10-Q 1 e10-q.txt PERKINELMER, INC 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 2, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-5075 PERKINELMER, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2052042 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 45 WILLIAM STREET, WELLESLEY, MASSACHUSETTS 02481 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(781) 237-5100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NONE (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
CLASS OUTSTANDING AT AUGUST 9, 2000 ----- ----------------------------- Common Stock, $1 par value 49,332,575 (Excluding treasury shares)
================================================================================ 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PERKINELMER, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------- -------------------- JULY 2, JULY 4, JULY 2, JULY 4, 2000 1999 2000 1999 -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) SALES........................................... $398,705 $304,258 $800,991 $547,475 Cost of Sales................................... 237,394 200,365 484,109 361,066 Research and Development Expenses............... 21,359 16,264 42,659 29,661 In-Process Research and Development Charges (Note 3)...................................... -- 23,000 8,100 23,000 Selling, General and Administrative Expenses.... 96,203 71,167 191,882 123,258 Restructuring Charges (Credits), Net (Note 4)... (6,300) -- (3,900) -- Gains on Dispositions (Note 5).................. (1,416) (8,478) (9,212) (8,478) -------- -------- -------- -------- OPERATING INCOME FROM CONTINUING OPERATIONS..... 51,465 1,940 87,353 18,968 Other Expense, Net (Note 6)..................... (7,935) (6,197) (16,510) (10,829) -------- -------- -------- -------- Income (Loss) From Continuing Operations Before Income Taxes.................................. 43,530 (4,257) 70,843 8,139 Provision (Benefit) for Income Taxes............ 12,410 (1,532) 23,480 2,822 -------- -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS........ 31,120 (2,725) 47,363 5,317 Income From Discontinued Operations, Net of Income Taxes (Note 7)......................... -- 6,342 -- 12,387 Gain on Disposition of Discontinued Operations, Net of Income Taxes (Note 7).................. 4,453 -- 4,453 -- -------- -------- -------- -------- NET INCOME...................................... $ 35,573 $ 3,617 $ 51,816 $ 17,704 ======== ======== ======== ======== BASIC EARNINGS (LOSS) PER SHARE: Continuing Operations......................... $ .63 $ (.06) $ .97 $ .12 Discontinued Operations....................... .09 .14 .09 .27 -------- -------- -------- -------- Net Income.................................... $ .72 $ .08 $ 1.06 $ .39 ======== ======== ======== ======== DILUTED EARNINGS (LOSS) PER SHARE: Continuing Operations......................... $ .61 $ (.06) $ .93 $ .12 Discontinued Operations....................... .09 .14 .09 .27 -------- -------- -------- -------- Net Income.................................... $ .70 $ .08 $ 1.02 $ .39 ======== ======== ======== ======== Weighted Average Shares of Common Stock Outstanding: Basic......................................... 49,035 45,275 48,749 45,092 Diluted....................................... 50,796 46,298 50,604 45,958 Cash Dividends Per Common Share................. $ .14 $ .14 $ .28 $ .28
The accompanying unaudited notes are an integral part of these consolidated financial statements. 1 3 PERKINELMER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JULY 2, JANUARY 2, 2000 2000 -------------- ------------- (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) Current Assets: Cash and Cash Equivalents................................. $ 109,271 $ 126,650 Accounts Receivable (Note 8).............................. 324,557 346,160 Inventories (Note 9)...................................... 227,914 201,724 Other Current Assets...................................... 158,857 140,560 ---------- ---------- TOTAL CURRENT ASSETS........................................ 820,599 815,094 ---------- ---------- Property, Plant and Equipment: At Cost (Note 10)......................................... 497,532 496,347 Accumulated Depreciation and Amortization................. (270,444) (268,313) ---------- ---------- Net Property, Plant and Equipment........................... 227,088 228,034 ---------- ---------- Intangible Assets (Note 11)................................. 637,963 592,438 Other Assets................................................ 106,692 79,074 ---------- ---------- TOTAL ASSETS................................................ $1,792,342 $1,714,640 ========== ========== Current Liabilities: Short-Term Debt (Notes 12 and 17)......................... $ 335,398 $ 382,162 Accounts Payable.......................................... 116,183 119,737 Accrued Restructuring Costs (Note 4)...................... 62,297 41,759 Accrued Expenses (Note 13)................................ 292,429 308,840 ---------- ---------- TOTAL CURRENT LIABILITIES................................... 806,307 852,498 ---------- ---------- Long-Term Debt (Note 17).................................... 114,850 114,855 Other Long-Term Liabilities................................. 197,204 196,511 Contingencies Stockholders' Equity: Preferred Stock -- $1 par value, authorized 1,000,000 shares; none issued or outstanding..................... -- -- Common Stock -- $1 par value, authorized 100,000,000 shares; issued 61,744,000 shares at July 2, 2000 and 60,102,000 shares at January 2, 2000................... 61,744 60,102 Capital in Excess of Par Value............................ 70,585 -- Retained Earnings......................................... 811,122 762,009 Accumulated Other Comprehensive Loss (Note 14)............ (25,333) (14,040) Cost of Shares Held in Treasury; 12,672,000 shares at July 2, 2000 and 13,736,000 shares at January 2, 2000....... (244,137) (257,295) ---------- ---------- Total Stockholders' Equity.................................. 673,981 550,776 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $1,792,342 $1,714,640 ========== ==========
The accompanying unaudited notes are an integral part of these consolidated financial statements. 2 4 PERKINELMER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED ---------------------- JULY 2, JULY 4, 2000 1999 --------- --------- (IN THOUSANDS) OPERATING ACTIVITIES: Net income................................................ $ 51,816 $ 17,704 Deduct net income from discontinued operations............ -- (12,387) Deduct net gain on disposition of discontinued operations.............................................. (4,453) -- --------- --------- Income from continuing operations......................... 47,363 5,317 Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: In-process research and development charges............. 8,100 23,000 Depreciation and amortization........................... 37,805 29,720 Gains on dispositions and sales of investments, net..... (10,877) (11,386) Changes in assets and liabilities which provided (used) cash, excluding effects from companies purchased and divested: Accounts receivable................................... 18,350 (13,859) Inventories........................................... (26,880) 6,813 Accounts payable and accrued expenses................. 4,251 1,042 Accrued restructuring costs........................... (20,713) (8,555) Prepaid expenses and other............................ (16,725) (15,699) --------- --------- Net Cash Provided by Continuing Operations.................. 40,674 16,393 Net Cash Provided by Discontinued Operations................ -- 22,168 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES................... 40,674 38,561 --------- --------- INVESTING ACTIVITIES: Capital expenditures...................................... (29,377) (15,309) Proceeds from dispositions of businesses and sales of property, plant and equipment, net...................... 24,550 26,966 Cost of acquisitions, net of cash acquired................ 13,340 (295,685) Purchases of investments.................................. (15,226) (1,146) Other..................................................... 1,571 75 --------- --------- Net Cash Used by Continuing Operations...................... (5,142) (285,099) Net Cash Provided by Discontinued Operations................ 3,987 -- --------- --------- NET CASH USED IN INVESTING ACTIVITIES....................... (1,155) (285,099) --------- --------- FINANCING ACTIVITIES: Increase in commercial paper borrowings................... 187,264 126,000 Increase (decrease) in other debt......................... (236,429) 82,266 Proceeds from issuance of common stock.................... 21,188 15,230 Purchases of common stock................................. (10,486) (185) Cash dividends paid on common stock....................... (13,624) (12,604) --------- --------- Net Cash Provided by (Used in) Continuing Operations........ (52,087) 210,707 Net Cash Provided by Discontinued Operations................ -- -- --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... (52,087) 210,707 --------- --------- Effect of Exchange Rate Changes on Cash and Cash Equivalents............................................... (4,811) (1,275) --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (17,379) (37,106) Cash and Cash Equivalents at Beginning of Period............ 126,650 95,565 --------- --------- Cash and Cash Equivalents at End of Period.................. $ 109,271 $ 58,459 ========= ========= Supplemental Disclosures of Noncash Investing and Financing Activities: Common stock and options issued in connection with the acquisition of Vivid Technologies, Inc.................. $ 65,937 $ -- One-year 5% promissory notes issued to PE Corp. in connection with the acquisition of the Analytical Instruments Division.................................... $ -- $ 150,000
The accompanying unaudited notes are an integral part of these consolidated financial statements. 3 5 PERKINELMER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) NATURE OF OPERATIONS PerkinElmer, Inc. is a high-technology company operating in four businesses -- Life Sciences, Optoelectronics, Instruments and Fluid Sciences. The Company has operations in over 100 countries and is a component of the S&P 500 Index. The operating segments and their principal products and services are: Life Sciences: Helps solve the complex analytical problems encountered in bio-screening and population screening laboratories by providing chemical reagents, sample handling and measuring instruments, and computer software. Within the field of bio-screening, Life Sciences focuses on customers engaged in drug discovery and has established a strong presence in high throughput screening technologies. In population screening, the subject of the screen is a human patient; customers include public health authorities in the United States as well as in many European countries. Optoelectronics: A broad spectrum of optoelectronic products, including high-volume and high-performance specialty lighting sources, detectors, telecom products which include optical fiber communication components, emitters, receivers and mux arrays, imaging devices and large area amorphous silicon detectors. Instruments: Develops, manufactures and markets sophisticated analytical instruments and imaging detection systems for research laboratories, academia, medical institutions, government agencies and a wide range of industrial applications designed to provide industry-specific solutions. Analytical Instruments provide world class analytical solutions employing technologies such as molecular and atomic spectroscopies, high pressure liquid chromatography, gas chromatography, and thermal and elemental analysis. Detection Systems provide a broad range of products, including walk through weapons detection systems, advanced explosive detection systems, and large cargo inspection systems. Fluid Sciences: Static and dynamic seals, sealing systems, solenoid valves, bellows devices, advanced pneumatic components, systems and assemblies and sheet metal-formed products for original equipment manufacturers and end users. (2) BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information in footnote disclosures normally included in financial statements has been condensed or omitted in accordance with the rules and regulations of the SEC. These statements should be read in conjunction with the Company's Annual Report for the year ended January 2, 2000, filed on Form 10-K with the SEC (the 1999 Form 10-K). The balance sheet amounts at January 2, 2000 in this report were extracted from the Company's audited 1999 financial statements included in the 1999 Form 10-K. Certain prior period amounts have been reclassified to conform to the current-year financial statement presentation. The information set forth in these statements may be subject to normal year-end adjustments. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company's results of operations, financial position and cash flows for the periods indicated. 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the six months ended July 2, 2000 are not necessarily indicative of the results for the entire year. 4 6 PERKINELMER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (3) ACQUISITIONS On January 14, 2000, the Company completed its acquisition of Vivid Technologies, Inc. (Vivid) for an aggregate purchase price of approximately $67 million. The transaction was a stock merger whereby the shareholders of Vivid received one share of the Company's common stock for each 6.2 shares of Vivid common stock; approximately 1.6 million shares were issued in connection with the acquisition. Vivid, which is a leading supplier of automated explosive detection systems utilized in airports and high-security facilities worldwide, generated sales of $21 million for the fiscal year ended September 30, 1999. Vivid's operations, included in the consolidated results of the Company from the date of acquisition, are reported in the Company's Instruments segment. The transaction was accounted for as a purchase in accordance with Accounting Principles Board (APB) Opinion No. 16, Business Combinations. In accordance with APB Opinion No. 16, the Company allocated the purchase price of Vivid based on the fair values of the net assets acquired and liabilities assumed. The allocation of the purchase price has not yet been finalized, however, the Company does not expect any material changes. Portions of the purchase price, including intangible assets, were valued by independent appraisers utilizing customary valuation procedures and techniques. These intangible assets included approximately $8.1 million for acquired in-process research and development (R&D) for projects that did not have future alternative uses. This allocation represents the estimated fair value based on risk-adjusted cash flows related to the in-process R&D projects. At the date of the acquisition of Vivid, the development of these projects had not yet reached technological feasibility, and the R&D in process had no alternative future uses. Accordingly, these costs were expensed in the first quarter of 2000. Other acquired intangibles totaling $6.4 million included the fair value of developed technology. This intangible asset is being amortized over its estimated useful life of 10 years. Goodwill of $27.2 million resulting from the acquisition of Vivid is being amortized over 25 years. Approximately $0.3 million has been recorded as accrued restructuring charges in connection with the acquisition of Vivid. On May 28, 1999, the Company completed its acquisition of the Analytical Instruments Division (AI) of PE Corp. The AI acquisition is discussed in detail in the 1999 Form 10-K and in a Current Report on Form 8-K filed by the Company with the SEC on August 11, 1999. Unaudited pro forma operating results for the Company for the six months ended July 4, 1999, assuming the acquisition of AI occurred on December 29, 1997, are as follows:
(IN THOUSANDS EXCEPT PER SHARE DATA) ------------------------------------ Sales....................................................... $ 762,309 Net income.................................................. 13,922 Basic earnings per share.................................... .31 Diluted earnings per share.................................. .30
The pro forma amounts in the table above exclude the acquired in-process R&D charge for AI of $23 million. Pro forma amounts for the Vivid acquisition are not included as their effect is not material to the Company's consolidated financial statements. (4) RESTRUCTURING CHARGES The Company developed restructuring plans during 1998 to integrate and consolidate its businesses and recorded restructuring charges in the first and second quarters of 1998. During the first quarter of 1998, management developed a plan to restructure certain businesses that resulted in a pre-tax restructuring charge of $30.5 million. During the second quarter of 1998, the Company expanded its continuing effort to restructure certain businesses to further improve performance. The plan resulted in additional pre-tax restructuring charges of $19.5 million. The specific details of the actions and charges by operating segment are discussed more fully in the 1999 Form 10-K. 5 7 PERKINELMER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the third quarter of 1999, due to the substantial completion of the actions of the 1998 restructuring plans, the Company reevaluated its 1998 restructuring plans. As a result of this review, costs associated with the previously planned shutdown of two businesses were no longer required due to actions taken to improve performance. Therefore, the Company recognized a restructuring credit of $12 million during the third quarter of 1999, which primarily affected the Fluid Sciences and Optoelectronics segments. During the second quarter of 2000, the Company performed a strategic review of its portfolio of businesses within its Life Sciences, Optoelectronics, Instruments and Fluid Science segments. Specifically in the Optoelectronics segment, the Company reevaluated and shifted its strategy and plans to operate around three business enterprises. During the second quarter of 2000, the Company also strengthened and realigned its senior management teams within its Optoelectronics and Instruments segments. In connection with these events, the Company reevaluated its 1998 restructuring plans. As a result of the strategic review, actions taken to improve performance at costs lower than originally estimated, and the sale of certain businesses originally included in the restructuring plans, costs for certain actions within the 1998 restructuring plans were no longer required. Therefore the Company recognized a restructuring credit of $6 million in the second quarter of 2000, which primarily affected Optoelectronics. The Company's acquisitions in 1998 and 1999 and the Company's 1999 divestiture of its Technical Services segment (exiting government services) were strategic milestones in the Company's transition to a commercial high-technology company. Consistent with the strategic direction of the Company and concurrent with the reevaluation of existing restructuring plans during the third quarter of 1999, the Company developed additional plans during the third quarter of 1999 to restructure certain businesses to continue to improve the Company's performance. These plans resulted in a pre-tax restructuring charge of $23.5 million recorded in the third quarter of 1999. The specific details of the actions and charges by operating segment are discussed more fully in the 1999 Form 10-K. Due to increases in employee separation costs in certain of the Company's non-U.S. operations, during the first quarter of 2000 the Company increased the restructuring liability estimate by $2.4 million. The following table summarizes restructuring activity from continuing operations related to the 1998 and 1999 plans:
SIX MONTHS ENDED JULY 2, 2000 ---------------- (IN MILLIONS) Accrued restructuring costs at beginning of period.......... $27.2 Provisions.................................................. 2.4 Reversals................................................... (6.3) Charges/writeoffs........................................... (6.5) ----- Accrued restructuring costs at end of period................ $16.8 =====
Approximately $28 million was recorded as accrued restructuring costs in connection with the May 1999 AI acquisition, and approximately $5 million was recorded as accrued restructuring costs in connection with the December 1998 Lumen acquisition. The specific details of the actions are discussed in the 1999 Form 10-K. 6 8 PERKINELMER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes restructuring activity from continuing operations related to the Vivid, AI and Lumen acquisitions:
SIX MONTHS ENDED JULY 2, 2000 ---------------- (IN MILLIONS) Accrued restructuring costs at beginning of period.......... $ 14.1 Provisions.................................................. 43.5 Charges/writeoffs........................................... (12.2) ------ Accrued restructuring costs at end of period................ $ 45.4 ======
During the second quarter of 2000, in connection with the one-year anniversary of the AI acquisition, the Company finalized its original estimates of the goodwill and restructuring plans related to the acquired AI business. As a result of continued aggressive actions by the Company to improve the cost structure of the acquired business and due to increased costs related primarily to employment integration, the Company adjusted its original estimate of restructuring costs recorded at the acquisition date in connection with purchase accounting. Accordingly, accrued restructuring costs were increased by approximately $40 million during the second quarter of 2000. Cash outlays during the six months ended July 2, 2000 were approximately $19 million for all of these plans. The Company expects to incur approximately $20 million of cash outlays in connection with these plans throughout the remainder of fiscal 2000. The majority of the actions remaining at July 2, 2000 are expected to occur in fiscal 2000. (5) GAINS ON DISPOSITIONS During the first quarter of 2000, the Company sold its micromachined sensors and specialty semiconductor businesses for cash of $24.3 million, resulting in a pre-tax gain of $6.7 million. Combined financial results of the divested businesses for the first quarters of 2000 and 1999 were not material to the consolidated results of the Company. During the first six months of 2000, primarily in connection with the 1999 disposition of the Company's Structural Kinematics business and the 1998 dispositions of its Sealol Industrial Seals and Rotron divisions, the Company recognized $2.5 million of pre-tax gains from the previously deferred sales proceeds as a result of the favorable resolution of certain events and contingencies. (6) OTHER EXPENSE Other income (expense), net, consisted of the following:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ -------------------- JULY 2, JULY 4, JULY 2, JULY 4, 2000 1999 2000 1999 ------- ------- -------- -------- (IN THOUSANDS) Interest income........................... $ 894 $ 1,230 $ 1,669 $ 1,826 Interest expense.......................... (8,105) (6,292) (16,637) (11,841) Gains on sales of investments............. 900 -- 947 75 Other..................................... (1,624) (1,135) (2,489) (889) ------- ------- -------- -------- $(7,935) $(6,197) $(16,510) $(10,829) ======= ======= ======== ========
(7) DISCONTINUED OPERATIONS On August 20, 1999, the Company sold the assets of its Technical Services segment. Additional details are disclosed in the Company's 1999 Form 10-K. The Company accounted for the sale of its Technical Services segment as a discontinued operation in accordance with APB Opinion No. 30, Reporting the Results of Operations, and, accordingly, the results of operations of the Technical Services segment have been 7 9 PERKINELMER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) segregated from continuing operations and reported as a separate line item on the Company's Consolidated Income Statements. The Company recorded an additional pre-tax gain of $7.3 million on the disposition of discontinued operations as a result of the final post-closing selling price settlement in the second quarter of 2000. Summary operating results of the discontinued operations were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JULY 4, 1999 JULY 4, 1999 ------------------ ---------------- (IN THOUSANDS) Sales............................................. $118,186 $232,456 Costs and expenses................................ 108,624 214,104 -------- -------- Operating income from discontinued operations..... 9,562 18,352 Other income...................................... 347 1,003 -------- -------- Income from discontinued operations before income taxes........................................... 9,909 19,355 Provision for income taxes........................ 3,567 6,968 -------- -------- Income from discontinued operations, net of income taxes........................................... $ 6,342 $ 12,387 ======== ========
(8) ACCOUNTS RECEIVABLE Accounts receivable were net of reserves for doubtful accounts of $12.2 million and $12.9 million as of July 2, 2000 and January 2, 2000, respectively. (9) INVENTORIES Inventories consisted of the following:
JULY 2, JANUARY 2, 2000 2000 -------- ---------- (IN THOUSANDS) Finished goods.............................................. $ 82,728 $ 87,177 Work in process............................................. 52,787 26,342 Raw materials............................................... 92,399 88,205 -------- -------- $227,914 $201,724 ======== ========
(10) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, consisted of the following:
JULY 2, JANUARY 2, 2000 2000 -------- ---------- (IN THOUSANDS) Land........................................................ $ 28,064 $ 28,724 Buildings and leasehold improvements........................ 128,189 127,908 Machinery and equipment..................................... 341,279 339,715 -------- -------- $497,532 $496,347 ======== ========
8 10 PERKINELMER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (11) INTANGIBLE ASSETS Intangible assets consist mainly of goodwill from acquisitions accounted for using the purchase method of accounting, representing the excess of cost over the fair market value of the net assets of the acquired businesses. Goodwill is being amortized over periods of 10 to 40 years. Goodwill, net of accumulated amortization, was $460 million and $417 million at July 2, 2000 and January 2, 2000, respectively. Other identifiable intangible assets from acquisitions include patents, trademarks, trade names and developed technology and are being amortized over periods of 10 to 40 years. Other identifiable intangible assets, net of accumulated amortization, were $178 million and $175 million at July 2, 2000 and January 2, 2000, respectively. Intangible assets consisted of the following:
JULY 2, JANUARY 2, 2000 2000 -------- ---------- (IN THOUSANDS) Goodwill.................................................... $522,518 $477,072 Other identifiable intangible assets........................ 212,538 182,550 -------- -------- 735,056 659,622 Accumulated amortization.................................... (97,093) (67,184) -------- -------- $637,963 $592,438 ======== ========
The increase in intangible assets resulted primarily from the Vivid acquisition and the finalization of accrued restructuring costs related to the AI acquisition, as discussed in Note 4. (12) SHORT-TERM DEBT Short-term debt at July 2, 2000 was $335 million, consisting primarily of commercial paper borrowings. (See Note 17). (13) ACCRUED EXPENSES Accrued expenses consisted of the following:
JULY 2, JANUARY 2, 2000 2000 -------- ---------- (IN THOUSANDS) Payroll and incentives...................................... $ 23,933 $ 32,720 Employee benefits........................................... 42,960 49,293 Federal, non-U.S. and state income taxes.................... 38,345 45,324 Other accrued operating expenses............................ 187,191 181,503 -------- -------- $292,429 $308,840 ======== ========
9 11 PERKINELMER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (14) COMPREHENSIVE INCOME Comprehensive income presented in accordance with Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, consisted of the following:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ -------------------- JULY 2, JULY 4, JULY 2, JULY 4, 2000 1999 2000 1999 ------- ------- -------- -------- (IN THOUSANDS) Net income................................ $35,573 $ 3,617 $ 51,816 $ 17,704 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments............................. (7,144) (6,054) (17,937) (17,695) Unrealized gains on securities: Gains arising during the period......... 6,670 265 6,740 255 Reclassification adjustment............. (96) -- (96) -- ------- ------- -------- -------- Net unrealized gains...................... 6,574 265 6,644 255 ------- ------- -------- -------- (570) (5,789) (11,293) (17,440) ------- ------- -------- -------- Comprehensive income (loss)............... $35,003 $(2,172) $ 40,523 $ 264 ======= ======= ======== ========
The components of accumulated other comprehensive loss were as follows:
JULY 2, JANUARY 2, 2000 2000 -------- ---------- (IN THOUSANDS) Foreign currency translation adjustments.................... $(32,398) $(14,461) Unrealized gains on securities.............................. 7,065 421 -------- -------- Accumulated other comprehensive loss........................ $(25,333) $(14,040) ======== ========
(15) INDUSTRY SEGMENT INFORMATION The Company's businesses are reported as four reportable segments which reflect the Company's management and structure under four strategic business units (SBUs). The segments' principal products and services are described in Note 1 of this Form 10-Q. The accounting policies of the reportable segments are the same as those described in Note 1 of the 1999 Form 10-K. The Company evaluates the performance of its operating segments based on operating profit. Intersegment sales and transfers are not significant. Unaudited sales and operating profit information by segment for the three and six months ended July 2, 2000 and July 4, 1999 are shown in Item 2 of this Quarterly Report on Form 10-Q and are considered an integral part of this note. (16) NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (as amended by SFAS Nos. 137 and 138) is now effective for all fiscal quarters of all fiscal years beginning after June 15, 2000; earlier adoption is allowed. The statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company has not yet determined the effect that adoption of SFAS No. 133 will have. However, the Company currently expects that, due to its relatively limited use of derivative instruments, adoption of the statement will not have a material effect on the Company's results of operations or financial position. 10 12 PERKINELMER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The SEC released Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, on December 3, 1999. This SAB provides additional guidance on the accounting for revenue recognition, including both broad conceptual discussions as well as certain industry-specific guidance. The new guidance that is most likely to have a potential impact on the Company concerns customer acceptance and installation terms. The Company is in the process of accumulating the information necessary to quantify the potential impact of this new guidance. The guidance is effective for the fourth quarter of fiscal 2000 and is required to be adopted effective January 3, 2000 by recording the effect of any prior year revenue transactions affected as a "cumulative effect of a change in accounting principle" as of January 3, 2000. Quarterly financial statements within fiscal 2000 would be restated to conform to the new guidance as necessary. The Financial Accounting Standards Board issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, in March 2000. The interpretation clarifies how companies should apply APB Opinion No. 25, Accounting for Stock Issued to Employees. The interpretation will be applied prospectively to new awards, modifications to outstanding awards and changes in employee status on or after July 1, 2000, with earlier implementation dates for certain transactions. Currently, there are no awards previously granted by the Company that would result in an adjustment at July 1, 2000 as a result of the interpretation. (17) SUBSEQUENT EVENTS On July 31, 2000, the Company completed its acquisition of NEN Life Sciences, Inc. (NEN), a provider of state-of-the-art drug discovery products, services, reagents and technologies to the life science industry. Details of the transaction and pro forma financial information were reported on a Current Report on Form 8-K filed by the Company with the SEC on August 1, 2000. The Company purchased NEN from an investor group led by Genstar Capital LLC for an aggregate purchase price of approximately $400 million, and the transaction will be accounted for as a purchase in accordance with APB Opinion No. 16. In connection with the acquisition, the Company paid approximately $350 million in cash and issued warrants to purchase approximately 300,000 shares of the Company's common stock in exchange for all of the outstanding shares, options and warrants of NEN. In addition, the Company repaid approximately $50 million of outstanding indebtedness of NEN. The Company financed the acquisition and repayment of the outstanding indebtedness with $410 million of commercial paper borrowings with a weighted-average interest rate of 7%. In early August 2000, the Company sold zero coupon senior convertible debentures with an aggregate purchase price of $460 million. The debentures, which were offered by a prospectus supplement pursuant to the Company's effective shelf registration statement, are due August 2020 and are priced with a yield to maturity of 3.5%. Holders of the debentures may require the Company to repurchase some or all of the debentures in August 2003 and August 2010, or at any time when there is a change in control of the Company, as defined in the indenture under which the debentures were issued, at repurchase prices equal to the initial price to the public plus accrued original issue discount through the date of repurchase. The debentures are currently convertible into shares of the Company's common stock at approximately $85 per share. The Company used the offering's net proceeds of approximately $448 million to repay a portion of its commercial paper borrowings. 11 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SALES AND OPERATING PROFIT Sales and operating profit by segment are shown in the table below. The following unaudited segment information is presented as an aid to better understand the Company's operating results:
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------- -------------------------------- JULY 2, JULY 4, INCREASE JULY 2, JULY 4, INCREASE 2000 1999 (DECREASE) 2000 1999 (DECREASE) (IN THOUSANDS) -------- -------- ---------- -------- -------- ---------- LIFE SCIENCES Sales............................. $ 41,933 $ 38,555 $ 3,378 $ 81,559 $ 73,612 $ 7,947 Operating Profit.................. 6,141 4,556 1,585 10,416 8,183 2,233 Operating Profit %................ 14.6% 11.8% 2.8% 12.3% 11.1% 1.2% Operating Profit Before Nonrecurring Items.............. 5,741 4,556 1,185 10,016 8,183 1,833 Operating Profit % Before Nonrecurring Items.............. 13.7% 11.8% 1.9% 12.3% 11.1% 1.2% OPTOELECTRONICS Sales............................. $120,915 $108,641 $12,274 $235,380 $219,239 $ 16,141 Operating Profit.................. 22,484 12,039 10,445 42,641 20,693 21,948 Operating Profit %................ 18.6% 11.1% 7.5% 13.1% 9.4% 3.7% Operating Profit Before Nonrecurring Items.............. 17,484 12,039 5,445 30,901 20,693 10,208 Operating Profit % Before Nonrecurring Items.............. 14.5% 11.1% 3.4% 13.1% 9.4% 3.7% INSTRUMENTS Sales............................. $175,526 $ 98,240 $77,286 $362,071 $141,797 $220,274 Operating Profit (Loss)........... 12,747 (25,515) 38,262 18,574 (20,992) 39,566 Operating Profit (Loss) %......... 7.3% -26.0% -33.3% 5.1% -14.8% -19.9% Operating Profit Before Nonrecurring Items.............. 15,840 3,349 12,491 30,331 7,872 22,459 Operating Profit % Before Nonrecurring Items.............. 9.0% 3.4% 5.6% 8.4% 5.6% 2.8% FLUID SCIENCES Sales............................. $ 60,331 $ 58,822 $ 1,509 $121,981 $112,827 $ 9,154 Operating Profit.................. 10,184 9,940 244 18,671 13,952 4,719 Operating Profit %................ 16.9% 16.9% -- 15.3% 12.4% 2.9% Operating Profit Before Nonrecurring Items.............. 10,184 5,640 4,544 20,242 9,652 10,590 Operating Profit % Before Nonrecurring Items.............. 16.9% 9.6% 7.3% 16.6% 8.6% 8.0% OTHER Operating Profit (Loss)........... (91) 920 (1,011) (2,949) (2,868) (81) Operating Profit (Loss) Before Nonrecurring Items.............. (3,407) (3,258) (149) (6,492) (7,046) 554 CONTINUING OPERATIONS Sales............................. $398,705 $304,258 $94,447 $800,991 $547,475 $253,516 Operating Profit.................. 51,465 1,940 49,525 87,353 18,968 68,385 Operating Profit %................ 12.9% 0.6% 12.3% 10.9% 3.5% 7.4% Operating Profit Before Nonrecurring Items.............. 45,842 22,326 23,516 84,998 39,354 45,644 Operating Profit % Before Nonrecurring Items.............. 11.5% 7.3% 4.2% 10.6% 7.2% 3.4%
12 14 The reported results for the three and six months ended July 2, 2000 and July 4, 1999 include certain nonrecurring items which are discussed in detail in the Discussion of Consolidated Results of Operations and Segment Results of Operations sections to follow herein. DISCUSSION OF CONSOLIDATED RESULTS OF OPERATIONS Sales from continuing operations for the second quarter of 2000 increased 31% to $398.7 million versus $304.3 million for the same period of 1999. Organic growth during the second quarter of 2000 was 12%. The Company defines organic growth as growth in historical businesses plus growth in acquired businesses assuming they were owned in prior periods, adjusted for the effects of exited businesses and foreign exchange. Revenues from acquisitions, net of divestitures, during the second quarter of 2000 were approximately $132 million. The organic revenue growth was driven by strength in all of the Company's segments as discussed in further detail below in the Segment Results of Operations section. On a reported basis, operating profit for the second quarter of 2000 was $51.5 million, up $49.5 million versus the same quarter of 1999. The second quarter of 2000 operating income included a $.6 million purchase accounting charge related to the Vivid acquisition, a restructuring credit of $6.3 million, deferred gains of $2.4 million from prior periods' divestitures and restructuring-related and repositioning charges of $2.5 million. The second quarter of 1999 operating income included purchase accounting charges for the AI acquisition related to acquired in-process research and development (R&D) of $23 million and $2.5 million for the revaluation of acquired inventory, and also included gains from dispositions of $8.5 million and restructuring-related and repositioning charges of $3.4 million. Operating profit before these nonrecurring items for the second quarter of 2000 was $45.8 million, increasing $23.5 million, or over 100%, versus the comparable period of 1999. Strong revenue growth and Company-wide productivity and quality initiatives drove this increase in operating income. Discussion of operating profit by segment during the second quarter of 2000 versus 1999 is presented in the Segment Results of Operations section below. Research and development expenses were $21.4 million during the second quarter of 2000, an increase of $5.1 million over the comparable 1999 period and were approximately 5% of total sales for both periods. The second quarter increase during 2000 versus 1999 was due primarily to the inclusion of the acquired AI and Vivid businesses and increased investments in new product development. This was partially offset by lower R&D spending during the second quarter of 2000 associated with the Optoelectronics' Amorphous Silicon business, as the Company transitioned successfully from an R&D stage to full-scale production. Sales from continuing operations for the six months ended July 2, 2000 increased $253.5 million, or 46%, to $801 million versus the comparable 1999 period. Organic growth for the six months of 2000 was approximately 11%. Revenues from acquisitions and strong growth in most segments were offset by the effects of businesses divested in 1999 and the first quarter of 2000. Discussion of sales by segment during the six months of 2000 and 1999 is presented below in the Segment Results of Operations section. On a reported basis, operating profit for the six months of 2000 increased $68.4 million to $87.4 million from $19 million for the six months of 1999. The six months of 2000 operating income included the following items: Vivid purchase accounting charges of $1.1 million related to the revaluation of acquired inventory and $8.1 million related to acquired in-process R&D; a net restructuring credit of $3.9 million; gains on dispositions of $10.2 million and restructuring-related and repositioning charges of $2.5 million. The six months of 1999 operating income included the following items: AI acquisition charges of $2.5 million related to the revaluation of acquired inventory and $23 million related to acquired in-process R&D; gains on dispositions of $8.5 million; restructuring-related and repositioning costs of $3.4 million. Operating profit before these nonrecurring items for the first six months of 2000 was $85 million, up $45.6 million, or 116%, versus the same period of 1999. Discussion of operating profit by segment during the six months of 2000 and 1999 is presented below in the Segment Results of Operations section. ACQUISITIONS AND DIVESTITURES The Company acquired PE Corp.'s Analytical Instruments Division (AI) on May 28, 1999 for an aggregate purchase price of approximately $425 million plus acquisition costs. The AI acquisition is discussed in detail in the 1999 Form 10-K and in a Current Report on Form 8-K filed by the Company with the 13 15 Securities and Exchange Commission (SEC) on August 11, 1999. AI is a leading producer of high-quality analytical testing instruments and consumables, and generated 1998 fiscal year sales of $569 million. On August 20, 1999, the Company sold its Technical Services segment. The Company accounted for the sale of its Technical Services segment as a discontinued operation in accordance with Accounting Principles Board (APB) Opinion No. 30 and, accordingly, the results of operations of the Technical Services segment have been segregated from continuing operations and reported as a separate line item on the Company's Consolidated Income Statements. On January 14, 2000, the Company completed its acquisition of Vivid Technologies, Inc. (Vivid) for an aggregate purchase price of approximately $67 million. The transaction was a stock merger whereby the shareholders of Vivid received one share of the Company's common stock for each 6.2 shares of Vivid common stock; approximately 1.6 million shares were issued in connection with the acquisition. Vivid, which is a leading supplier of automated explosive detection systems utilized in airports and high-security facilities worldwide, generated sales of $21 million for the fiscal year ended September 30, 1999. Vivid's operations, included in the consolidated results of the Company from the date of acquisition, are reported in the Company's Instruments segment. The transaction was accounted for as a purchase in accordance with APB Opinion No. 16, Business Combinations. In accordance with APB Opinion No. 16, the Company allocated the purchase price of Vivid based on the fair values of the net assets acquired and liabilities assumed. The allocation of the purchase price has not yet been finalized, however, the Company does not expect any material changes. Portions of the purchase price, including intangible assets, were valued by independent appraisers utilizing customary valuation procedures and techniques. These intangible assets included approximately $8.1 million for acquired in-process R&D for projects that did not have future alternative uses. This allocation represents the estimated fair value based on risk-adjusted cash flows related to the in-process R&D projects. At the date of the acquisition of Vivid, the development of these projects had not yet reached technological feasibility, and the R&D in process had no alternative future uses. Accordingly, these costs were expensed in the first quarter of 2000. Other acquired intangibles totaling $6.4 million included the fair value of developed technology. This intangible asset is being amortized over its estimated useful life of 10 years. Goodwill resulting from the acquisition of Vivid is being amortized over 25 years. Approximately $0.3 million has been recorded as accrued restructuring charges in connection with the acquisition of Vivid. During the first quarter of 2000, the Company divested its micromachined sensors and specialty semiconductor businesses for cash of $24.3 million, resulting in a pre-tax gain of approximately $6.7 million. Combined financial results of the divested businesses for the first quarters of 2000 and 1999 were not material to the consolidated results of the Company. On July 31, 2000, the Company completed its acquisition of NEN Life Sciences, Inc. (NEN). NEN is a provider of state-of-the-art drug discovery products, services, reagents and technologies to the life science industry. Details of the transaction and pro forma financial information were reported on a Current Report on Form 8-K filed by the Company with the SEC on August 1, 2000. NEN generated fiscal year 1999 sales of $104 million. SEGMENT RESULTS OF OPERATIONS The Company's continuing businesses are reported as four operating segments, which reflect the Company's management methodology and structure under its Strategic Business Units (SBUs). The Company evaluates performance based on operating profit of the respective segments. The discussion that follows is a summary analysis of the primary changes in operating results by segment for the second quarter and six months of 2000 versus the same periods of 1999. Life Sciences Sales for the second quarter of 2000 were $41.9 million compared to $38.6 million for the second quarter of 1999, which represents a $3.3 million, or 9%, increase. Organic growth was 15%. The increase was primarily due to increased sales from new products in drug discovery and strong demand in genetic disease screening. 14 16 Operating profit increased 35% to $6.1 million for the second quarter of 2000 versus the same period of 1999. Operating profit before nonrecurring items was $5.7 million for the second quarter of 2000 versus $4.6 million for the second quarter of 1999, representing a 24% increase. Higher volume discussed above and operational improvements were the primary contributors to the increase in 2000 operating profit versus 1999. Sales for the six months of 2000 increased 11% to $81.6 million versus $73.6 million for the six months of 1999. Organic growth was 16%. Strong demand in the Company's drug discovery and genetic disease screening businesses, increased sales of new products and higher reagent sales were the primary reasons for the increase. Operating profit for the six months of 2000 was $10.4 million, increasing $2.2 million, or 27%, compared to the six months of 1999. Operating profit before nonrecurring items in the first six months of 2000 was $10 million versus $8.2 million in the same period of 1999. The increase was due to primarily higher revenues discussed above, and lower expense levels due to selling, general and administrative cost structure improvements. Optoelectronics Sales for the second quarter of 2000 were $120.9 million, representing an increase of $12.3 million, or 11%, versus the comparable period of 1999. Organic growth was 20%. Strong growth across all business units was fueled by increased demand and new product introductions, specifically in the Company's telecom unit. Reported operating profit for the second quarter of 2000 was $22.5 million versus $12 million for the same period of 1999, representing an increase of $10.5 million, or 88% during 2000. Operating profit for the second quarter of 2000 included a restructuring credit of approximately $5 million. Operating profit before nonrecurring items for the second quarter of 2000 was $17.5 versus $12 million, increasing $5.5 million, or 46%, compared to the same period of 1999. The increase was primarily due to higher revenues discussed above, effects of Six Sigma initiatives, the transition of the Company's Amorphous Silicon business from an R&D stage to full-scale production during the first quarter of 2000, and the benefits of shifting selected production to the Far East. Sales for the first six months of 2000 increased $16.1 million, or 7%, to $235.4 million versus $219.2 million for the comparable period of 1999. Organic growth was 21%. Strong revenue growth from all business contributed to the increase and partially offset the absence of revenues from divested businesses. Reported operating profit for the first six months of 2000 increased to $42.6 million compared to $20.7 million for the same 1999 period, representing a 106% increase. Operating profit for the first six months of 2000 included gains of $6.7 million and a restructuring credit of approximately $5 million. The 1999 operating profit included a $2.9 million charge for the revaluation of acquired inventory related to the Lumen acquisition. Higher revenues, operational improvements and the effects of divesting unprofitable businesses primarily drove the income increase during 2000. Instruments Sales for the second quarter of 2000 were $175.5 million, increasing $77.3 million or 79%, versus the comparable period of 1999. Organic growth was 5%. The inclusion of AI revenues for a full quarter in 2000 and revenues from the Vivid business acquired in January 2000 comprised the majority of the increase. This offset the effects of some industry-wide softness in certain markets. Reported operating profit for the second quarter of 2000 was $12.7 million, increasing $38.3 million compared to an operating loss of $25.5 million in the comparable period of 1999. The second quarter of 2000 operating profit included $.6 million of amortization of the write-up to fair value of acquired inventory and $2.5 million of restructuring-related and repositioning costs. The 1999 operating profit included AI acquisition charges of $23 million related to acquisition in-process R&D and $2.5 million of amortization of the write-up to fair value of acquired inventory, and restructuring-related and repositioning charges of $3.4 million. Excluding these nonrecurring items, operating profit for the second quarter of 2000 was $15.8 million versus $3.3 million in 1999, representing an increase of $12.5 million or over 370%. Higher revenues discussed above 15 17 and a more favorable product mix of acquired businesses, cost structure improvement, and acquisition integration synergies were the primary contributors to the increase. Sales for the first six months of 2000 were $362.1 million, increasing $220.3 million, or over 150%, compared to the same period of 1999. Revenues from acquired businesses offset the effects of flat market conditions in certain U.S. markets. Organic revenue growth was approximately 2%. Reported operating profit for the first six months of 2000 was $18.6 million compared to an operating loss of $21 million in the comparable period of 1999. The six months of 2000 included the following items: Vivid acquisition charges of $8.1 million related to acquired in-process R&D and $1.1 million of amortization of the write-up to fair value of acquired inventory, and $2.5 million of restructuring-related and repositioning costs. The 1999 operating profit included AI acquisition charges of $23 million related to acquired in-process R&D and $2.5 million of amortization of the write-up to fair value of acquired inventory, and $3.4 million of restructuring-related and repositioning costs. Excluding these nonrecurring items, operating profit for the first six months of 2000 was $30.3 million versus $7.9 million for the same period of 1999, representing an increase of $22.5 million, or 284%. Higher revenues discussed above, sales of higher-margin new products and cost structure improvements were the primary reasons for the increase in 2000 versus the 1999 period. Fluid Sciences Sales for the second quarter of 2000 were $60.3 million versus $58.8 million for the comparable 1999 period, representing an increase of $1.5 million, or 3%. Organic revenue growth of 19% was driven by strength in the Company's semiconductor and power generation businesses. Reported operating profit for the second quarter of 2000 was $10.2 million versus $9.9 million in the same period of 1999. The 1999 operating profit included $4.3 million of gains on dispositions. Excluding this nonrecurring item, operating profit for the second quarter of 2000 of $10.2 million increased 82% compared with $5.6 million in the same period of 1999. Higher volume, the effects of the sale of unprofitable businesses and operational efficiencies contributed to the increase during the second quarter of 2000 versus the comparable period of 1999. Sales for the six months of 2000 were $122 million, increasing $9.2 million versus the same period of 1999. Organic revenue growth was 26%. Higher revenues across all businesses drove the increase during 2000 versus 1999. Reported operating profit for the first six months of 2000 increased $4.7 million, or 34%, and was $18.7 million versus $14 million for the first six months of 1999. The first six months of 2000 operating profit included restructuring charges of $2.4 million and gains on dispositions of $.8 million. The operating profit for the first six months of 1999 included gains on dispositions of $4.3 million. Excluding these nonrecurring items, operating profit for the first six months of 2000 was $20.2 million, increasing $10.5 million, or 108%, versus the operating profit of $9.7 million for the first six months of 1999. Higher sales, the divestiture of unprofitable businesses and the effects of lean manufacturing programs drove the increase in the first six months of 2000 versus 1999. RESTRUCTURING CHARGES The Company developed restructuring plans during 1998 to integrate and consolidate its businesses and recorded restructuring charges in the first and second quarters of 1998. During the first quarter of 1998, management developed a plan to restructure certain businesses that resulted in a pre-tax restructuring charge of $30.5 million. During the second quarter of 1998, the Company expanded its continuing effort to restructure certain businesses to further improve performance. The plan resulted in additional pre-tax restructuring charges of $19.5 million. The specific details of the actions and charges by operating segment are discussed more fully in the 1999 Form 10-K. During the third quarter of 1999, due to the substantial completion of the actions of the 1998 restructuring plans, the Company reevaluated its 1998 restructuring plans. As a result of this review, costs associated with the previously planned shutdown of two businesses were no longer required due to actions 16 18 taken to improve performance. Therefore, the Company recognized a restructuring credit of $12 million during the third quarter of 1999, which primarily affected the Fluid Sciences and Optoelectronics segments. During the second quarter of 2000, the Company performed a strategic review of its portfolio of businesses within its Life Sciences, Optoelectronics, Instruments and Fluid Science segments. Specifically in the Optoelectronics segment, the Company reevaluated and shifted its strategy and plans to operate around three business enterprises. During the second quarter of 2000, the Company also strengthened and realigned its senior management teams within its Optoelectronics and Instruments segments. In connection with these events, the Company reevaluated its 1998 restructuring plans. As a result of the strategic review, actions taken to improve performance at costs lower than originally estimated, and the sale of certain businesses originally included in the restructuring plans, costs for certain actions within the 1998 restructuring plans were no longer required. Therefore the Company recognized a restructuring credit of $6 million in the second quarter of 2000, which primarily affected Optoelectronics. The Company's acquisitions in 1998 and 1999 and the Company's 1999 divestiture of its Technical Services segment (exiting government services) were strategic milestones in the Company's transition to a commercial high-technology company. Consistent with the strategic direction of the Company and concurrent with the reevaluation of existing restructuring plans during the third quarter of 1999, the Company developed additional plans during the third quarter of 1999 to restructure certain businesses to continue to improve the Company's performance. These plans resulted in a pre-tax restructuring charge of $23.5 million recorded in the third quarter of 1999. The specific details of the actions and charges by operating segment are discussed more fully in the 1999 Form 10-K. Due to increases in employee separation costs in certain of the Company's non-U.S. operations, during the first quarter of 2000 the Company increased the restructuring liability estimate by $2.4 million. The following table summarizes restructuring activity from continuing operations related to the 1998 and 1999 plans:
SIX MONTHS ENDED JULY 2, 2000 ---------------- (IN MILLIONS) Accrued restructuring costs at beginning of period.......... $27.2 Provisions.................................................. 2.4 Reversals................................................... (6.3) Charges/writeoffs........................................... (6.5) ----- Accrued restructuring costs at end of period................ $16.8 =====
Approximately $28 million was recorded as accrued restructuring costs in connection with the May 1999 AI acquisition, and approximately $5 million was recorded as accrued restructuring costs in connection with the December 1998 Lumen acquisition. The specific details of the actions are discussed in the 1999 Form 10-K. The following table summarizes restructuring activity from continuing operations related to the Vivid, AI and Lumen acquisitions:
SIX MONTHS ENDED JULY 2, 2000 ---------------- (IN MILLIONS) Accrued restructuring costs at beginning of period.......... $ 14.1 Provisions.................................................. 43.5 Charges/writeoffs........................................... (12.2) ------ Accrued restructuring costs at end of period................ $ 45.4 ======
During the second quarter of 2000, in connection with the one-year anniversary of the AI acquisition, the Company finalized its original estimates of the goodwill and restructuring plans related to the acquired AI 17 19 business. As a result of continued aggressive actions by the Company to improve the cost structure of the acquired business and due to increased costs related primarily to employment integration, the Company adjusted its original estimate of restructuring costs recorded at the acquisition date in connection with purchase accounting. Accordingly, accrued restructuring costs were increased by approximately $40 million during the second quarter of 2000. Cash outlays during the six months ended July 2, 2000 were approximately $19 million for all of these plans. The Company expects to incur approximately $20 million of cash outlays in connection with these plans throughout the remainder of fiscal 2000. The majority of the actions remaining at July 2, 2000 are expected to occur in fiscal 2000. OTHER EXPENSE Other expense for the second quarter of 2000 was $7.9 million versus $6.2 million for the comparable period in 1999. Other expense increased to $16.5 million for the first six months of 2000 from $10.8 million for the comparable period of 1999. These increases were primarily due to the impact of higher interest expense on increased debt levels resulting from the AI acquisition. INCOME TAX EXPENSE Reported income tax expense as a percent of pre-tax income was 33% and 35% for the first six months of 2000 and 1999, respectively. Income tax expense as a percent of pre-tax income before nonrecurring items was 30% for the first six months of 2000 versus 36% for the first six months of 1999. The reduction in the rate of income tax is largely attributable to changes in the taxing jurisdictions in which income is recognized as a result of recent acquisitions and dispositions. DISCONTINUED OPERATIONS On August 20, 1999, the Company sold its Technical Services segment. The Company accounted for the sale of its Technical Services segment as a discontinued operation in accordance with APB Opinion No. 30 and, accordingly, the results of operations of the Technical Services segment have been segregated from continuing operations and reported as a separate line item on the Company's Consolidated Income Statements. As a result of the final post-closing selling price adjustment that was settled in the second quarter of 2000, the Company recorded an additional pre-tax gain of $7.3 million on the disposition of discontinued operations. Sales from discontinued operations for the three and six months ended July 4, 1999 were $118.2 million and $232.5 million, respectively. Operating income from discontinued operations was $9.6 million for the three months ended July 4, 1999 and $18.4 million for the six months then ended. FINANCIAL CONDITION Short-term debt at July 2, 2000 was $335 million, primarily consisting of commercial paper borrowings. Long-term debt at July 2, 2000 was $115 million consisting primarily of unsecured notes. During the first six months of 2000, the net paydown of debt was approximately $49 million. In March 2000, the Company's $250 million revolving credit facility was refinanced and increased to a $300 million revolving credit facility that expires in March 2001. The Company has an additional revolving credit agreement for $100 million that expires in March 2002. Cash and cash equivalents decreased by $17.4 million to $109.3 million at the end of the second quarter of 2000. Net cash provided by operating activities was $40.7 million during the first six months of 2000 and was comprised of net income from continuing operations of $47.4 million, depreciation and amortization of $37.8 million, change in working capital accounts and accrued expenses of $4.3 million, a $20.7 million decrease in accrued restructuring, gains on dispositions and sales of investments of $10.9 million and other changes of $8.6 million. During the first six months of 2000, capital expenditures were $29.4 million, and the Company 18 20 completed strategic alliances with Genomic Solutions, a leader in genetic screening, and Bragg Photonics, a maker of key fiber optic components, with equity investments totaling $15.2 million. In connection with the completion of the NEN acquisition on July 31, 2000, the Company paid approximately $350 million in cash and issued warrants to purchase approximately 300,000 shares of the Company's common stock in exchange for all of the outstanding shares, options and warrants of NEN. In addition, the Company repaid approximately $50 million of outstanding indebtedness of NEN. The Company financed the acquisition and repayment of the outstanding indebtedness with $410 million of commercial paper borrowings with a weighted-average interest rate of 7%. In early August 2000, the Company sold zero coupon senior convertible debentures with an aggregate purchase price of $460 million. The debentures, which were offered by a prospectus supplement pursuant to the Company's effective shelf registration statement, are due August 2020 and are priced with a yield to maturity of 3.5%. Holders of the debentures may require the Company to repurchase some or all of the debentures in August 2003 and August 2010, or at any time when there is a change in control of the Company, as defined in the indenture under which the debentures were issued, at repurchase prices equal to the initial price to the public plus accrued original issue discount through the date of repurchase. The debentures are currently convertible into shares of the Company's common stock at approximately $85 per share. The Company used the offering's net proceeds of approximately $448 million to repay a portion of its commercial paper borrowings. REVENUE RECOGNITION The SEC released Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, on December 3, 1999. This SAB provides additional guidance on the accounting for revenue recognition, including both broad conceptual discussions as well as certain industry-specific guidance. The new guidance that is most likely to have a potential impact on the Company concerns customer acceptance and installation terms. The Company is in the process of accumulating the information necessary to quantify the potential impact of this new guidance. The guidance is effective for the fourth quarter of fiscal 2000 and is required to be adopted effective January 3, 2000 by recording the effect of any prior year revenue transactions affected as a "cumulative effect of a change in accounting principle" as of January 3, 2000. Quarterly financial statements within fiscal 2000 would be restated to conform to the new guidance as necessary. FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE This Quarterly Report contains "forward-looking statements." For this purpose, any statements contained in this Quarterly Report that are not statements of historical fact may be deemed to be forward-looking statements. Words such as "believes," "anticipates," "plans," "expects," "will" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of PerkinElmer to differ materially from those indicated by these forward-looking statements. These factors include, without limitation, those set forth in "Item 7. Management's Discussions and Analysis of Financial Condition and Results of Operations -- Forward-Looking Information and Factors Affecting Future Performance" of the Company's 1999 Form 10-K,which are expressly incorporated by reference herein, as well as those discussed in Exhibit 99.1 to this Quarterly Report, which discussion is expressly incorporated by reference herein. ITEM 3. MARKET RISK Market Risk: The Company is exposed to market risk, including changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, the Company enters into various derivative transactions pursuant to the Company's policies to hedge against known or forecasted market exposures. Foreign Exchange Risk Management: As a multinational corporation, the Company is exposed to changes in foreign exchange rates. As the Company's international sales grow, exposure to volatility in exchange rates could have a material adverse impact on the Company's financial results. The Company's risk 19 21 from exchange rate changes is primarily related to non-dollar denominated sales in Europe and Asia. The Company uses foreign currency forward and option contracts to manage the risk of exchange rate fluctuations. The Company uses these derivative instruments to reduce its foreign exchange risk by essentially creating offsetting market exposures. The instruments held by the Company are not leveraged and are not held for trading purposes. The Company uses forward exchange contracts to hedge its net asset (balance sheet) position. The success of the hedging program depends on forecasts of transaction activity in the various currencies. To the extent that these forecasts are over or understated during periods of currency volatility, the Company could experience unanticipated currency gains or losses. The principal currencies hedged are the British Pound, Canadian Dollar, Euro, Japanese Yen and Singapore Dollar. In those currencies where there is a liquid, cost-effective forward market, the Company maintains hedge coverage between minimum and maximum percentages of its anticipated transaction exposure for periods not to exceed one year. The gains and losses on these contracts offset changes in the value of the related exposure. Interest Rate Risk: The Company maintains an investment portfolio consisting of securities of various issuers, types and maturities. The investments are classified as available for sale. These securities are recorded on the balance sheet at market value, with any unrealized gain or loss recorded in comprehensive income. These instruments are not leveraged, and are not held for trading purposes. Value-At-Risk: The Company utilizes a Value-at-Risk (VAR) model to determine the maximum potential loss in the fair value of its interest rate and foreign exchange sensitive derivative financial instruments within a 95% confidence interval. The Company's computation was based on the interrelationships between movements in interest rates and foreign currencies. These interrelationships were determined by observing historical interest rate and foreign currency market changes over corresponding periods. The assets and liabilities, firm commitments and anticipated transactions, which are hedged by derivative financial instruments, were excluded from the model. The VAR model estimates were made assuming normal market conditions and a 95% confidence level. The Company's computations are based on the Monte Carlo simulation. The VAR model is a risk analysis tool and does not purport to represent actual gains or losses in fair value that will be incurred by the Company. The Company does not anticipate any material changes to the VAR model's estimated maximum loss in market value through December 31, 2000 as discussed in the 1999 Form 10-K. Management periodically reviews its interest rate and foreign currency exposures and evaluates strategies to manage such exposures in the near future. The Company implements changes, when deemed necessary, in the management of hedging instruments which mitigate its exposure. Since the Company utilizes interest rate and foreign currency sensitive derivative instruments for hedging, a loss in fair value for those instruments is generally offset by increases in the value of the underlying transaction. It is the Company's policy to enter into foreign currency and interest rate transactions only to the extent considered necessary to meet its objectives as stated above. The Company does not enter into foreign currency or interest rate transactions for speculative purposes. 20 22 PART II. OTHER INFORMATION PERKINELMER, INC. AND SUBSIDIARIES ITEMS 1-3. NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's annual meeting of stockholders was held on April 25, 2000. Proxies for the meeting were solicited pursuant to Regulation 14A, and there were no solicitations in opposition to management's nominees for Directors. All of such nominees (ten) were elected for terms of one year each.
SHARES SHARES FOR WITHHELD ---------- -------- Tamara J. Erickson.......................................... 43,027,501 164,226 Kent F. Hansen.............................................. 43,028,734 162,993 John F. Keane............................................... 43,026,316 165,411 Nicholas A. Lopardo......................................... 43,054,410 137,317 Greta E. Marshall........................................... 43,055,880 135,847 Michael C. Ruettgers........................................ 43,053,176 138,551 Gabriel Schmergel........................................... 43,050,275 141,452 Gregory L. Summe............................................ 43,051,692 140,035 John Larkin Thompson........................................ 43,015,935 175,792 G. Robert Tod............................................... 43,017,270 174,457
There were no broker non-votes with respect to the election of directors. ITEM 5. NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Part I Exhibits: Exhibit 27.1 -- Financial data schedule (submitted in electronic format only) Exhibit 99.1 -- Risk Factors Part II Exhibits: None (b) Reports on Form 8-K A Current Report on Form 8-K was filed with the Securities and Exchange Commission on June 21, 2000 regarding the Company's agreement to acquire NEN Life Sciences, Inc. Subsequent to the end of the second quarter of 2000, a Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 1, 2000 regarding the Company's completion of its acquisition of NEN Life Sciences, Inc. 21 23 PERKINELMER, INC. AND SUBSIDIARIES SIGNATURE 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. PerkinElmer, Inc. By: /s/ ROBERT F. FRIEL ------------------------------------ Robert F. Friel Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 16, 2000 22