UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
(Mark One) | ||
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | ||
or | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-5075
PerkinElmer, Inc.
Massachusetts | 04-2052042 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) | |
45 William Street, Wellesley, Massachusetts (Address of principal executive offices) | 02481 (Zip Code) |
(781) 237-5100
NONE
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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes xþ No o
Number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date::
Class | Outstanding at | |
Common Stock, $1 par value per share | ||
(Excluding treasury shares) |
TABLE OF CONTENTS
Page | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. | Financial Statements | 2 | ||||
Consolidated Income Statements | 2 | |||||
Consolidated Balance Sheets | 3 | |||||
Consolidated Statements of Cash Flows | 4 | |||||
Notes to Consolidated Financial Statements | 5 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Liquidity and Capital Resources | ||||||
Critical Accounting Policies, Commitments and Certain Other Matters | ||||||
Forward-Looking Information and Factors Affecting Future Performance | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||||
Item 4. | Controls and Procedures | |||||
PART II. OTHER INFORMATION | ||||||
Item | ||||||
Item 6. | Exhibits and Reports on Form 8-K | |||||
SIGNATURE | ||||||
38 |
1
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
PERKINELMER, INC. AND SUBSIDIARIES
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||
September 28, | September 29, | September 28, | September 29, | |||||||||||||||||||||||
March 30, | March 31, | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||
2003 | 2002 | |||||||||||||||||||||||||
(In thousands except | (In thousands except | |||||||||||||||||||||||||
(In thousands except | share and per share data) | share and per share data) | ||||||||||||||||||||||||
per share data) | ||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||
Sales | Sales | $ | 358,449 | $ | 346,293 | Sales | $ | 367,085 | $ | 366,011 | $ | 1,102,658 | $ | 1,095,400 | ||||||||||||
Cost of sales | Cost of sales | 219,280 | 220,563 | Cost of sales | 214,545 | 219,256 | 658,365 | 663,017 | ||||||||||||||||||
Research and development expenses | Research and development expenses | 20,852 | 21,807 | Research and development expenses | 20,108 | 20,505 | 62,837 | 64,915 | ||||||||||||||||||
Selling, general and administrative expenses | Selling, general and administrative expenses | 92,879 | 107,720 | Selling, general and administrative expenses | 91,686 | 102,436 | 282,042 | 322,984 | ||||||||||||||||||
Restructuring charges, net | (445 | ) | 9,224 | |||||||||||||||||||||||
Restructuring (reversals) charges, net | Restructuring (reversals) charges, net | 179 | — | (2,994 | ) | 9,224 | ||||||||||||||||||||
Gains on dispositions | Gains on dispositions | (580 | ) | (5,216 | ) | Gains on dispositions | (369 | ) | — | (2,057 | ) | (5,216 | ) | |||||||||||||
Amortization of intangible assets | Amortization of intangible assets | 7,195 | 7,092 | Amortization of intangible assets | 7,019 | 7,120 | 21,257 | 21,269 | ||||||||||||||||||
Operating income (loss) from continuing operations | 19,268 | (14,897 | ) | |||||||||||||||||||||||
Other expense, net | 14,347 | 13,628 | ||||||||||||||||||||||||
Operating income from continuing operations | Operating income from continuing operations | 33,917 | 16,694 | 83,208 | 19,207 | |||||||||||||||||||||
Gain on repurchase of convertible debentures | Gain on repurchase of convertible debentures | — | (6,785 | ) | — | (6,785 | ) | |||||||||||||||||||
Loss on early extinguishment of debt | Loss on early extinguishment of debt | — | — | — | 5,539 | |||||||||||||||||||||
Interest and other expense, net | Interest and other expense, net | 13,287 | 11,516 | 41,794 | 28,028 | |||||||||||||||||||||
Income (loss) from continuing operations before income taxes | Income (loss) from continuing operations before income taxes | 4,921 | (28,525 | ) | Income (loss) from continuing operations before income taxes | 20,630 | 11,963 | 41,414 | (7,575 | ) | ||||||||||||||||
Provision (benefit) for income taxes | Provision (benefit) for income taxes | 1,599 | (7,866 | ) | Provision (benefit) for income taxes | 6,499 | 2,213 | 13,253 | (2,742 | ) | ||||||||||||||||
Income (loss) from continuing operations | Income (loss) from continuing operations | 3,322 | (20,659 | ) | Income (loss) from continuing operations | 14,131 | 9,750 | 28,161 | (4,833 | ) | ||||||||||||||||
Loss from discontinued operations, net of income taxes | Loss from discontinued operations, net of income taxes | (960 | ) | (8,901 | ) | Loss from discontinued operations, net of income taxes | — | (2,604 | ) | (1,597 | ) | (15,711 | ) | |||||||||||||
Gain (loss) on disposition of discontinued operations, net of income taxes | Gain (loss) on disposition of discontinued operations, net of income taxes | 138 | — | (1,535 | ) | (10,966 | ) | |||||||||||||||||||
Net income (loss) before effect of accounting change | Net income (loss) before effect of accounting change | 2,362 | (29,560 | ) | Net income (loss) before effect of accounting change | 14,269 | 7,146 | 25,029 | (31,510 | ) | ||||||||||||||||
Effect of accounting change, net of income taxes | Effect of accounting change, net of income taxes | — | (117,800 | ) | Effect of accounting change, net of income taxes | — | — | — | (117,800 | ) | ||||||||||||||||
Net income (loss) | Net income (loss) | $ | 2,362 | $ | (147,360 | ) | Net income (loss) | $ | 14,269 | $ | 7,146 | $ | 25,029 | $ | (149,310 | ) | ||||||||||
Basic and diluted earnings (loss) per share: | Basic and diluted earnings (loss) per share: | Basic and diluted earnings (loss) per share: | ||||||||||||||||||||||||
Continuing operations | $ | 0.03 | $ | (0.17 | ) | Continuing operations | $ | 0.11 | $ | 0.08 | $ | 0.22 | $ | (0.04 | ) | |||||||||||
Loss from discontinued operations, net of income taxes | (0.01 | ) | (0.07 | ) | Loss from discontinued operations, net of income tax | — | (0.02 | ) | (0.01 | ) | (0.13 | ) | ||||||||||||||
Loss on disposition of discontinued operations, net of income tax | — | — | (0.01 | ) | (0.09 | ) | ||||||||||||||||||||
Net income (loss) before effect of accounting change | 0.02 | (0.24 | ) | |||||||||||||||||||||||
Effect of accounting change, net of income tax | — | (0.94 | ) | Net income (loss) before effect of accounting change | 0.11 | 0.06 | 0.20 | (0.25 | ) | |||||||||||||||||
Effect of accounting change, net of income tax | — | — | — | (0.94 | ) | |||||||||||||||||||||
Net income (loss) | $ | 0.02 | $ | (1.18 | ) | |||||||||||||||||||||
Net income (loss) | $ | 0.11 | $ | 0.06 | $ | 0.20 | $ | (1.19 | ) | |||||||||||||||||
Weighted average shares of common stock outstanding: | Weighted average shares of common stock outstanding: | Weighted average shares of common stock outstanding: | ||||||||||||||||||||||||
Basic | 125,649 | 124,864 | Basic | 126,287 | 126,240 | 126,346 | 125,335 | |||||||||||||||||||
Diluted | 126,375 | 124,864 | Diluted | 128,034 | 126,775 | 127,568 | 125,335 | |||||||||||||||||||
Cash dividends per common share | Cash dividends per common share | $ | 0.07 | $ | 0.07 | Cash dividends per common share | $ | 0.07 | $ | 0.07 | $ | 0.21 | $ | 0.21 |
The accompanying unaudited notes are an integral part of these consolidated financial statements.
2
PERKINELMER, INC. AND SUBSIDIARIES
September 28, | December 29, | |||||||||||||||||||
March 30, | December 29, | 2003 | 2002 | |||||||||||||||||
2003 | 2002 | |||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
(In thousands except | (In thousands except | |||||||||||||||||||
share and per share data) | share and per share data) | |||||||||||||||||||
Current assets: | Current assets: | Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 129,777 | $ | 130,615 | Cash and cash equivalents | $ | 141,316 | $ | 130,615 | |||||||||||
Cash held in escrow | 154,463 | 186,483 | Cash held in escrow | — | 186,483 | |||||||||||||||
Accounts receivable, net | 272,070 | 304,647 | Accounts receivable, net | 264,261 | 304,647 | |||||||||||||||
Inventories | 205,543 | 205,455 | Inventories | 199,155 | 205,455 | |||||||||||||||
Other current assets | 154,432 | 152,137 | Other current assets | 157,786 | 152,137 | |||||||||||||||
Current assets of discontinued operations | 12,030 | 12,006 | Current assets of discontinued operations | 9,573 | 12,006 | |||||||||||||||
Total current assets | 928,315 | 991,343 | Total current assets | 772,091 | 991,343 | |||||||||||||||
Property, plant and equipment: | Property, plant and equipment: | Property, plant and equipment: | ||||||||||||||||||
At cost | 606,406 | 598,048 | At cost | 614,046 | 598,048 | |||||||||||||||
Accumulated depreciation | (308,100 | ) | (294,026 | ) | Accumulated depreciation | (336,528 | ) | (294,026 | ) | |||||||||||
Net property, plant and equipment | Net property, plant and equipment | 298,306 | 304,022 | Net property, plant and equipment | 277,518 | 304,022 | ||||||||||||||
Investments | Investments | 12,999 | 14,298 | Investments | 11,578 | 14,298 | ||||||||||||||
Intangible assets | Intangible assets | 1,435,466 | 1,439,774 | Intangible assets | 1,445,783 | 1,439,774 | ||||||||||||||
Other assets | Other assets | 74,125 | 83,835 | Other assets | 80,194 | 83,835 | ||||||||||||||
Long-term assets of discontinued operations | Long-term assets of discontinued operations | 3,523 | 2,967 | Long-term assets of discontinued operations | 2,160 | 2,967 | ||||||||||||||
Total assets | $ | 2,752,734 | $ | 2,836,239 | Total assets | $ | 2,589,324 | $ | 2,836,239 | |||||||||||
Current liabilities: | Current liabilities: | Current liabilities: | ||||||||||||||||||
Short-term debt | $ | 161,066 | $ | 191,491 | Short-term debt | $ | 4,591 | $ | 5,008 | |||||||||||
Accounts payable | 132,683 | 146,290 | Convertible debt | — | 186,483 | |||||||||||||||
Accrued restructuring costs and integration costs | 36,057 | 40,748 | Accounts payable | 133,703 | 146,290 | |||||||||||||||
Accrued expenses | 296,522 | 316,427 | Accrued restructuring costs and integration costs | 16,953 | 40,748 | |||||||||||||||
Current liabilities of discontinued operations | 1,165 | 2,718 | Accrued expenses | 292,310 | 316,427 | |||||||||||||||
Current liabilities of discontinued operations | — | 2,718 | ||||||||||||||||||
Total current liabilities | 627,493 | 697,674 | ||||||||||||||||||
Total current liabilities | 447,557 | 697,674 | ||||||||||||||||||
Long-term debt | Long-term debt | 599,272 | 614,053 | Long-term debt | 564,745 | 614,053 | ||||||||||||||
Long-term liabilities | Long-term liabilities | 265,342 | 270,031 | Long-term liabilities | 276,155 | 270,031 | ||||||||||||||
Long-term liabilities of discontinued operations | Long-term liabilities of discontinued operations | 2,068 | 2,137 | Long-term liabilities of discontinued operations | 2,235 | 2,137 | ||||||||||||||
Commitments and contingencies | Commitments and contingencies | Commitments and contingencies | ||||||||||||||||||
Stockholders’ equity: | Stockholders’ equity: | Stockholders’ equity: | ||||||||||||||||||
Preferred stock — $1 par value, authorized 1,000,000 shares; none issued or outstanding | — | — | Preferred stock — $1 par value per share, authorized 1,000,000 shares; none issued or outstanding | — | — | |||||||||||||||
Common stock — $1 par value, authorized 300,000,000 shares; issued 145,101,000 shares; and 126,089,000 and 125,854,000 outstanding at March 30, 2003 and December 29, 2002 | 145,101 | 145,101 | Common stock — $1 par value per share, authorized 300,000,000 shares; issued 145,101,000; and 126,797,000 and 125,854,000 outstanding at September 28, 2003 and December 29, 2002 | 145,101 | 145,101 | |||||||||||||||
Capital in excess of par value | 679,921 | 679,929 | Capital in excess of par value | 678,790 | 679,929 | |||||||||||||||
Unearned compensation | (5,190 | ) | (5,890 | ) | Unearned compensation | (3,791 | ) | (5,890 | ) | |||||||||||
Retained earnings | 648,595 | 655,066 | Retained earnings | 653,562 | 655,066 | |||||||||||||||
Accumulated other comprehensive loss | (20,211 | ) | (31,865 | ) | Accumulated other comprehensive income (loss) | 7,488 | (31,865 | ) | ||||||||||||
Cost of shares held in treasury — 19,261,000 shares at March 30, 2003 and 19,247,000 shares at December 29, 2002 | (189,657 | ) | (189,997 | ) | Cost of shares held in treasury — 18,304,000, shares at September 28, 2003 and 19,247,000 shares at December 29, 2002 | (182,518 | ) | (189,997 | ) | |||||||||||
Total stockholders’ equity | 1,258,559 | 1,252,344 | Total stockholders’ equity | 1,298,632 | 1,252,344 | |||||||||||||||
Total liabilities and stockholders’ equity | $ | 2,752,734 | $ | 2,836,239 | Total liabilities and stockholders’ equity | $ | 2,589,324 | $ | 2,836,239 | |||||||||||
The accompanying unaudited notes are an integral part of these consolidated financial statements.
3
PERKINELMER, INC. AND SUBSIDIARIES
Three Months Ended | Nine Months Ended | |||||||||||||||||
March 30, | March 31, | September 28, | September 29, | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||
Operating activities: | Operating activities: | Operating activities: | ||||||||||||||||
Net income (loss) | Net income (loss) | $ | 2,362 | $ | (147,360 | ) | Net income (loss) | $ | 25,029 | $ | (149,310 | ) | ||||||
Add net loss from discontinued operations | Add net loss from discontinued operations | 960 | 8,901 | Add net loss from discontinued operations | 3,132 | 26,677 | ||||||||||||
Add effect of accounting change, net of income taxes | Add effect of accounting change, net of income taxes | — | 117,800 | Add effect of accounting change, net of income taxes | — | 117,800 | ||||||||||||
Income (loss) from continuing operations | 3,322 | (20,659 | ) | |||||||||||||||
Net income (loss) from continuing operations | Net income (loss) from continuing operations | 28,161 | (4,833 | ) | ||||||||||||||
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used) in continuing operations: | Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used) in continuing operations: | Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used) in continuing operations: | ||||||||||||||||
Restructuring reversals, net of expense | Restructuring reversals, net of expense | (2,994 | ) | — | ||||||||||||||
Stock-based compensation | Stock-based compensation | 700 | 1,203 | Stock-based compensation | 5,941 | 6,631 | ||||||||||||
Amortization of debt discount and issuance costs | Amortization of debt discount and issuance costs | 2,354 | 5,216 | Amortization of debt discount and issuance costs | 8,245 | 15,694 | ||||||||||||
Depreciation and amortization | Depreciation and amortization | 18,801 | 19,192 | Depreciation and amortization | 58,014 | 55,849 | ||||||||||||
Gains on dispositions and sales of investments, net | Gains on dispositions and sales of investments, net | (580 | ) | (5,109 | ) | Gains on dispositions and sales of investments, net | (2,057 | ) | (5,335 | ) | ||||||||
Gain on purchase of debt, net | Gain on purchase of debt, net | — | 1,470 | |||||||||||||||
Changes in operating assets and liabilities which provided (used) cash, excluding effects from companies purchased and divested: | Changes in operating assets and liabilities which provided (used) cash, excluding effects from companies purchased and divested: | Changes in operating assets and liabilities which provided (used) cash, excluding effects from companies purchased and divested: | ||||||||||||||||
Accounts receivable | 37,342 | 17,527 | Accounts receivable | 56,652 | 38,822 | |||||||||||||
Inventories | 1,406 | 14,764 | Inventories | 14,380 | 30,326 | |||||||||||||
Accounts payable | (14,710 | ) | 1,187 | Accounts payable | (8,798 | ) | 10,560 | |||||||||||
Accrued restructuring costs | (4,557 | ) | (23,047 | ) | Accrued restructuring costs | (16,292 | ) | (28,856 | ) | |||||||||
Accrued expenses and other | (21,173 | ) | (44,401 | ) | Accrued expenses and other | (55,517 | ) | (58,366 | ) | |||||||||
Net cash provided by (used in) operating activities from continuing operations | 22,905 | (34,127 | ) | |||||||||||||||
Net cash provided by operating activities from discontinued operations | 1,164 | 3,039 | ||||||||||||||||
Net cash provided by operating activities from continuing operations | Net cash provided by operating activities from continuing operations | 85,735 | 61,962 | |||||||||||||||
Net cash provided by (used in) operating activities from discontinued operations | Net cash provided by (used in) operating activities from discontinued operations | 3,837 | (6,495 | ) | ||||||||||||||
Net cash provided by (used in) operating activities | 24,069 | (31,088 | ) | |||||||||||||||
Net cash provided by operating activities | Net cash provided by operating activities | 89,572 | 55,467 | |||||||||||||||
Investing activities: | Investing activities: | Investing activities: | ||||||||||||||||
Cash withdrawn from escrow to repay debt | 32,509 | — | Cash withdrawn from escrow to repay debt | 187,477 | — | |||||||||||||
Capital expenditures | (3,461 | ) | (16,525 | ) | Capital expenditures | (11,194 | ) | (31,751 | ) | |||||||||
Proceeds from dispositions of property, plant and equipment, net | — | 19,455 | Proceeds from dispositions of property, plant and equipment, net | 3,295 | 28,342 | |||||||||||||
Settlement of disposition of businesses, net | (575 | ) | (2,397 | ) | Settlement of disposition of businesses, net | (846 | ) | 97,494 | ||||||||||
Proceeds (cost) of acquisitions, net of cash acquired | 2,126 | (17,480 | ) | Proceeds (cost) of acquisitions, net of cash acquired | 534 | (39,208 | ) | |||||||||||
Proceeds from sale of investments | — | 1,709 | Proceeds from sale of investments | — | 3,242 | |||||||||||||
Net cash provided by (used in) investing activities from continuing operations | 30,599 | (15,238 | ) | |||||||||||||||
Net cash used in investing activities from discontinued operations | — | (3,570 | ) | |||||||||||||||
Net cash provided by investing activities from continuing operations | Net cash provided by investing activities from continuing operations | 179,266 | 58,119 | |||||||||||||||
Net cash used in (provided by) investing activities from discontinued operations | Net cash used in (provided by) investing activities from discontinued operations | 1,400 | (5,200 | ) | ||||||||||||||
Net cash provided by (used in) investing activities | 30,599 | (18,808 | ) | |||||||||||||||
Net cash provided by investing activities | Net cash provided by investing activities | 180,666 | 52,919 | |||||||||||||||
Financing activities: | Financing activities: | Financing activities: | ||||||||||||||||
Payment of debt issuance costs | (1,356 | ) | — | Payment of debt issuance costs | (1,725 | ) | — | |||||||||||
Prepayment of zero coupon convertible notes | (32,509 | ) | — | Prepayment of zero coupon convertible notes | (189,901 | ) | (84,440 | ) | ||||||||||
Prepayment of term loan debt | (15,000 | ) | — | Prepayment of term loan debt | (50,000 | ) | — | |||||||||||
Prepayment of short-term debt | — | (123,683 | ) | Prepayment of short-term debt | — | (123,683 | ) | |||||||||||
Increase in commercial paper borrowings | — | 219,000 | (Decrease) increase in other credit facilities | (1,737 | ) | 65,202 | ||||||||||||
Increase (decrease) in other credit facilities | 211 | (4,996 | ) | Proceeds from issuance of common stock | 2,355 | 10,054 | ||||||||||||
Proceeds from issuance of common stock | — | 6,674 | Purchases of common stock | — | (1,636 | ) | ||||||||||||
Purchases of common stock | — | (5,804 | ) | Cash dividends | (26,531 | ) | (26,436 | ) | ||||||||||
Cash dividends | (8,833 | ) | (8,793 | ) | ||||||||||||||
Net cash (used in) provided by financing activities | (57,487 | ) | 82,398 | |||||||||||||||
Net cash used in financing activities | Net cash used in financing activities | (267,539 | ) | (160,939 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | 1,981 | (311 | ) | Effect of exchange rate changes on cash and cash equivalents | 8,002 | 11,852 | |||||||||||
Net (decrease) increase in cash and cash equivalents | (838 | ) | 32,191 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | 10,701 | (40,701 | ) | ||||||||||||||
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 130,615 | 138,250 | Cash and cash equivalents at beginning of period | 130,615 | 138,250 | ||||||||||||
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 129,777 | $ | 170,441 | Cash and cash equivalents at end of period | $ | 141,316 | $ | 97,549 | ||||||||
The accompanying unaudited notes are an integral part of these consolidated financial statements.
4
PERKINELMER, INC. AND SUBSIDIARIES
(1) Basis of Presentation
The consolidated financial statements included herein have been prepared by PerkinElmer, Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “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 fiscal year ended December 29, 2002, filed on Form 10-K with the SEC (the “2002 Form 10-K”). The balance sheet amounts at December 29, 2002 in this report were extractedderived from the Company’s audited 2002 financial statements included in the 2002 Form 10-K. Certain prior period amounts have been reclassified to conform to the current-year financial statement presentation. 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 threenine months ended March 30,September 28, 2003 and March 31,September 29, 2002 are not necessarily indicative of the results for the entire fiscal year.
(2) Gains on Dispositions
During the firstthird quarter of 2003, the Company recognized $0.4 million of previously deferred gain from a $0.3transaction on the sale of a business. During the nine months ended September 28, 2003, the Company recognized a $1.4 million net gain from the sales of buildings, a $0.4 million net gain from the aforementioned sale of a building,business and a previously deferred $0.3 million gain from the sale of a separate business. The Company did not recognize any gains on dispositions within continuing operations during the third quarter of 2002. During the first quarter ofnine-month period ended September 29, 2002, the Company sold three buildings that resulted in a net gain of $4.4 million on proceeds received of approximately $19.5 million and recognized $0.8 million in previously deferred gains from a sale that was previously deferred.of a business.
(3) Restructuring Charges
As discussed more fully in the Company’s 2002 Form 10-K, the Company has undertaken a series of restructuring actions.plans related to the impact of acquisitions, divestitures and the integration of its Life and Analytical Sciences business. The principal actions associated with these plans related to a workforce reduction and overhead reductions resulting from continued reorganization activities, including the closure of certain manufacturing and selling facilities. Details of these plans are discussed more fully in the Company’s 2002 Form 10-K.
In the third quarter of 2003, the Company recorded a net restructuring charge of $0.2 million. This net charge is made up of $0.5 million in incremental severance recorded in connection with the 2003 Restructuring Plan for the Life and Analytical Sciences segment offset by a $0.3 million reversal relating to the Fluid Science 2002 Restructuring Plan for slightly lower than expected headcount reductions and severance costs.
For the nine months ended September 2003, the Company recorded a net restructuring reversal of approximately $3.0 million. The majority of this net reversal was a result of a reversal of $5.8 million in the 2002 Restructuring Plan and was due to lower than expected severance payments. This reversal was offset by $0.6 million in higher than anticipated charges relating to the 2001 Restructuring Plan and $2.2 million in new charges associated with the 2003 Restructuring Plan.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the components of the Company’s restructuring plans and related accrual activity recorded for the quarterthree-month and nine-month periods ended March 30,September 28, 2003.
Abandonment | Abandonment | |||||||||||||||||||||||||||||||||||||||||
of Excess | Total Cash | Asset | of Excess | Total Cash | Asset | |||||||||||||||||||||||||||||||||||||
Severance | Facilities | Charges | Writedown | Total | Severance | Facilities | Charges | Writedown | Total | |||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||
2001 Restructuring Plans | 2001 Restructuring Plans | 2001 Restructuring Plans | ||||||||||||||||||||||||||||||||||||||||
Balance at December 29, 2002 | $ | 3,975 | $ | 100 | $ | 4,075 | $ | — | $ | 4,075 | Balance at December 29, 2002 | $ | 3,975 | $ | 100 | $ | 4,075 | $ | — | $ | 4,075 | |||||||||||||||||||||
Amounts paid or incurred | (1,274 | ) | (47 | ) | (1,321 | ) | (54 | ) | (1,375 | ) | Amounts paid or incurred | (2,177 | ) | (47 | ) | (2,224 | ) | — | (2,224 | ) | ||||||||||||||||||||||
Changes in estimates | (645 | ) | — | (645 | ) | — | (645 | ) | Changes in estimates | 555 | — | 555 | — | 555 | ||||||||||||||||||||||||||||
Balance at March 30, 2003 | 2,056 | 53 | 2,109 | (54 | ) | 2,055 | Balance at June 29, 2003 | 2,353 | 53 | 2,406 | — | 2,406 | ||||||||||||||||||||||||||||||
Amounts paid or incurred | (159 | ) | (53 | ) | (212 | ) | — | (212 | ) | |||||||||||||||||||||||||||||||||
Balance at September 28, 2003 | 2,194 | — | 2,194 | — | 2,194 | |||||||||||||||||||||||||||||||||||||
2002 Restructuring Plans | 2002 Restructuring Plans | 2002 Restructuring Plans | ||||||||||||||||||||||||||||||||||||||||
Balance at December 29, 2002 | 21,991 | 3,513 | 25,504 | 2,483 | 27,987 | Balance at December 29, 2002 | 21,991 | 3,513 | 25,504 | 2,483 | 27,987 | |||||||||||||||||||||||||||||||
Amounts paid or incurred | (2,599 | ) | (2,599 | ) | (2,599 | ) | Amounts paid or incurred | (6,184 | ) | (198 | ) | (6,382 | ) | (1,560 | ) | (7,942 | ) | |||||||||||||||||||||||||
Changes in estimates | 200 | — | 200 | — | 200 | Changes in estimates | (5,267 | ) | (200 | ) | (5,467 | ) | — | (5,467 | ) | |||||||||||||||||||||||||||
Balance at March 30, 2003 | 19,592 | 3,513 | 23,105 | 2,483 | 25,588 | Balance at June 29, 2003 | 10,540 | 3,115 | 13,655 | 923 | 14,578 | |||||||||||||||||||||||||||||||
Amounts paid or incurred | (2,996 | ) | (298 | ) | (3,294 | ) | (72 | ) | (3,366 | ) | ||||||||||||||||||||||||||||||||
Balance at March 30, 2003 | $ | 21,648 | $ | 3,566 | $ | 25,214 | $ | 2,429 | $ | 27,643 | ||||||||||||||||||||||||||||||||
Changes in estimates | (300 | ) | — | (300 | ) | — | (300 | ) | ||||||||||||||||||||||||||||||||||
Balance at September 28, 2003 | 7,244 | 2,817 | 10,061 | 851 | 10,912 | |||||||||||||||||||||||||||||||||||||
2003 Restructuring Plan | 2003 Restructuring Plan | |||||||||||||||||||||||||||||||||||||||||
Balance at December 29, 2002 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Restructuring charge | 1,739 | — | 1,739 | — | 1,739 | |||||||||||||||||||||||||||||||||||||
Amounts paid or incurred | (747 | ) | — | (747 | ) | — | (747 | ) | ||||||||||||||||||||||||||||||||||
Balance at June 29, 2003 | 992 | — | 992 | — | 992 | |||||||||||||||||||||||||||||||||||||
Amounts paid or incurred | (689 | ) | — | (689 | ) | — | (689 | ) | ||||||||||||||||||||||||||||||||||
Changes in estimates | 479 | — | 479 | — | 479 | |||||||||||||||||||||||||||||||||||||
Balance at September 28, 2003 | 782 | — | 782 | — | 782 | |||||||||||||||||||||||||||||||||||||
Balance at September 28, 2003 | Balance at September 28, 2003 | $ | 10,220 | $ | 2,817 | $ | 13,037 | $ | 851 | $ | 13,888 | |||||||||||||||||||||||||||||||
The majority of the actions remaining at March 30,September 28, 2003 are expected to be settled in 2003, with the exception of European pension and severance obligations which will be paid by the middle of 2004 as well as lease obligations which maywill extend beyond 2003.the second quarter of 2004.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition, as discussed in the Company’s 2002 Form 10-K, there have been integration reserves established relating primarily to the acquisition of Packard BioScience.BioScience (“Packard”). The following table summarizes the activity in this reserve for the first quarter ofthree-month and nine-month periods ended September 28, 2003:
(In millions) | ||||
Accrued integration costs at December 29, 2002 | $ | 8.7 | ||
Amounts paid in Q1 2003 | (0.3 | ) | ||
Accrued integration cost at March 30, 2003 | $ | 8.4 | ||
(In millions) | ||||
Accrued integration costs at December 29, 2002 | $ | 8.7 | ||
Amounts paid | (1.6 | ) | ||
Accrued integration costs at June 29, 2003 | 7.1 | |||
Asset write-downs | (2.9 | ) | ||
Amounts paid | (1.1 | ) | ||
Accrued integration costs at September 28, 2003 | $ | 3.1 | ||
The Company expects these amounts to be paid during the remainder of 2003 with the exception of lease obligations which will extend beyond 2003.
(4) Inventories
Inventories consisted of the following:
March 30, | December 29, | September 28, | December 29, | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Raw materials | $ | 86,492 | $ | 92,319 | $ | 85,029 | $ | 92,319 | ||||||||
Work in progress | 20,957 | 38,841 | 17,809 | 38,841 | ||||||||||||
Finished goods | 98,094 | 74,295 | 96,317 | 74,295 | ||||||||||||
Total Inventories | $ | 205,543 | $ | 205,455 | ||||||||||||
Total inventories | $ | 199,155 | $ | 205,455 | ||||||||||||
(5) Debt
Zero Coupon Convertible Debentures.In 2002, the Company completed a tender offer to purchase any and allrepurchased an aggregate of the$312.1 million of accreted value of its outstanding zero coupon convertible debentures. Thedebentures due 2020 in open market purchases and in a December 2002 tender offer. Under the terms of the Company’s senior secured credit facility, the Company repurchased $205.6 million in
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
aggregate accreted amountwas required to redeem all of itsthe remaining zero coupon convertible debentures in the tender offer. InAugust 2003. During the first quarter of 2003 the Company repurchased an additional $32.5 million of accreted value of its outstanding zero coupon convertible debentures in open market transactions. Undertransactions and redeemed the termsremaining $157.4 million of accreted value of zero coupon debentures on August 7, 2003 in accordance with their terms.
In March 2003, the financial definitions in the Company’s senior secured credit facility were amended to more accurately reflect the Company’s understanding with its lenders.
During the nine months ended September 28, 2003, the Company is required to redeem all of the zero coupon convertible debentures remaining outstanding in August 2003. The Company intends to repurchase all of the remaining $155paid $50 million in aggregate accreted amount at March 30, 2003 of its zero coupon convertible debentures through either or bothterm loan which resulted in $1.1 million of (1) open-market purchases, privately negotiated transactionsaccelerated amortization of debt issuance costs, included in Interest and other repurchases and (2) redemption in accordance with the terms of the zero coupon convertible debentures in August 2003. An amount approximately equal to the accreted value of the outstanding debentures, totaling approximately $155 million, was held in escrow for this purpose as of March 30, 2003. Accordingly, the zero coupon convertible debentures have been reported as a current liability in the consolidated balance sheet at March 30, 2003.Other Expense, Net.
(6) Earnings Per Share
Basic earnings per share was computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings per share was computed by dividing net income (loss) by the weighted-average number of common shares outstanding plus all potentially dilutive common shares outstanding, primarily shares issuable upon the exercise of stock options using the treasury stock method. For the three months ended March 31, 2002, potentially dilutive securities were excluded from the calculation of weighted-average shares outstanding because of their anti-dilutive effect due to the net loss during the period. The following table reconciles the number of shares utilized in the earnings per share calculations:
Three Months Ended | |||||||||
March 30, | March 31, | ||||||||
2003 | 2002 | ||||||||
(In thousands) | |||||||||
Number of common shares — basic | 125,649 | 124,864 | |||||||
Effect of dilutive securities: | |||||||||
Stock options and employee stock purchase plan | 236 | — | |||||||
Restricted stock | 490 | — | |||||||
Number of common shares — diluted | 126,375 | 124,864 | |||||||
(7) Comprehensive Income (Loss)
Comprehensive income (loss) consisted of the following:
Three Months Ended | |||||||||
March 30, | March 31, | ||||||||
2003 | 2002 | ||||||||
(In thousands) | |||||||||
Net income (loss) | $ | 2,362 | $ | (147,360 | ) | ||||
Other comprehensive income (loss): | |||||||||
Foreign currency translation adjustments | 11,324 | (3,995 | ) | ||||||
Unrealized loss on derivatives, net of tax | — | (131 | ) | ||||||
Unrealized gains (losses) on securities, net of tax | 330 | (222 | ) | ||||||
11,654 | (4,348 | ) | |||||||
Comprehensive income (loss) | $ | 14,016 | $ | (151,708 | ) | ||||
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
common shares outstanding, primarily shares issuable upon the exercise of stock options using the treasury stock method:
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 28, | September 29, | September 28, | September 29, | ||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||
Number of common shares — basic | 126,287 | 126,240 | 126,346 | 125,335 | |||||||||||||
Effect of dilutive securities | |||||||||||||||||
Stock options and employee stock purchase plan | 1,277 | 30 | 745 | — | |||||||||||||
Restricted stock | 470 | 505 | 477 | — | |||||||||||||
Number of common shares — diluted | 128,034 | 126,775 | 127,568 | 125,335 | |||||||||||||
Number of potentially dilutive securities excluded from calculation | 8,701 | 16,207 | 11,626 | 11,793 | |||||||||||||
(7) Comprehensive Income (Loss)
Comprehensive income (loss) consisted of the following:
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 28, | September 29, | September 28, | September 29, | ||||||||||||||
2003 | 2002 | 2003 | 2002 | ||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||
Net income (loss) | $ | 14,269 | $ | 7,146 | $ | 25,029 | $ | (149,310 | ) | ||||||||
Other comprehensive income (loss): | |||||||||||||||||
Foreign currency translation adjustments | (2,810 | ) | (8,260 | ) | 38,262 | 17,617 | |||||||||||
Unrealized losses on derivatives, net of tax | — | (585 | ) | — | (1,244 | ) | |||||||||||
Unrealized gains (losses) on securities, net of tax | 153 | (384 | ) | 1,091 | (456 | ) | |||||||||||
(2,657 | ) | (9,229 | ) | 39,353 | 15,917 | ||||||||||||
Comprehensive income (loss) | $ | 11,612 | $ | (2,083 | ) | $ | 64,382 | $ | (133,393 | ) | |||||||
The components of accumulated other comprehensive lossincome (loss) were as follows:
March 30, | December 29, | September 28, | December 29, | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Foreign currency translation adjustments | $ | (15,247 | ) | $ | (26,571 | ) | $ | 11,691 | $ | (26,571 | ) | |||||
Minimum liability of pension | (3,928 | ) | (3,928 | ) | ||||||||||||
Minimum pension liability | (3,928 | ) | (3,928 | ) | ||||||||||||
Unrealized losses on securities | (1,036 | ) | (1,366 | ) | (275 | ) | (1,366 | ) | ||||||||
Accumulated other comprehensive (loss) | $ | (20,211 | ) | $ | (31,865 | ) | ||||||||||
Accumulated other comprehensive income (loss) | $ | 7,488 | $ | (31,865 | ) | |||||||||||
(8) Industry Segment Information
The Company’s continuing operations are classified into four reportable segments which reflectIn the Company’s management and structure under three strategic business units. The four reportable segments are Life Sciences, Analytical Instruments, Optoelectronics and Fluid Sciences. The accounting policiesfourth quarter of the reportable segments are the same as those described in Note 1 of the 2002 Form 10-K. The Company evaluates the performance of its reportable segments based on operating profit. Intersegment sales and transfers are not significant.
Sales and operating profit (loss) by segment for the three months ended March 30, 2003 and March 31, 2002 are shown in the table below:
March 30, | March 31, | |||||||
2003 | 2002 | |||||||
(In thousands) | ||||||||
Life Sciences | ||||||||
Sales | $ | 103,931 | $ | 116,838 | ||||
Operating loss | (421 | ) | (977 | ) | ||||
Analytical Instruments | ||||||||
Sales | 128,269 | 115,472 | ||||||
Operating profit | 12,043 | 8,758 | ||||||
Optoelectronics | ||||||||
Sales | 83,302 | 69,349 | ||||||
Operating profit (loss) | 8,704 | (22,600 | ) | |||||
Fluid Sciences | ||||||||
Sales | 42,947 | 44,634 | ||||||
Operating profit | 2,380 | 3,411 | ||||||
Other | ||||||||
Sales | — | — | ||||||
Operating loss | (3,438 | ) | (3,489 | ) | ||||
Continuing Operations | ||||||||
Sales | $ | 358,449 | $ | 346,293 | ||||
Operating profit (loss) | 19,268 | (14,897 | ) |
(9) Discontinued Operations
During June 2002, the Company approved separateannounced plans to shut downcombine its Telecommunications ComponentLife Sciences and Analytical Instruments businesses into one business, Life and sell its Entertainment Lighting business as part of its continued effortsAnalytical Sciences, with changes to focus on higher growth opportunities. The results of these businesses were previously reported as part of theorganizational
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
strategy, processes and systems expected during 2003. In the second quarter of 2003, the Company executed many of these changes including facility integration, management reporting and systems. Therefore, commencing in the second quarter, the two segments have been aggregated into one reporting segment for financial statement purposes as discrete financial information is only available on a combined basis. The three reportable segments reflect the Company’s management and structure under three strategic business units (“SBUs”). For comparative purposes the Company has disclosed its Life Sciences and Analytical Science segments as one reporting segment for all periods presented.
The accounting policies of the reportable segments are the same as those described in Note 1 of the Company’s 2002 Form 10-K. The Company evaluates the performance of its operating segments based on operating profit. Intersegment sales and transfers are not significant. The operating segments and their principal products and services are:
Life and Analytical Sciences:Provider of drug discovery, genetic screening and environmental and chemical analysis tools and instrumentation used in scientific research and clinical applications and analytical tools employing technologies such as molecular and atomic spectroscopy, high-pressure liquid chromatography, gas chromatography and thermal analysis.
Optoelectronics:Provider of a broad spectrum of digital imaging, sensor and specialty lighting components to customers in a wide variety of industries, including the biomedical, industrial and consumer products markets.
Fluid Sciences:Provider of critical sealing and fluid containment products and services for the aerospace, semiconductor and power generation markets, as well as engine lubricant testing services.
Sales and operating profit (loss) by segment are shown in the table below:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, | September 29, | September 28, | September 29, | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Life & Analytical Sciences | ||||||||||||||||
Sales | $ | 235,085 | $ | 232,867 | $ | 713,317 | $ | 718,074 | ||||||||
Operating profit | 21,312 | 9,556 | 53,611 | 30,264 | ||||||||||||
Optoelectronics | ||||||||||||||||
Sales | 88,114 | 84,349 | 260,807 | 236,472 | ||||||||||||
Operating profit (loss) | 10,862 | 6,164 | 30,654 | (11,654 | ) | |||||||||||
Fluid Sciences | ||||||||||||||||
Sales | 43,886 | 48,795 | 128,534 | 140,854 | ||||||||||||
Operating profit | 5,613 | 5,446 | 11,126 | 12,715 | ||||||||||||
Other | ||||||||||||||||
Sales | — | — | — | — | ||||||||||||
Operating loss | (3,870 | ) | (4,472 | ) | (12,183 | ) | (12,118 | ) | ||||||||
Continuing Operations | ||||||||||||||||
Sales | $ | 367,085 | $ | 366,011 | $ | 1,102,658 | $ | 1,095,400 | ||||||||
Operating profit | 33,917 | 16,694 | 83,208 | 19,207 |
(9) Discontinued Operations
In June 2002, as part of its continued efforts to focus on higher growth opportunities, the Company approved separate plans to shut down its telecommunications component business and sell its entertainment
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
lighting business. The results of these businesses were previously reported as part of the Optoelectronics reporting segment. The Company has accounted for these businesses as discontinued operations in accordance with Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long Lived Assets (“(“SFAS No. 144”), and, accordingly, has presented the results of operations and related cash flows of these businesses as discontinued operations for all periods presented. The assets and liabilities of these disposal groups have been presented separately and are reflected within the assets and liabilities from discontinued operations in the accompanying Consolidated Balance Sheets.
During the nine months ended September 2003, the Company completed the sale of a significant portion of its entertainment lighting business and abandoned the remaining assets. The Company recorded an incremental loss of $2.1 million ($1.5 million net of tax) on this transaction in the second and third quarters of 2003 as a loss on the disposition of discontinued operations.
During June 2002, the Company completed the sale of its Security and Detection Systems business. InDuring the first quarternine months of 2002, the Company accounted for its Security and Detection Systems business as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30,Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions(“APB 30.30”).
Summary operating results of the discontinued operations of the Entertainment Lighting business for the three and nine months ended March 30,September 29, 2003 and the Security and Detection Systems, Entertainment Lighting business and the Telecommunications Component businesses for the three and nine months ended March 31,September 29, 2002, were as follows:
Three Months Ended | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
March 30, | March 31, | September 28, | September 29, | September 28, | September 29, | |||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||
(In thousands) | (In thousands) | (In thousands) | ||||||||||||||||||||||
Sales | $ | 2,100 | $ | 84,681 | $ | — | $ | 2,603 | $ | 5,598 | $ | 117,544 | ||||||||||||
Costs and expenses | 3,534 | 91,264 | — | 4,906 | 8,314 | 131,584 | ||||||||||||||||||
Operating (loss) income from discontinued operations | (1,434 | ) | (6,583 | ) | ||||||||||||||||||||
Other income (expense), net | 5 | (4,113 | ) | |||||||||||||||||||||
Operating loss from discontinued operations | — | (2,303 | ) | (2,716 | ) | (14,040 | ) | |||||||||||||||||
Other (expense) income, net | — | (1,014 | ) | 310 | (6,638 | ) | ||||||||||||||||||
Operating loss from discontinued operations before income taxes | (1,429 | ) | (10,696 | ) | — | (3,317 | ) | (2,406 | ) | (20,678 | ) | |||||||||||||
Benefit for income taxes | (469 | ) | (1,795 | ) | — | (713 | ) | (809 | ) | (4,967 | ) | |||||||||||||
Loss from discontinued operations, net of taxes | $ | (960 | ) | $ | (8,901 | ) | $ | — | $ | (2,604 | ) | $ | (1,597 | ) | $ | (15,711 | ) | |||||||
(10) Stock-Based Compensation
The Company has issued restricted stock to certain employees and has reflected the fair value of these awards as unearned compensation until the restrictions are released and the compensation is earned.
As allowed by SFAS No. 123,Accounting for Stock-Based Compensation, the Company has elected to account for stock-based compensation at intrinsic value with disclosure of the effects of fair value accounting on net income and earnings per share on a pro forma basis. At March 30,September 28, 2003, the Company had three stock-based compensation plans. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost related to stock options is reflected in net income, as all options granted under those plans had an exercise price at least equal to the market value of the underlying common
910
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123.
Three Months Ended | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
March 30, | March 31, | September 28, | September 29, | September 28, | September 29, | |||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||
(In thousands, except per | (In thousands, except | (In thousands, except | ||||||||||||||||||||||||
share data) | per share data) | per share data) | ||||||||||||||||||||||||
Net income (loss) | $ | 2,362 | $ | (147,360 | ) | |||||||||||||||||||||
Net income (loss), as reported | Net income (loss), as reported | $ | 14,269 | $ | 7,146 | $ | 25,029 | $ | (149,310 | ) | ||||||||||||||||
Add: Stock-based employee compensation expense included in net income (loss), net of related tax effects | Add: Stock-based employee compensation expense included in net income (loss), net of related tax effects | 455 | 782 | Add: Stock-based employee compensation expense included in net income (loss), net of related tax effects | 455 | 192 | 1,364 | 1,721 | ||||||||||||||||||
Deduct: Total stock-based employee compensation expense determined under fair market value method for all awards, net of related tax effects | Deduct: Total stock-based employee compensation expense determined under fair market value method for all awards, net of related tax effects | (6,426 | ) | (6,069 | ) | Deduct: Total stock-based employee compensation expense determined under fair market value method for all awards, net of related tax effects | (4,016 | ) | (4,813 | ) | (13,592 | ) | (15,583 | ) | ||||||||||||
Pro forma net loss | $ | (3,609 | ) | $ | (152,647 | ) | ||||||||||||||||||||
Pro forma net income (loss) | Pro forma net income (loss) | $ | 10,708 | $ | 2,525 | $ | 12,801 | $ | (163,172 | ) | ||||||||||||||||
Earnings (loss) per share: | Earnings (loss) per share: | Earnings (loss) per share: | ||||||||||||||||||||||||
Basic — as reported | $ | 0.02 | $ | (1.18 | ) | Basic and Diluted — as reported | $ | 0.11 | $ | 0.06 | $ | 0.20 | $ | (1.19 | ) | |||||||||||
Basic — pro forma | $ | (0.03 | ) | $ | (1.22 | ) | Basic and Diluted — pro forma | $ | 0.08 | $ | 0.02 | $ | 0.10 | $ | (1.30 | ) | ||||||||||
Diluted — as reported | $ | 0.02 | $ | (1.18 | ) | |||||||||||||||||||||
Diluted — pro forma | $ | (0.03 | ) | $ | (1.22 | ) |
(11) Goodwill and Intangible Assets
In accordance with Statement of Financial Accounting Standards No. 142,Goodwill and otherOther Intangible Assets (“(“SFAS No. 142”), the Company is required to test goodwill for impairment at the reporting unit level upon initial adoption and at least annually thereafter. As part of the Company’s on-goingongoing compliance with SFAS No. 142, the Company, assisted by independent valuation consultants, completed its annual assessment of goodwill using a measurement date of January 1, 2003. The results of this annual assessment did not resultresulted in no impairment charge. The adoption of SFAS 142 effective January 1, 2002 resulted in an impairment charge.charge of $117.8 million.
Intangible asset balances at March 30,September 28, 2003 and December 29, 2002 were as follows:
Period Ended | ||||||||||||||||
March 30, | December 29, | September 28, | December 29, | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Patents | $ | 96,468 | $ | 96,342 | $ | 94,795 | $ | 96,342 | ||||||||
Less: Accumulated depreciation | (21,741 | ) | (19,901 | ) | ||||||||||||
Less: Accumulated amortization | (27,274 | ) | (19,901 | ) | ||||||||||||
Net patents | 74,727 | 76,441 | 67,521 | 76,441 | ||||||||||||
Licenses | 45,903 | 46,537 | 48,175 | 46,537 | ||||||||||||
Less: Accumulated depreciation | (7,885 | ) | (7,134 | ) | ||||||||||||
Less: Accumulated amortization | (9,289 | ) | (7,134 | ) | ||||||||||||
Net licenses | 38,018 | 39,403 | 38,886 | 39,403 | ||||||||||||
Core technology | 208,667 | 208,692 | 208,691 | 208,692 | ||||||||||||
Less: Accumulated depreciation | (35,145 | ) | (30,478 | ) | ||||||||||||
Less: Accumulated amortization | (43,123 | ) | (30,478 | ) | ||||||||||||
Net core technology | 173,522 | 178,214 | 165,568 | 178,214 | ||||||||||||
Net amortizable intangible assets | 286,267 | 294,058 | 271,975 | 294,058 | ||||||||||||
Non-amortizable intangible assets | 183,397 | 183,397 | 183,397 | 183,397 | ||||||||||||
Net goodwill | 965,802 | 962,319 | 990,411 | 962,319 | ||||||||||||
Total Intangible Assets | $ | 1,435,466 | $ | 1,439,774 | ||||||||||||
Total intangible assets | $ | 1,445,783 | $ | 1,439,774 | ||||||||||||
1011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(12) Warranty Reserves
The Company provides warranty protection for certain products for periods ranging from one to three years beyond the date of sale. The majority of costs associated with warranty obligations include the replacement of parts and the time of service personnel to respond to repair and replacement requests. A warranty reserve is recorded based upon historical results, supplemented by management’s expectations of future costs. A summary of warranty reserve activity for the quarternine months ended March 30,September 28, 2003 is as follows:
(In thousands) | |||||
Balance at December 29, 2002 | $ | 8,645 | |||
Provision | 4,025 | ||||
Charges | (4,708 | ) | |||
Foreign exchange and other | 415 | ||||
Balance at September 28, 2003 | $ | 8,377 | |||
(13) Taxes
Pursuant to Accounting Principles Board Opinion No. 23,Accounting for Income Taxes — Special Areas(“APB 23”), and related interpretations with respect to corporate earnings permanently reinvested offshore. Pursuant to APB 23, the Company does not accrue tax for the repatriation of its foreign earnings that we considered to be permanently reinvested outside of the United States. As of September 28, 2003, the amount of earnings for which no repatriation tax cost provision has been provided was approximately $400 million.
(14) Guarantor Financial Information
On December 26, 2002, theThe Company issuedhas outstanding $300 million in aggregate principal amount of 8 7/8% Senior Subordinated Notes (the “8 7/88% Notes”) due 2013 by means of an offering memorandum to qualified institutional buyers under Rule 144A promulgated under the Securities Act of 1933, as amended.2013. The Company’s payment obligations under the 8 7/8% Notes are fully and unconditionally guaranteed by some of the Company’s domestic subsidiaries (the “Guarantor Subsidiaries”). Such guarantee is full and unconditional. Separate financial statements of the Guarantor Subsidiaries are not presented because the Company’s management has determined that they would not be material to investors. The following supplemental financial information sets forth, on an unconsolidated basis, income statement, balance sheet and statements of cash flow information for the Company (“Parent Company Only”), for the Guarantor Subsidiaries and for the Company’s other subsidiaries (the “Non-Guarantor Subsidiaries”). The supplemental financial information reflects the investments of the Company
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.
Consolidating Income Statement
Three Months Ended March 30, 2003 | ||||||||||||||||||||
Parent | ||||||||||||||||||||
Company | Guarantor | Non-Guarantor | ||||||||||||||||||
Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Sales | $ | 51,830 | $ | 137,199 | $ | 184,243 | $ | (14,823 | ) | $ | 358,449 | |||||||||
Cost of sales | 40,802 | 82,765 | 110,536 | (14,823 | ) | 219,280 | ||||||||||||||
Selling, general and administrative expenses | 8,486 | 35,339 | 49,054 | — | 92,879 | |||||||||||||||
Research and development expenses | 978 | 12,041 | 7,833 | — | 20,852 | |||||||||||||||
Other operating (income) expense, net | (1,759 | ) | 6,136 | 1,793 | — | 6,170 | ||||||||||||||
Operating income (loss) from continuing operations | 3,323 | 918 | 15,027 | — | 19,268 | |||||||||||||||
Other expenses (income) net | 10,249 | 10,969 | (6,871 | ) | — | 14,347 | ||||||||||||||
(Loss) income from continuing operations before income taxes | (6,926 | ) | (10,051 | ) | 21,898 | — | 4,921 | |||||||||||||
(Benefit) provision for income taxes | (1,180 | ) | (1,744 | ) | 4,523 | — | 1,599 | |||||||||||||
Income (loss) from continuing operations | (5,746 | ) | (8,307 | ) | 17,375 | — | 3,322 | |||||||||||||
Equity earnings (loss) from subsidiaries, net of tax | 9,068 | 17,375 | — | (26,443 | ) | — | ||||||||||||||
Loss from discontinued operations, net of income taxes | (960 | ) | — | — | — | (960 | ) | |||||||||||||
Net income (loss) | $ | 2,362 | $ | 9,068 | $ | 17,375 | $ | (26,443 | ) | $ | 2,362 | |||||||||
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidating Income Statement
Three Months Ended September 28, 2003 | ||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2002 | ||||||||||||||||||||||||||||||||||||||||
Parent | ||||||||||||||||||||||||||||||||||||||||
Parent | Company | Guarantor | Non-Guarantor | |||||||||||||||||||||||||||||||||||||
Company | Guarantor | Non-Guarantor | Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||
Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Sales | $ | 53,652 | $ | 143,186 | $ | 166,460 | $ | (17,005 | ) | $ | 346,293 | $ | 52,505 | $ | 168,359 | $ | 185,379 | $ | (39,158 | ) | $ | 367,085 | ||||||||||||||||||
Cost of sales | 39,325 | 100,984 | 97,259 | (17,005 | ) | 220,563 | 41,550 | 109,488 | 102,665 | (39,158 | ) | 214,545 | ||||||||||||||||||||||||||||
Research and development expenses | 922 | 11,623 | 7,563 | — | 20,108 | |||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 11,508 | 50,651 | 45,584 | (23 | ) | 107,720 | 8,035 | 36,759 | 46,892 | — | 91,686 | |||||||||||||||||||||||||||||
Research and development expenses | 1,067 | 13,314 | 7,426 | — | 21,807 | |||||||||||||||||||||||||||||||||||
Other operating (income) expense, net | 337 | 12,859 | (2,096 | ) | — | 11,100 | 1,589 | 7,353 | (2,113 | ) | — | 6,829 | ||||||||||||||||||||||||||||
Operating income (loss) from continuing operations | 1,415 | (34,622 | ) | 18,287 | 23 | (14,897 | ) | |||||||||||||||||||||||||||||||||
Operating income from continuing operations | 409 | 3,136 | 30,372 | — | 33,917 | |||||||||||||||||||||||||||||||||||
Other expenses (income) net | (2,405 | ) | 14,923 | 1,087 | 23 | 13,628 | 9,059 | 1,805 | 2,423 | — | 13,287 | |||||||||||||||||||||||||||||
(Loss) income from continuing operations before income taxes | 3,820 | (49,545 | ) | 17,200 | — | (28,525 | ) | |||||||||||||||||||||||||||||||||
(Benefit) provision for income taxes | 1,201 | (15,567 | ) | 6,500 | — | (7,866 | ) | |||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes | (8,650 | ) | 1,331 | 27,949 | — | 20,630 | ||||||||||||||||||||||||||||||||||
Provision (benefit) for income taxes | (2,412 | ) | 378 | 8,533 | — | 6,499 | ||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations | 2,619 | (33,978 | ) | 10,700 | — | (20,659 | ) | (6,238 | ) | 953 | 19,416 | — | 14,131 | |||||||||||||||||||||||||||
Equity earnings (loss) from subsidiaries, net of tax | (134,178 | ) | (41,172 | ) | — | 175,350 | — | 20,369 | 19,416 | — | (39,785 | ) | — | |||||||||||||||||||||||||||
Loss from discontinued operations, net of income taxes | (8,901 | ) | — | — | — | (8,901 | ) | |||||||||||||||||||||||||||||||||
Gain from discontinued operations, net of income taxes | 138 | — | — | — | 138 | |||||||||||||||||||||||||||||||||||
Income (loss) before effect of accounting change | (140,460 | ) | (75,150 | ) | 10,700 | 175,350 | (29,560 | ) | ||||||||||||||||||||||||||||||||
Effect of accounting change, net of income taxes | (6,900 | ) | (59,028 | ) | (51,872 | ) | — | (117,800 | ) | |||||||||||||||||||||||||||||||
Net income (loss) | $ | 14,269 | $ | 20,369 | $ | 19,416 | $ | (39,785 | ) | $ | 14,269 | |||||||||||||||||||||||||||||
Net (loss) income | $ | (147,360 | ) | $ | (134,178 | ) | $ | (41,172 | ) | $ | 175,350 | $ | (147,360 | ) | ||||||||||||||||||||||||||
Consolidating Income Statement
Nine Months Ended September 28, 2003 | ||||||||||||||||||||
Parent | ||||||||||||||||||||
Company | Guarantor | Non-Guarantor | ||||||||||||||||||
Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Sales | $ | 157,781 | $ | 459,007 | $ | 563,867 | $ | (77,997 | ) | $ | 1,102,658 | |||||||||
Cost of sales | 124,492 | 287,971 | 323,899 | (77,997 | ) | 658,365 | ||||||||||||||
Research and development expenses | 3,017 | 35,196 | 24,624 | — | 62,837 | |||||||||||||||
Selling, general and administrative expenses | 28,668 | 112,187 | 141,187 | — | 282,042 | |||||||||||||||
Other operating (income) expense, net | 151 | 18,934 | (2,879 | ) | — | 16,206 | ||||||||||||||
Operating income from continuing operations | 1,453 | 4,719 | 77,036 | — | 83,208 | |||||||||||||||
Other expenses net | 18,644 | 15,799 | 7,351 | — | 41,794 | |||||||||||||||
Income (loss) from continuing operations before income taxes | (17,191 | ) | (11,080 | ) | 69,685 | — | 41,414 | |||||||||||||
Provision (benefit) for income taxes | (4,802 | ) | (3,095 | ) | 21,150 | — | 13,253 | |||||||||||||
Income (loss) from continuing operations | (12,389 | ) | (7,985 | ) | 48,535 | — | 28,161 | |||||||||||||
Equity earnings (loss) from subsidiaries, net of tax | 40,550 | 48,535 | — | (89,085 | ) | — | ||||||||||||||
Loss from discontinued operations, net of income taxes | (3,132 | ) | — | — | — | (3,132 | ) | |||||||||||||
Net income (loss) | $ | 25,029 | $ | 40,550 | $ | 48,535 | $ | (89,085 | ) | $ | 25,029 | |||||||||
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidating Income Statement
Three Months Ended September 29, 2002 | ||||||||||||||||||||
Parent | ||||||||||||||||||||
Company | Guarantor | Non-Guarantor | ||||||||||||||||||
Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Sales | $ | 60,623 | $ | 146,838 | $ | 171,607 | $ | (13,057 | ) | $ | 366,011 | |||||||||
Cost of sales | 44,687 | 89,101 | 98,525 | (13,057 | ) | 219,256 | ||||||||||||||
Research and development expenses | 370 | 12,082 | 8,053 | — | 20,505 | |||||||||||||||
Selling, general and administrative expenses | 17,018 | 41,147 | 44,271 | — | 102,436 | |||||||||||||||
Other operating (income) expense, net | 1,602 | 8,094 | (2,576 | ) | — | 7,120 | ||||||||||||||
Operating income (loss) from continuing operations | (3,054 | ) | (3,586 | ) | 23,334 | — | 16,694 | |||||||||||||
Other expenses (income) net | (15,195 | ) | 16,393 | 3,533 | — | 4,731 | ||||||||||||||
Income (loss) from continuing operations before income taxes | 12,141 | (19,979 | ) | 19,801 | — | 11,963 | ||||||||||||||
Provision (benefit) for income taxes | 3,480 | (6,764 | ) | 5,497 | — | 2,213 | ||||||||||||||
Income (loss) from continuing operations | 8,661 | (13,215 | ) | 14,304 | — | 9,750 | ||||||||||||||
Equity earnings (loss) from subsidiaries, net of tax | 1,089 | 14,304 | — | (15,393 | ) | — | ||||||||||||||
Loss from discontinued operations, net of income taxes | (2,604 | ) | — | — | — | (2,604 | ) | |||||||||||||
Net (loss) income | $ | 7,146 | $ | 1,089 | $ | 14,304 | $ | (15,393 | ) | $ | 7,146 | |||||||||
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidating Income Statement
Nine Months Ended September 29, 2002 | ||||||||||||||||||||
Parent | ||||||||||||||||||||
Company | Guarantor | Non-Guarantor | ||||||||||||||||||
Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Sales | $ | 173,741 | $ | 448,048 | $ | 519,491 | $ | (45,880 | ) | $ | 1,095,400 | |||||||||
Cost of sales | 130,375 | 286,156 | 292,366 | (45,880 | ) | 663,017 | ||||||||||||||
Research and development expenses | 2,510 | 38,236 | 24,169 | — | 64,915 | |||||||||||||||
Selling, general and administrative expenses | 34,156 | 144,937 | 143,891 | — | 322,984 | |||||||||||||||
Other operating (income) expense, net | 2,505 | 27,341 | (4,569 | ) | — | 25,277 | ||||||||||||||
Operating income (loss) from continuing operations | 4,195 | (48,622 | ) | 63,634 | — | 19,207 | ||||||||||||||
Other expenses (income) net | (15,171 | ) | 37,756 | 4,197 | — | 26,782 | ||||||||||||||
Income (loss) from continuing operations before income taxes | 19,366 | (86,378 | ) | 59,437 | — | (7,575 | ) | |||||||||||||
Provision (benefit) for income taxes | 5,564 | (25,506 | ) | 17,200 | — | (2,742 | ) | |||||||||||||
Income (loss) from continuing operations | 13,802 | (60,872 | ) | 42,237 | — | (4,833 | ) | |||||||||||||
Equity earnings (loss) from subsidiaries, net of tax | (129,535 | ) | (9,635 | ) | — | 139,170 | — | |||||||||||||
Loss from discontinued operations, net of income taxes | (26,677 | ) | — | — | — | (26,677 | ) | |||||||||||||
Income (loss) before effect of accounting change | (142,410 | ) | (70,507 | ) | 42,237 | 139,170 | (31,510 | ) | ||||||||||||
Effect of accounting change, net of income taxes | (6,900 | ) | (59,028 | ) | (51,872 | ) | — | (117,800 | ) | |||||||||||
Net (loss) income | $ | (149,310 | ) | $ | (129,535 | ) | $ | (9,635 | ) | $ | 139,170 | $ | (149,310 | ) | ||||||
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidating Balance Sheet
March 30, 2003 | September 28, 2003 | |||||||||||||||||||||||||||||||||||||||||||
Parent | Parent | |||||||||||||||||||||||||||||||||||||||||||
Company | Guarantor | Non-Guarantor | Company | Guarantor | Non-Guarantor | |||||||||||||||||||||||||||||||||||||||
Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||
Current assets: | Current assets: | Current assets: | ||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 22,033 | $ | 878 | $ | 106,866 | $ | — | $ | 129,777 | Cash and cash equivalents | $ | 26,079 | $ | 467 | $ | 114,770 | $ | — | $ | 141,316 | |||||||||||||||||||||||
Cash held in escrow | 154,463 | — | — | — | 154,463 | Accounts receivable, net | 18,900 | 53,720 | 191,641 | — | 264,261 | |||||||||||||||||||||||||||||||||
Accounts receivable, net | 31,807 | 44,349 | 195,914 | — | 272,070 | Inventories | 21,546 | 87,904 | 89,705 | — | 199,155 | |||||||||||||||||||||||||||||||||
Inventories | 22,890 | 93,822 | 88,831 | — | 205,543 | Other current assets | 90,301 | 32,438 | 35,047 | — | 157,786 | |||||||||||||||||||||||||||||||||
Other current assets | 92,644 | 33,847 | 27,941 | — | 154,432 | Current assets of discontinued operations | 9,573 | — | — | — | 9,573 | |||||||||||||||||||||||||||||||||
Current assets of discontinued operations | 12,030 | — | — | — | 12,030 | |||||||||||||||||||||||||||||||||||||||
Total current assets | 166,399 | 174,529 | 431,163 | — | 772,091 | |||||||||||||||||||||||||||||||||||||||
Total current assets | 335,867 | 172,896 | 419,552 | — | 928,315 | |||||||||||||||||||||||||||||||||||||||
Property, plant and equipment, net | Property, plant and equipment, net | 35,387 | 168,961 | 93,958 | — | 298,306 | Property, plant and equipment, net | 29,138 | 159,395 | 88,985 | — | 277,518 | ||||||||||||||||||||||||||||||||
Investments | Investments | 8,593 | 1,493 | 2,913 | — | 12,999 | Investments | 8,216 | 1,494 | 1,868 | — | 11,578 | ||||||||||||||||||||||||||||||||
Intangible assets | Intangible assets | 29,881 | 1,111,854 | 293,731 | — | 1,435,466 | Intangible assets | 32,725 | 1,101,912 | 311,146 | — | 1,445,783 | ||||||||||||||||||||||||||||||||
Intercompany receivable/(payable), net | (385,900 | ) | 189,135 | 196,765 | — | — | ||||||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 2,135,634 | 729,430 | — | (2,865,064 | ) | — | ||||||||||||||||||||||||||||||||||||||
Intercompany receivable (payable), net | Intercompany receivable (payable), net | (1,006,330 | ) | 747,939 | 258,391 | — | — | |||||||||||||||||||||||||||||||||||||
Investment in subsidiary | Investment in subsidiary | 2,754,884 | 809,839 | — | (3,564,723 | ) | — | |||||||||||||||||||||||||||||||||||||
Other assets | Other assets | 61,817 | 3,761 | 8,547 | — | 74,125 | Other assets | 67,601 | 2,713 | 9,880 | — | 80,194 | ||||||||||||||||||||||||||||||||
Long-term assets of discontinued operations | Long-term assets of discontinued operations | 3,523 | — | — | — | 3,523 | Long-term assets of discontinued operations | 2,160 | — | — | — | 2,160 | ||||||||||||||||||||||||||||||||
Total assets | $ | 2,224,802 | $ | 2,377,530 | $ | 1,015,466 | $ | (2,865,064 | ) | $ | 2,752,734 | Total assets | $ | 2,054,793 | $ | 2,997,821 | $ | 1,101,433 | $ | (3,564,723 | ) | $ | 2,589,324 | |||||||||||||||||||||
Current liabilities: | Current liabilities: | Current liabilities: | ||||||||||||||||||||||||||||||||||||||||||
Short-term debt | $ | 158,438 | $ | — | $ | 2,628 | $ | — | $ | 161,066 | ||||||||||||||||||||||||||||||||||
Accounts payable | 19,380 | 49,696 | 63,607 | — | 132,683 | Short-term debt | $ | 2,650 | $ | — | $ | 1,941 | $ | — | $ | 4,591 | ||||||||||||||||||||||||||||
Accrued restructuring and integration costs | — | 22,450 | 13,607 | — | 36,057 | Accounts payable | 26,795 | 41,350 | 65,558 | — | 133,703 | |||||||||||||||||||||||||||||||||
Accrued expenses | 142,101 | 69,840 | 84,581 | — | 296,522 | Accrued restructuring and integration costs | — | 16,953 | — | — | 16,953 | |||||||||||||||||||||||||||||||||
Current liabilities of discontinued operations | 1,165 | — | — | — | 1,165 | Accrued expenses | 113,751 | 83,598 | 94,961 | — | 292,310 | |||||||||||||||||||||||||||||||||
Total current liabilities | 321,084 | 141,986 | 164,423 | — | 627,493 | Total current liabilities | 143,196 | 141,901 | 162,460 | — | 447,557 | |||||||||||||||||||||||||||||||||
Long-term debt | Long-term debt | 599,266 | — | 6 | — | 599,272 | Long-term debt | 564,745 | — | — | — | 564,745 | ||||||||||||||||||||||||||||||||
Long-term liabilities | Long-term liabilities | 43,825 | 99,910 | 121,607 | — | 265,342 | Long-term liabilities | 45,985 | 101,036 | 129,134 | — | 276,155 | ||||||||||||||||||||||||||||||||
Long-term liabilities of discontinued operations | Long-term liabilities of discontinued operations | 2,068 | — | — | — | 2,068 | Long-term liabilities of discontinued operations | 2,235 | — | — | — | 2,235 | ||||||||||||||||||||||||||||||||
Total stockholders’ equity | Total stockholders’ equity | 1,258,559 | 2,135,634 | 729,430 | (2,865,064 | ) | 1,258,559 | Total stockholders’ equity | 1,298,632 | 2,754,884 | 809,839 | (3,564,723 | ) | 1,298,632 | ||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 2,224,802 | $ | 2,377,530 | $ | 1,015,466 | $ | (2,865,064 | ) | $ | 2,752,734 | Total liabilities and stockholders’ equity | $ | 2,054,793 | $ | 2,997,821 | $ | 1,101,433 | $ | (3,564,723 | ) | $ | 2,589,324 | ||||||||||||||||||||
1416
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidating Balance Sheet
December 29, 2002 | December 29, 2002 | |||||||||||||||||||||||||||||||||||||||||||
Parent | Parent | |||||||||||||||||||||||||||||||||||||||||||
Company | Guarantor | Non-Guarantor | Company | Guarantor | Non-Guarantor | |||||||||||||||||||||||||||||||||||||||
Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||||
Current assets: | Current assets: | Current assets: | ||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 27,745 | $ | 6,981 | $ | 95,889 | $ | — | $ | 130,615 | Cash and cash equivalents | $ | 27,745 | $ | 6,981 | $ | 95,889 | $ | — | $ | 130,615 | |||||||||||||||||||||||
Cash held in escrow | 186,483 | — | — | — | 186,483 | Cash held in escrow | 186,483 | — | — | — | 186,483 | |||||||||||||||||||||||||||||||||
Accounts receivable, net | 33,188 | 57,486 | 213,973 | — | 304,647 | Accounts receivable, net | 33,188 | 57,486 | 213,973 | — | 304,647 | |||||||||||||||||||||||||||||||||
Inventories | 22,042 | 91,354 | 92,059 | — | 205,455 | Inventories | 22,042 | 91,354 | 92,059 | — | 205,455 | |||||||||||||||||||||||||||||||||
Other current assets | 87,876 | 32,637 | 31,624 | — | 152,137 | Other current assets | 87,876 | 32,637 | 31,624 | — | 152,137 | |||||||||||||||||||||||||||||||||
Current assets of discontinued operations | 12,006 | — | — | — | 12,006 | Current assets of discontinued operations | 12,006 | — | — | — | 12,006 | |||||||||||||||||||||||||||||||||
Total current assets | 369,340 | 188,458 | 433,545 | — | 991,343 | Total current assets | 369,340 | 188,458 | 433,545 | — | 991,343 | |||||||||||||||||||||||||||||||||
Property, plant and equipment, net | Property, plant and equipment, net | 36,760 | 170,183 | 97,079 | — | 304,022 | Property, plant and equipment, net | 36,760 | 170,183 | 97,079 | — | 304,022 | ||||||||||||||||||||||||||||||||
Investments | Investments | 10,485 | 1,494 | 2,319 | — | 14,298 | Investments | 10,485 | 1,494 | 2,319 | — | 14,298 | ||||||||||||||||||||||||||||||||
Intangible assets | Intangible assets | 7,280 | 1,143,243 | 289,251 | — | 1,439,774 | Intangible assets | 27,462 | 1,123,061 | 289,251 | — | 1,439,774 | ||||||||||||||||||||||||||||||||
Intercompany receivable/ (payable), net | (358,144 | ) | 135,482 | 222,662 | — | 0 | ||||||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 2,123,065 | 762,110 | — | (2,885,175 | ) | 0 | ||||||||||||||||||||||||||||||||||||||
Intercompany receivable (payable), net | Intercompany receivable (payable), net | (378,326 | ) | 155,664 | 222,662 | — | — | |||||||||||||||||||||||||||||||||||||
Investment in subsidiary | Investment in subsidiary | 2,123,065 | 762,110 | — | (2,885,175 | ) | — | |||||||||||||||||||||||||||||||||||||
Other assets | Other assets | 67,743 | 5,488 | 10,604 | — | 83,835 | Other assets | 67,743 | 5,488 | 10,604 | — | 83,835 | ||||||||||||||||||||||||||||||||
Long-term assets of discontinued operations | Long-term assets of discontinued operations | 2,967 | — | — | — | 2,967 | Long-term assets of discontinued operations | 2,967 | — | — | — | 2,967 | ||||||||||||||||||||||||||||||||
Total assets | $ | 2,259,496 | $ | 2,406,458 | $ | 1,055,460 | $ | (2,885,175 | ) | $ | 2,836,239 | Total assets | $ | 2,259,496 | $ | 2,406,458 | $ | 1,055,460 | $ | (2,885,175 | ) | $ | 2,836,239 | |||||||||||||||||||||
Current liabilities: | Current liabilities: | Current liabilities: | ||||||||||||||||||||||||||||||||||||||||||
Short-term debt | $ | 189,640 | $ | — | $ | 1,851 | $ | — | $ | 191,491 | Short-term debt | $ | 189,640 | $ | — | $ | 1,851 | $ | — | $ | 191,491 | |||||||||||||||||||||||
Accounts payable | 21,294 | 59,326 | 65,670 | — | 146,290 | Accounts payable | 21,294 | 59,326 | 65,670 | — | 146,290 | |||||||||||||||||||||||||||||||||
Accrued restructuring and integration costs | 3,719 | 22,910 | 14,119 | — | 40,748 | Accrued restructuring and integration costs | 3,719 | 22,910 | 14,119 | — | 40,748 | |||||||||||||||||||||||||||||||||
Accrued expenses | 127,614 | 95,287 | 93,526 | — | 316,427 | Accrued expenses | 127,614 | 95,287 | 93,526 | — | 316,427 | |||||||||||||||||||||||||||||||||
Current liabilities of discontinued operations | 2,718 | — | — | — | 2,718 | Current liabilities of discontinued operations | 2,718 | — | — | — | 2,718 | |||||||||||||||||||||||||||||||||
Total current liabilities | 344,985 | 177,523 | 175,166 | — | 697,674 | Total current liabilities | 344,985 | 177,523 | 175,166 | — | 697,674 | |||||||||||||||||||||||||||||||||
Long-term debt | Long-term debt | 614,053 | — | — | — | 614,053 | Long-term debt | 614,053 | — | — | — | 614,053 | ||||||||||||||||||||||||||||||||
Long-term liabilities | Long-term liabilities | 45,977 | 105,870 | 118,184 | — | 270,031 | Long-term liabilities | 45,977 | 105,870 | 118,184 | — | 270,031 | ||||||||||||||||||||||||||||||||
Long-term liabilities of discontinued operations | Long-term liabilities of discontinued operations | 2,137 | — | — | — | 2,137 | Long-term liabilities of discontinued operations | 2,137 | — | — | — | 2,137 | ||||||||||||||||||||||||||||||||
Total stockholders’ equity | Total stockholders’ equity | 1,252,344 | 2,123,065 | 762,110 | (2,885,175 | ) | 1,252,344 | Total stockholders’ equity | 1,252,344 | 2,123,065 | 762,110 | (2,885,175 | ) | 1,252,344 | ||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 2,259,496 | $ | 2,406,458 | $ | 1,055,460 | $ | (2,884,755 | ) | $ | 2,836,239 | Total liabilities and stockholders’ equity | $ | 2,259,496 | $ | 2,406,458 | $ | 1,055,460 | $ | (2,885,175 | ) | $ | 2,836,239 | ||||||||||||||||||||
1517
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidating Cash Flow Statement
Three Months Ended March 30, 2003 | Nine Months Ended September 28, 2003 | |||||||||||||||||||||||||||||||||||||||||
Parent | Parent | |||||||||||||||||||||||||||||||||||||||||
Company | Guarantor | Non-Guarantor | Company | Guarantor | Non-Guarantor | |||||||||||||||||||||||||||||||||||||
Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||||
Operating Activities | Operating Activities | Operating Activities | ||||||||||||||||||||||||||||||||||||||||
Net cash provided by (used in) continuing operating activities | $ | 17,851 | $ | (4,508 | ) | $ | 9,562 | — | $ | 22,905 | Net cash provided by (used in) continuing operating activities | $ | 71,173 | $ | (688 | ) | $ | 15,250 | $ | — | $ | 85,735 | ||||||||||||||||||||
Net cash provided by discontinued operating activities | 1,164 | — | — | — | 1,164 | Net cash provided by discontinued operating activities | 3,837 | — | — | — | 3,837 | |||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | 19,015 | (4,508 | ) | 9,562 | — | 24,069 | Net cash provided by (used in) operating activities | 75,010 | (688 | ) | 15,250 | — | 89,572 | |||||||||||||||||||||||||||||
Investing Activities | Investing Activities | Investing Activities | ||||||||||||||||||||||||||||||||||||||||
Cash withdrawn from escrow | 32,509 | — | — | — | 32,509 | Cash withdrawn from escrow to pay debt | 187,477 | — | — | — | 187,477 | |||||||||||||||||||||||||||||||
Capital expenditures | (525 | ) | (1,595 | ) | (1,341 | ) | — | (3,461 | ) | Proceeds from dispositions of property, plant & equipment, net | 3,295 | — | — | — | 3,295 | |||||||||||||||||||||||||||
Proceeds from dispositions of businesses | (575 | ) | — | — | — | (575 | ) | Capital expenditures | (907 | ) | (5,826 | ) | (4,461 | ) | — | (11,194 | ) | |||||||||||||||||||||||||
Cost of acquisitions, net of cash acquired | 2,126 | — | — | — | 2,126 | Settlement from dispositions of businesses, net | (846 | ) | — | — | — | (846 | ) | |||||||||||||||||||||||||||||
Proceeds of acquisitions, net of cash acquired | 534 | — | — | — | 534 | |||||||||||||||||||||||||||||||||||||
Net cash (used in) provided by investing activities | 33,535 | (1,595 | ) | (1,341 | ) | — | 30,599 | |||||||||||||||||||||||||||||||||||
Net cash (used in) provided by continuing operations | 189,553 | (5,826 | ) | (4,461 | ) | — | 179,266 | |||||||||||||||||||||||||||||||||||
Net cash provided by discontinued operations investing activities | 1,400 | — | — | — | 1,400 | |||||||||||||||||||||||||||||||||||||
Net cash (used in) provided by investing activities | 190,953 | (5,826 | ) | (4,461 | ) | — | 180,666 | |||||||||||||||||||||||||||||||||||
Financing Activities | Financing Activities | Financing Activities | ||||||||||||||||||||||||||||||||||||||||
Payment of debt issuance costs | (1,725 | ) | — | — | — | (1,725 | ) | |||||||||||||||||||||||||||||||||||
Payment of zero coupon convertible notes | (189,901 | ) | — | — | — | (189,901 | ) | |||||||||||||||||||||||||||||||||||
Payment of indebtedness | (47,509 | ) | — | — | — | (47,509 | ) | Payment of term loan debt | (50,000 | ) | — | — | — | (50,000 | ) | |||||||||||||||||||||||||||
Other debt (decreases) increases | (564 | ) | — | 775 | — | 211 | Increase (decrease) in other debt facilities | (1,827 | ) | — | 90 | — | (1,737 | ) | ||||||||||||||||||||||||||||
Payment of debt issuance costs | (1,356 | ) | — | — | — | (1,356 | ) | Proceeds from issuance of common stock for | 2,355 | — | — | — | 2,355 | |||||||||||||||||||||||||||||
Cash dividends | (8,833 | ) | — | — | — | (8,833 | ) | Cash dividends | (26,531 | ) | — | — | — | (26,531 | ) | |||||||||||||||||||||||||||
Net cash (used in) provided by financing activities | Net cash (used in) provided by financing activities | (58,262 | ) | — | 775 | — | (57,487 | ) | Net cash (used in) provided by financing activities | (267,629 | ) | — | 90 | — | (267,539 | ) | ||||||||||||||||||||||||||
Effect of exchange rates on cash and cash equivalents | Effect of exchange rates on cash and cash equivalents | — | — | 1,981 | — | 1,981 | Effect of exchange rates on cash and cash equivalents | — | — | 8,002 | — | 8,002 | ||||||||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | (5,712 | ) | (6,103 | ) | 10,977 | (838 | ) | Net increase (decrease) in cash and cash equivalents | (1,666 | ) | (6,514 | ) | 18,881 | 10,701 | |||||||||||||||||||||||||||
Cash and cash equivalents, beginning of period | 27,745 | 6,981 | 95,889 | — | 130,615 | |||||||||||||||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 27,745 | 6,981 | 95,889 | — | 130,615 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents, end of period | $ | 22,033 | $ | 878 | $ | 106,866 | $ | 129,777 | ||||||||||||||||||||||||||||||||||
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 26,079 | $ | 467 | $ | 114,770 | $ | — | $ | 141,316 | |||||||||||||||||||||||||||||||
1618
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidating Cash Flow Statement
Three Months Ended March 31, 2002 | |||||||||||||||||||||
Parent | |||||||||||||||||||||
Company | Guarantor | Non-Guarantor | |||||||||||||||||||
Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
(Unaudited) | |||||||||||||||||||||
(In thousands) | |||||||||||||||||||||
Operating Activities | |||||||||||||||||||||
Net cash (used in) provided by continuing operating activities | $ | (69,206 | ) | $ | 6,895 | $ | 28,184 | — | $ | (34,127 | ) | ||||||||||
Net cash provided by discontinued operating activities | 3,039 | — | — | — | 3,039 | ||||||||||||||||
Net cash provided by (used in) operating activities | (66,167 | ) | 6,895 | 28,184 | — | (31,088 | ) | ||||||||||||||
Investing Activities | |||||||||||||||||||||
Capital expenditures | (2,229 | ) | (6,495 | ) | (7,801 | ) | — | (16,525 | ) | ||||||||||||
Settlement of dispositions of businesses | (2,397 | ) | — | — | — | (2,397 | ) | ||||||||||||||
Proceeds from the disposition of property, plant and equipment | — | — | 19,455 | — | 19,455 | ||||||||||||||||
Cost of acquisitions, net of cash acquired | (17,480 | ) | — | — | — | (17,480 | ) | ||||||||||||||
Proceeds from the sale of investments, net | 1,709 | — | — | — | 1,709 | ||||||||||||||||
Net cash (used in) provided by continuing operations from investing activities | (20,397 | ) | (6,495 | ) | 11,654 | (15,238 | ) | ||||||||||||||
Net cash used in discontinued operations investing activities | (3,570 | ) | — | — | — | (3,570 | ) | ||||||||||||||
Net cash (used in) provided by investing activities | (23,967 | ) | (6,495 | ) | 11,654 | (18,808 | ) | ||||||||||||||
Financing Activities | |||||||||||||||||||||
Prepayment of short-term debt | (123,683 | ) | — | — | — | (123,683 | ) | ||||||||||||||
Increase in commercial paper borrowings | 219,000 | — | — | — | 219,000 | ||||||||||||||||
Other debt decreases | (1,646 | ) | — | (3,350 | ) | — | (4,996 | ) | |||||||||||||
Purchases of common stock | (5,804 | ) | — | — | — | (5,804 | ) | ||||||||||||||
Proceeds from issuance of common stock | 6,674 | — | — | — | 6,674 | ||||||||||||||||
Cash dividends | (8,793 | ) | — | — | — | (8,793 | ) | ||||||||||||||
Net cash provided by (used in) financing activities | 85,748 | (3,350 | ) | — | 82,398 | ||||||||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | — | — | (311 | ) | — | (311 | ) | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | (4,386 | ) | 400 | 36,177 | 32,191 | ||||||||||||||||
Cash and cash equivalents, beginning of period | 18,831 | 1,565 | 117,854 | — | 138,250 | ||||||||||||||||
Cash and cash equivalents, end of period | $ | 14,445 | $ | 1,965 | $ | 154,031 | $ | 170,441 | |||||||||||||
Nine Months Ended September 29, 2002 | |||||||||||||||||||||
Parent | |||||||||||||||||||||
Company | Guarantor | Non-Guarantor | |||||||||||||||||||
Only | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
(Unaudited) | |||||||||||||||||||||
(In thousands) | |||||||||||||||||||||
Operating Activities | |||||||||||||||||||||
Net cash provided by (used in) continuing operating activities | $ | 93,965 | $ | 18,001 | $ | (50,004 | ) | $ | — | $ | 61,962 | ||||||||||
Net cash provided by discontinued operating activities | (6,495 | ) | — | — | — | (6,495 | ) | ||||||||||||||
Net cash provided by (used in) operating activities | 87,470 | 18,001 | (50,004 | ) | — | 55,467 | |||||||||||||||
Investing Activities | |||||||||||||||||||||
Capital expenditures | (3,280 | ) | (16,836 | ) | (11,635 | ) | — | (31,751 | ) | ||||||||||||
Proceeds from the dispositions of property, plant and equipment | — | — | 28,342 | — | 28,342 | ||||||||||||||||
Settlement of dispositions of businesses, net | 97,494 | — | — | — | 97,494 | ||||||||||||||||
Cost of acquisitions, net of cash acquired | (39,208 | ) | — | — | — | (39,208 | ) | ||||||||||||||
Proceeds from the sale of investments | 3,242 | — | — | — | 3,242 | ||||||||||||||||
Net cash (used in) provided by continuing operations from investing activities | 58,248 | (16,836 | ) | 16,707 | 58,119 | ||||||||||||||||
Net cash used in discontinued operations investing activities | (5,200 | ) | — | — | — | (5,200 | ) | ||||||||||||||
Net cash (used in) provided by investing activities | 53,048 | (16,836 | ) | 16,707 | 52,919 | ||||||||||||||||
Financing Activities | |||||||||||||||||||||
Prepayment of zero coupon convertible notes | (84,440 | ) | — | — | — | (84,440 | ) | ||||||||||||||
Prepayment of short-term debt | (123,683 | ) | — | — | — | (123,683 | ) | ||||||||||||||
(Decrease) increase in other credit facilities | 70,919 | — | (5,717 | ) | — | 65,202 | |||||||||||||||
Proceeds from issuance of common stock | 10,054 | — | — | — | 10,054 | ||||||||||||||||
Purchases from issuance of common stock | (1,636 | ) | — | — | — | (1,636 | ) | ||||||||||||||
Cash dividends | (26,436 | ) | — | — | — | (26,436 | ) | ||||||||||||||
Net cash used in financing activities | (155,222 | ) | — | (5,717 | ) | — | (160,939 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | 11,852 | — | 11,852 | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (14,704 | ) | 1,165 | (27,162 | ) | (40,701 | ) | ||||||||||||||
Cash and cash equivalents at beginning of period | 18,831 | 1,565 | 117,854 | — | 138,250 | ||||||||||||||||
Cash and cash equivalents at end of period | $ | 4,127 | $ | 2,730 | $ | 90,692 | $ | — | $ | 97,549 | |||||||||||
(14)(15) Recently Issued Accounting Pronouncements
In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-21,Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. EITF Issue No. 00-21 applies to revenue arrangements entered into in the third quarter of 2003
1719
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to use assets.and thereafter. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently evaluating, but has not yet determined the effect that the adoption of EITF Issue No. 00-21 willdid not have a material effect on itsthe Company’s results of operations andor financial condition.
In January 2003, the FASBFinancial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN 46”),Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46, which requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginningending after JuneDecember 15, 2003. The Company has considered the requirements of FIN 46 in respect of its accounts receivable securitization facility and currently does not believe that the adoption of FIN 46 will have a material effect on its results of operations or financial condition.
(15)(16) Contingencies
The Company is subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of its business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company. The Company has established accruals for matters that are probable and reasonably estimable. Management believes that any liability that may ultimately result from the resolution of these matters in excess of amounts providedaccrued will not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
The Company and certain officers have been named as defendants in a class action lawsuit in which the plaintiffs have alleged various statements made by the Company and management were misleading with respect to the Company’s prospects and future operating results. The Company believes it has meritorious defenses to the lawsuitslawsuit and intends to contestis contesting the actionsaction vigorously. The Company is currently unable, however, to reasonably estimate the amount of the loss, if any, that may result from resolution of this matter.
On June 14, 2002 the Company sold its detection systems business to L-3 Communications Corporation (“L-3”). L-3 and certain of its affiliates have been named as defendants in litigation arising out of the terrorist attacks on September 11, 2001. Among the claims in that litigation are allegations that there were defects in the products of the Company’s detection systems business that was sold to L-3. L-3 has asserted that the Company is contractually obligated to indemnify L-3 for any liability it may incur as a result of that litigation. The Company intends to contest these matters vigorously. The Company is currently unable, however, to determine whether resolution of these matters will have a material adverse impact on its financial position or on its consolidated results of operations. Therefore, the Company is unable to reasonably estimate the amount of the loss, if any, that may result from resolution of these matters.
In addition, theThe Company is conducting a number of environmental investigations and remedial actions at current and former Company locations and, along with other companies, has been named a potentially responsible party (PRP) for certain waste disposal sites. The Company accrues for environmental issues in the accounting period thatin which the Company’s responsibility is established and when the cost can be reasonably estimated. The Company hashad accrued $7.0$6.9 million as of March 30,September 28, 2003, representing management’s estimate of the total cost of ultimate disposition of known environmental matters. Such amount is not discounted and does not reflect the recovery of any amounts through insurance or indemnification arrangements. These cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the timeframe over which remediation may occur and the possible effects of changing laws and regulations. For sites where the Company has been named a PRP, management does not currently anticipate any additional liability to result
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
from the inability of other significant named parties to contribute. The Company expects that such accrued amounts could be paid out over a period of up to ten years. As assessments and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had or are expected to have a material effect on the Company’s financial position or results of operations. While it is reasonably possible that a material loss exceeding the amounts recorded may have beenbe incurred, the potential exposure is not expected to be materially different than the amounts recorded.
18 The Company has received Internal Revenue Service (“IRS”) notices asserting federal income tax deficiencies for 1997 and 1998. The Company is challenging many of the deficiencies. The Company believes that the ultimate outcome of the notices will not have a material impact on the consolidated results of operations or financial position of the Company.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Sales |
In JuneSales for the third quarter of 2003 were $367.1 million versus $366.0 million for the third quarter 2002, our Boardan increase of Directors approved a plan$1.1 million or 0.3%. Changes in foreign exchange rates increased sales in the quarter ended September 2003 by approximately 4%. The quarter over quarter increase in sales was also attributable to shut down our Telecommunications Component business and a plan to sell our Entertainment Lighting business as partincreased sales of our continued efforts to focus on higherenvironmental and chemical analysis products and growth opportunities. Both businesses have been reflected as discontinued operations in our consolidated financial statements in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment of Long-Lived Assets,” which we adopted as of the beginning of 2002.
Formation of OurOneSource™ laboratory service business, both served by our Life and Analytical Sciences Businesssegment, and increased sales in the specialty lighting and digital imaging products within our Optoelectronics segment. These increases were offset by decreased sales in the genetic screening and pharmaceutical markets within our Life and Analytical Sciences segment, the sensors market within our Optoelectronics segment, and the aerospace and semiconductor markets within our Fluid Sciences segment. For the nine-month period ended September 28, 2003 sales were $1,102.7 million versus $1,095.4 million for the comparable period in 2002, an increase of $7.3 million or 0.7%. Foreign exchange rates increased sales in the nine-months ended September 28, 2003 by approximately 5%, primarily related to the European currencies. We also experienced period over period sales growth within our digital imaging, sensors and specialty lighting markets within our Optoelectronics segment and the genetic screening, environmental and chemical analysis products and our OneSource™ laboratory service business served by our Life and Analytical Sciences segment offset by decreases in sales in our pharmaceutical markets within our Life and Analytical Sciences segment and our aerospace and semiconductor markets within our Fluid Sciences segment.Cost of Sales
Cost of sales for the third quarter of 2003 was $214.5 million versus $219.3 million for the third quarter 2002, a decrease of $4.7 million or 2%. As a percentage of sales, cost of sales decreased to 58% in the third quarter of 2003 from 60% in the third quarter of 2002, resulting in an increase in gross margin for the third quarter 2003 as compared to the third quarter 2002. The third quarter gross margin increase, when compared to the third quarter of 2002, was due primarily to improved factory performance and cost productivity associated with headcount reductions. For the nine-month period ended September 28, 2003 cost of sales were $658.4 million versus $663.0 million for the comparable period of 2002, a decrease of $4.7 million or 0.7%. As a percentage of sales, cost of sales decreased to 60% for the nine-month period in 2003 versus 61% for the nine-month period in 2002. The increase in gross margin for the nine-month period was attributable to a $17.2 million inventory adjustment recorded in the first quarter of 2002 within our Optoelectronics segment and improved factory performance and cost productivity associated with headcount and facility reductions in our Life and Analytical Sciences and Optoelectronics segment in the third quarter of 2003. These increases were partially offset in the first and second quarters of 2003 by a shift in product mix to sales of lower margin products and lower capacity utilization in our Life and Analytical Sciences segment.
Research and Development Expenses |
Research and development expenses for the third quarter of 2003 were $20.1 million versus $20.5 million in the third quarter of 2002. For the nine-months ended September 28, 2003, research and development expenses were $62.8 million versus $64.9 million for the comparable period in 2002. As a percentage of sales, research and development expenses have remained at 6% for all periods. We directed research and development efforts during all of these periods primarily toward genetic screening and biopharmaceutical end markets within our Life and Analytical Sciences reporting segment and medical digital imaging and industrial sensors within our Optoelectronics. We expect to continue to direct our research and development effort with an emphasis on the health sciences end markets.
22
Selling, General and Administrative Expenses |
Selling, general and administrative expenses for the third quarter of 2003 were $91.7 million versus $102.4 million for the third quarter of 2002, a decrease of $10.8 million, or 10%. As a percentage of sales, selling, general and administrative expenses decreased to 25% in the third quarter of 2003 from 28% in the third quarter of 2002. For the nine-months ended September 28, 2003, selling, general and administrative expenses were $282.0 million versus $323.0 million for the comparable period in 2002, representing a decrease of $40.9 million, or 13%. As a percentage of sales, selling, general and administrative expenses decreased to 26% for the nine-month period in 2003 versus 29% for the nine-month period in 2002. The decreases in both 2003 periods were due primarily to cost savings from headcount reductions resulting from our Life and Analytical Sciences integration and increased focus on cost controls throughout the Company in 2003, offset in part by increased foreign selling, general and administrative expenses attributable to foreign exchange rates. The decrease in selling, general and administrative expenses for the nine months ended September 28, 2003, as compared to the comparable period in 2002, also reflects approximately $3.2 million in integration charges recorded in the first quarter of 2002 related to our acquisition of Packard Bioscience Company in November 2001 for which there was no corresponding charge during the 2003 period.
Restructuring (Reversals) Charges, Net |
During the fourth quarter of 2002, we combined our Life Sciences and Analytical Instruments business units into a new integrated business named Life and Analytical Sciences. We combined our Life Sciences and Analytical Instruments businesses to improve our operational scale, which we believe will enable us to better serve our customers and more fully capitalize on the strengths of the businesses’ sales, service and research and development organizations. Our Life and Analytical Sciences business unit continues to comprise two reporting segments for the periods presented in this quarterly report on Form 10-Q. In connection with the formation of our Life and Analytical Sciences business unit and expected near-term pressure on capital expenditures within certain key end markets,segment, we recorded in 2002 a $26.0 million restructuring charge to reflect workforce reductions, facility closures and contract terminations thatterminations.
In the third quarter of 2003, we expectrecorded a net restructuring charge of $0.2 million. This net charge is made up of $0.5 million in incremental severance recorded in connection with our 2003 Restructuring Plan for our Life and Analytical Sciences segment offset by a $0.3 million reversal relating to make. the Fluid Sciences 2002 Restructuring Plan for slight changes in the restructuring plan resulting in less than expected headcount reductions and lower severance costs.
For the nine months ended September 2003, we had a net restructuring reversal of approximately $3.0 million. The majority of this net reversal was a result of a reversal of $5.8 million in the 2002 Restructuring Plan and was due to lower than expected severance payments. This reversal was offset by $0.6 million in higher than anticipated charges relating to the 2001 Restructuring Plan and $2.2 million in new charges associated with the 2003 Restructuring Plan.
We expect manya majority of theseour remaining planned restructuring actions towill occur over the remainder of 2003. The combination2003 with the exception of these businessesour European severance obligations that will require changes to our organizational structure, processes and systems during 2003. We are targeting annualized pre-tax cost savings frombe paid by the combination of between $30.0 million and $45.0 million beginning in 2004, with interim pre-tax cost savings of between $12.0 million and $25.0 million in 2003. We cannot assure you that we will achieve any of these cost savings.
Discussion of Consolidated Results of Continuing Operations
Sales for the firstsecond quarter of 2003 were $358.5 million versus $346.3 million for2004 and a number of lease obligations that will extend beyond the firstsecond quarter of 2002, an increase of $12.2 million or 4%. The increase in first quarter of 2003 over the first quarter of 2002 was due primarily to the increase in sales within certain key end markets and favorable changes in foreign exchange rates related primarily to the European currencies. Key end markets contributing to the quarter over quarter increase included the digital imaging, sensors and ultra-specialty lighting markets within our Optoelectronics reporting segment, environmental applications and pharmaceutical QA/ QC served by our Analytical Instruments reporting segment and genetic screening within our Life Sciences reporting segment. These increases were partially offset by decreased sales within the pharmaceutical research and development markets within our Life Sciences reporting segment and decreased sales to the aerospace market within our Fluid Sciences reporting segment.
Cost of sales for the first quarter of 2003 was $219.3 million versus $220.6 million for the first quarter 2002, a decrease of $1.3 million or 0.6%. As a percentage of sales, cost of sales decreased to 61% in 2003 from 64% in the 2002. The first quarter of 2002 included a $17.0 million inventory adjustment within our Optoelectronics business and $1.5 million related to the amortization of the write-up associated with Packard inventory. Factors that adversely affected first quarter of 2003 margins in comparison with to the first quarter of 2002 include unfavorable changes in product mix from the sale of lower margin instruments and decreased production and lower capacity utilization as a result of lower sales volume in our Life Sciences business leading to unabsorbed manufacturing overhead expenses during the quarter.
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Research and development expenses for the first quarter of 2003 were $20.9 million versus $21.8 million in the first quarter 2002, a decrease of approximately $1.0 million or 4%. As a percentage of sales, research and development expenses remained unchanged at approximately 6% in the first quarter of 2003 from the first quarter of 2002. We directed research and development efforts during both periods primarily toward drug discovery tools and genetic screening applications as well as biopharmaceutical end markets within the Life Sciences and Analytical Instruments reporting segments and biomedical end markets within the Optoelectronics reporting segment.2004. We expect to continue to direct our research and development effort towardsmake all cash payments with available cash. A rollforward of the health sciences end markets.
Selling, general and administrative expenses for the first quarter of 2003 were $92.9 million versus $107.7 million for the first quarter of 2002, a decrease of $14.8 million or 14%. As a percentage of sales, selling, general and administrative expenses decreased to 26%reserve activity can be found in the first quarter of 2003 from 31% in the first quarter of 2002. The decrease was primarily driven by headcount reductions and increased focus on cost controls in fiscal 2003. First quarter of 2002 also included approximately $3.2 million in integration charges relatednotes to the Packard acquisition.our condensed consolidated financial statements.
Gains on Dispositions |
Gains on dispositions resulted in a net gain of $0.6 million inDuring the firstthird quarter of 2003, versuswe recognized a net$0.4 million previously deferred gain from a transaction on the sale of $5.2 million ina business. During the first quarter of 2002. Gains on dispositions in the first quarter ofnine months ended September 28, 2003, includedwe recognized a $0.3$1.4 million net gain from the sales of buildings, a $0.4 million net gain from a residual transaction on the sale of a building,business and a previously deferred $0.3 million gain from the sale of a business previously deferred. Gainsseparate business. We did not recognize any gains on dispositions inwithin continuing operations during the firstthird quarter of 2002. During the nine month period ended September 29, 2002, includedwe sold three buildings that resulted in a net gain of $4.4 million from sales of facilities and recognized $0.8 million in previously deferred gains from post closing adjustments relating to thea sale of our Instruments for Research and Applied Sciences business, formerly part of our Analytical Instruments reporting segment.a business.
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Other expense, net forDuring the first quarter 2003 was $14.3three and nine-month periods ended September 29, 2002 we recognized a $6.7 million versus $13.6gain realized on the repurchase of a portion of our zero coupon convertible debentures. In addition, during the nine-month period ended September 29, 2002 we recorded $5.5 million for the first quarter 2002, an increase of $0.7 million or 5%. The increase in other expense, net was due to increased interest expense related primarily to higher interest rates associated with our debt restructuring in December 2002, offset by expenses in the first quarter of 2002 associated with our early redemption of the $118 million in aggregate principal amount of senior subordinated notes that we assumed in our acquisition of Packard, BioScience Company. Other expense primarily includes our financing related costs.which was completed in the first quarter of 2002
Interest and other expense, net for the third quarter of 2003 was $13.3 million versus $11.5 million for the third quarter of 2002, an increase of $1.8 million or approximately 15%. The increase in the third quarter of 2003 was due primarily to increased interest expense totaling $11.9 million in 2003 versus $6.9 million in the third quarter of 2002 driven by higher average borrowing rates due to new debt financing completed in December of 2002, a write-down of an equity investment of $0.5 million and the acceleration in the amortization of debt issuance costs of $0.4 million as a result of a partial prepayment of our term debt during the third quarter of 2003. These increases were offset by the inclusion in the three months ended September 2002 of a $2.3 million charge for previously capitalized expenses recorded in connection with disposal activities associated with our Fluid Science business.
For the nine-months ended September 28, 2003 interest and other expense, net was $41.8 million versus $28.0 million for the comparable period in 2002, representing an increase of $13.8 million or 49%. The increase in interest and other expense, net for the first nine months of 2003 was primarily due to increased interest expense totaling $38.3 million in 2003, versus $21.9 million in the nine months ended September 2002, driven by higher average borrowing rates due to new debt financing completed in December of 2002 and the acceleration in the amortization of debt issuance costs of $1.1 million as a result of a partial prepayment of our term debt during 2003, offset in part by gains in foreign exchange transactions.
Provision/ Benefit for Income Taxes |
The provision for income taxes was $1.6$6.5 million for the firstthird quarter of 2003 versus $2.2 million for the third quarter of 2002. The provision for income taxes was $13.3 million for the nine-month period ended September 28, 2003 versus a benefit of $7.9$2.7 million for the first quarter ofnine-month period ended September 29, 2002. The effective tax rate was 32.5%32.0% during the first quarter ornine month period ended September 28, 2003 compared to a rate or 28%of 36.2% in the first quarter ofnine-month period ended September 29, 2002. The differencechange in the year to date effective tax rate is primarily attributablerates resulted from differing geographic patterns of earnings, the relative impact of permanent book-tax differences and other tax attributes and the lower 2002 profit before tax.
Pursuant to changes in taxable income recognized inAccounting Principles Board Opinion No. 23,Accounting for Income Taxes — Special Areas, the variousCompany does not accrue tax jurisdictions infor the repatriation of its foreign earnings that we considered to be permanently reinvested outside of the United States. As of September 29, 2003, the amount of earnings for which we operate.
Effect of Accounting Changeno repatriation tax cost provision has been made was approximately $400 million.Effect of Accounting Change
We adopted SFAS No. 142 as of the beginning of fiscal 2002 and have accordingly ceased the amortization of goodwill and indefinite-lived intangible assets. During the second quarter of 2002, we completed our transitional implementation of the impairment of the testing provisions of SFAS No. 142, which resulted in a $117.8 million after-tax charge for goodwill associated with the lighting reporting unit within our Optoelectronics business unit. In accordance with the provisions of SFAS No. 142, we have takenreported this charge as the effect of an accounting change as of the beginning of fiscal 2002. In addition, as part of our on-goingon going compliance with SFAS No. 142 we assisted by our independent valuation consultants, completed our annual assessment of goodwill using a measurement date of January 1, 2003. The results of thisThis annual assessment did not result in an impairment charge.
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Reporting Segment Results of Continuing Operations
In the fourth quarter of 2002, we announced plans to combine our Life Sciences and Analytical Instruments businesses into one business, Life and Analytical Sciences, with changes to organizational strategy, processes and systems expected during 2003. In the second quarter of 2003, we executed many of these changes, including the integration of facilities, management reporting and systems integration. The two segments have now been aggregated into one reporting segment for financial statement purposes as discrete financial information is now only available on a combined basis. For comparative purposes we have disclosed our Life Sciences and Analytical Science business as one reporting segment for all periods presented.
WeAs discussed earlier, we report our continuing operations as four reportingthree segments, reflecting our management methodology and structure. OurWe have reflected our Security and Detection Systems business, previously reported as part of our Life and Analytical Instruments reportingSciences segment, and our Telecommunications Component business, have been reflected as a discontinued operation in our consolidated financial statements for the first quarter ofthree and nine-months ended September 29, 2002, prior to their sale and abandonment in June 2002,we have reflected our Telecommunications Component business and Entertainment Lighting business, previously reported as part of our Optoelectronics reporting segment, has been reflected as discontinued operations in our consolidated financial statements for all periods presented. We sold our Security Detection Systems business and abandoned our Telecommunications Component business in June 2002. We sold a substantial portion and abandoned the first quarterremaining assets of 2003 and the first quarter of 2002.our Entertainment Lighting business in June 2003. The accounting policies of our reporting segments are the same as those described in our 2002annual report on Form 10-K.10-K for the fiscal year ended December 29, 2002. We evaluate performance based on profitability of the respective reporting segments. The discussion that followsFollowing is a summary analysis of the material changes in operating results by reporting segment for the three months and nine months ended March 30,September 28, 2003 versus the three monthscomparable periods ended March 31,September 29, 2002.
Life and Analytical Sciences |
Sales for the firstthird quarter of 2003 were $103.9$235.1 million versus $116.8$232.9 million for the firstthird quarter of 2002, a decreaserepresenting an increase of $12.9$2.2 million or 11%1.0%. Revenue for the first quarter decreased comparedChanges in foreign exchange rates primarily related to the firstEuropean currencies increased sales by approximately 4%. The quarter last year primarily dueover quarter increase in sales was also attributable to the declineincreased sales of our environmental and chemical analysis products and growth in our OneSource laboratory service business. These were offset by declines in sales of genetic screening, due to timing of orders, and drug discovery, instruments due to softness within the pharmaceutical research and development end markets. This decline wasFor the nine-month period ended September 28, 2003 sales were $713.3 million versus $718.1 million for comparable period in 2002, representing a decrease of $4.8 million or 0.7%. The decrease in the nine month period ended September 28, 2003 as compared to the nine month period ended September 29, 2002 were primarily due to declines in sales of drug discovery business due to softness within the pharmaceutical research and development end markets. These declines were partially offset by the continued strengthincreased sales in our genetic screening, environmental and chemical products and growth of our OneSource laboratory service business growth in our reagents sales and by favorable changes in the foreign exchange rates, which increased sales by approximately 5%, primarily related primarily to the European currencies.
Operating lossprofit for the firstthird quarter of 2003 was $0.4$21.3 million versus a lossan operating profit of $1.0$9.6 million for the firstthird quarter 2002.of 2002, representing an increase of $11.8 million or 123%. The quarter over quarter decrease in operating lossincrease reflects the effect of cost savings associated with the integration of our Life Sciences and Analytical Instruments businesses primarily due to headcount and facility reduction, increased cost controls and higher prices. Amortization of intangibles was attributable to lower selling, general and administrative expense in$6.5 million for the firstthird quarter of 2003 versus $6.6 million for the third quarter of 2002.
Operating profit for the nine months ended September 28, 2003 was $53.6 million versus an operating profit of $30.3 million for the nine months ended September 29, 2002, representing an increase of $23.3 million or 77%. The period over period increase in operating profit was primarily due to currentthe effect of cost savings associated with the integration of our Life Sciences and prior yearAnalytical Instruments businesses primarily due to headcount and facility reductions, increased cost controls and higher prices and the inclusion in the nine months ended September 29, 2002 of $5.5 million in restructuring integration and reorganization-related activities, offsetcharges compared to some extent by reduced profits on lower sales and lower margin productsa $2.1 million benefit in 2003. Amortization of intangibles was $5.3 million and $5.5 million in the first quarter of 2003 and 2002, respectively.
Sales for the first quarter 2003 were $128.3 million versus $115.5$19.5 million for the first quarter 2002, an increase of $12.8 million or 11%. Sales for the first quarter ofnine months ended September 28, 2003 increased compared to the first quarter last year primarily due to an increase in product sales for environmental applications and pharmaceutical QA/ QC and favorable changes in foreign exchange rates related primarily to the European currencies.
Operating profit for the first quarter of 2003 was $12.0 million versus $8.8$19.6 million for the first quarter 2002, an increase of $3.2 million or 36%. The quarter over quarter increase reflects increased profit from higher sales volume, favorable changes in foreign exchange rates and lower selling, general and administrative expense in the first quarter of 2003 due to current and prior year restructuring, integration and reorganization-related activities. Amortization of intangibles was $1.1 million in both the first quarter of 2003 andnine months ended September 29, 2002.
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Optoelectronics |
Sales for the firstthird quarter of 2003 were $83.3$88.1 million versus $69.3$84.3 million for the firstthird quarter of 2002, representing an increase of $14.0$3.8 million or 20%4.5%. The increase in sales in the first quarter 2003 was primarily due primarily to increased sales to the biomedical and industrial end markets ofin our digital imaging and specialty lighting products offset by a decline in sales in our sensors business. For the nine-month period ended September 28, 2003 sales were $260.8 million versus $236.5 million for comparable period in 2002, representing an increase of $24.3 million, or 10.3%. The increases in sales were primarily due to increased sales in major product lines, including digital imaging and lighting products.specialty lighting.
Operating profit for the firstthird quarter of 2003 was $8.7$10.9 million versus an operating profit of $6.2 million for the third quarter 2002, representing an increase of $4.7 million or 76%. The quarter over quarter increase in operating profit was primarily due to increased sales and the associated higher production capacity utilization as well as improved factory performance and the effects of headcount reductions and cost controls. Amortization of intangibles was $0.3 million for the third quarter of both 2003 and 2002.
Operating profit for the nine-month period ended September 28, 2003 was $30.7 million versus an operating loss of $22.6$11.7 million for first quarter ofthe nine months ended September 29, 2002, representing an increase of $31.3 million or 139%.$42.4 million. The increase in operating profit in the nine-month period ended September 28, 2003, as compared to the comparable period in 2002, was primarily due primarily to increased sales, higher production capacity utilization, the impacteffects of headcount reductions and cost controls and the inclusion in the 2002 period of a $17.0$17.2 million inventory adjustment taken in the first quarter 2002. Amortization of intangibles was $0.3$0.9 million in both the first quarter ofnine months ended September 28, 2003 andversus $1.0 million in the nine months ended September 29, 2002.
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Fluid Sciences |
Sales for the firstthird quarter of 2003 were $ 42.9$43.9 million versus $44.6$48.8 million for the firstthird quarter of 2002, representing a decrease of $1.7$4.9 million or 4%10%. For the nine-month period ended September 28, 2003, sales were $128.5 million versus $140.9 million for comparable period in 2002, representing a decrease of $12.3 million or 8.7%. The decrease in sales wasthe three-month and nine-month periods ended September 28, 2003 and September 29, 2002 were primarily due to declines in sales to the aerospace end and lubricant testing markets, offset by growth in the semiconductor assembly business.markets.
Operating profit for the firstthird quarter of 2003 was $2.4$5.6 million versus $3.4an operating profit of $5.4 million for the firstthird quarter of 2002, representing an increase of $0.2 million or 3.1%. The increase in operating profit in the three-month period ended September 2003, as compared to the comparable period in 2002, was due primarily to the effect of cost cutting and productivity measures including production movement to Asia.
For the nine months ended September 28, 2003, operating profit was $11.1 million versus an operating profit of $12.7 million for the nine months ended September 29, 2002, representing a decrease of $1.0$1.6 million or 30%12.5%. The decrease in operating profit in the nine month period ended September 28, 2003, as compared to the comparable period in 2002, was due primarily to the overall decline in sales and a shift in product mix to lower product margin mixproducts in the semiconductor assembly business offset in part, by the inclusion in the first quarter 2002 of start up costs associated with our operations in AsiaAsia. Amortization of intangibles was $0.2 million in each of the first quarter ofquarters ended September 2003 and 2002. Amortization of intangibles was $0.4 million and $0.2$0.9 million in the first quarter ofnine months ended September 28, 2003 and 2002, respectively.$0.6 million in the nine months ended September 29, 2002.
Liquidity and Capital Resources
WeAs a result of our focus on cash flow and debt repayment, we have been able to both increase our cash flow and reduce our debt levels in the nine-months ended September 28, 2003. These actions have allowed us to improve our overall liquidity. However, we require cash to pay our operating expenses, make capital expenditures and service our debt and other long-term liabilities. Our principal sources of funds are from our operations and the capital markets, particularly the debt markets. In the near term,near-term, we anticipate that our operations will continue to generate sufficientmore than enough cash to fund our operating expenses, capital expenditures and interest payments on our debt. Excess cash flow beyond our operating needs will be used for
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Principal factors that could affect the availability of our internally generated funds include:
• | deterioration of sales | |
• | changes in | |
• | our ability to repatriate cash balances, if necessary, from our foreign subsidiaries in a cost |
Principal factors that could affect our ability to obtain cash from external sources include:
• | financial covenants contained in our borrowing arrangements, | |
• | a ratings downgrade, which would limit our ability to borrow under our accounts receivable facility and our overall access to the corporate debt market, and | |
• | volatility in the markets for corporate debt. |
Operating Activities.Net cash generated by continuing operations operating activities was $22.9$85.4 million infor the first quarter ofnine months ended September 28 2003 versus net cash usedgenerated by continuing operations operating activities of $34.1$62.0 million during the comparable period in 2002. The increase of $23.4 million in net cash generated by continuing operations operating activities for the first quarter of 2002. The quarter over quarter increasenine-month period ended September 29, 2003 as compared to the nine-month period ended September 29, 2002 was primarily attributabledue to our net income fromincreased profitability of operations, coupled with significant incremental collections ofbetter accounts receivable and lower accrued restructuring costs and other expenses.
Contributing to the generationmanagement including increases resulting from use of cash from operating activities in the first quarter was a decrease in working capital, which includes accounts receivable, inventory and accounts payable, of $24 million, including our obligations under our accounts receivable securitization facility and the favorable changea reduction in foreign exchange rates. Non-cash items contributing to the net cash generated during the quarter primarily consisted of $18.8 millionrestructuring payments offset by negative inventory, accounts payable movements and a large tax refund received in depreciation and amortization charges and $2.4 million in amortization of deferred debt discount and issuance costs. Cash outlays for accrued expenses and restructuring costs totaled $25.7 million during the first quarter of 2003, primarily as the result of payments toward restructuring plans, the timing of tax payments and payroll and other obligations.2002.
Investing Activities.In the first quarter ofnine months ended September 28, 2003, our investing activities provided $30.6we withdrew $187.5 million of cash including $32.5 million of cash withdrawn from escrow to repay debt to retire a portionin connection with the retirement of our outstanding zero coupon convertible debentures. In the first quarternine months of 2003, we also made capital expenditures of $3.5$11.2 million, mainly in the areas of tooling and process improvementproductivity improvements along with system and facility costs related to integration activities. Capital expenditures for the drug discovery tools business and other products for biopharmaceutical applications. We also received $2.1 million of net proceeds associated with acquisitions relatednine-month period ended September 29, 2002 were $31.8 million. The decrease in capital expenditures in 2003 period was due primarily to a tax refundsignificant decrease during 2003 of both facilities relocations and information technology system upgrades. In addition, during the six months ended June 29, 2003 we sold a building made redundant due to integration activities for cash proceeds of $3.3 million. We anticipate that our capital expenditure activity in connection withthe fourth quarter of 2003 will be similar to our 2001 acquisitionactivity in the first three quarters of Packard.the year, but this is dependent on economic conditions.
Financing Activities.In the nine months ended September 28 2003, we used $187.5 million of cash withdrawn from an escrow account along with approximately $2.4 million of available cash to pay off our outstanding zero coupon convertible debentures. Debt reductions in the first quarternine months of 2003 our financing activities used $57.5 million of cash. Included in this amount is $32.5also included $50.0 million of cash used to prepay a portion of our outstanding zero coupon convertible debentures for which we have approximately $155 million of cash remaining in escrow at March 30, 2003. Debt reductions in the first quarter of 2003 also included $15.0 million of cash used to repay a
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Borrowing Arrangements |
Senior Secured Credit Facility.In 2002, we entered into a new senior credit facility. This facility comprisescomprising a six-year term loan in the amount of $315.0 million and a $100.0 million five-year revolving credit facility. During the nine month period ended September 28, 2003 we paid $50 million of the term loan. This credit facility is secured primarily by a substantial portion of our and our subsidiaries’ domestic assets.
The interest rates under the senior credit facility applicable to the term loan and to the revolving credit facility are determined asequal to a rate calculated by adding a margin overto either the Eurodollar rate or thea base rate. The base rate, that is the higher of (1) the corporate base rate announced from time to time by Bank of America, N.A. and (2) the Federal Funds rate plus 50 basis points. The applicable margin for the term loan is 400 basis points for the Eurodollar rate and 300 basis points for the base rate. The applicable marginmargins for the term loan and revolving credit facility is are
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Our senior credit facility contains covenants that require us to maintain specific financial ratios, including:
• | a minimum interest coverage ratio, | |
• | a minimum fixed charge coverage ratio, | |
• | a maximum senior leverage ratio, and | |
• | a maximum total leverage ratio. |
As of March 2003, we amended the financial definitions in our senior credit facility to more accurately reflect our understanding with the lenders. As of March 30,September 28, 2003, we were in compliance with all applicable covenants.
8 7/8% Notes. In 2002, we issued and sold ten-yearWe have outstanding $300.0 million in aggregate principal amount of our 8 7/8% senior subordinated notes. The notes, at a rate of 8 7/8% with a face value of $300.0 million. We received $297.5 million in gross proceeds from the issuance. The debt, which maturesmature in January 2013, isare unsecured, but isare guaranteed by substantially all of our domestic subsidiaries. Interest on our 8 7/8%these notes is payable semi-annually on January 15 and July 15, beginning July 15, 2003. If a change of control occurs, each holder of 8 7/8% notes may require us to repurchase some or all of its notes at a purchase price equal to 101% of the principal amount of the notes, plus accrued interest. Before January 15, 2006, we may redeem up to 35% of the aggregate principal amount of our 8 7/8% notes with the net proceeds of specified public equity offerings at 108.875% of the principal amount of the notes, plus accrued interest, if at least 65% of the aggregate principal amount of the notes remains outstanding after the redemption. We may redeem some or all of our 8 7/8% notes at any time on or after January 15, 2008, at a redemption price of 104.438%. The redemption price decreases to 102.958% on January 15, 2009, to 101.479% on January 15, 2010 and to 100% on January 15, 2011. The debt is subordinated to our new senior credit facility and other existing and future senior subordinated indebtedness. Our 8 7/8% notes contain financial and other covenants. Most of these covenants terminate if the notes obtain an investment grade rating by Standard & Poor’s Rating Services and Moody’s Investors Service. At March 30,As of September 28, 2003, we were in compliance with all applicable covenants.
Zero Coupon Convertible Debentures.During 2002, we repurchased $106.5$344.7 million in accreted amount of our zero coupon convertible debentures due 2020 in open market transactions, recognizingpurchases and through a gain of $8.4 million in the process. As part of our December 2002 debt refinancing transactions, we commenced an offertender offer. We redeemed the remaining $157.4 million on August 7, 2003 in accordance with their terms. We used approximately $155.0 million held in escrow pursuant to purchase any and all of our existing zero coupon convertible debentures. In December 2002, we completed the tender offer and repurchased $205.6 million in aggregate accreted amount of the issue. In the first quarter of 2003, the
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6.8% Notes.As part of our 2002 debt refinancing transactions, we initiated a tender offer for all of theour outstanding 6.8% notes. In December 2002, we had completed the tender offer and repurchased all but $4.7 million of these notes. We paid consent payments pursuant to a consent solicitation we made concurrently with the tender offer. The consent solicitation eliminated substantially all of the restrictive covenants contained in the indenture governing our 6.8% notes. We may from time to time repurchase outstanding 6.8% notes through open market purchases, privately negotiated transactions or otherwise.
Receivables Securitization Facility |
In December 2001, we established a wholly owned consolidated subsidiary to purchase, on a revolving basis, certain of our accounts receivable balances and simultaneously sell an undivided interest in this pool of
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Dividends |
Our Board of Directors declared regular quarterly cash dividends of seven cents per share in the first quarterthird quarters of 2003 and 2002. Our senior credit facility and the indenture governing our outstanding 8 7/8% senior subordinated notes contain restrictions that may limit our ability to pay our regular cash dividend.dividend in the future.
Critical Accounting Policies, Commitments and Certain Other Matters
In our 2002annual report on Form 10-K for the fiscal year ended December 29, 2002, we identify our most critical accounting policies and estimates upon which our financial status depends as those relating to revenue recognition, loss provisions on doubtful accounts, valuation of long-lived assets, intangibles, including assets and goodwill, employee compensation and benefits, restructuring activities, gains or losses on dispositions and income taxes. We considered the disclosure requirements of Financial Release (“FR”) 60 regarding critical accounting policies and concluded that nothing materially changed during the quarter March 30,ended September 28, 2003 that would warrant further disclosure under thisthat release. We considered the disclosure requirements of FR-61 regarding liquidity and capital resources, trading activities and related party/certain other disclosures and concluded that nothing materially changed during the quarternine-month period ended March 30,September 28, 2003, outside of the repurchase of a portion of the Company’sour zero coupon convertible debentures discussed in Note 5 to the Unaudited Financial Statements, that would warrant further disclosure under thisthat release.
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Forward-Looking Information and Factors Affecting Future Performance
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. For this purpose, any statements contained in this report that are not statements of historical fact are deemed to be forward-looking statements. WordsWe intend words such as “believes,” “anticipates,” “plans,” “expects,” “will” and similar expressions are intended to identify forward-looking statements. While we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change. You should not rely on our forward-looking statements as representing our views as of any date subsequent to the date of this report. There are a number of important factors that could cause our actual results to differ materially from those indicated by our forward-looking statements including, among others, the factors set forth below.
The following important factors affect our business and operations generally or affect multiple segments of our business and operations:
Our operating results may continue to be harmed by cyclical downturns affecting several of the industries into which we sell our products. |
Some of the industries and markets into which we sell our products are cyclical. Industry downturns often are characterized by reduced product demand, excess manufacturing capacity and erosion of average selling prices and profits. Significant downturns in our customers’ markets and in general economic conditions have resulted in a reduced demand for several of our products and have hurt our operating results. For example, during 2002 and the first nine months of 2003, our operating results were adversely affected by downturns in
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If we do not introduce new products in a timely manner, our products could become obsolete and our operating results would suffer. |
We sell many of our products in industries characterized by rapid technological changes, frequent new product and service introductions and evolving industry standards. Without the timely introduction of new products and enhancements, our products could become technologically obsolete over time, in which case our sales and operating results would suffer. The success of our new product offerings will depend upon several factors, including our ability to:
• | accurately anticipate customer needs, | |
• | innovate and develop new technologies and applications, | |
• | successfully commercialize new technologies in a timely manner, | |
• | price our products competitively and manufacture and deliver our products in sufficient volumes and on time, and | |
• | differentiate our offerings from our competitors’ offerings. |
Many of our products are used by our customers to develop, test and manufacture their products. Therefore, we must anticipate industry trends and develop products in advance of the commercialization of our customers’ products. In developing new products, we may be required to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research, and development of products that do not lead to significant sales.
In addition, some of our licensed technology is subject to contractual restrictions, which may limit our ability to develop or commercialize products for some applications. For example, some of our license agreements are limited to the field of life sciences research, and exclude clinical diagnostics applications.
25Our debt may adversely affect our cash flow and may restrict our investment opportunities.
We have a substantial amount of outstanding indebtedness. As of March 30,September 28, 2003, we had approximately $760.3$569.3 million in outstanding indebtedness, including $155 million in outstanding zero coupon debentures, excluding obligations under our accounts receivable securitization facility. In addition,Also, we have $100a $100.0 million revolving credit facility. As of March 30, 2003facility under which we had no outstanding principal balance under this revolving credit facility.have not borrowed.
Our substantial level of indebtedness increases the possibility that we may be unable to generate sufficient cash to pay the principal or interest in respect of our indebtedness. We may also obtain additional long-term debt and working capital lines of credit to meet future financing needs, which would have the effect of increasing our total leverage.
Our substantial leverage could have significant negative consequences, including:
• | increasing our vulnerability to adverse economic and industry conditions, | |
• | limiting our ability to obtain additional financing, | |
• | limiting our ability to acquire new products and technologies through acquisitions or licensing, | |
• | requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes, including capital expenditures, | |
• | limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we compete, and |
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• | placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources. |
A significant portion of our indebtedness bears interest at floating rates. As a result, our interest payment obligations on this indebtedness will increase if interest rates increase.
Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors beyond our control. Our business may not generate sufficient cash flow to meet these obligations or to successfully execute our business strategy. If we are unable to service our debt and fund our business, we may be forced to reduce or delay capital expenditures, seek additional financing or equity capital, restructure or refinance our debt or sell assets. We may not be able to obtain additional financing or to refinance existing debt or to sell assets on terms acceptable to us or at all.
Restrictions in our senior credit facility and the indenture governing our 8 7/8% notes may limit our activities. |
Our senior credit facility and the indenture relating to our 8 7/8% notes contain, and future debt instruments to which we may become subject may contain, restrictive covenants that limit our ability to engage in activities that could otherwise benefit our company, including restrictions on our ability and the ability of our subsidiaries to:
• | incur additional indebtedness, | |
• | pay dividends on, redeem or repurchase our capital stock, | |
• | make investments, | |
• | create liens, | |
• | sell assets, | |
• | in the case of our restricted subsidiaries, incur obligations that restrict their ability to make dividend or other payments to us, |
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• | in the case of our restricted subsidiaries, guarantee or secure indebtedness, | |
• | enter into transactions with affiliates, | |
• | create unrestricted subsidiaries, and | |
• | consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis. |
We are also required to meet specified financial ratios under the terms of our senior credit facility. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition.
Our failure to comply with any of these restrictions or covenants may result in an event of default under the applicable debt instrument, which could permit acceleration of the debt under that instrument and require us to prepay that debt before its scheduled due date. Also, an acceleration of the debt under our senior credit facility would trigger an event of default under our 8 7/8% notes, and a default under our 8 7/8% notes would trigger an event of default under the senior credit facility and possibly other debt.
If an event of default occurs, we may not have sufficient funds available to make the required payments under our indebtedness. If we are unable to repay amounts owed under our senior credit facility, those lenders may be entitled to foreclose on and sell the collateral that secures our borrowings under that agreement. Our inability to repay amounts owed under our senior credit facility may also cause a default under other of our obligations including our accounts receivable securitization facility.
31 Economic, political and other risks associated with foreign operations could adversely affect our international sales. |
Because we sell our products worldwide, our businesses are subject to risks associated with doing business internationally. Our sales originating outside the United States represented 64%51% of our total sales for the quarternine-months ended March 30,September 28, 2003 and 66%52% of our total sales in the fiscal year ended December 29, 2002. We anticipate that sales from international operations will continue to represent a substantial portion of our total sales. In addition, many of our manufacturing facilities, employees and suppliers are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:
• | changes in foreign currency exchange rates, | |
• | changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets, | |
• | longer payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions, | |
• | trade protection measures and import or export licensing requirements, | |
• | differing tax laws and changes in those laws, | |
• | difficulty in staffing and managing widespread operations, | |
• | differing labor laws and changes in those laws, | |
• | differing protection of intellectual property and changes in that protection, and | |
• | differing regulatory requirements and changes in those requirements. |
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Our quarterly operating results are subject to significant fluctuation, and we may not be able to adjust our operations to effectively address changes we do not anticipate. |
Given the nature of the markets in which we participate, we cannot reliably predict future sales and profitability. Changes in competitive, market and economic conditions may require us to adjust our operations, and we can offer no assurance of our ability to make such adjustments or to make them quickly enough to adapt to changing conditions. A high proportion of our costs are fixed, due in part to our significant sales, research and development and manufacturing costs. Thus, small declines in sales could disproportionately affect our operating results in a quarter. Factors that may affect our quarterly operating results include:
• | demand for and market acceptance of our products, | |
• | competitive pressures resulting in lower selling prices, | |
• | adverse changes in the level of economic activity in regions in which we do business, | |
• | adverse changes in industries, such as pharmaceutical, biomedical, semiconductors and aerospace, on which we are particularly dependent, | |
• | changes in the portions of our sales represented by our various products and customers, | |
• | delays or problems in the introduction of new products, | |
• | our competitors’ announcement or introduction of new products, services or technological innovations, | |
• | increased costs of raw materials or supplies, and | |
• | changes in the volume or timing of product orders. |
32 We may not be able to successfully execute acquisitions or license technologies, integrate acquired businesses or licensed technologies into our existing business or make acquired businesses or licensed technologies profitable. |
We have in the past, and may in the future, supplement our internal growth by acquiring businesses and licensing technologies that complement or augment our existing product lines, such as our acquisition of Packard BioScience Company in November 2001. We may be unable to identify or complete promising acquisitions or license transactions for many reasons, including:
• | competition among buyers and licensees, | |
• | the need for regulatory and other approvals, | |
• | our inability to raise capital to fund these acquisitions, | |
• | the high valuations of businesses and technologies, and | |
• | restrictions in the instruments governing our indebtedness, including the indenture governing |
Some of the businesses we may seek to acquire may be unprofitable or marginally profitable. Accordingly, the earnings or losses of acquired businesses may dilute our earnings. For these acquired businesses to achieve acceptable levels of profitability, we must improve their management, operations, products and market penetration. We may not be successful in this regard and may encounter other difficulties in integrating acquired businesses into our existing operations.
To finance our acquisitions, we may have to raise additional funds, either through public or private financings. We may be unable to obtain such funds or may be able to do so only on terms unacceptable to us.
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In the fourth quarter of 2002, we announced the combination of our Life Sciences and Analytical Instruments business units into a new integrated business named Life and Analytical Sciences, representing 66% of our total sales for 2002. This combination is subject to various integration risks, and the integration of these two business units may not achieve the benefits we anticipate it will achieve. As a result of the combination, we may experience a loss of productivity, sales and key personnel. If any of these potential difficulties were to occur and persist, the business results of our Life Sciences and Analytical Instruments reporting segments could suffer.
We are targeting annualized cost savings from the combination of our Life Sciences and Analytical Instruments businesses of between $30.0 million and $45.0 million. Because we anticipate that the benefits of the combination of these businesses will not be fully realized until 2004, we are targeting cost savings of between $12.0 million and $25.0 million in 2003. While we believe these cost savings to be reasonable, they are estimates that are inherently difficult to predict and are necessarily speculative in nature. In addition, unforeseen factors may offset some or all of the estimated cost savings or other benefits from the integration. As a result, our actual cost savings, if any, could differ or be delayed, compared to our estimates.
Our loss of licenses may require us to stop selling products or lose competitive advantage. |
We may not be able to renew our existing licenses or licenses we may obtain in the future on terms acceptable to us, or at all. If we lose the rights to a patented or other proprietary technology, we may need to stop selling products incorporating that technology and possibly other products, redesign our products or lose a competitive advantage. Potential competitors could in-license technologies that we fail to license and potentially erode our market share.
Our licenses typically subject us to various economic and commercialcommercialization obligations. If we fail to comply with these obligations we could lose important rights under a license, such as the right to exclusivity in a market. In some cases, we could lose all rights under the license. In addition, rights granted under the license could be lost for reasons out of our control. For example, the licensor could lose patent protection for a number of reasons, including invalidity of the licensed patent, or a third party could obtain a patent that curtails our freedom to operate under one or more licenses.
If we do not compete effectively, our business will be harmed. |
We encounter aggressive competition from numerous competitors in many areas of our business. This competition results in rapid and significant technological changes and regular new product releases in several of the markets in which we compete. We may not be able to compete effectively with all of theseour competitors. To remain competitive, we must develop new products and periodically enhance our existing products. We anticipate that we may also have to adjustlower the prices of many of our products to stay competitive. In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of entire product lines.
33 If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil or criminal penalties. |
Some of the products produced by our Life and Analytical Sciences business unitsegment are subject to regulation by the United States Food and Drug Administration and similar international agencies. In addition, some of the activities of our Fluid Sciences business unit are subject to regulation by the United States Federal Aviation Administration. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales, resales and distribution. If we fail to comply with those regulations or those of similar international agencies, we may have to recall products and cease their manufacture and distribution. In addition, we could be subject to fines or criminal prosecution.
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Changes in governmental regulations may reduce demand for our products or increase our expenses. |
We compete in markets in which we or our customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety and food and drug regulations. We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.
Obtaining and enforcing patent protection for our proprietary products, processes and technologies may be difficult and expensive; we may infringe intellectual property rights of third parties. |
Patent and trade secret protection is important to us because developing and marketing new technologies and products is time-consuming and expensive. We own many United States and foreign patents and intend to apply for additional patents to cover our products. We may not obtain issued patents from any pending or future patent applications owned by or licensed to us. The claims allowed under any issued patents may not be broad enough to protect our technology.
Third parties may seek to challenge, invalidate or circumvent issued patents owned by or licensed to us or claim that our products and operations infringe their patent or other intellectual property rights. |
In addition to our patents, we possess an array of unpatented proprietary technology and know-how and we license intellectual property rights to and from third parties. The measures that we employ to protect this technology and these rights may not be adequate. Moreover, in some cases, the licensor can terminate a license or convert it to a non-exclusive arrangement if we fail to meet specified performance targets.
We may incur significant expense in any legal proceedings to protect our proprietary rights or to defend infringement claims by third parties. In addition, claims of third parties against us could result in awards of substantial damages or court orders that could effectively prevent us from manufacturing, using, importing or selling our products in the United States or abroad.
Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets. |
As of March 30,September 28, 2003, our total assets included $1.4 billion of net intangible assets. Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights and technology licenses, net of accumulated amortization. These assets have historically been amortized on a straight-line basis over their estimated useful lives. In connection with our adoption of SFAS No. 142, we discontinued the amortization of goodwill and indefinite lived intangible assets beginning in fiscal 2002. Instead, we will test these items, at a minimum, on an annual basis for potential impairment by comparing the carrying value to the fair market value of the reporting unit to which they are assigned.
During the second quarter of 2002, we completed our transitional implementation of the impairment testing provisions of SFAS No. 142, which resulted in a $117.8 million before-and-after-tax charge for goodwill associated with our lighting business. In accordance with the provisions of SFAS No. 142, we took
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Future impairment testing may result in additional intangible asset write-offs, which could adversely affect our results of operations.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Quantitative and Qualitative Disclosures about Market RisksRisk
Financial Instruments:Financial instruments that potentially subject us to concentrations of credit risk consist principally of temporary cash investments, marketable securities and accounts receivable. We believe we had no significant concentrations of credit risk as of March 30, 2003.
In the ordinary course of business, we enter into foreign exchange contracts for periods consistent with our committed exposures to mitigate the effect of foreign currency movements on transactions denominated in foreign currencies. Transactions covered by hedge contracts include inter-company and third-party receivables and payables. The contracts are primarily in European and Asian currencies, have maturities that do not exceed 12 months, have no cash requirements until maturity and are recorded at fair value on the consolidated balance sheet. Credit risk is minimal as the foreign exchange instruments are contracted with major banking institutions. Unrealized gains and losses on our foreign currency contracts are recognized immediately in earnings for hedges designated as fair value and, for hedges designated as cash flow, the related unrealized gains or losses are deferred as a component of other comprehensive income in the accompanying consolidated balance sheet. These deferred gains and losses are recognized in income in the period in which the underlying anticipated transaction occurs. Effectiveness of these cash flow hedges is measured utilizing the cumulative dollar offset method and is reviewed quarterly. For the three month period ended March 30, 2003, we did not enter into any cash flow hedges. The notional amount of the outstanding foreign currency contracts was approximately $122 million at March 30, 2003. At March 30, 2003 approximate fair value for foreign currency derivative instruments designated as fair value hedges was zero.
Market Risk:The Company is exposed to market risk, including changes in interestrisks, relating to both currency exchange rates and currency exchangeinterest rates. ToOn occasion, in order to manage the volatility relating to these exposures, the Company enterswe may enter into various derivative transactions pursuant to the Company’sour policies to hedge against known or forecasted market exposures. We briefly describe several of the market risks we face below. The following disclosure supplements the disclosure provided under the heading, “Item 7A. Quantitative and Qualitative Disclosure About Market Risk,” in our annual report on Form 10-K for the fiscal year ended December 29, 2002.
Foreign Exchange Risk Management:Risk.As a multinational corporation, the Company iswe are exposed to changes in foreign exchange rates. As the Company’s international sales grow, exposurerates:
(1) Because a significant portion of our sales are international, volatility in exchange rates could have a material impact on our financial results. Reported sales made in foreign currencies by our international subsidiaries, when translated into U.S. dollars for financial reporting purposes, can fluctuate due to exchange rate movements. While exchange rate fluctuations can impact reported revenues and earnings, the impacts are purely a result of the translation effect and generally do not materially impact our short-term cash flows. | |
(2) Our foreign subsidiaries, on occasion, invoice third-party customers in foreign currencies other than the functional currency in which they primarily conduct business. Movements in the invoiced currency as compared to the functional currency result in both realized and unrealized transaction gains or losses that directly impact our cash flows and our results of operations. | |
(3) Our manufacturing and distribution organization is multi-national in nature. Accordingly, inventories may be manufactured in one location, stored in another, and distributed in a third location. This can result in a variety of intercompany transactions — that are billed and paid in many different currencies. Our cash flows and our results of operations are therefore directly impacted by fluctuations in these currencies. | |
(4) The cash flow needs of each of our foreign subsidiaries vary through time. Accordingly, there may be times when a subsidiary is on the receiving side or the lending side of a short-term advance from either the parent company or another subsidiary. These advances, again being denominated in currencies other than a particular entity’s functional currency, can expose us to fluctuations in exchange rates that can impact both our cash flows and results of operations. | |
(5) In order to repay debt or take advantage of tax saving opportunities, we may remit cash from our foreign locations to the United States. When this occurs, we are liquidating foreign currency net asset positions and converting them into U.S. dollars. Our cash flows and our results of operations are therefore also impacted by these transactions. |
We currently do not have outstanding any foreign exchange transactions to volatility in exchange rates could have a material adverse impact on the Company’shedge translation exposures. We enter into various financial results. The Company’s risk 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 itshedge exposures to 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 success of the hedging program depends on forecasts of transaction activity in the various currencies. To the extent that these forecasts are overstated 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.
Foreign Currency Risk — Value-at-Risk Disclosure — We continue to measure foreign currency risk using the Value-at Risk (“VaR”) model described in our annual report on Form 10-K for the fiscal year ended December 29, 2002. These measures continue to approximate our risks.
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Interest Rate Risk.Our debt portfolio includes both fixed rate and variable rate instruments. Fluctuations in interest rates can therefore have a direct impact on both our short-term cash flows, (as they relate to interest) and our earnings. We may enter into swap arrangements to hedge our interest rate exposures or manage our fixed to floating interest rate mix. However, we currently have no interest rate swaps in place.
Interest Rate Risk:Risk — SensitivityThe Company maintains an investment portfolio consisting of securities of various issuers, types and maturities. The investments are classified as available — Our annual report on Form 10-K 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 heldfiscal year ended December 29, 2002 presents sensitivity measures 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 itsour 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. There are various modeling techniques that can be used in the VAR computation. 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
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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.our sensitivity disclosure.
Item 4. | Controls and Procedures |
(a) EvaluationThe Company’s management, with the participation of disclosure controls and procedures.Based on their evaluations as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, the Company’s chief executive officer and chief financial officer, have concluded thatevaluated the effectiveness of the Company’s disclosure controls and procedures are(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 28, 2003. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that, as of September 28, 2003, the Company’s disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms of the Securities and Exchange Commission and are operating in an effective manner.forms.
(b) Changes in internal controls.There were no significant changesNo change in the Company’s internal controlscontrol over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 28, 2003 that has materially affected, or in other factors that could significantlyis reasonably likely to materially affect, these controls subsequent to the date of their evaluation.Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item |
There were no matters submitted toIn papers dated July 1, 2002, Kevin Hatch filed a votepurported class action lawsuit in the United States District Court for the District of security holdersMassachusetts, Civil Action No. 02-11314 GAO, against PerkinElmer, Inc., Gregory L. Summe and Robert F. Friel, on behalf of himself and purchasers of the Company’s common stock between July 15, 2001 and April 11, 2002. The lawsuit seeks an unspecified amount of damages and claims violations of Sections 10(b), 10b-5 and 20(a) of the Securities Exchange Act of 1934, alleging various statements made during the fiscal quarter ended March 30, 2003. The sole matter submitted to a vote of the stockholders at the 2003 Annual Meeting of Stockholders ofputative class period by the Company held on April 22, 2003 was the election of the eight nominees for director named below. Each nominee was elected for a term of one year by the requisite vote of the stockholders. The number of shares of common stock outstanding and eligible to vote as of the record date for the meeting, February 21, 2003, was 126,089,364. Set forth below is the number of votes cast for or withheldits management were misleading with respect to each nominee for director.
Proposal #1 — To elect a Board of Directorsthe Company’s prospects and future operating results. At least eleven virtually identical lawsuits subsequently have been filed in the United States District Court for the ensuing year.
For | Withheld | |||||||
Erickson, T.J. | 106,389,673 | 3,863,560 | ||||||
Lopardo, N.A. | 105,582,546 | 4,670,687 | ||||||
Michas, A.P. | 108,293,158 | 1,960,075 | ||||||
Sato, V.L. | 109,079,910 | 1,173,323 | ||||||
Schmergel, G. | 108,319,080 | 1,934,153 | ||||||
Sicchitano, K.J. | 105,636,592 | 4,616,641 | ||||||
Summe, G.L. | 106,289,161 | 3,964,072 | ||||||
Todd, G.R. | 106,387,163 | 3,866,070 |
32 On June 14, 2002 we sold our detection systems business to L-3 Communications Corporation (“L-3”). L-3 and certain of its affiliates have been named as defendants in litigation arising out of the terrorist attacks
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Item 6. | Exhibits and Reports on Form 8-K |
(a) Exhibits
10.1 | ||||
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | ||||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | |||
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of |
(b) Reports on Form 8-K
We reported the soleOn July 23, 2003, we furnished a Current Report on Form 8-K that we filed during the quarter ended March 30,containing a copy of our press release dated July 23, 2003 inannouncing our Annual Report on Form 10-Kearnings for the fiscal yearperiod ended DecemberJune 29, 2002.2003.
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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) |
May 14,November 12, 2003
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CERTIFICATIONS
I, Gregory L. Summe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PerkinElmer, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
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CERTIFICATIONS
I, Robert F. Friel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PerkinElmer, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
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EXHIBIT INDEX
Exhibit | Exhibit | Exhibit | ||||||
Number | Number | Exhibit Name | Number | Exhibit Name | ||||
10 | .1 | Amendment No. 1 to Credit Agreement, dated as of April 1, 2003, to the Credit Agreement, dated as of December 26, 2002, by and among PerkinElmer, Inc., as Borrower, the Several Lenders from time to time Parties to such Credit Agreement, Merrill Lynch & Co., Merrill Lynch, Pierce Fenner & Smith Incorporated, as Arranger, Merrill Lynch Capital Corporation, as Syndication Agent, Societe Generale, as Documentation Agent, and Bank of America, N.A., as Administrative Agent, was filed as Exhibit 10.2 to PerkinElmer, Inc.’s Registration Statement on Form S-4, File No. 333-104351, and is herein incorporated by reference. | 10 | .1 | Sixth Amendment, dated as of September 23, 2003, to the Receivables Sale Agreement, dated December 21, 2001, by and among PerkinElmer Receivables Company, as Seller, PerkinElmer, Inc., as Initial Collection Agent, the Committed Purchasers, Windmill Funding Corporation, and ABN AMRO Bank N.V., as agent for the Purchasers, is attached hereto as Exhibit 10.1. | |||
10 | .2 | Amendment No. 2 to Credit Agreement, dated as of April 23, 2003, to the Credit Agreement, dated as of December 26, 2002, by and among PerkinElmer, Inc., as Borrower, the Several Lenders from time to time Parties to such Credit Agreement, Merrill Lynch & Co., Merrill Lynch, Pierce Fenner & Smith Incorporated, as Arranger, Merrill Lynch Capital Corporation, as Syndication Agent, Societe Generale, as Documentation Agent, and Bank of America, N.A., as Administrative Agent, was filed as Exhibit 10.3 to PerkinElmer, Inc.’s Registration Statement on Form S-4, File No. 333-104351, and is herein incorporated by reference. | 10 | .2 | Second Amendment, dated as of September 23, 2003, to the Purchase and Sale Agreement, dated as of December 21, 2001, by and among PerkinElmer, Inc., PerkinElmer Holdings, Inc., PerkinElmer LAS, Inc., PerkinElmer Optoelectronics NC, Inc., PerkinElmer Optoelectronics SC, Inc., PerkinElmer Canada, Inc., Applied Surface Technology, Inc., PerkinElmer Automotive Research, Inc., and PerkinElmer Receivables Company, is attached hereto as Exhibit 10.2. | |||
10 | .3 | Fifth Amendment, dated as of March 26, 2003, to the Receivables Sale Agreement, dated December 21, 2001, by and among PerkinElmer Receivables Company, as Seller, PerkinElmer, Inc., as Initial Collection Agent, the Committed Purchasers, Windmill Funding Corporation, and ABN AMRO Bank N.V., as agent for the Purchasers, was filed as Exhibit 10.4 to PerkinElmer, Inc.’s Registration Statement on Form S-4, File No. 333-104351, and is herein incorporated by reference. | 31 | .1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | |||
10 | .4 | First Amendment, dated as of March 26, 2003 to the Purchase and Sale Agreement, dated as of December 21, 2001, by and among PerkinElmer, Inc., PerkinElmer Holdings, Inc., PerkinElmer Life Sciences, Inc., Receptor Biology, Inc., PerkinElmer Instruments LLC, PerkinElmer Optoelectronics NC, Inc., PerkinElmer Optoelectornics SC, Inc., PerkinElmer Canada, Inc., PerkinElmer Receivables Company, Applied Surface Technology, Inc., and PerkinElmer Automotive Research, Inc. was filed as Exhibit 10.5 to PerkinElmer, Inc.’s Registration Statement on Form S-4, File No. 333-104351, and is herein incorporated by reference. | 31 | .2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | |||
99 | .1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is attached hereto as Exhibit 99.1. | 32 | .1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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