SELECTED FINANCIAL DATA The Perkin-Elmer Corporation
(Dollar amounts in thousands except per share amounts)
For the years ended June 30, 1997 1996 1995 1994 1993
Financial Operations
Net revenues $1,276,766 $1,162,949 $1,063,506 $1,024,467 $1,011,297
Income from operations before special items 128,789 94,317 68,659 73,978 60,860
Per share of common stock 2.88 2.17 1.61 1.66 1.35
Special items, net of taxes (13,634) (80,373) (1,782) (36,416)
Income from continuing operations 115,155 13,944 66,877 73,978 24,444
Per share of common stock 2.58 .32 1.57 1.66 .54
Discontinued operations (22,851) 1,714
Accounting changes (83,098)
Net income (loss) 115,155 13,944 66,877 51,127 (56,940)
Per share of common stock 2.58 .32 1.57 1.14 (1.27)
Dividends per share .68 .68 .68 .68 .68
Other Information
Cash and short-term investments $ 195,971 $ 96,588 $ 80,010 $ 25,003 $ 30,331
Working capital 338,991 199,560 227,644 136,400 100,929
Capital expenditures 62,167 32,367 28,863 34,512 28,378
Total assets 1,104,798 941,324 888,842 884,500 851,070
Long-term debt 33,599 890 34,124 34,270 7,069
Total debt 51,653 51,965 88,881 117,822 81,051
Shareholders' equity 436,872 323,442 304,700 290,432 306,605
Results for fiscal years 1997, 1996, and 1995 included net before-tax
restructuring charges of $13.0 million, $71.6 million, and $23.0 million,
respectively, and before-tax gains on the sale of investments of $37.4
million, $11.7 million, and $20.8 million, respectively. Other special items
affecting comparability included acquired research and development
charges of $26.8 million and $27.1 million in fiscal 1997 and 1996,
respectively; a $7.5 million before-tax charge in fiscal 1997 for the
impairment of assets; a $22.9 million charge for discontinued operations in
fiscal 1994; and a $41.0 million charge in fiscal 1993 for the merger with
ABI. The accounting changes related to the adoption of accounting
standards for postretirement and postemployment benefits.
Page 34
Management's Discussion and Analysis
Management's Discussion of Operations
The following discussion should be read
in conjunction with the consolidated
financial statements and related notes
included on pages 42 through 61.
Historical results and percentage
relationships are not necessarily
indicative of operating results for any
future periods.
Events Impacting Comparability
Restructuring Charges. The Perkin-Elmer
Corporation (the Company) implemented
restructuring actions in fiscal 1997,
1996, and 1995 primarily targeted to
improve the profitability and cash flow
performance of the Analytical Instruments
Division. The fiscal 1995 plan focused
solely on cost reduction. The fiscal
1996 plan was a broader program to reduce
administrative and manufacturing overhead
and improve operating efficiency,
primarily in Europe and the United
States. The fiscal 1997 plan focuses on
the transition from highly vertical
manufacturing operations to more reliance
on outsourcing functions not considered
core competencies. The before-tax
charges associated with the
implementation of these actions were
$24.2 million, $71.6 million, and $23.0
million in fiscal 1997, 1996, and 1995,
respectively. On an after-tax basis, the
charges were $.34, $1.44, and $.44 per
share, respectively. Fiscal 1997 also
reflected an $11.2 million before-tax, or
$.15 per share after-tax, reduction of
charges associated with the fiscal 1996
plan. A complete discussion of the
Company's restructuring actions is
provided in Note 10.
Acquired Research and Development.
During fiscal 1997 and 1996, the Company
recorded charges for purchased in-process
research and development in connection
with certain acquisitions for the Applied
Biosystems Division. The charges
recorded in fiscal 1997 and 1996 were
$26.8 million and $27.1 million,
respectively (see Note 2).
Impairment of Assets. During the fourth
quarter of fiscal 1997, the Company
recorded a $7.5 million cost of sales
charge to write-down $5.6 million of
goodwill associated with the fiscal 1995
acquisition of Photovac Inc. and $1.9
million of other assets associated
primarily with the Analytical Instruments
Division (see Note 1).
Sale of Investments. Fiscal 1997, 1996,
and 1995 included before-tax gains of
$37.4 million, $11.7 million, and $20.8
million, respectively, for the sale of
non-strategic equity investments. The
after-tax gains were $.65, $.21, and $.40
per share, respectively (see Note 2).
Results of Operations - 1997 Compared With 1996
The Company reported net income of $115.2
million, or $2.58 per share, for fiscal
1997 compared with $13.9 million, or $.32
per share, for fiscal 1996. Excluding the
special items previously described, net
income and earnings per share increased
36.5%, and 32.7%, respectively.
Net revenues for fiscal 1997 were
$1,276.8 million, an increase of 9.8%
over the $1,162.9 million reported in
fiscal 1996. The effects of currency
rate movements decreased net revenues by
approximately $45 million, or 4%, as the
U.S. dollar strengthened against the
Japanese Yen and certain European
currencies.
All geographic markets experienced
revenue growth in fiscal 1997. Net
revenues in the United States increased
15.8% over the prior year, benefiting
from growth in both the Applied
Biosystems and Analytical Instruments
Divisions. Net revenues in Europe and
the Far East increased 7.7% and 5.3%,
respectively, as higher revenues from the
Applied Biosystems Division were
partially offset by decreases in the
Analytical Instruments Division's
revenues. In Europe, a 25.6% increase in
revenues from the Applied Biosystems
Division was partially offset by a 2.3%
decline in the Analytical Instruments
Division's revenues. In the Far East, a
12% increase in the Applied Biosystems
Division's revenues was partially offset
by a 2.3% decrease in the Analytical
Instruments Division's revenues.
Excluding currency effects, total
revenues in Europe and the Far East would
have increased approximately 12% and 16%,
respectively.
Net Revenues by Business Segment
(Dollar amounts in millions)
1997 1996
Applied Biosystems $ 652.7 $ 532.3
Analytical Instruments 624.1 630.6
$ 1,276.8 $ 1,162.9
Including currency effects, which
reduced reported revenues by
approximately $25 million, or 5%, net
revenues of the Applied Biosystems
Division increased 22.6% over fiscal
1996. Net revenues in the United States,
Europe, and the Far East increased 26.4%,
25.6%, and 12%, respectively. Increased
demand for genetic analysis, liquid
chromatography-mass spectrometry (LC/MS),
and the polymerase chain reaction (PCR)
product lines were the primary
contributors.
The Analytical Instruments Division
experienced a 1% decline in net revenues
compared with the prior year. Currency
rate movements reduced revenues by
approximately $20 million, or
Page 35
3%. While revenues in the United States
increased 2.5%, this was offset by a decrease
of 2.3% in both Europe and the Far East.
Excluding the effects of currency,
revenues in Europe and the Far East would
have increased approximately 2% and 4%,
respectively.
Gross margin, excluding the $7.5
million charge for impaired assets, was
50.3% in fiscal 1997 compared with 48.8%
in fiscal 1996. Both divisions
experienced improved gross margin in
fiscal 1997. The Applied Biosystems
Division's improvement was the result of
the overall unit volume increase and
product mix. The benefits realized from
the fiscal 1996 restructuring plan,
combined with a more favorable product
mix, contributed to improved gross margin
for the Analytical Instruments Division.
Selling, general and administrative
(SG&A) expenses were $375.9 million in
fiscal 1997 compared with $340.0 million
in fiscal 1996. As a percentage of net
revenues, SG&A expenses increased from
29.2% in fiscal 1996 to 29.4% in fiscal
1997. Lower expense levels resulting
from cost control and the actions of the
restructuring program in the Analytical
Instruments Division were more than
offset by increased expenses of 26.8% in
the Applied Biosystems Division and costs
for the Company's restricted stock and
performance based compensation programs,
including a long-term division plan
which became effective in fiscal 1997.
The total expense for the restricted
stock, performance based programs, and
long-term division plan was $26.3 million
and $11.8 million in fiscal 1997 and
1996, respectively.
Research, development and engineering
(R&D) expenses were $105.7 million in
fiscal 1997 compared with $102.3 million
in fiscal 1996. R&D spending in the
Applied Biosystems Division increased 28%
over the prior year as the Company
continued its product development efforts
for the bioresearch markets. In fiscal
1997, the Analytical Instruments Division
recorded a 20.9% decrease in R&D
expenditures, which reflected the
objectives of restructuring actions and
product line reviews.
Total operating expenses were $521.3
million in fiscal 1997 compared with
$541.0 million in fiscal 1996. Fiscal
1997 operating expenses included a $26.8
million charge for acquired research and
development related to acquisitions in
the Applied Biosystems Division compared
with $27.1 million recorded in fiscal
1996. Fiscal 1997 expenses also included
a net restructuring charge of $13.0
million compared with $71.6 million in
fiscal 1996. On a comparable basis,
excluding the special items, operating
expenses as a percentage of net revenues
decreased to 37.7% in fiscal 1997 from
38.0% in fiscal 1996.
During the fourth quarter of fiscal
1997, the Company announced a follow-on
phase to the Analytical Instruments
Division's profit improvement program.
The restructuring cost for this action
was $24.2 million, or $.34 per share
after-tax, and included $19.4 million for
costs focused on further improving the
operating efficiency of manufacturing
facilities in the United States, Germany,
and the United Kingdom. These actions
are designed to transition the Analytical
Instruments Division from a highly
vertical manufacturing operation to one
that relies more on outsourcing functions
not considered core competencies. The
restructuring charge also included $4.8
million to finalize the consolidation of
sales and administrative support,
primarily in Europe where seventeen
facilities will be closed.
The workforce reductions under this
plan total approximately 285 employees in
production labor and 25 employees in
sales and administrative support. The
charge included $11.9 million for
severance related costs. The $12.3
million provided for facility
consolidation and asset related write-
offs included $1.2 million for lease
termination payments and $11.1 million
for the write-off of machinery,
equipment, and tooling associated with
those functions to be outsourced. These
changes are scheduled to be substantially
completed by June 1998. The Company
expects to achieve before-tax savings
from these actions of approximately $8
million in fiscal 1998 and $16 million in
succeeding fiscal years.
In the fourth quarter of fiscal 1997,
the Company finalized the actions
associated with the restructuring plan
announced in fiscal 1996. The Company
achieved operating cost savings of
approximately $25 million in fiscal 1997
and expects to achieve cost savings in
excess of $40 million for fiscal 1998.
The costs to implement the program were
$11.2 million less than the $71.6 million
charge recorded in fiscal 1996. As a
result, during the fourth quarter of
fiscal 1997, the Company recorded an
$11.2 million reduction of charges
required to implement the fiscal 1996
plan.
Operating income for fiscal 1997 was
$113.2 million compared with $26.1
million in fiscal 1996. On a comparable
basis, excluding special items, operating
income increased 28.6% in fiscal 1997.
Operating Income (Loss) by Business Segment
(Dollar amounts in millions)
Applied Analytical
1997 Biosystems Instruments
Segment income $135.6 $ 56.1
Restructuring charge (13.0)
Acquired R&D (26.8)
Impairment of assets (.7) (6.8)
Operating income $108.1 $ 36.3
1996
Segment income $120.6 $ 28.7
Restructuring charge (71.6)
Acquired R&D (27.1)
Operating income (loss) $ 93.5 $(42.9)
Page 36
Operating income for the Applied
Biosystems Division, excluding the
charges for acquired R&D and impairment
of assets, increased $15.0 million, or
12.4%, as a result of volume and
increased margin. All geographic markets
contributed to the improved segment
income. The United States increased
40.1%, Europe 35.7%, and the Far East
12.8% compared with the prior year. A
29.2% increase in operating income from
high margin sequencing and mapping
systems was the primary contributor.
Excluding currency effects, segment
income would have increased by approximately
23%. As a percentage of net revenues,
segment income, before special items,
decreased to 20.8% in fiscal 1997 from
22.7% in fiscal 1996.
Operating income for the Analytical
Instruments Division, excluding the
charges for restructuring and impairment
of assets, increased to $56.1 million in
fiscal 1997 from $28.7 million in fiscal
1996. As a percentage of net revenues,
segment income increased to 9.0% in
fiscal 1997 from 4.6% in fiscal 1996.
The cost savings realized from the
restructuring actions and cost control
were the primary reasons for the
improvement. Lower operating income in
Europe of 2.9%, resulting primarily from
the effects of a stronger U.S. dollar,
was more than offset by improvements in
other geographic areas, primarily the
United States.
In fiscal 1997, the Company completed
the sale of its entire equity interest in
Etec Systems, Inc. As a result, before-
tax gains of $37.4 million, or $.65 per
share after-tax, and $11.7 million, or
$.21 per share after-tax, were recorded
in fiscal 1997 and 1996, respectively.
Interest expense was $2.3 million in
fiscal 1997 compared with $5.0 million in
fiscal 1996. Lower average borrowing
levels in fiscal 1997 and lower weighted
average interest rates on short-term debt
accounted for the reduction in interest
costs. As a result of maintaining higher
cash and cash equivalent balances,
interest income increased by $2.7 million
to $7.6 million in fiscal 1997.
Net other income was $1.5 million in
fiscal 1997 compared with net other
expense of $2.2 million in fiscal 1996.
The fiscal 1997 amount consisted
primarily of a fourth quarter gain on the
sale of real estate.
The effective income tax rate for
fiscal 1997 was 27% compared with 61% for
fiscal 1996. These rates were impacted
by the special items occurring in both
fiscal years. The charges for acquired
research and development were not
deductible for tax purposes.
Additionally, the fiscal 1996 charge for
restructuring and the fiscal 1997 charge
for impairment of assets were only
partially deductible. Excluding the special
items, the effective income tax rate would
have been 23% for both fiscal 1997 and
1996. An analysis of the differences between
the federal statutory income tax rate and
the effective rates is provided in Note 4.
During the fourth quarter of fiscal
1997, the Company reduced its deferred
tax valuation allowance, resulting in the
recognition of a $50.0 million deferred
tax benefit. Based on continued
improvement in the Company's outlook for
sustained profitability, management
believes it is more likely than not it
will generate taxable income sufficient
to realize the Company's $66.2 million
net deferred tax asset. The valuation
allowance adjustment incorporates
management's assessment of the
significant cumulative progress made by
the Company over the past years to
increase taxable income in certain
geographic areas. Such reassessment is
reinforced by the positive effect of the
recent restructuring charges. The
benefit resulting from the valuation
allowance release was substantially
offset by a fourth quarter accrual for
tax costs related to gains on foreign
reorganizations.
Results of Operations - 1996 Compared With 1995
Net revenues for fiscal 1996 were
$1,162.9 million, an increase of 9.4%
over the $1,063.5 million reported in
fiscal 1995. Although the effects of
foreign currency translation were not
significant for the full year, the
continued strengthening of the U.S.
dollar adversely affected fourth quarter
revenues by approximately 4%, or $12
million.
All geographic markets experienced
revenue growth in fiscal 1996. Revenues
for the United States market increased
6.2% over fiscal 1995. While revenues
for the Analytical Instruments Division
decreased 10.4%, this was more than
offset by a 24.5% increase for the
Applied Biosystems Division. In Europe,
revenues from the Applied Biosystems and
Analytical Instruments divisions
increased 18.2% and 4.8%, respectively.
In total, net revenues for Europe
increased $39.0 million, or 9.2%, over
fiscal 1995. Approximately $9 million of
the increase was the result of currency
translation compared with approximately
$35 million in fiscal 1995. In the Far
East, increased revenues for the Applied
Biosystems and Analytical Instruments
divisions of 22.7% and 5.0%,
respectively, led to a total increase of
$26.7 million, or 13.7%, over the prior
year. Excluding currency effects,
revenues in the Far East increased
approximately $34 million, or 18%, as the
Company benefited from higher public and
private spending for both life science
and analytical products in Japan.
Net Revenues by Business Segment
(Dollar amounts in millions) 1996 1995
Applied Biosystems $ 532.3 $ 438.1
Analytical Instruments 630.6 625.4
$1,162.9 $1,063.5
The Applied Biosystems Division
demonstrated strong revenue growth in
fiscal 1996. Increased demand for DNA
sequencing and LC/MS products
primarily accounted for the
Page 37
21.5% increase in net revenues.
Net revenues of the Analytical
Instruments Division increased $5.2
million, or 1%, over fiscal 1995.
Increased revenues from inorganic
products, primarily inductively coupled
plasma-mass spectrometers, were offset by
lower demand for organic and
chromatography products.
Gross margin as a percentage of net
revenues was 48.8% in fiscal 1996
compared with 47.3% in fiscal 1995. The
improvement was the result of increased
unit sales and higher margin for the
Applied Biosystems Division. This was
partially offset by lower margin in the
Analytical Instruments Division.
SG&A expenses were $340.0 million in
fiscal 1996 compared with $317.1 million
in fiscal 1995. The primary contributors
were increased worldwide expenses for the
Applied Biosystems Division of 14.5%,
reflecting substantially higher revenue
and order growth, a $5.1 million non-cash
charge for compensation expense under the
Company's restricted stock program (see
Note 8), and increased incentive
compensation expense. As a percentage of
net revenues, SG&A expenses decreased
from 29.8% in fiscal 1995 to 29.2% in
fiscal 1996.
R&D expenses were $102.3 million in
fiscal 1996 compared with $95.1 million
in fiscal 1995. A 17% increase in
spending for the Applied Biosystems
Division was the major contributor.
Total operating expenses were $541.0
million in fiscal 1996 compared with
$435.2 million in fiscal 1995. Fiscal
1996 operating expenses included a $27.1
million charge for acquired research and
development related to fourth quarter
acquisitions for the Applied Biosystems
Division, and a $71.6 million charge for
restructuring actions. Fiscal 1995
operating expenses included a charge for
restructuring actions of $23.0 million.
On a comparable basis, excluding the
special charges, operating expenses as a
percentage of net revenues decreased from
38.8% in fiscal 1995 to 38.0% in fiscal
1996.
The fiscal 1996 before-tax
restructuring charge of $71.6 million was
the first phase of a plan focused on
improving the profitability and cash flow
performance of the Analytical Instruments
Division. In connection with the plan,
the division was reorganized into three
vertically integrated, fiscally
accountable operating units, a
distribution center in Holland was
established to centralize the European
infrastructure for shipping,
administration, and related functions,
and a program was implemented to
eliminate excess production capacity in
Germany. The charge included $37.8
million for worldwide workforce
reductions of approximately 390 positions
in manufacturing, sales and support, and
administrative functions. The charge
also included $33.8 million for facility
consolidation costs and asset related
write-offs associated with the
discontinuation of various product lines.
During fiscal 1997, the Company
finalized the actions associated with
this restructuring plan. The costs
associated with the reduction of excess
European manufacturing capacity were
$11.2 million less than the $42.7 million
originally provided in fiscal 1996. The
$11.2 million reduction consisted of $4.7
million for personnel costs and $6.5
million for facility consolidation costs
and asset related write-offs (see Note
10).
In fiscal 1996, the Company transferred
the development and manufacturing of
certain analytical instrument product
lines from its facility in Germany to
other sites, primarily in the United
States. The facility in Germany remains
the principal site for the development of
atomic absorption products.
In fiscal 1996, a distribution center
in Holland was established to provide an
integrated sales, shipment, and
administration support infrastructure for
the Company's European operations, and to
integrate certain operating and business
activities. The European distribution
center includes certain administrative,
financial, and information systems
functions previously transacted at
individual locations throughout Europe.
The Company's fiscal 1995 restructuring
charge of $23.0 million was taken for
actions focused on reducing costs in the
Analytical Instruments Division
infrastructure. These actions included
the workforce reduction of 227 employees,
shutdown of the Company's manufacturing
facility in Puerto Rico, consolidation of
sales offices in the Far East, and
consolidation of administrative
departments in the United States.
Operating Income (Loss) by Business Segment
(Dollar amounts in millions)
Applied Analytical
1996 Biosystems Instruments
Segment income $120.6 $ 28.7
Restructuring charge (71.6)
Acquired R&D (27.1)
Operating income (loss) $ 93.5 $ (42.9)
1995
Segment income $ 81.7 $ 26.7
Restructuring charge (19.2)
Operating income $ 81.7 $ 7.5
Fiscal 1996 operating income for the
Applied Biosystems Division, excluding
the charge for acquired R&D, increased
$38.9 million, or 47.6%, as a result of
growth in unit volumes and increased
margin. In particular, the DNA
sequencing and to a lesser extent, the
LC/MS product lines were the primary
contributors. All geographic markets
contributed to the improved segment
income, with the United States, Europe
and the Far East increasing 23.3%, 12.1%,
and 32.3%, respectively.
Page 38
On a comparable basis, excluding the
restructuring charges, operating income
for the Analytical Instruments Division
increased from $26.7 million in fiscal
1995 to $28.7 million in fiscal 1996.
The increased revenues in the European
and Far East markets, coupled with the
benefits realized from the fiscal 1995
restructuring actions, accounted for the
7.5% growth in segment income.
During the fourth quarter of fiscal
1996, the Company sold part of its equity
interest in Etec Systems, Inc., resulting
in a before-tax gain of $11.7 million.
Interest expense was $5.0 million in
fiscal 1996 compared with $8.2 million in
fiscal 1995. Lower overall borrowing
levels in fiscal 1996 and lower weighted
average interest rates on short-term debt
accounted for the reduction in interest
costs.
Interest income was $4.9 million in
fiscal 1996 compared with $3.5 million in
fiscal 1995. The increase was the result
of maintaining higher cash and short-term
investment balances throughout the fiscal
year.
Net other expense was $2.2 million in
fiscal 1996 compared with $1.5 million in
fiscal 1995. Expenses in fiscal 1995
were partially offset by a third quarter
gain on the sale of real estate.
The effective income tax rate for
fiscal 1996 was 61% compared with 19% for
fiscal 1995. Fiscal 1996 included the
charge for acquired research and
development which was not deductible for
tax purposes, as well as the
restructuring charge which was not fully
deductible in the year of the charge.
Excluding the special charges, the
effective income tax rate for fiscal 1996
would have been 23%. The lower effective
rate for fiscal 1995 was primarily due to
the greater utilization of domestic tax
benefit carryforwards and temporary
differences than in fiscal 1996.
Foreign Currency and Interest Rate Risk Management
The Company's international operations
are subject to foreign currency
fluctuations. As a result, the reported
and anticipated cash flows associated
with the sale of products in foreign
locations may be adversely affected by
changes in foreign currency exchange
rates. The Company uses foreign exchange
forward and option contracts to manage
its exposure to currency fluctuations.
At June 30, 1997, outstanding hedge
contracts covered approximately 50% of
the estimated foreign currency exposures
related to cross-currency cash flows to
be realized in fiscal 1998. The
outstanding hedges were a combination of
forward and option contracts maturing in
fiscal 1998.
In fiscal 1997, the Company executed an
interest rate swap in conjunction with
the refinancing of its Yen loan. Under
the terms of the contract, the Company
pays a fixed rate of interest at 2.1%,
and receives a floating LIBOR interest
rate. At June 30, 1997, the notional
amount of indebtedness covered by the
interest rate swap was Yen 3.8 billion
($33.6 million). The maturity date of
the swap coincides with the maturity of
the Yen loan in fiscal 2002. The Company
had no interest rate swaps outstanding at
June 30, 1996. Further discussion of the
Company's foreign currency and interest
rate management activities is provided in
Note 12.
Management's Discussion of Financial
Resources and Liquidity
The following discussion of financial
resources and liquidity focuses on the
Consolidated Statements of Financial
Position (page 43) and the Consolidated
Statements of Cash Flows (page 44).
The Company's financial position
remained strong with cash and cash
equivalents totaling $194.7 million at
June 30, 1997, compared with $95.4
million at June 30, 1996. The working
capital position increased from $199.6
million at the end of fiscal 1996 to
$339.0 million at the end of fiscal 1997.
Debt to total capitalization decreased
from 14% in fiscal 1996 to 11% in fiscal
1997.
Significant Changes in the Consolidated
Statements of Financial Position
Prepaid expenses and other current assets
increased 24.2% to $102.3 million at June
30, 1997 from $82.4 million at June 30,
1996. The increase was primarily due to
a $9.1 million increase in current
deferred tax assets resulting from the
Company's reduction of the deferred tax
valuation allowance, and the
reclassification of a $9.7 million note
receivable (including accrued interest)
from long-term to current. During fiscal
1997, the Company reduced the deferred
tax valuation allowance, based upon
management's assessment of the
significant cumulative progress made by
the Company over the past years to
increase taxable income in certain
geographic areas. The remaining
valuation allowance relates to domestic
deferred tax assets that are long-term in
nature and foreign tax loss carryforward
benefits with limited carryforward
periods. An analysis of the significant
components of deferred tax assets and
liabilities is provided in Note 4.
Other long-term assets decreased to
$137.6 million at June 30, 1997 from
$152.5 million at June 30, 1996. The
sale of the Company's equity interest in
Etec Systems, Inc. and other non-
operating assets, and the
reclassification of a note receivable,
was partially offset by an $18.2 million
increase in long-term deferred tax assets
and a $31.6 million increase in prepaid
pension expense. The change in long-term
deferred tax assets resulted primarily
from the reduction of the deferred tax
valuation allowance.
The changes in loans payable and long-
term debt reflect the Company's
refinancing of its Yen denominated loan
during the third quarter of fiscal 1997.
The Company replaced its Yen 2.8 billion
($25.7 million at June 30, 1996) loan,
which matured in February 1997, with a
Yen 3.8 billion ($33.6 million at June
30, 1997) variable rate long-term loan
which matures in March 2002.
Page 39
Through an interest rate swap agreement, the
effective interest rate for the new loan
is 2.1% compared with 3.3% for the
previous loan (see Note 12).
Statement of Cash Flows
Operating activities generated $131.9
million of cash in fiscal 1997 compared
with $111.9 million in fiscal 1996 and
$72.0 million in fiscal 1995. The
increase in fiscal 1997 was primarily due
to substantially higher income related
cash flow, lower inventory levels, and
increased liabilities, which more than
offset the increase in accounts
receivable, which was primarily due to
the fourth quarter's 13.8% revenue
increase.
Net cash used by investing activities
was $16.2 million in fiscal 1997 compared
with $45.5 million in fiscal 1996.
During fiscal 1997, the Company generated
$70.4 million in net cash proceeds from
the sale of its equity interest in Etec
Systems, Inc. and certain other non-
operating assets. These proceeds
partially offset the $27.7 million used
for acquisitions, primarily GenScope,
Inc. (see Note 2), and $62.2 million for
capital expenditures. In fiscal 1996,
$42.5 million of cash was used for
acquisition outlays, primarily the
purchase of Tropix, Inc. (see Note 2),
and $32.4 million for capital
expenditures. This was partially offset
by $21.6 million of cash proceeds
generated from the sale of non-operating
assets.
Fiscal 1997 capital expenditures were
$34.5 million for the Applied Biosystems
Division, $14.1 million for the
Analytical Instruments Division, and
$13.6 million for corporate. The
Company's expenditures included $11.5
million as part of a strategic program to
improve its information technology
infrastructure, and $12.1 million for the
acquisition of a corporate airplane.
Capital expenditures for fiscal 1996
totaled $32.4 million, with $18.2 million
for the Applied Biosystems Division and
$13.6 million for the Analytical
Instruments Division.
Net cash used by financing activities
was $18.3 million for fiscal 1997
compared with $41.6 million used during
fiscal 1996. During fiscal 1997, the
Company generated $1.8 million from the
sale of equity put warrants (see Note 7),
and $31.5 million in proceeds from
employee stock plan option exercises,
compared with $46.7 million from employee
stock exercises in fiscal 1996. This was
more than offset by cash used for the
payment of shareholder dividends and for
the purchase of common stock for
treasury. During fiscal 1997, .4 million
shares were repurchased at a cost of
$25.1 million compared with .8 million
shares at a cost of $41.0 million in
fiscal 1996. Common stock purchases for
treasury were made in support of the
Company's various stock plans.
As previously mentioned, the Company
recorded before-tax restructuring charges
of $24.2 million, $71.6 million, and
$23.0 million in fiscal 1997, 1996, and
1995, respectively. Fiscal 1997 also
reflected an $11.2 million before-tax
reduction of charges associated with the
fiscal 1996 plan. During fiscal 1997,
the Company made cash payments of $29.6
million for obligations under these
restructuring plans. Liabilities
remaining at June 30, 1997 were $19.5
million and $13.8 million for the fiscal
1997 and 1996 plans, respectively (see
Note 10). The funding for the remaining
restructuring liabilities will be from
current cash balances, including realized
benefits from the restructuring
activities. The before-tax cash benefits
from these actions was approximately $50
million and $20 million in fiscal 1997
and 1996, respectively. Additional
savings are targeted to be approximately
$73 million in fiscal 1998 and $81
million in succeeding fiscal years.
In addition to the $11.5 million
spending in fiscal 1997 for the Company's
information technology infrastructure, a
capital commitment of approximately $40
million is expected to be paid in fiscal
1998 when the improvements are delivered,
implemented, and accepted. The Company
currently intends to fund this obligation
from operating cash flow.
The Company believes its cash and
short-term investments, funds generated
from operating activities, and available
borrowing facilities are sufficient to
provide for its future financing needs.
At June 30, 1997, the Company had unused
credit facilities totaling $319 million.
Impact of Inflation and Changing Prices
Inflation and changing prices are
continually monitored. The Company
attempts to minimize the impact of
inflation by improving productivity and
efficiency through continual review of
both manufacturing capacity and operating
expense levels. When operating costs and
manufacturing costs increase, the Company
attempts to recover such costs by
increasing, over time, the selling price
of its products and services. The
Company believes the effects of inflation
have been appropriately managed and
therefore have not had a material impact
on its historic operations and resulting
financial position.
Outlook
As the underlying demand for life science
products continues to grow, the Applied
Biosystems Division is expected to
continue its revenue growth and maintain
profitability. The Company intends to
continue to grow this business through
increased internal development efforts,
and in part through acquisitions, equity,
and other collaborations to expand its
technology base. The fiscal 1997
acquisitions and investments are
indicators of the Company's continued
focus on this segment. The Company is
optimistic the fiscal 1997 and 1996
restructuring actions will continue to
increase the profitability and cash flow
of the Analytical Instruments Division.
However, the division's revenues did not
meet its budget target in fiscal
1997, and the Company continues
Page 40
to examine its product portfolio to determine
an appropriate growth strategy for that
business. Future profitability for both
divisions could be adversely affected if
the relationship of the U.S. dollar to
certain currencies is maintained or
strengthens.
Forward Looking Statements
Certain statements contained in this
annual report may be forward looking and
are subject to a variety of risks and
uncertainties. Many factors could cause
actual results to differ materially from
these statements. These factors include,
but are not limited to, (1) complexity
and uncertainty regarding the development
of new high-technology products; (2) loss
of market share through competition; (3)
introduction of competing products or
technologies by other companies; (4)
pricing pressures from competitors and/or
customers; (5) changes in the life
science or analytical instrument
industries; (6) changes in the
pharmaceutical, environmental, research
or chemical markets; (7) variable
government funding in key geographical
regions; (8) the Company's ability to
protect proprietary information and
technology or to obtain necessary
licenses on commercially reasonable
terms; (9) the loss of key employees;
(10) fluctuations in foreign currency
exchange rates; and (11) other factors
that might be described from time to time
in the Company's filings with the
Securities and Exchange Commission.
A significant portion of the Applied
Biosystems Division's operations are
located near major California earthquake
faults. The ultimate impact of
earthquakes on the Company, significant
suppliers and the general infrastructure
is unknown, but operating results could
be materially affected in the event of a
major earthquake. The Company maintains
insurance to reduce its exposure to
losses and interruptions caused by
earthquakes.
Although the Company believes it has
the product offerings and resources
needed for continuing success, future
revenue and margin trends cannot be
reliably predicted and may cause the
Company to adjust its operations.
Factors external to the Company can
result in volatility of the Company's
common stock price. Because of the
foregoing factors, recent trends should
not be considered reliable indicators of
future stock prices or financial results.
Page 41
CONSOLIDATED STATEMENTS OF OPERATIONS The Perkin-Elmer Corporation
(Dollar amounts in thousands except per share amounts)
For the years ended June 30, 1997 1996 1995
Net revenues $ 1,276,766 $ 1,162,949 $ 1,063,506
Cost of sales 642,264 595,857 560,402
Gross margin 634,502 567,092 503,104
Selling, general and administrative 375,880 339,994 317,120
Research, development and engineering 105,660 102,338 95,088
Provision for restructured operations 13,000 71,600 23,000
Acquired research and development 26,801 27,093
Operating income 113,161 26,067 67,896
Gain on sale of investment 37,420 11,704 20,800
Interest expense 2,325 4,971 8,180
Interest income 7,574 4,894 3,500
Other income (expense), net 1,548 (2,193) (1,452)
Income before income taxes 157,378 35,501 82,564
Provision for income taxes 42,223 21,557 15,687
Net income $ 115,155 $ 13,944 $ 66,877
Net income per share $ 2.58 $ .32 $ 1.57
See accompanying Notes to Consolidated Financial Statements.
Page 42
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION The Perkin-Elmer Corporation
(Dollar amounts in thousands)
At June 30, 1997 1996
Assets
Current assets
Cash and cash equivalents $ 194,745 $ 95,361
Short-term investments 1,226 1,227
Accounts receivable, less allowances for doubtful accounts of $5,444 ($6,845 - 1996) 307,230 254,531
Inventories 188,720 207,297
Prepaid expenses and other current assets 102,263 82,360
Total current assets 794,184 640,776
Property, plant and equipment, net 173,037 148,008
Other long-term assets 137,577 152,540
Total assets $ 1,104,798 $ 941,324
Liabilities and Shareholders' Equity
Current liabilities
Loans payable $ 18,054 $ 51,075
Accounts payable 115,374 86,885
Accrued salaries and wages 46,470 39,607
Accrued taxes on income 97,307 57,097
Other accrued expenses 177,988 206,552
Total current liabilities 455,193 441,216
Long-term debt 33,599 890
Other long-term liabilities 179,134 175,776
Total liabilities 667,926 617,882
Commitments and contingencies (see Note 11)
Shareholders' equity
Capital stock
Preferred stock $1 par value: 1,000,000 shares authorized; none issued
Common stock $1 par value: 90,000,000 shares authorized; 45,599,755 shares issued 45,600 45,600
Capital in excess of par value 198,570 186,058
Retained earnings 278,760 194,613
Foreign currency translation adjustments (267) 446
Unrealized gain on investment 23,245
Minimum pension liability adjustment (705) (29,365)
Treasury stock, at cost (shares: 1997 - 1,795,563; 1996 - 2,701,186) (85,086) (97,155)
Total shareholders' equity 436,872 323,442
Total liabilities and shareholders' equity $ 1,104,798 $ 941,324
See accompanying Notes to Consolidated Financial Statements.
Page 43
CONSOLIDATED STATEMENTS OF CASH FLOWS The Perkin-Elmer Corporation
(Dollar amounts in thousands)
For the years ended June 30, 1997 1996 1995
Operating Activities
Net income $ 115,155 $ 13,944 $ 66,877
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 36,017 41,240 40,670
Restricted stock amortization 11,678 5,072
Deferred income taxes (37,799) (12,683) (4,568)
Gains from the sale of assets (39,155) (11,704) (22,129)
Provision for restructured operations 13,000 71,600 23,000
Acquired research and development 26,801 27,093
Impairment of assets 7,500
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (62,128) (34,162) 13,675
(Increase) decrease in inventories 7,678 (4,322) 1,540
Increase in prepaid expenses and other assets (2,438) (9,794) (11,860)
Increase (decrease) in accounts payable and other liabilities 55,546 25,638 (35,199)
Net cash provided by operating activities 131,855 111,922 72,006
Investing Activities
Additions to property, plant and equipment
(net of disposals of $2,226, $2,070 and $1,733, respectively) (59,941) (30,297) (27,130)
Acquisitions, net (27,676) (42,542) (10,898)
Proceeds from the sale of assets, net 70,447 21,562 54,499
Proceeds from the collection of note receivable 978
Proceeds from short-term investments 5,773
Proceeds from the sale of discontinued operations 64,847
Net cash (used) provided by investing activities (16,192) (45,504) 81,318
Financing Activities
Net change in loans payable (5,234) (18,129) (40,850)
Proceeds from long-term debt 31,033
Principal payments on long-term debt (22,908) (1,901)
Dividends (29,459) (29,095) (28,618)
Purchases of common stock for treasury (25,126) (41,028) (40,297)
Proceeds from issuance of equity put warrants 1,846
Proceeds from stock issued for stock plans 31,511 46,656 10,279
Net cash used by financing activities (18,337) (41,596) (101,387)
Effect of exchange rate changes on cash 2,058 (2,471) (3,930)
Net change in cash and cash equivalents 99,384 22,351 48,007
Cash and cash equivalents beginning of year 95,361 73,010 25,003
Cash and cash equivalents end of year $ 194,745 $ 95,361 $ 73,010
See accompanying Notes to Consolidated Financial Statements.
Page 44
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY The Perkin-Elmer Corporation
Foreign Minimum
Common Capital In Currency Unrealized Pension
Stock $1.00 Excess Of Retained Translation Gain on Liability Treasury Stock
(Dollar amounts and shares in thousands) Par Value Par Value Earnings Adjustments Investment Adjustment At Cost Shares
Balance at June 30, 1994 $ 45,600 $ 178,739 $ 181,130 $ 5,521 $ - $ (36,259) $ (84,299)(2,651)
Net income 66,877
Cash dividends declared (28,618)
Share repurchases (40,297)(1,386)
Shares issued under stock plans (3,929) 14,208 477
Tax benefit related to employee stock options 34
Minimum pension liability adjustment 1,814
Restricted stock plan (2,074) 8 2,066 70
Foreign currency translation adjustments 4,284
Other (105)
Balance at June 30, 1995 45,600 176,699 215,363 9,805 - (34,445) (108,322)(3,490)
Net income 13,944
Cash dividends declared (29,095)
Share repurchases (41,028) (800)
Shares issued under stock plans (5,627) 52,283 1,559
Tax benefit related to employee stock options 5,280
Minimum pension liability adjustment 5,080
Restricted stock plan 4,079 993 30
Unrealized gain on investment 23,245
Foreign currency translation adjustments (9,359)
Other 28 (1,081)
Balance at June 30, 1996 45,600 186,058 194,613 446 23,245 (29,365) (97,155)(2,701)
Net income 115,155
Cash dividends declared (29,536)
Share repurchases (25,126) (428)
Shares issued under stock plans (1,459) 32,970 1,146
Tax benefit related to employee stock options 4,568
Minimum pension liability adjustment 28,660
Restricted stock plan 6,098 5,580 187
Sale of equity investment (23,245)
Sale of equity put warrants 1,846
Foreign currency translation adjustments (713)
Other (13) (1,355)
Balance at June 30, 1997 $ 45,600 $ 198,570 $ 278,760 $ (267) $ - $ (705) $ (85,086)(1,796)
See accompanying Notes to Consolidated Financial Statements.
Page 45
Notes to Consolidated Financial Statements
Note 1 Accounting Policies and Practices
Principles of Consolidation. The consolidated
financial statements include the accounts of all
majority-owned subsidiaries of The Perkin-Elmer
Corporation (PE or the Company). The preparation
of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and
liabilities, disclosure of contingent assets and
liabilities at the date of the financial
statements, and the reported amounts of revenues
and expenses during the reporting periods. Actual
results could differ from those estimates. Certain
amounts in the consolidated financial statements
and notes have been reclassified for comparative
purposes.
Changes in Accounting Principles. The Company
adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," in fiscal 1997. The statement
requires that long-lived assets and certain
identifiable intangibles, including goodwill, to be
held and used by an entity be reviewed for
impairment whenever events or changes in
circumstances indicate the carrying amount of an
asset may not be recoverable. During the fourth
quarter of fiscal 1997, the Company recorded a $7.5
million cost of sales charge to write-down $5.6
million of goodwill associated with the fiscal
1995 acquisition of Photovac Inc. and $1.9 million
of other assets primarily associated with the
Analytical Instruments Division. The impairment
loss was determined based upon estimated future
cash flows and fair values.
SFAS No. 123, "Accounting for Stock-Based
Compensation," requires companies to measure
employee stock compensation plans based on the fair
value method of accounting or to continue to apply
Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and
provide pro forma footnote disclosures under the
fair value method. In fiscal 1997, the Company
adopted the disclosure provisions of SFAS No. 123
and will continue to measure costs for its employee
stock compensation plans using APB Opinion No. 25.
Pro forma disclosure is provided in Note 8.
The Company is required to implement SFAS No.
128, "Earnings per Share," in the second quarter of
fiscal 1998. This statement replaces the
presentation of earnings per share (EPS) with a
presentation of basic EPS and requires dual
presentation of basic and diluted EPS on the face
of the income statement. Basic EPS excludes common
stock equivalents and is computed by dividing
income available to shareholders by the weighted
average number of common shares outstanding for the
period. Diluted EPS is computed similarly to fully
diluted EPS under the provisions of APB Opinion No.
15, "Earnings per Share." The following table
illustrates the pro forma disclosure of EPS data in
accordance with SFAS No. 128:
1997 1996 1995
As Presented Under APB
Opinion No. 15
Primary EPS $2.58 $.32 $1.57
Fully diluted EPS $2.57 $.32 $1.56
As Calculated Under
SFAS No. 128
Basic EPS $2.65 $.33 $1.59
Diluted EPS $2.58 $.32 $1.57
Foreign Currency. Assets and liabilities of
foreign operations, where the functional currency
is the local currency, are translated into U.S.
dollars at the fiscal year end exchange rates. The
related translation adjustments are recorded as a
separate component of shareholders' equity.
Foreign currency revenues and expenses are
translated using monthly average exchange rates
prevailing during the year. Foreign currency
transaction gains and losses, as well as
translation adjustments of foreign operations where
the functional currency is the U.S. dollar, are
included in net income.
Derivative Financial Instruments. The Company uses
derivative financial instruments to offset exposure
to market risks arising from changes in foreign
currency exchange rates and interest rates.
Derivative financial instruments currently utilized
by the Company include foreign currency forward
contracts, foreign currency options, and an
interest rate swap (see Note 12 for further
discussion).
Cash, Short-Term Investments, and Marketable
Securities. Cash equivalents consist of highly
liquid debt instruments, time deposits, and
certificates of deposit with original maturities of
three months or less. Time deposits and
certificates of deposit with original maturities of
three months to one year are classified as short-
term investments. Short-term investments, which
include marketable securities, are recorded at cost
which generally approximates market value.
Accounts Receivable. The Company periodically
sells accounts receivable arising from business
conducted in Japan. During fiscal 1997,
1996, and 1995, the Company received cash
Page 46
proceeds of $66.5 million, $71.1 million, and
$101.4 million, respectively, from the sale of
such receivables. The Company believes it has
adequately provided for any risk of loss which
may occur under these arrangements.
Investments. The equity method of accounting is
used for investments in 50% or less owned joint
ventures. Investments where ownership is less than
20% are carried at cost. Investments accounted for
under the cost or equity methods were not material
for the years presented.
Inventories. Inventories are stated at the lower
of cost (on a first-in, first-out basis) or market.
Inventories at June 30, 1997 and 1996 included the
following components:
(Dollar amounts in millions) 1997 1996
Raw materials and supplies $ 23.7 $ 31.1
Work-in-process 15.7 19.8
Finished products 149.3 156.4
Total inventories $ 188.7 $ 207.3
Property, Plant and Equipment and Depreciation.
Property, plant and equipment are recorded at cost
and consisted of the following at June 30, 1997 and
1996:
(Dollar amounts in millions) 1997 1996
Land $ 21.8 $ 22.4
Buildings and leasehold improvements 138.1 133.0
Machinery and equipment 246.7 213.1
Property, plant and equipment, at cost 406.6 368.5
Accumulated depreciation and
amortization 233.6 220.5
Property, plant and equipment, net $ 173.0 $ 148.0
Provisions for depreciation of owned property,
plant and equipment are based upon the expected
useful lives of the assets and computed primarily
by the straight-line method. Leasehold
improvements are amortized over their estimated
useful lives or the term of the applicable lease,
whichever is less, using the straight-line method.
Major renewals and improvements that
significantly add to productive capacity or extend
the life of an asset are capitalized. Repairs,
maintenance and minor renewals, and improvements
are expensed when incurred.
Intangible Assets. The excess of purchase price
over the net asset value of companies acquired is
amortized on a straight-line method over periods
not exceeding forty years. Patents and trademarks
are amortized using the straight-line method over
their expected useful lives. The Company
periodically reviews the recoverability of
intangible and other long-lived assets based upon
anticipated cash flows generated from such
underlying assets.
Revenues. Revenues are recorded at the time of
shipment of products or performance of services.
Revenues from service contracts are recorded as
deferred service contract revenues and reflected in
net revenues over the term of the contract,
primarily one year.
Research, Development and Engineering. Research,
development and engineering costs are expensed when
incurred.
Income Taxes. The Company accounts for certain
income and expense items differently for financial
reporting and income tax purposes. Deferred tax
assets and liabilities are determined based on
differences between the financial reporting and the
tax basis of assets and liabilities, and are
measured by applying enacted tax rates applicable
to taxable years in which the differences are
expected to reverse.
Net Income (Loss) Per Share. Net income (loss) per
share is computed by dividing net income (loss) by
the weighted average number of common shares and
dilutive common stock equivalents outstanding.
Common stock equivalents include stock options.
The difference between weighted average shares for
primary and fully diluted net income (loss) per
share was not significant for the years presented.
Supplemental Cash Flow Information. Cash paid for
interest expense and income taxes for the fiscal
years ended 1997, 1996, and 1995 was as follows:
(Dollar amounts in millions) 1997 1996 1995
Interest $ 2.7 $ 5.6 $ 8.0
Income taxes $ 31.3 $ 15.0 $ 27.3
Note 2 Acquisitions and Dispositions
GenScope, Inc. During the third quarter of fiscal
1997, the Company acquired GenScope, Inc., a
company solely engaged in the development of gene
expression technology. The acquisition cost of
$26.8 million was accounted for as a purchase. The
Page 47
acquisition represented the purchase of technology
in the development stage that is not presently
considered commercially viable in the health care
applications which the Company intends to pursue.
As a result, $25.4 million of the acquisition cost
was allocated to purchased in-process research and
development (R&D) and, in accordance with
applicable accounting rules, was expensed in the
third quarter of fiscal 1997. The Company recorded
a $5.5 million contingent liability, payable if
certain performance criteria are achieved, in
connection with the acquisition.
Other Acquisitions. The Company acquired a
minority equity interest in Hyseq, Inc., during the
fourth quarter of fiscal 1997, for an initial cash
investment of $5.0 million. Hyseq, Inc. is engaged
in the development of gene-based therapeutic
product candidates and diagnostic products and
tests.
The Company acquired Linkage Genetics, Inc., a
provider of genetic services in the agriculture
industry, during the fourth quarter of fiscal 1997.
The cash acquisition cost of $1.4 million was
accounted for as a purchase. The entire
acquisition cost was expensed as purchased in-
process R&D.
During the fourth quarter of fiscal 1996, the
Company acquired Zoogen, Inc., a leading provider
of genetic analysis services, and a minority equity
interest in Paracel, Inc., a provider of
information filtering technologies, for $6.5
million in cash. The acquisition of Zoogen, Inc.
was accounted for as a purchase. In connection
with these acquisitions, $4.8 million was expensed
as purchased in-process R&D.
Tropix, Inc. During the fourth quarter of fiscal
1996, the Company acquired Tropix, Inc., a world
leader in the development, manufacture, and sale of
chemiluminescent detection technology for life
sciences. The acquisition cost, net of cash
acquired, was $36.0 million and was accounted for
as a purchase. A portion of the purchase price was
allocated to the net assets acquired and $22.3
million was expensed as purchased in-process R&D.
Photovac Inc. The Company acquired Photovac Inc.,
a leading developer and manufacturer of field
portable analytical instrumentation, during the
fourth quarter of fiscal 1995, for $11.0 million in
cash. The acquisition was accounted for as a
purchase.
Based upon a review of estimated future cash
flows, the Company recorded a $5.6 million charge
to write-down goodwill associated with this
acquisition in fiscal 1997.
The net assets and results of operations for the
above acquisitions have been included in the
consolidated financial statements since the date of
each acquisition. The pro forma effect on the
Company's consolidated financial statements was not
significant.
Dispositions
Etec Systems, Inc. In fiscal 1997, the Company
completed the sale of its entire equity interest in
Etec Systems, Inc. Before-tax gains of $37.4
million, or $.65 per share after-tax, and $11.7
million, or $.21 per share after-tax, were
recognized in fiscal 1997 and 1996, respectively.
Net cash proceeds received from the sales were
$45.8 million and $16.6 million, respectively.
Silicon Valley Group, Inc. During the third
quarter of fiscal 1995, the Company sold its equity
interest in Silicon Valley Group, Inc. for net cash
proceeds of $49.8 million, resulting in a before-
tax gain of $20.8 million, or $.40 per share after-
tax.
Discontinued Operations
Material Sciences Segment. The Company received
$64.8 million in the first quarter of fiscal 1995
from the sale of its Material Sciences segment
(Metco) to Sulzer Inc., a wholly-owned subsidiary
of Sulzer, Ltd., Winterthur, Switzerland. During
fiscal 1994, Metco was reported as a discontinued
operation.
Note 3 Debt and Lines of Credit
There were no domestic borrowings outstanding at
June 30, 1997 or 1996. Foreign loans payable and
long-term debt at June 30, 1997 and 1996 are
summarized below:
(Dollar amounts in millions) 1997 1996
Loans Payable
Notes payable, banks $18.1 $25.4
Current maturity of Yen loan 25.7
Total loans payable $18.1 $51.1
Long-term Debt
Yen loan $33.6 $ -
Other .9
Total long-term debt $33.6 $ .9
The weighted average interest rates at June 30,
1997 and 1996 for notes payable to foreign banks
were 2.4% and 3.7%, respectively.
During the third quarter of fiscal 1997, the
Company replaced its Yen 2.8 billion ($25.7 million
at June 30, 1996) loan, which matured in February
1997, with a Yen 3.8 billion ($33.6 million at June
30, 1997) variable rate long-term loan which
matures in March 2002. Through an interest rate
swap agreement (see Note 12), the effective
interest rate for the new loan is 2.1% compared
with 3.3% for the previous loan.
Page 48
On June 1, 1994, the Company entered into a $100
million three year revolving credit agreement. The
agreement was amended in fiscal 1996 to extend the
maturity an additional three years to June 1, 2000.
Commitment and facility fees are based on leverage
and interest coverage ratios. Interest rates on
amounts borrowed vary depending on whether
borrowings are undertaken in the domestic or
Eurodollar markets. There were no borrowings under
the facility at June 30, 1997 or 1996.
At June 30, 1997, the Company had unused credit
facilities for short-term borrowings from domestic
and foreign banks in various currencies totaling
$319 million.
Under various debt and credit agreements, the
Company is required to maintain certain minimum net
worth and interest coverage ratios.
There are no maturities of long-term debt
scheduled for fiscal 1998, 1999, 2000, or 2001.
The Yen 3.8 billion loan matures in fiscal 2002.
Note 4 Income Taxes
Income before income taxes for fiscal 1997, 1996,
and 1995 is summarized below:
(Dollar amounts in millions) 1997 1996 1995
United States $ 98.6 $ 16.3 $ 58.8
Foreign 58.8 19.2 23.8
Total $ 157.4 $ 35.5 $ 82.6
The components of the provision for income taxes
for fiscal 1997, 1996 and 1995 consisted of
the following:
(Dollar amounts in millions) 1997 1996 1995
Currently Payable
Federal $ 55.9 $ 9.4 $ 2.2
Foreign 23.8 23.8 17.2
State and local .3 1.0 .9
Total currently payable 80.0 34.2 20.3
Deferred
Federal (41.0) (4.4) (7.5)
Foreign 3.2 (8.2) 2.9
Total deferred (37.8) (12.6) (4.6)
Total provision for
income taxes $ 42.2 $ 21.6 $ 15.7
Significant components of deferred tax assets
and liabilities at June 30, 1997 and 1996 are
summarized below:
(Dollar amounts in millions) 1997 1996
Deferred Tax Assets
Intangibles $ 6.4 $ 10.4
Inventories 6.1 6.7
Postretirement and
postemployment benefits 35.7 35.9
Other reserves and accruals 48.2 76.8
Tax credit carryforwards 4.9 10.4
Foreign loss carryforwards 12.3 10.0
Subtotal 113.6 150.2
Valuation allowance (41.7) (105.6)
Total deferred tax assets 71.9 44.6
Deferred Tax Liabilities
Inventories .6 .7
Other reserves and accruals 5.1 6.0
Total deferred tax liabilities 5.7 6.7
Total deferred tax assets, net $ 66.2 $ 37.9
A reconciliation of the federal statutory tax to
the Company's tax provision for fiscal 1997, 1996,
and 1995 is set forth in the following table:
(Dollar amounts in millions) 1997 1996 1995
Federal statutory rate 35% 35% 35%
Tax at federal statutory rate $ 55.1 $ 12.4 $ 28.9
State income taxes
(net of federal benefit) .2 .7 .6
Effect on income from
foreign operations 40.4 14.7 13.4
Effect on income from
foreign sales corporation (4.8) (3.2)
Acquired research and
development 9.4 9.5
Domestic temporary
differences for which
benefit is recognized (60.6) (12.7) (23.7)
Other 2.5 .2 (3.5)
Total provision for
income taxes $ 42.2 $ 21.6 $ 15.7
Page 49
At June 30, 1997, the Company had a U.S.
alternative minimum tax credit carryforward of $4.8
million with an indefinite carryforward period.
The Company has loss carryforwards of approximately
$29 million in various foreign countries, primarily
in Germany and Japan, with varying expiration
dates.
During the fourth quarter of fiscal 1997, the
Company reduced its deferred tax valuation
allowance, resulting in the recognition of a $50.0
million deferred tax benefit. Based on continued
improvement in the Company's outlook for sustained
profitability, management believes it is more
likely than not it will generate taxable income
sufficient to realize the Company's $66.2 million
net deferred tax asset. The valuation allowance
adjustment incorporates management's assessment of
the significant cumulative progress made by the
Company over the past years to increase taxable
income in certain geographic areas. Such
reassessment is reinforced by the positive effect
of the recent restructuring charges. The benefit
resulting from the valuation allowance release was
substantially offset by a fourth quarter accrual
for tax costs related to gains on foreign
reorganizations.
U.S. income taxes have not been provided on
approximately $124 million of net unremitted
earnings from foreign subsidiaries since the
Company intends to permanently reinvest
substantially all of such earnings in the
operations of the subsidiaries. In those instances
where the Company expects to remit earnings, the
effect on the results of operations, after
considering available tax credits and amounts
previously accrued, was not significant.
The Company's federal tax returns have been
examined by the Internal Revenue Service (IRS) for
the years 1975 through 1989, and the IRS is
currently examining the years 1990 through 1992.
It is anticipated that an agreement with the IRS to
settle all years through 1987 will be finalized
during fiscal 1998, including the years litigated
before the U.S. Tax Court. The years 1988 and 1989
are under consideration at the IRS appeals level.
It is expected the field work for the IRS
examination of the years 1990 to 1992 and the
written report of findings will be completed in
fiscal 1998. The tax returns for Applied
Biosystems Inc. (ABI), acquired by the Company in
1993, are also being examined by the IRS. ABI
years 1989 to 1991 are under consideration at the
IRS appeals level, while 1992 and 1993 are
currently under examination by the IRS. It is
management's opinion that it has adequately
provided in the financial statements for any IRS
adjustments for these years.
Note 5 Retirement and Other Benefits
Pension Plans. The Company maintains or sponsors
pension plans that cover substantially all
worldwide employees. Pension benefits earned are
generally based on years of service and
compensation during active employment. However,
the level of benefits and terms of vesting vary
among the plans. Pension plan assets are
administered by trustees and are principally
invested in equity and fixed income securities.
The funding of pension plans is determined in
accordance with statutory funding requirements.
The total worldwide pension expense for all
employee pension plans was $15.1 million, $15.2
million, and $15.0 million for fiscal 1997,
1996, and 1995, respectively. The actuarial
assumptions used in the determination of net
pension expense, as well as the components thereof,
are set forth in the following tables:
Domestic Plans
(Dollar amounts in millions) 1997 1996 1995
Assumptions
Discount rate 8 1/2% 8 1/2% 8 1/2%
Compensation increase 4% 4% 4%
Long-term rate of return 8 1/2-9 1/4% 8 1/2-9 1/4% 8 1/2-9 1/4%
Components
Service cost $ 8.0 $ 7.6 $ 7.8
Interest cost 37.0 33.0 30.7
Actual return on assets (35.6) (32.1) (29.9)
Net amortization
and deferral (1.0) (1.4) (.9)
Net pension expense $ 8.4 $ 7.1 $ 7.7
Foreign Plans
(Dollar amounts in millions) 1997 1996 1995
Assumptions
Discount rate 6-8% 6-8% 6 1/2-8%
Compensation increase 3 1/2-4 1/2% 4-4 1/2% 4 1/4-4 1/2%
Long-term rate of return 6 1/2-9 1/2% 6 1/2-9 1/2% 6 1/2-10%
Components
Service cost $ 2.7 $ 3.2 $ 3.0
Interest cost 6.3 6.7 6.2
Actual return on assets (3.5) (4.0) (2.6)
Net amortization
and deferral 1.2 2.2 .7
Net pension expense $ 6.7 $ 8.1 $ 7.3
Page 50
The following table sets forth the funded status
of the plans and amounts recognized in the
Company's Consolidated Statements of Financial
Position at June 30, 1997 and 1996:
Domestic Plans
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
(Dollar amounts in millions) 1997 1997 1996
Plan assets at fair value $ 474.2 $ - $ 422.2
Projected benefit obligation 475.0 10.7 435.1
Plan assets less than
projected benefit
obligation (.8) (10.7) (12.9)
Unrecognized items:
Net actuarial loss 43.3 1.7 48.1
Prior service cost (5.5) 3.0 (5.1)
Net transition (asset)
obligation (7.2) .5 (9.0)
Minimum pension
liability adjustment (3.8) (31.5)
Prepaid (accrued)
pension expense $ 29.8 $ (9.3) $ (10.4)
Actuarial present value
of accumulated
benefits $ 470.2 $ 9.3 $ 432.5
Accumulated benefit
obligation related
to vested benefits $ 461.7 $ 8.0 $ 424.1
A minimum pension liability adjustment is
required when the actuarial present value of
accumulated benefits exceeds plan assets and
accrued pension liabilities. The minimum liability
adjustment, less allowable intangible assets, net
of tax benefit, is reported as a reduction of
shareholders' equity. At June 30 1997, pension
plan assets exceeded the present value of
accumulated benefits for most plans. Accordingly,
the additional minimum liability was reduced to $.7
million at June 30, 1997 from $29.4 million at June
30, 1996.
Foreign Plans
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
(Dollar amounts in millions) 1997 1996 1997 1996
Plan assets at fair value $ 32.0 $ 27.9 $ - $ -
Projected benefit obligation 30.3 28.0 64.9 70.2
Plan assets greater (less)
than projected benefit
obligation 1.7 (.1) (64.9) (70.2)
Unrecognized items:
Net actuarial (gain) loss 3.2 3.9 (2.5) (2.3)
Prior service cost 1.5 1.1
Net transition (asset)
obligation (1.9) (2.2) 4.0 5.0
Prepaid (accrued)
pension expense $ 4.5 $ 2.7 $(63.4) $(67.5)
Actuarial present value
of accumulated
benefits $ 28.0 $ 26.0 $ 56.1 $ 60.1
Accumulated benefit
obligation related
to vested benefits $ 27.8 $ 25.7 $ 52.5 $ 56.3
Savings Plan. Effective October 1, 1995, the
Company's domestic profit sharing and savings plan
was reconfigured to form a Company matched 401(k)
savings plan. The amended plan provides for
automatic Company contributions of 2% of eligible
compensation and a dollar-for-dollar matching
contribution of up to 4% of eligible compensation.
The Company's contributions to this plan were $9.6
million and $7.4 million for fiscal 1997 and 1996,
respectively.
Prior to the amendment, the profit sharing and
savings plan allowed for Company contributions in
an amount equal to 8% of consolidated income before
income taxes, as defined by the plan, provided the
Company's contribution did not reduce earnings
below $.3125 per share of common stock. The profit
sharing payment by the Company was allocated among
its domestic employees in direct proportion to
their earnings. The Company's contribution to this
plan was $7.6 million for fiscal 1995.
Retiree Health Care and Life Insurance Benefits.
The Company provides certain health care and life
insurance benefits to domestic employees, hired
prior to January 1, 1993, who
Page 51
retire and satisfy certain service and age requirements.
Generally, medical coverage pays a stated percentage of
most medical expenses, reduced for any deductible and
payments made by Medicare or other group coverage.
The cost of providing these benefits is shared with
retirees. The plan is unfunded.
The following table sets forth the accrued
postretirement benefit liability recognized in the
Company's Consolidated Statements of Financial
Position at June 30, 1997 and 1996:
(Dollar amounts in millions) 1997 1996
Actuarial Present Value
of Postretirement Benefit
Obligation
Retirees $ 60.6 $ 64.4
Fully eligible active participants 1.0 .8
Other active participants 9.7 9.4
Accumulated postretirement
benefit obligation (APBO) 71.3 74.6
Unrecognized net gain 24.4 21.5
Accrued postretirement benefit liability $ 95.7 $ 96.1
The net postretirement benefit cost for fiscal
1997 and 1996 included the following components:
(Dollar amounts in millions) 1997 1996
Service cost $ .6 $ .6
Interest cost 5.8 6.0
Amortization of unrecognized gain (1.3) (1.1)
Net postretirement benefit cost $ 5.1 $ 5.5
The discount rate used in determining the APBO
was 8.5% in fiscal 1997 and 1996. The assumed
health care cost trend rate used for measuring the
APBO was divided into three categories:
1997 1996
Pre-65 participants 10.3% 11.0%
Post-65 participants 7.7% 8.1%
Medicare 7.7% 8.1%
All three rates were assumed to decline to 5.5%
over eight and nine years in fiscal 1997 and 1996,
respectively.
If the health care cost trend rate was increased
1%, the APBO, as of June 30, 1997, would have
increased 10%. The effect of this change on the
aggregate of service and interest cost for fiscal
1997 would be an increase of 11%.
Postemployment Benefits. The Company provides
certain postemployment benefits to eligible
employees. These benefits generally include
severance, disability, and medical-related costs
paid after employment but before retirement.
Note 6 Business Segments and Geographic Area Information
Business Segments. The Company reorganized into two
separate segments in fiscal 1996. This change
incorporated the Company's decentralized management
philosophy and recognized the differing business and
strategic objectives of both divisions. The Applied
Biosystems Division is comprised of biochemical
instrument systems and associated consumable products for
life science research and related applications. These
automated systems are used for synthesis, amplification,
purification, isolation, analysis and sequencing of
nucleic acids, proteins, and other biological molecules.
The Analytical Instruments Division is comprised of
equipment and systems used for determining the
composition and molecular structure of chemical
substances (both organic and inorganic), data handling
devices, and real time, process analysis systems to
monitor process quality and environmental purity.
Through a joint venture, the Company manufactures and
sells mass spectrometry instrument systems in both
industry segments.
Geographic Areas. Revenues between geographic areas are
primarily comprised of the sale of products by the
Company's manufacturing units. The revenues reflect the
rules and regulations of the respective governing tax
authorities. Net revenues and operating profits are
reported in the region of destination. Operating income
is determined by deducting from net revenues the related
costs and operating expenses attributable to the region.
Research, development and engineering expenses are
reflected in the area where the activity was performed.
Identifiable assets include all assets directly identified
with those geographic areas. Corporate assets include
cash and short-term investments, deferred tax assets,
property, plant, and equipment, minority equity
investments, and other assets that are corporate in
nature.
Export net revenues for fiscal 1997, 1996, and 1995
were $43.7 million, $44.6 million and $45.4 million,
respectively.
Page 52
Business Segments
Applied Analytical
(Dollar amounts in millions) Biosystems Instruments Corporate Consolidated
1997
Net revenues $ 652.7 $ 624.1 $ - $ 1,276.8
Segment income (loss) $ 135.6 $ 56.1 $ (31.2) $ 160.5
Restructuring charge (13.0) (13.0)
Acquired research and development (26.8) (26.8)
Impairment of assets (.7) (6.8) (7.5)
Operating income (loss) $ 108.1 $ 36.3 $ (31.2) $ 113.2
Identifiable assets $ 391.3 $ 384.5 $ 329.0 $ 1,104.8
Capital expenditures $ 34.5 $ 14.1 $ 13.6 $ 62.2
Depreciation and amortization $ 15.7 $ 18.6 $ 1.7 $ 36.0
1996
Net revenues $ 532.3 $ 630.6 $ - $ 1,162.9
Segment income (loss) $ 120.6 $ 28.7 $ (24.5) $ 124.8
Restructuring charge (71.6) (71.6)
Acquired research and development (27.1) (27.1)
Operating income (loss) $ 93.5 $ (42.9) $ (24.5) $ 26.1
Identifiable assets $ 319.3 $ 401.6 $ 220.4 $ 941.3
Capital expenditures $ 18.2 $ 13.6 $ .6 $ 32.4
Depreciation and amortization $ 12.1 $ 28.7 $ .4 $ 41.2
1995
Net revenues $ 438.1 $ 625.4 $ - $ 1,063.5
Segment income (loss) $ 81.7 $ 26.7 $ (17.5) $ 90.9
Restructuring charge (19.2) (3.8) (23.0)
Operating income (loss) $ 81.7 $ 7.5 $ (21.3) $ 67.9
Identifiable assets $ 269.7 $ 440.8 $ 178.3 $ 888.8
Capital expenditures $ 12.2 $ 16.3 $ .4 $ 28.9
Depreciation and amortization $ 10.7 $ 29.5 $ .5 $ 40.7
Page 53
Geographic Areas
United Other
(Dollar amounts in millions) States Europe Far East Countries Corporate Consolidated
1997
Total revenues $ 524.8 $ 632.3 $ 381.1 $ 83.5 $ - $ 1,621.7
Transfers between geographic areas (40.4) (135.5) (147.3) (21.7) (344.9)
Revenues to unaffiliated customers $ 484.4 $ 496.8 $ 233.8 $ 61.8 $ $ 1,276.8
Income (loss) $ 4.0 $ 105.5 $ 73.8 $ 8.4 $ (31.2) $ 160.5
Restructuring charge (5.2) (5.9) (.9) (1.0) (13.0)
Acquired research and development (26.8) (26.8)
Impairment of assets (1.9) (5.6) (7.5)
Operating income (loss) $ (29.9) $ 99.6 $ 72.9 $ 1.8 $ (31.2) $ 113.2
Identifiable assets $ 356.7 $ 270.0 $ 120.4 $ 28.7 $ 329.0 $ 1,104.8
1996
Total revenues $ 461.8 $ 581.2 $ 346.6 $ 79.3 $ - $ 1,468.9
Transfers between geographic areas (43.6) (119.9) (124.6) (17.9) (306.0)
Revenues to unaffiliated customers $ 418.2 $ 461.3 $ 222.0 $ 61.4 $ $ 1,162.9
Income (loss) $ (9.4) $ 76.7 $ 72.6 $ 9.4 $ (24.5) $ 124.8
Restructuring charge (12.4) (59.2) (71.6)
Acquired research and development (27.1) (27.1)
Operating income (loss) $ (48.9) $ 17.5 $ 72.6 $ 9.4 $ (24.5) $ 26.1
Identifiable assets $ 336.6 $ 255.3 $ 98.4 $ 30.6 $ 220.4 $ 941.3
1995
Total revenues $ 447.7 $ 542.0 $ 296.6 $ 71.3 $ - $ 1,357.6
Transfers between geographic areas (54.0) (119.7) (101.3) (19.1) (294.1)
Revenues to unaffiliated customers $ 393.7 $ 422.3 $ 195.3 $ 52.2 $ $ 1,063.5
Income (loss) $ (20.5) $ 68.4 $ 52.2 $ 8.3 $ (17.5) $ 90.9
Restructuring charge (9.4) (8.3) (1.4) (.1) (3.8) (23.0)
Operating income (loss) $ (29.9) $ 60.1 $ 50.8 $ 8.2 $ (21.3) $ 67.9
Identifiable assets $ 322.0 $ 253.8 $ 102.5 $ 32.2 $ 178.3 $ 888.8
Page 54
Note 7 Shareholders' Equity
Treasury Stock. Common stock purchases were made in
support of the Company's various stock plans. The
Company has no specific share repurchase targets but
may make periodic open market purchases from time to
time. During fiscal 1997, 1996, and 1995, the
Company purchased .4 million, .8 million, and .5
million shares, respectively, to support various
stock plans. The remaining number of shares
available under a purchase authorization at June 30,
1997 is 4.2 million.
Equity Put Warrants. During the first quarter of
fiscal 1997, the Company sold in a private placement
600,000 put warrants on shares of its common stock.
Each warrant obligated the Company to purchase the
shares from the holder, at specified prices, if the
closing price of the common stock was below the
exercise price on the maturity date. The cash
proceeds from the sale of the put warrants were $1.8
million and have been included in capital in excess
of par value. During fiscal 1997, all 600,000
warrants expired unexercised.
Shareholders' Protection Rights Plan. The Company
has a Shareholders' Protection Rights Plan designed
to protect shareholders against abusive takeover
tactics by declaring a dividend of one right on
each outstanding share of common stock. Each right
entitles shareholders to buy one one-hundredth of a
newly issued share of participating preferred stock
having economic and voting terms similar to those
of one share of common stock at an exercise price
of $90, subject to adjustment.
The rights will be exercisable only if a person
or a group: (a) acquires 20% or more of the
Company's shares or (b) commences a tender offer
that will result in such person or group owning 20%
or more of the Company's shares. Before that time,
the rights trade with the common stock, but
thereafter they become separately tradeable.
Upon exercise, after a person or a group
acquires 20% or more of the Company's shares, each
right (other than rights held by the acquiring
person) will entitle the shareholder to purchase a
number of shares of preferred stock of the Company
having a market value of two times the exercise
price. If the Company is acquired in a merger or
other business combination, each right will entitle
the shareholder to purchase at the then exercise
price a number of shares of common stock of the
acquiring company having a market value of two
times such exercise price. If any person or group
acquires between 20% and 50% of PE's shares, the
Company's Board of Directors may, at its option,
exchange one share of the Company's common stock
for each right. The rights are redeemable at the
Company's option at one cent per right prior to a
person or group becoming an acquiring person.
Note 8 Stock Plans
Stock Option Plans. Under the Company's stock
option plans, officers and other key employees may
be granted options, each of which allows for the
purchase of common stock at a price of not less
than 100% of fair market value at the date of
grant. Under the vesting requirements, 50% of the
options are exercisable after one year and 100%
after two years. Options expire ten years from the
date of grant.
Transactions relating to the stock option plans
of the Company are summarized below:
Weighted
Average
Number of Exercise
(Option prices per share) Options Price
Outstanding at June 30, 1994 4,313,750 $ 28.36
Granted at $28.81-$31.25 543,300 $ 30.97
Exercised at $10.70-$35.13 424,017 $ 22.72
Cancelled 315,742 $ 31.99
Outstanding at June 30, 1995 4,117,291 $ 29.00
Granted at $34.56-$54.81 511,650 $ 49.45
Exercised at $10.70-$37.75 1,359,054 $ 29.53
Cancelled 133,059 $ 33.50
Outstanding at June 30, 1996 3,136,828 $ 32.61
Granted at $51.31-$80.44 1,278,650 $ 65.54
Exercised at $10.70-$54.81 1,117,109 $ 29.61
Cancelled 67,006 $ 45.17
Outstanding at June 30, 1997 3,231,363 $ 46.48
Options exercisable at June 30, 1997 1,873,438 $ 33.78
Fiscal 1997 options grants do not include
160,000 options that were granted subject to
shareholder approval. At June 30, 1997, 57,200
shares remained available for option grant.
The following table summarizes options outstanding
and exercisable at June 30, 1997:
Weighted Average
Con-
tractual
Number of Life Exercise
(Option prices per share Options Remaining Price
Options Outstanding
At $10.70-$25.00 258,373 2.9 $ 19.76
At $25.45-$54.81 2,004,690 6.7 $ 38.95
At $54.94-$80.44 968,300 9.6 $ 69.19
Options Exercisable
At $10.70-$25.00 258,373 2.9 $ 19.76
At $25.45-$54.81 1,615,065 5.9 $ 36.03
Page 55
Employee Stock Purchase Plan. The Employee Stock
Purchase Plan offers domestic employees the right
to purchase, over a certain period, shares of
common stock on an annual offering date. The
purchase price is equal to the lower of 85% of the
average market price of the common stock on the
offering date or 85% of the average market price of
the common stock on the last day of the purchase
period.
Common stock issued under the Employee Stock
Purchase Plan was .1 million shares in each of
fiscal 1997, 1996, and 1995. At June 30, 1997, .6
million shares remained available for issuance.
Director Stock Purchase and Deferred Compensation
Plan. The Company has a Director Stock Purchase
and Deferred Compensation Plan that requires non-
employee directors of the Company to apply at least
50% of their annual retainer to the purchase of
common stock. The purchase price is the fair
market value on the first business day of the third
month of each fiscal quarter. At June 30, 1997,
approximately .1 million shares were available for
issuance.
Restricted Stock. As part of the Company's Stock
Incentive Plan, key employees may be granted shares
of restricted stock that will vest when certain
continuous employment restrictions and/or specified
performance goals are achieved. The fair value of
shares granted is generally expensed over the
restricted periods, which may vary depending on the
estimated achievement of performance goals.
Restricted stock granted to key employees during
fiscal 1997, 1996, and 1995 was 42,000 shares,
185,000 shares (155,000 of which were subject to
shareholder approval in fiscal 1997), and 70,000
shares, respectively. Compensation expense
recognized for these awards was $11.7 million and
$5.1 million in fiscal 1997 and 1996, respectively.
No amount was required to be charged to expense for
fiscal 1995.
Accounting for Stock-Based Compensation. The
Company applies APB Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for its
stock-based compensation plans (see Note 1).
Accordingly, no compensation expense has been
recognized for its stock option and employee stock
purchase plans.
Pro forma net income and earnings per share
information, as required by SFAS No. 123,
"Accounting for Stock-Based Compensation," has been
determined for employee stock plans under the
statement's fair value method. The fair value of
the options was estimated at grant date using a
Black-Scholes option pricing model with the
following weighted average assumptions for fiscal
1997 and 1996, respectively: dividend yields of
1.06% and 1.43%; volatility factors of the expected
market price of the Company's common stock of 22%;
an expected option life of five years; and the five
year U.S. treasury interest rate on the grant dates
as the risk-free interest rate. For purposes of
pro forma disclosure, the estimated fair value of
the options is amortized to expense over the
options' vesting period. The Company's pro forma
information is presented below:
(Dollar amounts in millions, except per share amounts)
For the years ended June 30, 1997 1996
Net income - as reported $ 115.2 $ 13.9
Net income - pro forma $ 107.6 $ 12.5
Earnings per share - as reported $ 2.58 $ .32
Earnings per share - pro forma $ 2.41 $ .28
The fair value method of accounting has not been
applied to options granted prior to July 1, 1995.
Therefore, this disclosure is not likely to be
representative of the effects on reported net
earnings for future years since options vest over
several years and additional awards generally are
made each year.
The weighted average fair value of options
granted was $19.78 and $14.09 per share for fiscal
1997 and 1996, respectively.
Note 9 Additional Information
Selected Accounts. The following table provides
the major components of selected accounts of the
Consolidated Statements of Financial Position:
(Dollar amounts in millions)
At June 30, 1997 1996
Prepaid Expenses & Other Current Assets
Current deferred tax assets $ 40.6 $ 31.5
Other 61.7 50.9
Total prepaid expenses and
other current assets $ 102.3 $ 82.4
Other Accrued Expenses
Deferred service contract revenues $ 45.1 $ 40.1
Accrued pension liabilities 17.9 19.4
Restructuring provisions 33.3 63.6
Other 81.7 83.5
Total other accrued expenses $ 178.0 $ 206.6
Other Long-term Liabilities
Accrued pension liabilities $ 62.3 $ 63.6
Accrued postretirement benefits 91.2 93.8
Other 25.6 18.4
Total other long-term liabilities $ 179.1 $ 175.8
Page 56
Related Party Transactions. One of the Company's
directors is an employee of F. Hoffmann-La Roche
Ltd. (Roche), a pharmaceutical manufacturer and
strategic partner of the Company in the
biotechnology field. The Company made payments to
Roche and its affiliates, for the purchase of
reagents and consumables, of $68.2 million in
fiscal 1997 and $59.7 million in fiscal 1996.
Note 10 Provision for Restructured Operations
The Company initiated restructuring actions in
fiscal 1997, 1996, and 1995 primarily targeted to
improve the profitability and cash flow performance
of the Analytical Instruments Division. The fiscal
1995 plan focused solely on cost reduction. The
fiscal 1996 plan was a broader program to reduce
administrative and manufacturing overhead and
improve operating efficiency, primarily in Europe
and the United States. The fiscal 1997 plan
focuses on the transition from highly vertical
manufacturing operations to more reliance on
outsourcing functions not considered core
competencies. The before-tax charges associated
with the implementation of these restructuring
plans were $24.2 million, $71.6 million, and $23.0
million in fiscal 1997, 1996, and 1995,
respectively. In addition, fiscal 1997 reflected
an $11.2 million before-tax reduction of charges
required to implement the fiscal 1996 plan.
Fiscal 1997. During the fourth quarter of fiscal
1997, the Company announced a follow-on phase to
the Analytical Instrument Division's profit improvement
program. The restructuring cost for this action was $24.2
million before-tax and included $19.4 million for
costs focused on further improving the operating
efficiency of manufacturing facilities in the
United States, Germany, and the United Kingdom.
These actions are designed to help transition the
Analytical Instruments Division from a highly
vertical manufacturing operation to one that relies
more on outsourcing functions not considered core
competencies. The restructuring charge also
included $4.8 million to finalize the consolidation
of sales and administrative support, primarily in
Europe where seventeen facilities will be closed.
The workforce reductions under this plan total
approximately 285 employees in production labor and
25 employees in sales and administrative support.
The charge included $11.9 million for severance
related costs. The $12.3 million provided for
facility consolidation and asset related write-offs
included $1.2 million for lease termination
payments and $11.1 million for the write-off of
machinery, equipment, and tooling associated with
those functions to be outsourced. These changes
are scheduled to be substantially completed by June
1998. The Company expects to achieve before-tax
savings from these actions of approximately $8
million in fiscal 1998 and $16 million in
succeeding fiscal years.
The following table details the major components
of the fiscal 1997 restructuring provision:
Facility
Consolidation
and Asset
Related
(Dollar amounts in millions) Personnel Write-offs Total
Provision
Changes in manufacturing
operations $ 9.6 $ 9.8 $ 19.4
Consolidation of sales and
administrative support 2.3 2.5 4.8
Total provision $ 11.9 $ 12.3 $ 24.2
Fiscal 1997 Activity
Changes in manufacturing
operations $ .1 $ 4.6 $ 4.7
Consolidation of sales and
administrative support
Total fiscal 1997 activity $ .1 $ 4.6 $ 4.7
Balance at June 30, 1997
Changes in manufacturing
operations $ 9.5 $ 5.2 $ 14.7
Consolidation of sales and
administrative support 2.3 2.5 4.8
Balance
at June 30, 1997 $ 11.8 $ 7.7 $ 19.5
Fiscal 1996. The fiscal 1996 before-tax
restructuring charge of $71.6 million was the first
phase of a plan focused on improving the
profitability and cash flow performance of the
Analytical Instruments Division. In connection
with the plan, the division was reorganized into
three vertically integrated, fiscally accountable
operating units, a distribution center in Holland
was established to centralize the European
infrastructure for shipping, administration, and
related functions, and a program was implemented to
eliminate excess production capacity in Germany.
The charge included $37.8 million for worldwide
workforce reductions of approximately 390 positions
in manufacturing, sales and support, and
administrative functions. The charge also included
$33.8 million for facility consolidation and asset
related write-offs associated with the
discontinuation of various product lines.
In fiscal 1996, the Company transferred the
development and manufacturing of certain analytical
instrument product lines from its facility in
Germany to other sites, primarily in the United States.
The facility in Germany remains the principal site for
the development of atomic absorption products.
In fiscal 1996, a distribution center in
Holland as established to provide an integrated
sales, shipment and administration
Page 57
support infrastructure for the Company's European
operations, and to integrate certain operating and
business activities. The European distribution center
includes certain administrative, financial, and
information systems functions that were previously
transacted at individual locations throughout Europe.
In the fourth quarter of fiscal 1997, the
Company finalized the actions associated with the
restructuring plan announced in fiscal 1996. The
costs to implement the program were $11.2 million
below the $71.6 million charge recorded in fiscal
1996. As a result, during the fourth quarter of
fiscal 1997, the Company recorded an $11.2 million
reduction of charges required to implement the
fiscal 1996 plan.
The following table details the major components
of the fiscal 1996 restructuring provision:
Facility
Consolidation
and Asset
Related
(Dollar amounts in millions) Personnel Write-offs Total
Provision
Reduction of excess
European manufacturing
capacity $ 19.7 $ 23.0 $ 42.7
Reduction of European
distribution and
administrative capacity 11.5 6.0 17.5
Other worldwide workforce
reductions and facility
closings 6.6 4.8 11.4
Total provision $ 37.8 $ 33.8 $ 71.6
Fiscal 1996 Activity
Reduction of excess
European manufacturing
capacity $ 2.1 $ 6.7 $ 8.8
Reduction of European
distribution and
administrative capacity 1.6 .7 2.3
Other worldwide workforce
reductions and facility
closings 1.9 1.6 3.5
Total fiscal 1996 activity $ 5.6 $ 9.0 $ 14.6
Fiscal 1997 Activity
Reduction of excess
European manufacturing
capacity $ 10.9 $ 6.6 $ 17.5
Adjustment to decrease
liabilities originally
accrued for excess
European manufacturing
capacity 4.7 6.5 11.2
Reduction of European
distribution and
administrative capacity 6.2 4.4 10.6
Other worldwide workforce
reductions and facility
closings 1.9 2.0 3.9
Total fiscal 1997 activity $ 23.7 $ 19.5 $ 43.2
Balance at June 30, 1997
Reduction of excess
European manufacturing
capacity $ 2.0 $ 3.2 $ 5.2
Reduction of European
distribution and
administrative capacity 3.7 .9 4.6
Other worldwide workforce
reductions and facility
closings 2.8 1.2 4.0
Balance
at June 30, 1997 $ 8.5 $ 5.3 $ 13.8
As of June 30, 1997 approximately 335 employees
were separated under the plan. During fiscal 1997,
the Company achieved operating cost savings of
approximately $25 million related to these actions,
and expects to achieve cost savings in excess of
$40 million for fiscal 1998.
Fiscal 1995. The Company recorded a $23.0 million
before-tax charge in the fourth quarter of fiscal
1996 for restructuring actions focused on reducing
costs within the Analytical Instruments Division
infrastructure. The charge included $20.7 million
of severance and related costs for workforce
reductions and $2.3 million of closure and facility
consolidation expenses. All costs resulted in cash
outlays and the actions were implemented by the
third quarter of fiscal 1996.
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The workforce reductions were accomplished
through involuntary terminations worldwide as well
as a voluntary retirement incentive plan in the
United States. The reductions affected all
geographic areas of operation and all disciplines
ranging from production labor to executive
management. This included product departments,
manufacturing, engineering, sales, service and
support as well as corporate administrative staff.
The voluntary retirement incentive plan was
accepted by 91 employees at a cost of $6.8 million.
Some of these positions were replaced, but at a
lower overall cost basis.
The closure and facility consolidation actions
included the shutdown of the Company's Puerto Rico
manufacturing facility, consolidation of sales
offices in the Far East, and consolidation of
administrative departments in the United States.
The closure of operations in Puerto Rico included
severance costs for 46 employees, lease termination
payments, and other related costs. The Far East
costs included lease penalties and restoration of
vacated offices.
There were no adjustments made to increase or
decrease the liabilities originally accrued for
this restructuring plan. Through June 30, 1997,
all costs associated with the plan were
incurred, and the balance remaining was not
material.
Benefits from this restructuring program were
offset in part by the costs of hiring and training
of new employees, moving, and relocation. The
restructuring actions resulted in approximately $25
million and $20 million of before-tax savings in
fiscal 1997 and 1996, respectively.
Note 11 Commitments and Contingencies
Future minimum payments at June 30, 1997 under non-
cancelable operating leases for real estate and
equipment were as follows:
(Dollar amounts in millions)
1998 $ 18.2
1999 15.1
2000 13.1
2001 9.9
2002 9.5
2003 and thereafter 61.9
Total $ 127.7
Rental expense was $29.7 million in fiscal 1997,
$31.3 million in fiscal 1996, and $32.5 million in
fiscal 1995.
The Company has entered into a fifteen year non-
cancelable lease for a facility in Foster City,
California, effective July 1, 2000. Total lease
payments over the fifteen year period will be
approximately $42 million.
The Company has implemented a program to improve
its information technology infrastructure. A capital
commitment of approximately $40 million is expected to
be paid in fiscal 1998 when the improvements are
delivered, implemented and accepted. The Company
currently intends to fund this obligation from
operating cash flow.
The Company has been named as a defendant in
several legal actions arising from the conduct of its
normal business activities. Although the amount of
any liability that might arise with respect to any of
these matters cannot be accurately predicted, the
resulting liability, if any, will not in the opinion
of management have a material adverse effect on the
financial statements of the Company.
Note 12 Financial Instruments
Derivatives. The Company utilizes foreign exchange
forward and option contracts and an interest rate
swap agreement to manage foreign currency and
interest rate exposures. The principal objective
of these contracts is to minimize the risks and/or
costs associated with global financial and
operating activities. The Company does not use
derivative financial instruments for trading or
other speculative purposes, nor is the Company a
party to leveraged derivatives.
Foreign Currency Risk Management. Foreign exchange
forward and option contracts are used primarily to
hedge reported and anticipated cash flows resulting
from the sale of products in foreign locations.
Option contracts outstanding at June 30, 1997 were
purchased at a cost of $1.5 million. Under these
contracts the Company has the right, but not the
obligation, to purchase or sell foreign currencies
at fixed rates at various maturity dates. These
contracts are utilized primarily when the amount
and/or timing of the foreign currency exposures are
not certain. At June 30, 1997 and 1996, the
Company had forward and option contracts
outstanding for the sale and purchase of foreign
currencies at fixed rates as summarized in the
table below:
(Dollar amounts in millions) Sold Purchased Sold Purchased
At June 30, 1997 1997 1996 1996
Japanese Yen $ 83.5 $ - $ 7.9 $ -
French Francs 18.1 14.4
Australian Dollars 13.7 1.4
German Marks 13.4 2.3 22.1 11.8
Italian Lira 5.6 1.2 9.8
British Pounds 8.3 3.8 3.7
Other 15.3 14.8 .2
Total $ 149.6 $ 11.8 $ 74.2 $ 15.7
Page 59
Foreign exchange contracts are accounted for as
hedges of net investments, firm commitments, and
foreign currency transactions. Unrealized gains
and losses on hedges of net investments are
reported as equity adjustments from translation on
the statement of financial position. With respect
to firm commitments, unrealized gains and losses
are deferred and included in the basis of the
transaction underlying the commitment. Gains and
losses on foreign currency transactions are
recognized in income and offset the foreign
exchange gains and losses on the related
transactions. The costs associated with entering
into these contracts are amortized over the life of
the contracts. Unrealized gains and losses on
outstanding hedge contracts were not material for
the years presented.
Interest Rate Risk Management. In fiscal 1997, the
Company entered into an interest rate swap in
conjunction with a five year Japanese Yen debt
obligation (see Note 3). The interest rate swap
agreement involves the payment of a fixed rate of
interest and the receipt of a floating rate of
interest without the exchange of the underlying
notional loan principal amount. Under this
contract, the Company will make fixed interest
payments of 2.1% while receiving interest at a
LIBOR floating rate. No other cash payments will
be made unless the contract is terminated prior to
maturity, in which case the amount to be paid or
received in settlement is established by agreement
at the time of termination. The agreed upon amount
usually represents the net present value at the
then existing interest rates of the remaining
obligations to exchange payments under the terms of
the contract.
Based on the level of interest rates prevailing
at June 30, 1997, the fair value of the Company's
floating rate debt approximated its carrying value.
There would be a receipt of $.2 million to
terminate the related interest rate swap contract
which would equal the unrealized gain. Unrealized
gains or losses on debt or interest rate swap
contracts are not recognized for financial
reporting purposes unless the debt is retired or
the contracts are terminated prior to maturity. A
change in interest rates would have no impact on
the Company's reported interest expense and related
cash payments since the floating rate debt and
fixed rate swap contract have the same maturity and
are based on the same interest rate index.
Concentrations of Credit Risk. The forward
contracts, options, and swaps used by the Company
in managing its foreign currency and interest rate
exposures contain an element of risk that the
counterparties may be unable to meet the terms of
the agreements. However, the Company minimizes
such risk exposure by limiting the counterparties
to a diverse group of highly rated major domestic
and international financial institutions with which
the Company has other financial relationships. The
Company is exposed to potential losses in the event
of non-performance by these counterparties;
however, the Company does not expect to record any
losses as a result of counterparty default. The
Company does not require and is not required to
place collateral for these financial instruments.
Fair Value. The fair value of foreign currency
forward and option contracts, as well as interest
rate swaps, is estimated based on quoted market
prices of comparable contracts and reflects the
amounts the Company would receive or pay to
terminate the contracts at the reporting date. The
following table presents notional amounts and fair
values of the Company's derivatives:
Notional Fair Notional Fair
(Dollar amounts in millions) Amount Value Amount Value
At June 30, 1997 1997 1996 1996
Forward contracts $ 114.0 $ (3.7) $ 89.9 $ .3
Purchased options $ 47.4 $ .7
Interest rate swap $ 33.6 $ .2
The following methods are used in estimating the
fair value of other significant financial
instruments held or owed by the Company. Cash and
short-term investments approximate their carrying
amount due to the duration of these instruments.
Fair values of minority equity investments and
notes receivable are estimated based on quoted
market prices, if available, or quoted market
prices of financial instruments with similar
characteristics. The fair value of debt is based
on the current rates offered to the Company for
debt of similar remaining maturities. The
following table presents the carrying amounts and
fair values of the Company's other financial
instruments:
Carrying Fair Carrying Fair
(Dollar amounts in millions) Amount Value Amount Value
At June 30, 1997 1997 1996 1996
Cash and short-term
investments $196.0 $196.0 $ 96.6 $ 96.6
Minority equity
investments $ 9.0 $ 9.0 $ 35.6 $ 35.6
Note receivable $ 7.2 $ 7.2 $ 7.2 $ 7.2
Short-term debt $ 18.1 $ 18.1 $ 51.1 $ 51.5
Long-term debt $ 33.6 $ 33.4 $ .9 $ .9
At June 30, 1996, the Company's investment in
Etec Systems, Inc. was stated at a fair value of
$31.5 million with a cost basis of $8.3 million.
As a result, an unrealized holding gain of $23.2
million was reported for fiscal 1996 as a separate
component of shareholders' equity. The equity
interest was sold during fiscal 1997 (see Note 2).
Page 60
Note 13 Quarterly Financial Information (Unaudited)
The following is a summary of quarterly financial results:
(Dollar amounts in millions First Quarter Second Quarter Third Quarter Fourth Quarter
except per share amounts) 1997 1996 1997 1996 1997 1996 1997 1996
Net revenues $ 275.7 $ 264.4 $ 330.8 $ 294.0 $ 322.9 $ 299.1 $ 347.4 $ 305.4
Gross margin $ 134.7 $ 128.9 $ 163.5 $ 141.2 $ 165.8 $ 145.8 $ 170.5 $ 151.2
Net income (loss) $ 32.4 $ 17.6 $ 50.9 $ 22.8 $ 10.4 $ (36.0)$ 21.5 $ 9.5
Net income (loss) per share $ .73 $ .41 $ 1.15 $ .53 $ .23 $ (.84)$ .48 $ .22
Events Impacting Comparability:
Fiscal 1997. First and second quarter results included gains of
$11.3 million and $26.1 million, or $.23 and $.42 per share after-
tax, respectively, from the sale of the Company's remaining equity
interest in Etec Systems, Inc. (see Note 2). Third quarter results
included a $25.4 million charge, or $.57 per share after-tax, for
acquired research and development (see Note 2). Fourth quarter
results included a net restructuring charge of $13.0 million, or
$.19 per share after-tax (see Note 10), a $1.4 million charge, or
$.03 per share after-tax, for acquired research and development
(see Note 2), and a $7.5 million charge, or $.15 per share after-
tax, for asset impairment (see Note 1). In addition, the Company
recognized deferred royalty income, other miscellaneous income, and
recorded certain compensation related expenses. The net effect of
these items increased fourth quarter net income by approximately
$5.0 million, or $.11 per share.
Fiscal 1996. Third quarter results included a restructuring
charge of $71.6 million, or $1.44 per share after-tax (see Note
10). Fourth quarter results included a $27.1 million charge, or
$.62 per share after-tax, for acquired research and development,
and a gain of $11.7 million, or $.21 per share after-tax, on the
partial sale of the Company's equity interest in Etec Systems,
Inc. (see Note 2).
Stock Prices
High Low High Low
1997 1997 1996 1996
First Quarter $ 58 1/8 $ 44 1/4 $ 38 $ 31 1/2
Second Quarter $ 61 7/8 $ 52 1/2 $ 40 1/4 $ 33 1/8
Third Quarter $ 77 1/8 $ 57 7/8 $ 54 1/2 $ 37 5/8
Fourth Quarter $ 81 1/8 $ 60 3/8 $ 56 1/4 $ 46 5/8
Dividends per share
1997 1996
First Quarter $ .17 $ .17
Second Quarter .17 .17
Third Quarter .17 .17
Fourth Quarter .17 .17
Total dividends per share $ .68 $ .68
Page 61
REPORT OF MANAGEMENT
To The Shareholders Of The Perkin-Elmer Corporation
Management is responsible for the accompanying
consolidated financial statements, which have been
prepared in conformity with generally accepted
accounting principles. In preparing the financial
statements, it is necessary for management to make
informed judgments and estimates which it believes
are in accordance with generally accepted
accounting principles appropriate in the
circumstances. Financial information presented
elsewhere in this annual report is consistent with
that in the financial statements.
In meeting its responsibility for preparing
reliable financial statements, the Company
maintains a system of internal accounting controls
designed to provide reasonable assurance that
assets are safeguarded and transactions are
properly recorded and executed in accordance with
corporate policy and management authorization. The
Company believes its accounting controls provide
reasonable assurance that errors or irregularities
which could be material to the financial statements
are prevented or would be detected within a timely
period. In designing such control procedures,
management recognizes judgments are required to
assess and balance the costs and expected benefits
of a system of internal accounting controls.
Adherence to these policies and procedures is
reviewed through a coordinated audit effort of the
Company's internal audit staff and independent
accountants.
The Audit Committee of the Board of Directors is
comprised solely of outside directors and is
responsible for overseeing and monitoring the
quality of the Company's accounting and auditing
practices. The independent accountants and
internal auditors have full and free access to the
Audit Committee and meet periodically with the
committee to discuss accounting, auditing, and
financial reporting matters.
/s/ Stephen O. Jaeger
Stephen O. Jaeger
Vice President, Chief Financial
Officer and Treasurer
/s/ Tony L. White
Tony L. White
Chairman, President and
Chief Executive Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders And Board Of Directors of
The Perkin-Elmer Corporation
In our opinion, the accompanying consolidated
statements of financial position and the related
consolidated statements of operations, of
shareholders' equity, and of cash flows present
fairly, in all material respects, the financial
position of The Perkin-Elmer Corporation and its
subsidiaries at June 30, 1997 and 1996, and the
results of their operations and their cash flows
for each of the three fiscal years in the period
ended June 30, 1997, in conformity with generally
accepted accounting principles. These financial
statements are the responsibility of the Company's
management; our responsibility is to express an
opinion on these financial statements based on our
audits. We conducted our audits of these
statements in accordance with generally accepted
auditing standards which require that we plan and
perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial
statements, assessing the accounting principles
used and significant estimates made by management,
and evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
Stamford, Connecticut
July 23, 1997
Page 62