. All such adjustments are of a
normal recurring nature. These results are, however, not necessarily indicative
of the results to be expected for a full year. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. Certain amounts in the condensed combined financial statements have
been reclassified for comparative purposes.
The Celera Genomics group's condensed combined financial statements should be
read in conjunction with the Company's condensed consolidated financial
statements.
NOTE 2 - 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 could be utilized on a consolidated basis, have
been credited to the Celera Genomics group up to a limit of $75 million. As of
September 30, 2000, the Celera Genomics group had generated $77.9 million of tax
benefits that were utilized by Applied Biosystems since July 1, 1998. The
amounts utilized by Applied Biosystems in excess of the $75 million limit are
not reimbursed to the Celera Genomics group and are recorded to group equity in
the Celera Genomics group's Condensed
21
<PAGE>
CELERA GENOMICS GROUP
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
Combined Statements of Financial Position. See Note 1 to the Celera Genomics
group's combined financial statements included in the Company's 2000 Annual
Report to Stockholders for a further discussion of the tax allocation policy.
NOTE 3 - ACQUISITIONS
Paracel, Inc. During the fourth quarter of fiscal 2000, the Company acquired
Paracel, Inc. in a stock-for-stock transaction. The net assets and results of
operations of Paracel were included in the Celera Genomics group's condensed
combined financial statements from the date of acquisition. The following
selected unaudited pro forma information for the Celera Genomics group assumes
the acquisition had occurred at the beginning of fiscal 2000 and gives effect to
purchase accounting adjustments:
<TABLE>
<CAPTION>
(Dollar amounts in millions except per share amounts) Three months ended
September 30, 1999
-------------------------
<S> <C>
Net revenues $ 11.3
Net loss $(33.5)
Net loss per share
Basic and diluted $ (.63)
</TABLE>
See Note 2 to the Celera Genomics group's combined financial statements in the
Company's 2000 Annual Report to Stockholders for a further discussion of this
acquisition.
NOTE 4 - COMPREHENSIVE LOSS
Accumulated other comprehensive income included in Group Equity in the Condensed
Combined Statements of Financial Position consists of unrealized gains and
losses on available-for-sale investments. Total comprehensive loss for the three
month periods ended September 30, 1999 and 2000 is presented in the following
table:
<TABLE>
<CAPTION>
(Dollar amounts in millions) Three months ended
September 30,
1999 2000
-------------- ------------
<S> <C> <C>
Net loss $ (19.4) $ (25.7)
Other comprehensive income, net of tax:
Unrealized gain on investments, net .3
-------------- ------------
Comprehensive loss $ (19.4) $ (25.4)
============== ============
</TABLE>
22
<PAGE>
CELERA GENOMICS GROUP
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
NOTE 5 - LOSS PER SHARE
The following table presents a reconciliation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
(Amounts in thousands Three months ended
except per share amounts) September 30,
1999 2000
------------- -------------
<S> <C> <C>
Weighted average number of common
shares used in the calculation of basic
loss per share 51,466 59,709
Common stock equivalents
------------- -------------
Shares used in the calculation of diluted
loss per share 51,466 59,709
============= =============
Net loss used in the calculation of
basic and diluted loss per share $(19,398) $(25,689)
============= =============
Net loss per share
Basic and diluted $ (.38) $ (.43)
</TABLE>
Options and warrants to purchase 12.3 million shares of PE Corporation-Celera
Genomics Group Common Stock were outstanding at September 30, 2000, but were not
included in the computation of diluted loss per share because the effect was
antidilutive.
NOTE 6 - INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis) or
market. Inventories included the following components:
<TABLE>
<CAPTION>
(Dollar amounts in millions) June 30, September 30,
2000 2000
----------- --------------
<S> <C> <C>
Raw materials and supplies $ 1.9 $ 2.6
Finished products 1.4 .2
----------- --------------
Total inventories $ 3.3 $ 2.8
=========== ==============
</TABLE>
23
<PAGE>
CELERA GENOMICS GROUP
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
continued
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
Significant non-cash investing and financing activities were as follows:
<TABLE>
<CAPTION>
(Dollar amounts in millions) Three months ended
September 30,
1999 2000
------------- --------------
<S> <C> <C>
Utilization of tax benefits by
Applied Biosystems $ - $ 2.9
Tax benefit related to employee stock options $ - $ 5.7
</TABLE>
NOTE 8 - DEBT
Long-term debt at June 30, 2000 consisted of $46.0 million of commercial paper
borrowing. The Company had the necessary credit facilities, through its
revolving credit agreement, to refinance the commercial paper borrowings on a
long-term basis. At June 30, 2000, these borrowings were classified as a
noncurrent liability because it was the Company's intent to refinance these
obligations on a long-term basis. In October 2000, the Company decided to repay
this debt; therefore, at September 30, 2000, these borrowings were classified as
a current liability.
NOTE 9 - RELATED PARTY TRANSACTIONS
Sales of Products and Services Between Groups. For the three month periods ended
September 30, 1999 and 2000, research and development expenses included $12.4
million and $14.1 million, respectively, for lease payments on instruments and
the purchase of consumables and project materials from Applied Biosystems.
24
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion of Operations
The PE Biosystems group is currently doing business as Applied Biosystems. PE
Corporation (the "Company") received stockholder approval at its 2000 Annual
Meeting of a change of the group's name to the Applied Biosystems group and a
change of the Company's name to Applera Corporation. These name changes are
expected to become effective during the second quarter of fiscal 2001. The PE
Biosystems group is referred to as Applied Biosystems.
The following discussion should be read in conjunction with the Celera Genomics
group's condensed combined financial statements and related notes and the
Company's condensed consolidated financial statements and related notes included
in this report; the Celera Genomics group's "Management's Discussion and
Analysis" appearing on pages 46 - 54 of the Company's 2000 Annual Report to
Stockholders; and the Company's "Management's Discussion and Analysis" appearing
on pages 73 - 87 of the Company's 2000 Annual Report to Stockholders. Historical
results and percentage relationships are not necessarily indicative of operating
results for any future periods.
Events Impacting Comparability
Acquisition. During the fourth quarter of fiscal 2000, the Company acquired
Paracel, Inc. in a stock-for-stock transaction. Paracel produces advanced
genomic and text analysis technologies. Its products include a hardware
accelerator for sequence comparison, a hardware accelerator for text search, and
sequence analysis software tools. See Note 3 to the condensed combined financial
statements for a discussion of this acquisition.
Results of Operations for the Three Months Ended September 30, 2000 Compared
With the Three Months Ended September 30, 1999
The Celera Genomics group reported a net loss of $25.7 million for the first
quarter of fiscal 2001 compared with a net loss of $19.4 million for the first
quarter of fiscal 2000. The increase in the net loss reflected the increased
investment in research and development activities relating to expanded
scientific and annotation teams and bioinformatics staff; increased operating
expenses required to support expanded product and business development
activities; amortization of goodwill and intangibles primarily due to the
Paracel acquisition; and expansion of sales and marketing capabilities. These
increased expenses were partially offset by increased net revenues and interest
income.
Net revenues for the Celera Genomics group were $18.3 million for the first
quarter of fiscal 2001 compared with $8.3 million for the first quarter of
fiscal 2000. The increased revenues resulted primarily from database
subscription agreements initiated during fiscal 2000 and the first quarter of
fiscal 2001, as well as revenues from Paracel and an increase in genomics
services revenues.
25
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
R&D expenses increased $14.5 million to $46.7 million for the first quarter of
fiscal 2001 from $32.2 million for the first quarter of fiscal 2000 primarily as
a result of the development of expanded bioinformatics and software development
capabilities. The group also expanded its scientific and annotation research
teams and bioinformatics and software engineering staff. The Celera Genomics
group's R&D program is focused on building the definitive genome reference
database, which should allow the Celera Genomics group's customers to enhance
their genetic and pharmaceutical research programs. In addition, the Celera
Genomics group has begun development of its own discovery platform and is
currently accelerating its gene discovery work and expanding its capabilities in
functional genomics. The Celera Genomics group has begun assembling a major
research program in proteomics and the construction of an industrial-scale
protein research facility in Rockville, Maryland.
SG&A expenses were $13.0 million for the first quarter of fiscal 2001 compared
with $8.4 million for the first quarter of fiscal 2000. The increase was caused
primarily by the Celera Genomics group's expansion of its sales and marketing
capablities. The acquisition of Paracel during the fourth quarter of fiscal 2000
also contributed to the increase in SG&A expenses.
The Celera Genomics group recorded $11.1 million of expenses relating to the
amortization of goodwill and other intangibles primarily due to Paracel, which
was acquired in the fourth quarter of fiscal 2000.
Interest expense was $.8 million for the first quarter of fiscal 2001 compared
with $.1 million for the first quarter of fiscal 2000. Interest expense in both
periods reflects the Company's financing of the purchase of the Celera Genomics
group's Rockville, Maryland facilities. The financing was entered into during
the first quarter of fiscal 2000. Interest income was $18.2 million for the
first quarter of fiscal 2001 compared with $2.0 million for the first quarter of
fiscal 2000. The increase was attributable to interest income on cash and cash
equivalents and short-term investments, which increased as a result of the
follow-on public offering of PE Corporation-Celera Genomics Group Common Stock
completed in March 2000. The first quarter of fiscal 2000 included interest
income from the $150 million note receivable from Applied Biosystems. This note
was collected in the fourth quarter of fiscal 2000.
The effective income tax rate was 27% for the first quarter of fiscal 2001 and
36% for the first quarter of fiscal 2000. The decrease in the effective income
tax benefit rate was due to the amortization of nondeductible goodwill relating
to the acquisition of Paracel, which occurred in the fourth quarter of fiscal
2000. See Note 1 to the Celera Genomics group's combined financial statements in
the Company's 2000 Annual Report to Stockholders for a discussion of allocations
of federal and state income taxes.
26
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
Management's Discussion of Financial Resources and Liquidity
The following discussion of financial resources and liquidity focuses on the
Combined Statements of Financial Position and the Condensed Combined Statements
of Cash Flows.
Significant Changes in the Condensed Combined Statements of Financial Position.
Cash and cash equivalents and short-term investments were $1.1 billion at
September 30, 2000 and June 30, 2000, with debt of $46.0 million at September
30, 2000 and June 30, 2000. Working capital was $1.0 billion at September 30,
2000 and $1.1 billion at June 30, 2000.
During the first quarter of fiscal 2001, the Company's $46.0 million of
commercial paper borrowing was reclassified from long-term to short-term due to
the Company's decision to repay the commercial paper during the second quarter
of fiscal 2001.
The Celera Genomics group had a tax benefit receivable from Applied Biosystems
of $6.5 million and $16.7 million at September 30, 2000 and June 30, 2000,
respectively. These amounts represent the tax benefits reimbursable from Applied
Biosystems for the first quarter of fiscal 2001 and the fourth quarter of fiscal
2000, respectively. The tax benefit receivable is settled on a quarterly basis.
At September 30, 2000, Applied Biosystems had utilized tax benefits generated by
the Celera Genomics group in excess of the maximum reimbursable amount. See Note
2 to the Celera Genomics group's condensed combined financial statements for a
discussion of allocations of federal and state income taxes.
Accounts receivable decreased $3.4 million to $11.5 million at September 30,
2000 from $14.9 million at June 30, 2000, primarily as a result of the timing of
payments received on subscription agreements.
Deferred revenues decreased $8.1 million to $16.1 million at September 30, 2000
from $24.2 million at June 30, 2000 due to the timing of subscriptions received
for database and genomic services agreements, offset by revenue recognized under
these agreements.
Condensed Combined Statements of Cash Flows. Cash used by operating activities
was $7.2 million for the first three months of fiscal 2001 compared with $26.6
million for the same period in the prior year. The decrease in cash used by
operating activities resulted primarily from lower net cash operating losses and
a decrease in accounts receivable during the first quarter of fiscal 2001 as
compared to an increase in accounts receivable in the first quarter of fiscal
2000.
Net cash used by investing activities for capital expenditures was $5.0 million
for the first three months of fiscal 2001 compared with $14.1 million for the
first three months of fiscal 2000. Fiscal 2000 capital expenditures included
payments of $8.1 million for software licenses. The capital
27
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
expenditures for the first three months of fiscal 2001 included $1.6 million of
purchases from Applied Biosystems.
Net cash provided by financing activities was $8.2 million for the first three
months of fiscal 2001 compared with $49.2 million for same period in the prior
year. For the first three months of fiscal 2001, $8.2 million in proceeds were
received from stock issued for employee stock plans as compared with $3.2
million in the same period of the prior year. During the first quarter of fiscal
2000, the Company secured financing of $46 million specifically for the purchase
of the Rockville, Maryland facilities.
At September 30, 2000, the Company had unused credit facilities, including the
revolving credit agreement, totaling $333 million, which is available to both
the Celera Genomics group and Applied Biosystems.
Outlook
The Celera Genomics group expects to see a continued expansion in the customer
base for online genomics information products and related genomics services,
with corresponding increases in revenues during fiscal 2001. Revenue growth
should come primarily from increasing the customer base among the major
pharmaceutical and biotech companies, academic institutions, and non-profit
research organizations and strengthening the Celera Genomics group's research
collaborations and services business.
The Celera Genomics group has made substantial progress in sequencing the mouse
genome, which is an important model in human disease studies and therapeutic
discovery and development. In early October 2000, the Celera Genomics group
completed the three-fold sequencing of the genomes of three mouse strains to
ensure a 95 percent representation of the mouse genome. Recently, the National
Institutes of Health announced that it will accelerate its efforts to sequence
the mouse genome. The public effort is sequencing a mouse strain different from
the three strains involved in Celera's proprietary program. The Celera Genomics
group's database products are expected to be enhanced by the public effort to
sequence a mouse genome. With this additional strain, Celera expects to provide
its customers with a diverse set of mouse genetic information and cover each of
the most frequently used mouse strains used in medical research.
The expected increase in revenues could be offset as the Celera Genomics group
accelerates new investments to build discovery platforms and continues staffing
the organization. R&D expenses are expected to continue to grow as the research
and bioinformatics areas are expanded. The Celera Genomics group is currently
accelerating its gene discovery work and expanding its capabilities in
functional genomics and has begun assembling a research program in proteomics
and the construction of an industrial-scale protein research facility in
Rockville,
28
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
Maryland. SG&A expenses are also expected to increase as the group continues to
establish its sales and marketing functions.
Recently, the Company announced plans to expand its existing molecular
diagnostics business, which currently is part of Applied Biosystems. This
initiative is anticipated to leverage several technological resources of Applied
Biosystems and the Celera Genomics group. The initiative will start as a part of
Applied Biosystems, with the Celera Genomics group actively participating.
Further details regarding the initiative and its status within the Company's
capital structure are anticipated to be announced in the coming months.
The Company believes the Celera Genomics group's existing cash and cash
equivalents and short-term investments 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 information products and related genomics services from this data. While the
Company intends to use the net proceeds from the Celera Genomics group's
follow-on public offering, which was completed in March 2000, primarily to fund
its new product and technology development activities in functional genomics,
with an emphasis on proteomics and personalized health/medicine, such funds may
not be sufficient to support these new business activities as they develop. The
Celera Genomics group's actual future capital uses and requirements with respect
to its new activities will depend on many factors, including those discussed
under "Forward-Looking Statements."
Forward-Looking Statements
Certain statements contained in this report, including the Outlook section, are
forward-looking and are subject to a variety of risks and uncertainties. These
statements may be identified by the use of forward-looking words or phrases such
as "believe," "expect," "anticipate," "should," "planned," "estimated," and
"potential," among others. These forward-looking statements are based on our
current expectations. The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for such forward-looking statements. In order to comply
with the terms of the safe harbor, we note that a variety of factors could cause
our actual results and experience to differ materially from the anticipated
results or other expectations expressed in such forward-looking statements. The
risks and uncertainties that may affect the operations, performance,
development, and results of our businesses include, but are not limited to:
The Celera Genomics group has incurred net losses to date and may not achieve
profitability. The Celera Genomics group has accumulated net losses of $204.5
million as of September 30, 2000 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 its functional genomics and personalized
health/medicine efforts. As an early-stage business, the Celera Genomics group
faces significant challenges in simultaneously expanding its
29
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
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 moves beyond completion of
the sequencing of the human genome, it is expanding its business plan to provide
new scientific services to customers in areas such as functional genomics,
personalized health/medicine, and proteomics. The offering of genomics
databases, functional genomics, proteomics, 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, personalized health/medicine, and proteomics 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 final assembly and annotation
of the human genome. The Celera Genomics group is assembling human genome
sequence data obtained using "whole genome shotgun sequencing." Although we
believe that the Celera Genomics group's sequencing and assembly efforts will be
successfully completed based on Celera Genomics' experience to date, Celera
Genomics is using methods, together with data from whole genome shotgun
sequencing, which have not previously been applied to complete final assembly of
a genome with the size and complexity of the human genome. The Celera Genomics
group's ability to retain its existing customers and attract new customers is
heavily dependent upon the final assembly and continued annotation of the human
genome. This information is essential to the functional genomics and
personalized health/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 assembly and annotation efforts in
a timely manner may have a material adverse effect on the Celera Genomics
group's business.
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
30
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
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 the 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 Genomics group's technologies. If the Celera
Genomics 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, 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,
services, and intellectual property 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, functional genomics, and other genomic
service businesses. Some of these competitors are developing databases
containing gene sequence, gene expression, genetic variation, or other
biological information and are marketing or plan to market their data to
pharmaceutical and biotechnology companies and academic and research
institutions. 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 from third parties,
and therefore such technology may be available for license by the Company's
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. In addition, a customer may use the Celera Genomic
group's
31
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
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, drug
development, and diagnostics 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, Pfizer Inc., Takeda Chemical Industries, Ltd., American Home
Products Corporation, and Immunex Corporation. The Celera Genomics group expects
that pharmaceutical companies and larger biotechnology companies will continue
to be the Celera Genomics group's primary source of revenues for the foreseeable
future. As a result, the Celera Genomics 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
Genomics' products and services.
Celera Genomics relies on its strategic relationship with Applied Biosystems.
The Celera Genomics group believes that its strategic relationship with Applied
Biosystems 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, personalized health/medicine, and proteomics arenas will depend on
Applied Biosystems' ability to continue to provide leading-edge, proprietary
technology and products, including technologies relating to genetic analysis,
protein analysis, and high-throughput screening. If Applied 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 Applied Biosystems that
adversely affects the Celera Genomics group's access to Applied Biosystems'
technology or failure by Applied Biosystems to continue to
32
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
develop new technologies or protect its proprietary technology could adversely
affect Celera Genomics' 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.
Celera Genomics 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 and
chemicals, and may in the future involve 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, value-added services and licenses to
intellectual property 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 be reached with a potential customer. Actual
and proposed consolidations of pharmaceutical companies have affected, and may
in the future affect, the timing and progress of the Celera Genomics 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. Celera
Genomics is highly dependent on the principal members of its scientific and
management staff, particularly J. Craig 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; Mark Adams, Vice
President for Genome Programs; and Eugene Myers, Vice President of Informatics
Research, 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. Also, in an effort to meet the demands of
its growing business, the group recently hired other key management personnel in
the areas of operations, sales, marketing, and business development, and the
group believes that these persons will be important to the successful growth of
the group's
33
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
business. 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' business is currently 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, gene function, and polymorphisms, is uncertain, and
as a result, the Celera Genomics group is uncertain as to its ability to obtain
intellectual property protection covering its information discoveries sufficient
to prevent competitors from developing similar subject matter. Patents may not
issue from patent applications that the Celera Genomics 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 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,
and non-use agreements with employees, consultants, collaborators and customers,
and other security measures. These confidentiality and non-use 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 Genomics'
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
34
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
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 the genomics industry. The Celera Genomics group may become a
party to patent litigation or proceedings in the federal courts or 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 Celera
Genomics 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 several patents to third parties
relating to single nucleotide polymorphisms ("SNPs"). 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.
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
Celera Genomics 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 Celera Genomics group's hardware
or software malfunctions or the Celera Genomics group's
35
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
customers' access to products through the Internet is interrupted, its business
could suffer. The Celera Genomics 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 Celera Genomics group fails to maintain and further develop the necessary
computer capacity and data to support computational needs and its customers'
drug 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 Celera Genomics group's business.
Celera Genomics' research and product development depends on access to tissue
samples and other biological materials. To continue to build its product base,
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.
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 toward
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 the Company's
products.
Expected rapid growth in the number of its employees could absorb valuable
management resources and be disruptive to the development of Celera Genomics'
business. The Celera Genomics group expects to grow significantly. This growth
will require substantial effort to hire new employees and train and integrate
them into 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.
36
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
The use of Celera Genomics' products and services by its customers may be
subject to government regulation. Within the field of genomics, the use of the
Celera Genomics group's 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 the Celera
Genomics group's customers as a result of their use of the Celera Genomics
group'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 healthcare laws and regulations issued by the FDA may limit the use
of polymorphism data. To the extent that use of the Celera Genomics group's
databases is limited, or additional costs are imposed on the Celera Genomics
group's customers due to regulation, the Celera Genomics group's business may be
adversely affected.
Furthermore, the Celera Genomics group may be directly subject to the
regulations as a provider of diagnostic information. To the extent that such
regulations restrict the sale of the Celera Genomics group's products or impose
other costs, the Celera Genomics group'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
effect on the Celera Genomics group's financial condition and results of
operations. For example, to the extent that it elects 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 holders of Celera
Genomics stock. Acquisitions involve numerous other risks, including:
o difficulties integrating acquired technologies and personnel into the business
of the Celera Genomics group;
o diversion of management from daily operations;
o inability to obtain required financing on favorable terms;
o entry into new markets in which the Celera Genomics group has little previous
experience;
o potential loss of key employees or customers of acquired companies;
o assumption of the liabilities and exposure to unforseen liabilities of
acquired companies; and
o amortization of the intangible assets of acquired companies.
It may be difficult for the Celera Genomics group to complete such transactions
quickly and to integrate such business efficiently into its current business.
Any such acquisitions or investments by the Celera Genomics group may ultimately
have a negative impact on its business and financial condition.
37
<PAGE>
CELERA GENOMICS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
continued
PE Corporation is subject to a purported class action lawsuit relating to its
recent offering of shares of Celera Genomics stock which may be expensive and
time consuming. PE Corporation and certain of its officers have been served in
five lawsuits purportedly on behalf of purchasers of Celera Genomics stock in PE
Corporation's offering of Celera Genomics stock completed on March 6, 2000. In
the offering, PE Corporation sold an aggregate of approximately 4.4 million
shares of Celera Genomics common stock at a public offering price of $225 per
share. The complaints in these lawsuits generally allege that the prospectus
used in connection with the offering contained inaccurate and misleading
statements in violation of federal securities laws. The complaints seek
unspecified damages, rescission, costs and expenses, and such other relief as
the court deems proper. All of these lawsuits have been consolidated into a
single case. Although PE Corporation believes the asserted claims are without
merit and intends to defend the case vigorously, the outcome of this or any
other litigation is inherently uncertain. The defense of this case will require
management attention and resources.
38
<PAGE>
PE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Dollar amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 2000
------------- -------------
<S> <C> <C>
Net Revenues $ 288,843 $ 367,414
Cost of Sales 132,551 163,501
------------- -------------
Gross Margin 156,292 203,913
Selling, general and administrative 86,144 103,005
Research, development and engineering 56,660 83,707
Amortization of goodwill and intangibles 11,081
------------- -------------
Operating Income 13,488 6,120
Gain on investment 12,004
Interest expense 394 1,053
Interest income 4,408 22,567
Other expense, net (4,580) (2,902)
------------- -------------
Income Before Income Taxes 12,922 36,736
Provision for income taxes 2,843 12,280
------------- -------------
Net Income $ 10,079 $ 24,456
============= =============
Applied Biosystems (see Note 4)
Net Income $ 29,707 $ 49,144
Basic per share $ .14 $ .23
Diluted per share $ .14 $ .22
Dividends per share $ .0425 $ .0425
Celera Genomics Group (see Note 4)
Net Loss $ (19,398) $ (25,689)
Basic and diluted per share $ (.38) $ (.43)
</TABLE>
The PE Biosystems group is currently doing business as Applied Biosystems. The
Company received stockholder approval at its 2000 Annual Meeting of a change of
the group's name to the Applied Biosystems group and a change of PE
Corporation's name to Applera Corporation. These name changes are expected to
become effective during the second quarter of fiscal 2001.
See accompanying notes to unaudited condensed consolidated financial statements.
39
<PAGE>
PE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
At June 30, At September 30,
2000 2000
--------------- ----------------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 964,502 $ 844,270
Short-term investments 541,140 540,745
Accounts receivable, net 378,593 357,972
Inventories 157,827 158,769
Prepaid expenses and other current assets 83,465 90,996
--------------- ----------------
Total current assets 2,125,527 1,992,752
Property, plant and equipment, net 334,855 394,430
Other long-term assets 622,933 598,605
--------------- ----------------
Total Assets $ 3,083,315 $ 2,985,787
=============== ================
Liabilities and Stockholders' Equity
Current liabilities
Loans payable $ 15,693 $ 59,885
Accounts payable 191,484 146,520
Accrued salaries and wages 89,660 48,819
Accrued taxes on income 149,584 121,879
Other accrued expenses 200,079 187,869
--------------- ----------------
Total current liabilities 646,500 564,972
Long-term debt 82,115 35,326
Other long-term liabilities 134,208 143,301
--------------- ----------------
Total Liabilities 862,823 743,599
Stockholders' Equity
Capital stock
PE Corporation - PE Biosystems group 2,087 2,099
PE Corporation - Celera Genomics group 593 605
Capital in excess of par value 1,714,362 1,758,328
Retained earnings 377,996 393,562
Accumulated other comprehensive income 125,454 87,594
--------------- ----------------
Total Stockholders' Equity 2,220,492 2,242,188
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 3,083,315 $ 2,985,787
=============== ================
</TABLE>
The PE Biosystems group is currently doing business as Applied Biosystems. The
Company received stockholder approval at its 2000 Annual Meeting of a change of
the group's name to the Applied Biosystems group and a change of PE
Corporation's name to Applera Corporation. These name changes are expected to
become effective during the second quarter of fiscal 2001.
See accompanying notes to unaudited condensed consolidated financial statements.
40
<PAGE>
PE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 2000
-------------- --------------
<S> <C> <C>
Operating Activities from Continuing Operations
Net income from continuing operations $ 10,079 $ 24,456
Adjustments to reconcile net income to net cash
used by operating activities
Depreciation and amortization 16,847 28,962
Long-term compensation programs 2,137 1,950
Gain on sale of assets (12,004)
Deferred income taxes 603 (3,157)
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (8,668) 5,532
Increase in inventories (10,465) (2,806)
Increase in prepaid expenses and other assets (25,826) (13,480)
Decrease in accounts payable and other liabilities (73,543) (91,261)
-------------- --------------
Net Cash Used by Operating Activities (88,836) (61,808)
-------------- --------------
Investing Activities from Continuing Operations
Additions to property, plant and equipment
(net of disposals of $372 and $148, respectively) (28,591) (76,674)
Purchases of short-term investments, net 622
Investments (125) (3,006)
Proceeds from the sale of assets, net 12,004
-------------- --------------
Net Cash Used by Investing Activities (28,716) (67,054)
-------------- --------------
Net Cash Used by Continuing Operations
Before Financing Activities (117,552) (128,862)
-------------- --------------
Net Cash Used by Operating Activities
From Discontinued Operations (4,561) (1,228)
-------------- --------------
Financing Activities
Net change in loans payable 51,537 (1,462)
Dividends (8,748) (8,860)
Proceeds from stock issued for stock plans 10,558 25,817
-------------- --------------
Net Cash Provided by Financing Activities 53,347 15,495
-------------- --------------
Effect of Exchange Rate Changes on Cash 3,462 (5,637)
-------------- --------------
Net Change in Cash and Cash Equivalents (65,304) (120,232)
Cash and Cash Equivalents Beginning of Period 308,021 964,502
-------------- --------------
Cash and Cash Equivalents End of Period $ 242,717 $ 844,270
============== ==============
</TABLE>
The Company received stockholder approval at its 2000 Annual Meeting of a change
of PE Corporation's name to Applera Corporation. This change is expected to
become effective during the second quarter of fiscal 2001.
See accompanying notes to unaudited condensed consolidated financial statements.
41
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The PE Biosystems group is currently doing business as Applied Biosystems. PE
Corporation (the "Company") received stockholder approval at its 2000 Annual
Meeting of a change of the group's name to the Applied Biosystems group and a
change of the Company's name to Applera Corporation. These name changes are
expected to become effective during the second quarter of fiscal 2001. The PE
Biosystems group is referred to as Applied Biosystems.
The interim condensed consolidated financial statements should be read in
conjunction with the financial statements presented in the Company's 2000 Annual
Report to Stockholders. Significant accounting policies disclosed therein have
not changed.
The unaudited condensed consolidated financial statements reflect, in the
opinion of the Company's management, all adjustments that are necessary for a
fair statement of the results for the interim periods. All such adjustments are
of a normal recurring nature. These results are, however, not necessarily
indicative of the results to be expected for a full year. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates. Certain amounts in the consolidated financial statements
have been reclassified for comparative purposes.
Applied Biosystems' and the Celera Genomics group's condensed combined financial
statements should be read in conjunction with the Company's consolidated
financial statements.
42
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
NOTE 2 - ACQUISITIONS
Paracel, Inc. During the fourth quarter of fiscal 2000, the Company acquired
Paracel, Inc. in a stock-for-stock transaction. The net assets and results of
operations of Paracel were included in the Company's consolidated financial
statements from the date of acquisition. The following selected unaudited pro
forma information for the Company assumes the acquisition had occurred at the
beginning of fiscal 2000 and gives effect to purchase accounting adjustments:
<TABLE>
<CAPTION>
(Dollar amounts in millions except per share amounts) Three months ended
September 30, 1999
-------------------------
<S> <C>
Net revenues $ 291.8
Net loss $ (4.0)
---------------------------------------------------------------------------------
Applied Biosystems
Net income $ 29.7
Basic per share $ .14
Diluted per share $ .14
---------------------------------------------------------------------------------
Celera Genomics group
Net loss $ (33.5)
Basic and diluted per share $ (.63)
</TABLE>
See Note 2 to the consolidated financial statements in the Company's 2000 Annual
Report to Stockholders for a further discussion of this acquisition.
43
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
NOTE 3 - COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income on the Condensed Consolidated Statements
of Financial Position consists of foreign currency translation adjustments,
unrealized gains and losses on foreign currency and interest rate hedge
contracts, unrealized gains and losses on available-for-sale investments, and
minimum pension liability adjustments. Total comprehensive income (loss) for the
three month period ended September 30, 1999 and 2000 is presented in the
following table:
<TABLE>
<CAPTION>
(Dollar amounts in millions) Three months ended
September 30,
1999 2000
---------- ------------
<S> <C> <C>
Net income $ 10.1 $ 24.5
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 12.9 (12.6)
Unrealized gains on hedge contracts 4.4
Unrealized gain (loss) on investments, net 32.6 (21.9)
Reclassification adjustment for gains
included in net income (7.8)
---------- ------------
Other comprehensive income (loss) 45.5 (37.9)
---------- ------------
Comprehensive income (loss) $ 55.6 $ (13.4)
========== ============
</TABLE>
44
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
NOTE 4 - EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted income per
share for the three month periods ended September 30:
<TABLE>
<CAPTION>
(Amounts in thousands
except per share amounts) Applied Biosystems Celera Genomics Group
---------------------------- ------------------------------
1999 2000 1999 2000
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average number of common shares
used in the calculation of basic earnings (loss)
per share 205,704 209,127 51,466 59,709
Common stock equivalents 7,270 12,046
------------- ------------- -------------- --------------
Shares used in the calculation of diluted
earnings (loss) per share 212,974 221,173 51,466 59,709
============= ============= ============== ==============
Net income (loss) used in the calculation
of basic and diluted earnings (loss) per share $ 29,707 $ 49,144 $(19,398) $(25,689)
============= ============= ============== ==============
Net income (loss) per share
Basic $ .14 $ .23 $ (.38) $ (.43)
Diluted $ .14 $ .22 $ (.38) $ (.43)
</TABLE>
Options to purchase 6.1 million shares of PE Corporation-PE Biosystems Group
Common Stock were outstanding at September 30, 2000, but were not included in
the computation of diluted income per share because the effect was antidilutive.
Options and warrants to purchase 12.3 million shares of PE Corporation-Celera
Genomics Group Common Stock were outstanding at September 30, 2000, but were not
included in the computation of diluted loss per share because the effect was
antidilutive.
45
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis) or
market. Inventories included the following components:
<TABLE>
<CAPTION>
(Dollar amounts in millions) June 30, September 30,
2000 2000
------------ -------------
<S> <C> <C>
Raw materials and supplies $ 53.1 $ 54.5
Work-in-process 6.3 6.4
Finished products 98.4 97.9
------------ -------------
Total inventories $ 157.8 $ 158.8
============ =============
</TABLE>
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
Significant non-cash investing and financing activities were as follows:
<TABLE>
<CAPTION>
(Dollar amounts in millions) Three months ended
September 30,
1999 2000
------------ -------------
<S> <C> <C>
Tax benefit related to employee stock options $ - $ 20.3
Dividends declared not paid $ - $ 8.9
</TABLE>
NOTE 7 - FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," amended in June 2000 by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
The statements require the recognition of all derivative financial instruments
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 is driven by the intended use of the derivative
and the resulting designation. The Company adopted the statements effective July
1, 2000. The cumulative effect of adoption resulted in an immaterial adjustment
for a change in accounting principle in both the Condensed Consolidated
Statements of Operations and in accumulated other comprehensive income in the
Condensed Consolidated Statements of Financial Position.
The Company's foreign currency risk management strategy utilizes derivative
instruments to hedge certain foreign currency forecasted revenues and to offset
the impact of changes in foreign currency exchange rates on certain net asset
positions. The principal objective of this strategy is to minimize the risks
and/or costs associated with the Company's global financial and operating
activities. The
46
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
Company utilizes foreign exchange forward, option, and range forward contracts
to manage its foreign currency exposures, and an interest rate swap agreement to
manage its interest rate exposure. The Company does not use derivative financial
instruments for trading purposes, nor is it a party to leveraged derivatives.
The fair value of all foreign currency derivative contracts is recorded in
prepaid expenses and other current assets and other accrued expenses. The fair
value of the interest rate swap agreement is recorded in other long-term
liabilities.
Cash Flow Hedges
The Company's international sales are typically denominated in the customers'
local (non-U.S. dollar) currency. The Company uses foreign exchange forward,
option and range forward contracts to hedge a portion of these forecasted sales
not denominated in U.S. dollars. These contracts are designated as cash flow
hedges and the effective portion of the change in the fair value of these
contracts is recorded in other comprehensive income in the Condensed
Consolidated Statements of Financial Position until the underlying external
forecasted transaction affects earnings. At that time, the gain or loss on the
derivative intstrument, which had been deferred in other comprehensive income,
is reclassified to net revenues in the Condensed Consolidated Statements of
Operations. The Company recognized a net gain of $1.1 million in net revenues
from derivative instruments designated as cash flow hedges of anticipated sales
during the first quarter of fiscal 2001. At September 30, 2000, $7.6 million of
derivative gains ($4.8 million net of deferred taxes) recorded in other
comprehensive income are expected to be reclassified to earnings during the next
twelve months. For the three months ended September 30, 2000, the Company
recognized an expense of $1.7 million, included in other expense in the
Condensed Consolidated Statements of Operations, which represented the change in
the time value component of the fair value of option contracts designated as
cash flow hedges. The time value component is not included in the assessment of
hedge effectiveness, and as a result, any changes are recognized in earnings in
the period in which they occur.
The Company maintains an interest rate swap in conjunction with a five-year
Japanese yen debt obligation. The interest rate swap agreement involves the
payment of a fixed rate of interest and the receipt of a floating rate of
interest without the exchange of the underlying notional loan principal amount.
Under the terms of this contract, the Company will make fixed interest payments
of 2.1% while receiving interest at a LIBOR floating rate. No other cash
payments will be made unless the contract is terminated prior to maturity, in
which case the amount to be paid or received in settlement will be established
by agreement at the time of termination. The agreed upon amount would usually
represent the net present value at current interest rates of the remaining
obligation to exchange payments under the terms of the contract.
Other Hedges
The Company also uses derivative financial instruments to hedge against the
adverse effects that foreign currency exchange rate fluctuations may have on its
foreign currency denominated net asset positions. The gains and losses on these
derivatives are expected to largely offset transaction losses
47
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
and gains, respectively, on the underlying foreign currency denominated assets
and liabilities, both of which are recorded in other expense.
At June 30, 2000 and September 30, 2000, the Company had forward, option, and
range forward contracts outstanding for the sale and purchase of foreign
currencies as summarized in the following table:
<TABLE>
<CAPTION>
(Dollar amounts in millions) June 30, 2000 September 30, 2000
------------- ------------------
Sale Purchase Sale Purchase
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Japanese Yen $ 92.3 $ - $ 104.2 $ -
Euro 43.8 8.0 64.8 16.5
British Pounds 31.1 26.4 33.3 16.5
Singapore Dollars 10.0 .8 9.5
Australian Dollars 3.1 8.0
Other 4.7 6.2
----------- ---------- ---------- ---------
Total $ 185.0 $ 35.2 $ 226.0 $ 33.0
=========== ========== ========== =========
</TABLE>
NOTE 8 - SEGMENT INFORMATION
The following table presents summarized segment financial information for the
three months ended September 30:
<TABLE>
<CAPTION>
(Dollar amounts Celera
in millions) Applied Genomics
Biosystems Group Other Consolidated
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1999
Net revenues from
external customers $ 280.5 $ 8.3 $ - $ 288.8
Intersegment revenues 11.7 (11.7)
-------------- -------------- -------------- --------------
Total revenues $ 292.2 $ 8.3 $ (11.7) $ 288.8
============== ============== ============== ==============
Operating income (loss) $ 45.0 $ (32.3) $ .8 $ 13.5
2000
Net revenues from
external customers $ 349.1 $ 18.3 $ - $ 367.4
Intersegment revenues 14.5 (14.5)
-------------- -------------- -------------- --------------
Total revenues $ 363.6 $ 18.3 $ (14.5) $ 367.4
============== ============== ============== ==============
Operating income (loss) $ 57.9 $ (52.6) $ .8 $ 6.1
</TABLE>
48
<PAGE>
PE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS continued
See Note 6 to the consolidated financial statements included in the Company's
2000 Annual Report to Stockholders.
NOTE 9 - DEBT
Long-term debt at June 30, 2000 consisted of $46.0 million of commercial paper
borrowing. The Company had the necessary credit facilities, through its
revolving credit agreement, to refinance the commercial paper borrowings on a
long-term basis. At June 30, 2000, these borrowings were classified as a
noncurrent liability because it was the Company's intent to refinance these
obligations on a long-term basis. In October 2000, the Company decided to repay
this debt; therefore, at September 30, 2000, these borrowings were classified as
a current liability.
49
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion of Operations
The PE Biosystems group is currently doing business as Applied Biosystems. PE
Corporation (the "Company") received stockholder approval at its 2000 Annual
Meeting of a change of the group's name to the Applied Biosystems group and a
change of the Company's name to Applera Corporation. These name changes are
expected to become effective during the second quarter of fiscal 2001. The PE
Biosystems group is referred to as Applied Biosystems.
The following discussion should be read in conjunction with the Company's
condensed consolidated financial statements and related notes included in this
report and "Management's Discussion and Analysis" appearing on pages 73 - 87 of
the Company's 2000 Annual Report to Stockholders. Historical results and
percentage relationships are not necessarily indicative of operating results for
any future periods.
Throughout the following discussion of operations we refer to the impact on our
reported results of the movement in foreign currency exchange rates from one
reporting period to another as "foreign currency translation."
Events Impacting Comparability
Gain on investments. The first quarter of fiscal 2001 included a before-tax gain
of $12.0 million related to the sale of a minority equity investment.
Results of Operations for the Three Months Ended September 30, 2000 Compared
With the Three Months Ended September 30, 1999
PE Corporation reported net income of $24.5 million for the first quarter of
fiscal 2001 compared with $10.1 million for the first quarter of fiscal 2000. On
a segment basis, Applied Biosystems reported net income of $49.1 million for the
first quarter of fiscal 2001 compared with $29.7 million for the first quarter
of fiscal 2000. On a comparable basis, excluding the gain on the sale of a
minority equity investment from the first quarter of fiscal 2001, net income
increased 39% to $41.3 million for the first quarter of fiscal 2001 compared
with $29.7 million for the prior period. This increase was attributable to the
growth in net revenues and lower operating expenses as a percentage of net
revenues. The Celera Genomics group reported a net loss of $25.7 million for the
first quarter of fiscal 2001 compared with a net loss of $19.4 million for the
first quarter of fiscal 2000. The increase in the net loss reflected the
increased investment in research and development activities relating to expanded
scientific and annotation teams and bioinformatics staff; increased operating
expenses required to support expanded product and business development
activities; amortization of goodwill and intangibles primarily due to the
Paracel acquisition; and expansion of sales and marketing capabilities. These
increased expenses were partially offset by increased net revenues and interest
income.
50
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Net revenues for the Company were $367.4 million for the first quarter of fiscal
2001 compared with $288.8 million for the first quarter of fiscal 2000, an
increase of 27.2%. On a segment basis, net revenues for Applied Biosystems
increased 24% to $363.6 million for the first quarter of fiscal 2001 compared
with $292.3 million for the prior year. Net revenues for the Celera Genomics
group were $18.3 million for the first quarter of fiscal 2001 compared with $8.3
million for the first quarter of fiscal 2000.
Net revenues for Applied Biosystems increased 24% compared with the prior year.
The effects of foreign currency had approximately a $7 million, or 2%, negative
impact on net revenues compared with the prior year as weakness in the euro and
British pound was only partially offset by strengthening of the Japanese yen.
Revenues from leased instruments and shipments to the Celera Genomics group were
$14.5 million and $11.7 million for the first quarter of fiscal 2001 and fiscal
2000, respectively. Geographically, Applied Biosystems reported revenue growth
in all regions for the first quarter of fiscal 2001 compared with the first
quarter of fiscal 2000. Revenues increased 30.7% in the United States, 18.5% in
Europe, 17.3% in the Far East and 16.7% in Latin America and other markets,
compared with the first quarter of the prior fiscal year. Excluding the effects
of currency translation, revenues grew approximately 14.8% in the Far East and
approximately 30.0% in Europe. Contributors to the increase in net revenues were
the ABI Prism(R) 3700 and ABI Prism(R) 3100 DNA analyzers; Sequence Detection
Systems instruments and reagents for gene expression and SNP analysis; license
agreements; high-end mass spectrometer instruments for proteomics; DNA
sequencing consumables; consumables for DNA forensic analysis; and custom
oligonucleotide synthesis.
Net revenues for the Celera Genomics group were $18.3 million for the first
quarter of fiscal 2001 compared with $8.3 million for the first quarter of
fiscal 2000. The increased revenues resulted primarily from database
subscription agreements initiated during fiscal 2000 and the first quarter of
fiscal 2001, as well as revenues from Paracel and an increase in genomics
services revenues.
Gross margin as a percentage of net revenues for the Company was 55.5% for the
first quarter of fiscal 2001 compared with 54.1% for the first quarter of fiscal
2000. Gross margin as a percentage of net revenues for Applied Biosystems was
53.3% for the first quarter of fiscal 2001 compared with 53.0% for the first
quarter of fiscal 2000. The slight increase in the gross margin as a percentage
of Applied Biosystems' net revenues was primarily attributable to a change in
product mix.
SG&A expenses for the Company were $103.0 million for the first quarter of
fiscal 2001 compared with $86.1 million for the first quarter of fiscal 2000. On
a segment basis, SG&A expenses for Applied Biosystems were $90.0 million and
$77.7 million for the first quarter of fiscal 2001 and 2000, respectively. SG&A
expenses for the Celera Genomics group were $13.0 million and $8.4 million for
the first quarter of fiscal 2001 and 2000, respectively.
SG&A expenses for Applied Biosystems increased 15.7% for the first quarter of
fiscal 2001 compared with the first quarter of the prior year. This increase was
due to higher planned worldwide
51
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
selling and marketing expenses reflecting the growth in sales and orders. As a
percentage of net revenues, SG&A expenses for Applied Biosystems were 24.7% for
the first quarter of fiscal 2001 compared with 26.6% for the first quarter of
fiscal 2000.
The Celera Genomics group's SG&A expenses increased $4.6 million for the first
quarter of fiscal 2001 compared with the first quarter of the prior year. The
increase was caused primarily by the Celera Genomics group's expansion of its
sales and marketing capablities. The acquisition of Paracel during the fourth
quarter of fiscal 2000 also contributed to the increase in SG&A expenses.
R&D expenses for the Company increased to $83.7 million for the first quarter of
fiscal 2001 compared with $56.7 million for the prior year. R&D expenses for
Applied Biosystems were $46.1 million for the first quarter of fiscal 2001
compared with $32.0 million for the prior year, an increase of 44.0%, as a
result of investment in new products and technologies. As a percentage of net
revenues, R&D expenses for Applied Biosystems were 12.7% for the first quarter
of fiscal 2001 compared with 11.0% for the first quarter of fiscal 2000.
The Celera Genomics group's R&D expenses increased $14.5 million to $46.7
million for the first quarter of fiscal 2001 from $32.2 million for the first
quarter of fiscal 2000 primarily as a result of the development of expanded
bioinformatics and software development capabilities. The group also expanded
its scientific and annotation research teams and bioinformatics and software
engineering staff. The Celera Genomics group's R&D program is focused on
building the definitive genome reference database, which should allow the Celera
Genomics group's customers to enhance their genetic and pharmaceutical research
programs. In addition, the Celera Genomics group has begun development of its
own discovery platform and is currently accelerating its gene discovery work and
expanding its capabilities in functional genomics. The Celera Genomics group has
begun assembling a major research program in proteomics and the construction of
an industrial-scale protein research facility in Rockville, Maryland.
The Company recorded $11.1 million of expenses relating to the amortization of
goodwill and other intangibles primarily due to Paracel, which was acquired by
the Celera Genomics group in the fourth quarter of fiscal 2000.
Operating income was $6.1 million for the first quarter of fiscal 2001 compared
with $13.5 million for the first quarter of the prior year. On a segment basis,
operating income for Applied Biosystems increased to $57.9 million for the first
quarter of fiscal 2001 compared with $45.0 million for the prior year. Applied
Biosystems benefited from increased revenues as a result of strong worldwide
demand and lower SG&A expenses as percentage of net revenues. Operating income
as a percentage of net revenues increased to 15.9% for the first quarter of
fiscal 2001 compared with 15.4% for the prior year.
Operating loss for the Celera Genomics group was $52.6 million for the first
quarter of fiscal 2001 compared with $32.3 million for the first quarter of
fiscal 2000. The increase in the operating loss
52
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
reflected the increased investment in research and development activities
relating to expanded scientific and annotation teams and bioinformatics staff;
increased operating expenses required to support expanded product and business
development activities; amortization of goodwill and intangibles primarily due
to the Paracel acquisition; and expansion of sales and marketing capabilities.
These increased expenses were partially offset by increased net revenues.
During the first quarter of fiscal 2001, the Company recorded a before-tax gain
of $12.0 million on the sale of a minority equity investment.
Interest expense was $1.1 million for the first quarter of fiscal 2001 compared
with $.4 million for the prior year. This increase was primarily due to higher
average debt balances. Interest income was $22.6 million for the first quarter
of fiscal 2001 compared with $4.4 million for the prior year. This increase was
attributable to the interest income on higher cash and cash equivalents and
short-term investments, which increased as a result of the follow-on public
offering of PE Corporation-Celera Genomics Group Common Stock completed in March
2000. The first quarter of fiscal 2000 included interest on the $150 million
note receivable relating to the sale of the Analytical Instruments business. The
note was collected in the fourth quarter of fiscal 2000.
Other expense, net was $2.9 million for the first quarter of fiscal 2001
compared with $4.6 million for the prior year. These amounts were primarily
related to the Company's foreign currency management program.
The Company's effective income tax rate was 33% for the first quarter of fiscal
2001 compared with 22% for the prior year. The increase in the effective income
tax rate is primarily due to the amortization of nondeductible goodwill relating
to the Paracel acquisition, which occurred in the fourth quarter of fiscal 2000.
Market Risk
Applied Biosystems operates internationally, with manufacturing and distribution
facilities in various countries throughout the world. For fiscal 2000, Applied
Biosystems derived approximately 50% of its revenues from countries outside of
the United States. Results continue to be affected by market risk, including
fluctuations in foreign currency exchange rates and changes in economic
conditions in foreign markets.
The Company performed sensitivity analyses as of September 30, 2000 and June 30,
2000 on our foreign currency derivative financial instruments. Assuming a
hypothetical adverse change of 10% in foreign exchange rates in relation to the
U.S. dollar at September 30, 2000, the Company calculated a hypothetical loss of
$3.5 million when comparing the change in fair value of both the foreign
currency contracts outstanding and the underlying exposures being hedged.
Performing a similar hypothetical calculation at June 30, 2000, the Company
calculated a hypothetical loss of $1.9 million. These hypothetical analyses
exclude the impact of foreign currency translation on Applied Biosystems'
53
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
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 and actual exposures and hedges. See
Note 7 to the condensed consolidated financial statements for a further
discussion of derivative financial instruments.
Management's Discussion of Financial Resources and Liquidity
Significant Changes in the Condensed Consolidated Statements of Financial
Position. Cash and cash equivalents and short-term investments were $1.4 billion
at September 30, 2000 compared with $1.5 billion at June 30, 2000, with total
debt of $95.2 million at September 30, 2000 compared with $97.8 million at June
30, 2000. Working capital was $1.4 billion at September 30, 2000 compared with
$1.5 billion at June 30, 2000. Debt to total capitalization remained unchanged
at 4% at September 30, 2000 compared with June 30, 2000.
During the first quarter of fiscal 2001, the Company's $46.0 million of
commercial paper was reclassified from long-term to short-term due to the
Company's decision to repay the commercial paper during the second quarter of
fiscal 2001.
Property, plant and equipment, net increased $59.5 million to $394.4 million at
September 30, 2000 from $334.9 million at June 30, 2000 primarily due to Applied
Biosystems' purchase of property in Pleasanton, California.
Accounts payable decreased $45.0 million to $146.5 million at September 30, 2000
from $191.5 million at June 30, 2000 primarily due to the timing of vendor
payments.
Accrued salaries and wages decreased $40.9 million to $48.8 million at September
30, 2000 from $89.7 million at June 30, 2000 reflecting the timing of payments
of certain compensation accruals.
Condensed Consolidated Statements of Cash Flows. Net cash used by operating
activities was $61.8 million for the first three months of fiscal 2001 compared
with $88.8 million for the same period in fiscal 2000. For the first three
months of fiscal 2001 income-related cash flow and a decrease in accounts
receivable were more than offset by higher payments to vendors and payments of
certain compensation accruals, as well as higher prepaid expenses and other
assets.
Net cash used by investing activities was $67.1 million for the first three
months of fiscal 2001 compared with $28.7 million for the first three months of
fiscal 2000. For the first three months of fiscal 2001, the Company had capital
expenditures of $76.9 million. Capital expenditures were $71.9 million for
Applied Biosystems, which included approximately $54 million related to the
purchase of property in Pleasanton, California for the future construction of
new office, laboratory and light manufacturing facilities, and $5.0 million for
the Celera Genomics group. In the first quarter of fiscal 2001, Applied
Biosystems realized $12.0 million from the sale of a minority equity investment
and invested $3.0 million in an additional minority equity investment.
54
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Net cash used by discontinued operations was $1.2 million for the first three
months of fiscal 2001 compared with $4.6 million for the first three months of
fiscal 2000. The fiscal 2000 and fiscal 2001 uses were for transaction-related
payments and other cash outlays associated with the divestiture of the
Analytical Instruments business. The Company expects additional cash outlays
over the balance of the fiscal year.
Net cash provided by financing activities was $15.5 million for the first three
months of fiscal 2001 compared with $53.3 million for the prior period. For the
first three months of fiscal 2001, the Company received $25.8 million in
proceeds from employee stock option exercises compared with $10.6 million for
fiscal 2000. Loans payable decreased $1.5 million for the first three months of
fiscal 2001 compared with an increase of $51.5 million for the prior year.
During the first quarter of fiscal 2000, the Company secured financing of $46
million specifically for the purchase of the Celera Genomics group's Rockville,
Maryland facilities. The Company paid dividends of $8.9 million and $8.7 million
during the first three months of fiscal 2001 and fiscal 2000, respectively.
At September 30, 2000, the Company had unused credit facilities, including the
existing revolving credit agreement, totaling $333 million.
Outlook
Applied Biosystems
Applied Biosystems expects to continue to grow and maintain profitability in
fiscal 2001. Applied Biosystems should continue to benefit from its customers in
basic medical research, pharmaceutical development, and applied markets for
sophisticated, automated, and cost-effective life science tools.
Demand is expected to continue for a variety of tools to gather, interpret, and
integrate biological information to achieve a better understanding of human
health and disease. Applied Biosystems should also benefit from the introduction
of new products designed to meet these demands during fiscal 2001. For example,
Applied Biosystems recently announced a new product and initiative in
proteomics. Shipment of the first Maldi TOF/TOF mass spectrometer was made to
the Celera Genomics group in the first quarter of fiscal 2001. Deliveries of
this product to early access customers are expected to begin in the first half
of calendar year 2001.
Recently, the Company announced plans to expand its existing molecular
diagnostics business, which currently is part of Applied Biosystems. This
initiative is anticipated to leverage several technological resources of Applied
Biosystems and the Celera Genomics group. The initiative will start as a part of
Applied Biosystems, with the Celera Genomics group actively participating.
Further details regarding the initiative and its status within the Company's
capital structure are anticipated to be announced in the coming months.
Applied Biosystems remains concerned about adverse currency effects because
approximately 50% of Applied Biosystems revenues were derived from regions
outside the United States in fiscal 2000.
55
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Celera Genomics Group
The Celera Genomics group expects to see a continued expansion in the customer
base for online genomics information products and related genomics services,
with corresponding increases in revenues during fiscal 2001. Revenue growth
should come primarily from increasing the customer base among the major
pharmaceutical and biotech companies, academic institutions, and non-profit
research organizations and strengthening the Celera Genomics group's research
collaborations and services business.
The Celera Genomics group has made substantial progress in sequencing the mouse
genome, which is an important model in human disease studies and therapeutic
discovery and development. In early October 2000, the Celera Genomics group
completed the three-fold sequencing of the genomes of three mouse strains to
ensure a 95 percent representation of the mouse genome. Recently, the National
Institutes of Health announced that it will accelerate its efforts to sequence
the mouse genome. The public effort is sequencing a mouse strain different from
the three strains involved in Celera's proprietary program. The Celera Genomics
group's database products are expected to be enhanced by the public effort to
sequence a mouse genome. With this additional strain, Celera expects to provide
its customers with a diverse set of mouse genetic information and cover each of
the most frequently used mouse strains used in medical research.
The expected increase in revenues could be offset as the Celera Genomics group
accelerates new investments to build discovery platforms and continues staffing
the organization throughout fiscal 2001. R&D expenses are expected to continue
to grow as the research and bioinformatics areas are expanded. The Celera
Genomics group is currently accelerating its gene discovery work and expanding
its capabilities in functional genomics and has begun assembling a research
program in proteomics and the construction of an industrial-scale protein
research facility in Rockville, Maryland. SG&A expenses are also expected to
increase as the group continues to establish its sales and marketing functions.
Recently, the Company announced plans to expand its existing molecular
diagnostics business, which currently is part of Applied Biosystems. This
initiative is anticipated to leverage several technological resources of Applied
Biosystems and the Celera Genomics group. The initiative will start as a part of
Applied Biosystems, with the Celera Genomics group actively participating.
Further details regarding the initiative and its status within the Company's
capital structure are anticipated to be announced in the coming months.
The Company believes the Celera Genomics group's existing cash and cash
equivalents and short-term investments 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 information products and related genomics services from this data. While the
Company intends to use the net proceeds from the Celera Genomics group's
follow-on public offering, which was completed in March 2000, primarily to fund
its new product and technology development activities in functional genomics,
with an emphasis on proteomics and personalized health/medicine, such funds may
not be sufficient to support these new business activities as they develop. The
Celera Genomics group's actual future capital uses and requirements with respect
to its new activities will depend on many factors, including those discussed
under "Forward-Looking Statements."
56
<PAGE>
PE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS continued
Forward-Looking Statements
Certain statements contained in this report, including the Outlook section, are
forward-looking and are subject to a variety of risks and uncertainties. These
statements may be identified by the use of forward-looking words or phrases such
as "believe," "expect," "anticipate," "should," "planned," "estimated," and
"potential," among others. These forward-looking statements are based on our
current expectations. The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for such forward-looking statements. In order to comply
with the terms of the safe harbor, we note that a variety of factors could cause
our actual results and experience to differ materially from the anticipated
results or other expectations expressed in such forward-looking statements. For
information concerning the risks and uncertainties that may affect the
operations, performance, development and results of Applied Biosystems see
"Applied Biosystems - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward-Looking Statements" on pages 15 to
17 of this report. For information concerning the risks and uncertainties that
may affect the operations, performance, development and results of the Celera
Genomics Group see "Celera Genomics Group - Management's Discussion and Analysis
of Financial Condition and Results of Operations - Forward-Looking Statements"
on pages 29 to 38 of this report.
57
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on October 19,
2000. At that meeting, the stockholders of the Company elected all of the
nominees for director and approved all other proposals submitted by the Company
to stockholders for approval at the meeting, each as described in the Notice of
Annual Meeting and Proxy Statement dated September 8, 2000. The results of the
voting of the stockholders with respect to these matters is set forth below.
I. Election of Directors.
<TABLE>
<CAPTION>
Total Vote Withheld
Total Vote For Each From Each Director
Director
<S> <C> <C>
Richard H. Ayers 228,127,601 949,402
Jean-Luc Belingard 228,136,581 940,423
Robert H. Hayes 228,138,598 938,405
Arnold J. Levine 228,143,870 933,133
Theodore E. Martin 228,117,624 959,380
Georges C. St. Laurent, Jr. 228,129,547 947,456
Carolyn W. Slayman 228,140,196 936,807
Orin R. Smith 228,018,931 1,058,072
James R. Tobin 228,141,700 935,303
Tony L. White 228,131,825 945,178
</TABLE>
II. Ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending June
30, 2001.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
<S> <C> <C> <C>
228,492,210 96,209 488,585 0
</TABLE>
III. Approval of amendments to the Company's Restated Certificate of
Incorporation.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
<S> <C> <C> <C>
208,901,903 19,554,226 620,874 0
</TABLE>
58
<PAGE>
IV. Approval of amendments to the PE Corporation/PE Biosystems Group
1999 Stock Incentive Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
<S> <C> <C> <C>
154,460,724 73,644,665 821,546 150,068
</TABLE>
V. Approval of amendments to the PE Corporation/Celera Genomics Group
1999 Stock Incentive Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
<S> <C> <C> <C>
175,784,802 52,309,189 830,805 152,208
</TABLE>
Item 5. Other Information.
At a meeting of the Board of Directors of the Company held immediately
following the Annual Meeting of Stockholders referred to in Item 4, above, the
Board of Directors elected the following persons as officers of the Company:
<TABLE>
<S> <C>
Tony L. White Chairman, President and Chief Executive Officer
Peter Barrett Vice President
Samuel E. Broder Vice President
Peter Chambre Vice President
Ugo D. DeBlasi Assistant Controller
Ronald D. Edelstein Vice President
Elaine J. Heron Vice President
Michael W. Hunkapiller Senior Vice President and President,
Applied Biosystems
Vikram Jog Corporate Controller
Barbara J. Kerr Vice President, Human Resources
Thomas P. Livingston Secretary
Joseph E. Malandrakis Vice President
Robert A. Millman Assistant Secretary
Kenneth D. Noonan Senior Vice President
John S. Ostaszewski Treasurer
William B. Sawch Senior Vice President and General Counsel
Gregory T. Schiffman Assistant Controller
Deborah A. Smeltzer Assistant Controller
Joseph H. Smith Assistant Secretary
J. Craig Venter Senior Vice President and President,
Celera Genomics Group
Dennis L. Winger Senior Vice President and Chief Financial Officer
</TABLE>
59
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which
this report is being filed.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PE CORPORATION
By: /s/ Dennis L. Winger
------------------------------
Dennis L. Winger
Senior Vice President and
Chief Financial Officer
By: /s/ Vikram Jog
------------------------------
Vikram Jog
Corporate Controller
(Chief Accounting Officer)
Dated: November 14, 2000
61
