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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 2, 2000
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 1-5075
PERKINELMER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2052042
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
02481
45 WILLIAM STREET, WELLESLEY, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781) 237-5100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE, INC.
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] 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. [ ]
The aggregate market value of the common stock, $1 par value, held by
nonaffiliates of the registrant on February 25, 2000, was $3,051,477,513.
As of February 25, 2000, there were outstanding, exclusive of treasury
shares, 48,656,003 shares of common stock, $1 par value.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF PERKINELMER, INC.'S PROXY STATEMENT FOR THE
2000 ANNUAL MEETING OF STOCKHOLDERS.................... PART III (Items 10, 11, 12 and 13)
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PART I
ITEM 1. BUSINESS
GENERAL BUSINESS DESCRIPTION
PerkinElmer, Inc. (hereinafter referred to as "PerkinElmer", the "Company",
or the "Registrant", which terms include the Company's subsidiaries) is a global
technology company which provides products and systems to the telecom, medical,
pharmaceutical, chemical, semiconductor and photographic markets. The Company
has operations in over 100 countries, and is a component of the S&P 500 Index.
The Company's continuing operations are classified into four operating segments:
Life Sciences, Optoelectronics, Instruments, and Fluid Sciences. In 1999 the
Company had sales of $1.4 billion from continuing operations. The Company was
incorporated under the laws of the Commonwealth of Massachusetts in 1947.
RECENT DEVELOPMENTS
On October 26, 1999, the Company changed its name from "EG&G, Inc." to
"PerkinElmer, Inc." The name change was approved at a Special Meeting of the
Stockholders held on September 10, 1999. The Company began trading as (NYSE:
PKI) effective October 26, 1999. On August 20, 1999, the Company sold the assets
of its Technical Services segment to an affiliate of the Carlyle Group LP for
approximately $250 million in cash and the assumption by the buyer of certain
liabilities of the Technical Services segment. On May 28, 1999, the Company
completed its acquisition of the Analytical Instruments Division of PE Corp. for
an aggregate purchase price of approximately $425 million, plus acquisition
costs.
OPERATING SEGMENTS
Set forth below is a brief summary of each of the Company's four operating
segments (also referred to as "strategic business units" or "SBUs"; and within
those SBUs, strategic business enterprises referred to as "SBEs") together with
a description of certain of their more significant or recently introduced
products, services or operations.
Life Sciences
Our Life Sciences business unit helps solve the complex analytical problems
encountered in bio-screening and population screening laboratories by providing
chemical reagents, sample handling and measuring instruments, and computer
software. In 1999, this business unit had sales of $164 million, representing
12% of our total sales.
Life Sciences comprises two SBEs: Bio-screening and Population Screening.
Within the field of bio-screening, Life Sciences focuses on customers engaged in
drug discovery and has established a strong presence in high throughput
screening (HTS) technologies. HTS involves the surveying of vast libraries of
chemicals to detect those that display a particular medicinal property.
Customers include the HTS laboratories of the world's major pharmaceutical
companies.
In population screening, the subject of the screen is a human patient,
typically a large number of patients. For example, newborn babies can be
screened for signs of diseases that may be prevented through dietary change or
other intervention. Customers include public health authorities in the United
States as well as in many European countries.
Principal Products. The principal products of our Life Sciences business
unit include:
- Multilabel counters and plate readers for rapid quantitative measurement
of light signals;
- Imaging systems to observe and measure cellular and molecular processes;
- Sample handling and laboratory automation devices;
- Chemical reagents to allow heterogeneous and homogeneous assays; and
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- Information management software.
New Products. New product releases include:
- The Viewlux(TM) plate reader, a new type of HTS instrument for drug
discovery that facilitates higher throughputs by detecting signals from
up to 1536 assays simultaneously.
- A new version of the successful VICTOR(TM)multilabel counter, the
VICTOR(2)V(TM), includes several new features requested by our customers
in the pharmaceuticals industry.
- On the diagnostics side, we have extended our product range with several
new test kits and the Specimen Gate(TM) laboratory information management
system. PerkinElmer Life Sciences is a Microsoft Certified Solution
Provider, and this new product is the first of its type based on modern
32-bit Microsoft tools.
Brand Names. Our Life Sciences business unit offers its products under
various brand names including Wallac(TM), Berthold(TM) and DELFIA(R).
Optoelectronics
Our Optoelectronics business unit produces a broad spectrum of
optoelectronic products, including high volume and high performance specialty
lighting sources, detectors, optical fiber communications components, imaging
devices, emitters and receivers, mux arrays, and large area amorphous silicon
detectors. In 1999, this business unit had sales of $413 million, representing
30% of our total sales.
The Optoelectronics operations and sales organizations are aligned along
three SBEs: Lighting, Imaging and Telecom. Strong relationships exist with major
customers in each market including medical, analytical instrumentation,
telecommunications, consumer, entertainment, industrial and aerospace.
Principal Products. The principal products of our Optoelectronics business
unit include:
- Lighting products such as photo flashlamps, and specialty high-intensity
discharge (HID) lighting sources and fiber optic systems (xenon, mercury
xenon, krypton-arc, metal halide) for medical diagnostics, dental curing
and whitening, video projection, semiconductor lithography, stage and
studio lighting, cinema projection lighting, solid-state laser pumping,
tanning, signage, aerospace and other lighting applications;
- Imaging products such as linear and two dimensional CCD sensors and
cameras for the machine vision and analytical markets, amorphous silicon
panels used in digital x-ray imaging and film replacement markets,
photomultipliers for use in analytical instruments, and photocells and
thermopiles used in gas and thermal monitoring applications;
- Telecom and sensor components such as high speed Indium Gallium Arsenide
(InGaAs) PIN photodiodes and avalanche photodiodes (APDs), InGaAs and APD
hybrid microelectronic receiver modules, photodiode linear arrays, Dense
Wavelength Division Multiplexer (DWDM) channel monitors, custom packaged
laser diodes, Erbium Doped Fiber Amplifier (EDFA) pumps, and fiber optic
component and cable test equipment. Other products include detectors and
sensors for security systems and for climate and lighting controls.
New Products. New product releases include:
- In the Telecom SBE, recent product releases include a 2.5 Gbit InGaAs APD
and related APD receiver module and an InGaAs mux array for use in DWDM
channel monitoring.
- The Imaging SBE officially announced its new channel photomultiplier
(CPM) product. This product was featured in several industry
publications, including Laser Focus World, Sensors, EDN, and Photonics
Spectra. In addition, our Amorphous Silicon division made the successful
transition from development to production, shipping 41cm x 41cm digital
x-ray detectors to GE Medical Systems.
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- In the Lighting SBE, record shipments in flashlamps were supported by Six
Sigma(R) (see footnote below) quality for the new fourth generation
design. Customer acceptance of the new Cermax(R) lighting system for
dental curing was strong in 1999.
Brand Names. Our Optoelectronics business unit offers its products under
various brand names including Heimann(TM), ILC(R), ORC(TM), Reticon(R),
Vactec(TM), Wolfram(TM), Voltarc(R), Q-Arc(TM), Power Systems(TM) and Amorphous
Silicon(TM).
Instruments
Our Instruments business unit develops, manufactures and markets
sophisticated analytical instruments and imaging detection systems for research
laboratories, academia, medical institutions, government agencies and a wide
range of industrial applications designed to provide industry-specific "sample
to answer" solutions. In 1999, this business unit had sales of $607 million,
representing 45% of our total sales.
The Instruments business unit has two SBEs: Analytical Instruments and
Detection Systems. Analytical Instruments provide world class analytical
solutions employing technologies such as molecular and atomic spectroscopies,
high pressure liquid chromatography (HPLC), gas chromatography (GC), and thermal
and elemental analysis. These instruments measure a range of substances from
biomolecules to organic and inorganic chemicals and have applications in the
pharmaceutical, food and beverage, chemical semiconductor and environmental
markets. Our Detection Systems SBE provides a broad range of products including
walk through weapons detection systems, advanced explosive detection systems,
and large cargo inspection systems. Typical applications are in the aviation,
transportation, government facilities, customs, and hazardous materials
detection markets.
Principal Products. The principal products of our Instruments business
unit include:
- Analytical instruments used to accelerate the drug development process,
decipher molecular mechanisms of drug actions, monitor and test for
environmental pollutants, confirm nutritional content and safety of foods
and beverages, and analyze the purity of raw materials used in the
development of semiconductor and optical products.
- Detection systems used to inspect cargo for weapons, explosives and
contraband, hand-held and walk through metal detectors for security
screening, and X-ray based technology to identify weapons, explosives or
narcotics in hand carried or checked baggage.
New Products. Recent product releases include:
- ELAN 6100 DRC spectrometer produced through a joint venture between the
Company and Sciex, gives semiconductor manufacturers the ability to
detect and measure critical elements at the parts per trillion and
quadrillion levels, a capacity historically degraded by the interference
from argon.
- Turbomass Mass Spectrometer for the determination of volatile organic
compounds (VOCs) and semi-volatile organic compounds.
- TurboLC Plus System for Liquid Chromatography provides pharmaceutical
companies the ability to quickly screen and identify combinatorial
mixtures, as well as isolate and identify potential drug candidates for
development.
- HTS 7000 PLUS -- Bio Assay Reader provides a versatile, optimized
spectroscopic measurement system for molecular biological research and
drug development, useful in applications such as lead screening and
therapeutic monitoring, and DNA analysis.
- Spectrum One -- Fourier-transform Infrared (FT-IR) compact system
provides major advancements in flexibility, and user-friendly technology
for chemical analysis.
- ---------------
Six Sigma(R) is a registered trademark of Motorola, Inc. All other
trademarks and registered trademarks referenced herein are owned by the Company
and its subsidiaries.
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- Linescan(R) V employs state-of-the art electronics and advanced features
to improve the reliability of one of the industry's leading X-ray
platforms.
- TRX is the first TIP (or "Threat Image Projection") Ready X-ray system
approved by the FAA for purchase and development at U.S. airports, and is
a software-based system which allows security managers to consistently
monitor the baggage screening process.
Brand Names. Our Instruments business unit offers its products under
various brand names including Astrophysics(TM), Vivid(R), Princeton Applied
Research(TM), ORTEC(R), Signal Recovery(TM) and Fiber Optics(TM).
Fluid Sciences
Our Fluid Sciences business unit produces static and dynamic seals, sealing
systems, solenoid valves, bellows devices, advanced pneumatic components,
systems and assemblies and sheet metal-formed products for market-leading
original equipment manufacturers and end users. In 1999, this business unit had
sales of $180 million, representing 13% of our total sales.
Typical applications for the products of our Fluid Sciences business unit
are in the aerospace, semiconductor and power generation equipment markets as
well as lubricant and fuel testing.
Principal Products. The principal products of our Fluid Sciences business
unit include:
- Welded metal bellows seals that hold the medication in patient pain
reduction implants; welded metal bellows for wafer-process vacuum sealing
and linear motion devices.
- Valves that provide propulsion and directional control on satellites and
actuation or control on aircraft.
- Brush seals and flexible, metallic C- and E-Seals that reduce or
eliminate emissions and improve efficiency and fuel consumption in power
generation engines.
- Aircraft engine dynamic and static sealing to enhance engine efficiency
and reduce fuel consumption.
- UHV/UHP static sealing in gas delivery and process chamber systems, and
in laser and memory devices.
- Engine and component durability testing, fuel and lubricant testing,
vehicle fleet and fuel system testing.
New Products. New product releases include:
- Alpha-C(R) and Beta-C(TM) Seals, a family of ultra-high vacuum seals
developed for use in the increasingly harsh environment of semiconductor
processing and vacuum equipment.
- Micromechanical seals designed to be retrofitted into aircraft and other
equipment.
- Hydrodynamic seals developed for aircraft and accessory gearbox locations
in order to reduce heat generation. The seals operate on a self-generated
film of air, which extends seal life.
- Air-breather valves that control gearbox pressure during aircraft climb.
This product was developed at customer request and combines our bellows
and valve technologies to replace a more expensive competing product.
Brand Names. Our Fluid Sciences business unit offers its products under
various brand names, including Pressure Science(TM), Wright Components(TM),
Belfab(R), Centurion(TM), Automotive Research(TM), and Missouri Metal
Shaping(TM).
Discontinued Operations
For a number of years, the Company had provided services under management
and operations contracts to the United States Department of Energy (the "DOE")
and reports its former DOE Support segment as discontinued operations. The last
of these DOE contracts expired in 1997. The Company is in the process of
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negotiating contract closeouts and does not anticipate incurring any material
loss in connection with such contracts in excess of previously established
reserves.
On August 20, 1999, the Company sold the assets of its Technical Services
segment, including the capital stock of EG&G Defense Materials, Inc., a
subsidiary of the Company, to EG&G Technical Services, Inc., an affiliate of The
Carlyle Group LP for approximately $250 million in cash and the assumption by
the buyer of certain liabilities of the Technical Services segment. Through its
Technical Services segment, the Company provided engineering, scientific,
management and technical support services to a broad range of governmental and
industrial customers. In 1999, Technical Services had sales of $303 million,
reported as discontinued operations.
MARKETING
All four of the Company's business units, Life Sciences, Optoelectronics,
Instruments and Fluid Sciences, market their products and services through their
own specialized sales forces as well as independent foreign and domestic
manufacturer representatives and distributors. In certain foreign countries,
these operating segments have entered into joint venture and license agreements
with local firms to manufacture and market their products.
RAW MATERIALS AND SUPPLIES
Raw materials and supplies used by the Company are generally readily
available in adequate quantities from domestic and foreign sources.
PATENTS AND TRADEMARKS
While the Company's patents, trademarks and licenses in the aggregate are
important to its business, the Company does not believe that the loss of any one
patent, trademark or license or group of related patents, trademarks or licenses
would have a materially adverse effect on the overall business of the Company or
on any of its operating segments. The Company has both trademarks and registered
trademarks for a variety of its product names. Registration of the
PerkinElmer(TM) trademark is pending.
BACKLOG
At January 2, 2000, the Company had a backlog in continuing operations of
approximately $400 million compared to $305 million at January 3, 1999. The
increase was primarily due to the acquisition of the Analytical Instruments
business from PE Corp. The Company includes in backlog only those orders for
which it has received a completed purchase order. The Company estimates that
more than 95% of its backlog as of January 2, 2000 will be billed during 2000.
Certain of these orders are subject to cancellation by the customer with payment
of a negotiated charge. Because of the possible changes in delivery schedules,
cancellation of orders and potential delays in product shipments, the Company's
backlog as of any particular date may not necessarily be representative of
actual sales for any succeeding period.
GOVERNMENT CONTRACTS
Sales to U.S. government agencies, which were predominantly to the United
States Department of Defense and NASA in the former Technical Services segment,
which is reported as discontinued operations, were $326 million, $524 million
and $537 million in 1999, 1998 and 1997, respectively. Costs incurred under
cost-reimbursable contracts are subject to audit by the government. The results
of prior audits, which have been completed through 1995, have not had a material
effect on the Company.
COMPETITION
Due to the variety of products and services offered by the Company, it
faces a wide range of competition and competitors. The Company in general,
however, faces strong competition in a number of markets. This affects its
ability to sell its products and services and the prices at which such products
and services are sold.
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Competitors range from large organizations, both domestic and international,
that produce a comprehensive array of goods and services and may have greater
financial and other resources than the Company, to smaller organizations which
focus on specific market niches.
In the Life Sciences segment, competition is on the basis of product
availability and reliability, and service level. Size of the competition ranges
from multinational organizations with a wide range of products to specialized
firms that in some cases have well established market niches. The Company
competes in these markets on the basis of innovative technologies, product
differentiation and quality. The proportion of large competitors in this segment
is expected to increase through the continued consolidation of competitors.
In the Optoelectronics segment, no single competitor competes directly with
this segment across its full product range. However, the Company does compete
with specialized manufacturing companies in the manufacture and sale of
specialty flashtubes and lighting sources, certain photodetectors and
photodiodes, and switched power supplies. Competition is based on price,
technological innovation, operational efficiency and product reliability and
quality.
In the Instruments segment, the Company faces a similar situation in that
no single competitor competes directly with this segment as a whole. The Company
competes with instrument companies that serve particular segments of markets in
nuclear and industrial instrumentation, and imaging detection systems. The
Company competes in this segment primarily on the basis of product performance,
product reliability, service and price.
In the Fluid Sciences segment, competition is typically based on product
innovation, quality, service and price. In a few markets, competitors are large,
diversified engineering and manufacturing concerns. Most of the Company's
competitors, however, are small specialized manufacturing companies offering
fewer product lines for narrower market segments. Competition for lubricant
testing services is from a few specialized testing companies and some
customer-owned laboratories, and is mainly based on quality and price.
Within all operating segments of the Company, competition for governmental
purchases of both products and services is subject to mandated procurement
procedures and competitive bidding practices. The Company competes primarily on
the basis of product performance, technological innovation, service and price.
RESEARCH AND DEVELOPMENT
During 1999, 1998 and 1997, Company-sponsored research and development
expenditures were approximately $71 million, $46 million and $45 million,
respectively. These expenditures were incurred primarily in the Company's Life
Sciences, Instruments and Optoelectronics operating segments.
ENVIRONMENTAL COMPLIANCE
The Company is conducting a number of environmental investigations and
remedial actions at current and former Company locations and, along with other
companies, has been named a potentially responsible party (PRP) for certain
waste disposal sites. The Company accrues for environmental issues in the
accounting period that the Company's responsibility is established and when the
cost can be reasonably estimated. The Company has accrued $12.3 million as of
January 2, 2000, representing management's estimate of the total cost of
ultimate disposition of known environmental matters. Such amount is not
discounted and does not reflect any recovery of any amounts through insurance or
indemnification arrangements. These cost estimates are subject to a number of
variables, including the stage of the environmental investigations, the
magnitude of the possible contamination, the nature of the potential remedies,
possible joint and several liability, the timeframe over which remediation may
occur and the possible effects of changing laws and regulations. For sites where
the Company has been named a PRP, management does not currently anticipate any
additional liability to result from the inability of other significant named
parties to contribute. The Company expects that such accrued amounts could be
paid out over a period of up to five years. As assessments and remediation
activities progress at each individual site, these liabilities are reviewed and
adjusted to reflect additional information as it becomes available. There have
been no environmental problems to date that have had or are expected to have a
material effect on the Company's financial position or results of operations.
While it is
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reasonably possible that a material loss exceeding the amounts recorded may have
been incurred, the preliminary stages of the investigations make it impossible
for the Company to reasonably estimate the range of potential exposure.
EMPLOYEES
As of March 1, 2000, the Company employed approximately 12,000 persons.
Certain of the Company's subsidiaries are parties to contracts with labor
unions. The Company considers its relations with employees to be satisfactory.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
Sales and operating profit by segment for the three years ended January 2,
2000 are shown in the table below:
(IN THOUSANDS) 1999 1998 1997
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LIFE SCIENCES
Sales............................................. $ 163,587 $148,124 $125,380
Operating Profit.................................. 15,453 9,046 10,108
OPTOELECTRONICS
Sales............................................. 412,592 268,558 261,291
Operating Profit (Loss)........................... 34,934 (5,454) (23,128)
INSTRUMENTS
Sales............................................. 607,281 247,388 236,839
Operating Profit (Loss)........................... (9,351) 6,659 17,966
FLUID SCIENCES
Sales............................................. 179,669 167,646 127,087
Operating Profit.................................. 22,204 5,194 8,846
OTHER
Sales............................................. -- 22,666 176,885
Operating Profit.................................. 3,412 104,279 13,227
CONTINUING OPERATIONS
Sales............................................. 1,363,129 854,382 927,482
Operating Profit.................................. 66,652 119,724 27,019
The Company's Technical Services segment and former Department of Energy
segment are presented as discontinued operations and, therefore, are not
included in the preceding table. The results for the periods presented included
certain nonrecurring items which are discussed in the Management's Discussion
and Analysis section of this document.
Additional information relating to the Company's operating segments is as
follows:
DEPRECIATION AND
AMORTIZATION EXPENSE CAPITAL EXPENDITURES
----------------------------- -----------------------------
(IN THOUSANDS) 1999 1998 1997 1999 1998 1997
-------------- ------- ------- ------- ------- ------- -------
Life Sciences.................. $ 6,189 $ 5,059 $ 4,091 $ 7,465 $ 5,415 $ 3,352
Optoelectronics................ 34,430 25,615 19,528 21,155 17,256 21,312
Instruments.................... 17,292 10,573 11,688 6,555 8,382 7,616
Fluid Sciences................. 7,093 6,042 3,090 4,515 10,325 9,488
Other.......................... 1,111 1,221 4,301 1,402 3,111 5,874
------- ------- ------- ------- ------- -------
Continuing operations........ $66,115 $48,510 $42,698 $41,092 $44,489 $47,642
======= ======= ======= ======= ======= =======
Discontinued operations...... $ 841 $ 1,869 $ 1,914 $ 1,341 $ 2,033 $ 1,087
======= ======= ======= ======= ======= =======
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TOTAL ASSETS
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(IN THOUSANDS) 1999 1998
-------------- ---------- ----------
Life Sciences............................................... $ 125,025 $ 128,970
Optoelectronics............................................. 448,453 479,818
Instruments................................................. 854,452 183,590
Fluid Sciences.............................................. 102,421 112,898
Other....................................................... 184,289 233,502
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$1,714,640 $1,138,778
========== ==========
Other total assets consisted primarily of cash and cash equivalents,
prepaid pension, prepaid taxes and, in 1998, net assets of discontinued
operations.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The following geographic area information for continuing operations
includes sales based on location of external customer and net property, plant
and equipment based on physical location:
SALES
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(IN THOUSANDS) 1999 1998 1997
-------------- ---------- -------- --------
U.S............................................... $ 661,609 $447,793 $512,503
Germany........................................... 98,787 67,647 71,390
Japan............................................. 73,567 28,306 21,630
United Kingdom.................................... 71,493 47,794 65,462
Italy............................................. 56,433 17,565 19,204
France............................................ 50,282 35,329 44,417
Other Non-U.S..................................... 350,958 209,948 192,876
---------- -------- --------
$1,363,129 $854,382 $927,482
========== ======== ========
NET PROPERTY, PLANT AND
EQUIPMENT
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(IN THOUSANDS) 1999 1998
-------------- ---------- ----------
U.S......................................................... $133,812 $133,550
Germany..................................................... 21,570 21,923
Finland..................................................... 17,277 15,431
Canada...................................................... 14,718 8,861
United Kingdom.............................................. 13,282 3,453
Other Non-U.S............................................... 27,375 35,462
-------- --------
$228,034 $218,680
======== ========
Effectively all of the sales and net property, plant and equipment of the
discontinued operations (consisting of the Technical Services segment and former
DOE segment) were U.S. based.
ITEM 2. PROPERTIES
As of March 1, 2000, the Company occupied approximately 4,048,400 square
feet of building area, of which approximately 1,889,400 square feet is owned by
the Company. The balance is leased. The Company's headquarters occupies 53,350
square feet of leased space in Wellesley, Massachusetts. The Company's other
operations are conducted in manufacturing and assembly plants, research
laboratories, administrative offices and other facilities located in 14 states
and 41 foreign countries.
Non-U.S. facilities account for approximately 1,760,900 square feet of
owned and leased property, or approximately 43% of the Company's total occupied
space.
The Company's leases on property are both short-term and long-term. In
management's opinion, the Company's properties are well-maintained and are
adequate for its present requirements.
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Substantially all of the machinery and equipment used by the Company is
owned by the Company and the balance is leased or furnished by contractors or
customers.
The following table indicates the approximate square footage of real
property owned and leased attributable to each of the Company's industry
segments.
OWNED LEASED TOTAL
(SQ. FEET) (SQ. FEET) (SQ. FEET)
---------- ---------- ----------
Life Sciences............................................. 241,600 142,300 383,900
Optoelectronics........................................... 689,100 743,100 1,432,200
Instruments............................................... 649,200 1,133,500 1,782,700
Fluid Sciences............................................ 305,000 86,700 391,700
Corporate Offices......................................... 4,600 53,400 57,900
--------- --------- ---------
CONTINUING OPERATIONS..................................... 1,889,500 2,159,000 4,048,400
========= ========= =========
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims, legal proceedings and
investigations covering a wide range of matters that arise in the ordinary
course of its business activities. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company has established accruals for matters
that are probable and reasonably estimable. Management believes that any
liability that may ultimately result from the resolution of these matters in
excess of amounts provided will not have a material adverse effect on the
financial position or results of operations of the Company.
The Company has received notices from the Internal Revenue Service (IRS)
asserting deficiencies in federal corporate income taxes for the Company's 1985
to 1994 tax years. The total additional tax proposed by the IRS amounts to $74
million plus interest. The Company has filed petitions in the United States Tax
Court to challenge most of the deficiencies asserted by the IRS. The Company
believes that it has meritorious legal defenses to those deficiencies and
believes that the ultimate outcome of the case will not result in a material
impact on the Company's consolidated results of operations or financial
position.
The Company and its subsidiary, EG&G Idaho, Inc., have been named as
defendants in a lawsuit filed in the United States District Court for the
District of Idaho and served in November 1998. The suit was filed under the
Civil False Claims Act by two former employees of EG&G Idaho, and names as
defendants six entities which were formerly, or currently are, prime or
subcontractors to the Department of Energy at the Idaho National Engineering and
Environmental Laboratory. The central allegation of the suit is that the
defendants submitted false claims to the government for reimbursement of
environmental activities which they knew or should have known had been performed
improperly or not at all. The damages claimed have not been quantified by the
plaintiffs. In November 1999, the Court granted the defendants' motion to
dismiss the case under Rule 9(b) of the Federal Rules of Civil Procedure. A
restated complaint was filed by the plaintiffs in March 2000, which is currently
being reviewed by counsel for the Company. In January 2000, the Company and
three other companies were named as defendants in a civil false claim action
filed in the United States District Court for the District of Colorado involving
security issues at the Department of Energy's Rocky Flats Plant. In March 2000,
the Company filed motions to dismiss the case under Rules 9(b) and 12(b)(6) of
the Federal Rules of Civil Procedure. Plaintiff's response is due in April 2000.
The Company intends to defend itself vigorously in these matters and believes
that their ultimate disposition will not have a material impact on the Company's
consolidated results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the executive officers of the Company as of March 1, 2000.
No family relationship exists between any of the officers.
NAME POSITION AGE
- ---- -------- ---
Gregory L. Summe................................... Chairman of the Board, 43
Chief Executive Officer and President
Robert F. Friel.................................... Senior Vice President 44
and Chief Financial Officer
Terrance L. Carlson................................ Senior Vice President, 47
General Counsel and Clerk
Angelo D. Castellana............................... Senior Vice President 58
Richard F. Walsh................................... Senior Vice President 47
Robert A. Barrett.................................. Senior Vice President 56
Patrik Dahlen...................................... Senior Vice President 38
John J. Engel...................................... Senior Vice President 38
Robert J. Rosenthal................................ Senior Vice President 43
Gregory D. Perry................................... Vice President, Control and Treasury 39
Mr. Summe joined the Company in 1998 as President and Chief Operating
Officer, was elected President and Chief Executive Officer in December 1999, and
Chairman of the Board in April 1999. Until late 1997, he was President of
AlliedSignal's Automotive Products Group. AlliedSignal, Inc., which recently
merged with Honeywell and became known as Honeywell International, is a $24
billion multi-product company, which has operations in aerospace, automotive and
engineered materials businesses. Prior to being appointed President of
AlliedSignal's Automotive Products Group in 1997, Mr. Summe served as President
of AlliedSignal's Aerospace Engines from 1995 to 1997 and as President of
AlliedSignal's General Aviation Avionics from 1993 to 1995.
Mr. Friel joined the Company in February 1999 as Senior Vice President and
Chief Financial Officer. From 1997 to 1999 he was Corporate Vice President and
Treasurer of AlliedSignal, Inc., which is described above. Prior to that he was
Vice President, Finance and Administration of AlliedSignal Engines from 1992 to
1996.
Mr. Carlson joined the Company in June 1999 as Senior Vice President,
General Counsel and Clerk. From 1997 to 1999 he was Deputy General Counsel of
AlliedSignal, Inc. Prior to that he was Vice President and General Counsel of
AlliedSignal Aerospace from 1994 to 1997, and from 1986 to 1994 he was a partner
in the law firm of Gibson, Dunn & Crutcher.
Mr. Castellana joined the Company in 1965. He was elected a Vice President
in 1991 and a Senior Vice President in 1997 and serves as a principal executive
in the Office of the Chief Executive Officer, overseeing productivity
improvements and sourcing, and special assignments.
Mr. Walsh joined the Company in July 1998 as Senior Vice President of Human
Resources. From 1989 to 1998, he served as Senior Vice President of Human
Resources of ABB Americas, Inc., the U.S. based subsidiary of an international
engineering company.
Mr. Barrett was elected a Vice President of the Company in January 1997 and
a Senior Vice President in January 2000. He has served as President of the Fluid
Sciences Strategic Business Unit since May 1998. From 1990 to 1997, he served as
President and General Manager of the Company's Pressure Science division.
Mr. Dahlen was elected a Vice President of the Company in October 1999 and
a Senior Vice President in January 2000. He has served as President of the Life
Sciences Strategic Business Unit since September 1999. From April through
October 1999, Mr. Dahlen was General Manager of the Reticon division of the
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Optoelectronics Strategic Business Unit. From September 1995 through April 1999
Mr. Dahlen was Director of Marketing and General Manager of US Diagnostics for
the Life Sciences Strategic Business Unit. Mr. Dahlen had been Marketing Manager
of Wallac Oy, a subsidiary of the Company, from February 1995 until September
1995. During 1994 he was Director, Diagnostic Systems at Wallac Oy. Mr. Dahlen
is a citizen of Finland.
Mr. Engel was elected a Vice President of the Company in April 1999 and a
Senior Vice President in January 2000. He has served as President of the
Optoelectronics Strategic Business Unit since March 1999. Mr. Engel had been
associated with AlliedSignal since 1994, serving as Vice President and General
Manager of Business and General Aviation from 1997 to March 1999, Vice President
of the Flight Controls Enterprise in 1996, and Director of the Radar and
Collision Avoidance Enterprise from 1994 to 1995.
Dr. Rosenthal was elected a Vice President of the Company in April 1999 and
a Senior Vice President in January 2000. He has served as President of the
Instruments Strategic Business Unit since March 1999. Dr. Rosenthal had been
President and Chief Executive Officer of Thermo Optek Corporation since January
1998. Thermo Optek Corporation is an analytical instrumentation company focusing
on energy and light measurement, and is a subsidiary of Thermo Electron. Dr.
Rosenthal became a Senior Vice President of Thermo Optek in August 1996,
Executive Vice President and Chief Operating Officer in November 1996, and
President and Chief Operating Officer in April 1997. Prior to that, Dr.
Rosenthal was President of Nicolet Instrument Corporation since 1993.
Mr. Perry joined the Company in September 1998 as Controller, and was
elected Vice President, Control and Treasury in 1999. From 1997 to 1998, he
served as Chief Financial Officer of AlliedSignal's Automotive Products Group
and as Chief Financial Officer of AlliedSignal's Fram and Autolite Units. Prior
to 1997, he served as Vice President, Finance of GE Medical Systems Europe from
1994 to 1997, and served as Manager in charge of business development for GE
Motors from 1991 to 1994.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE OF COMMON STOCK
1998 QUARTERS
------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
High.................................................... $28.50 $33.75 $30.13 $29.44
Low..................................................... 19.44 27.13 18.88 20.50
1999 QUARTERS
------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
High.................................................... $30.19 $36.25 $39.94 $45.00
Low..................................................... 25.50 26.50 31.50 36.63
DIVIDENDS
1998 QUARTERS
----------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
Cash Dividends Per Common Share............................. $.14 $.14 $.14 $.14
1999 QUARTERS
----------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
Cash Dividends Per Common Share............................. $.14 $.14 $.14 $.14
The Company's common stock is listed and traded on the New York Stock
Exchange. The number of holders of record of the Company's common stock as of
February 25, 2000, was approximately 9,000.
In October 1999, the Board of Directors of the Company declared a regular
quarterly cash dividend of fourteen cents per share of common stock. The
quarterly cash dividend was paid on February 10, 2000, to stockholders of record
at the close of business on January 21, 2000.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL INFORMATION
FOR THE FIVE YEARS ENDED JANUARY 2, 2000
(IN THOUSANDS WHERE APPLICABLE) 1999 1998 1997 1996 1995
------------------------------- ---------- ---------- -------- -------- --------
OPERATIONS:
Sales................................... $1,363,129 $ 854,382 $927,482 $928,287 $887,313
Operating income from continuing
operations............................ 66,652(1) 119,724(5) 27,019(9) 56,265 50,628
Income from continuing operations....... 28,371(2) 79,001(6) 9,562(10) 34,264 33,340
Income from discontinued operations, net
of income taxes....................... 15,665 23,001(7) 24,130 25,892 34,700
Gain on disposition of discontinued
operations, net of income taxes....... 110,280(3) -- -- -- --
Net income.............................. 154,316(2)(3) 102,002(6)(7) 33,692(10) 60,156 68,040
Basic earnings per share:
Continuing operations................. .62(2) 1.74(6) .21(10) .72 .64
Discontinued operations............... 2.77(3) .51(7) .53 .55 .68
Net income............................ 3.39(2)(3) 2.25(6)(7) .74(10) 1.27 1.32
Diluted earnings per share:
Continuing operations................. .61(2) 1.72(6) .21(10) .72 .64
Discontinued operations............... 2.70(3) .50(7) .53 .55 .68
Net income............................ 3.31(2)(3) 2.22(6)(7) .74(10) 1.27 1.32
Weighted-average common shares
outstanding:
Basic................................. 45,522 45,322 45,757 47,298 51,483
Diluted............................... 46,569 45,884 45,898 47,472 51,573
Return on equity........................ 32.5%(4) 28.0%(8) 9.7%(11) 16.4% 16.8%
FINANCIAL POSITION:
Total assets............................ $1,714,640 $1,138,778 $777,737 $774,761 $757,927
Short-term debt......................... 382,162 157,888 46,167 21,499 5,275
Long-term debt.......................... 114,855 129,835 114,863 115,104 115,222
Long-term liabilities................... 196,511 124,799 95,940 76,087 63,816
Stockholders' equity.................... 550,776 399,667 328,388 365,106 366,946
Total debt/total capital................ 47% 42% 33% 27% 25%
Common shares outstanding............... 46,366 44,746 45,333 46,309 47,610
CASH FLOWS:
Cash flows from continuing operations... $ 108,768 $ 40,853 $ 11,405 $ 48,291 $ 80,868
Cash flows from discontinued
operations............................ 7,061 28,702 23,433 31,867 69,297
Cash flows from operating activities.... 115,829 69,555 34,838 80,158 150,165
Depreciation and amortization........... 66,115 48,510 42,698 38,861 37,432
Capital expenditures.................... 41,092 44,489 47,642 78,796 60,689
Purchases of common stock............... 970 41,217 28,104 30,760 135,079
Cash dividends per common share......... .56 .56 .56 .56 .56
- ---------------
(1) Operating income from continuing operations included net nonrecurring
expense items totaling $52.1 million pre-tax.
(2) Income from continuing operations included the items in (1) above, plus net
nonrecurring other income items totaling $3.5 million pre-tax. The net
nonrecurring items, which are discussed in the notes to the consolidated
financial statements and the Management's Discussion and Analysis sections
of this document, totaled $35.2 million after-tax ($.77 basic, $.76 diluted
loss per share).
(3) Discontinued operations included a $181 million nonrecurring pre-tax gain
on disposition, $110 million after-tax ($2.42 basic, $2.37 diluted earnings
per share).
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(4) Return on equity before effects of nonrecurring items was 18.1%.
(5) Operating income from continuing operations included net nonrecurring
income items totaling $62.5 million pre-tax.
(6) Income from continuing operations included the items in (5) above, plus a
$4.3 million pre-tax investment gain. The net nonrecurring items, which are
discussed in the notes to the consolidated financial statements and the
Management's Discussion and Analysis sections of this document, totaled
$44.7 million after-tax ($.99 basic, $.97 diluted earnings per share).
(7) Discontinued operations included nonrecurring expense items related to
restructuring and other charges totaling $6.8 million pre-tax, $4.1 million
after-tax ($.09 basic and diluted loss per share).
(8) Return on equity before effects of nonrecurring items was 17.9%.
(9) Operating income from continuing operations included an asset impairment
charge of $28.2 million pre-tax.
(10) Income from continuing operations included the item in (9) above, plus a
$3.4 million pre-tax cost of capital reimbursement. The net nonrecurring
items, which are discussed in the notes to the consolidated financial
statements and Management's Discussion and Analysis sections of this
document, totaled $21.2 million after-tax ($.46 basic and diluted loss per
share).
(11) Return on equity before effects of nonrecurring items was 15.4%.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
During 1999, the Company accelerated its transformation towards becoming a
high-technology global leader. In addition to significantly improving the
operating performance of the Company during 1999, several acquisitions and
divestitures were concluded which have shifted the portfolio of businesses to
higher growth potential including:
- acquisition of the Analytical Instruments business from PE Corp.
- divestiture of government services business
- divestiture of structural kinematics business
These transactions resulted in gains from the divestitures and
acquisition-related charges. In addition, the Company's continued restructuring
efforts during 1999 resulted in certain one-time items. The table presented
below reconciles the reported results of the Company in the accompanying
financial statements to the financial results before these nonrecurring items.
On this adjusted basis (which includes results of discontinued operations
through the date of divestiture), EPS expanded 27% during 1999 to $1.70 versus
$1.34 in 1998. Excluding results of discontinued operations, 1999 adjusted EPS
was $1.36 versus $.75 in 1998, representing an 81% increase.
1999 1998
------ ------
Diluted EPS, as reported.................................... $ 3.31 $ 2.22
Gains on dispositions....................................... (2.63) (1.91)
Acquisition-related charges................................. .51 .05
Restructuring and other one-time items...................... .51 .98
------ ------
"Adjusted" EPS.............................................. $ 1.70 $ 1.34
====== ======
DISCUSSION OF CONSOLIDATED RESULTS OF OPERATIONS -- 1999 COMPARED TO 1998
Over the past two years, the mix of the Company's consolidated revenues
from continuing operations has changed significantly, which resulted in reported
sales from continuing operations of $1,363 million in 1999 versus $854 million
in 1998, representing a 60% increase. Organic growth for 1999 totaled 8%, which
the Company defines as growth in historical businesses plus growth in acquired
businesses assuming they were owned in prior periods, reduced for the effects of
exited businesses and foreign exchange. Revenues by segment during 1999 versus
1998 are discussed in further detail below under the caption "Segment Results of
Operations."
Due to the number of changes in the portfolio of businesses, the table
presented below reconciles reported operating profit from continuing operations
to operating profit before nonrecurring items.
PRE-TAX
OPERATING INCOME
---------------------
(IN THOUSANDS) 1999 1998
- -------------- -------- ---------
As reported................................................. $ 66,652 $ 119,724
Gains on dispositions....................................... (17,750) (125,822)
Acquisition-related charges................................. 32,857 2,300
Restructuring charges and other one-time items, net......... 36,948 61,027
-------- ---------
Adjusted operating profit................................... $118,707 $ 57,229
======== =========
Adjusted operating income before nonrecurring items was $118.7 million for
1999 versus $57.2 million in 1998, representing an increase of $61.5 million, or
107%, during 1999 compared to 1998. On an adjusted basis, operating margin
increased 200 basis points to 8.7% of consolidated sales for 1999 versus 1998
operating
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margin of 6.7%. The increase in operating profit during 1999 was due to higher
revenues discussed above, the benefits from restructuring activities and Six
Sigma productivity initiatives, and the changes in the portfolio of businesses
as the acquired businesses have higher margins than those divested.
SEGMENT RESULTS OF OPERATIONS
The Company's businesses are reported as four segments, reflecting the
Company's management methodology and structure. The Company's Technical Services
segment has been classified as discontinued operations due to its divestiture
during 1999. The accounting policies of the segments are the same as those
described in the footnotes to the accompanying consolidated financial
statements. The Company evaluates performance based on operating profit of the
respective segments. The discussion that follows is a summary analysis of the
primary changes in operating results by segment for 1999 versus 1998 and 1998
versus 1997.
Life Sciences
1999 Compared to 1998
Sales of $163.6 million for 1999 increased $15.5 million versus 1998.
Adjusting for the impact of the stronger dollar, revenue growth during 1999 was
17%. Higher volumes from continued strength in the high throughput screening and
genetic disease screening markets, and revenues from new products were the
primary contributors to this increase during 1999.
Reported operating profit was $15.5 million during 1999 versus $9 million
in 1998, representing an increase of $6.5 million, or 72%. 1999 operating profit
included net restructuring charges of $5.8 million. Excluding nonrecurring items
in 1999 and 1998, operating profit increased $7.6 million during 1999 to $21.3
million representing a 55% increase versus 1998. Higher sales discussed above
and increased gross margins across most businesses, driven primarily by
higher-margin new products sold in 1999, were the primary contributors for the
overall 1999 increase compared to 1998.
1998 Compared to 1997
Sales for 1998 were $148.1 million compared to $125.4 million for 1997,
which represented a $22.7 million, or 18%, increase. Higher sales volumes from
certain base businesses, revenues from recently developed products and the
Isolab acquisition revenues of $6.5 million were the primary reasons for the
increase during 1998. The higher volumes during 1998 primarily related to the
high throughput screening and genetic disease screening businesses.
Reported operating profit for 1998 was $9 million compared to $10.1 million
for 1997, which represents a $1.1 million, or 11%, decrease. Restructuring
charges of $4.6 million recorded in the first half of fiscal 1998 contributed to
this decrease. 1998 base operating profit was $13.6 million compared to $10.3
million for 1997, which represented a $3.3 million, or 32%, increase. The
increase was due primarily to the higher revenues discussed above and improved
gross margins from most businesses resulting from higher sales of higher margin
products and continued improvements in quality.
Optoelectronics
1999 Compared to 1998
Sales for 1999 were $412.6 million, compared to 1998 sales of $268.6
million, representing an increase of $144 million, or 54%. Revenue from the
acquired specialty lighting business and strong organic growth was partially
offset by softness in the sensors business and exited businesses.
Reported operating profit for 1999 was $34.9 million versus an operating
loss of $5.5 million in 1998. The 1999 operating income included net
restructuring charges of $5.5 million and an asset impairment charge of $3
million. Excluding nonrecurring items, operating profit in 1999 and 1998 was
$43.4 million and $17.1 million, respectively, representing an increase of $26.3
million, or 154%. The 1999 increase was primarily due to higher revenues
discussed above, higher margin new products, the exiting from unprofitable
businesses and the shift by the Company to lower cost manufacturing areas.
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1998 Compared to 1997
Sales for 1998 were $268.6 million compared to $261.3 million for 1997,
which represents a $7.3 million, or 3%, increase. Slight increases in sales
across most businesses were partially offset by lower 1998 printer circuit board
assembly sales versus 1997.
Reported operating loss for 1998 was $5.5 million compared to a loss of
$23.1 million for 1997 which represents an increase of $17.6 million, or 76%.
Restructuring charges of $20.3 million were recorded in the first half of fiscal
1998 and a fourth quarter charge of $2.3 million was recorded for an in-process
research and development charge related to the Lumen acquisition; each
contributed to the 1998 operating loss. 1998 base operating profit was $17.1
million compared to $5.3 million for 1997, which represented an $11.8 million,
or 223%, increase. Higher gross margins across most businesses, favorable
product mix, and various operational improvement initiatives to lower production
costs were the primary contributors to this increase.
Instruments
1999 Compared to 1998
Sales for 1999 and 1998 were $607.3 million and $247.4 million,
respectively, increasing $359.9 million, or 145%, during 1999 compared to 1998.
1999 revenues from acquisitions and higher security revenues during 1999 offset
the effects of divestitures and lower revenues in certain base businesses,
primarily automotive, compared to 1998.
PEAI acquisition purchase accounting charges and certain nonrecurring items
during 1999 contributed to a reported operating loss of $9.4 million versus
operating income of $6.7 million in 1998. The 1999 operating loss included the
following: $23 million charge related to acquired in-process research and
development; a $9.9 million charge related to the revaluation of acquired
inventory; net restructuring charges of $1.4 million; an asset impairment charge
of $15 million and other repositioning costs of $4.4 million. Excluding
nonrecurring items in 1999 and 1998, operating profit in 1999 increased $19
million, or 75%, to $44.3 million compared to 1998. Operating profit from the
acquired PEAI and Lumen photolithography businesses were partially offset by the
effects of depressed market conditions in the security and automotive businesses
during most of 1999.
1998 Compared to 1997
Sales for 1998 were $247.4 million compared to $236.8 million for 1997,
which represented a $10.6 million, or 4%, increase. This was due primarily to
the effects of a $4.5 million increase in automotive business revenues and $4
million of royalty and licensing fees. These increases were partially offset by
a 6% decrease in 1998 X-ray revenues due to an overall softening in the security
markets.
Reported operating profit for 1998 was $6.7 million compared to $18 million
for 1997, which represents a decrease of $11.3 million, or 63%. Restructuring
charges of $11.3 million and an asset impairment charge of $7.4 million were
recorded in the first half of 1998 and contributed to this decrease. 1998 base
operating profit was $25.3 million compared to $20.6 million for 1997, which
represents a $4.7 million, or 23%, increase. Base operating income in 1998
increased versus 1997 due primarily to the royalty and licensing fees, which
contributed $3.1 million to operating income, and a $2 million refund of sales
and use taxes which were offset in part by customer contract provisions.
Fluid Sciences
1999 Compared to 1998
During the third quarter of 1999, the Company's business segment previously
referred to as Engineered Products was renamed Fluid Sciences.
Sales for 1999 were $179.7 million compared to $167.6 million in 1998,
representing a $12.1 million, or 7%, increase. Recovery in the semiconductor
industry and continued growth in the power generation businesses offset
continued weakness in the aerospace markets and the absence of revenues from
businesses exited by the Company during 1998, primarily certain sheetmetal
fabrication operations.
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Reported 1999 operating profit increased $17 million, or 327%, to $22.2
million compared to $5.2 million in 1998. The 1999 operating income included a
net restructuring credit of $2.2 million discussed more fully in the
Restructuring Charges section herein. Excluding 1999 and 1998 nonrecurring
items, 1999 operating profit was $20 million versus $15.7 million in 1998,
representing an increase of $4.3 million, or 27%. Higher sales discussed above
and higher gross margins due to Six Sigma and restructuring initiatives were the
primary factors contributing to the increase in 1999 versus 1998.
1998 Compared to 1997
Sales for 1998 were $167.6 million compared to $127.1 million for 1997,
which represents a $40.5 million, or 32%, increase. Modest strength in the
Company's aerospace business partially contributed to the increase and was
offset in part by market softness which affected the semiconductor business. The
Belfab acquisition completed in the second quarter of 1998 contributed $17.2
million while most other segment businesses recorded higher 1998 sales compared
to 1997. Excluding the acquisition, revenues in 1998 increased approximately 18%
compared to 1997.
Reported operating profit for 1998 was $5.2 million compared to $8.8
million for 1997, which represented a decrease of $3.6 million, or 41%.
Restructuring charges of $9.9 million recorded in the first half of 1998 and
$0.6 million of integration costs recorded in the third quarter of 1998
contributed to this decrease. 1998 base operating profit was $15.7 million
compared to $9.3 million for 1997, which represented an increase of $6.4
million, or 69%. Higher gross margins driven primarily by higher sales levels
and certain manufacturing cost improvements across most businesses within the
segment contributed to this increase. Belfab did not contribute to operating
profit during 1998.
CONSOLIDATED RESULTS -- RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
In 1997, as part of a plan to reposition its operations, the Company
recorded $7.8 million of integration costs, which included $4.4 million related
to employee separation costs and $3.4 million related to its consolidation
effort. These costs were included in selling, general and administrative
expenses.
The Company developed restructuring plans during 1998 to integrate and
consolidate its businesses and recorded restructuring charges in the first and
second quarters of 1998. The Company developed additional plans during the third
quarter of 1999 to restructure certain businesses to continue to improve the
Company's performance. Each plan is discussed separately below and in more
detail in Note 3 to the accompanying consolidated financial statements.
First Quarter of 1998 Plan
During the first quarter of 1998, management developed a plan to
restructure certain businesses. A discussion of the businesses affected within
each segment is presented in detail in Note 3. The plan resulted in pre-tax
restructuring charges totaling $30.5 million. The principal actions in the
restructuring plan included close-down or consolidation of a number of offices
and facilities, transfer of assembly activities to lower cost geographic
locations, disposal of underutilized assets, withdrawal from certain product
lines and general cost reductions.
Second Quarter of 1998 Plan
During the second quarter of 1998, the Company expanded its continuing
effort to restructure certain businesses to further improve performance. The
plan resulted in additional pre-tax restructuring charges of $19.5 million. The
principal actions in this restructuring plan included the integration of
operating divisions into five strategic business units (SBUs), close-down or
consolidation of a number of production facilities and general cost reductions.
As discussed in Note 8 to the accompanying financial statements, the Company has
since divested its Technical Services segment. Pre-tax restructuring charges of
$4.5 million were charged to discontinued operations in 1998 ($0.9 million in
the first quarter and $3.6 million in the second quarter), primarily related to
severance benefits, all of which have been incurred as of January 2, 2000.
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20
Third Quarter of 1999
During the third quarter of 1999, due to the substantial completion of the
actions of the 1998 restructuring plans, the Company reevaluated its 1998
restructuring plans. As a result of this review, costs associated with the
previously planned shutdown of two businesses were no longer required due to
actions taken to improve performance. As a result of these recent developments,
the Company recognized a restructuring credit of $12 million during the third
quarter of 1999, which primarily affected the Fluid Sciences and Optoelectronics
segments. The $12 million credit is reflected in "Restructuring Charges, Net" in
the Consolidated Income Statements.
The acquisitions by the Company discussed in Note 2 to the accompanying
consolidated financial statements and the Company's divestiture during the third
quarter of 1999 of its Technical Services segment discussed in Note 8 to the
accompanying consolidated financial statements (exiting government services)
were strategic milestones in the Company's transition to a commercial
high-technology company. Consistent with the strategic direction of the Company
and concurrent with the reevaluation of existing restructuring plans during the
third quarter of 1999, the Company developed additional plans during the third
quarter of 1999 to restructure certain businesses to continue to improve the
Company's performance.
These plans resulted in a pre-tax restructuring charge of $23.5 million
recorded in the third quarter of 1999. The principal actions in these
restructuring plans include close-down or consolidation of a number of offices
and facilities, transfer of assembly activities to lower-cost geographic
locations, disposal of under-utilized assets, withdrawal from certain product
lines and general cost reductions. Details related to these restructuring plans
are discussed in Note 3 to the accompanying consolidated financial statements.
The components of the restructuring charges met the criteria set forth in
Emerging Issues Task Force Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring). The charges do not include
additional costs associated with the restructuring plans, such as training,
consulting, purchase of equipment and relocation of employees and equipment.
These costs were charged to operations or capitalized, as appropriate, when
incurred.
As discussed in Note 2 to the accompanying consolidated financial
statements, approximately $5 million was recorded as accrued restructuring
charges in connection with the Lumen acquisition and approximately $28 million
was recorded as accrued restructuring charges in connection with the acquisition
of PEAI.
Cash outlays during 1999 and 1998 were $32.5 million and $23.5 million,
respectively, for all of the plans discussed above. The Company expects to incur
approximately $25-$30 million of cash outlays in connection with these plans
throughout fiscal 2000. These funds will come from operating cash flows or
borrowing from existing credit facilities. The estimated full year's pre-tax
savings under the restructuring plans, due primarily to lower depreciation and
lower employment costs, when the plans are fully implemented are anticipated to
be approximately $27-$30 million, or $.37 to $.42 per share.
During the third quarter of 1999, in connection with its ongoing review of
its portfolio of businesses, the Company conducted a strategic review of certain
units within its business segments. The strategic review triggered an impairment
review of long-lived assets of certain businesses which are expected to be
disposed. The Company calculated the present value of expected cash flows of
certain business units to determine the fair value of those assets. Accordingly,
in the third quarter of 1999, the Company recorded noncash impairment charges
and wrote down goodwill by $15 million in the Instruments segment and $3 million
in the Optoelectronics segment. Sales and operating profit for the businesses
under strategic review were approximately $54 million and $2 million,
respectively, in 1999.
During the second quarter of 1998, the Company recorded a $7.4 million
noncash impairment charge related to an automotive testing facility in the
Instruments segment. The impairment charge applied to fixed assets and resulted
from projected changes in the principal customer's demand for services. The
Company calculated the present value of expected cash flows of the testing
facility to determine the fair value of the assets.
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During the second quarter of 1997, the Company recorded a noncash
impairment charge of $28.2 million, with $26.7 million related to IC Sensors in
the Optoelectronics segment and $1.5 million related to the goodwill of an
environmental services business in Other. As a result of IC Sensors' inability
to achieve the improvements specified in its corrective action plan, it
continued operating at a loss in the second quarter of 1997, triggering an
impairment review of its long-lived assets. A revised operating plan was
developed to restructure and stabilize the business. The revised projections by
product line provided the basis for measurement of the asset impairment charge.
The Company calculated the present value of expected cash flows of IC Sensors'
product lines to determine the fair value of the assets. Accordingly, in the
second quarter of 1997, the Company recorded an impairment charge of $26.7
million, for a write-down of goodwill of $13.6 million and fixed assets of $13.1
million. The components of the revised operating plan included hiring a new
general manager, transferring assembly and test operations to a lower cost
environment (Batam, Indonesia), introducing new products and reviewing
manufacturing processes to improve production yields. All of these components
were implemented during 1997 and 1998. In February 2000, the Company sold its IC
Sensors business. The Company does not expect a material gain or loss from
disposition.
OTHER
In January 1998, the Company sold its Rotron business unit for proceeds of
$103 million. In April 1998, the Company sold its Sealol Industrial Seals
operation for proceeds of $100 million, of which $45 million was utilized for
the Belfab acquisition. The Company realized gains of $125.8 million on the
dispositions.
DISCONTINUED OPERATIONS
On August 20, 1999, the Company sold the assets of its Technical Services
segment, including the outstanding capital stock of EG&G Defense Materials,
Inc., a subsidiary of the Company, to EG&G Technical Services, Inc., an
affiliate of The Carlyle Group LP (the "Buyer"), for approximately $250 million
in cash and the assumption by the Buyer of certain liabilities of the Technical
Services segment. Details of the transaction are discussed in Note 8 to the
accompanying consolidated financial statements.
The results of operations of the Technical Services segment were previously
reported as one of five business segments of the Company. The Company accounted
for the sale of its Technical Services segment as a discontinued operation in
accordance with APB Opinion No. 30 and, accordingly, the results of operations
of the Technical Services segment have been segregated from continuing
operations and reported as a separate line item on the Company's accompanying
Consolidated Income Statements.
Summary operating results of the discontinued operations (through August
20, 1999) were as follows:
(IN THOUSANDS) 1999 1998 1997
-------------- -------- -------- --------
Sales.............................................. $302,776 $553,514 $613,118
Costs and expenses................................. 278,242 517,762 575,852
-------- -------- --------
Operating income from discontinued operations...... 24,534 35,752 37,266
Other income....................................... 1,147 1,955 1,983
-------- -------- --------
Income from discontinued operations before income
taxes............................................ 25,681 37,707 39,249
Provision for income taxes......................... 10,016 14,706 15,119
-------- -------- --------
Income from discontinued operations, net of income
taxes............................................ $ 15,665 $ 23,001 $ 24,130
======== ======== ========
OTHER EXPENSE
1999 Compared to 1998
Other expense, net, was $21.8 million in 1999 versus $1.4 million in 1998.
This net increase in other expense was due primarily to the impact of higher
interest expense on increased debt levels, at higher 1999 short term rates,
resulting from acquisitions. Included in 1999 other expense was $2.2 million of
income
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received by the Company related to the demutualization of a life insurance
company in which the Company is a policyholder.
1998 Compared to 1997
Other expense, net, was $1.4 million for 1998 versus $7.6 million for 1997.
This net decrease of $6.2 million in other expense, net, in 1998 was due
primarily to the impact of higher interest income on increased cash balances
resulting from the 1998 dispositions and lower interest expense on reduced debt
levels during most of 1998. Included in 1998 other expense, net, was a $4.5
million gain on investment. Other expense, net, in 1997 included income of $3.4
million for a cost of capital reimbursement.
INCOME TAX PROVISION
The provision for income taxes on pre-tax income from continuing operations
for 1999 and 1998 was $16.5 million and $39.3 million, respectively. Reported
income tax expense as a percent of pre-tax income for 1999 and 1998 was 36.8%
and 33.2% respectively, due, in part, to the income tax effect on nonrecurring
items. Excluding the asset impairment charges and related tax effects, the
effective tax rate was 32% in 1999. The geographical mix of the Company's
revenues was affected during the third quarter of 1999 as the Company sold its
Technical Services segment and integrated PEAI acquired late in the second
quarter of 1999. The income of the Technical Services segment was taxed at the
U.S. federal rate and applicable state and local rates given that its revenues
were earned domestically. The provision for income taxes related to the
Technical Services segment is presented as a component of income from
discontinued operations in the accompanying Consolidated Income Statements. As a
result, the stand-alone effective tax rate attributable to that segment has
historically been higher than the overall 36% effective tax rate for the total
Company in the first and second quarters of 1999. The majority of the revenue of
PEAI is generated in non-U.S. countries with overall lower tax rates than the
historical 36% effective tax rate for the Company prior to the PEAI acquisition.
The 1998 effective tax rate of 33.2% was impacted by the tax consequences
of the gains on dispositions and restructuring charges. Excluding these items
and their related tax effects, the 1998 effective tax rate was higher than the
1997 base effective rate of 30.6% due primarily to the changes in the
geographical distribution of income resulting from the divestiture of the Sealol
Industrial Seals business unit.
FINANCIAL CONDITION
Short-term debt at January 2, 2000 was $382 million and included one-year
secured promissory notes of $150 million issued to PE Corp. at an interest rate
of 5%, money market loans of $85 million and commercial paper borrowings of $140
million. The weighted-average interest rate on the money market loans, which had
maturities of 90 days or less, was 6.7%. The weighted-average interest rate on
the commercial paper borrowings, which had maturities of 120 days or less, was
6.5%. Short-term debt at January 3, 1999 was $158 million and consisted
primarily of commercial paper borrowings of $150 million, at a weighted-average
interest rate of 5.4%, that had maturities of 60 days or less. At January 3,
1999, short-term debt also included $6.2 million outstanding under a revolving
credit agreement, bearing interest at 9%, assumed by the Company in connection
with the Lumen acquisition. This amount was paid off in the first quarter of
1999.
In March 2000, the Company's $250 million revolving credit facility was
refinanced and increased to a $300 million revolving credit facility that
expires in March 2001. The Company has an additional revolving credit agreement
for $100 million that expires in March 2002.
At January 2, 2000, long-term debt included $115 million of unsecured
ten-year notes issued in October 1995 at an interest rate of 6.8%, which mature
in 2005. The carrying amount approximated the estimated fair value at January 2,
2000, based on a quoted market price. At January 3, 1999, long-term debt also
included $14.8 million assumed by the Company in connection with the Lumen
acquisition, consisting of unsecured notes of $12.4 million at 8% due in 2002
and a $2.4 million term loan at prime plus 1.75% due in 2000. The unsecured
notes and the loan were retired during 1999.
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In January 1999, the Company filed a shelf registration statement with the
Securities and Exchange Commission (SEC) to register $465 million of securities.
This registration statement, together with the $35 million of securities covered
by a previously filed registration statement, will provide the Company with
financing flexibility to offer up to $500 million aggregate principal amount of
common stock, preferred stock, depository shares, debt securities, warrants,
stock purchase contracts and/or stock purchase units. The Company expects to use
the net proceeds from the sale of the securities for general corporate purposes,
which may include, among other things: the repayment of outstanding
indebtedness, working capital, capital expenditures, the repurchase of shares of
common stock and acquisitions. The precise amount and timing of the application
of such proceeds will depend upon the Company's funding requirements and the
availability and cost of other funds. The Company's credit facilities and shelf
registration statements provide flexibility to refinance its outstanding debt
instruments at January 2, 2000 as they mature. The Company's market
capitalization as of January 2, 2000 was approximately $2,028 million.
Cash and cash equivalents increased by $31.1 million and were $126.7
million at the end of fiscal 1999. Net cash provided by operating activities for
1999 was $115.8 million and included $7.1 million of cash provided by
discontinued operations. The $108.8 million net cash provided by continuing
operating activities was comprised of net income from continuing operations
before depreciation, amortization and other non cash items, net, of $147.6
million offset by gains on dispositions and sales of investments, net, of $21.6
million and a $17.2 million net change in certain other assets and liabilities
during 1999. The primary components of this net change included a $54.4 million
increase in accounts receivable, a decrease in inventory of $12.1 million and
$32 million of cash outlays associated with the integration of the acquired PEAI
and Lumen businesses as well as other restructuring activities. The accounts
receivable increase is due primarily to higher 1999 sales versus 1998,
specifically PEAI and Lumen acquisitions. Capital expenditures for 1999 were
$41.1 million.
During 1999, the Company reduced the number of shares purchased of its
common stock versus 1998 and prior years and utilized available cash and
equivalents to fund acquisitions, restructure its businesses and invest in
growth opportunities. During 1999 and 1998, the Company purchased twenty
thousand and 1.8 million shares, respectively, of its common stock through
periodic purchases on the open market at a cost of $0.9 million and $41.2
million, respectively. As of January 2, 2000, the Company had authorization to
purchase 5.9 million additional shares.
The Company has limited involvement with derivative financial instruments
and uses forward contracts to mitigate the effect of foreign currency movements
on transactions denominated in foreign currencies. The contracts generally have
maturities that do not exceed one month and have no cash requirements until
maturity. Credit risk and market risk are minimal because the contracts are with
large banks and gains and losses are offset against foreign exchange gains and
losses on the underlying hedged transactions. The notional amount of outstanding
forward contracts was $75 million as of January 2, 2000.
REVENUE RECOGNITION
The Securities and Exchange Commission released Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial Statements, on December 3, 1999.
This SAB provides additional guidance on the accounting for revenue recognition,
including both broad conceptual discussions as well as certain industry-
specific guidance. The new guidance that is most likely to have a potential
impact on the Company concerns customer acceptance and installation terms. The
Company is in the process of accumulating the information necessary to quantify
the potential impact of this new guidance. The guidance is effective for the
first quarter of fiscal 2000 and would be adopted by recording the effect of any
prior revenue transactions affected as a "cumulative effect of a change in
accounting principle" as of January 3, 2000.
DIVIDENDS
In January 2000, the Company's Board of Directors declared a regular
quarterly cash dividend of 14 cents per share, resulting in an annual rate of 56
cents per share for fiscal 2000.
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ENVIRONMENTAL
The Company is conducting a number of environmental investigations and
remedial actions at current and former Company locations and, along with other
companies, has been named a potentially responsible party (PRP) for certain
waste disposal sites. The Company accrues for environmental issues in the
accounting period that the Company's responsibility is established and when the
cost can be reasonably estimated. The Company has accrued $12.3 million as of
January 2, 2000, representing management's estimate of the total cost of
ultimate disposition of known environmental matters. Such amount is not
discounted and does not reflect any recovery of any amounts through insurance or
indemnification arrangements. These cost estimates are subject to a number of
variables, including the stage of the environmental investigations, the
magnitude of the possible contamination, the nature of the potential remedies,
possible joint and several liability, the timeframe over which remediation may
occur and the possible effects of changing laws and regulations. For sites where
the Company has been named a PRP, management does not currently anticipate any
additional liability to result from the inability of other significant named
parties to contribute. The Company expects that such accrued amounts could be
paid out over a period of up to five years. As assessments and remediation
activities progress at each individual site, these liabilities are reviewed and
adjusted to reflect additional information as it becomes available. There have
been no environmental problems to date that have had or are expected to have a
material effect on the Company's financial position or results of operations.
While it is reasonably possible that a material loss exceeding the amounts
recorded may have been incurred, the preliminary stages of the investigations
make it impossible for the Company to reasonably estimate the range of potential
exposure.
THE YEAR 2000 ISSUE
The following Year 2000 statements constitute a Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Readiness and Disclosure Act of
1998.
The operations of the Company rely on various computer technologies which,
as is common to most corporations, may be affected by what is commonly referred
to as the Year 2000 ("Y2K") issue. The Y2K issue is the result of computer
programs that were written using two digits rather than four to define the
applicable year. Computer equipment and software, as well as devices with
embedded technology that are time-sensitive, may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruption of operations and normal business activities.
As of January 2, 2000, the Company did not experience a material effect on
its business as a result of the Y2K issue. The financial condition and results
of operations for fiscal year ended January 2, 2000 were not materially impacted
by the Y2K issue. The Company has not recorded any loss contingencies at January
2, 2000 associated with the Y2K issue and has not incurred any material losses
through January 2, 2000. There were no material changes in the estimated costs
related to the Company's Y2K remediation efforts. The Company did not incur or
experience any material adverse spending patterns or cost relationships related
to its Y2K program or remediation activities through January 2, 2000 nor did the
Company postpone any expenses as a result of the Y2K issue as of January 2,
2000. No material changes in customers' buying patterns occurred through January
2, 2000 and the Company did not experience a significant increase in returns of
certain products as a result of the Y2K issue. The Company did not experience
any material Y2K legal claims due to its inability to perform contractual
responsibilities or from failure of its products.
As part of its Y2K program, the Company assessed the effect on the Company
of the Y2K compliance of its significant customers, vendors, suppliers, raw
materials suppliers, primary service suppliers, and financial institutions. The
Company has followed a strategy of identification of risks, risk assessment,
continuous material third party monitoring and evaluation, and contingency
planning. The Company did not use or engage outside firms for the purpose of
independent verification and validation of the reliability of third party risks
assessed and cost estimates related thereto under the Company's Y2K program.
Although the Company has reviewed the Y2K compliance of a substantial
number of its material third parties, it is currently unable to predict the
final readiness of all of its material third parties. Certain of the
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Company's products are used in conjunction with products of other companies in
applications that may be critical to the operations of its customers. Any
Company product's Y2K non compliance, whether standing alone or used in
conjunction with the products of other companies, may expose the Company to
claims from its customers, material third parties or others, and could impair
market acceptance of the Company's products or services, increase service and
warranty costs, or result in payment of damages, which in turn could materially
adversely affect the results of operations and financial position of the
Company. While the Company expects such material third parties to address the
Y2K issue based on the representations made by such third parties to the
Company, it cannot guarantee that these systems have been made Y2K compliant or
will be made Y2K compliant in a timely manner and cannot guarantee that it will
not experience a material adverse effect as a result of such non compliance.
The costs incurred by the Company through January 2, 2000 to address the
Y2K issue totaled approximately $8 million. The costs include those incurred by
the Company's Technical Services segment, which was divested in August 1999.
These amounts include the costs to lease, purchase or expense new software and
equipment needed to achieve Year 2000 compliance and enhance existing systems,
as well as internal costs related to this effort. Amounts expended for the
Company's Y2K program were outside of and incremental to the Company's IT budget
for ongoing operational projects. With the exception of new hardware or software
which qualify for capitalization under generally accepted accounting principles,
the Company expensed all costs associated with the Y2K program. Funding
requirements for the Company's Y2K Program activities during fiscal 2000 are not
expected to be significant and have been incorporated into the Company's 2000
capital and operating plans. The Company will utilize cash and equivalents and
cash flows from operations to fund remaining Y2K program costs during 2000. None
of the Company's other IT projects have been deferred due to its Y2K efforts.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the new common legal currency, the "Euro", which was adopted on
that date. There is a transition period between January 1, 1999 and January 1,
2002, during which the Euro will be adopted into the operations. Areas of
assessment by the Company since 1998 have included the following: cross-border
price transparencies and the resulting competitive impact; adaptation of
information technology and other system requirements to accommodate Euro
transactions; the impact on currency exchange rate risk; the impact on existing
contracts; and taxation and accounting. The Company's assessment is that the
anticipated impact of the Euro conversion on the Company's operations will not
be material.
FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE
This report contains "forward-looking statements" as defined in Section 21E
of the Securities and Exchange Commission Act of 1934. For this purpose, any
statements contained in this report that are not statements of historical fact
may be deemed to be forward-looking statements. Words such as "believes,"
"anticipates," "plans," "expects," "will" and similar expressions are intended
to identify forward-looking statements. There are a number of important factors
that could cause the results of PerkinElmer, Inc. to differ materially from
those indicated by these forward-looking statements including, among others, the
factors set forth below.
The following important factors affect our business and operations
generally or affect multiple segments of our business and operations:
- PerkinElmer faces strong competition in many of the markets that it
serves, which affects its ability to sell its products and services and
the prices that it obtains. Some of PerkinElmer's competitors are larger
than it is and have greater financial and other resources.
- If PerkinElmer is unable to successfully implement the restructuring
plans that it has adopted, it will not be able to achieve anticipated
costs savings, its ability to produce and deliver the products and
services may be adversely affected and it may lose customers and key
personnel.
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- PerkinElmer's business plan depends on its ability to continue to
innovate, develop new products and services based on such innovations and
introduce these new products and services successfully into the market.
If PerkinElmer is unable to successfully implement this business plan, it
could have a material adverse effect on PerkinElmer's business, financial
condition and results of operations.
- PerkinElmer's business plan depends on its ability to acquire attractive
businesses on favorable terms and integrate these businesses into
PerkinElmer's other operations. If PerkinElmer is unable to successfully
implement this business plan, it could have a material adverse effect on
PerkinElmer's business, financial condition and results of operations.
- In many of PerkinElmer's segments, PerkinElmer serves as a supplier of
components to other businesses with whom its customers transact business.
As a result, PerkinElmer's success depends on the business success of its
customers.
- PerkinElmer needs to be able to continue to access the capital markets to
fund its growth.
- PerkinElmer's products businesses can be affected by currency risks.
- PerkinElmer needs to achieve satisfactory results in connection with
certain litigation to which it is a party, particularly its ongoing tax
litigation with the Internal Revenue Service.
- PerkinElmer needs to attract and retain key management, operational and
technical personnel.
- PerkinElmer is affected by general economic conditions.
- PerkinElmer could be impacted during fiscal 2000 and beyond by
unanticipated issues associated with Year 2000 software problems.
- PerkinElmer's effective tax rates in the future could be affected by
changes in the geographic distribution of income, utilization of non-U.S.
net operating loss carryforwards, repatriation costs, resolution of
outstanding tax audit issues and changes in the portfolio of businesses.
PerkinElmer is subject to the following risks that may affect particular
business segments:
Life Sciences
- PerkinElmer's business plan for this segment is significantly dependent
upon the successful introduction of products currently under development
as well as the expansion of the geographic markets for this segment's
products.
- Many of PerkinElmer's products in this segment are subject to regulation
by the Food and Drug Administration and other regulatory bodies.
- Many of PerkinElmer's products in this segment are used by pharmaceutical
companies and research laboratories, so the success of these products is
dependent upon the success of these customers.
Optoelectronics
- PerkinElmer needs to continue the development of its telecommunications
and amorphous silicon technologies and continue to successfully introduce
additional products based on these technologies to the respective
markets.
- PerkinElmer needs to successfully shift the production of certain
products to lower cost geographic areas such as the Philippines,
Indonesia and China in order to compete effectively.
Instruments
- PerkinElmer's ability to obtain Federal Aviation Administration
certification of its Z scan system for screening of checked baggage on a
timely basis will affect this business segment's success.
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- PerkinElmer needs to continue to successfully integrate the analytical
instruments business acquired from PE Corp. in May 1999.
- PerkinElmer needs to successfully integrate the Vivid business acquired
in January 2000.
- PerkinElmer needs to continue to develop new technology and successfully
introduce additional products based on this technology to the market.
Fluid Sciences
- Key customers for certain of this business segment's products manufacture
equipment used in semiconductor production. As a result, the success of
this segment's operations is dependent in part upon the continued
recovery of economic conditions in the semiconductor industry and the
ability to ramp up capacity to meet increased customer demand.
- PerkinElmer is in the process of implementing new lower cost
manufacturing processes for certain of this segment's products. The
success of this segment's operations depends in part upon PerkinElmer's
successfully implementing these new manufacturing processes.
- Key customers for the products of this segment are manufacturers of air
frames and engines for regional and business jets. As a result, the
success of this segment is dependent in part upon continued growth in the
regional and business jet markets, no significant reduction in the
projected demand and associated build rates of original equipment
manufacturers (OEM) of large transport aircraft, and expansion of the
maintenance, repair, and overhaul business.
- The success of our operations in this segment depends in part on entering
into long-term contracts for the sale of seals and components to original
equipment manufacturers of aircraft, air frames, and engines,
semiconductor equipment, and automotive lubricants on favorable terms.
MARKET RISK
Market Risk: The Company is exposed to market risk, including changes in
interest rates and currency exchange rates. To manage the volatility relating to
these exposures, the Company enters into various derivative transactions
pursuant to the Company's policies to hedge against known or forecasted market
exposures.
Foreign Exchange Risk Management: As a multinational corporation, the
Company is exposed to changes in foreign exchange rates. As the Company's
international sales grow, exposure to volatility in exchange rates could have a
material adverse impact on the Company's financial results. The Company's risk
from exchange rate changes is primarily related to non-dollar denominated sales
in Europe and Asia. The Company uses foreign currency forward and option
contracts to manage the risk of exchange rate fluctuations. The Company uses
these derivative instruments to reduce its foreign exchange risk by essentially
creating offsetting market exposures. The instruments held by the Company are
not leveraged and are not held for trading purposes. The Company uses forward
exchange contracts to hedge its net asset (balance sheet) position. The success
of the hedging program depends on forecasts of transaction activity in the
various currencies. To the extent that these forecasts are over or understated
during periods of currency volatility, the Company could experience
unanticipated currency gains or losses. The principal currencies hedged are the
British Pound, Canadian Dollar, Euro, Japanese Yen and Singapore Dollar. In
those currencies where there is a liquid, cost-effective forward market, the
Company maintains hedge coverage between minimum and maximum percentages of its
anticipated transaction exposure for periods not to exceed one year. The gains
and losses on these contracts offset changes in the value of the related
exposure.
Interest Rate Risk: The Company maintains an investment portfolio
consisting of securities of various issuers, types and maturities. The
investments are classified as available for sale. These securities are recorded
on the balance sheet at market value, with any unrealized gain or loss recorded
in comprehensive income. These instruments are not leveraged, and are not held
for trading purposes.
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Value-At-Risk: The Company utilizes a Value-at-Risk ("VAR") model to
determine the maximum potential loss in the fair value of its interest rate and
foreign exchange sensitive derivative financial instruments within a 95%
confidence interval. The Company's computation was based on the
interrelationships between movements in interest rates and foreign currencies.
These interrelationships were determined by observing historical interest rate
and foreign currency market changes over corresponding periods. The assets and
liabilities, firm commitments and anticipated transactions, which are hedged by
derivative financial instruments, were excluded from the model. The VAR model
estimates were made assuming normal market conditions and a 95% confidence
level. There are various modeling techniques that can be used in the VAR
computation. The Company's computations are based on the Monte Carlo simulation.
The VAR model is a risk analysis tool and does not purport to represent actual
gains or losses in fair value that will be incurred by the Company. The VAR
model estimated a maximum loss in market value of $.8 million from January 3,
2000 through December 31, 2000 for derivative instruments held as of January 2,
2000.
Management periodically reviews its interest rate and foreign currency
exposures and evaluates strategies to manage such exposures in the near future.
The Company implements changes, when deemed necessary, in the management of
hedging instruments which mitigate its exposure.
Since the Company utilizes interest rate and foreign currency sensitive
derivative instruments for hedging, a loss in fair value for those instruments
is generally offset by increases in the value of the underlying transaction.
It is the Company's policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet its objectives as
stated above. The Company does not enter into foreign currency or interest rate
transactions for speculative purposes.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
PERKINELMER, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE YEARS ENDED JANUARY 2, 2000
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1997
-------------------------------------------- ---------- --------- --------
Sales:
Products............................................... $1,206,038 $ 784,520 $860,598
Services............................................... 157,091 69,862 66,884
---------- --------- --------
TOTAL SALES.............................................. 1,363,129 854,382 927,482
---------- --------- --------
Cost of Sales:
Products............................................... 746,417 496,861 553,551
Services............................................... 107,043 54,126 53,195
Revaluation of Acquired Inventory...................... 9,857 -- --
---------- --------- --------
Total Cost of Sales...................................... 863,317 550,987 606,746
Selling, General and Administrative Expenses............. 327,142 203,740 220,976
Research and Development Expenses........................ 71,248 46,026 44,541
In-Process Research and Development Charges (Note 2)..... 23,000 2,300 --
Restructuring Charges, Net (Note 3)...................... 11,520 50,027 --
Asset Impairment Charges (Note 4)........................ 18,000 7,400 28,200
Gains on Dispositions (Note 5)........................... (17,750) (125,822) --
---------- --------- --------
OPERATING INCOME FROM CONTINUING OPERATIONS.............. 66,652 119,724 27,019
Other Expense, Net (Note 6).............................. (21,782) (1,397) (7,555)
---------- --------- --------
Income From Continuing Operations Before Income Taxes.... 44,870 118,327 19,464
Provision for Income Taxes (Note 7)...................... 16,499 39,326 9,902
---------- --------- --------
INCOME FROM CONTINUING OPERATIONS........................ 28,371 79,001 9,562
Income From Discontinued Operations, Net of Income Taxes
(Note 8)............................................... 15,665 23,001 24,130
Gain on Disposition of Discontinued Operations, Net of
Income Taxes (Note 8).................................. 110,280 -- --
---------- --------- --------
NET INCOME............................................... $ 154,316 $ 102,002 $ 33,692
========== ========= ========
BASIC EARNINGS PER SHARE (NOTE 9):
CONTINUING OPERATIONS.................................. $ .62 $ 1.74 $ .21
Discontinued Operations................................ 2.77 .51 .53
---------- --------- --------
NET INCOME............................................... $ 3.39 $ 2.25 $ .74
========== ========= ========
DILUTED EARNINGS PER SHARE (NOTE 9):
CONTINUING OPERATIONS.................................. $ .61 $ 1.72 $ .21
Discontinued Operations................................ 2.70 .50 .53
---------- --------- --------
NET INCOME............................................... $ 3.31 $ 2.22 $ .74
========== ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
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PERKINELMER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 2, 2000 AND JANUARY 3, 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998
-------------------------------------------- ---------- ----------
Current Assets:
Cash and cash equivalents................................. $ 126,650 $ 95,565
Accounts receivable (Note 10)............................. 346,160 170,171
Inventories (Note 11)..................................... 201,724 123,568
Other current assets (Note 7)............................. 140,560 110,954
Net assets of discontinued operations (Note 8)............ -- 32,087
---------- ----------
TOTAL CURRENT ASSETS........................................ 815,094 532,345
---------- ----------
Property, Plant and Equipment:
At cost (Notes 4 and 12).................................. 496,347 491,647
Accumulated depreciation and amortization................. (268,313) (272,967)
---------- ----------
Net Property, Plant and Equipment........................... 228,034 218,680
---------- ----------
Investments (Note 13)....................................... 14,911 13,506
Intangible Assets (Notes 4 and 14).......................... 592,438 317,611
Other Assets (Notes 7 and 17)............................... 64,163 56,636
---------- ----------
TOTAL ASSETS................................................ $1,714,640 $1,138,778
========== ==========
Current Liabilities:
Short-term debt (Note 15)................................. $ 382,162 $ 157,888
Accounts payable.......................................... 152,920 73,420
Accrued restructuring costs (Note 3)...................... 41,759 34,569
Accrued expenses (Note 16)................................ 275,657 218,600
---------- ----------
TOTAL CURRENT LIABILITIES................................... 852,498 484,477
---------- ----------
Long-Term Debt (Note 15).................................... 114,855 129,835
Long-Term Liabilities (Notes 7, 17 and 18).................. 196,511 124,799
Contingencies (Note 19)
Stockholders' Equity (Note 21):
Preferred stock -- $1 par value, authorized 1,000,000
shares; none outstanding............................... -- --
Common stock -- $1 par value, authorized 100,000,000
shares; issued 60,102,000 shares in 1999 and 1998...... 60,102 60,102
Retained earnings......................................... 762,009 623,591
Accumulated other comprehensive income (loss)............. (14,040) 3,729
Cost of shares held in treasury; 13,736,000 shares in 1999
and 15,355,000 shares in 1998.......................... (257,295) (287,755)
---------- ----------
Total Stockholders' Equity.................................. 550,776 399,667
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $1,714,640 $1,138,778
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
29
31
PERKINELMER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JANUARY 2, 2000
ACCUMULATED
OTHER
COMPREHENSIVE COST OF TOTAL
COMPREHENSIVE COMMON RETAINED INCOME SHARES HELD STOCKHOLDERS'
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) INCOME STOCK EARNINGS (LOSS) IN TREASURY EQUITY
- -------------------------------------------- ------------- ------- -------- ------------- ----------- -------------
BALANCE, DECEMBER 29, 1996................. $60,102 $532,043 $ 19,432 $(246,471) $365,106
Comprehensive income:
Net income............................... $ 33,692 -- 33,692 -- -- 33,692
Other comprehensive income (loss), net of
tax:
Foreign currency translation
adjustments.......................... (22,608) -- -- (22,608) -- (22,608)
Unrealized losses on securities:
Losses arising during the period..... (655)
Reclassification adjustment.......... (26)
--------
Net unrealized losses.................. (681) -- -- (681) -- (681)
--------
Other comprehensive income (loss)........ (23,289)
--------
Comprehensive income....................... $ 10,403
========
Cash dividends ($.56 per share)............ -- (25,684) -- -- (25,684)
Exercise of employee stock options and
related income tax benefits.............. -- 328 -- 6,339 6,667
Purchase of common stock for treasury...... -- -- -- (28,104) (28,104)
------- -------- -------- --------- --------
BALANCE, DECEMBER 28, 1997................. 60,102 540,379 (3,857) (268,236) 328,388
Comprehensive income:
Net income............................... $102,002 -- 102,002 -- -- 102,002
Other comprehensive income, net of tax:
Gross foreign currency translation
adjustments.......................... 4,608 -- -- 4,608 -- 4,608
Reclassification adjustment for
translation losses realized upon sale
of Sealol Industrial Seals........... 3,115 -- -- 3,115 -- 3,115
Unrealized losses on securities arising
during the period.................... (137) -- -- (137) -- (137)
--------
Other comprehensive income............... 7,586
--------
Comprehensive income....................... $109,588
========
Cash dividends ($.56 per share)............ -- (25,408) -- -- (25,408)
Exercise of employee stock options and
related income tax benefits.............. -- 6,618 -- 21,698 28,316
Purchase of common stock for treasury...... -- -- -- (41,217) (41,217)
------- -------- -------- --------- --------
BALANCE, JANUARY 3, 1999................... 60,102 623,591 3,729 (287,755) 399,667
Comprehensive income:
Net income............................... $154,316 -- 154,316 -- -- 154,316
Other comprehensive income (loss), net of
tax:
Foreign currency translation
adjustments.......................... (17,804) -- -- (17,804) -- (17,804)
Unrealized gains on securities:
Gains arising during the period...... 93
Reclassification adjustment.......... (58)
--------
Net unrealized gains................... 35 -- -- 35 -- 35
--------
Other comprehensive income (loss)........ (17,769)
--------
Comprehensive income....................... $136,547
========
Cash dividends ($.56 per share)............ -- (25,499) -- -- (25,499)
Exercise of employee stock options and
related income tax benefits.............. -- 8,369 -- 20,264 28,633
Issuance of common stock for employee
benefit plans............................ -- 1,232 -- 11,166 12,398
Purchase of common stock for treasury...... -- -- -- (970) (970)
------- -------- -------- --------- --------
BALANCE, JANUARY 2, 2000................... $60,102 $762,009 $(14,040) $(257,295) $550,776
======= ======== ======== ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
30
32
PERKINELMER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JANUARY 2, 2000
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------- --------- --------- --------
Operating Activities:
Net income................................................ $ 154,316 $ 102,002 $ 33,692
Deduct net income from discontinued operations............ (15,665) (23,001) (24,130)
Deduct net gain on disposition of discontinued
operations.............................................. (110,280) -- --
--------- --------- --------
Income from continuing operations......................... 28,371 79,001 9,562
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
Revaluation of acquired inventory....................... 9,857 -- --
In-process research and development charges............. 23,000 2,300 --
Noncash portion of restructuring charges................ 2,300 12,020 --
Asset impairment charges................................ 18,000 7,400 28,200
Depreciation and amortization........................... 66,115 48,510 42,698
Gains on dispositions and sales of investments, net..... (21,624) (130,545) (11,713)
Changes in assets and liabilities which provided (used)
cash, excluding effects from companies purchased and
divested:
Accounts receivable................................... (54,439) 7,830 (24,507)
Inventories........................................... 12,132 3,265 (2,475)
Accounts payable and accrued expenses................. 62,660 13,797 291
Accrued restructuring costs........................... (21,005) 29,569 3,025
Noncurrent prepaid pension............................ -- -- (10,040)
Prepaid and deferred taxes............................ (2,616) (12,359) (4,315)
Prepaid expenses and other............................ (13,983) (19,935) (19,321)
--------- --------- --------
Net Cash Provided by Continuing Operations.................. 108,768 40,853 11,405
Net Cash Provided by Discontinued Operations................ 7,061 28,702 23,433
--------- --------- --------
Net Cash Provided by Operating Activities................... 115,829 69,555 34,838
--------- --------- --------
Investing Activities:
Capital expenditures...................................... (41,092) (44,489) (47,642)
Reimbursement of invested capital (Note 18)............... -- -- 27,000
Proceeds from dispositions of businesses and sales of
property, plant and equipment........................... 31,560 210,505 24,287
Cost of acquisitions, net of cash and cash equivalents
acquired................................................ (302,288) (217,937) (3,611)
Proceeds from sales of investments........................ 6,086 7,623 4,129
Other..................................................... (1,408) (160) (1,156)
--------- --------- --------
Net Cash Provided by (Used in) Continuing Operations........ (307,142) (44,458) 3,007
Net Cash Provided by (Used in) Discontinued Operations...... 163,259 (2,033) (1,087)
--------- --------- --------
Net Cash Provided by (Used in) Investing Activities......... (143,883) (46,491) 1,920
--------- --------- --------
Financing Activities:
Increase (decrease) in commercial paper borrowings........ (10,000) 104,156 27,879
Payment of acquired Lumen revolving credit borrowings..... -- (59,090) --
Other debt increases (decreases).......................... 69,529 7,270 (3,443)
Proceeds from issuance of common stock.................... 28,923 28,316 6,667
Purchases of common stock................................. (970) (41,217) (28,104)
Cash dividends............................................ (25,499) (25,408) (25,684)
--------- --------- --------
Net Cash Provided by (Used in) Continuing Operations........ 61,983 14,027 (22,685)
Net Cash Provided by (Used in) Discontinued Operations...... -- -- --
--------- --------- --------
Net Cash Provided by (Used in) Financing Activities......... 61,983 14,027 (22,685)
--------- --------- --------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... (2,844) 540 (3,985)
--------- --------- --------
Net Increase in Cash and Cash Equivalents................... 31,085 37,631 10,088
Cash and Cash Equivalents at Beginning of Year.............. 95,565 57,934 47,846
--------- --------- --------
Cash and Cash Equivalents at End of Year.................... $ 126,650 $ 95,565 $ 57,934
========= ========= ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest................................................ $ 28,438 $ 12,367 $ 12,351
Income taxes............................................ 82,368 59,029 26,683
Noncash Investing and Financing Activities:
One-year secured 5% promissory notes issued to PE Corp.
in connection with the acquisition of the Analytical
Instruments Division (Note 2).......................... 150,000 -- --
The accompanying notes are an integral part of these consolidated financial
statements.
31
33
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of PerkinElmer, Inc. (formerly EG&G, Inc.) and its subsidiaries
(the Company). All material intercompany balances and transactions have been
eliminated in consolidation.
Nature of Operations: PerkinElmer, Inc. is a global high-technology
company which provides products and systems to the telecom, medical,
pharmaceutical, chemical, semiconductor, photographic and other markets. The
Company's operating segments are Life Sciences, Optoelectronics, Instruments and
Fluid Sciences. In August 1999, the Company divested its Technical Services
segment, which is presented as discontinued operations in accordance with
Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of
Operations (see Note 8).
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Sales: Product sales are recorded at the time of shipment and when
persuasive evidence of an arrangement exists, the seller's price to the buyer is
fixed or determinable and collectibility is reasonably assured. Service sales
are generally recorded as the services are rendered. If a loss is anticipated on
any contract, provision for the entire loss is made immediately. The former
Technical Services segment had cost-reimbursement contracts with governmental
agencies. These contracts included both cost plus fixed fee contracts and cost
plus award fee contracts based on performance. Sales under cost-reimbursement
contracts were recorded as costs were incurred and included applicable income in
the proportion that costs incurred bear to total estimated costs.
The Securities and Exchange Commission released Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial Statements, on December 3, 1999.
This SAB provides additional guidance on the accounting for revenue recognition,
including both broad conceptual discussions as well as certain industry-
specific guidance. The new guidance that is most likely to have a potential
impact on the Company concerns customer acceptance and installation terms. The
Company is in the process of accumulating the information necessary to quantify
the potential impact of this new guidance. The guidance is effective for the
first quarter of fiscal 2000 and would be adopted by recording the effect of any
prior revenue transactions affected as a "cumulative effect of a change in
accounting principle" as of January 3, 2000.
Inventories: Inventories, which include material, labor and manufacturing
overhead, are valued at the lower of cost or market. The majority of inventories
is accounted for using the first-in, first-out method of determining inventory
costs; remaining inventories are accounted for using the last-in, first-out
(LIFO) method.
Property, Plant and Equipment: For financial statement purposes, the
Company depreciates plant and equipment using the straight-line method over
their estimated useful lives, which generally fall within the following ranges:
buildings and special-purpose structures -- 10 to 25 years; leasehold
improvements -- estimated useful life or remaining term of lease, whichever is
shorter; machinery and equipment -- 3 to 7 years. Nonrecurring tooling costs are
capitalized, while recurring costs are expensed. For income tax purposes, the
Company depreciates plant and equipment over their estimated useful lives using
accelerated methods.
Pension Plans: The Company's funding policy provides that payments to the
U.S. pension trusts shall at least be equal to the minimum funding requirements
of the Employee Retirement Income Security Act of 1974. Non-U.S. plans are
accrued for, but generally not funded, and benefits are paid from operating
funds.
32
34
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Translation of Foreign Currencies: The balance sheet accounts of non-U.S.
operations, exclusive of stockholders' equity, are translated at year-end
exchange rates, and income statement accounts are translated at weighted-average
rates in effect during the year; any translation adjustments are made directly
to a component of stockholders' equity. The net transaction gains (losses) were
not material for the years presented.
Intangible Assets: In accordance with 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, and APB Opinion No. 17, Intangible
Assets, the Company reviews long-lived assets and all intangible assets
(including goodwill) for impairment whenever events or changes in circumstances
indicate the carrying amount of such assets may not be recoverable.
Recoverability of these assets is determined by comparing the forecasted
undiscounted net cash flows of the operation to which the assets relate, to the
carrying amount including associated intangible assets of such operation. If the
operation is determined to be unable to recover the carrying amount of its
assets, then intangible assets are written down first, followed by the other
long-lived assets of the operation, to fair value. Fair value is determined
based on discounted cash flows or appraised values, depending upon the nature of
the assets. (See Note 4 for further discussion of asset impairment charges.)
Stock-Based Compensation: In accordance with SFAS No. 123, Accounting for
Stock-Based Compensation, the Company accounts for stock-based compensation at
intrinsic value with disclosure of the effects of fair value accounting on net
income and earnings per share on a pro forma basis.
Cash Flows: For purposes of the Consolidated Statements of Cash Flows, the
Company considers all highly liquid instruments with a purchased maturity of
three months or less to be cash equivalents. The carrying amount of cash and
cash equivalents approximates fair value due to the short maturities.
Environmental Matters: The Company accrues for costs associated with the
remediation of environmental pollution when it is probable that a liability has
been incurred and the Company's proportionate share of the amount can be
reasonably estimated. Any recorded liabilities have not been discounted.
Comprehensive Income: In the first quarter of 1998, the Company adopted
the provisions of SFAS No. 130, Reporting Comprehensive Income, which
established standards for reporting and display of comprehensive income and its
components. Comprehensive income is the total of net income and all other
nonowner changes in stockholders' equity.
Segments and Related Information: In the fourth quarter of 1998, the
Company adopted the provisions of SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The statement established standards for the
way that public business enterprises report information and operating segments
in annual financial statements and requires reporting of selected information in
interim financial reports.
Derivative Instruments and Hedging: The Financial Accounting Standards
Board issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of SFAS No. 133, in June 1999. SFAS
No. 133 is now effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000; earlier adoption is allowed. The statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The Company has not yet
determined the effect that adoption of SFAS No. 133 will have or when the
provisions of the statement will be adopted. However, the Company currently
expects that, due to its relatively limited use of derivative instruments, the
adoption of SFAS No. 133 will not have a material effect on the Company's
results of operations or financial position.
Start-up Activities: During 1998, the American Institute of Certified
Public Accountants issued Statement of Position 98-5, Reporting on the Costs of
Start-up Activities. This statement required a change in
33
35
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the method of accounting for start-up costs on major projects to expense these
costs as incurred. Prior to this accounting change, these costs could be
capitalized. The impact of this accounting change did not have a material effect
on the Company's results of operations or financial position.
Reclassifications: Certain amounts from prior years have been reclassified
to conform to the 1999 financial statement presentation.
NOTE 2. ACQUISITIONS
On May 28, 1999, the Company completed its acquisition of the Analytical
Instruments Division (PEAI) of PE Corp. for an aggregate purchase price of
approximately $425 million, plus acquisition costs. In addition, under the terms
of the Purchase Agreement dated March 8, 1999 between the Company and PE Corp.
(the "Purchase Agreement"), the Company assumed German and other pension
liabilities of approximately $65 million. These pension liabilities were
historically funded on a pay-as-you go basis, and the funding going-forward is
expected to remain consistent. The acquisition was accounted for as a purchase
under APB Opinion No. 16, Business Combinations. In accordance with APB Opinion
No. 16, the Company allocated the purchase price of PEAI based on the fair
values of the net assets acquired and liabilities assumed. The allocation of the
purchase price has not yet been finalized, however, the Company does not expect
any material changes. The purchase price is subject to a post-closing adjustment
currently in negotiation which will be equal to the amount by which the audited
net assets of PEAI as of the closing date were greater or less than, as the case
may be, certain target amounts set forth in the Purchase Agreement. PEAI
produces high-quality analytical testing instruments and consumables, and
generated 1998 fiscal year sales of $569 million. PEAI's operations are reported
in the Company's Instruments segment.
Portions of the purchase price, including intangible assets, were valued by
independent appraisers utilizing customary valuation procedures and techniques.
These intangible assets included approximately $23 million for acquired
in-process research and development (in-process R&D) for projects that did not
have future alternative uses. This allocation represents the estimated fair
value based on risk-adjusted cash flows related to the in-process R&D projects.
At the date of the acquisition of PEAI, the development of these projects had
not yet reached technological feasibility, and the R&D in process had no
alternative future uses. Accordingly, these costs were expensed in the second
quarter of 1999. Other acquired intangibles totaling $163.8 million included the
fair value of trade names, trademarks, patents and developed technology. These
intangibles are being amortized over their respective estimated useful lives
ranging from 10-40 years. Goodwill resulting from the acquisition of PEAI is
being amortized over 40 years. Approximately $28 million was recorded as accrued
restructuring charges in connection with the acquisition of PEAI. The
restructuring plans include initiatives to integrate the operations of the
Company and of PEAI, and reduce overhead. The primary components of these plans
relate to: (a) employee termination benefits and related costs for approximately
20% of the acquired workforce of approximately 3,000 employees; to date, the
Company has reduced PEAI's workforce by 230 individuals, (b) consolidation or
shutdown of certain operational facilities worldwide and (c) termination of
certain leases and other contractual obligations. While the Company does not
anticipate material changes at this time to its restructuring plans, management
is in the process of refining the restructuring plans and, accordingly, the
amounts recorded are based on management's current estimates of those costs. The
majority of the restructuring actions are expected to occur through fiscal 2000.
34
36
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the purchase price and allocation were as follows:
(IN THOUSANDS)
--------------
Consideration and acquisition costs:
Cash paid................................................. $ 275,000
Seller note............................................... 150,000
Pension liabilities assumed............................... 65,000
Acquisition costs......................................... 10,000
---------
$ 500,000
=========
Preliminary allocation of purchase price:
Current assets............................................ $ 253,777
Property, plant and equipment............................. 33,308
Acquired intangibles...................................... 163,800
In-process R&D............................................ 23,000
Goodwill.................................................. 175,064
Liabilities assumed and other............................. (148,949)
---------
$ 500,000
=========
On December 16, 1998, the Company acquired substantially all of the
outstanding common stock and options of Lumen Technologies, Inc. (Lumen), a
maker of high-technology specialty light sources. The purchase price of
approximately $253 million, which included $75 million of assumed debt, was
funded with existing cash and commercial paper borrowings. The acquisition was
accounted for as a purchase under APB Opinion No. 16. In accordance with APB
Opinion No. 16, the Company allocated the purchase price of Lumen based on the
fair values of the assets acquired and liabilities assumed. Portions of the
purchase price, including intangible assets, were valued by independent
appraisers utilizing proven valuation procedures and techniques. These
intangible assets included approximately $2.3 million for acquired in-process
R&D for projects that did not have future alternative uses. This allocation
represents the estimated fair value based on risk-adjusted cash flows related to
the in-process R&D projects. At the date of the acquisition, the development of
these projects had not yet reached technological feasibility, and the R&D in
process had no alternative future uses. Accordingly, these costs were expensed
in the fourth quarter of 1998. Acquired intangibles totaling $11.8 million
included the fair value of trade names, trademarks and patents. These
intangibles are being amortized over their estimated useful life of ten years.
Goodwill resulting from the Lumen acquisition is being amortized over 30 years.
Approximately $5 million was recorded as accrued restructuring charges in
connection with the acquisition. The restructuring plans included initiatives to
integrate the operations of the Company and Lumen, and reduce overhead. The
primary components of these plans related to: (a) transfer of certain
manufacturing activities to lower-cost facilities, (b) integration of the sales
and marketing organization and (c) termination of certain contractual
obligations. The remaining restructuring actions are expected to occur in fiscal
2000. Lumen's operations were primarily reported in the Company's
Optoelectronics segment, with the photolithography business reported in the
Instruments segment, in 1999.
35
37
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the purchase price and allocation were as follows:
(IN THOUSANDS)
--------------
Consideration and acquisition costs:
Cash paid for stock and options........................... $168,050
Debt assumed.............................................. 74,388
Fair value of options exchanged........................... 6,500
Acquisition costs......................................... 3,925
--------
$252,863
========
Allocation of purchase price:
Current assets............................................ $ 66,829
Property, plant and equipment............................. 52,525
Acquired intangibles...................................... 11,800
In-process R&D............................................ 2,300
Goodwill.................................................. 164,900
Liabilities assumed and other............................. (45,491)
--------
$252,863
========
In December 1998, the Company acquired Life Science Resources Limited
(LSR), a U.K.-based developer and supplier of biotechnology, biomedical and
clinical research instrumentation, for $11 million. In April 1998, in connection
with the divestiture of the Sealol Industrial Seals division, the Company
purchased Belfab, the advanced metal bellows division of John Crane, Inc. for
$45 million in cash. In February 1998, the Company acquired Isolab, Inc., a
supplier of systems for clinical diagnostic screening, for $10 million. These
acquisitions were accounted for using the purchase method. The excess of the
cost over the fair market value of the net assets acquired totaled $54 million
and is being amortized over periods of 10-20 years using a straight-line method.
The results of operations of the acquisitions were included in the consolidated
results of the Company from the date of each respective acquisition.
Unaudited pro forma operating results for the Company, assuming the
acquisitions of Lumen and PEAI occurred on December 29, 1997, are as follows:
(IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998
------------------------------------ ---------- ----------
Sales from continuing operations........................ $1,577,963 $1,556,094
Income from continuing operations....................... 24,541 46,173
Basic earnings per share.............................. .54 1.02
Diluted earnings per share............................ .53 1.01
Net income.............................................. 150,486 69,174
Basic earnings per share.............................. 3.31 1.53
Diluted earnings per share............................ 3.23 1.51
The pro forma amounts in the table above exclude the in-process R&D charges
of $23 million for PEAI and $2.3 million for Lumen. The unaudited pro forma
financial information is provided for informational purposes only and is not
necessarily indicative of the Company's operating results that would have
occurred had the acquisitions been consummated on the dates for which the
consummation of the acquisitions is being given effect, nor is it necessarily
indicative of the Company's future operating results. The pro forma amounts do
not reflect any operating efficiencies and cost savings that the Company
believes are achievable. Pro forma amounts for the other 1998 acquisitions are
not included as their effect is not material to the Company's consolidated
financial statements.
36
38
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. RESTRUCTURING AND INTEGRATION CHARGES
In 1997, as part of a plan to reposition its operations, the Company
recorded $7.8 million of integration costs, which included $4.4 million related
to employee separation costs and $3.4 million related to its consolidation
effort. These costs were included in selling, general and administrative
expenses.
The Company developed restructuring plans during 1998 to integrate and
consolidate its businesses and recorded restructuring charges in the first and
second quarters of 1998, which are discussed separately below.
During the first quarter of 1998, management developed a plan to
restructure certain businesses. A discussion of the businesses affected within
each segment is presented below. The plan resulted in pre-tax restructuring
charges totaling $30.5 million. The principal actions in the restructuring plan
included close-down or consolidation of a number of offices and facilities,
transfer of assembly activities to lower-cost geographic locations, disposal of
underutilized assets, withdrawal from certain product lines and general cost
reductions.
Further details of the actions are presented below. Specific businesses
within each segment which were affected by the restructuring actions are as
follows: the Fluid Sciences business affected primarily manufactures mechanical
components and systems; the Optoelectronics businesses affected produce various
lighting and sensor components and systems; the Instruments restructuring
related primarily to its X-ray imaging business which produces security
screening equipment, as well as its Instruments for Research and Applied Science
business which produces particle detector equipment.
Close-down of certain facilities: Costs have been accrued for the closing
down of facilities. These costs related to the affected businesses discussed
above within the Fluid Sciences and Optoelectronics segments.
Transfer of assembly activities: The Company plans to relocate certain
activities, primarily in its Optoelectronics segment, to lower-cost geographic
areas such as Indonesia and China. The costs included in the restructuring
charges related to costs associated with exiting the previous operations. Actual
costs to physically relocate are charged to operations as incurred.
Disposal of underutilized assets: The Company plans to dispose of
underutilized assets either through sale or abandonment, primarily in its
Instruments and Optoelectronics segments.
Withdrawal from certain product lines: The Company has made a strategic
decision to discontinued certain unprofitable product lines discussed above,
primarily in its Instruments and Optoelectronics segments.
During the second quarter of 1998, the Company expanded its continuing
effort to restructure certain businesses to further improve performance. The
plan resulted in additional pre-tax restructuring charges of $19.5 million. The
principal actions in this restructuring plan included the integration of
operating divisions into five strategic business units (SBUs), close-down or
consolidation of a number of production facilities and general cost reductions.
As discussed in Note 8, the Company has since divested its Technical Services
segment. Pre-tax restructuring charges of $4.5 million were charged to
discontinued operations in 1998 ($0.9 million in the first quarter and $3.6
million in the second quarter), primarily related to severance benefits, all of
which have been incurred as of January 2, 2000.
As part of the Company's second quarter restructuring plan, management
reorganized its operating divisions into five SBUs. This resulted in termination
of employees as well as the integration and consolidation of certain facilities
and product lines. This effort is company-wide and affects all segments of the
Company. The major components within the Optoelectronics plan consisted of the
closing of two wafer fab production facilities and a development program.
The total restructuring charges in 1998 included $9.9 million for
termination of leases and other contractual obligations. This amount included
approximately $6.5 million for termination of facility leases and other
lease-related costs, $1.5 million for termination of distributor arrangements
and $1.9 million for various
37
39
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other commitments. The facility leases have remaining terms ranging from six
months to five years. The amount accrued reflects the Company's best estimate of
actual costs to buy out the leases in certain cases or the net cost to sublease
the properties in other cases.
The restructuring charges related to continuing operations recorded in the
first and second quarters of 1998 were broken down as follows by operating
segment:
TERMINATION OF
DISPOSAL OF LEASES AND OTHER
EMPLOYEE CERTAIN PRODUCTS CONTRACTUAL
(IN MILLIONS) SEPARATION COSTS LINES AND ASSETS OBLIGATIONS TOTAL
------------- ---------------- ---------------- ---------------- ------
Life Sciences................ $ 3.6 $ .4 $ .6 $ 4.6
Optoelectronics.............. 8.5 6.4 5.4 20.3
Instruments.................. 6.4 2.9 2.0 11.3
Fluid Sciences............... 6.2 1.9 1.8 9.9
Corporate and Other.......... 3.8 -- .1 3.9
----- ------ ----- ------
Total restructuring
charges.................... 28.5 11.6 9.9 50.0
Amounts incurred through
January 3, 1999............ (8.1) (11.6) (1.0) (20.7)
----- ------ ----- ------
Accrued restructuring costs
at January 3, 1999......... 20.4 -- 8.9 29.3
Amounts incurred during
1999....................... (8.3) -- (2.6) (10.9)
Amounts reversed during
1999....................... (7.4) -- (4.6) (12.0)
----- ------ ----- ------
Accrued restructuring costs
at January 2, 2000......... $ 4.7 $ -- $ 1.7 $ 6.4
===== ====== ===== ======
The headcount reduction, by function, resulting in the Employee Separation
Costs detailed above is as follows (after amounts reversed during 1999):
FIRST QUARTER PLAN SECOND QUARTER PLAN TOTAL
------------------ ------------------- --------
Sales and Marketing.................... 34 39 73
Production............................. 197 70 267
General & Administrative............... 34 82 116
--- --- --------
Total.................................. 265 191 456
=== === ========
Approximately 60% of the total employees expected to be terminated have
been severed as of January 2, 2000.
The remaining accrual at January 2, 2000 for the 1998 restructuring plans
consisted of the following amounts: Life Sciences -- $.5 million;
Optoelectronics -- $4.9 million; Fluid Sciences -- $.1 million; Corporate and
Other -- $.9 million. The amounts represent the estimated costs to complete
restructuring actions currently in process and are expected to be incurred
during fiscal 2000.
The components of the restructuring charges met the criteria set forth in
Emerging Issues Task Force Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring). The charges do not include
additional costs associated with the restructuring plans, such as training,
consulting, purchase of equipment and relocation of employees and equipment.
These costs were charged to operations or capitalized, as appropriate, when
incurred.
38
40
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the third quarter of 1999, due to the substantial completion of the
actions of the 1998 restructuring plans, the Company reevaluated its 1998
restructuring plans. As a result of this review, costs associated with the
previously planned shutdown of two businesses were no longer required due to
actions taken to improve performance. As a result of these recent developments,
the Company recognized a restructuring credit of $12 million during the third
quarter of 1999, which primarily affected the Fluid Sciences and Optoelectronics
segments. The $12 million credit is reflected in "Restructuring Charges, Net" in
the Consolidated Income Statements.
The acquisitions by the Company discussed in Note 2 and the Company's
divestiture during the third quarter of 1999 of its Technical Services segment
discussed in Note 8 (exiting government services) were strategic milestones in
the Company's transition to a commercial high-technology company. Consistent
with the strategic direction of the Company and concurrent with the reevaluation
of existing restructuring plans during the third quarter of 1999, the Company
developed additional plans during the third quarter of 1999 to restructure
certain businesses to continue to improve the Company's performance.
These plans resulted in a pre-tax restructuring charge of $23.5 million
recorded in the third quarter of 1999. The principal actions in these
restructuring plans include close-down or consolidation of a number of offices
and facilities, transfer of assembly activities to lower-cost geographic
locations, disposal of underutilized assets, withdrawal from certain product
lines and general cost reductions. The restructuring plans are expected to
result in the elimination of approximately 400 positions, primarily in the
manufacturing and sales categories. The major components of the restructuring
charge were $13.6 million of employee separation costs to restructure the
worldwide organization, including the sales and manufacturing focus, $2.3
million of noncash charges to dispose of certain product lines and assets
through sale or abandonment and $7.6 million of charges to terminate lease and
other contractual obligations no longer required as a result of the
restructuring plans. The charges do not include additional costs associated with
the restructuring plans, such as training, consulting, purchase of equipment and
relocation of employees and equipment. These costs will be charged to operations
or capitalized, as appropriate, when incurred.
The restructuring actions related to the 1999 charge are broken down as
follows by business segment:
TERMINATION OF
DISPOSAL OF CERTAIN LEASES AND OTHER
EMPLOYEE PRODUCT CONTRACTUAL
(IN MILLIONS) SEPARATION COSTS LINES AND ASSETS OBLIGATIONS TOTAL
------------- ---------------- ------------------- ---------------- -----
Life Sciences............... $ .5 $ .8 $4.9 $ 6.2
Optoelectronics............. 6.1 .8 2.1 9.0
Instruments................. 1.8 -- -- 1.8
Fluid Sciences.............. 5.2 .2 .1 5.5
Corporate and Other......... -- .5 .5 1.0
----- ---- ---- -----
Total restructuring
charge.................... 13.6 2.3 7.6 23.5
Amounts incurred through
January 2, 2000........... (2.1) (.2) (.4) (2.7)
----- ---- ---- -----
Accrued restructuring costs
at January 2, 2000........ $11.5 $2.1 $7.2 $20.8
===== ==== ==== =====
Further details of the Company's restructuring actions are presented below.
Specific businesses within each segment which were affected by the restructuring
actions are as follows: the primary Fluid Sciences business affected
manufactures certain products for the aerospace markets; the Optoelectronics
businesses affected produce various lighting and sensor components and systems;
the Instruments restructuring relates to its analytical instruments business,
its X-ray imaging business which produces security screening equipment, and its
Instruments for Research and Applied Science business which produces particle
detector equipment.
39
41
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Close-down of certain facilities: Costs have been accrued for the closing
down of certain facilities. These costs relate primarily to the Instruments and
Optoelectronics segments.
Transfer of assembly activities: The Company continues to relocate certain
activities, primarily in its Optoelectronics segment, to lower-cost geographic
areas, such as the Philippines, Indonesia and China. The costs included in the
restructuring charges related to costs associated with exiting the previous
operations. Actual costs to physically relocate are charged to operations as
incurred.
Disposal of underutilized assets: The Company plans to dispose of
underutilized assets either through sale or abandonment, primarily in its
Instruments and Optoelectronics segments.
Withdrawal from certain product lines: The Company has made a strategic
decision to discontinue certain unprofitable product lines, primarily in its
Optoelectronics segment.
Most of the actions remaining at January 2, 2000 are expected to occur in
fiscal 2000.
The following table summarizes reserve activity through January 2, 2000
related to the May 1999 PEAI acquisition as discussed in Note 2:
TERMINATION OF LEASES
EMPLOYEE AND OTHER CONTRACTUAL
(IN MILLIONS) SEPARATION COSTS OBLIGATIONS TOTAL
------------- ---------------- ---------------------- -----
Accrued restructuring costs at
acquisition date....................... $ 23.5 $ 4.7 $28.2
Charges/writeoffs........................ (14.1) (1.7) (15.8)
------ ----- -----
Accrued restructuring costs at January 2,
2000................................... $ 9.4 $ 3.0 $12.4
====== ===== =====
The following table summarizes reserve activity through January 2, 2000
related to the December 1998 Lumen acquisition as discussed in Note 2 (there was
no activity during 1998):
TERMINATION OF
DISPOSAL OF CERTAIN LEASES AND OTHER
EMPLOYEE PRODUCT CONTRACTUAL
(IN MILLIONS) SEPARATION COSTS LINES AND ASSETS OBLIGATIONS TOTAL
------------- ---------------- ------------------- ---------------- -----
Accrued restructuring costs
at acquisition date....... $1.1 $ 2.0 $ 1.9 $ 5.0
Charges/writeoffs........... (.3) (1.1) (1.9) (3.3)
---- ----- ----- -----
Accrued restructuring costs
at January 2, 2000........ $ .8 $ .9 $ -- $ 1.7
==== ===== ===== =====
The following table summarizes restructuring activity from continuing
operations for the two years ended January 2, 2000:
(IN THOUSANDS) 1999 1998
-------------- -------- --------
Accrued restructuring costs at beginning of year............ $ 34,569 $ 3,025
Provisions:
Operations................................................ 23,500 50,027
Acquisitions.............................................. 28,195 5,000
Charges/writeoffs........................................... (32,525) (23,483)
Reversals................................................... (11,980) --
-------- --------
Accrued restructuring costs at end of year.................. $ 41,759 $ 34,569
======== ========
40
42
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash outlays during 1999 and 1998 were $32.5 million and $23.5 million,
respectively, for all of these plans. The Company expects to incur approximately
$25-$30 million of cash outlays in connection with these plans throughout fiscal
2000.
NOTE 4. ASSET IMPAIRMENT CHARGES
During the third quarter of 1999, in connection with its ongoing review of
its portfolio of businesses, the Company conducted a strategic review of certain
units within its business segments. The strategic review triggered an impairment
review of long-lived assets of certain business units that are expected to be
disposed. The Company calculated the present value of expected cash flows of
certain business units to determine the fair value of those assets. Accordingly,
in the third quarter of 1999, the Company recorded noncash impairment charges
and wrote down goodwill by $15 million in the Instruments segment and $3 million
in the Optoelectronics segment. Sales and operating profit for the businesses
under strategic review were approximately $54 million and $2 million,
respectively, in 1999.
During the second quarter of 1998, the Company recorded a $7.4 million
noncash impairment charge related to an automotive testing facility in the
Instruments segment. The impairment charge applied to fixed assets and resulted
from projected changes in the principal customer's demand for services. The
Company calculated the present value of expected cash flows of the testing
facility to determine the fair value of the assets.
During the second quarter of 1997, the Company recorded a noncash
impairment charge of $28.2 million, with $26.7 million related to IC Sensors in
the Optoelectronics segment and $1.5 million related to the goodwill of an
environmental services business in Other. As a result of IC Sensors' inability
to achieve the improvements specified in its corrective action plan, it
continued operating at a loss in the second quarter of 1997, triggering an
impairment review of its long-lived assets. A revised operating plan was
developed to restructure and stabilize the business. The revised projections by
product line provided the basis for measurement of the asset impairment charge.
The Company calculated the present value of expected cash flows of IC Sensors'
product lines to determine the fair value of the assets. Accordingly, in the
second quarter of 1997, the Company recorded an impairment charge of $26.7
million, for a write-down of goodwill of $13.6 million and fixed assets of $13.1
million. The components of the revised operating plan included hiring a new
general manager, transferring assembly and test operations to a lower-cost
environment (Batam, Indonesia), introducing new products and reviewing
manufacturing processes to improve production yields. All of these components
were implemented during 1997 and 1998. In February 2000, the Company sold its IC
Sensors business. The Company does not expect a material gain or loss on
disposition.
NOTE 5. GAINS ON DISPOSITIONS
During the second quarter of 1999, the Company sold its Structural
Kinematics business for cash of $15 million, resulting in a pre-tax gain of $4.3
million, and $.06 per diluted share after-tax. Additionally, as a result of the
Company's continuing evaluation of its Instruments businesses, the Company
undertook certain repositioning actions during the second quarter of 1999,
including exiting selected product lines and activities, rebalancing its
customer mix in certain businesses and other related activities. These actions
resulted in second quarter pre-tax charges of approximately $3.4 million,
primarily recorded in cost of sales. During the fourth quarter of 1999, the
Company sold its KT Aerofab business for cash of $4.4 million, resulting in a
pre-tax gain of $0.3 million. The net operating results of the divested
businesses for 1999 were not significant.
In April 1998, the Company sold its Sealol Industrial Seals division for
cash of $100 million, resulting in a pre-tax gain of $58.3 million. The
after-tax gain of this divestiture was $42.6 million, or $.93 diluted earnings
per share. Sealol's 1998 sales prior to the disposition were $23 million, and
its operating income was $2.1 million ($.04 diluted earnings per share). Sealol
had 1997 sales of $88 million and operating income of $11.4 million ($.21
diluted earnings per share). In January 1998, the Company sold its Rotron
division for $103
41
43
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million in cash, resulting in a pre-tax gain of $64.4 million. During the first
quarter of 1998, the Company also sold a small product line for $4 million in
cash, resulting in a pre-tax gain of $3.1 million. The after-tax gain of these
divestitures was $45.2 million, or $.99 diluted earnings per share in 1998.
Rotron had 1997 sales of $70 million and operating income of $11.9 million ($.16
diluted earnings per share). During 1999, in connection with the 1998
dispositions of the Company's Rotron and Sealol Industrial Seals divisions, the
Company recognized approximately $13.2 million of pre-tax gains from the
previously deferred sales proceeds as a result of the favorable resolution of
certain events and contingencies. These gains are reported on the "Gains on
Dispositions" line in the Consolidated Income Statements.
In 1997, the Company sold its Chandler, Flow and Birtcher divisions for $23
million, resulting in pre-tax gains of $10.6 million. These gains were recorded
in selling, general and administrative expenses.
NOTE 6. OTHER EXPENSE
Other income (expense), net, consisted of the following:
(IN THOUSANDS) 1999 1998 1997
-------------- -------- -------- --------
Interest income.................................... $ 3,365 $ 6,873 $ 1,969
Interest expense................................... (28,284) (11,391) (12,482)
Gains on sales of investments, net................. 1,952 4,465 711
Other.............................................. 1,185 (1,344) 2,247
-------- -------- --------
$(21,782) $ (1,397) $ (7,555)
======== ======== ========
Other consists mainly of foreign exchange losses, $2.2 million of income
received by the Company in 1999 related to the demutualization of a life
insurance company in which the Company is a policyholder and a $3.4 million cost
of capital reimbursement in 1997 relating to a joint development program (see
Note 18).
NOTE 7. INCOME TAXES
The components of income from continuing operations before income taxes for
financial reporting purposes were as follows:
(IN THOUSANDS) 1999 1998 1997
-------------- ------- -------- --------
U.S................................................. $ 1,044 $ 26,664 $(22,483)
Non-U.S............................................. 43,826 91,663 41,947
------- -------- --------
$44,870 $118,327 $ 19,464
======= ======== ========
42
44
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision for income taxes for continuing operations
were as follows:
DEFERRED
(IN THOUSANDS) CURRENT (PREPAID) TOTAL
-------------- ------- --------- -------
1999
Federal............................................ $ 9,397 $ (5,436) $ 3,961
State.............................................. 921 (621) 300
Non-U.S............................................ 13,052 (814) 12,238
------- -------- -------
$23,370 $ (6,871) $16,499
======= ======== =======
1998
Federal............................................ $32,067 $ (7,538) $24,529
State.............................................. 3,802 (977) 2,825
Non-U.S............................................ 15,951 (3,979) 11,972
------- -------- -------
$51,820 $(12,494) $39,326
======= ======== =======
1997
Federal............................................ $ 4,460 $ (5,805) $(1,345)
State.............................................. 2,168 (144) 2,024
Non-U.S............................................ 7,028 2,195 9,223
------- -------- -------
$13,656 $ (3,754) $ 9,902
======= ======== =======
The total provision for income taxes included in the consolidated financial
statements was as follows:
(IN THOUSANDS) 1999 1998
-------------- ------- -------
Continuing operations................................. $16,499 $39,326 $ 9,902
Discontinued operations............................... 80,522 14,706 15,119
------- ------- -------
$97,021 $54,032 $25,021
======= ======= =======
The major differences between the Company's effective tax rate for
continuing operations and the federal statutory rate were as follows:
1999 1998 1997
----- ----- -----
Federal statutory rate...................................... 35.0% 35.0% 35.0%
Non-U.S. rate differential, net............................. (18.0) (19.0) (39.4)
Future remittance of non-U.S. earnings...................... -- 8.4 --
State income taxes, net..................................... 1.4 1.6 4.1
Goodwill amortization....................................... 7.6 .6 9.2
Goodwill write-downs........................................ 11.7 -- 27.0
Change in valuation allowance............................... 9.0 2.0 15.3
Other, net.................................................. (9.9) 4.6 (0.3)
----- ----- -----
Effective tax rate.......................................... 36.8% 33.2% 50.9%
===== ===== =====
The 1999 and 1997 tax provisions and effective rates for continuing
operations were impacted by non-deductible goodwill write-downs. Excluding the
impairment charges and related tax effects, the effective tax rates were 32% in
1999 and 30.6% in 1997.
43
45
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences and carryforwards which gave rise
to deferred income tax assets and liabilities as of January 2, 2000 and January
3, 1999 were as follows:
(IN THOUSANDS) 1999 1998
-------------- -------- --------
Deferred tax assets:
Inventory reserves........................................ $ 7,042 $ 7,510
Other reserves............................................ 16,417 17,828
Deferred income........................................... 6,024 5,286
Vacation pay.............................................. 5,499 1,760
Net operating loss carryforwards.......................... 28,562 35,349
Postretirement health benefits............................ 4,072 4,420
Restructuring reserve..................................... 15,567 16,600
In-process R&D............................................ 8,970 --
All other, net............................................ 50,138 38,797
-------- --------
Total deferred tax assets................................... 142,291 127,550
-------- --------
Deferred tax liabilities:
Pension contribution...................................... (13,354) (12,555)
Amortization.............................................. (468) (1,143)
Depreciation.............................................. (19,661) (10,819)
All other, net............................................ (20,748) (25,572)
-------- --------
Total deferred tax liabilities.............................. (54,231) (50,089)
-------- --------
Valuation allowance......................................... (28,580) (32,628)
-------- --------
Net prepaid taxes........................................... $ 59,480 $ 44,833
======== ========
At January 2, 2000, the Company had non-U.S. (primarily from Germany) net
operating loss carryforwards of $65.2 million, substantially all of which carry
forward indefinitely. The $25.6 million valuation allowance results primarily
from these carryforwards, for which the Company currently believes it is more
likely than not that they will not be realized.
Current deferred tax assets of $92 million and $82.3 million were included
in other current assets at January 2, 2000 and January 3, 1999, respectively.
Long-term deferred tax liabilities of $33 million and $32.5 million were
included in long-term liabilities at January 2, 2000 and January 3, 1999,
respectively. These amounts included approximately $8.3 million of current
deferred tax assets and $3.3 million of long-term deferred tax liabilities
related to the discontinued operations of the Technical Services segment at
January 3, 1999.
In general, it is the practice and intention of the Company to reinvest the
earnings of its non-U.S. subsidiaries in those operations. Repatriation of
retained earnings is done only when it is advantageous. Applicable federal taxes
are provided only on amounts planned to be remitted. In connection with 1998
divestitures, certain proceeds will not be permanently reinvested in those
operations, and, accordingly, federal taxes in the amount of $10 million were
provided in connection with those earnings. Accumulated net earnings of non-U.S.
subsidiaries for which no federal taxes have been provided as of January 2, 2000
were $99.9 million, which does not include amounts that, if remitted, would
result in little or no additional tax because of the availability of U.S. tax
credits for non-U.S. taxes. Federal taxes that would be payable upon remittance
of these earnings are estimated to be $32.9 million at January 2, 2000.
44
46
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. DISCONTINUED OPERATIONS
On August 20, 1999, the Company sold the assets of its Technical Services
segment, including the outstanding capital stock of EG&G Defense Materials,
Inc., a subsidiary of the Company, to EG&G Technical Services, Inc., an
affiliate of The Carlyle Group L.P. (the "Buyer"), for approximately $250
million in cash and the assumption by the Buyer of certain liabilities of the
Technical Services segment. Approximately $2.1 million of the cash purchase
price will be paid by the Buyer to the Company on the seventh anniversary of the
closing of this transaction. The purchase price is subject to a post-closing
adjustment based on the Technical Services segment's working capital, as
defined, currently being arbitrated by the parties.
The results of operations of the Technical Services segment were previously
reported as one of five business segments of the Company. The Company accounted
for the sale of its Technical Services segment as a discontinued operation in
accordance with APB Opinion No. 30 and, accordingly, the results of operations
of the Technical Services segment have been segregated from continuing
operations and reported as a separate line item on the Company's Consolidated
Income Statements. The Company recorded a pre-tax gain on disposition of
discontinued operations of $181 million, net of transaction and related costs,
during 1999. The $110 million after-tax gain was reported separately from the
results of the Company's continuing operations.
The Company's former Department of Energy (DOE) segment is also presented
as discontinued operations in accordance with APB Opinion No. 30. The Company's
last DOE management and operations contract expired in 1997. The Company is in
the process of negotiating contract closeouts and does not anticipate incurring
any material loss in excess of previously established reserves.
Summary operating results of the discontinued operations (through August
20, 1999) were as follows:
(IN THOUSANDS) 1999 1998 1997
-------------- -------- -------- --------
Sales.............................................. $302,776 $553,514 $613,118
Costs and expenses................................. 278,242 517,762 575,852
-------- -------- --------
Operating income from discontinued operations...... 24,534 35,752 37,266
Other income....................................... 1,147 1,955 1,983
-------- -------- --------
Income from discontinued operations before income
taxes............................................ 25,681 37,707 39,249
Provision for income taxes......................... 10,016 14,706 15,119
-------- -------- --------
Income from discontinued operations, net of income
taxes............................................ $ 15,665 $ 23,001 $ 24,130
======== ======== ========
Income from discontinued operations, net of income taxes, of $15.7 million
in 1999 and $23 million in 1998 reflected the results of the Company's Technical
Services segment. Income from discontinued operations, net of income taxes, of
$24.1 million in 1997 reflected $21.1 million from the Company's Technical
Services segment and $3 million related to the Company's former DOE segment.
Sales for the Technical Services segment for fiscal 1999, 1998 and 1997 were
$303 million, $554 million and $533 million, respectively. The remaining sales
for 1997 in the preceding chart relate to the DOE segment.
NOTE 9. EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income by the
weighted-average number of common shares outstanding during the year. Diluted
earnings per share was computed by dividing net income by the weighted-average
number of common shares outstanding plus all potentially dilutive common shares
45
47
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding, primarily shares issuable upon the exercise of stock options using
the treasury stock method. The following table reconciles the number of shares
utilized in the earnings per share calculations:
(IN THOUSANDS) 1999 1998 1997
-------------- ------ ------ ------
Number of common shares-basic............................ 45,522 45,322 45,757
Effect of dilutive securities:
Stock options.......................................... 1,015 516 141
Other.................................................. 32 46 --
------ ------ ------
Number of common shares-diluted.......................... 46,569 45,884 45,898
====== ====== ======
Options to purchase 92,000 and 1,477,000 shares of common stock were not
included in the computation of diluted earnings per share for 1998 and 1997,
respectively, because the options' exercise prices were greater than the average
market price of the common shares and thus their effect would have been
antidilutive.
NOTE 10. ACCOUNTS RECEIVABLE
Accounts receivable were net of reserves for doubtful accounts of $12.9
million and $4.4 million as of January 2, 2000 and January 3, 1999,
respectively. The increase is primarily due to the acquisition of PEAI ($6.5
million).
NOTE 11. INVENTORIES
Inventories as of January 2, 2000 and January 3, 1999 consisted of the
following:
(IN THOUSANDS) 1999 1998
-------------- -------- --------
Finished goods.............................................. $ 87,177 $ 36,552
Work in process............................................. 26,342 22,124
Raw materials............................................... 88,205 64,892
-------- --------
$201,724 $123,568
======== ========
The increase in inventories was primarily due to the acquisition of PEAI in
1999. The acquisition of PEAI also caused the portion of total inventories
accounted for using the LIFO method to drop from 12% in 1998 to 8% in 1999. The
excess of current cost of inventories over the LIFO value was approximately $5
million as of January 2, 2000 and January 3, 1999.
NOTE 12. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, as of January 2, 2000 and January
3, 1999 consisted of the following:
(IN THOUSANDS) 1999 1998
-------------- -------- --------
Land........................................................ $ 28,724 $ 23,884
Buildings and leasehold improvements........................ 127,908 128,900
Machinery and equipment..................................... 339,715 338,863
-------- --------
$496,347 $491,647
======== ========
Increases in property, plant and equipment due to the acquisition of PEAI
($33 million) and capital expenditures ($41 million) were partially offset by
decreases resulting from dispositions ($54 million) and the effect of
translating fixed assets denominated in non-U.S. currencies at current exchange
rates.
46
48
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. INVESTMENTS
Investments as of January 2, 2000 and January 3, 1999 consisted of the
following:
(IN THOUSANDS) 1999 1998
-------------- ------- -------
Marketable investments...................................... $11,082 $10,695
Joint venture investments................................... 3,829 2,811
------- -------
$14,911 $13,506
======= =======
Joint venture investments are accounted for using the equity method.
Marketable investments consisted mainly of trust assets which were carried at
market value and were primarily invested in common stocks and fixed-income
securities to meet the supplemental executive retirement plan obligation. The
market values were based on quoted market prices. As of January 2, 2000, the
fixed-income securities, on average, had maturities of approximately 15 years.
The net unrealized holding gain on marketable investments, net of deferred
income taxes, reported as a component of accumulated other comprehensive income
(loss) in stockholders' equity, was $0.4 million at January 2, 2000 and January
3, 1999.
Marketable investments classified as available for sale as of January 2,
2000 and January 3, 1999 consisted of the following:
GROSS UNREALIZED
HOLDING
MARKET -----------------
(IN THOUSANDS) VALUE COST GAINS (LOSSES)
-------------- ------- ------- ----- --------
1999
Common stocks................................ $ 7,046 $ 6,345 $721 $ (20)
Fixed-income securities...................... 3,360 3,449 -- (89)
Other........................................ 676 652 24 --
------- ------- ---- -----
$11,082 $10,446 $745 $(109)
======= ======= ==== =====
1998
Common stocks................................ $ 6,838 $ 6,367 $633 $(162)
Fixed-income securities...................... 3,549 3,506 43 --
Other........................................ 308 281 27 --
------- ------- ---- -----
$10,695 $10,154 $703 $(162)
======= ======= ==== =====
NOTE 14. INTANGIBLE ASSETS
Intangible assets consist mainly of goodwill from acquisitions accounted
for using the purchase method of accounting, representing the excess of cost
over the fair market value of the net assets of the acquired businesses.
Goodwill is being amortized over periods of 10-40 years. Goodwill, net of
accumulated amortization, was $417 million and $301 million at January 2, 2000
and January 3, 1999, respectively. Other identifiable intangible assets from
acquisitions include patents, trademarks, trade names and developed technology
and are being amortized over periods of 10-40 years. Other identifiable
intangible assets, net of
47
49
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accumulated amortization, were $175 million and $17 million at January 2, 2000
and January 3, 1999, respectively. Intangible assets as of January 2, 2000 and
January 3, 1999 consisted of the following:
(IN THOUSANDS) 1999 1998
-------------- -------- --------
Goodwill.................................................... $477,072 $351,130
Other identifiable intangible assets........................ 182,550 17,929
-------- --------
659,622 369,059
Accumulated amortization.................................... (67,184) (51,448)
-------- --------
$592,438 $317,611
======== ========
The increase in intangible assets resulted primarily from the acquisition
of PEAI.
NOTE 15. DEBT
Short-term debt at January 2, 2000 was $382 million and included one-year
secured promissory notes of $150 million issued to PE Corp. at an interest rate
of 5%, money market loans of $85 million with Chase Securities, Inc. and
commercial paper borrowings of $140 million. The weighted-average interest rate
on the money market loans, which had maturities of 90 days or less, was 6.7%.
The weighted-average interest rate on the commercial paper borrowings, which had
maturities of 120 days or less, was 6.5%. Commercial paper borrowings averaged
$210 million during 1999 at an average interest rate of 5.5%. Short-term debt at
January 3, 1999 was $158 million and consisted primarily of commercial paper
borrowings of $150 million, at a weighted-average interest rate of 5.4%, that
had maturities of 60 days or less. Commercial paper borrowings averaged $23
million during 1998 at an average interest rate of 5.5%. At January 3, 1999,
short-term debt also included $6.2 million outstanding under a revolving credit
agreement, bearing interest at 9%, assumed by the Company in connection with the
Lumen acquisition. This amount was paid off in the first quarter of 1999.
In March 2000, the Company's $250 million revolving credit facility was
refinanced and increased to a $300 million revolving credit facility that
expires in March 2001. The Company has an additional revolving credit agreement
for $100 million that expires in March 2002. These agreements, which serve as
backup facilities for the commercial paper borrowings, have no significant
commitment fees. The Company did not draw down its credit facilities during
1999.
At January 2, 2000 and January 3, 1999, long-term debt included $115
million of unsecured ten-year notes issued in October 1995 at an interest rate
of 6.8%, which mature in 2005. The carrying amount approximated the estimated
fair value at January 2, 2000 and January 3, 1999 based on a quoted market
price. At January 3, 1999, long-term debt also included $14.8 million assumed by
the Company in connection with the Lumen acquisition, consisting of unsecured
notes of $12.4 million at 8% due in 2002 and a $2.4 million term loan at prime
plus 1.75% due in 2000. The unsecured notes and the loan were retired during
1999.
NOTE 16. ACCRUED EXPENSES
Accrued expenses as of January 2, 2000 and January 3, 1999 consisted of the
following:
(IN THOUSANDS) 1999 1998
-------------- -------- --------
Payroll and incentives...................................... $ 32,720 $ 22,463
Employee benefits........................................... 49,293 31,171
Federal, non-U.S. and state income taxes.................... 45,324 36,211
Other accrued operating expenses............................ 148,320 128,755
-------- --------
$275,657 $218,600
======== ========
48
50
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The increase in other accrued operating expenses resulted primarily from
the acquisition of PEAI in 1999, partially offset by payment of accruals related
to the Lumen acquisition and recognition of gains on dispositions from
previously deferred sales proceeds.
NOTE 17. EMPLOYEE BENEFIT PLANS
Except where noted otherwise, the following employee benefit plan
disclosures include amounts and information, on a combined basis, for both the
continuing and discontinued operations of the Company.
Savings Plan: The Company has a savings plan for the benefit of qualified
U.S. employees. Under this plan, the Company contributes an amount equal to the
lesser of 55% of the amount of the employee's voluntary contribution or 3.3% of
the employee's annual compensation. Savings plan expense charged to continuing
operations was $3.9 million in 1999, $2.7 million in 1998 and $2.8 million in
1997.
Pension Plans: The Company has defined benefit pension plans covering
substantially all U.S. employees and non-U.S. pension plans for non-U.S.
employees. The plans provide benefits that are based on an employee's years of
service and compensation near retirement. Assets of the U.S. plan are composed
primarily of equity and debt securities.
Net periodic pension cost included the following components:
(IN THOUSANDS) 1999 1998 1997
-------------- -------- -------- --------
Service cost....................................... $ 8,539 $ 9,356 $ 9,081
Interest cost...................................... 19,528 18,300 18,126
Expected return on plan assets..................... (23,130) (23,360) (21,288)
Net amortization and deferral...................... (645) (816) (743)
-------- -------- --------
$ 4,292 $ 3,480 $ 5,176
======== ======== ========
The following table sets forth the changes in the funded status of the
principal U.S. pension plan and the principal non-U.S. pension plans and the
amounts recognized in the Company's Consolidated Balance Sheets as of January 2,
2000 and January 3, 1999:
1999 1998
------------------- -------------------
NON- NON-
(IN THOUSANDS) U.S. U.S. U.S. U.S.
-------------- ------- -------- ------- --------
Actuarial present value of benefit
obligations:
Accumulated benefit obligations........... $84,110 $144,588 $29,387 $232,978
======= ======== ======= ========
Projected benefit obligations at beginning
of year................................. $32,571 $259,468 $27,912 $240,176
PEAI projected benefit obligations at date
of acquisition.......................... 67,780 -- -- --
Service cost.............................. 1,528 7,011 886 8,470
Interest cost............................. 3,872 15,656 1,860 16,440
Benefits paid............................. (2,345) (11,802) (948) (11,734)
Actuarial loss (gain)..................... (4,489) 1,859 1,182 23,318
Effect of exchange rate changes........... (7,029) -- 1,679 --
Dispositions.............................. -- -- -- (17,202)
Settlement loss -- discontinued
operations.............................. -- 20,316 -- --
Curtailment gain -- discontinued
operations.............................. -- (13,798) -- --
49
51
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998
------------------- -------------------
NON- NON-
(IN THOUSANDS) U.S. U.S. U.S. U.S.
-------------- ------- -------- ------- --------
Reduction of projected benefit
obligations -- discontinued
operations.............................. -- (107,604) -- --
------- -------- ------- --------
Projected benefit obligations at end of
year.................................... 91,888 171,106 32,571 259,468
------- -------- ------- --------
Fair value of plan assets at beginning of
year.................................... -- 310,024 -- 294,790
Actual return on plan assets.............. -- 65,040 -- 26,968
Benefits paid and plan expenses........... -- (12,679) -- (11,734)
Transfer out -- discontinued operations... -- (107,850) -- --
------- -------- ------- --------
Fair value of plan assets at end of
year.................................... -- 254,535 -- 310,024
------- -------- ------- --------
Plan assets less (greater) than projected
benefit obligations..................... 91,888 (83,429) 32,571 (50,556)
Unrecognized net transition asset......... -- 1,024 -- 2,254
Unrecognized prior service costs.......... (918) (54) (1,146) (77)
Unrecognized net gain..................... 2,385 48,078 2,619 7,779
------- -------- ------- --------
Accrued pension liability (asset)......... $93,355 $(34,381) $34,044 $(40,600)
======= ======== ======= ========
Actuarial assumptions as of the year-end
measurement date:
Discount rate........................... 5.8% 7.5% 6.5% 6.5%
Rate of compensation increase........... 3.5% 4.5% 4.0% 4.5%
Expected rate of return on assets....... -- 9.0% -- 9.0%
Non-U.S. accrued pension liabilities classified as long-term liabilities
totaled $122 million and $34 million as of January 2, 2000 and January 3, 1999,
respectively. The U.S. pension asset was classified as other noncurrent assets.
The Company also sponsors a supplemental executive retirement plan to
provide senior management with benefits in excess of normal pension benefits. At
January 2, 2000 and January 3, 1999, the projected benefit obligations were
$14.9 million and $13.8 million, respectively. Assets with a fair value of $9.8
million and $10.1 million, segregated in a trust, were available to meet this
obligation as of January 2, 2000 and January 3, 1999, respectively. Pension
expense for this plan was approximately $1.8 million in 1999, $1.4 million in
1998 and $1.3 million in 1997.
Postretirement Medical Plans: The Company provides health care benefits
for eligible retired U.S. employees under a comprehensive major medical plan or
under health maintenance organizations where available. The majority of the
Company's U.S. employees become eligible for retiree health benefits if they
retire directly from the Company and have at least ten years of service.
Generally, the major medical plan pays stated percentages of covered expenses
after a deductible is met and takes into consideration payments by other group
coverages and by Medicare. The plan requires retiree contributions under most
circumstances and has provisions for cost-sharing changes. For employees
retiring after 1991, the Company has capped its medical premium contribution
based on employees' years of service. The Company funds the amount allowable
under a 401(h) provision in the Company's defined benefit pension plan. Assets
of the plan are composed primarily of equity and debt securities.
50
52
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement medical benefit cost (credit) included the
following components:
(IN THOUSANDS) 1999 1998 1997
-------------- ------- ------- -------
Service cost.......................................... $ 289 $ 360 $ 317
Interest cost......................................... 1,036 1,250 1,237
Expected return on plan assets........................ (1,304) (1,245) (804)
Net amortization and deferral......................... (1,022) (402) (1,148)
------- ------- -------
$(1,001) $ (37) $ (398)
======= ======= =======
The following table sets forth the changes in the postretirement medical
plan's funded status and the amounts recognized in the Company's Consolidated
Balance Sheets at January 2, 2000 and January 3, 1999:
(IN THOUSANDS) 1999 1998
-------------- ------- -------
Actuarial present value of accumulated benefit obligations:
Retirees.................................................. $13,672 $11,448
Active employees eligible to retire....................... 800 565
Other active employees.................................... 5,256 5,032
------- -------
Accumulated benefit obligations at beginning of year........ 19,728 17,045
------- -------
Service cost................................................ 289 360
Interest cost............................................... 1,036 1,250
Benefits paid............................................... (1,204) (1,394)
Actuarial loss (gain)....................................... (2,782) 2,467
Settlement loss -- discontinued operations.................. 381 --
Curtailment gain -- discontinued operations................. (2,350) --
Reduction of accumulated benefit obligations -- discontinued
operations................................................ (2,231) --
------- -------
Change in accumulated benefit obligations during the year... (6,861) 2,683
------- -------
Retirees.................................................. 10,379 13,672
Active employees eligible to retire....................... 371 800
Other active employees.................................... 2,117 5,256
------- -------
Accumulated benefit obligations at end of year.............. 12,867 19,728
------- -------
Fair value of plan assets at beginning of year.............. 15,255 13,839
Actual return on plan assets................................ 3,214 1,416
Benefits paid and plan expenses............................. (757) --
Transfer out -- discontinued operations..................... (3,238) --
------- -------
Fair value of plan assets at end of year.................... 14,474 15,255
------- -------
Fair value of plan assets less (greater) than accumulated
benefit obligations....................................... (1,605) 4,473
Unrecognized net gain....................................... 9,234 7,483
------- -------
Accrued postretirement medical liability.................... $ 7,629 $11,956
======= =======
51
53
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS) 1999 1998
-------------- ------- -------
Actuarial assumptions as of the year-end measurement date:
Discount rate............................................. 7.5% 6.5%
Expected rate of return on assets......................... 9.0% 9.0%
Health care cost trend rate:
First year............................................. 9.0% 9.0%
Ultimate............................................... 5.5% 5.5%
Time to reach ultimate................................. 4 years 5 years
The accrued postretirement medical liability included $6.6 million and $11
million classified as long-term liabilities as of January 2, 2000 and January 3,
1999, respectively.
If the health care cost trend rate was increased 1%, the accumulated
postretirement benefit obligations would have increased by approximately $0.5
million at January 2, 2000. The effect of this increase on the annual cost for
1999 would have been approximately $45,000. If the health care cost trend rate
was decreased 1%, the accumulated postretirement benefit obligations would have
decreased by approximately $0.4 million at January 2, 2000. The effect of this
decrease on the annual cost for 1999 would have been approximately $39,000.
Deferred Compensation Plans: During 1998, the Company implemented certain
nonqualified deferred compensation programs that provide benefits payable to
officers and certain key employees or their designated beneficiaries at
specified future dates, upon retirement or death. Benefit payments under these
plans are funded by a combination of contributions from participants and the
Company.
Employee Stock Purchase Plan: The Company has an Employee Stock Purchase
Plan, whereby participating employees have the right to purchase common stock at
a price equal to 85% of the lower of the closing price on the first day or the
last day of the six-month offering period. The number of shares which an
employee may purchase, subject to certain aggregate limits, is determined by the
employee's voluntary contribution which may not exceed 10% of base compensation.
Other: In April 1999, the Company's stockholders approved the 1999
Incentive Plan, under which cash performance awards as well as an aggregate of
3.5 million shares of the Company's common stock were made available for option
grants, restricted stock awards, performance units and other stock-based awards.
The Company incurred a $2.8 million charge in 1997 related to a cash
deficit in an employee benefit plan.
NOTE 18. REIMBURSEMENT OF INVESTED CAPITAL
In 1997, the Company received a $30.4 million payment as part of the
negotiation of a joint development contract. This payment represented a $27
million reimbursement of previously invested capital, which will be amortized to
income over the estimated life of the related assets, and a $3.4 million
reimbursement of cost of capital, which was included in other income. The
reimbursement, net of accumulated amortization, included in long-term
liabilities was $15.3 million as of January 2, 2000 and $20.4 million as of
January 3, 1999.
NOTE 19. CONTINGENCIES
The Company is subject to various claims, legal proceedings and
investigations covering a wide range of matters that arise in the ordinary
course of its business activities. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company has established accruals for matters
that are probable and reasonably estimable. Management believes that any
liability that may ultimately result from the resolution of these matters in
excess of amounts provided will not have a material adverse effect on the
financial position or results of operations of the Company.
52
54
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company is conducting a number of environmental
investigations and remedial actions at current and former Company locations and,
along with other companies, has been named a potentially responsible party (PRP)
for certain waste disposal sites. The Company accrues for environmental issues
in the accounting period that the Company's responsibility is established and
when the cost can be reasonably estimated. The Company has accrued $12.3 million
as of January 2, 2000, representing management's estimate of the total cost of
ultimate disposition of known environmental matters. Such amount is not
discounted and does not reflect any recovery of any amounts through insurance or
indemnification arrangements. These cost estimates are subject to a number of
variables, including the stage of the environmental investigations, the
magnitude of the possible contamination, the nature of the potential remedies,
possible joint and several liability, the timeframe over which remediation may
occur and the possible effects of changing laws and regulations. For sites where
the Company has been named a PRP, management does not currently anticipate any
additional liability to result from the inability of other significant named
parties to contribute. The Company expects that such accrued amounts could be
paid out over a period of up to five years. As assessments and remediation
activities progress at each individual site, these liabilities are reviewed and
adjusted to reflect additional information as it becomes available. There have
been no environmental problems to date that have had or are expected to have a
material effect on the Company's financial position or results of operations.
While it is reasonably possible that a material loss exceeding the amounts
recorded may have been incurred, the preliminary stages of the investigations
make it impossible for the Company to reasonably estimate the range of potential
exposure.
The Company has received notices from the Internal Revenue Service (IRS)
asserting deficiencies in federal corporate income taxes for the Company's 1985
to 1994 tax years. The total additional tax proposed by the IRS amounts to $74
million plus interest. The Company has filed petitions in the United States Tax
Court to challenge most of the deficiencies asserted by the IRS. The Company
believes that it has meritorious legal defenses to those deficiencies and
believes that the ultimate outcome of the case will not result in a material
impact on the Company's consolidated results of operations or financial
position.
NOTE 20. RISKS AND UNCERTAINTIES
For information concerning various investigations, claims, legal
proceedings, environmental investigations and remedial actions, and notices from
the IRS, see Note 19. For information concerning factors affecting future
performance, see Management's Discussion and Analysis.
Costs incurred under cost-reimbursable government contracts, primarily in
the former Technical Services segment, which is presented as discontinued
operations, are subject to audit by the government. The results of prior audits,
completed through 1995, have not had a material effect on the Company.
The Company's management and operations contracts with the DOE are
presented as discontinued operations. The Company's last DOE management and
operations contract expired on September 30, 1997. The Company is in the process
of negotiating contract closeouts and does not anticipate incurring any material
loss in excess of previously established reserves.
NOTE 21. STOCKHOLDERS' EQUITY
Stock-Based Compensation: Under the 1999 Incentive Plan, 3.5 million
additional shares of the Company's common stock were made available for option
grants, restricted stock awards, performance units and other stock-based awards.
At January 2, 2000, 11.4 million shares of the Company's common stock were
reserved for employee benefit plans.
The Company has nonqualified and incentive stock option plans for officers
and key employees. Under these plans, options may be granted at prices not less
than 100% of the fair market value on the date of grant. Options expire 7-10
years from the date of grant, and options granted since 1994 become exercisable,
in
53
55
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ratable installments, over periods of 3-5 years from the date of grant. The
Stock Option Committee of the Board of Directors, at its sole discretion, may
also include stock appreciation rights in any option granted. There are no stock
appreciation rights outstanding under these plans.
The following table summarizes stock option activity for the three years
ended January 2, 2000:
1999 1998 1997
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
(SHARES IN THOUSANDS) OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------------------- --------- --------- --------- --------- --------- ---------
Outstanding at beginning of
year............................ 3,300 $20.05 4,187 $19.64 4,161 $19.56
Granted......................... 2,711 25.94 568 22.82 927 19.19
Exercised....................... (1,109) 19.08 (1,209) 19.87 (363) 16.74
Lapsed.......................... (330) 23.28 (246) 20.29 (538) 20.23
------ ------ -----
Outstanding at end of year........ 4,572 23.53 3,300 20.05 4,187 19.64
====== ====== =====
Exercisable at end of year........ 1,851 19.31 1,540 19.46 2,195 19.85
====== ====== =====
Available for grant at end of
year............................ 4,665 2,866 2,290
====== ====== =====
The following table summarizes information about stock options outstanding
at January 2, 2000:
RANGE OF EXERCISE PRICES OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------ -------------------------------------- ----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
(SHARES IN THOUSANDS) SHARES LIFE (YEARS) PRICE SHARES PRICE
--------------------- --------- ------------ --------- --------- ---------
$ 5.64 - 15.28...................... 348 3.8 $13.37 348 $13.37
15.95 - 23.44...................... 2,053 5.1 20.32 1,435 20.22
25.75 - 39.19...................... 2,171 7.0 28.19 68 30.36
----- -----
5.64 - 39.19...................... 4,572 5.9 23.53 1,851 19.31
===== =====
During 1999, 1,611,000 options were granted pursuant to the 1992 Stock
Option Plan at exercise prices ranging from $25.75 per share to $28.81 per
share; 421,000 options were granted pursuant to the 1999 Incentive Plan at
exercise prices ranging from $29.69 per share to $39.19 per share and 250,000
options were granted to an officer at an exercise price of $27.25 per share
pursuant to a plan other than the 1992 and 1999 Plans. In connection with the
acquisition of Lumen Technologies, Lumen options were converted into
approximately 429,000 Company stock options, effective January 5, 1999. These
options had an average exercise price of $14.47 per share and were fully vested.
In January 1998, the Board of Directors granted 400,000 options to an officer at
an exercise price of $21.19 per share; 200,000 options were granted pursuant to
the 1992 Plan, and 200,000 options were granted pursuant to a plan other than
the 1992 Plan. In addition, 167,500 options were granted pursuant to the 1992
Plan at various dates in 1998 at exercise prices ranging from $23.13 per share
to $30.25 per share. In December 1997, 927,000 options were granted at an
exercise price of $19.19 per share.
54
56
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted-average fair values of options granted during 1999, 1998 and
1997 were $9.14, $6.83 and $6.14, respectively. The values were estimated on the
date of grant using the Black-Scholes option pricing model. The following
weighted-average assumptions were used in the model:
1999 1998 1997
--------- ------- -------
Risk-free interest rate............................... 4.9% 5.4% 5.9%
Expected dividend yield............................... 2% 2% 2%
Expected lives........................................ 5.5 years 6 years 7 years
Expected stock volatility............................. 27% 27% 26%
In April 1999, the Company's stockholders approved the 1998 Employee Stock
Purchase Plan, whereby participating employees currently have the right to
purchase common stock at a price equal to 85% of the lower of the closing price
on the first day or the last day of the six-month offering period. The first
offering period, for which the employee discount was 10%, began on September 1,
1998 and ended on June 30, 1999. The number of shares which an employee may
purchase, subject to certain aggregate limits, is determined by the employee's
voluntary contribution which may not exceed 10% of base compensation. During
1999, the Company issued 358,000 shares under this plan at a weighted-average
price of $22.14 per share. There remains available for sale to employees an
aggregate of 2.1 million shares of the Company's stock out of 2.5 million shares
authorized by the stockholders.
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company continues to apply APB Opinion No. 25 in accounting for its stock option
and stock purchase plans. As required, the following table disclosed pro forma
net income and diluted earnings per share had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
approach:
(IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1997
------------------------------------ -------- -------- -------
Net income:
As reported....................................... $154,316 $102,002 $33,692
Pro forma......................................... 145,354 100,000 32,891
Diluted earnings per share:
As reported....................................... 3.31 2.22 .74
Pro forma......................................... 3.12 2.18 .72
Pro forma compensation cost may not be representative of that to be
expected in future years since the estimated fair value of stock options is
amortized to expense over the vesting period, and additional options may be
granted in future years.
Shareholder Rights Plan: Under a Shareholder Rights Plan, preferred stock
purchase rights were distributed on February 8, 1995 as a dividend at the rate
of one right for each share of common stock outstanding. Each right, when
exercisable, entitles a stockholder to purchase one one-thousandth of a share of
a new series of junior participating preferred stock at a price of $60. The
rights become exercisable only if a person or group acquires 20% or more or
announces a tender or exchange offer for 30% or more of the Company's common
stock. This preferred stock is nonredeemable and will have 1,000 votes per
share. The rights are nonvoting, expire in 2005 and may be redeemed prior to
becoming exercisable. The Company has reserved 70,000 shares of preferred stock,
designated as Series C Junior Participating Preferred Stock, for issuance upon
exercise of such rights. If a person (an Acquiring Person) acquires or obtains
the right to acquire 20% or more of the Company's outstanding common stock
(other than pursuant to certain approved offers), each right (other than rights
held by the Acquiring Person) will entitle the holder to purchase shares of
common stock of the Company at one-half of the current market price at the date
of occurrence of the event. In addition, in the event that the Company is
involved in a merger or other business combination in which it is not the
surviving corporation or in connection with which the Company's common stock is
changed or converted, or it sells or transfers 50% or more of its assets or
earning power to another person, each right that has not previously been
exercised will entitle its holder to purchase shares of common stock of such
other person at one-half of the current market price of such common stock at the
date of the occurrence of the event.
55
57
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Comprehensive Income: The components of accumulated other comprehensive
income (loss) were as follows:
FOREIGN CURRENCY ACCUMULATED OTHER
TRANSLATION UNREALIZED GAINS COMPREHENSIVE
(IN THOUSANDS) ADJUSTMENTS ON SECURITIES INCOME (LOSS)
-------------- ---------------- ---------------- -----------------
Balance, December 29, 1996........... $ 18,228 $1,204 $ 19,432
Current year change.................. (22,608) (681) (23,289)
-------- ------ --------
Balance, December 28, 1997........... (4,380) 523 (3,857)
Current year change.................. 7,723 (137) 7,586
-------- ------ --------
Balance, January 3, 1999............. 3,343 386 3,729
Current year change.................. (17,804) 35 (17,769)
-------- ------ --------
Balance, January 2, 2000............. $(14,461) $ 421 $(14,040)
======== ====== ========
The tax effects related to each component of other comprehensive income
(loss) were as follows:
BEFORE-TAX TAX (PROVISION) AFTER-TAX
(IN THOUSANDS) AMOUNT BENEFIT AMOUNT
-------------- ---------- --------------- ---------
1999
Foreign currency translation adjustments............... $(17,804) $ -- $(17,804)
Unrealized gains on securities:
Gains arising during the period...................... 143 (50) 93
Reclassification adjustment.......................... (89) 31 (58)
-------- ---- --------
Net unrealized gains................................... 54 (19) 35
-------- ---- --------
Other comprehensive income (loss)...................... $(17,750) $(19) $(17,769)
======== ==== ========
1998
Gross foreign currency translation adjustments......... $ 4,608 $ -- $ 4,608
Reclassification adjustment for translation losses
realized upon sale of Sealol Industrial Seals........ 3,115 -- 3,115
Unrealized losses on securities arising during the
period............................................... (211) 74 (137)
-------- ---- --------
Other comprehensive income............................. $ 7,512 $ 74 $ 7,586
======== ==== ========
1997
Foreign currency translation adjustments............... $(22,608) $ -- $(22,608)
Unrealized losses on securities:
Losses arising during the period..................... (1,008) 353 (655)
Reclassification adjustment.......................... (40) 14 (26)
-------- ---- --------
Net unrealized losses.................................. (1,048) 367 (681)
-------- ---- --------
Other comprehensive income (loss)...................... $(23,656) $367 $(23,289)
======== ==== ========
NOTE 22. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and accounts receivable. The Company believes it had no significant
concentrations of credit risk as of January 2, 2000.
The Company has relatively limited involvement with derivative financial
instruments. In the ordinary course of business, the Company enters into foreign
exchange forward contracts for periods consistent with its
56
58
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
committed exposures to mitigate the effect of foreign currency movements on
transactions denominated in foreign currencies. Transactions covered by hedge
contracts include intercompany and third-party receivables and payables. The
contracts are primarily in European and Asian currencies, generally have
maturities that do not exceed one month and have no cash requirements until
maturity. Credit risk and market risk are minimal because the forward contracts
are with very large banks, and gains and losses are offset against foreign
exchange gains and losses on the underlying hedged transactions. From time to
time the Company enters into foreign exchange forward contracts to mitigate the
effect of foreign currency movements associated with anticipatory transactions
denominated in foreign currencies. Realized gains and losses on foreign currency
instruments, which are hedges of committed transactions on assets and
liabilities, are recognized at the time the underlying transaction is completed.
Realized and unrealized gains and losses on forward contracts, which are not
hedges of committed transactions, are recognized in income. The notional amount
of outstanding forward contracts was $75 million as of January 2, 2000 and $42
million as of January 3, 1999. The carrying value as of January 2, 2000 and
January 3, 1999, which approximated fair value, was not significant.
See Notes 1, 13 and 15 for disclosures about fair values, including methods
and assumptions, of other financial instruments.
NOTE 23. LEASES
The Company leases certain property and equipment under operating leases.
Rental expense charged to continuing operations for 1999, 1998 and 1997 amounted
to $19.2 million, $10.1 million and $10.1 million, respectively. Minimum rental
commitments under noncancelable operating leases are as follows: $19 million in
2000, $14.6 million in 2001, $12.9 million in 2002, $12.1 million in 2003, $11.4
million in 2004 and $12.4 million after 2004.
NOTE 24. INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which changed the way the Company reports
information about its operating segments. The Company's businesses are reported
as four reportable segments which reflect the Company's management and structure
under four SBUs. The accounting policies of the reportable segments are the same
as those described in Note 1. The Company evaluates the performance of its
operating segments based on operating profit. Intersegment sales and transfers
are not significant.
The operating segments and their principal products and services are:
Life Sciences: Sample handling and measuring instruments, computer
software and chemical reagents for use in bio-screening and population
screening laboratories. Bio-screening activities include academic research
applications and drug discovery applications in high throughput screening
laboratories of major pharmaceutical companies. Population screening
activities include inherited and infectious disease screening, as well as
routine clinical diagnostics.
Optoelectronics: A broad spectrum of optoelectronic products,
including large area amorphous silicon detectors, high volume and
high-performance specialty lighting sources, detectors, imaging devices, as
well as telecom products, which include emitters, receivers and mux arrays.
Instruments: Products and services for detection, measurement and
testing applications, including analytical instruments for the
pharmaceutical, food and beverage, environmental, chemical and plastics
industries.
Fluid Sciences: Static and dynamic seals, sealing systems, solenoid
valves, bellows devices, advanced pneumatic components, systems and
assemblies and sheet metal-formed products for original equipment
manufacturers and end users.
57
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PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales to U.S. government agencies, which were predominantly to the
Department of Defense and NASA in the former Technical Services segment, which
is reflected as discontinued operations in the accompanying financial statements
(see Note 8), were $326 million, $524 million and $537 million in 1999, 1998 and
1997, respectively. In 1998, the Company's joint venture with Johnson Controls
was unsuccessful in its bid to provide support services to NASA and the Air
Force at Florida's Kennedy Space Center, Cape Canaveral Air Station and Patrick
Air Force Base. The NASA contract at the Kennedy Space Center contributed sales
of $134 million in 1998 and $168 million in 1997.
Sales and operating profit by segment for the three years ended January 2,
2000 are shown in the table below:
(IN THOUSANDS) 1999 1998 1997
-------------- ---------- -------- --------
LIFE SCIENCES
Sales............................................. $ 163,587 $148,124 $125,380
Operating Profit.................................. 15,453 9,046 10,108
OPTOELECTRONICS
Sales............................................. 412,592 268,558 261,291
Operating Profit (Loss)........................... 34,934 (5,454) (23,128)
INSTRUMENTS
Sales............................................. 607,281 247,388 236,839
Operating Profit (Loss)........................... (9,351) 6,659 17,966
FLUID SCIENCES
Sales............................................. 179,669 167,646 127,087
Operating Profit.................................. 22,204 5,194 8,846
OTHER
Sales............................................. -- 22,666 176,885
Operating Profit.................................. 3,412 104,279 13,227
CONTINUING OPERATIONS
Sales............................................. 1,363,129 854,382 927,482
Operating Profit.................................. 66,652 119,724 27,019
The Company's Technical Services segment and former Department of Energy
segment are presented as discontinued operations and, therefore, are not
included in the preceding table. The results for the periods presented included
certain nonrecurring items which are discussed in the Management's Discussion
and Analysis section of this document.
Additional information relating to the Company's operating segments is as
follows:
DEPRECIATION AND
AMORTIZATION EXPENSE CAPITAL EXPENDITURES
----------------------------- -----------------------------
(IN THOUSANDS) 1999 1998 1997 1999 1998 1997
-------------- ------- ------- ------- ------- ------- -------
Life Sciences................ $ 6,189 $ 5,059 $ 4,091 $ 7,465 $ 5,415 $ 3,352
Optoelectronics.............. 34,430 25,615 19,528 21,155 17,256 21,312
Instruments.................. 17,292 10,573 11,688 6,555 8,382 7,616
Fluid Sciences............... 7,093 6,042 3,090 4,515 10,325 9,488
Other........................ 1,111 1,221 4,301 1,402 3,111 5,874
------- ------- ------- ------- ------- -------
Continuing operations...... $66,115 $48,510 $42,698 $41,092 $44,489 $47,642
======= ======= ======= ======= ======= =======
Discontinued operations.... $ 841 $ 1,869 $ 1,914 $ 1,341 $ 2,033 $ 1,087
======= ======= ======= ======= ======= =======
58
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PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TOTAL ASSETS
------------------------
(IN THOUSANDS) 1999 1998
-------------- ---------- ----------
Life Sciences............................................... $ 125,025 $ 128,970
Optoelectronics............................................. 448,453 479,818
Instruments................................................. 854,452 183,590
Fluid Sciences.............................................. 102,421 112,898
Other....................................................... 184,289 233,502
---------- ----------
$1,714,640 $1,138,778
========== ==========
Other total assets consisted primarily of cash and cash equivalents,
prepaid pension, prepaid taxes and, in 1998, net assets of discontinued
operations.
The following geographic area information for continuing operations
includes sales based on location of external customer and net property, plant
and equipment based on physical location:
SALES
----------------------------------
(IN THOUSANDS) 1999 1998 1997
-------------- ---------- -------- --------
U.S. ............................................. $ 661,609 $447,793 $512,503
Germany........................................... 98,787 67,647 71,390
Japan............................................. 73,567 28,306 21,630
United Kingdom.................................... 71,493 47,794 65,462
Italy............................................. 56,433 17,565 19,204
France............................................ 50,282 35,329 44,417
Other Non-U.S. ................................... 350,958 209,948 192,876
---------- -------- --------
$1,363,129 $854,382 $927,482
========== ======== ========
NET PROPERTY, PLANT AND
EQUIPMENT
------------------------
(IN THOUSANDS) 1999 1998
-------------- ---------- ----------
U.S. ....................................................... $133,812 $133,550
Germany..................................................... 21,570 21,923
Finland..................................................... 17,277 15,431
Canada...................................................... 14,718 8,861
United Kingdom.............................................. 13,282 3,453
Other Non-U.S. ............................................. 27,375 35,462
-------- --------
$228,034 $218,680
======== ========
Effectively all of the sales and net property, plant and equipment of the
discontinued operations (consisting of the Technical Services segment and former
DOE segment) were U.S. based.
59
61
PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 25. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly financial information follows:
FIRST SECOND THIRD FOURTH
(IN THOUSANDS EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER YEAR
------------------------------------ -------- -------- -------- -------- ----------
1999
Sales.................................. $243,217 $304,258 $388,413 $427,241 $1,363,129
Operating income (loss) from continuing
operations........................... 17,028 1,940 (328) 48,012 66,652
Income (loss) from continuing
operations before income taxes....... 12,396 (4,257) (8,932) 45,663 44,870
Income (loss) from continuing
operations........................... 8,042 (2,725) (5,801) 28,855 28,371
Net income............................. 14,087 3,617 103,773 32,839 154,316
Basic earnings (loss) per share:
Continuing operations................ .18 (.06) (.13) .62 .62
Net income........................... .31 .08 2.27 .71 3.39
Diluted earnings (loss) per share:
Continuing operations................ .18 (.06) (.13) .61 .61
Net income........................... .31 .08 2.27 .69 3.31
Cash dividends per common share........ .14 .14 .14 .14 .56
Market price of common stock:
High................................. 30.19 36.25 39.94 45.00 45.00
Low.................................. 25.50 26.50 31.50 36.63 25.50
Close................................ 26.75 35.75 38.75 41.69 41.69
1998
Sales.................................. $219,642 $209,424 $191,503 $233,813 $ 854,382
Operating income from continuing
operations........................... 46,398 40,006 10,153 23,167 119,724
Income from continuing operations
before income taxes.................. 44,484 38,913 13,661 21,269 118,327
Income from continuing operations...... 28,588 27,753 8,743 13,917 79,001
Net income............................. 34,483 31,614 15,437 20,468 102,002
Basic earnings per share:
Continuing operations................ .63 .61 .19 .31 1.74
Net income........................... .76 .69 .34 .46 2.25
Diluted earnings per share:
Continuing operations................ .62 .60 .19 .31 1.72
Net income........................... .75 .68 .33 .45 2.22
Cash dividends per common share........ .14 .14 .14 .14 .56
Market price of common stock:
High................................. 28.50 33.75 30.13 29.44 33.75
Low.................................. 19.44 27.13 18.88 20.50 18.88
Close................................ 27.75 29.69 22.44 27.81 27.81
NOTE 26. SUBSEQUENT EVENTS
Acquisition: On January 14, 2000, the Company completed its previously
announced acquisition of Vivid Technologies, Inc. (Vivid). The transaction was a
stock merger whereby the shareholders of Vivid
60
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PERKINELMER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
received one share of the Company's common stock for each 6.2 shares of Vivid
common stock. The Company issued approximately 1.6 million shares in connection
with the acquisition, resulting in a total transaction value of approximately
$66 million. Vivid, which is a leading supplier of automated explosive detection
systems utilized in airports and high-security facilities worldwide, generated
sales of $21 million for the fiscal year ended September 30, 1999. The
transaction will be accounted for as a purchase in accordance with APB Opinion
No. 16.
61
63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of PerkinElmer, Inc.:
We have audited the accompanying consolidated balance sheets of
PerkinElmer, Inc. (a Massachusetts corporation) and subsidiaries as of January
2, 2000 and January 3, 1999 and the related consolidated statements of income,
stockholders' equity and cash flows for the years ended January 2, 2000, January
3, 1999 and December 28, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PerkinElmer,
Inc. and subsidiaries as of January 2, 2000 and January 3, 1999, and the results
of their operations and their cash flows for the years ended January 2, 2000,
January 3, 1999 and December 28, 1997 in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
- --------------------------------------
Arthur Andersen LLP
Boston, Massachusetts
January 25, 2000
62
64
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a) DIRECTORS
The information required by this Item with respect to Directors is
contained in the Company's 2000 Proxy Statement for the Annual Meeting of
Stockholders to be held on April 25, 2000 (the "2000 Proxy Statement") under the
captions "Election of Directors," "Information Relative to the Board of
Directors and Certain of its Committees," and "Section 16(a) Beneficial
Ownership Reporting Compliance" and is herein incorporated by reference.
b) EXECUTIVE OFFICERS
The information required by this item with respect to Executive Officers is
contained in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is contained under the captions
"Summary Compensation Table" up to and including "Aggregated Option Exercises in
Last Fiscal Year and Fiscal Year-End Value Option Table" and Notes thereto in
the 2000 Proxy Statement, and is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained under the captions
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" in the 2000 Proxy Statement, and is herein incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is contained under the caption
"Certain Transactions" in the 2000 Proxy Statement, and is herein incorporated
by reference.
63
65
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
Included in Part II, Item 8:
Consolidated Income Statements for the Three Years Ended January 2,
2000
Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999
Consolidated Statements of Stockholders' Equity for the Three Years
Ended January 2, 2000
Consolidated Statements of Cash Flows for the Three Years Ended
January 2, 2000
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Financial Statement
Schedules
Schedule II -- Valuation and Qualifying Accounts
Financial statement schedules, other than those above, are omitted because
of the absence of conditions under which they are required or because the
required information is given in the financial statements or notes thereto.
Separate financial statements of the Registrant are omitted since it is
primarily an operating company, and since all subsidiaries included in the
consolidated financial statements being filed, in the aggregate, do not have
minority equity interests and/or indebtedness to any person other than the
Registrant or its consolidated subsidiaries in amounts which together exceed
five percent of total consolidated assets.
3. EXHIBITS
3.1 The Company's Restated Articles of Organization were filed
with the Commission on March 30, 1999 as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 3, 1999 and are herein incorporated by
reference.
3.2 Articles of Amendment to the Company's Restated Articles of
Organization were filed with the Commission on November 5,
1999 as Exhibit 3 to the Company's Report on Form 8-K and
are herein incorporated by reference.
3.3 The Company's By-Laws as amended and restated by the Board
of Directors on April 27, 1999 are attached hereto as
Exhibit 3.3.
4.1 Specimen Certificate of the Company's Common Stock, $1 par
value, was filed with the Commission on November 5, 1999 as
Exhibit 4 to the Company's Report on Form 8-K and is herein
incorporated by reference.
4.2 Form of Indenture dated June 28, 1995 between the Company
and the First National Bank of Boston, as Trustee, was filed
with the Commission as Exhibit 4.1 to the Company's
Registration Statement on Form S-3, File No. 33-59675 and is
herein incorporated by reference.
*10.1 The Company's Supplemental Executive Retirement Plan revised
as of April 19, 1995 was filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, and is herein incorporated by
reference.
*10.2 The Company's 1999 INCENTIVE PLAN was filed with the
Commission on April 2, 1999 as Exhibit B to the Company's
Definitive Proxy Statement on Schedule 14A and is herein
incorporated by reference.
64
66
10.3 5-Year Competitive Advance and Revolving Credit Facility
Agreement (referred to as the "5-Year Agreement") dated as
of March 21, 1994 among the Company, the Lenders Named
Herein and The Chase Manhattan Bank as Administrative Agent;
Amendment No. 1 dated as of March 15, 1995; and Amendment
No. 2 dated as of March 14, 1996 were filed as Exhibit 10.3
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 and are herein incorporated by
reference. Amendment No. 3 dated as of March 7, 1997 was
filed as Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended December 29, 1996 and is also
herein incorporated by reference. Amendment No. 4 dated as
of November 20, 1998 was filed as Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 3, 1999 and is also herein incorporated by
reference.
10.4 $300,000,000 Amended and Restated Competitive Advance and
Revolving Credit Facility Agreement dated as of March 3,
2000 among the Company, the Lenders Named Herein and The
Chase Manhattan Bank as Administrative Agent, which is
attached hereto as Exhibit 10.4, amends and restates the
Competitive Advance and Revolving Credit Facility Agreement
dated as of March 5, 1999 among the Company, the Lenders
Named Herein and The Chase Manhattan Bank as Administrative
Agent, which was filed with the Commission as Exhibit 10.4
to the Company's Annual Report on Form 10-K for the fiscal
year ended January 3, 1999 and is herein incorporated by
reference.
*10.5 Employment Contracts:
(1) Employment contract between Gregory L. Summe and the
Company dated January 8, 1998, as amended by an amendment
dated November 5, 1999, is attached hereto as Exhibit
10.5(a).
(2) Employment contract between Robert F. Friel and the
Company dated November 18, 1999.
(3) Employment contract between Terrance L. Carlson and the
Company dated August 1, 1999.
(4) Employment contract between Angelo D. Castellana and the
Company dated November 10, 1999.
(5) Employment contract between Richard F. Walsh and the
Company dated July 29, 1999.
(6) Employment contract between Robert A. Barrett and the
Company dated July 23, 1999.
(7) Employment contract between Patrik Dahlen and the
Company dated October 1, 1999.
(8) Employment contract between John J. Engel and the
Company dated December 1, 1999.
(9) Employment contract between Robert J. Rosenthal and the
Company dated July 23, 1999.
(10) Employment contract between Gregory D. Perry and the
Company dated August 8, 1999.
Except for the name of the officer in the employment
contracts identified by numbers 2 through and including 10,
the form of said employment contracts is identical in all
material respects. The employment contract between Angelo D.
Castellana and the Company is representative of the
employment contracts of these executive officers and is
attached hereto as Exhibit 10.5(b).
*10.6 The Company's 1982 INCENTIVE STOCK OPTION PLAN was filed as
Exhibit 4(v) to the Company's Registration Statement on Form
S-8, File No. 33-36082 and is herein incorporated by
reference.
*10.7 The Company's 1992 STOCK OPTION PLAN was filed as Exhibit
4(vi) to the Company's Registration Statement on Form S-8,
File No. 333-32059 and is herein incorporated by reference.
*10.8 The Company's 1998 EMPLOYEE STOCK PURCHASE PLAN was filed
with the Commission on March 30, 1999 as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 3, 1999 and is herein incorporated by
reference.
*10.9 Agreement and General Release between the Company and Murray
Gross dated April 30, 1999.
*10.10 Agreement and General Release between the Company and Daniel
T. Heaney dated November 3, 1998.
65
67
*10.11 Agreement and General Release between the Company and
Deborah S. Lorenz dated June 6, 1998.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants (appears on
signature page).
24 Power of Attorney (appears on signature page).
27 Financial Data Schedule.
- ---------------
* This exhibit is a management contract or compensatory plan or arrangement
required to be filed as an Exhibit pursuant to Item 14(c) of Form 10-K.
(b) REPORTS ON FORM 8-K
A report on Form 8-K was filed with the Commission on November 5, 1999
regarding an amendment to the Company's Restated Articles of Organization filed
with the Massachusetts Secretary of State on October 26, 1999 by which the
Company changed its name from "EG&G, Inc." to "PerkinElmer, Inc."
A report on Form 8-K was filed with the Commission on November 23, 1999
regarding the sale of the Technical Services segment and the restatement of
financial statements and other information to reflect Technical Services as a
discontinued operation.
(c) PROXY STATEMENT
The Company's 2000 Proxy Statement, in definitive form, was filed
electronically on March 27, 2000 with the Securities and Exchange Commission in
Washington, D.C. pursuant to the Commission's Rule 14a-6.
66
68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULES
To PerkinElmer, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of PerkinElmer, Inc. included in this Form
10-K and have issued our report thereon dated January 25, 2000. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. Schedule II is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
- --------------------------------
Arthur Andersen LLP
Boston, Massachusetts
January 25, 2000
67
69
SCHEDULE II
PERKINELMER, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JANUARY 2, 2000
(IN THOUSANDS)
BALANCE AT BALANCE
BEGINNING OF CHARGES/ AT END
DESCRIPTION YEAR PROVISIONS WRITEOFFS OTHER OF YEAR
- ----------- ------------ ---------- --------- ------- -------
RESERVE FOR DOUBTFUL ACCOUNTS
Year Ended December 28, 1997....... $ 4,126 $ 2,090 $ (1,211) $ (295) $ 4,710
Year Ended January 3, 1999......... $ 4,710 $ 1,084 $ (960) $ (434)(a) $ 4,400
Year Ended January 2, 2000......... $ 4,400 $ 2,569 $ (1,302) $ 7,261(b) $12,928
ACCRUED RESTRUCTURING COSTS
Year Ended December 28, 1997....... $ -- $ 4,433 $ (1,408) $ -- $ 3,025
Year Ended January 3, 1999......... $ 3,025 $50,027 $(23,483) $ 5,000(c) $34,569
Year Ended January 2, 2000......... $34,569 $11,520(e) $(32,525) $28,195(d) $41,759
- ---------------
(a) Includes reserves for doubtful accounts of $1,371 related to companies
acquired in 1998.
(b) Includes reserve for doubtful accounts of $6,500 related to a company
acquired in 1999.
(c) Represents accrued restructuring costs of $5,000 related to a company
acquired in 1998.
(d) Represents accrued restructuring costs of $28,195 related to a company
acquired in 1999.
(e) Includes a $23,500 restructuring charge and an $11,980 reversal of prior
year's charges.
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70
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated January 25, 2000, included in this Form 10-K,
into Registration Statements previously filed by PerkinElmer, Inc. on,
respectively, Form S-8, File No. 2-98168; Form S-8, File No. 33-36082; Form S-8,
File No. 33-35379; Form S-8, File No. 33-49898; Form S-8, File No. 33-57606;
Form S-8, File No. 33-54785; Form S-8, File No. 33-62805; Form S-8, File No.
333-8811; Form S-8, File No. 333-32059; Form S-8, File No. 333-32463; Form S-3,
File No. 33-59675; Form S-8, File No. 333-50953; Form S-8, File No. 333-56921;
Form S-8, File No. 333-58517; Form S-8, File No. 333-61615; Form S-8, File No.
333-65367; Form S-8, File No. 333-69115; Form S-8, File No. 333-70977; Form S-3,
File No. 333-71069; Form S-8, File No. 333-81759; Form S-4, File No. 333-91535
and Form S-8, File No. 333-30150.
/s/ ARTHUR ANDERSEN LLP
- ---------------------------------------------------------
Arthur Andersen LLP
Boston, Massachusetts
March 28, 2000
POWER OF ATTORNEY
We, the undersigned officers and directors of PerkinElmer, Inc., hereby
severally constitute Gregory L. Summe, and Terrance L. Carlson, and each of them
singly, our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names, in the capacities indicated below, this
Annual Report on Form 10-K and any and all amendments to said Annual Report on
Form 10-K, and generally to do all such things in our name and behalf in our
capacities as officers and directors to enable PerkinElmer, Inc. to comply with
the provisions of the Securities Exchange Act of 1934, and all requirements of
the Securities and Exchange Commission, hereby rectifying and confirming signed
by our said attorneys, and any and all amendments thereto.
Witness our hands on the date set forth below.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PERKINELMER, INC.
SIGNATURE TITLE DATE
--------- ----- ----
By: /s/ GREGORY L. SUMME Chairman of the Board, Chief March 28, 2000
Executive Officer and President
- -------------------------------------------------- (Principal Executive Officer)
Gregory L. Summe
By: /s/ ROBERT F. FRIEL Senior Vice President and Chief March 28, 2000
Financial Officer (Principal
- -------------------------------------------------- Financial Officer)
Robert F. Friel
By: /s/ GREGORY D. PERRY Vice President, Control and March 28, 2000
Treasury (Principal Accounting
- -------------------------------------------------- Officer)
Gregory D. Perry
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71
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
By: /s/ TAMARA J. ERICKSON Director March 17, 2000
- --------------------------------------------------
Tamara J. Erickson
By: /s/ KENT F. HANSEN Director March 15, 2000
- --------------------------------------------------
Kent F. Hansen
By: /s/ JOHN F. KEANE Director March 28, 2000
- --------------------------------------------------
John F. Keane
By: /s/ NICHOLAS A. LOPARDO Director March 16, 2000
- --------------------------------------------------
Nicholas A. Lopardo
By: /s/ GRETA E. MARSHALL Director March 28, 2000
- --------------------------------------------------
Greta E. Marshall
By: /s/ GABRIEL SCHMERGEL Director March 28, 2000
- --------------------------------------------------
Gabriel Schmergel
By: /s/ MICHAEL C. RUETTGERS Director March 28, 2000
- --------------------------------------------------
Michael C. Ruettgers
By: /s/ GREGORY L. SUMME Director March 28, 2000
- --------------------------------------------------
Gregory L. Summe
By: /s/ JOHN LARKIN THOMPSON Director March 16, 2000
- --------------------------------------------------
John Larkin Thompson
By: /s/ G. ROBERT TOD Director March 28, 2000
- --------------------------------------------------
G. Robert Tod
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT NAME
- ------- ------------
3.1 The Company's Restated Articles of Organization were filed
with the Commission on March 30, 1999 as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 3, 1999 and are herein incorporated by
reference.
3.2 Articles of Amendment to the Company's Restated Articles of
Organization were filed with the Commission on November 5,
1999 as Exhibit 3 to the Company's Report on Form 8-K and
are herein incorporated by reference.
3.3 The Company's By-Laws as amended and restated by the Board
of Directors on April 27, 1999.
4.1 Specimen Certificate of the Company's Common Stock, $1 par
value, was filed with the Commission on November 5, 1999 as
Exhibit 4 to the Company's Report on Form 8-K and is herein
incorporated by reference.
4.2 Form of Indenture dated June 28, 1995 between the Company
and the First National Bank of Boston, as Trustee, was filed
with the Commission as Exhibit 4.1 to the Company's
Registration Statement on Form S-3, File No. 33-59675 and is
herein incorporated by reference.
10.1 The Company's Supplemental Executive Retirement Plan revised
as of April 19, 1995 was filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, and is herein incorporated by
reference.
10.2 The Company's 1999 INCENTIVE PLAN was filed with the
Commission on April 2, 1999 as Exhibit B to the Company's
Definitive Proxy Statement on Schedule 14A and is herein
incorporated by reference.
10.3 5-Year Competitive Advance and Revolving Credit Facility
Agreement (referred to as the "5-Year Agreement") dated as
of March 21, 1994 among the Company, the Lenders Named
Herein and The Chase Manhattan Bank as Administrative Agent;
Amendment No. 1 dated as of March 15, 1995; and Amendment
No. 2 dated as of March 14, 1996 were filed as Exhibit 10.3
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 and are herein incorporated by
reference. Amendment No. 3 dated as of March 7, 1997 was
filed as Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended December 29, 1996 and is also
herein incorporated by reference. Amendment No. 4 dated as
of November 20, 1998 was filed as Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 3, 1999 and is also herein incorporated by
reference.
10.4 $300,000,000 Amended and Restated Competitive Advance and
Revolving Credit Facility Agreement dated as of March 3,
2000 among the Company, the Lenders Named Herein and The
Chase Manhattan Bank as Administrative Agent, which is
attached hereto as Exhibit 10.4, amends and restates the
Competitive Advance and Revolving Credit Facility Agreement
dated as of March 5, 1999 among the Company, the Lenders
Named Herein and The Chase Manhattan Bank as Administrative
Agent, which was filed with the Commission as Exhibit 10.4
to the Company's Annual Report on Form 10-K for the fiscal
year ended January 3, 1999 and is herein incorporated by
reference.
10.5(a) Employment Contract between the Company and Gregory L. Summe
dated January 8, 1998, as amended by an amendment dated
November 5, 1999.
10.5(b) Employment Contract between the Company and Angelo D.
Castellana dated November 10, 1999.
10.6 The Company's 1982 INCENTIVE STOCK OPTION PLAN was filed as
Exhibit 4(v) to the Company's Registration Statement on Form
S-8, File No. 33-36082 and is herein incorporated by
reference.
10.7 The Company's 1992 STOCK OPTION PLAN was filed as Exhibit
4(vi) to the Company's Registration Statement on Form S-8,
File No. 333-32059 and is herein incorporated by reference.