SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10K
[ X ] Annual Report Pursuant To Section 13 Or 15(d)
Of The Securities Exchange Act Of 1934
For the Fiscal Year Ended June 30, 1998
OR
[ ] Transition Report Pursuant To Section 13 Or 15(d)
Of The Securities Exchange Act Of 1934
For the transition period from to
Commission File Number 1-4389
The Perkin-Elmer Corporation
(Exact name of registrant as specified in its charter)
NEW YORK 06-0490270
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
761 Main Avenue, Norwalk, Connecticut 06859-0001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 203-762-1000
including area code:
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of class on which registered
Common Stock (par value New York Stock Exchange
$1.00 per share) Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Class G Warrants
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
X Yes No
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of September 9, 1998, 49,395,010 shares of
Registrant's Common Stock were outstanding, and the
aggregate market value of shares of such Common Stock (based
upon the average sales price) held by non-affiliates was
approximately $ 2,999,205,733.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for Fiscal Year ended June 30,
1998 - Parts I, II, and IV.
Proxy Statement for Annual Meeting of Shareholders dated
September 9, 1998 - Part III.
Item 6. SELECTED FINANCIAL DATA
The Perkin-Elmer Corporation
(Dollar amounts in thousands except per share amounts)
For the years ended June 30, 1998 1997 1996 1995 1994
Financial Operations
Net revenues $ 1,531,165 $ 1,373,282 $ 1,248,967 $ 1,152,935 $ 1,070,522
Income (loss) from continuing operations 56,388 130,398 (36,523) 46,307 39,966
Per share of common stock
Basic 1.16 2.74 (.80) 1.04 .87
Diluted 1.12 2.63 (.80) 1.02 .84
Discontinued operations (22,851)
Net income (loss) 56,388 130,398 (36,523) 46,307 17,115
Per share of common stock
Basic 1.16 2.74 (.80) 1.04 .37
Diluted 1.12 2.63 (.80) 1.02 .36
Dividends per share .68 .68 .68 .68 .68
Other information
Cash and short-term investments $ 84,091 $ 217,222 $ 121,145 $ 103,826 $ 50,605
Working capital 287,991 354,741 229,639 256,607 171,068
Capital expenditures 116,708 69,822 44,309 50,191 46,588
Total assets 1,334,474 1,238,749 1,062,979 1,027,051 1,021,746
Long-term debt 33,726 59,152 33,694 64,524 61,500
Total debt 45,825 89,068 89,801 123,224 145,052
Shareholders' equity 564,248 504,270 373,727 369,807 364,123
Results for fiscal 1998, 1997, 1996, and 1995 included net before-
tax restructuring and other merger costs of $48.1 million, $13.0
million, $89.1 million, and $38.5 million, respectively, and before-
tax gains related to investments of $1.6 million, $64.9 million,
$11.7 million, and $20.8 million, respectively. Other special items
affecting comparability included acquired research and development
charges of $28.9 million, $26.8 million, $33.9 million, and $14.7
million for fiscal 1998, 1997, 1996,and 1994, respectively; before-tax
charges for the impairment of assets of $7.5 million and $9.9 million
for fiscal 1997 and 1996, respectively; and a $22.9 million charge for
discontinued operations in fiscal 1994.
Page 29
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and related notes included on pages
39 through 61. Historical results and percentage relationships are
not necessarily indicative of operating results for any future
periods.
Throughout the following discussion of operations the Company refers
to the impact on the reported results of the movement in foreign
currency exchange rates from one reporting period to another as
"foreign currency translation."
Events Impacting Comparability
Acquisitions and Investments. On January 22, 1998, The Perkin-Elmer
Corporation (the Company) acquired PerSeptive Biosystems, Inc.
(PerSeptive). The acquisition has been accounted for as a pooling of
interests and, accordingly, the Company's financial results have been
restated to include the combined operations.
The Company acquired Molecular Informatics, Inc. (Molecular
Informatics) and a 14.5% interest, and approximately 52% of the voting
rights, in Tecan AG (Tecan) during the second quarter of fiscal 1998,
and GenScope, Inc. (GenScope) during the third quarter of fiscal 1997.
The results of operations for the above acquisitions, each of which
was accounted for as a purchase, have been included in the
consolidated financial statements since the date of each respective
acquisition. A discussion of the Company's significant acquisitions
and investments is provided in Note 2.
Restructuring and Other Merger Costs. During fiscal 1998, the Company
recorded $48.1 million of before-tax charges, or $.87 per diluted
share after-tax, for restructuring and other merger costs to integrate
PerSeptive into the Company. The charge included $4.1 million of
inventory-related write-offs, recorded in cost of sales, associated
with the rationalization of certain product lines. The objectives of
the integration plan are to lower PerSeptive's cost structure by
reducing excess manufacturing capacity, achieve broader worldwide
distribution of PerSeptive's products, and combine sales, marketing,
and administrative functions.
In fiscal 1997 and 1996, the Company implemented restructuring
actions primarily targeted to improve the profitability and cash flow
performance of the Analytical Instruments Division (Analytical
Instruments). The fiscal 1997 plan focused on the transition from a
highly vertical manufacturing operation to one that relies more on
outsourcing functions not considered core competencies. The fiscal
1996 plan was a broad program designed to reduce administrative and
manufacturing overhead and improve operating efficiency, primarily in
Europe and the United States. The before-tax charges associated with
the implementation of these actions were $24.2 million, or $.31 per
diluted share after-tax, in fiscal 1997, and $71.6 million, or $1.35
per diluted share after-tax, in fiscal 1996. Fiscal 1997 also
reflected an $11.2 million before-tax, or $.13 per diluted share after-
tax, reduction of charges associated with the fiscal 1996 plan.
Also in fiscal 1996, a before-tax charge of $17.5 million, or $.38
per diluted share after-tax, was recorded by PerSeptive for
restructuring actions and other related costs. A complete discussion
of the Company's restructuring programs is provided in Note 10.
Acquired Research and Development. During fiscal 1998, 1997, and
1996, the Company recorded charges for purchased in-process research
and development in connection with certain acquisitions for the PE
Biosystems Division (PE Biosystems). The charges recorded in fiscal
1998, 1997, and 1996 were $28.9 million, $26.8 million, and $33.9
million, or $.57, $.54, and $.72 per diluted share after-tax,
respectively (see Note 2).
In the second quarter of fiscal 1998, the Company expensed $28.9
million of the Molecular Informatics acquisition cost as in-process
research and development, representing 53.6% of the purchase price.
This amount was attributed and supported by a discounted probable cash
flow analysis on a project-by-project basis. At the acquisition date,
the technological feasibility of the acquired technology had not been
established and the acquired technology had no future alternative uses.
The Company attributed approximately 10% of the in-process research
and development value to BioLIMS, a software system that manages data,
initiates analysis programs, and captures the results in a
centralized, relational database for sequencing instruments; 6% to GA
SFDB, a client-side add-on product to several existing gene sequencing
instruments; 38% to BioMERGE, a client-server management and
integration system that organizes proprietary, public and third-party
results in a single relational database for the drug discovery and
genomic research markets; 9% to BioCLINIC, a client-server management
and integration system that organizes proprietary, public and third-
party results generated from DNA and protein sequence analysis in a
single database for the clinical trials phase of drug development; and
37% to SDK, an open architecture software platform from which all of
Molecular Informatics' future software applications are expected to be
derived.
As of the acquisition date, all of the major functionality for
BioLIMS 2.0 had been completed and the product is expected to be
released in September 1998. As of the acquisition date, BioLIMS 3.0
was in the design and scoping phase and is expected to be released in
June 1999. As of the acquisition date, GA SFDB was in early alpha
phase and had been completed concurrent with the development of
BioLIMS 2.0 and is expected to be released in September 1998. As of
the acquisition date, BioMerge 3.0 functional scope was defined and
the requirements assessment had been completed and is expected to be
released in November 1998. As of the acquisition date, the BioClinic
product requirements had been specified and discussions had begun with
two potential customers to begin the specific software modifications.
Development efforts were terminated in April 1998 due to unsuccessful
marketing efforts. As of the acquisition date, the SDK requirements
assessment had been completed and the functional scope had been
defined. Currently, one successful prototype has been completed and
additional development efforts continue in this area.
At the date of the acquisition, management expected to complete the
majority of these projects and commence generating significant
revenues in fiscal 1999 at an additional research and development cost
of approximately $6.9 million. The Company attributed $11.8 million
of the purchase price to core technology and existing products,
primarily related to the BioMERGE product. The Company applied a risk-
adjusted discount to the projects' cash flows of 20% for existing
technology and 23% for in-process technology. The risk premium of 3%
for in-process technologies was determined by management based on the
associated risks of releasing these in-process technologies versus the
existing technologies for the emerging bioinformatics software
industry. The significant risks associated with these products include
the limited operating history of Molecular Informatics, uncertainties
surrounding market acceptance of such in-process products, competitive
threats from other bioinformatics companies and other risks.
Management is primarily responsible for estimating the fair value of
such existing and in-process technology.
During the third quarter of fiscal 1997, the Company acquired
GenScope, Inc., for $26.8 million. GenScope, founded in 1995,
represented a development stage venture with no operating history and
effectively no revenues. At the acquisition date, technological
feasibility of the acquired technology right had not been established
and the acquired technology right had no future alternative uses.
At the time of the acquisition, GenScope had limited R&D contract
services only. The Company acquired the right to utilize AFLP-based
gene expression technology in the field of human health, but did not
obtain any core technology or other rights. GenScope's limited
balance sheet, consisting of assets of approximately $.2 million,
had yet to deliver commercial value. Accordingly, the Company
recorded a charge of $25.4 million attributable to the in-process
technology purchased. The Company based this amount on the early
development stage of this life science business acquired, the
technological hurdles to the application of this technology to the
field of human health and the underlying cash flow projections. The
acquisition represented the purchase of development stage technology,
not at the time considered commercially viable in the health
care applications that the company intends to pursue. The Company's
intent was to first develop the technology into a set of molecular
screening tools for use in the enhancement of pharmaceutical product
development. The Company allocated $1.4 million of the purchase price
to technology rights attributable to GenScope's AFLP gene
expression technology. AFLP is an enhancement of the polymerase
chain reaction ("PCR") process that allows selective analysis of
any portion of genetic material without the specific, prior sequence
information normally required for PCR. Of the $25.4 million expensed
as in-process research and development, $5.5 million represented a
contingent liability due on the issuance of a process patent for
technology under development.
Through June 30, 1998, the Company incurred approximately $4.9
million in additional research and development costs to further
develop the AFLP technology in the field of human health. The Company
anticipates spending an additional $13.9 million in fiscal 1999 and
2000 to substantially complete such project. Such costs approximate
those anticipated at the date of acquisition.
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. At the
acquisition date, the technological feasibility of the acquired
technology had not been established and the acquired technology had no
future alternative uses. The acquisition cost, net of cash acquired,
was $36.0 million and was accounted for as a purchase. The purchase
price was allocated to the net assets acquired and to purchased
in-process research and development. Purchased in-process research
and development included the value of products in the development
stage and not considered to have reached technological feasibility.
The Company expensed $22.3 million of the Tropix acquisition cost
as in-process research and development, representing 60.3% of the
purchase price. This amount was attributed and supported by a
discounted probable cash flow analysis on a project-by-project basis.
The remaining purchase price was allocated as follows: $10.2 million
to proprietary patents and core technology, $1.4 million to trademarks
and tradenames, $.2 million to assembled workforce and $1.9 million
to working capital and property, plant and equipment acquired.
Approximately 56% of the in-process research and development value
was attributed to the pharmaceutical screening products project, a
project designed to incorporate existing proprietary technologies of
Tropix into assay methods for pharmaceutical customers and to perform
the screening required by those customers on-site. Additionally, there
was to be continued development of suitable assays to improve and
expand the technology covered by Tropix patents. The intent was to be
a one-stop service where Tropix would develop and perform screening
for pharmaceutical customers. Assets in place for this project were
the intellectual property of Tropix and the scientific expertise
required to customize both the reagents and the methods necessary for
the intended use of the customers. Approximately 44% of the in-process
research and development value was attributed to the diagnostics
products project, a project related to the continued development of
the reagent product line. Derivatives of the proprietary technology
and expansion of the patents surrounding it were planned to exploit
the leadership that Tropix held in its core chemiluminescent products.
Also, work was being performed on ancillary reagents to enhance both
reactions and stability of existing Tropix dioxetanes. Development of
new kits and applications based on the Gal-Star substrate, in
particular, were in-process. All of these activities were focused on
expanding the existing product line in consumables in order to
maintain Tropix's leadership in chemiluminescence.
Through June 30, 1998, the Company incurred approximately $2.8
million in additional research and development costs to further
develop these projects. The diagnostic products project was completed
in fiscal 1997. The Company anticipates spending an additional $.8
million in fiscal 1999 to complete the pharmaceutical screening
project. Such costs approximate those anticipated at the date of
acquisition.
A risk-adjusted discount rate of 23% was employed to value the in-
process projects. The significant risks associated with these products
include the limited operating history of Tropix, uncertainties
surrounding market acceptance of such in-process products and other
competitive risks. Management is primarily responsible for estimating
the fair value of such existing and in-process technologies.
In fiscal 1996, the Company acquired Zoogen, Inc., a leading
provider of genetic analysis services for $2.1 million, a minority
equity interest in Paracel, Inc., a provider of information filtering
technologies for $4.5 million and PerSeptive Technologies Corporation,
a research and development company formed to fund the development of
novel tools for clinical diagnostics and screening of biological
compounds for drug discovery, for $19.3 million. In connection with
these life science acquisitions, $11.6 million of purchased in-process
research and development was expensed in fiscal 1996.
The $11.6 million of purchased in-process research and development
primarily related to in-process projects at PerSeptive Technologies
and Zoogen at the dates of acquisition. For all of the fiscal 1996
acquisitions, the technological feasibility of the acquired technology
had not been established at the acquisition dates and the acquired
technology had no future alternative uses.
Four projects were in-process at PerSeptive Technologies at the
date of acquisition. Three of these projects were abandoned by the
Company upon acquisition and, therefore, were not assigned any value.
The remaining in-process project was the drug-screening program, a
program designed to develop new methodologies for the screening of
libraries of biological and chemical compounds to enhance the discovery
of drugs. Such project was subsequently transferred to ChemGenics
Pharmaceuticals in exchange for a 34% equity interest. In fiscal
1997, after additional research and development efforts by ChemGenics,
the Company received a 6% interest in Millennium Pharmaceuticals in
exchange for its ownership in ChemGenics and recognized a $25.9
million gain upon such transaction.
The in-process projects at Zoogen included the flea allergy
dermatitis, green iguana sexing, bird sexing method conversion, and
the feline genotyping projects. All projects were completed in fiscal
1997, except for the flea allergy dermatitis project, at an additional
cost of approximately $.3 million. The flea allergy dermatitis
project was abandoned in fiscal 1997. All costs incurred approximated
those anticipated at the date of acquisition.
Impairment of Assets. Cost of sales for fiscal 1997 included $7.5
million, or $.13 per diluted share after-tax, for the write-down of
goodwill and other assets. The fiscal 1997 charge, as a result of
adopting 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," included $5.6 million to write-down
goodwill associated with the fiscal 1995 acquisition of Photovac Inc.
and $1.9 million of other assets associated primarily with Analytical
Instruments. In fiscal 1996, the Company recorded a before-tax cost
of sales charge of $9.9 million, or $.21 per diluted share after-tax,
for the impairment of certain production assets associated with the
realignment of the product offerings of PerSeptive (see Note 1).
Gain on Investments. Fiscal 1998, 1997, and 1996 included before-tax
gains of $1.6 million, $64.9 million, and $11.7 million, respectively,
related to the sale and release of contingencies on minority equity
investments. The fiscal 1998, 1997, and 1996 after-tax gains per
diluted share were $.03, $1.15, and $.19, respectively (see Note 2).
Results of Operations - 1998 Compared with 1997
The Company reported net income of $56.4 million, or $1.12 per diluted
share, for fiscal 1998, compared with net income of $130.4 million, or
$2.63 per diluted share, for fiscal 1997. On a comparable basis,
excluding the special items previously described, net income increased
9.0% to $127.1 million for fiscal 1998 compared with $116.6 million
for fiscal 1997, and earnings per diluted share increased 8.6% to
$2.53 for fiscal 1998 from $2.33 for fiscal 1997. Excluding the
effects of currency translation and special items, earnings per
diluted share would have increased approximately 25% compared with the
prior year.
Net revenues were $1,531.2 million for fiscal 1998, compared with
$1,373.3 million for fiscal 1997, an increase of 11.5%. Excluding
Tecan, revenues increased 7.8% compared with the prior year. The
effects of currency translation decreased net revenues by
approximately $68 million, or 5%, compared with the prior year, as the
U.S. dollar strengthened against most European and Far Eastern
currencies. Geographically, the Company reported revenue growth in
all regions compared with the prior year. The United States
reported the strongest growth with revenues increasing 22.3%,
or 18.6% excluding Tecan, benefiting from growth in both the
PE Biosystems and Analytical Instruments business segments.
Revenues increased 5.4% in Europe, 1% in the Far East, and 14.9%
in other markets, specifically Latin America, where revenues
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increased 36% compared with the prior year. Excluding Tecan, revenues
remained essentially unchanged in Europe and the Far East compared
with the prior year. Before the effects of currency translation and
excluding Tecan, revenues would have increased approximately 8% in
Europe, 9% in the Far East, and 19% in other markets. Growth in the
Far East market was adversely affected by the economic turmoil in
the Pacific Rim and the weakening of the Japanese Yen.
Net revenues by business segment
(Dollar amounts in millions) 1998 1997
PE Biosystems $ 921.8 $ 749.2
Analytical Instruments 609.4 624.1
$ 1,531.2 $ 1,373.3
On a business segment basis, net revenues of PE Biosystems, the
Company's life science division, which includes PE Applied Biosystems,
PerSeptive, Molecular Informatics, Tropix, GenScope, and Tecan,
increased 23.0% to $921.8 million for fiscal 1998 compared with $749.2
million for the prior year. Excluding Tecan, revenues increased 16.3%
over the prior year. The negative effects of a strong U.S. dollar
reduced the division's revenues by approximately $33 million, or 4%.
On a worldwide basis, excluding Tecan and the effects of currency
translation, revenues would have increased approximately 21% compared
with the prior year. Increased demand for genetic analysis, liquid
chromatography/mass spectrometry (LC/MS), and polymerase chain
reaction (PCR) product lines was the primary contributor. All
geographic markets reported increased revenues over the prior year.
Excluding Tecan, net revenues in the United States, Europe, and the
Far East increased 25.3%, 10.2%, and 4.5%, respectively. Before the
effects of currency translation, and excluding Tecan, revenues in
Europe and the Far East would have increased approximately 18% and
14%, respectively, compared with the prior year. The Company believes
slower Japanese government funding in the second half of fiscal 1998
and the lack of a supplemental budget, which added to fiscal 1997
revenues, contributed to a lower growth rate of only 3% in the
Japanese market.
Net revenues for Analytical Instruments were $609.4 million for
fiscal 1998 compared with $624.1 million for the prior year, a
decrease of 2.4%. The effects of currency translation decreased net
revenues by approximately $35 million, or 6%. Excluding currency
effects, revenues would have increased approximately 3%. Increased
revenues of chromatography products, primarily data handling and LIMS
(Laboratory Information Management Systems), were more than offset by
lower demand for organic and inorganic products. Geographically,
revenues in the United States and other markets increased 6.5% and
10.1%, respectively. Revenues in Latin America, included in other
markets, increased 25% compared with the prior year. Revenues in
Europe and the Far East decreased 7.5% and 9.6%, respectively;
however, excluding the effects of currency translation, revenues in
the Europe and the Far East remained essentially unchanged compared
with fiscal 1997.
Gross margin as a percentage of net revenues was 50.9% for fiscal
1998 compared with 49.5% for fiscal 1997. Fiscal 1998 gross margin
included $4.1 million of inventory-related write-offs associated with
the rationalization of certain product lines in connection with the
acquisition of PerSeptive, and fiscal 1997 included a charge of $7.5
million for the impairment of assets associated primarily with
Analytical Instruments. Excluding the special items, fiscal 1998
gross margin increased to 51.2% of revenues compared with 50.1% for
fiscal 1997. Benefits realized by PE Biosystems from the sale of
higher-margin genetic analysis products, increased royalty revenues in
the United States, and cost savings resulting from Analytical
Instruments' restructuring actions more than offset the negative
effects of currency translation.
Selling, general, and administrative (SG&A) expenses were $459.6
million for fiscal 1998 compared with $416.3 million for the prior
year. The 10.4% increase in expenses, or 6.7% excluding Tecan, was
due to higher planned worldwide selling and marketing expenses for PE
Biosystems, commensurate with the substantially higher revenue and
order growth. Before the effects of currency translation and Tecan,
SG&A expenses increased 10.6% compared with the prior year. SG&A
expenses for Analytical Instruments decreased 3.3% compared with the
prior year, primarily because of lower expenses in Europe resulting in
part from the restructuring plans. As a percentage of net revenues,
SG&A expenses for the Company remained essentially unchanged from the
prior year at 30%.
Research, development, and engineering (R&D) expenses of $152.2
million increased 25.9% over the prior year, or 21.2% excluding Tecan.
R&D spending in PE Biosystems increased 37.0%, or 29.8% excluding
Tecan, over the prior year as the Company continued its product
development efforts and preparation for new product launches in this
segment. The division's spending accounted for 71% of the Company's
R&D expenses. R&D expenses for Analytical Instruments remained
essentially unchanged compared with the prior year. As a percentage
of net revenues, the Company's R&D expenses increased to 9.9% compared
with 8.8% for the prior year.
During fiscal 1998, the Company recorded $48.1 million of charges
for restructuring and other merger costs to integrate PerSeptive into
the Company following the acquisition (see Note 10). The objectives
of the integration plan are to lower PerSeptive's cost structure by
reducing excess manufacturing capacity, achieve broader worldwide
distribution of PerSeptive's products, and combine sales, marketing,
and administrative functions. The charge included: $33.9 million for
restructuring the combined operations; $8.6 million for transaction
costs; and $4.1 million of inventory-related write-offs, recorded in
cost of sales, associated with the rationalization of certain product
lines. Additional non-recurring acquisition costs of $1.5 million
for training, relocation, and communication costs were recognized
as period expenses in the third and fourth quarters and were
classified as other merger-related costs. The
Page 31
Company expects to incur an additional $6.5 million to $8.5 million
of acquisition-related costs for training, relocation, and
communication in fiscal 1999. These costs will be recognized as period
expenses when incurred and will be classified as other merger costs.
The $33.9 million restructuring charge includes $13.8 million
severance-related costs and workforce reductions of approximately 170
employees, consisting of 114 employees in production labor and 56
employees in sales and administrative support. The remaining $20.1
million represents facility consolidation and asset-related write-offs
and includes: $11.7 million for contract and lease terminations and
facility related expenses in connection with the reduction of excess
manufacturing capacity; $3.2 million for dealer termination payments,
sales office consolidations, and consolidation of sales and
administrative support functions; and $5.2 million for the write-off
of certain tangible and intangible assets and the termination of
certain contractual obligations. These restructuring actions are
expected to be substantially completed by the end of fiscal 1999.
Transaction costs of $8.6 million include acquisition-related
investment banking and professional fees. As of June 30, 1998,
approximately 12 employees were separated under the plan and the
actions are proceeding as planned.
The restructuring plan actions announced in the fourth quarter of
fiscal 1997 have been proceeding as planned. These actions focused on
the transition of Analytical Instruments from a highly vertical
manufacturing operation to one that relies more on outsourcing
functions not considered core competencies. The plan also included
actions to finalize consolidation of sales and administrative support,
primarily in Europe (see Note 10). For the year ended June 30, 1998,
the Company achieved approximately $9 million in before-tax savings
attributable to this plan, and expects to achieve approximately $19
million in succeeding fiscal years.
Fiscal 1998 included $28.9 million of purchased in-process research
and development associated with the acquisition of Molecular
Informatics. In fiscal 1997, the Company recorded a charge of $26.8
million primarily for in-process research and development related to
the acquisition of GenScope.
Operating income decreased to $94.5 million for fiscal 1998 compared
with $103.0 million for the prior year. Excluding special items,
operating income increased 14.1% to $171.4 million for fiscal 1998
compared with $150.3 million for fiscal 1997. Excluding Tecan and
special items, operating income increased by 9% compared with the
prior year. On a comparable basis excluding special items, Tecan, and
the effects of currency translation, operating income would have
increased 26% compared with the prior year. The effects of currency
translation decreased operating income by approximately $25 million
compared with the prior year. A combination of revenue growth in PE
Biosystems and reduced expense levels, contributed to the improvement.
Operating income by business segment
PE Analytical
(Dollar amounts in millions) Biosystems Instruments
1998
Segment income $ 150.8 $ 57.4
Restructuring and other merger costs (48.1)
Acquired R&D (28.9)
Operating income $ 73.8 $ 57.4
1997
Segment income $ 125.4 $ 56.1
Restructuring (13.0)
Acquired R&D (26.8)
Impairment of assets (.7) (6.8)
Operating income $ 97.9 $ 36.3
Operating income for PE Biosystems decreased to $73.8 million for
fiscal 1998 compared with $97.9 million for fiscal 1997. Excluding
the special charges for restructuring and other merger costs, acquired
research and development, and the impairment of assets, operating
income increased $25.4 million, or 20.3%, primarily as a result of
increased volume and improved margins. Excluding Tecan, operating
income increased 14.5% compared with the prior year. Before the
effects of currency translation and excluding Tecan, fiscal 1998
operating income increased 28.1% compared with the prior year.
Geographically, fiscal 1998 segment income increased 39% in the United
States, 20% in the Far East, and 17% in Europe compared with fiscal
1997. A 23.5% increase in operating income from higher-margin
sequencing and mapping systems was the primary contributor. Excluding
the effects of currency translation, segment income would have
increased approximately 34%. As a percentage of net revenues, segment
income, before special items, remained essentially unchanged compared
with the prior year.
Operating income for Analytical Instruments increased to $57.4
million for fiscal 1998 compared with $36.3 million for fiscal 1997.
Operating income for the division, excluding the fiscal 1997 charges
for restructuring costs and impairment of assets, increased by 2.3%
compared with the prior year. Lower expense levels resulting from
cost control and the actions of the restructuring programs were
essentially offset by lower sales volume. Excluding currency effects,
segment income would have increased approximately 17%. As a
percentage of net revenues, segment income before special items
increased to 9.4% for fiscal 1998 from 9.0% for fiscal 1997.
In fiscal 1998 and 1997, the Company recorded gains of $1.6 million
and $64.9 million, respectively, on the sale and release of
contingencies on minority equity investments (see Note 2).
Interest expense was $4.9 million for fiscal 1998 compared with $5.9
million for the prior year. This decrease was primarily due to
the refinancing of PerSeptive's 8 - 1/4% Convertible Subordinated
Page 32
Notes (the PerSeptive Notes) together with slightly lower outstanding
debt balances and lower average interest rates. Interest income was
$5.9 million for fiscal 1998 compared with $8.8 million for the prior
year, primarily because of lower cash balances resulting from the use
of cash to fund the Company's continued investments and acquisitions
in the life sciences segment, as well as from lower interest rates.
Other income, net for fiscal 1998 of $3.5 million, primarily related
to the sale of certain operating and non-operating assets, compared
with other income, net of $1.8 million for the prior year.
The Company's effective tax rate was 38.4% for fiscal 1998 and 24.5%
for fiscal 1997. Excluding Tecan in fiscal 1998, and special items in
fiscal 1998 and fiscal 1997, the effective income tax rate was 25% for
fiscal 1998 compared with 21% for fiscal 1997. The rate for fiscal
1997 was favorably impacted by PerSeptive's utilization of loss
carryforwards. An analysis of the differences between the federal
statutory income tax rate and the effective rate is provided in Note
4.
Minority interest expense of $5.6 million was recognized in fiscal
1998 relating to the Company's 14.5% financial interest in Tecan (see
Note 2).
Results of Operations - 1997 Compared with 1996
The Company reported net income of $130.4 million, or $2.63 per
diluted share, for fiscal 1997 compared with a net loss of $36.5
million, or $.80 per diluted share, for fiscal 1996. On a comparable
basis, excluding the special items previously described, net income
and earnings per diluted share increased 49.5% and 39.5%,
respectively.
Net revenues for fiscal 1997 were $1,373.3 million, an increase of
10% over the $1,249.0 million reported for 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 for fiscal 1997.
Net revenues in the United States increased 13.4% over the prior year,
benefiting from growth in both PE Biosystems and Analytical
Instruments. Net revenues in Europe and the Far East increased 8.6%
and 8.2%, respectively, as higher revenues from PE Biosystems were
partially offset by decreases in Analytical Instruments revenues. In
Europe, a 26.3% increase in revenues from PE Biosystems was partially
offset by a 2.3% decline in Analytical Instruments' revenues. In the
Far East, a 16.3% increase in PE Biosystems revenues was partially
offset by a 2.3% decrease in Analytical Instruments' revenues.
Excluding currency effects, total revenues in Europe and the Far East
would have increased approximately 13% and 18%, respectively.
Net revenues by business segment
(Dollar amounts in millions) 1997 1996
PE Biosystems $ 749.2 $ 618.4
Analytical Instruments 624.1 630.6
$ 1,373.3 $ 1,249.0
Including currency effects, which reduced reported revenues by
approximately $25 million, or 4%, net revenues of PE Biosystems
increased 21.2% over fiscal 1996. Net revenues in the United States,
Europe, and the Far East increased 20.7%, 26.3%, and 16.3%,
respectively. Increased demand for genetic analysis, LC/MS, and the
PCR product lines was the primary contributor.
Analytical Instruments experienced a 1% decline in net revenues
compared with the prior year. Currency rate movements reduced
revenues by approximately $20 million, or 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
translation, revenues in Europe and the Far East would have increased
approximately 2% and 4%, respectively.
Gross margin as a percentage of net revenues was 49.5% for fiscal
1997 compared with 47.7% for fiscal 1996. Excluding the $7.5 million
and $9.9 million charges for impaired assets, recorded in cost of
sales, for fiscal 1997 and 1996, respectively, gross margin was 50.1%
compared with 48.5%. Both divisions experienced improved gross margin
for fiscal 1997. PE Biosystems' 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 an improved gross margin for
Analytical Instruments.
SG&A expenses were $416.3 million for fiscal 1997 compared with
$380.4 million for fiscal 1996, an increase of 9.4%. Lower expense
levels resulting from cost controls and the actions of the
restructuring programs in Analytical Instruments were more than
offset by increased expenses of 20.5% in PE Biosystems and costs for
the Company's restricted stock and performance-based compensation
programs, including a long-term divisional plan that was effective for
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 for fiscal 1997 and 1996, respectively. As a percentage
of net revenues, SG&A expenses for the Company remained essentially
unchanged at approximately 30% for both fiscal 1997 and fiscal 1996.
R&D expenses were $120.9 million for fiscal 1997 compared with
$113.7 million for fiscal 1996. R&D spending in PE Biosystems
increased 29.2% over the prior year as the Company continued its
product development efforts for the bioresearch markets. In fiscal
1997, Analytical Instruments recorded a 20.9% decrease in R&D
Page 33
expenditures, which reflected the objectives of restructuring actions
and product line reviews.
Operating income for fiscal 1997 was $103.0 million compared with an
operating loss of $21.5 million for fiscal 1996. Fiscal 1997 and 1996
included charges of $26.8 million and $33.9 million, respectively, for
acquired research and development related to acquisitions for PE
Biosystems. Fiscal 1997 and 1996 also included charges for
restructuring of $13.0 million and $89.1 million, respectively. On a
comparable basis, excluding special items in both years, operating
income increased 34.9% compared with the prior year.
During the fourth quarter of fiscal 1997, the Company announced a
follow-on phase to Analytical Instruments' profit improvement program.
The restructuring cost for this action was $24.2 million 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 were designed to transition
Analytical Instruments 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 were closed.
The workforce reductions under this action totaled 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 the functions to be
outsourced.
The fiscal 1996 restructuring charge included $71.6 million for the
first phase of Analytical Instruments' profit improvement plan. In
connection with the program, 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. In the fourth quarter of fiscal 1997, the
Company finalized the actions associated with this program. 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 program.
Fiscal 1996 also included a restructuring charge of $17.5 million
for restructuring actions and other related costs associated with
PerSeptive.
Operating income (loss) by business segment
PE Analytical
(Dollar amounts in millions) Biosystems Instruments
1997
Segment income $ 125.4 $ 56.1
Restructuring (13.0)
Acquired R&D (26.8)
Impairment of assets (.7) (6.8)
Operating income $ 97.9 $ 36.3
1996
Segment income $ 107.2 $ 28.7
Restructuring (17.5) (71.6)
Acquired R&D (33.9)
Impairment of assets (9.9)
Operating income (loss) $ 45.9 $ (42.9)
Operating income for PE Biosystems, excluding special items,
increased $18.2 million, or 17.0%, as a result of increased volume and
improved margin. All geographic markets contributed to the improved
segment income. An increase in operating income from high-margin
sequencing systems was the primary contributor. The strongest growth
was in Europe, where fiscal 1997 segment income increased 33% compared
with fiscal 1996. Excluding currency translation effects, segment
income would have increased approximately 27%. As a percentage of net
revenues, segment income decreased to 16.7% for fiscal 1997 from 17.3%
for fiscal 1996.
Operating income for Analytical Instruments, excluding the charges
for restructuring and impairment of assets, increased to $56.1 million
for fiscal 1997 from $28.7 million for fiscal 1996. As a percentage
of net revenues, segment income increased to 9.0% for fiscal 1997 from
4.6% for fiscal 1996. The cost savings realized from the
restructuring actions and cost controls were the primary reasons for
the improvement. Compared with the prior year, operating income in
Europe decreased 2.9% resulting primarily from the effects of a
stronger U.S. dollar and was more than offset by improvements in other
geographic areas, primarily the United States.
In fiscal 1997 and 1996, the Company recorded before-tax gains of
$64.9 million and $11.7 million, respectively, on the sale and release
of contingencies on minority equity investments.
Interest expense was $5.9 million for fiscal 1997 compared with $8.4
million for fiscal 1996. Lower average borrowing levels for 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 $3.5 million to $8.8 million for fiscal 1997.
Other income, net was $1.8 million for fiscal 1997 compared with
other expense, net of $2.1 million for 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 24.5%. Fiscal
1996 incurred a provision of $21.6 million on a before-tax
Page 34
loss of $15.0 million. Both years were impacted by special items. 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, and no tax benefit was recognized for
PerSeptive's fiscal 1996 net operating loss, which resulted in a
significant increase in the tax rate for the fiscal year.
In 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. 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.
Market Risk
The Company operates internationally, with manufacturing and
distribution facilities in various countries throughout the world.
The Company derived approximately 57% of its revenues from countries
outside of the United States for fiscal 1998. Results continue to be
affected by market risk, including fluctuations in foreign currency
exchange rates and changes in economic conditions in foreign markets.
The Company's risk management strategy utilizes derivative financial
instruments, including forwards, swaps, purchased options, and
synthetic forward contracts to hedge certain foreign currency and
interest rate exposures, with the intent of offsetting losses and
gains that occur on the underlying exposures with gains and losses on
the derivatives. The Company does not use derivative financial
instruments for trading or other speculative purposes, nor is the
Company a party to leveraged derivatives. At June 30, 1998,
outstanding hedge contracts covered approximately 80% of the estimated
foreign currency exposures related to cross-currency cash flows to be
realized in fiscal 1999. The outstanding hedges were a combination of
forward, option, and synthetic forward contracts maturing in fiscal
1999.
The Company performed a sensitivity analysis as of June 30, 1998.
Assuming a hypothetical adverse change of 10% in foreign exchange
rates (i.e., a weakening of the U.S. Dollar) at June 30, 1998, the
Company calculated a hypothetical loss in future cash flows of
$4.1 million. The Company calculated the hypothetical loss by
comparing the difference between the change in market value of both
the foreign currency contracts outstanding and the underlying
exposures being hedged at June 30, 1998, assuming the 10% adverse
change in exchange rates. Actual gains and losses in the future could,
however, differ materially from this analysis, based on changes in
the timing and amount of foreign currency exchange rate movements and
the actual exposures and hedges.
Interest rate swaps are used to hedge underlying debt obligations.
In fiscal 1997, the Company executed an interest rate swap in
conjunction with its entering into a five-year Japanese Yen debt
obligation. Under the terms of the swap agreement, the Company pays a
fixed rate of interest at 2.1% and receives a floating LIBOR interest
rate. At June 30, 1998, the notional amount of indebtedness covered
by the interest rate swap was Yen 3.8 billion ($27.0 million). The
maturity date of the swap coincides with the maturity of the Yen loan
in March 2002.
A change in interest rates would have no impact on the reported
interest expense and related cash payments because the floating rate
debt and fixed rate swap contract have the same maturity and are based
on the same rate index.
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 40) and the
Consolidated Statements of Cash Flows (page 41).
The Company's financial position at June 30, 1998 was strong, with
cash and cash equivalents totaling $82.9 million compared with $213.0
million at June 30, 1997, and total debt of $45.8 million at June 30,
1998 compared with $89.1 million at June 30 1997. The decrease in
cash was primarily a result of expenditures related to acquisitions
for PE Biosystems, cash outlays associated with restructuring actions,
and expenditures for the Company's strategic program to improve its
information technology infrastructure. Working capital was $288.0
million at June 30, 1998 compared with $354.7 million at June 30,
1997. Debt to total capitalization decreased to 8% at June 30, 1998
from 15% at June 30, 1997. The decrease was attributable to the
prepayment of long-term debt.
Significant Changes in the Consolidated Statements of Financial
Position
Accounts receivable and inventory balances increased from June 30,
1997 to June 30, 1998 by $41.0 million and $25.4 million,respectively.
Excluding Tecan, accounts receivable and inventory balances increased
by $19.5 million and $15.6 million, respectively, from June 30, 1997
to June 30, 1998, reflecting the growth in PE Biosystems.
The Company reduced the total deferred tax asset and related
valuation allowance from $155.7 million and $78.6 million at June 30,
1997 to $138.8 million and $71.7 million at June 30, 1998. The
valuation allowance relates primarily to foreign and domestic tax loss
carryforwards, domestic tax credit carryforwards and other domestic
deferred tax assets. A portion of the valuation allowance is
attributable to tax loss and credit carryforwards and other deferred
tax assets which the Company acquired as part of the purchase of
PerSeptive in fiscal 1998. In evaluating the need for a valuation
allowance, the Company considered all available positive and negative
evidence, including historical information supplemented by information
about future years. The following factors significantly influenced the
conclusion regarding the need for a valuation allowance including: (1)
the historical profitability of the domestic Analytical Instruments
operations, (2) the limitation under the Internal Revenue Code on the
amount of annual utilization of domestic loss carryforwards and
credits of PerSeptive, (3) the long-term nature of a significant
portion of the remaining domestic tax asset, and (4) the various
expiration dates of the foreign loss carryforwards. The Company
evaluates the need for the valuation allowance periodically for each
taxpaying component in each tax jurisdiction.
Other long-term assets increased to $279.5 million at June 30, 1998
from $192.1 million at June 30, 1997. The change included $70.9
million of intangible assets associated with the acquisition of Tecan
and Molecular Informatics, $11.5 million of minority equity
investments for PE Biosystems, and a $10.2 million increase in prepaid
pension asset, partially offset by the sale of certain non-operating
assets.
Total short-term and long-term borrowings were $45.8 million at June
30, 1998 compared with $89.1 million at June 30, 1997. The decrease
was due in part to the redemption of PerSeptive's 8 - 1/4% Convertible
Subordinated Notes Due 2001 on March 23, 1998. The redemption price
was $1,055.81 per $1,000 principal amount of the PerSeptive Notes,
which represented the redemption premium and aggregate principal plus
accrued and unpaid interest to the redemption date. The aggregate
outstanding principal amount of the PerSeptive Notes was $27.2 million
at March 23, 1998. A total of $26.1 million was paid in cash,
representing $24.7 million of principal and $1.4 million of accrued
interest and premium relating to the PerSeptive Notes.
Additionally, $2.5 million of the
Page 35
principal amount of the PerSeptive Notes was converted by the holders
thereof into 35,557 shares of the Company's common stock.
Accounts payable increased $33.9 million to $165.3 million at June
30, 1998 from $131.4 million at June 30, 1997. The increase resulted
from higher purchases to support production and operating
requirements.
At June 30, 1998, $43.8 million of minority interest was recognized
in connection with Tecan.
Statements of Cash Flows
Operating activities generated $78.2 million of cash in fiscal 1998
compared with $113.2 million in fiscal 1997 and $90.9 million in
fiscal 1996. In fiscal 1998, higher income-related cash flow was more
than offset by a net increase in operating assets and liabilities.
The increase related primarily to PE Biosystems, reflecting the
division's continued growth.
Net cash used by investing activities was $169.9 million in fiscal
1998 compared with net cash provided by investing activities of $13.4
million in fiscal 1997. During fiscal 1998, the Company generated
$19.5 million in net cash proceeds from the sale of assets and $9.7
million from the collection of a note receivable. The proceeds were
more than offset by $116.7 million of capital expenditures and $98.0
million for acquisitions and investments, primarily Tecan and
Molecular Informatics (see Note 2). For fiscal 1997, the Company
generated $99.7 million in net cash proceeds from the sale of its
equity interests in Etec Systems, Inc. and Millennium Pharmaceuticals,
Inc. and from the sale of certain other non-operating assets. These
proceeds were partially offset by the $27.7 million used for
acquisitions, primarily GenScope (see Note 2), and $69.8 million for
capital expenditures. In fiscal 1996, $119.2 million of cash was used
for acquisitions and $44.3 million was used for capital expenditures.
This was partially offset by $102.3 million of cash proceeds generated
from the sale of minority equity investments and non-operating assets.
Fiscal 1998 capital expenditures were $116.7 million: $72.6 million
for PE Biosystems, $42.9 million for Analytical Instruments, and $1.2
million for corporate. The Company's expenditures included $65.9
million as part of the strategic program to improve its information
technology infrastructure. Capital expenditures for fiscal 1997
totaled $69.8 million: $42.1 million for PE Biosystems, $14.1 million
for Analytical Instruments, and $13.6 million for corporate. Fiscal
1997 expenditures included $11.1 million for information technology
infrastructure improvements and $12.1 million for the acquisition of a
corporate airplane.
Net cash used by financing activities was $37.7 million for fiscal
1998, $15.9 million for fiscal 1997, and $22.2 million for fiscal
1996. During fiscal 1998, proceeds from employee stock plan exercises
were $33.6 million. This was more than offset by shareholder
dividend payments and the redemption of the PerSeptive Notes. During
fiscal 1997, the Company generated $1.8 million from the sale of
equity put warrants (see Note 7) and $33.6 million in proceeds from
employee stock plan exercises, compared with $65.0 million from
employee stock plan exercises in fiscal 1996. This was more than
offset by shareholder dividends of approximately $29 million for both
fiscal 1997 and 1996, 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. No shares
were repurchased during fiscal 1998.
As previously mentioned, the Company recorded before-tax
restructuring charges and other merger costs of $48.1 million, $24.2
million, and $89.1 million in fiscal 1998, 1997, and 1996,
respectively. Fiscal 1997 also included an $11.2 million before-tax
reduction of charges associated with the fiscal 1996 restructuring
plan. During fiscal 1998, the Company made cash payments of $39.5
million for obligations related to restructuring plans and other
merger costs. Liabilities remaining at June 30, 1998 were $26.9
million and $4.4 million for the fiscal 1998 and 1997 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 Company believes its cash and short-term investments, funds
generated from operating activities, and available borrowing
facilities are sufficient to provide for its anticipated financing
needs over the next two years. At June 30, 1998, the Company had
unused credit facilities totaling $343 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.
Year 2000
In fiscal 1997, the Company initiated a worldwide program to assess
the expected impact of the Year 2000 date recognition problem on its
existing internal computer systems; non-information technology systems,
including embedded and process-control systems; product offerings;
and significant suppliers. The purpose of this program is to ensure
the event does not have a material adverse effect on the Company's
business operations.
Regarding the Company's existing internal computer systems, the
program involves a mix of purchasing new systems and modifying
existing systems, with the emphasis on replacement of applications
developed in-house. Replacement projects are currently underway, and
are anticipated to be substantially completed for all business-
critical systems in the United States by December 31, 1998, and
worldwide by December 31, 1999. The program focuses largely on
replacement of applications that, for reasons other than Year 2000
noncompliance, had been previously selected for replacement. The
replacement projects, which began in fiscal 1997,are expected to offer
improved functionality and commonality over current systems, while at
the same time addressing the Year 2000 problem.
Page 36
With respect to the Company's current product offerings, the program
involves performing an inventory of current products, assessing their
compliance status, and constructing a remediation plan where
appropriate. Progress has been made in each of these three phases and
the Company expects its product offerings to be Year 2000 compliant by
December 31, 1999.
The program also addresses the Year 2000 compliance efforts of the
Company's significant suppliers, vendors, and third-party interface
systems. As part of this analysis, the Company is seeking written
assurances from these suppliers, vendors, and third parties that they
will be Year 2000 compliant. While the Company has begun such
efforts, there can be no assurance that the systems of other companies
with which the Company deals, or on which the Company's systems rely
will be timely converted, or that any such failure to convert by
another company could not have a material adverse effect on the
Company. The Company has not fully determined the extent to which the
Company's interface systems may be impacted by third parties' systems,
which may not be Year 2000 compliant.
The Company's preliminary estimate of the total cost for this multi-
year program covering 3-4 years is approximately $150 million. This
includes amounts previously budgeted for information technology
infrastructure improvements and estimates of remediation costs on
components not yet fully assessed. Incremental spending has not been
and is not expected to be material because most Year 2000 compliance
costs will be met with amounts that are normally budgeted for
procurement and maintenance of the Company's information systems,
production and facilities equipment. The redirection of spending to
implement Year 2000 compliance plans may in some instances delay
productivity improvements.
The Company has also engaged a consulting firm to provide periodic
assessments of the Company's Year 2000 project plans and progress.
Because of the importance of addressing the Year 2000 problem, the
Company has created a Year 2000 business continuity planning team to
review and develop, by April 1999, business contingency plans to
address any issues that may not be corrected by implementation of the
Company's Year 2000 compliance plan in a timely manner. If the
Company is not successful in implementing its Year 2000 compliance
plan, or there are delays in and/or increased costs associated with
implementing such changes, the Year 2000 problem could have a material
adverse impact on the Company's consolidated results of operations and
financial condition.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The
provisions of the statement require the recognition of all derivatives
as either assets or liabilities in the statement of financial position
and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. The
Company is required to implement the statement in the first quarter of
fiscal 2000. The Company is currently analyzing the statement to
determine the impact, if any, on the consolidated financial
statements.
The FASB issued the following Statement of Financial Accounting
Standards, which will become effective for the Company's fiscal 1999
financial statements: SFAS No. 132, "Employers' Disclosures about
Pensions and other Postretirement Benefits," which requires additional
disclosures relating to a company's pension and postretirement benefit
plans; SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," which requires certain financial and descriptive
information about a company's reportable operating statements; and
SFAS No. 130, "Reporting Comprehensive Income," which requires
disclosure of comprehensive income and its components, as defined.
The adoption of these new accounting standards may require additional
disclosures but should not have a material effect, if any, on the
consolidated financial statements of the Company.
The Company continues to apply APB No. 25 in accounting for the
stock based compensation plans. Accordingly, no compensation expense
has been recognized for these plans, as all options have been issued
at fair value. The effect of accounting for such plans at fair value,
under SFAS No. 123, "Accounting for Stock Based Compensation," would
be to decrease fiscal 1998 net income by $31 million and diluted
earnings per share by $.61. The method used to determine the fair
value is the Black-Scholes options pricing model. Accordingly, changes
in dividend yield, volatility, interest risks and option life could
have a material effect on the fair value. See Note 8 to the
consolidated financial statements for a more detailed discussion
regarding the accounting for stock-based compensation at fair value.
Outlook
As the underlying demand for life science products continues to grow,
PE Biosystems is expected to continue to grow and maintain
profitability on the strength of robust demand and several new
products to be introduced, primarily during the second and third
quarters of fiscal 1999. New products planned for fiscal 1999 include
the ultra-high-throughput model 3700 genetic analysis system; the next
generation LC/MS instruments, which should reach full production in
fiscal 1999; and several applied genetic kits, including one for HIV.
The Company continues to expand this business through increased
internal development efforts as well as acquisitions, strategic equity
investments, and other collaborations. The acquisitions, investments,
and collaborations in PerSeptive, Tecan, Molecular Informatics, Hyseq,
Inc., Biometric Imaging, Inc., and GenScope are indicators of the
Company's continued focus on this business segment. While the Company
expects to realize benefits from these acquisitions, integration is
complex.
For Analytical Instruments, revenue growth is expected in the low
single digits for fiscal 1999. The fiscal 1997 restructuring actions
are expected to continue to increase the profitability and cash flow
of the division.
Adverse currency effects remain a concern for the Company because
approximately 57% of its revenues are derived from markets outside the
United States. These adverse effects could continue if the
relationship of the U.S. dollar to certain major European and Far
Eastern currencies is maintained at current levels, or could worsen if
the U.S. dollar continues to strengthen. The Company has absorbed
negative currency impacts of approximately $.38, $.19, and $.04 per
diluted share for fiscal 1998, 1997, and 1996, respectively. The
Company expects its currency and economic exposures in Southeast Asia
to be reduced from fiscal 1998 levels. However, the Japanese Yen
remains weak, and further U.S. dollar strengthening could impact
future results.
On May 9, 1998, the Company, Dr. J. Craig Venter, and The
Institute for Genomic Research (TIGR) announced that they had signed
letters of intent relating to the formation by the Company and Dr.
Venter of a new genomics company. The strategy of the new
company, Celera Genomics Corporation, will be centered on a plan to
substantially complete the sequencing of the human genome in three
years. The Company is currently reviewing several structural alter-
Page 37
natives for the new company and has not yet determined the
financial impact on the Company.
Forward Looking Statements
Certain statements contained in this annual report, including the
Outlook section, are forward looking and are subject to a variety of
risks and uncertainties. These statements may be identified by the
use of forward looking words or phrases such as "believe," "expect,"
"anticipate," "should," "planned," "estimated," and "potential,"
among others. These forward looking statements are based upon the
Company's current expectations. The Private Securities Litigation
Reform Act of 1995 provides a "safe harbor" for such forward looking
statements. In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the
anticipated results or other expectations expressed in such forward
looking statements. The risks and uncertainties that may affect the
operations, performance, development, and results of the Company's
business include, but are not limited to:
Dependence on New Products and Rapid Technological Change. The life
sciences and analytical instrumentation markets are characterized by
rapid technological change, complexity, and uncertainty regarding the
development of new high technology products. The Company's future
success will depend on its ability to enhance its current products and
to develop and introduce, on a timely and cost effective basis, new
products that address the evolving needs of its customers. In
addition, the transition from existing products to new products could
adversely affect the Company's future operating results.
Substantial Competition. The Company expects substantial competition
in the future with respect to existing and planned products and
especially with respect to efforts to develop and introduce products
in new markets. New product announcements, pricing changes, strategic
alliances, and other actions by competitors could adversely affect the
Company's market share or render its products obsolete or non-
competitive.
Customers' Capital Spending Policies. The Company's customers include
pharmaceutical, environmental, research, and chemical companies. Any
decrease in capital spending or change in spending policies of these
companies could have a significant effect on the demand for the
Company's products.
Patents, Proprietary Technology, and Trade Secrets. The Company's
ability to compete may be affected by its ability to protect
proprietary technology and intellectual property rights, and to obtain
necessary licenses on commercially reasonable terms. Changes in the
interpretation of copyright or patent law could expand or reduce the
extent to which the Company and its competitors are able to protect
their intellectual property or require changes in the designs of
products, which could have an adverse effect on the Company.
Government Sponsored Research. A substantial portion of the Company's
sales are to universities or research laboratories whose funding is
dependent upon both the level and timing of funding from government
sources. The timing and amount of revenues from these sources may vary
significantly due to budgetary pressures, particularly in the United
States and Japan, that may result in reduced allocations to government
agencies that fund research and development activities.
Key Employees. The Company is highly dependent on the principal
members of its management and scientific staff. The Company believes
that its future success will depend in large part upon its ability to
attract and retain highly skilled personnel.
Currency Exchange Risks; International Sales and Operations. The
Company's reported and anticipated operating results and cash flows
are subject to fluctuations due to material changes in foreign
currency exchange rates that are beyond the Company's control.
International sales and operations may also be adversely affected by
the imposition of governmental controls, export license requirements,
restrictions on the export of critical technology, political and
economic instability, trade restrictions, changes in tariffs and
taxes, difficulties in staffing and managing international operations,
and general economic conditions.
Potential Difficulties in Implementing Business Strategy. The
Company's strategy to integrate and develop acquired businesses or
strategic investments involves a number of elements that management
may not be able to implement as expected. For example, The Company
may encounter operational difficulties in the integration of
manufacturing or other facilities, and advances resulting from the
integration of technologies may not be achieved as successfully or as
rapidly anticipated, if at all.
Other Risks. Other risks and uncertainties that may affect the
operations, performance, development, and results of the business
include: (1) the development of new sequencing strategies and the
commercialization of information derived from sequencing operations;
(2) the impact of earthquakes on the Company, since a significant
portion of the Company's life science operations are located near
major California earthquake faults; and (3) other factors which may be
described from time to time in the Company's filings with the
Securities and Exchange Commission.
Future Performance. 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.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Registrant hereby incorporates by reference Page 35 of Item 7 and Note
12 on Pages 58-60 of Item 8 of this Report on Form 10-K/A.
Page 38
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS The Perkin-Elmer Corporation
(Dollar amounts in thousands except per share amounts)
For the years ended June 30, 1998 1997 1996
Net revenues $ 1,531,165 $ 1,373,282 $ 1,248,967
Cost of sales 752,045 693,343 653,427
Gross margin 779,120 679,939 595,540
Selling, general and administrative 459,635 416,305 380,390
Research, development and engineering 152,202 120,875 113,680
Restructuring and other merger costs 43,980 13,000 89,054
Acquired research and development 28,850 26,801 33,878
Operating income (loss) 94,453 102,958 (21,462)
Gain on investments 1,605 64,850 11,704
Interest expense 4,905 5,859 8,444
Interest income 5,938 8,826 5,376
Other income (expense), net 3,511 1,846 (2,140)
Income (loss) before income taxes 100,602 172,621 (14,966)
Provision for income taxes 38,617 42,223 21,557
Minority interest 5,597
Net income (loss) $ 56,388 $ 130,398 $ (36,523)
Net income (loss) per share:
Basic $ 1.16 $ 2.74 $ (0.80)
Diluted $ 1.12 $ 2.63 $ (0.80)
See accompanying notes to consolidated financial statements.
Page 39
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION The Perkin-Elmer Corporation
(Dollar amounts in thousands)
At June 30, 1998 1997
Assets
Current assets
Cash and cash equivalents $ 82,865 $ 213,028
Short-term investments 1,226 4,194
Accounts receivable, less allowances for doubtful accounts of $9,277 ($7,407 - 1997) 374,898 333,915
Inventories 240,031 214,618
Prepaid expenses and other current assets 97,116 83,576
Total current assets 796,136 849,331
Property, plant and equipment, net 258,800 197,367
Other long-term assets 279,538 192,051
Total assets $ 1,334,474 $ 1,238,749
Liabilities and shareholders' equity
Current liabilities
Loans payable $ 12,099 $ 29,916
Accounts payable 165,289 131,413
Accrued salaries and wages 48,999 48,183
Accrued taxes on income 79,860 98,307
Other accrued expenses 201,898 186,771
Total current liabilities 508,145 494,590
Long-term debt 33,726 59,152
Other long-term liabilities 184,598 180,737
Total liabilities 726,469 734,479
Minority interest 43,757
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: 180,000,000 shares authorized; shares issued
1998 - 50,148,384 and 1997 - 50,122,390 50,148 50,122
Capital in excess of par value 379,974 374,423
Retained earnings 190,966 167,482
Foreign currency translation adjustments (7,799) (5,052)
Unrealized (loss) gain on investments (1,363) 3,086
Minimum pension liability adjustment (351) (705)
Treasury stock, at cost (shares: 1998 - 831,213; 1997 - 1,795,563) (47,327) (85,086)
Total shareholders' equity 564,248 504,270
Total Liabilities and shareholders' equity $ 1,334,474 $ 1,238,749
See accompanying notes to consolidated financial statements.
Page 40
CONSOLIDATED STATEMENTS OF CASH FLOWS The Perkin-Elmer Corporation
(Dollar amounts in thousands)
For the years ended June 30, 1998 1997 1996
Operating activities
Net income (loss) $ 56,388 $ 130,398 $ (36,523)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 53,126 43,879 51,770
Long-term compensation programs 8,062 11,678 5,072
Deferred income taxes 12,892 (37,799) (13,110)
Gains from the sale of assets (3,052) (66,636) (11,704)
Provision for restructured operations and other merger costs 48,080 13,000 89,054
Acquired research and development 28,850 26,801 33,878
Impairment of assets 7,500 9,906
Changes in operating assets and liabilities:
Increase in accounts receivable (26,637) (68,313) (33,141)
(Increase) decrease in inventories (24,975) 5,198 (11,225)
Increase in prepaid expenses and other assets (48,298) (3,662) (8,959)
Increase (decrease) in accounts payable and other liabilities (26,277) 51,151 15,890
Net cash provided by operating activities 78,159 113,195 90,908
Investing activities
Additions to property, plant and equipment
(net of disposals of $15,588, $6,188 and $4,927, respectively) (101,120) (63,634) (39,382)
Acquisitions and investments, net (97,998) (27,676) (119,189)
Proceeds from the sale of assets, net 19,496 99,710 102,318
Proceeds from the collection of notes receivable 9,673 4,978
Proceeds from short-term investments 5,773
Net cash (used) provided by investing activities (169,949) 13,378 (50,480)
Financing activities
Net change in loans payable (6,797) (4,914) (17,040)
Proceeds from long-term debt 31,033
Principal payments on long-term debt (25,449) (22,908)
Dividends (39,072) (29,459) (29,095)
Purchases of common stock for treasury (25,126) (41,028)
Proceeds from issuance of equity put warrants 1,846
Proceeds from stock issued for stock plans 33,629 33,637 64,954
Net cash used by financing activities (37,689) (15,891) (22,209)
Elimination of PerSeptive results from
July 1, 1997 to September 30, 1997 (see Note 1) 2,590
Effect of exchange rate changes on cash (3,274) 1,601 (2,699)
Net change in cash and cash equivalents (130,163) 112,283 15,520
Cash and cash equivalents beginning of year 213,028 100,745 85,225
Cash and cash equivalents end of year $ 82,865 $ 213,028 $ 100,745
See accompanying notes to consolidated financial statements.
Page 41
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY The Perkin-Elmer Corporation
Foreign Unrealized Minimum
Common Capital In Currency Gain Pension
Stock $1.00 Excess Of Retained Translation (Loss) on Liability Treasury Stock
(Dollar amounts and shares in thousands) Par Value Par Value Earnings Adjustments Investments Adjustment At Cost Shares
Balance at June 30, 1995 $ 48,760 $ 311,043 $ 142,741 $ 10,030 $ - $(34,445) $(108,322) (3,490)
Net loss (36,523)
Cash dividends declared (29,095)
Share repurchases (41,028) (800)
Shares issued under stock plans 45 1,336 (5,627) 51,202 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 investments, net 23,175
Foreign currency translation adjustments (10,957)
Common stock issuances for acquisitions 1,077 34,796
Other 144 1,920 (1,977)
Balance at June 30, 1996 50,026 358,454 69,519 (927) 23,175 (29,365) (97,155) (2,701)
Net income 130,398
Cash dividends declared (29,536)
Share repurchases (25,126) (428)
Shares issued under stock plans 61 2,065 (1,459) 31,615 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)
Unrealized gain on investments, net 3,156
Sale of equity put warrants 1,846
Foreign currency translation adjustments (4,125)
Other 35 1,392 (1,440)
Balance at June 30, 1997 50,122 374,423 167,482 (5,052) 3,086 (705) (85,086) (1,796)
Net income 56,388
Cash dividends declared (31,604)
Shares issued under stock plans 26 1,358 (3,468) 37,759 965
Tax benefit related to employee stock options 2,335
Minimum pension liability adjustment 354
Restricted stock plan 1,858 (136)
Unrealized loss on investments, net (4,449)
Foreign currency translation adjustments (2,747)
Elimination of PerSeptive results from
July 1, 1997 to September 30, 1997 (see Note 1) 2,590
Other (286)
Balance at June 30, 1998 $ 50,148 $ 379,974 $ 190,966 $ (7,799) $ (1,363) $ (351) $ (47,327) (831)
See accompanying notes to consolidated financial statements.
Page 42
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.
On January 22, 1998, the Company acquired PerSeptive Biosystems,
Inc. (PerSeptive). The acquisition has been accounted for as a
pooling of interests and, accordingly, the Company's financial results
have been restated to include the combined operations (see Note 2).
The Company's fiscal year ended June 30 and PerSeptive's fiscal year
ended September 30. The fiscal 1998 Consolidated Statements of
Operations combined the Company's operating results for the year ended
June 30, 1998 with PerSeptive's operating results for the nine months
ended June 30, 1998 and the three months ended September 30, 1997
(PerSeptive's fiscal 1997 fourth quarter). The fiscal 1997 and 1996
Consolidated Statements of Operations combined the Company's results
of operations for the years ended June 30, 1997 and 1996 with
PerSeptive's results of operations for the fiscal years ended
September 30, 1997 and 1996, respectively. In order to conform
PerSeptive to a June 30 fiscal year-end in fiscal 1998, PerSeptive's
results of operations for the three months ended September 30, 1997
have been included in the Company's Consolidated Statements of
Operations for the fiscal years ended June 30, 1998 and 1997.
Recently Issued Accounting Standards. In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The provisions of the statement
require the recognition of all derivatives as either assets or
liabilities in the statement of financial position and the measurement
of those instruments at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company is required to
implement the statement in the first quarter of fiscal 2000. The
Company is currently analyzing the statement to determine the impact,
if any, on the consolidated financial statements.
Earnings per Share. During the second quarter of fiscal 1998, the
Company adopted SFAS No. 128, "Earnings per Share." The statement
establishes new standards for computing and presenting earnings per
share and requires presentation of basic and diluted earnings per
share on the face of the income statement. Basic earnings per share
is computed by dividing net income for the period by the weighted
average number of common shares outstanding. Diluted earnings per
share is computed similarly to the Company's previously disclosed
amounts by dividing net income for the period by the weighted average
number of common shares outstanding including the dilutive effect of
common stock equivalents. Earnings per share amounts for all prior
periods have been restated to conform with the provisions of this
statement.
The table below presents a reconciliation of basic and diluted
earnings (loss) per share for the following fiscal years:
(Amounts in thousands
except per share amounts) 1998 1997 1996
Weighted average number
of common shares used
in the calculation of basic
earnings (loss) per share 48,560 47,517 45,859
Common stock equivalents 1,592 1,996
Shares used in the
calculation of diluted
earnings (loss) per share 50,152 49,513 45,859
Net income (loss) used in
the calculation of basic
and diluted earnings
(loss) per share $ 56,388 $ 130,398 $ (36,523)
Net income (loss) per share
Basic $ 1.16 $ 2.74 $ (.80)
Diluted $ 1.12 $ 2.63 $ (.80)
Options and warrants to purchase 1.4 million, .2 million, and 2.1
million shares of the Company's common stock were outstanding at June
30, 1998, 1997, and 1996, respectively, but were not included in the
computation of diluted earnings per share because the effect was
antidilutive.
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. Transaction
gains and losses for the periods ended June 30, 1998, 1997, and 1996
were a loss of $2.5 million, and gains of $1.5 million and $4.8
million, respectively.
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
Page 43
Company include foreign currency forward contracts, synthetic forward
contracts, foreign currency options, and an interest rate swap (see
Note 12).
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
1998, 1997, and 1996, the Company received cash proceeds of $111.9
million, $82.9 million, and $83.0 million, respectively, from the sale
of such receivables. The Company accounts for such sales in accordance
with SFAS 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" and believes it has
adequately provided for any risk of loss that may occur under these
arrangements.
Investments. The equity method of accounting is used for investments
in joint ventures that are 50% owned or less. Minority equity
investments are classified as available-for-sale and carried at market
value in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
Inventories. Inventories are stated at the lower of cost (on a first-
in, first-out basis) or market. Inventories at June 30, 1998 and 1997
included the following components:
(Dollar amounts in millions) 1998 1997
Raw materials and supplies $ 62.6 $ 40.3
Work-in-process 16.9 18.0
Finished products 160.5 156.3
Total inventories $ 240.0 $ 214.6
Property, Plant, and Equipment and Depreciation. Property, plant and
equipment are recorded at cost and consisted of the following at June
30, 1998 and 1997:
(Dollar amounts in millions) 1998 1997
Land $ 21.8 $ 23.1
Buildings and leasehold improvements 171.9 156.2
Machinery and equipment 316.7 266.9
Property, plant and equipment, at cost 510.4 446.2
Accumulated depreciation
and amortization 251.6 248.8
Property, plant and equipment, net $ 258.8 $ 197.4
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. Machinery and equipment included capitalized internal-use
software, primarily related to the Company's worldwide strategic
program to improve its information technology infrastructure, of $77.0
million and $11.1 million at June 30, 1998 and 1997, respectively.
Provisions for depreciation of owned property, plant and equipment
are based upon the expected useful lives of the assets and computed
primarily by the straight-line method. Leasehold improvements are
amortized over their estimated useful lives or the term of the
applicable lease, whichever is less, using the straight-line method.
Internal-use software costs are amortized primarily over the expected
useful lives, not to exceed seven years.
Capitalized Software. Internal software development costs incurred
from the time technological feasibility of the software is established
until the software is ready for its intended use are capitalized and
included in other long-term assets. Research and development costs
and other computer software maintenance costs related to software
development are expensed as incurred. The costs are amortized using
the straight-line method over a maximum of three years or the expected
life of the product, whichever is less. At June 30, 1998, capitalized
software costs, net of accumulated amortization, were $9.0 million.
Amounts were not material at June 30, 1997.
Intangible Assets. The excess of purchase price over the net asset
value of companies acquired is amortized on a straight-line method
over periods not exceeding 40 years. Patents and trademarks are
amortized using the straight-line method over their expected useful
lives. At June 30, 1998 and 1997, other long-term assets included
goodwill, net of accumulated amortization, of $84.5 million and $32.7
million, respectively. Accumulated amortization of goodwill was $17.4
million and $14.0 million at June 30, 1998 and 1997, respectively.
Asset Impairment. The Company periodically reviews all long-lived
assets for impairment in accordance with SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." Assets are written down to fair value when the
carrying costs exceed this amount. In 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. In fiscal 1996, the Company
recorded a cost of sales charge of $9.9 million for the impairment of
certain production assets associated with the realignment of the
product offerings of PerSeptive. The impairment losses were
determined based upon estimated future cash flows and fair values.
Page 44
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, generally 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
to taxable years in which the differences are expected to reverse.
Supplemental Cash Flow Information. Cash paid for interest and income
taxes and significant non-cash investing and financing activities for
the fiscal years ended June 30, 1998, 1997, and 1996 were as follows:
(Dollar amounts in millions) 1998 1997 1996
Interest $ 5.7 $ 6.0 $ 8.9
Income taxes $ 60.5 $ 31.3 $ 15.0
Significant non-cash investing and
financing activities:
Unrealized gain (loss) on investments $ (4.4) $ 3.1 $ 23.2
Dividends declared not paid $ 7.5 $ 7.4
Common shares issued in PerSeptive
pooling 4.6
Minority interest assumed $ 41.3
Note 2 Acquisitions and Dispositions
PerSeptive Biosystems, Inc. The merger (the Merger) of Seven
Acquisition Corp., a wholly-owned subsidiary of the Company, and
PerSeptive was consummated on January 22, 1998. PerSeptive develops,
manufactures, and markets an integrated line of proprietary consumable
products and advanced instrumentation systems for the purification,
analysis, and synthesis of biomolecules. As a result of the Merger,
PerSeptive, which was the surviving corporation of the Merger, became
a wholly-owned subsidiary of the Company on that date. Each
outstanding share of PerSeptive common stock was converted into shares
of the Company's common stock at an exchange ratio equal to 0.1926.
Accordingly, the Company issued 4.6 million shares of its common stock
for all outstanding shares of PerSeptive common stock. Each
outstanding option and warrant for shares of PerSeptive common stock
was converted into options and warrants for the number of shares of
the Company's common stock that would have been received if such
options and warrants had been exercised immediately prior to the
effective time of the Merger. All shares of Series A Redeemable
Convertible Preferred Stock of PerSeptive outstanding immediately
prior to the effective time of the Merger were converted in accordance
with their terms into shares of PerSeptive common stock which were
then converted into shares of the Company's common stock. As a result
of the Merger, PerSeptive's 8-1/4% Convertible Subordinated Notes Due
2001 (the PerSeptive Notes) became convertible into shares of the
Company's common stock. On March 23, 1998, the Company redeemed the
PerSeptive Notes for a total of $26.1 million representing $24.7
million of principal and $1.4 million of accrued interest and premium
relating to the PerSeptive Notes. Additionally, $2.5 million of the
principal amount of the PerSeptive Notes was converted by the holders
thereof into 35,557 shares of the Company's common stock.
The Merger qualified as a tax-free reorganization and has been
accounted for as a pooling of interests. Accordingly, the Company's
financial results have been restated to include the combined
operations. Combined and separate results of the Company and
PerSeptive during the periods preceding the Merger were as follows:
(Dollar amounts
in millions) Perkin-Elmer PerSeptive Adjustment Combined
Six months ended
December 31,1997
(unaudited)
Net revenues $ 639.3 $ 52.6 $ 691.9
Net income (loss) $ 32.2 $ (5.4) $ .6 $ 27.4
Fiscal year ended
June 30, 1997
Net revenues $ 1,276.8 $ 96.5 $ 1,373.3
Net income $ 115.2 $ 15.2 $ 130.4
Fiscal year ended
June 30, 1996
Net revenues $ 1,162.9 $ 86.1 $ 1,249.0
Net income (loss) $ 13.9 $ (50.4) $ (36.5)
The adjustment for the six months ended December 31, 1997 reflects
the inclusion of PerSeptive's operating results within the Company's
consolidated tax provision. There were no material intercompany
transactions between the Company and PerSeptive during any period
presented.
Tecan AG. The Company acquired a 14.5% interest and approximately 52%
of the voting rights in Tecan AG (Tecan) in December 1997. Tecan is a
world leader in the development and manufacturing of automated sample
processors, liquid handling systems, and microplate photometry. Used
in research, industrial, and clinical markets, these products provide
automated solutions for pharmaceutical drug discovery, molecular
biology, genomic testing, and clinical diagnostics. The acquisition
cost was $53.2 million in cash and was accounted for as a purchase
with a minority interest of $41.3 million. The excess purchase price
over the fair market value of the underlying assets was $46.2 million
and is being amortized over fifteen years.
Page 45
Molecular Informatics, Inc. During the second quarter of fiscal 1998,
the Company acquired Molecular Informatics, Inc. ("Molecular
Informatics"), a leader in the development of infrastructure software
for the pharmaceutical, biotechnology, and agrochemical industries as
well as for applied markets such as forensics and human
identification. The acquisition cost was $53.9 million and was
accounted for as a purchase. In connection with the acquisition, $28.9
million was expensed as purchased in-process research and development
and $24.7 million was allocated to goodwill and other intangible
assets. Goodwill of $9.0 million is being amortized over ten years,
and other intangible assets of $15.7 million are being amortized over
periods of four to seven years.
The $28.9 million expensed as in-process research and development
represented 53.6% of the purchase price and was attributed and
supported by a discounted probable cash flow analysis on a project-by-
project basis. At the acquisition date, the technological feasibility
of the acquired technology had not been established and the acquired
technology had no future alternative uses.
Approximately 10% of the in-process research and development value
was attributed to BioLIMS, a software system that manages data,
initiates analysis programs, and captures the results in a
centralized, relational database for sequencing instruments; 6% was
attributed to GA SFDB, a client-side add-on product to several
existing gene sequencing instruments; 38% was attributed to BioMERGE,
a client-server management and integration system that organizes
proprietary, public, and third-party results in a single relational
database for the drug discovery and genomic research markets; 9% was
attributed to BioCLINIC, a client-server management and integration
system that organizes proprietary, public, and third-party results
generated from DNA and protein sequence analysis in a single database
for the clinical trials phase of drug development; and 37% was
attributed to SDK, an open architecture software platform from which
all of Molecular Informatics' future software applications are
expected to be derived.
As of the acquisition date, all of the major functionality for
BioLIMS 2.0 had been completed and the product is expected to be
released in September 1998. As of the acquisition date, BioLIMS 3.0
was in the design and scoping phase and is expected to be released in
June 1999. As of the acquisition date, GA SFDB was in early alpha
phase and had been completed concurrent with the development of
BioLIMS 2.0 and is expected to be released in September 1998. As of
the acquisition date, BioMerge 3.0 functional scope was defined and
the requirements assessment had been completed and is expected to be
released in November 1998. As of the acquisition date, the BioClinic
product requirements had been specified and discussions had begun with
two potential customers to begin the specific software modifications.
Development efforts were terminated in April 1998 due to unsuccessful
marketing efforts. As of the acquisition date, the SDK requirements
assessment had been completed and the functional scope had been
defined. Currently, one successful prototype has been completed and
additional development efforts continue in this area.
At the date of the acquisition, management expected to complete the
majority of these projects and commence generating significant
revenues in 1999. A total of $11.8 million of the purchase price was
attributed to core technology and existing products, primarily related
to the BioMERGE product. The risk-adjusted discount rate applied to
the projects cash flows was 20% for existing technology and 23% for in-
process technology. The risk premium of 3% for in-process technologies
was determined by management based upon the associated risks of
rolling out these in-process technologies versus the existing
technologies for the emerging bioinformatics software industry.
Management's cash flow and other assumptions utilized at the time of
acquisition had not materially changed at June 30, 1998. The
significant risks associated with these products include the limited
operating history of Molecular Informatics, uncertainties surrounding
market acceptance of such in-process products, competitive threats
from other bioinformatics companies, and other risks. Management is
primarily responsible for estimating the fair value of such existing
and in-process technology.
Biometric Imaging, Inc. During fiscal 1998, the Company acquired a
minority equity interest in Biometric Imaging, Inc. for $4.0 million.
The Company and Biometric Imaging, Inc. are collaborating on the
development and manufacturing of a high-throughput screening system
for use by pharmaceutical research companies to accelerate the drug
discovery process. The Company received exclusive worldwide marketing
rights for products developed for that market. Biometric Imaging
products are designed to help ensure the integrity of transfused
products, optimize cell therapy procedures, and monitor disease
progression and the efficacy of therapy.
GenScope, Inc. During the third quarter of fiscal 1997, the Company
acquired GenScope, Inc., for $26.8 million. GenScope, founded in 1995,
represented a development stage venture with no operating history and
effectively no revenues (limited R&D contract services only). At
the acquisition date, technological feasibility of the acquired
technology right had not been established and the acquired technology
right had no future alternative uses. The Company obtained the
right to utilize AFLP-based gene expression technology in the field
of human health, but did not obtain any core technology or other
rights. GenScope's limited balance sheet, with assets of approximately
$.2 million, had yet to deliver commercial value. Accordingly, the
Company recorded a charge of $25.4 million attributable to the
in-process technology purchased. The Company based this amount upon
the early development stage of this life science business acquired,
the technological hurdles to the application of this technology to
the field of human health and the underlying cash flow projections.
The acquisition represented the purchase of development stage
technology, not at the time considered commercially viable in the
health care applications that the Company intends to pursue. The
Company's intent was to first develop the technology into a set of
molecular screening tools for use in the enhancement of pharmaceutical
product development. The Company allocated $1.4 million of the
purchase price to technology rights attributable to GenScope's AFLP
gene expression technology. AFLP is an enhancement of the polymerase
chain reaction ("PCR") process that allows selective analysis of
any portion of genetic material without the specific, prior sequence
information normally required for PCR. Of the $25.4 million expensed
as in-process research and development, $5.5 million represented a
contingent liability due on the issuance of a process patent for
technology under development.
Through June 30, 1998, the Company incurred approximately $4.9
million in additional research and development costs to further
develop the AFLP technology in the field of human health. The Company
anticipates spending an additional $13.9 million in fiscal 1999 and
2000 to substantially complete such project. Such costs approximate
those anticipated at the date of acquisition.
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.
At the acquisition date, the technological feasibility of the acquired
technology had not been established and the acquired technology had no
future alternative uses. The acquisition cost, net of cash acquired,
was $36.0 million and was accounted for as a purchase. The purchase
price was allocated to the net assets acquired and to purchased
in-process research and development. Purchased in-process research
and development included the value of products in the development
stage and not considered to have reached technological feasibility.
The Company expensed $22.3 million of the Tropix acquisition cost
as in-process research and development, representing 60.3% of the
purchase price. This amount was attributed and supported by a
discounted probable cash flow analysis on a project-by-project basis.
The remaining purchase price was allocated as follows: $10.2 million
to proprietary patents and core technology, $1.4 million to trademarks
and tradenames, $.2 million to assembled workforce and $1.9 million
to working capital and property, plant and equipment acquired.
Approximately 56% of the in-process research and development value
was attributed to the pharmaceutical screening products project, a
project designed to incorporate existing proprietary technologies of
Tropix into assay methods for pharmaceutical customers and to perform
the screening required by those customers on-site. Additionally, there
was to be continued development of suitable assays to improve and
expand the technology covered by Tropix patents. The intent was to be
a one-stop service where Tropix would develop and perform screening
for pharmaceutical customers. Assets in place for this project were
the intellectual property of Tropix and the scientific expertise
required to customize both the reagents and the methods necessary for
the intended use of the customers. Approximately 44% of the in-
process research and development value was attributed to the
diagnostics products project, a project related to the continued
development of the reagent product line. Derivatives of the
proprietary technology and expansion of the patents surrounding it
were planned to exploit the leadership that Tropix held in its core
chemiluminescent products. Also, work was being performed on ancillary
reagents to enhance both reactions and stability of existing Tropix
dioxetanes. Development of new kits and applications based on the
Gal-Star substrate, in particular, were in-process. All of these
activities were focused on expanding the existing product line in
consumables in order to maintain Tropix's leadership in
chemiluminescence.
Through June 30, 1998, the Company incurred approximately $2.8
million in additional research and development costs to further
develop these projects. The diagnostic products project was completed
in fiscal 1997. The Company anticipates spending an additional $.8
million in fiscal 1999 to complete the pharmaceutical screening
project. Such costs approximate those anticipated at the date of
acquisition.
A risk-adjusted discount rate of 23% was employed to value the in-
process projects. The significant risks associated with these products
include the limited operating history of Tropix, uncertainties
surrounding market acceptance of such in-process products and other
competitive risks. Management is primarily responsible for estimating
the fair value of such existing and in-process technologies.
Other Acquisitions. During the fourth quarter of fiscal 1998, the
Company made a minority equity investment of $2.5 million in ACLARA
BioSciences, Inc. The companies are collaborating on the development
of advanced genetic analysis systems.
The Company entered into a strategic partnership with Hyseq, Inc.,
acquiring a minority equity interest for an initial cash investment of
$5.0 million, during the fourth quarter of fiscal 1997. Hyseq, Inc.
applies proprietary DNA array technology to develop gene-based
therapeutic product candidates and diagnostic products and tests. In
the first quarter of fiscal 1998, the Company increased its investment
by $5.0 million.
The Company acquired Linkage Genetics, Inc., a provider of genetic
services in the agriculture industry, during the fourth quarter of
fiscal 1997. At the acquisition date, the technological feasibility of
the acquired technology had not been established and the acquired
technology had no future alternative uses. The cash acquisition cost of
$1.4 million was accounted for as a purchase. The entire acquisition
cost was expensed as purchased in-process research and development.
In fiscal 1996, the Company acquired Zoogen, Inc., a leading
provider of genetic analysis services for $2.1 million, a minority
equity interest in Paracel, Inc., a provider of information filtering
technologies for $4.5 million and PerSeptive Technologies Corporation,
a research and development company formed to fund the development of
novel tools for clinical diagnostics and screening of biological
compounds for drug discovery, for $19.3 million. In connection with
these life science acquisitions, $11.6 million of purchased in-process
research and development was expensed in fiscal 1996.
The $11.6 million of purchased in-process research and development
primarily related to in-process projects at PerSeptive Technologies
and Zoogen at the dates of acquisition. For all of the fiscal 1996
acquisitions, the technological feasibility of the acquired technology
had not been established at the acquisition dates and the acquired
technology had no future alternative uses.
Four projects were in-process at PerSeptive Technologies at the
date of acquisition. Three of these projects were abandoned by the
Company upon acquisition and, therefore, were not assigned any value.
The remaining in-process project was the drug-screening program, a
program designed to develop new methodologies for the screening of
libraries of biological and chemical compounds to enhance the discovery
of drugs. Such project was subsequently transferred to ChemGenics
Pharmaceuticals in exchange for a 34% equity interest. In fiscal
1997, after additional research and development efforts by ChemGenics,
the Company received a 6% interest in Millennium Pharmaceuticals in
exchange for its ownership in ChemGenics and recognized a $25.9
million gain upon such transaction.
The in-process projects at Zoogen included the flea allergy
dermatitis, green iguana sexing, bird sexing method conversion, and
the feline genotyping projects. All projects were completed in fiscal
1997, except for the flea allergy dermatitis project, at an additional
cost of approximately $.3 million. The flea allergy dermatitis
project was abandoned in fiscal 1997. All costs incurred approximated
those anticipated at the date of acquisition.
The net assets and results of operations for the above acquisitions
accounted for under the purchase method have been included in the
consolidated financial statements since the date of each acquisition.
The pro forma effect of these acquisitions, individually or in the
aggregate, on the Company's consolidated financial statements was not
significant.
Dispositions
Millennium Pharmaceuticals, Inc. During fiscal 1998, the Company
recorded a before-tax gain of $1.6 million in connection with the
release of previously existing contingencies on shares of Millennium
Pharmaceuticals, Inc. (Millennium) common stock. During fiscal 1997,
the Company recognized a before-tax gain of $27.5 million associated
with the sale of approximately 50% of its investment in Millennium and
the release of previously existing contingencies. The gain included
$25.9 million from the Company's exchange of a 34% equity interest in
ChemGenics Pharmaceuticals, Inc. for an approximate 6% equity interest
in Millennium.
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 and $11.7 million were recognized for fiscal 1997 and
1996, respectively. Net cash proceeds from the sales were $45.8
million and $16.6 million for fiscal 1997 and 1996, respectively.
Page 46
Note 3 Debt and Lines of Credit
There were no domestic borrowings outstanding at June 30, 1998 or
1997. Foreign loans payable and long-term debt at June 30, 1998 and
1997 are summarized below:
(Dollar amounts in millions) 1998 1997
Loans payable
Notes payable, banks $ 12.1 $ 23.1
Current portion of convertible
subordinated notes 6.8
Total loans payable $ 12.1 $ 29.9
Long-term debt
Yen loan $ 27.0 $ 33.6
Convertible subordinated notes 20.4
Other 6.7 5.2
Total long-term debt $ 33.7 $ 59.2
The weighted average interest rates at June 30, 1998 and 1997 for
notes payable to foreign banks were 1.8% and 3.6%, respectively.
On March 23, 1998, the Company redeemed Perseptive's 8 1/4%
convertible subordinated notes (see Note 2).
During the third quarter of fiscal 1997, the Company replaced its
Yen 2.8 billion loan, which matured in February 1997, with a Yen 3.8
billion 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.
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, 1998
or 1997.
At June 30, 1998, the Company had unused credit facilities for short-
term borrowings from domestic and foreign banks in various currencies
totaling $343 million. All other credit facilities available consist of
uncommitted overdraft credit lines that are provided at the discretion
of local banks. A parent guarantee is required by the facility if the
local unit borrows any funds.
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 1999,
2000, 2001, or 2003. The Yen 3.8 billion loan matures in fiscal 2002.
Note 4 Income Taxes
Income (loss) before income taxes for fiscal 1998, 1997, and 1996 is
summarized below:
(Dollar amounts in millions) 1998 1997 1996
United States $ (3.9) $ 121.0 $ (28.5)
Foreign 104.5 51.6 13.5
Total $ 100.6 $ 172.6 $ (15.0)
The components of the provision for income taxes for fiscal 1998,
1997, and 1996 consisted of the following:
(Dollar amounts in millions) 1998 1997 1996
Currently payable:
Domestic $ .1 $ 56.2 $ 10.4
Foreign 25.6 23.8 24.3
Total currently payable 25.7 80.0 34.7
Deferred:
Domestic 11.0 (41.0) (4.4)
Foreign 1.9 3.2 (8.7)
Total deferred 12.9 (37.8) (13.1)
Total provision for income taxes $ 38.6 $ 42.2 $ 21.6
Significant components of deferred tax assets and liabilities at
June 30, 1998 and 1997 are summarized below:
(Dollar amounts in millions) 1998 1997
Deferred tax assets:
Intangibles $ 5.8 $ 6.4
Inventories 7.9 8.4
Postretirement and postemployment
benefits 35.0 35.7
Other reserves and accruals 40.0 54.3
Tax credit and loss carryforwards 50.1 50.9
Subtotal 138.8 155.7
Valuation allowance (71.7) (78.6)
Total deferred tax assets 67.1 77.1
Deferred tax liabilities:
Inventories .5 .5
Millennium equity transaction 4.3
Other reserves and accruals 7.9 6.1
Total deferred tax liabilities 8.4 10.9
Total deferred tax assets, net $ 58.7 $ 66.2
Page 47
A reconciliation of the federal statutory tax to the Company's
tax provision for fiscal 1998, 1997, and 1996 is set forth in the
following table:
(Dollar amounts in millions) 1998 1997 1996
Federal statutory rate 35% 35% 35%
Tax at federal statutory rate $ 35.2 $ 60.4 $ (5.2)
State income taxes
(net of federal benefit) .3 .2 (1.5)
Effect on income from foreign
operations 6.7 42.6 14.7
Effect on income from foreign
sales corporation (7.5) (4.8) (3.2)
Acquired research and
Development 10.1 9.4 11.9
Restructuring and other merger costs 5.2
Domestic temporary differences
for which benefit is recognized (11.1) (60.6) (12.7)
Benefit of loss not recognized/
(utilization of net operating losses) (7.6) 16.9
Other (.3) 2.6 .7
Total provision for income taxes $ 38.6 $ 42.2 $ 21.6
The category "domestic temporary differences for which benefit is
recognized" reported in the table above reflects the current year
benefit attributable to a reduction in the valuation allowance. A
portion of the reduction was due to the utilization of domestic tax
credit carryforwards and reversing temporary differences, while the
remainder resulted from the recognition of various other deferred tax
assets that were previously subject to a valuation allowance. The
benefit due to the utilization of the tax credit carryforwards and
reversing temporary differences was recognized each year because a
valuation allowance had been established against these assets in the
year of origination. The valuation allowance on the various other
deferred tax assets was reduced because, although realization was not
assured, management believed that due to increasing profitability, it
was more likely than not that these deferred tax assets would be
realized.
At June 30, 1998, the Company's worldwide valuation allowance
primarily related to foreign tax loss carryforwards, as well as the
domestic tax loss carryforwards, temporary differences and tax credit
carryforwards recorded as a result of the stock acquisition of
PerSeptive in January 1998.
At June 30, 1998, the Company had a U.S. alternative minimum tax
credit carryforward of $4.9 million with an indefinite carryforward
period. The Company's subsidiary, PerSeptive, has domestic loss
carryforwards of approximately $64 million that will expire between
the years 2003 and 2012. The amount of these net operating loss
carryforwards that can be utilized annually to offset future taxable
income or tax liability has been limited under the Internal Revenue
Code as a result of the acquisition. The Company also has loss
carryforwards of approximately $38 million in various foreign
countries with varying expiration dates.
U.S. income taxes have not been provided on approximately $144
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. These earnings include
income from manufacturing operations in Singapore, which is tax exempt
through the year 2004. 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 and its subsidiaries are subject to tax examinations in
various U.S. and foreign jurisdictions. The Company believes that
adequate tax payments have been made and adequate accruals have been
recorded for all 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 $14.0 million, $15.1 million, and $15.2 million for fiscal 1998,
1997, and 1996, respectively. The components of net pension expense
are set forth in the following tables:
(Dollar amounts in millions) 1998 1997 1996
Domestic Plans
Service cost $ 9.0 $ 8.0 $ 7.6
Interest cost 41.3 37.0 33.0
Actual return on assets (40.5) (35.6) (32.1)
Net amortization and
deferral (1.8) (1.0) (1.4)
Net pension expense $ 8.0 $ 8.4 $ 7.1
Foreign Plans
Service cost $ 2.7 $ 2.7 $ 3.2
Interest cost 5.9 6.3 6.7
Actual return on assets (5.7) (3.5) (4.0)
Net amortization and
deferral 3.1 1.2 2.2
Net pension expense $ 6.0 $ 6.7 $ 8.1
Page 48
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, 1998 and 1997:
Domestic Plans
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
(Dollar amounts in millions) 1998 1997 1998 1997
Plan assets at fair value $ 559.4 $ 474.2 $ - $ -
Projected benefit obligation 544.5 475.0 12.2 10.7
Plan assets greater (less) than
projected benefit obligation 14.9 (.8) (12.2) (10.7)
Unrecognized items
Net actuarial loss 33.4 43.3 2.8 1.7
Prior service cost (4.7) (5.5) 2.6 3.0
Net transition (asset)
obligation (4.8) (7.2) .4 .5
Minimum pension
liability adjustment (4.1) (3.8)
Prepaid (accrued)
pension expense $ 38.8 $ 29.8 $(10.5) $ (9.3)
Actuarial present value
of accumulated benefits $ 530.4 $ 470.2 $ 10.5 $ 9.3
Accumulated benefit
obligation related
to vested benefits $ 522.0 $ 461.7 $ 9.5 $ 8.0
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 and totaled $.4 million and $.7
million at June 30, 1998 and 1997, respectively.
Foreign Plans
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
(Dollar amounts in millions) 1998 1997 1998 1997
Plan assets at fair value $ 36.2 $ 32.0 $ - $ -
Projected benefit obligation 36.9 30.3 62.0 64.9
Plan assets greater (less) than
projected benefit obligation (.7) 1.7 (62.0) (64.9)
Unrecognized items
Net actuarial (gain) loss 6.6 3.2 (5.1) (2.5)
Prior service cost 1.3 1.5
Net transition (asset)
obligation (1.5) (1.9) 3.4 4.0
Prepaid (accrued)
pension expense $ 5.7 $ 4.5 $(63.7) $(63.4)
Actuarial present value
of accumulated benefits $ 33.7 $ 28.0 $ 55.3 $ 56.1
Accumulated benefit
obligation related
to vested benefits $ 33.6 $ 27.8 $ 52.4 $ 52.5
The following actuarial assumptions were used in accounting for the
defined benefit plans:
1998 1997
Domestic Plans:
Assumptions
Discount rate 8% 8 1/2%
Compensation increase 4% 4%
Long-term rate of return 8 1/2 - 9 1/4% 8 1/2 - 9 1/4%
Foreign Plans:
Assumptions
Discount rate 5 1/2 - 6 3/4% 6 - 8%
Compensation increase 3 1/2 - 4 1/2% 3 1/2 - 4 1/2%
Long-term rate of return 6 1/2 - 9 1/2% 6 1/2 - 9 1/2%
Savings Plan. The Company provides a 401(k) savings plan, for most
domestic employees, with automatic Company contributions of 2% of
eligible compensation and a dollar-for-dollar matching contribution of
up to 4% of eligible compensation. The Company's contributions to
this plan were $10.7 million, $9.6 million, and $7.4 million for
fiscal 1998, 1997, and 1996, respectively.
Page 49
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 retire and satisfy certain service
and age requirements. Generally, medical coverage pays a stated
percentage of most medical expenses, reduced for any deductible and
for payments made by Medicare or other group coverage. The cost of
providing these benefits is shared with retirees. The plan is
unfunded.
The following table sets forth the accrued postretirement benefit
liability recognized in the Company's Consolidated Statements of
Financial Position at June 30, 1998 and 1997:
(Dollar amounts in millions) 1998 1997
Actuarial present value
of postretirement
benefit obligation
Retirees $ 60.7 $ 60.6
Fully eligible active participants 1.4 1.0
Other active participants 10.3 9.7
Accumulated postretirement benefit
obligation (APBO) 72.4 71.3
Unrecognized net gain 21.5 24.4
Accrued postretirement
benefit liability $ 93.9 $ 95.7
The net postretirement benefit cost for fiscal 1998 and 1997
included the following components:
(Dollar amounts in millions) 1998 1997
Service cost $ .6 $ .6
Interest cost 5.7 5.8
Amortization of unrecognized gain (1.4) (1.3)
Net postretirement benefit cost $ 4.9 $ 5.1
The discount rate used in determining the APBO was 8% in fiscal 1998
and 8.5% in fiscal 1997. The assumed health care cost trend rate used
for measuring the APBO was divided into two categories:
1998 1997
Participants under age 65 9.6% 10.3%
Participants age 65 and over 7.4% 7.7%
Both rates were assumed to decline to 5.5% over seven and eight
years in fiscal 1998 and 1997, respectively.
If the health care cost trend rate were increased 1%, the APBO, as
of June 30, 1998, would have increased 11%. The effect of this change
on the aggregate of service and interest cost for fiscal 1998 would be
an increase of 10%.
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 is comprised of three separate
segments: PE Biosystems, Analytical Instruments, and the recently
formed Celera Genomics Corporation. PE Biosystems includes PE Applied
Biosystems, PerSeptive, Molecular Informatics, Tropix, GenScope, and
Tecan. PE Biosystems manufactures and markets 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.
Analytical Instruments manufactures and markets equipment and
systems used for determining the composition and molecular structure
of chemical substances, both organic and inorganic, and systems for
data handling and data management. Through a joint venture, the
Company manufactures mass spectrometry instrument systems that are
sold in the PE Biosystems and Analytical Instruments segments.
During the fourth quarter of fiscal 1998, Celera Genomics
Corporation was formed by the Company and Dr. J. Craig Venter of The
Institute for Genomic Research. The new company's strategy is focused
on a plan to become the definitive source of genomic information that
will be used to develop a better understanding of biological processes
in humans. The plan is to substantially complete the sequencing of
the human genome over the next three years. The company intends to
build the scientific expertise and informatics tools necessary to
extract biological knowledge from genomic data. Results were not
material for fiscal 1998.
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, and other assets that are corporate in nature.
Export net revenues for fiscal 1998, 1997, and 1996 were $50.7
million, $51.3 million, and $50.0 million, respectively.
Page 50
Business Segments
PE Analytical
(Dollar amounts in millions) Biosystems Instruments Corporate Consolidated
1998
Net revenues $ 921.8 $ 609.4 $ - $ 1,531.2
Segment income (loss) $ 150.8 $ 57.4 $ (36.7) $ 171.5
Restructuring and other
merger costs (48.1) (48.1)
Acquired research and development (28.9) (28.9)
Operating income (loss) $ 73.8 $ 57.4 $ (36.7) $ 94.5
Identifiable assets $ 719.2 $ 426.0 $ 189.3 $ 1,334.5
Capital expenditures $ 72.6 $ 42.9 $ 1.2 $ 116.7
Depreciation and amortization $ 33.5 $ 17.7 $ 1.9 $ 53.1
1997
Net revenues $ 749.2 $ 624.1 $ - $ 1,373.3
Segment income (loss) $ 125.4 $ 56.1 $ (31.2) $ 150.3
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) $ 97.9 $ 36.3 $ (31.2) $ 103.0
Identifiable assets $ 504.0 $ 384.5 $ 350.2 $ 1,238.7
Capital expenditures $ 42.1 $ 14.1 $ 13.6 $ 69.8
Depreciation and amortization $ 23.6 $ 18.6 $ 1.7 $ 43.9
1996
Net revenues $ 618.4 $ 630.6 $ - $ 1,249.0
Segment income (loss) $ 107.2 $ 28.7 $ (24.5) $ 111.4
Restructuring charge (17.5) (71.6) (89.1)
Acquired research and development (33.9) (33.9)
Impairment of assets (9.9) (9.9)
Operating income (loss) $ 45.9 $ (42.9) $ (24.5) $ (21.5)
Identifiable assets $ 435.6 $ 401.6 $ 225.8 $ 1,063.0
Capital expenditures $ 30.1 $ 13.6 $ .6 $ 44.3
Depreciation and amortization $ 22.7 $ 28.7 $ .4 $ 51.8
Page 51
Geographic Areas
United Far Other
(Dollar amounts in millions) States Europe East Countries Corporate Consolidated
1998
Total revenues $ 732.7 $ 679.7 $ 419.2 $ 103.6 $ - $ 1,935.2
Transfers between geographic areas (81.7) (132.6) (157.1) (32.6) (404.0)
Revenues to unaffiliated customers $ 651.0 $ 547.1 $ 262.1 $ 71.0 $ $ 1,531.2
Income (loss) $ 27.1 $ 108.9 $ 65.6 $ 6.6 $ (36.7) $ 171.5
Restructuring and other merger costs (26.2) (21.7) (.2) (48.1)
Acquired research and development (28.9) (28.9)
Operating income (loss) $ (28.0) $ 87.2 $ 65.4 $ 6.6 $ (36.7) $ 94.5
Identifiable assets $ 630.5 $ 377.6 $ 100.4 $ 36.7 $ 189.3 $ 1,334.5
1997
Total revenues $ 599.3 $ 663.6 $ 407.7 $ 83.5 $ - $ 1,754.1
Transfers between geographic areas (67.2) (144.6) (147.3) (21.7) (380.8)
Revenues to unaffiliated customers $ 532.1 $ 519.0 $ 260.4 $ 61.8 $ $ 1,373.3
Income (loss) $ 3.2 $ 101.3 $ 68.6 $ 8.4 $ (31.2) $ 150.3
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) $ (30.7) $ 95.4 $ 67.7 $ 1.8 $ (31.2) $ 103.0
Identifiable assets $ 462.5 $ 280.2 $ 117.1 $ 28.7 $ 350.2 $ 1,238.7
1996
Total revenues $ 529.7 $ 606.7 $ 365.2 $ 79.3 $ - $ 1,580.9
Transfers between geographic areas (60.6) (128.8) (124.6) (17.9) (331.9)
Revenues to unaffiliated customers $ 469.1 $ 477.9 $ 240.6 $ 61.4 $ $ 1,249.0
Income (loss) $ (18.1) $ 73.7 $ 70.9 $ 9.4 $ (24.5) $ 111.4
Restructuring charge (29.9) (59.2) (89.1)
Acquired research and development (33.9) (33.9)
Impairment of assets (9.9) (9.9)
Operating income (loss) $ (91.8) $ 14.5 $ 70.9 $ 9.4 $ (24.5) $ (21.5)
Identifiable assets $ 433.5 $ 269.7 $ 103.4 $ 30.6 $ 225.8 $ 1,063.0
Page 52
Note 7 Shareholders' Equity
Treasury Stock. Common stock purchases have been made in support of
the Company's various stock plans and as part of a general share
repurchase authorization. The general share repurchase authorization
was rescinded by the Board of Directors in fiscal 1998. There were no
share purchases in fiscal 1998. During fiscal 1997 and 1996, the
Company purchased .4 million and .8 million shares, respectively, to
support various stock plans.
Stock Purchase Warrants. As a result of the Merger with PerSeptive,
each outstanding warrant for shares of PerSeptive common stock was
converted into warrants for the number of shares of the Company's
common stock that would have been received by the holder if such
warrants had been exercised immediately prior to the effective time of
the Merger.
At June 30, 1998, the following warrants to purchase common stock
were outstanding:
Number of Exercise Expiration
Shares Price Date
Class C 4,097 $ 37.95 March 1999
Class E 8,065 $ 171.34 December 1998
Class F 10,266 $ 39.56 October 2002
Class G 53,799 $ 65.73 September 2003
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. No equity put
warrants were sold in fiscal 1998.
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 the Company'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.
Common Stock. In October 1997, the Company's shareholders approved an
increase in the number of authorized shares of the Company's common
stock from 90 million to 180 million.
Note 8 Stock Plans
Stock Option Plans. Under the Company's stock option plans, officers
and other key employees may be, and directors are, granted options,
each of which allows for the purchase of common stock at a price of
not less than 100% of fair market value at the date of grant. Under
the normal vesting requirements, 50% of the options are exercisable
after one year and 100% after two years. Options generally expire ten
years from the date of grant.
Transactions relating to the stock option plans of the Company are
summarized below:
Number Weighted
Of Average
Options Exercise
Price
Fiscal 1996
Outstanding at June 30, 1995 4,597,214 $ 29.97
Granted 820,495 $ 46.43
Exercised 1,393,807 $ 29.48
Cancelled 201,367 $ 34.17
Outstanding at June 30, 1996 3,822,535 $ 34.05
Exercisable at June 30, 1996 2,544,100 $ 30.17
Fiscal 1997
Granted 1,595,528 $ 59.78
Exercised 1,167,179 $ 29.73
Cancelled 95,281 $ 43.17
Outstanding at June 30, 1997 4,155,603 $ 45.03
Exercisable at June 30, 1997 2,254,052 $ 35.24
Fiscal 1998
Granted 1,997,041 $ 70.41
Exercised 780,994 $ 34.76
Cancelled 154,686 $ 71.42
Outstanding at June 30, 1998 5,216,964 $ 55.51
Exercisable at June 30, 1998 2,936,389 $ 43.12
Page 53
At June 30, 1998, 241,437 shares remained available for option
grant.
The following table summarizes information regarding options
outstanding and exercisable at June 30, 1998:
Weighted Average
Contractual
Life
Number of Remaining Exercise
(Option prices per share) Options in Years Price
Options outstanding
At $ 2.04 - $ 29.95 448,472 4.2 $ 20.93
At $30.25 - $ 59.75 2,038,936 7.0 $ 40.87
At $60.06 - $ 85.69 2,713,648 9.3 $ 71.83
At $90.86 - $163.55 15,908 5.4 $120.86
Options exercisable
At $ 2.04 - $ 29.95 448,472 4.2 $ 20.93
At $30.25 - $ 59.75 1,992,736 6.9 $ 40.53
At $60.06 - $ 83.69 479,273 8.7 $ 72.07
At $90.86 - $163.55 15,908 5.4 $120.86
Employee Stock Purchase Plan. The Employee Stock Purchase Plan offers
domestic and certain foreign employees the right to purchase, over a
certain period, shares of common stock on an annual offering date.
The purchase price in the United States 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. Provisions of the plan for employees in
foreign countries vary according to local practice and regulations.
Common stock issued under the Employee Stock Purchase Plan during
fiscal 1998, 1997, and 1996 totaled 174,000 shares, 111,000 shares,
and 77,000 shares, respectively. At June 30, 1998, 499,000 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, 1998,
approximately 87,000 shares were available for issuance.
Restricted Stock. As part of the Company's stock incentive plans, key
employees may be, and non-employee directors are, granted shares of
restricted stock that will vest when certain continuous
employment/service restrictions and/or specified performance goals are
achieved. The fair value of shares granted is generally expensed over
the restricted periods, which may vary depending on the estimated
achievement of performance goals.
Restricted stock granted to key employees and non-employee directors
during fiscal 1998, 1997, and 1996 totaled 4,350 shares, 42,000 shares
and 185,000 shares (155,000 of which were subject to shareholder
approval in fiscal 1997), respectively. Compensation expense
recognized for these awards was $1.8 million, $11.7 million, and $5.1
million in fiscal 1998, 1997, and 1996, respectively.
Performance Unit Bonus Plan. The Company has a Performance Unit
Bonus Plan whereby employees may be awarded performance units in
conjunction with an equal number of stock options. A performance unit
represents the right to receive a cash or stock payment from the
Company at a specified date in the future. The amount of the payment
is equal to the fair market value of a share of common stock on the
date of the grant. The performance units vest upon shares of the
Company's common stock attaining and maintaining specified stock
price levels for a specified period, and are payable on or after June
26, 2000. As of June 30, 1998, 324,500 performance units were
outstanding. Compensation expense recognized for these awards totaled
$6.3 million in fiscal 1998.
Accounting for Stock-Based Compensation. The Company applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for its stock-based compensation
plans. Accordingly, no compensation expense has been recognized for
its stock option and employee stock purchase plans, as all options
have been issued at fair market value.
Pro forma net income and earnings per share information, as required
by SFAS No. 123, "Accounting for Stock-Based Compensation," 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 the years ended June 30, 1998 1997 1996
Dividend yield .94% .85% .89%
Volatility 27.00% 29.07% 35.32%
Risk-free interest rates 5.64% 6.42% 6.24%
Expected option life in years 5.70 5.12 4.87
Page 54
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 for the years ended June 30, 1998,
1997, and 1996 is presented below:
(Dollar amounts in millions,
except per share amounts) 1998 1997 1996
Net income (loss)
As reported $ 56.4 $ 130.4 $ (36.5)
Pro forma $ 25.4 $ 120.2 $ (38.9)
Basic earnings (loss) per share
As reported $ 1.16 $ 2.74 $ (.80)
Pro forma $ .52 $ 2.53 $ (.85)
Diluted earnings (loss) per share
As reported $ 1.12 $ 2.63 $ (.80)
Pro forma $ .51 $ 2.43 $ (.85)
Fiscal 1998 pro forma net income includes compensation expense of $9.8
million, or $.19 per diluted share after-tax, owing to the immediate
vesting of options as a result of the acquisitions of PerSeptive and
Molecular Informatics.
The weighted average fair value of options granted was $24.83,$20.17,
and $16.58 per share for fiscal 1998, 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, 1998 1997
Other long-term assets
Goodwill $ 84.5 $ 32.7
Other 195.0 159.4
Total other long-term assets $ 279.5 $ 192.1
Other accrued expenses
Deferred service contract revenues $ 54.8 $ 45.1
Accrued pension liabilities 17.5 17.9
Restructuring provisions 31.3 33.3
Other 98.3 90.5
Total other accrued expenses $ 201.9 $ 186.8
Other long-term liabilities
Accrued pension liabilities $ 62.7 $ 62.3
Accrued postretirement benefits 87.4 91.2
Other 34.5 27.2
Total other long-term liabilities $ 184.6 $ 180.7
Related Party Transactions. One of the Company's directors is an
employee of the Roche Group, a pharmaceutical manufacturer and
strategic partner of the Company in the biotechnology field. The
Company made payments to the Roche Group and its affiliates, for the
purchase of reagents and consumables, of $72.5 million, $68.2 million,
and $59.7 million in fiscal 1998, 1997 and 1996, respectively.
Page 55
Note 10 Restructuring and Other Merger Costs
The Company initiated a restructuring plan in fiscal 1998 for actions
associated with the acquisition of PerSeptive. In fiscal 1997 and
1996, restructuring actions were undertaken primarily to improve the
profitability and cash flow performance of Analytical Instruments.
Fiscal 1996 also included a charge by PerSeptive for restructuring
actions and other related costs. The before-tax charges associated
with the implementation of these restructuring plans were $48.1
million, $24.2 million, and $89.1 million for fiscal 1998, 1997, and
1996, respectively. In addition, fiscal 1997 reflected an $11.2
million before-tax reduction of charges required to implement the
fiscal 1996 Analytical Instruments' plan.
Fiscal 1998. During fiscal 1998, the Company recorded a $48.1 million
before-tax charge for restructuring and other merger costs to
integrate PerSeptive into the Company following the acquisition. The
objectives of this plan are to lower PerSeptive's cost structure by
reducing excess manufacturing capacity, achieve broader worldwide
distribution of PerSeptive's products, and combine sales, marketing,
and administrative functions. The charge included: $33.9 million for
restructuring the combined operations; $8.6 million for transaction
costs; and $4.1 million of inventory-related write-offs, recorded in
costs of sales, associated with the rationalization of certain product
lines. Additional non-recurring acquisition costs of $1.5 million for
training, relocation, and communication were recognized as period
expenses in the third and fourth quarters of fiscal 1998, and
classified as other merger-related costs. The Company expects to
incur an additional $6.5 million to $8.5 million of acquisition-
related costs for training, relocation, and communication in fiscal
1999. These costs will be recognized as period expenses when incurred
and will be classified as other merger costs.
The $33.9 million restructuring charge includes $13.8 million for
severance-related costs and workforce reductions of approximately 170
employees, consisting of 114 employees in production labor and 56
employees in sales and administrative support. The remaining $20.1
million represents facility consolidation and asset-related write-offs
and includes: $11.7 million for contract and lease terminations and
facility related expenses in connection with the reduction of excess
manufacturing capacity; $3.2 million for dealer termination payments,
sales office consolidations, and consolidation of sales and
administrative support functions; and $5.2 million for the write-off
of certain tangible and intangible assets and the termination of
certain contractual obligations. These restructuring actions are
expected to be substantially completed by the end of fiscal 1999.
Transaction costs of $8.6 million include acquisition-related
investment banking and professional fees. As of June 30, 1998,
approximately 12 employees were separated under the plan, and the
actions are proceeding as planned.
The following table details the major components of the fiscal 1998
restructuring provision:
Facility
Consolidation
And Asset
Related
(Dollar amounts in millions) Personnel Write-offs Total
Provision:
Reduction of excess European
manufacturing capacity $ 5.1 $ 11.7 $ 16.8
Consolidation of sales
and administrative support 8.7 3.2 11.9
Other 5.2 5.2
Total provision $ 13.8 $ 20.1 $ 33.9
Fiscal 1998 activity:
Reduction of excess European
manufacturing capacity $ - $ .4 $ .4
Consolidation of sales
and administrative support .3 1.2 1.5
Other 5.1 5.1
Total fiscal 1998 activity $ .3 $ 6.7 $ 7.0
Balance at June 30, 1998:
Reduction of excess European
manufacturing capacity $ 5.1 $ 11.3 $ 16.4
Consolidation of sales
and administrative support 8.4 2.0 10.4
Other .1 .1
Balance at June 30, 1998 $ 13.5 $ 13.4 $ 26.9
Fiscal 1997. During the fourth quarter of fiscal 1997, the Company
announced a follow-on phase to Analytical Instruments' profit
improvement program begun by the Company in fiscal 1996. The 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 were designed to help transition Analytical
Instruments 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 were 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
Page 56
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.
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
Fiscal 1998 activity:
Changes in manufacturing
operations $ 7.8 $ 4.9 $ 12.7
Consolidation of sales
and administrative support 1.3 1.1 2.4
Total fiscal 1998 activity $ 9.1 $ 6.0 $ 15.1
Balance at June 30, 1998:
Changes in manufacturing
operations $ 1.7 $ .3 $ 2.0
Consolidation of sales
and administrative support 1.0 1.4 2.4
Balance at June 30, 1998 $ 2.7 $ 1.7 $ 4.4
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 Analytical Instruments.
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 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.
In the fourth quarter of fiscal 1997, the Company finalized 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 $71.6
million 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
adminstrative 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
Page 57
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
Fiscal 1998 activity:
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
Total fiscal 1998 activity $ 8.5 $ 5.3 $ 13.8
Balance at June 30, 1998 $ - $ - $ -
Fiscal 1996 also included a charge by PerSeptive for restructuring
actions and other related costs. These costs primarily related to
actions to identify research and development programs, discontinue
certain product lines, and make organizational changes. The components
of these costs included $9.8 million related to the write-off of
certain long-term assets used in discontinued product offerings and
other asset impairments, $2.6 million of severance costs principally
resulting from approximately 65 U.S. and European employee
terminations, and $5.1 million of accrued legal costs primarily
related to patent defense costs. The majority of asset write-offs and
severance costs were completed in fiscal 1996. Legal costs paid were
$.3 million, $1.6 million, and $1.6 million in fiscal 1998, 1997, and
1996, respectively. No significant adjustments were made to the
liability accrued in fiscal 1996.
Note 11 Commitments and Contingencies
Future minimum payments at June 30, 1998 under non-cancelable
operating leases for real estate and equipment were as follows:
(Dollar amounts in millions)
1999 $ 25.0
2000 18.9
2001 16.1
2002 13.9
2003 12.6
2004 and thereafter 61.2
Total $ 147.7
Rental expense was $33.7 million in fiscal 1998, $32.0 million in
fiscal 1997, and $33.9 million in fiscal 1996.
On July 10, 1998, the Company entered into a ten year non-cancelable
lease for a facility for Celera Genomics Corporation in Rockville,
Maryland, effective August 1, 1998. Total lease payments over the ten
year period will be approximately $22 million. In fiscal 1997, the
Company 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 been named as a defendant in several legal actions,
including patent, commercial, and environmental, 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, option,
and synthetic forward 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.
Page 58
Foreign Currency Risk Management. Foreign exchange forward, option,
and synthetic forward 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, 1998 were
purchased at a cost of $4.1 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. Synthetic forward
contracts outstanding at June 30, 1998 were purchased having no up-
front cost. Under these contracts, the Company may participate in
some favorable currency movements but is protected against adverse
currency changes. These contracts are used as an alternative to
options to reduce the cost of the Company's hedging program.
At June 30, 1998 and 1997, the Company had forward, option, and
synthetic forward contracts outstanding for the sale and purchase of
foreign currencies at fixed rates as summarized in the table below:
1998 1997
(Dollar amounts in millions) Sale Purchase Sale Purchase
Japanese Yen $ 109.2 $ - $ 83.5 $ -
French Francs 28.3 .2 18.1
Australian Dollars 10.8 13.7
German Marks 28.3 1.9 13.4 2.3
Italian Lira 38.0 1.4 5.6 1.2
British Pounds 29.2 19.6 8.3
Swiss Francs 10.5 4.0 5.4
Swedish Krona 11.9 2.4
Danish Krona 10.3 1.7
Other 44.7 5.1 5.8
Total $ 321.2 $ 32.2 $ 149.6 $ 11.8
Foreign exchange contracts are accounted for as hedges of firm
commitments and anticipated foreign currency transactions. 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 losses and gains,
respectively, on the related transactions. The amount of the
contracts covering anticipated transactions is marked to market and
recognized in income.
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
obligation to exchange payments under the terms of the contract.
Based on the level of interest rates prevailing at June 30, 1998,
the fair value of the Company's floating rate debt approximated its
carrying value. There would be a payment of $.9 million to terminate
the related interest rate swap contract, which would equal the
unrealized loss. 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 because
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,
synthetic forwards, 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 insti-
Page 59
tutions 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, option (net
of fees), and synthetic forward 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
at June 30, 1998 and 1997:
1998 1997
Notional Fair Notional Fair
(Dollar amounts in millions) Amount Value Amount Value
Forward contracts $ 179.2 $ 2.8 $ 114.0 $ (3.7)
Purchased options $ 112.7 $ 1.6 $ 47.4 $ .7
Synthetic forwards $ 61.5 $ 1.9
Interest rate swap $ 27.0 $ (.9) $ 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 at June 30,
1998 and 1997:
1998 1997
Carrying Fair Carrying Fair
(Dollar amounts in millions) Amount Value Amount Value
Cash and short-term investments $ 84.1 $ 84.1 $ 217.2 $ 217.2
Minority equity investments $ 29.2 $ 29.2 $ 22.6 $ 22.6
Note receivable $ 7.2 $ 7.2
Short-term debt $ 12.1 $ 12.1 $ 29.9 $ 29.9
Long-term debt $ 33.7 $ 34.6 $ 59.2 $ 59.0
Net unrealized gains and losses on minority equity investments are
reported as a separate component of shareholders' equity. The Company
reported an unrealized holding loss of $1.4 million at June 30, 1998
and a $3.1 million unrealized holding gain at June 30, 1997.
Page 60
Note 13 Quarterly Financial Information (Unaudited)
The following is a summary of quarterly financial results:
First Quarter Second Quarter Third Quarter Fourth Quarter
(Dollar amounts in millions
except per share amounts) 1998 1997 1998 1997 1998 1997 1998 1997
Net revenues $ 322.7 $ 296.8 $ 369.2 $ 354.0 $ 390.8 $ 348.8 $ 448.5 $ 373.7
Gross margin 157.4 144.8 190.2 174.3 199.2 178.5 232.3 182.3
Net income (loss) 21.4 28.6 6.0 73.6 (7.0) 9.3 36.0 18.9
Net income (loss) per basic share .45 .61 .12 1.56 (.14) .20 .73 .39
Net income (loss) per diluted share .43 .59 .12 1.49 (.14) .19 .71 . 38
Events Impacting Comparability:
Fiscal 1998. First and fourth quarter results included before-tax
gains of $.8 million in each quarter, or $.02 and $.01 per diluted
share after-tax, respectively, relating to the Company's release of
contingencies on minority equity investments (see Note 2). Second
quarter results included a $28.9 million before-tax charge, or $.57
per diluted share after-tax, for acquired research and development(see
Note 2). Third and fourth quarter results included before-tax charges
for restructuring and other merger costs of $47.0 million and $1.1
million, respectively, or $.85 and $.02 per diluted share after-tax,
respectively (see Note 10). In the third quarter the Company also
recognized one-time royalty revenues and capitalized certain legal
expenses relating to the successful defense of certain patents. The
net effect of these items increased third quarter net income by
approximately $4.2 million, $.08 per diluted share.
Fiscal 1997. First and second quarter results included before-tax
gains of $11.3 million and $26.1 million, or $.21 and $.38 per diluted
share after-tax, respectively, from the sale of the Company's
remaining equity interest in Etec Systems, Inc. (see Note 2). Second,
third, and fourth quarter results included before-tax gains of $25.9
million, $.8 million, and $.8 million, or $.52, $.02, and $.02 per
diluted share after-tax, respectively, relating to the sale and
release of contingencies on minority equity investments (see Note 2).
Third quarter results included a $25.4 million before-tax charge, or
$.51 per diluted share after-tax, for acquired research and
development (see Note 2). Fourth quarter results included a net
restructuring charge of $13.0 million, or $.18 per diluted share
after-tax (see Note 10); a $1.4 million before-tax charge, or $.03 per
diluted share after-tax, for acquired research and development (see
Note 2); and a $7.5 million before-tax charge, or $.13 per diluted
share after-tax, for asset impairment (see Note 1). In addition, the
Company recognized deferred royalty income, other miscellaneous income,
and certain compensation-related expenses. The net effect of these
items increased fourth quarter net income by approximately $5.0
million, or $.10 per diluted share.
Stock Prices and Dividends 1998 1997
Stock Prices High Low High Low
First Quarter $ 86 1/8 $ 72 1/8 $ 58 1/8 $ 44 1/4
Second Quarter $ 74 $ 59 1/4 $ 61 7/8 $ 52 1/2
Third Quarter $ 76 $ 55 13/16 $ 77 1/8 $ 57 7/8
Fourth Quarter $ 75 1/8 $ 58 11/16 $ 81 1/8 $ 60 3/8
Dividends per share 1998 1997
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 judgements
are required to assess and balance the costs and expected benefits of
a system of internal accounting controls. Adherence to these polices
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/ Dennis L. Winger
Dennis L. Winger
Senior Vice President and
Chief Financial Officer
/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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
fiscal years in the period ended June 30, 1998, 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
July 31, 1998
Page 62
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The following consolidated financial statements,
together with the report thereon of PricewaterhouseCoopers
LLP dated July 31, 1998, appears on Pages 39-62 of Item
8 of this Report.
Page 18
Annual
10-K Page Report
No. Page No.
Consolidated Statements of
Operations - fiscal years
1998, 1997, and 1996................ -- 39
Consolidated Statements of
Financial Position at June 30,
1998 and 1997....................... -- 40
Consolidated Statements of
Cash Flows - fiscal years
1998, 1997, and 1996................ -- 41
Consolidated Statements of
Shareholders' Equity - fiscal years
1998, 1997, and 1996................ -- 42
Notes to Consolidated Financial
Statements.......................... -- 43-61
Report of Management.................. -- 62
Report of PricewaterhouseCoopers LLP.. -- 62
(a) 2. Financial Statement Schedule.
The following additional financial data should be read
in conjunction with the consolidated financial statements in
said Annual Report to Shareholders for the fiscal year ended
June 30, 1998. Schedules not included with this additional
financial data have been omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or notes thereto.
Annual
10 -K Report
Page No. Page No.
Report of Independent Accountants
on Financial Statement Schedule 25 --
Schedule II - Valuation and
Qualifying Accounts and
Reserves 26 --
Page 19
(a) 3. Exhibits.
Exhibit
No.
2(1) Agreement dated April 18, 1994 between Sulzer Inc. and
The Perkin-Elmer Corporation, as amended through August
31, 1994 (incorporated by reference to Exhibit 2(4) to
Annual Report on Form 10-K of the Corporation for fiscal
year ended June 30, 1994 (Commission file number 1-
4389)).
2(2) Agreement and Plan of Merger, dated August 23, 1997,
among the Registrant, Seven Acquisition Corp. and
PerSeptive Biosystems, Inc. (incorporated by reference
to Exhibit 2 to Current Report on Form 8-K of the
Corporation dated August 23, 1997 (Commission file
number 1-4389)).
2(3) Stock Option Agreement, dated as of August 23, 1997,
between the Company and PerSeptive Biosystems, Inc.
(incorporated by reference to Exhibit 10 to the
Company's Current Report on Form 8-K dated August 23,
1997 (Commission File No. 1-4389)).
3(i) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 4.1 to the
Corporation's Registration Statement on Form S-3 (No.
333-39549)).
3(ii) Amended and Restated By-laws of the Corporation, as
amended through July 15, 1993 (incorporated by
reference to Exhibit 3(ii) to Annual Report on Form 10-K
of the Corporation for fiscal year ended June 30, 1993
(Commission file number 1-4389)).
4(1) Three Year Credit Agreement dated June 1, 1994, among
Morgan Guaranty Trust Company, certain banks named in
such Agreement, and the Corporation, as amended July 20,
1995 (incorporated by reference to Exhibit 4(1) to
Annual Report on Form 10-K of the Corporation for fiscal
year ended June 30, 1995 (Commission file number 1-
4389)).
4(2) Amendment dated March 31, 1996 to the Three Year
Credit Agreement dated June 1, 1994, among Morgan
Guaranty Trust Company, certain banks named in such
Agreement, and the Corporation, as amended July 20, 1995
(incorporated by reference to Exhibit 4(2) to Annual
Report on Form 10-K of the Corporation for fiscal year
ended June 30, 1997 (Commission file number 1-4389)).
4(3) Shareholder Protection Rights Agreement dated April 30,
1989, between The Perkin-Elmer Corporation and The First
National Bank of Boston (incorporated by reference to
Exhibit 4 to Current Report on Form 8-K of the
Corporation dated April 20, 1989 (Commission file number
1-4389)).
10(1) The Perkin-Elmer Corporation 1984 Stock Option Plan for
Key Employees, as amended through May 21, 1987
(incorporated by reference to Exhibit 28(c) to Post
Effective Amendment No. 1 to the Corporation's
Registration Statement on Form S-8 (No. 2-95451)).*
10(2) The Perkin-Elmer Corporation 1988 Stock Incentive Plan
for Key Employees (incorporated by reference to Exhibit
10(4) to Annual Report on Form 10-K of the Corporation
for the fiscal year ended July 31, 1988 (Commission file
number 1-4389)).*
10(3) The Perkin-Elmer Corporation 1993 Stock Incentive Plan
for Key Employees (incorporated by reference to Exhibit
99 to the Corporation's Registration Statement on Form S-
8 (No. 33-50847)).*
10(4) The Perkin-Elmer Corporation 1996 Stock Incentive Plan
(incorporated by reference to Exhibit 99 to the
Corporation's Registration Statement on Form S-8 (No.
333-15189)).*
10(5) The Perkin-Elmer Corporation 1996 Employee Stock
Purchase Plan (incorporated by reference to Exhibit 99
to the Corporation's Registration Statement on Form S-8
(No. 333-15259)).*
10(6) The Perkin-Elmer Corporation 1997 Stock Incentive Plan
(incorporated by reference to Exhibit 99 to the
Company's Registration Statement on Form S-8 (No. 333-
38713)).*
10(7) PerSeptive Biosystems, Inc. 1989 Stock Plan, as amended
August 1, 1991 (incorporated by reference to Exhibit
3(i) of the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1998 (Commission File
No. 1-4389)).*
10(8) PerSeptive Biosystems, Inc. 1992 Stock Plan, as amended
January 20, 1997 (incorporated by reference to Exhibit
4.1 to the Quarterly Report on Form 10-Q of PerSeptive
Biosystems, Inc. for the fiscal quarter ended March 29,
1997 (Commission File No. 0-20032)).*
Page 20
10(9) Molecular Informatics, Inc. 1997 Equity Ownership Plan
(incorporated by reference to Exhibit 99 to the
Corporation's Registration Statement on Form S-8 (No.
333-42683)).*
10(10) Agreement dated September 12, 1995, between Registrant
and Tony L. White (incorporated by reference to Exhibit
10(21) to Annual Report on Form 10-K of the Corporation
for the fiscal year ended June 30, 1995 (Commission file
number 1-4389)).*
10(11) Agreement dated June 3, 1996, between Registrant and
Manuel A. Baez (incorporated by reference to Exhibit
10(10) to Annual Report on Form 10-K of the Corporation
for the fiscal year ended June 30, 1997 (Commission file
number 1-4389)).*
10(12) Deferred Compensation Contract dated September 15, 1994,
between Registrant and Michael W. Hunkapiller
(incorporated by reference to Exhibit 10(7) to Annual
Report on Form 10-K of the Corporation for the fiscal
year ended June 30, 1995 (Commission file number 1-
4389)).*
10(13) Change of Control Agreement dated September 12, 1995
between Registrant and Tony L. White (incorporated by
reference to Exhibit 10(16) to Annual Report on Form 10-
K of the Corporation for the fiscal year ended June 30,
1995 (Commission file number 1-4389)).*
10(14) Employment Agreement dated November 16, 1995, between
Registrant and Michael W. Hunkapiller (incorporated by
reference to Exhibit 10(11) to Annual Report on Form 10-
K of the Corporation for fiscal year ended June 30, 1996
(Commission file number 1-4389)).*
10(15) Employment Agreement dated June 20, 1996, between
Registrant and Manuel A. Baez (incorporated by
reference to Exhibit 10(14) to Annual Report on Form 10-
K of the Corporation for the fiscal year ended June 30,
1997 (Commission file number 1-4389)).*
10(16) Employment Agreement dated November 16, 1995, between
Registrant and William B. Sawch.* **
10(17) Employment Agreement dated September 25, 1997, between
Registrant and Dennis L. Winger.* **
10(18) Letter Agreement dated June 24, 1997, between Registrant
and Dennis L. Winger.* **
10(19) Deferred Compensation Contract dated July 15, 1993
between Registrant and William B. Sawch.* **
10(20) Pledge Agreement and Promissory Note between Registrant
and Michael W. Hunkapiller (incorporated by reference
to Exhibit 10 to Quarterly Report on Form 10-Q of the
Corporation for the quarter ended March 31, 1996
(Commission file number 1-4389)).
10(21) Contingent Compensation Plan for Key Employees of The
Perkin-Elmer Corporation, as amended through August 1,
1990 (incorporated by reference to Exhibit 10(5) to
Annual Report on Form 10-K of the Corporation for the
fiscal year ended July 31, 1992 (Commission file number
1-4389)).*
10(22) The Perkin-Elmer Corporation Supplemental Retirement
Plan as amended through August 1, 1991 (incorporated by
reference to Exhibit 10(6) to Annual Report on Form 10-K
of the Corporation for the fiscal year ended July 31,
1991 (Commission file number 1-4389)).*
10(23) The Excess Benefit Plan of The Perkin-Elmer Corporation
dated August 1, 1984, as amended through June 30, 1993
(incorporated by reference to Exhibit 10(17) to Annual
Report on Form 10-K of the Corporation for the fiscal
year ended June 30, 1993 (Commission file number 1-
4389)).*
10(24) 1993 Director Stock Purchase and Deferred Compensation
Plan as amended June 19, 1997 (incorporated by
reference to Exhibit 10(18) to Annual Report on Form 10-
K of the Corporation for the fiscal year ended June 30,
1997 (Commission file number 1-4389)).*
10(25) The Division Long-Term Incentive Plan of The Perkin-
Elmer Corporation dated July 1, 1996 (incorporated by
reference to Exhibit 10(20) to Annual Report on Form 10-
K of the Corporation for the fiscal year ended June 30,
1997 (Commission file number 1-4389)).*
10(26) The Performance Unit Bonus Plan of The Perkin-Elmer
Corporation (incorporated by reference to Exhibit
10(21) to Annual Report on Form 10-K of the Corporation
for the fiscal year ended June 30, 1997 (Commission file
number 1-4389)).*
10(27) The Estate Enhancement Plan of The Perkin-Elmer
Corporation (incorporated by reference to Exhibit
10(22) to Annual Report on Form 10-K of the Corporation
for the fiscal year ended June 30, 1997 (Commission file
number 1-4389)).
10(28) Deferred Compensation Plan, as amended and restated
effective as of January 1, 1998 (incorporated by
reference to Exhibit 4 to the Company's Registration
Statement on Form S-8 (No. 333-45187)).*
Page 21
11 Computation of Net Income (Loss) per Share for the three
years ended June 30, 1998 (incorporated by reference to
Note 1 to Consolidated Financial Statements within Item
8 of this Report).
13 Annual Report to Shareholders for 1998 (to the extent
incorporated herein by reference).**
21 List of Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.**
* Management contract or compensatory plan or arrangement.
** Previously filed on September 25, 1998.
Note: None of the Exhibits listed in Item 14(a) 3 above,
except Exhibit 23, is included with this Form 10-K Annual
Report. Registrant will furnish a copy of any such Exhibit
upon written request to the Secretary at the address on the
cover of this Form 10-K Annual Report accompanied by payment
of $3.00 U.S. for each Exhibit requested.
(b) Reports on Form 8-K.
Registrant filed Amendment No. 1 to Form 8-K on April
6, 1998, responding to Items 2 and 7 on Form 8-K dated
January 22, 1998. The amendment included the following
financial statements:
Consolidated Balance Sheets at December 27, 1997 and September
30, 1997
Consolidated Statements of Operations for the Three months ended
December 27, 1997 and December 28, 1996
Consolidated Statements of Cash Flows for the Three months ended
December 27, 1997 and December 28, 1996
Notes to Unaudited Consolidated Financial Statements
Introduction to Unaudited Pro Forma Condensed Combined Financial
Statements
Unaudited Pro Forma Condensed Combined Statements of Financial
Position at December 31, 1997
Unaudited Pro Forma Condensed Combined Statements of Operations
for the Six months ended December 31, 1997
Unaudited Pro Forma Condensed Combined Statements of Operations
for the Six months ended December 31, 1996
Unaudited Pro Forma Condensed Combined Statements of Operations
for the fiscal years ended June 30, 1997, 1996 and 1995
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
Page 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PERKIN-ELMER CORPORATION
By /s/ Dennis L. Winger
Dennis L. Winger
Senior Vice President and
Chief Financial Officer
Date: March 23, 1999