PERKINELMER INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-5075

PerkinElmer, Inc.

(Exact name of registrant as specified in its charter)


Massachusetts		04-2052042
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

45 William Street, Wellesley, Massachusetts		02481
(Address of principal executive offices)		(Zip Code)

(781) 237-5100

(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). x Yes ¨ No

Number of shares outstanding of each of the issuer’s classes of common stock:

Class

Outstanding at May 3, 2004

Common Stock, $1 par value per share

127,709,000

(Excluding treasury shares)

TABLE OF CONTENTS


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Income Statements	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Overview	22
	Consolidated Results of Continuing Operations	23
	Reporting Segment Results of Operations	28
	Liquidity and Capital Resources	29
	Off Balance Sheet Arrangements	31
	Application of Critical Accounting Policies and Estimates	32
	Forward-Looking Information and Factors Affecting Future Performance	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	39

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 4.	Submission of Matters to a Vote of Security Holders	40

Item 6.	Exhibits and Reports on Form 8-K	41

Signature		42

Exhibit Index		42

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PERKINELMER, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS


	Three Months Ended
	March 28, 2004			March 30, 2003
	(Unaudited)
	(In thousands except per share data)
Sales	$	393,451		$	358,449
Cost of sales		241,513			219,280
Research and development expenses		20,628			20,852
Selling, general and administrative expenses		95,870			92,879
Restructuring (reversals) and impairment charges, net		1,160			(445	)
Gains on dispositions		(363	)		(580	)
Amortization of intangible assets		7,106			7,195

Operating income from continuing operations		27,537			19,268
Interest and other expense, net		9,541			14,347

Income from continuing operations before income taxes		17,996			4,921
Provision for income taxes		5,219			1,599

Income from continuing operations		12,777			3,322
Loss from discontinued operations, net of income taxes		—			(980	)
Gain on dispositions of discontinued operations, net of income taxes		494			20

Net income	$	13,271		$	2,362

Basic and diluted earnings (loss) per share:
Continuing operations	$	0.10		$	0.03
(Loss) from discontinued operations, net of income taxes		—			(0.01	)

Net income	$	0.10		$	0.02

Weighted average shares of common stock outstanding:
Basic		126,685			125,649
Diluted		128,933			126,375
Cash dividends per common share	$	0.07		$	0.07

The accompanying unaudited notes are an integral part of these consolidated financial statements.

PERKINELMER, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	March 28, 2004			December 28, 2003
	(Unaudited)
	(In thousands except share and per share data)
Current assets:
Cash and cash equivalents	$	165,471		$	191,499
Accounts receivable, net		282,695			288,556
Inventories		197,997			190,946
Other current assets		98,357			95,297

Total current assets		744,520			766,298

Property, plant and equipment:
At cost		622,764			623,164
Accumulated depreciation		(366,899	)		(355,008	)

Net property, plant and equipment		255,865			268,156
Marketable securities and investments		10,590			10,874
Intangible assets		418,024			424,811
Goodwill		1,032,073			1,034,911
Other assets		100,099			102,669

Total assets	$	2,561,171		$	2,607,719

Current liabilities:
Short-term debt	$	4,979		$	5,167
Accounts payable		143,057			154,661
Accrued restructuring costs and integration costs		6,016			8,055
Accrued expenses		291,407			284,132

Total current liabilities		445,459			452,015

Long-term debt		499,369			544,307
Long-term liabilities		261,667			262,347

Commitments and contingencies

Stockholders’ equity:
Preferred stock — $1 par value per share, authorized 1,000,000 shares; none issued or outstanding		—			—
Common stock — $1 par value per share, authorized 300,000,000 shares; issued 145,101,000; and outstanding 127,682,000 and 126,909,000 at March 28, 2004 and December 28, 2003, respectively		145,101			145,101
Capital in excess of par value		684,059			681,550
Unearned compensation		(6,928	)		(3,494	)
Retained earnings		676,983			672,616
Accumulated other comprehensive income		27,972			30,908
Cost of shares held in treasury — 17,419,000, shares at March 28, 2004 and 18,192,000 shares at December 28, 2003, respectively		(172,511	)		(177,631	)

Total stockholders’ equity		1,354,676			1,349,050

Total liabilities and stockholders’ equity	$	2,561,171		$	2,607,719

The accompanying unaudited notes are an integral part of these consolidated financial statements.

PERKINELMER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended
	March 28, 2004			March 30, 2003
	(Unaudited)
	(In thousands)
Operating activities:
Net income	$	13,271		$	2,362
Add net loss from discontinued operations		—			980
Deduct net gain on disposition of discontinued operations		(494	)		(20	)

Net income from continuing operations		12,777			3,322
Adjustments to reconcile net income from continuing operations to net cash provided by continuing operations:
Stock-based compensation		806			700
Amortization of debt discount and issuance costs		2,211			2,866
Depreciation and amortization		19,483			18,801
Gains on dispositions and sales of investments, net		(363	)		(580	)
Loss on impairment of assets		1,160			—
Changes in operating assets and liabilities which provided (used) cash, excluding effects from companies purchased and divested:
Accounts receivable		5,334			37,342
Inventories		(7,030	)		1,406
Accounts payable		(11,967	)		(14,710	)
Accrued restructuring costs		(2,039	)		(4,557	)
Accrued expenses and other		5,427			(21,685	)

Net cash provided by operating activities from continuing operations		25,799			22,905
Net cash provided by operating activities from discontinued operations		757			1,164

Net cash provided by operating activities		26,556			24,069
Investing activities:
Cash withdrawn from escrow to repay debt		—			32,509
Capital expenditures		(3,297	)		(3,461	)
Proceeds from dispositions of property, plant and equipment, net		2,056			—
Settlement of disposition of businesses, net		—			(575	)
Proceeds of acquisitions, net of cash acquired		—			2,126

Net cash (used in) provided by investing activities		(1,241	)		30,599
Financing activities:
Payment of debt issuance costs		—			(1,356	)
Prepayment of zero coupon convertible notes		—			(32,509	)
Prepayment of term loan debt		(45,000	)		(15,000	)
(Decrease) increase in other credit facilities		(464	)		211
Proceeds from issuance of common stock		3,658			—
Dividends paid		(8,904	)		(8,833	)

Net cash used in financing activities		(50,710	)		(57,487	)

Effect of exchange rate changes on cash and cash equivalents		(633	)		1,981

Net decrease in cash and cash equivalents		(26,028	)		(838	)
Cash and cash equivalents at beginning of period		191,499			130,615

Cash and cash equivalents at end of period	$	165,471		$	129,777

The accompanying unaudited notes are an integral part of these consolidated financial statements.

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

The consolidated financial statements included herein have been prepared by PerkinElmer, Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information in footnote disclosures normally included in financial statements has been condensed or omitted in accordance with the rules and regulations of the SEC. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003, filed with the SEC (the “2003 Form 10-K”). The balance sheet amounts at December 28, 2003 in this report were derived from the Company’s audited 2003 financial statements included in the 2003 Form 10-K. Certain prior period amounts have been reclassified to conform to the current-year financial statement presentation. The information reflects all adjustments that, in the opinion of management, are necessary to present fairly the Company’s results of operations, financial position and cash flows for the periods indicated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the three months ended March 28, 2004 and March 30, 2003 are not necessarily indicative of the results for the entire fiscal year.

(2) Restructuring (Reversals) and Impairment Charges, Net

The Company has undertaken four separate restructuring actions over the past three years related to the impact of acquisitions, divestitures and the integration of its business units. Restructuring actions in 2001 and 2002 were recorded in accordance with EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Restructuring actions taken in 2003 were recorded in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The principal actions associated with these plans related to workforce reductions and overhead reductions resulting from reorganization activities, including the closure of certain manufacturing and selling facilities. Details of these plans are discussed more fully in the Company’s 2003 Form 10-K.

In the quarter ended March 30, 2003, the Company recorded a pre-tax restructuring reversal of $0.4 million relating to its Q4 2001 Plan, described below, due to higher than expected attrition rates in several countries prior to ultimate termination and accordingly lower severance costs.

A description of each of the four restructuring plans and the activity recorded for the three-month period ended March 28, 2004 is as follows:

Q2 2003 Plan:

During 2003, the Company incurred a $2.0 million restructuring charge in the Life and Analytical Sciences business and a $0.3 million restructuring charge in the Optoelectronics business. The purpose of the restructuring was to further improve performance and take advantage of synergies between the Company’s former Life Sciences and Analytical Instruments businesses. The principal actions in this restructuring plan included lower headcount due to the continued integration of the Life and Analytical Sciences business in a European manufacturing facility and a customer care center as well as a headcount reduction at one of the Optoelectronics manufacturing facilities to reflect recent declining demand for several product lines.

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the components of the Company’s Q2 2003 Plan activity for the first quarter of 2004:


	Headcount		Severance and Separation
	(In thousands, except for headcount)
Q2 2003 Restructuring Plan
Balance at December 28, 2003	9		$	288
Amounts paid	(2	)		(13	)

Balance at March 28, 2004	7		$	275

All remaining Q2 2003 Plan actions will be completed by the end of 2004.

Q4 2002 Plan

In connection with the Company’s decision to combine the Life Sciences and Analytical Instruments businesses in order to reduce costs and achieve operational efficiencies, the Company recorded a pre-tax restructuring charge of $26.0 million during the fourth quarter of 2002. This plan allowed the Company to combine many business functions worldwide, with the intention to better serve its customers and more fully capitalize on the strengths of the businesses’ sales, service and research and development organizations. The principal actions in the restructuring plan included workforce reductions, closure of facilities and disposal of underutilized assets. The following table summarizes the components of the Company’s Q4 2002 Plan for the first quarter of 2004:


	Headcount		Severance			Abandonment of Excess Facilities			Total
	(In thousands, except for headcount)
Balance at December 28, 2003	65		$	2,770		$	1,530		$	4,300
Amounts paid	(33	)		(1,190	)		(384	)		(1,574	)

Balance at March 28, 2004	32		$	1,580		$	1,146		$	2,726

This restructuring resulted in the integration of U.S. Life and Analytical Sciences sales, service and customer care centers, the integration of European customer care and finance centers, the merging of a former Life Sciences European manufacturing facility with a former Analytical Instruments European manufacturing facility and the merging of a portion of a former Life Science research and development European facility with a former Analytical Instruments European facility.

During the first quarter of 2004, the Company expended approximately $1.6 million to execute these actions. The remaining liability represents severance and lease commitments. The Company expects to settle the remaining severance liability by the end of 2004. The lease commitments on unoccupied buildings extend until 2005.

Q1 2002 Plan

During the first quarter of 2002, the Company’s management developed a plan to restructure several businesses within its Life and Analytical Sciences and Optoelectronics segments. The plan resulted in pre-tax restructuring charges totaling $9.2 million. The principal actions in the restructuring plan included workforce and

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

overhead reductions resulting from reorganization activities, including the closure of a manufacturing facility, disposal of underutilized assets and general cost reductions. The restructuring activities were completed in 2003 with the exception of payments due on a leased facility exited in 2002, which will be paid through 2005. The following table summarizes the components of the Company’s Q1 2002 Plan for the first quarter of 2004:


	Abandonment of Excess Facilities
	(In thousands)
Balance at December 28, 2003	$	100
Amounts paid		(33	)

Balance at March 28, 2004	$	67

Q4 2001 Plan:

During the fourth quarter of 2001, in connection with the integration of Packard BioScience (“Packard”), which the Company acquired that quarter, and a restructuring of sales offices in Europe, the Company recorded a restructuring charge of $9.2 million in the Life and Analytical Sciences segment. The principal actions in the restructuring plan include the closing or consolidation of several leased sales and service offices in Europe, as well as costs associated with the closure of a manufacturing facility in Europe, the closure of leased manufacturing facilities in the United States and the disposal of related assets. These actions were designed to streamline the organization and take advantage of the synergies offered by the Packard acquisition as they relate to the legacy Life and Analytical Science segment.

The following table summarizes the components of the Company’s Q4 2001 Plan for the three months period ended March 28, 2004.


	Severance
	(In thousands)
Q4 2001 Plan
Balance at December 28, 2003	$	2,471
Amounts paid		(346	)

Balance at March 28, 2004	$	2,125

The remaining liability relates to European severance obligations and will be paid in 2004.

Integration Charges:

In addition, as discussed in the Company’s 2003 Form 10-K, there have been integration reserves established relating primarily to the acquisition of Packard. The following table summarizes the activity in this reserve for the three-month period ended March 28, 2004:


	(In millions)
Accrued integration costs at December 28, 2003	$	0.9
Amounts paid		(0.1	)

Accrued integration cost at March 28, 2004	$	0.8

The integration activities were completed in 2003 with the exception of payments due on leased facilities exited in 2001 that will be paid through 2005.

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Impairment:

During the first quarter of 2004, the Company decided to significantly reduce the primary operations of its Optoelectronics Electroform product line, resulting in an impairment charge of $1.2 million. The $1.2 million impairment charge was primarily related to asset impairments of machinery and equipment.

(3) Gains on Dispositions

During the first quarter of 2004, the Company recognized a $0.4 million net gain from the sale of a building. During the first quarter of 2003, the Company recognized a $0.3 million net gain from the sale of a building and a $0.3 million previously deferred gain from the sale of a business.

(4) Inventories

Inventories consisted of the following:


	March 28, 2004		December 28, 2003
	(In thousands)
Raw materials	$	83,804	$	81,705
Work in progress		18,669		16,653
Finished goods		95,524		92,588

Total Inventories	$	197,997	$	190,946

(5) Debt

In December 2002, the Company entered into a senior credit facility. This facility was comprised of a six-year term loan in the amount of $315.0 million and a $100.0 million five-year revolving credit facility. This senior credit facility is secured primarily by a substantial portion of the Company’s and its subsidiaries’ domestic assets. During the three-months ended March 28, 2004, the Company paid $45.0 million of principal on its term loan which resulted in $1.2 million of accelerated amortization of debt issuance costs, included in Interest and Other Expense, Net. As of March 28, 2004 there was $200 million of outstanding principal on the term loan and no outstanding principal balance under the revolving credit facility.

In January 2004, the Company entered into interest rate swap agreements (the “Swaps”) that effectively converted the fixed interest rate on $100 million of the Company’s 8⁷/8% senior subordinated notes due 2013 (the “8⁷/8% Notes”) to a variable interest rate which is reset semi-annually in arrears based upon six-month USD LIBOR plus 427 basis points. The Swaps have the economic effect of modifying the interest obligations associated with these notes so that the interest payable on the notes effectively becomes variable. The Swaps reduced the annualized interest rate on the 8⁷/8% Notes by approximately 90 basis points during the three-months ended March 28, 2004. The fair value of these swap instruments as of March 28, 2004 was insignificant. These swaps have been designated as fair value hedges. These swaps will be marked to market in our consolidated financial statements so that fair value movements in these swaps will be offset by the fair value movement in the debt.

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(6) Earnings Per Share

Basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding plus all potentially dilutive common stock equivalents, primarily shares issuable upon the exercise of stock options using the treasury stock method:


	Three Months Ended
	March 28, 2004	March 30, 2003
	(In thousands)
Number of common shares — basic	126,685	125,649
Effect of dilutive securities
Stock options and employee stock purchase plan	1,926	236
Restricted stock	322	490

Number of common shares — diluted	128,933	126,375

Number of potentially dilutive securities excluded from calculation	6,749	12,782

(7) Comprehensive Income

Comprehensive income consisted of the following:


	Three Months Ended
	March 28, 2004			March 30, 2003
	(In thousands)
Net income	$	13,271		$	2,362
Other comprehensive income (loss):
Foreign currency translation adjustments		(2,814	)		11,324
Unrealized (losses) gains on securities, net of tax		(122	)		330

		(2,936	)		11,654

Comprehensive income	$	10,335		$	14,016

The components of accumulated other comprehensive income were as follows:


	March 28, 2004			December 28, 2003
	(In thousands)
Foreign currency translation adjustments	$	41,090		$	43,904
Minimum pension liability		(13,038	)		(13,038	)
Unrealized (losses) gains on securities		(80	)		42

Accumulated other comprehensive income	$	27,972		$	30,908

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(8) Industry Segment Information

The accounting policies of the reportable segments are the same as those described in Note 1 of the Company’s 2003 Form 10-K. The Company evaluates the performance of its operating segments based on operating profit. Intersegment sales and transfers are not significant. The operating segments and their principal products and services are:

•

Life and Analytical Sciences. The Company is a leading provider of drug discovery, genetic screening, and environmental and chemical analysis tools, including instruments, reagents, consumables, and services.

•

Optoelectronics. The Company provides a broad range of digital imaging, sensor and specialty lighting components used in the biomedical, consumer products and other specialty end markets.

•

Fluid Sciences. The Company provides critical fluid control and containment systems for highly demanding environments such as turbine engines and semiconductor fabrication facilities.

Sales and operating profit (loss) by segment are shown in the table below:


	Three months ended
	March 28, 2004			March 30, 2003
	(In thousands)
Life and Analytical Sciences
Sales	$	249,247		$	232,200
Operating income		15,983			11,622
Optoelectronics
Sales		86,717			83,302
Operating income		9,446			8,704
Fluid Sciences
Sales		57,487			42,947
Operating income		8,309			2,380
Other
Sales		—			—
Operating loss		(6,201	)		(3,438	)
Continuing Operations
Sales		393,451			358,449
Operating income	$	27,537		$	19,268

(9) Discontinued Operations

During the three months ended March 28, 2004, the Company settled various claims under certain long-term contracts with the Company’s former Technical Services business, which was sold in August 1999. The net settlement resulted in a pre-tax gain of $0.8 million that was recognized in the first quarter of 2004 and included in gain on dispositions of discontinued operations.

In June 2002, the Company completed the sale of its Security and Detection Systems business for cash consideration of approximately $110.0 million, including a working capital adjustment. The activity in the first quarter of 2003 of $0.03 million reflects adjustments attributable to revised estimates of the working capital adjustment and is included in gain on dispositions of discontinued operations. The Company has accounted for the Security and Detection Systems business as a discontinued operation in the accompanying consolidated financial statements.

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company recorded the following gains and losses, which have been reported as the gain on dispositions of discontinued operations, during the three month periods ended March 28, 2004 and March 30, 2003:


	Three Months Ended
	March 28, 2004		March 30, 2003
	(In thousands)
Gain on contract settlements associated with the Technical Services business	$	757	$	—
Gain on Security and Detection Systems business		—		33

Net gain on disposition of discontinued operations before income taxes		757		33
Provision for income taxes		263		13

Gain on dispositions of discontinued operations, net of income taxes	$	494	$	20

(10) Stock-Based Compensation

As allowed by SFAS No. 123, Accounting for Stock-Based Compensation, the Company has elected to account for stock-based compensation at intrinsic value with disclosure of the effects of fair value accounting on net income and earnings per share on a pro forma basis. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employee, and related interpretations. No stock-based employee compensation cost related to stock options is reflected in net income, as all options granted under those plans had an exercise price at least equal to the market value of the underlying common stock on the date of grant.

The Company has issued restricted stock to certain employees that vests over time and has reflected the fair value of these awards as unearned compensation until the restrictions are released and the compensation is earned. In addition, the Company has awarded performance-contingent restricted stock to certain executive officers that vests only upon achievement of specific performance targets within three years. If the performance targets are not achieved within the three-year period, the shares are forfeited. These shares were awarded under the Company’s 2001 Incentive Plan. Under current accounting rules, the compensation expense associated with the fair market value of these awards is variable; that is, the expense is determined based on the then-current stock price at the end of each quarter and is recognized over the period that the performance targets are expected to be achieved. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123.


	Three-Months Ended
	March 28, 2004			March 30, 2003
	(In thousands, except per share data)
Net income, as reported	$	13,271		$	2,362
Add: Stock-based employee compensation expense included in net income, net of related tax effects		371			455
Deduct: Total stock-based employee compensation expense determined under fair market value method for all awards, net of related tax effects		(4,320	)		(6,426	)

Pro forma net income (loss)	$	9,322		$	(3,609	)

Earnings (loss) per share:
Basic and Diluted — as reported	$	0.10		$	0.02
Basic and Diluted — pro forma	$	0.07		$	(0.03	)

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(11) Goodwill and Intangible Assets

In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and other Intangible Assets, the Company is required to test goodwill for impairment at the reporting unit level upon initial adoption and at least annually thereafter. As part of the Company’s on-going compliance with SFAS No. 142, the Company, assisted by valuation consultants, completed its annual assessment of goodwill using a measurement date of January 1, 2004. The results of this annual assessment resulted in no impairment charge.

The changes in the carrying amount of goodwill for the period ended March 28, 2004 from December 28, 2003 are as follows:


	Life and Analytical Sciences			Optoelectronics		Fluid Sciences		Consolidated
	(In thousands)
Balance, December 28, 2003	$	967,479		$	36,590	$	30,842	$	1,034,911
Foreign currency translation		(2,870	)		32		—		(2,838	)

Balance, March 28, 2004	$	964,609		$	36,622	$	30,842	$	1,032,073

Intangible asset balances at March 28, 2004 and December 28, 2003 were as follows:


	March 28, 2004			December 28, 2003
	(In thousands)
Patents	$	95,612		$	95,542
Less: Accumulated depreciation		(30,207	)		(27,786	)

Net patents		65,405			67,756

Licenses		48,795			48,490
Less: Accumulated depreciation		(13,790	)		(12,430	)

Net licenses		35,005			36,060

Core technology		208,692			208,692
Less: Accumulated depreciation		(50,111	)		(46,730	)

Net core technology		158,581			161,962

Net amortizable intangible assets		258,991			265,778
Non-amortizing intangible assets, primarily trademarks and trade names		159,033			159,033

TOTALS	$	418,024		$	424,811

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(12) Warranty Reserves

The Company provides warranty protection for certain products for periods ranging from one to three years beyond the date of sale. The majority of costs associated with warranty obligations include the replacement of parts and the time of service personnel to respond to repair and replacement requests. A warranty reserve is recorded based upon historical results, supplemented by management’s expectations of future costs. A summary of warranty reserve activity for the three-months ended March 28, 2004 and March 30, 2003 is as follows:


	Three-months ended
	March 28, 2004			March 30, 2003
	(In thousands)
Balance at beginning of period	$	9,798		$	9,809
Provision		3,285			3,630
Charges		(3,036	)		(3,296	)
Other		(6	)		86

Balance at end of period	$	10,041		$	10,229

(13) Employee Benefit Plans

Net periodic benefit cost (credit) included the following components for the three months ended March 28, 2004 and March 30, 2003:


	Defined Benefit Pension Benefits						Post-Retirement Medical Benefits
	Three Months Ended
	March 28, 2004			March 30, 2003			March 28, 2004			March 30, 2003
	(In thousands)
Service cost	$	1,403		$	1,247		$	34		$	30
Interest cost		5,527			5,251			128			137
Expected return on plan assets		(5,600	)		(5,423	)		(177	)		(187	)
Net amortization and deferral		567			233			(117	)		(118	)

Net periodic benefit cost (credit)	$	1,897		$	1,308		$	(132	)	$	(138	)

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(14) Guarantor Financial Information

The Company has outstanding $300 million in aggregate principal amount of 8⁷/8% Notes. The Company’s payment obligations under the 8⁷/8% Notes are guaranteed by some of the Company’s domestic subsidiaries (the “Guarantor Subsidiaries”). Such guarantee is full and unconditional. Separate financial statements of the Guarantor Subsidiaries are not presented because the Company’s management has determined that they would not be material to investors. The following supplemental financial information sets forth, on an unconsolidated basis, income statement, balance sheet and statements of cash flow information for the Company (“Parent Company Only”), for the Guarantor Subsidiaries and for the Company’s other subsidiaries (the “Non-Guarantor Subsidiaries”). The supplemental financial information reflects the investments of the Company and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.

Consolidating Income Statement

Three months ended March 28, 2004

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Sales	$	67,137		$	170,932		$	198,591	$	(43,209	)	$	393,451
Cost of sales		50,665			118,601			115,456		(43,209	)		241,513
Research and development expenses		1,449			11,761			7,418		—			20,628
Selling, general and administrative expenses		12,201			39,913			43,756		—			95,870
Other operating (income) expense, net		(255	)		6,562			1,596		—			7,903

Operating income (loss) from continuing operations		3,077			(5,905	)		30,365		—			27,537
Other expenses (income), net		9,655			(219	)		105		—			9,541

(Loss) income from continuing operations before income taxes		(6,578	)		(5,686	)		30,260		—			17,996
(Benefit) provision for income taxes		(1,908	)		(1,649	)		8,776		—			5,219

(Loss) income from continuing operations		(4,670	)		(4,037	)		21,484		—			12,777
Equity earnings (loss) from subsidiaries, net of tax		17,447			21,484			—		(38,931	)		—
Gain on disposition of discontinued operations, net of income taxes		494			—			—		—			494

Net income (loss)	$	13,271		$	17,447		$	21,484	$	(38,931	)	$	13,271

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Income Statement

Three months ended March 30, 2003

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Sales	$	51,830		$	137,199		$	184,243	$	(14,823	)	$	358,449
Cost of sales		40,802			82,765			110,536		(14,823	)		219,280
Research and development expenses		978			12,041			7,833		—			20,852
Selling, general and administrative expenses		8,486			35,339			49,054		—			92,879
Other operating expense (income), net		(1,759	)		6,136			1,793		—			6,170

Operating income from continuing operations		3,323			918			15,027		—			19,268
Other expenses (income), net		579			11,090			2,678		—			14,347

(Loss) income from continuing operations before income taxes		2,744			(10,172	)		12,349		—			4,921
(Benefit) provision for income taxes		892			(3,306	)		4,013		—			1,599

(Loss) income from continuing operations		1,852			(6,866	)		8,336		—			3,322
Equity earnings (loss) from subsidiaries, net of tax		1,470			8,336			—		(9,806	)		—
Loss from discontinued operations, net of income taxes		(960	)		—			—		—			(960	)

Net income (loss)	$	2,362		$	1,470		$	8,336	$	(9,806	)	$	2,362

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Balance Sheet

March 28, 2004

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	28,136		$	—	$	137,335	$	—		$	165,471
Accounts receivable, net		34,592			42,512		205,591		—			282,695
Inventories		21,757			83,485		92,755		—			197,997
Other current assets		37,647			20,368		40,342		—			98,357

Total current assets		122,132			146,365		476,023		—			744,520

Property, plant and equipment, net		29,461			143,800		82,604		—			255,865
Investments		8,775			993		822		—			10,590
Goodwill and intangible assets		34,891			1,085,578		329,628		—			1,450,097
Intercompany receivable/(payable), net		(1,225,322	)		806,971		418,351		—			—
Investment in subsidiary		2,979,206			979,829		—		(3,959,035	)		—
Other assets		83,122			5,877		11,100		—			100,099

Total assets	$	2,032,265		$	3,169,413	$	1,318,528	$	(3,959,035	)	$	2,561,171

Current liabilities:
Short-term debt	$	3,150		$	—	$	1,829	$	—		$	4,979
Accounts payable		25,073			49,722		68,262		—			143,057
Accrued restructuring and integration costs		—			4,045		1,971		—			6,016
Accrued expenses		107,209			72,918		111,280		—			291,407

Total current liabilities		135,432			126,685		183,342		—			445,459
Long-term debt		499,369			—		—		—			499,369
Long-term liabilities		42,788			63,522		155,357		—			261,667
Total stockholders’ equity		1,354,676			2,979,206		979,829		(3,959,035	)		1,354,676

Total liabilities and stockholders’ equity	$	2,032,265		$	3,169,413	$	1,318,528	$	(3,959,035	)	$	2,561,171

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Balance Sheet

December 28, 2003

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	39,360		$	0	$	152,139		—		$	191,499
Accounts receivable, net		27,208			57,548		203,800		—			288,556
Inventories		20,459			80,934		89,553		—			190,946
Other current assets		38,082			21,332		35,883		—			95,297

Total current assets		125,109			159,814		481,375		—			766,298

Property, plant and equipment, net		29,493			150,930		87,733		—			268,156
Investments		7,910			994		1,970		—			10,874
Goodwill and intangible assets		29,470			1,098,732		331,520		—			1,459,722
Intercompany receivable/(payable), net		(1,013,702	)		767,949		245,753		—			—
Investment in subsidiary		2,811,733			829,776		—		(3,641,509	)		—
Other assets		85,156			6,874		10,639		—			102,669

Total assets	$	2,075,169		$	3,015,069	$	1,158,990	$	(3,641,509	)	$	2,607,719

Current liabilities:
Short-term debt	$	3,150		$	0	$	2,017		—		$	5,167
Accounts payable		26,311			51,905		76,445		—			154,661
Accrued restructuring and integration costs		—			4,497		3,558		—			8,055
Accrued expenses		107,689			84,382		92,061		—			284,132

Total current liabilities		137,150			140,784		174,081		—			452,015
Long-term debt		544,307			—		—		—			544,307
Long-term liabilities		44,662			62,552		155,133		—			262,347
Total stockholders’ equity		1,349,050			2,811,733		829,776		(3,641,509	)		1,349,050

Total liabilities and stockholders’ equity	$	2,075,169		$	3,015,069	$	1,158,990	$	(3,641,509	)	$	2,607,719

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Cash Flow Statement

Three months ended March 28, 2004

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Operating Activities
Net cash provided by (used in) continuing operating activities	$	36,792		$	1,253		$	(12,246	)	$	—	$	25,799
Net cash provided by discontinued operating activities		757			—			—			—		757

Net cash provided by (used in) operating activities		37,549			1,253			(12,246	)		—		26,556

Investing Activities
Capital expenditures		(307	)		(1,253	)		(1,737	)		—		(3,297	)
Proceeds from the disposition of property, plant and equipment		2,056			—			—			—		2,056

Net cash provided by (used in) investing activities		1,749			(1,253	)		(1,737	)		—		(1,241	)

Financing Activities
Prepayment of indebtedness		(45,000	)		—			—			—		(45,000	)
Other debt decreases		(276	)		—			(188	)		—		(464	)
Proceeds from issuance of common stock		3,658			—			—			—		3,658
Cash dividends		(8,904	)		—			—			—		(8,904	)

Net cash (used in) financing activities		(50,522	)		—			(188	)		—		(50,710	)

Effect of exchange rate changes on cash and cash equivalents		—			—			(633	)		—		(633	)

Net decrease in cash and cash equivalents		(11,224	)		—			(14,804	)		—		(26,028	)
Cash and cash equivalents, beginning of period		39,360			—			152,139			—		191,499

Cash and cash equivalents, end of period	$	28,136		$	—		$	137,335		$	—	$	165,471

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Cash Flow Statement

Three months ended March 30, 2003

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Operating Activities
Net cash provided by (used in) continuing operating activities	$	17,851		$	(4,508	)	$	9,562			—	$	22,905
Net cash provided by discontinued operating activities		1,164			—			—			—		1,164

Net cash provided by (used in) operating activities		19,015			(4,508	)		9,562			—		24,069

Investing Activities
Cash withdrawn from escrow		32,509			—			—			—		32,509
Capital expenditures		(525	)		(1,595	)		(1,341	)		—		(3,461	)
Proceeds from the disposition of businesses		(575	)		—			—			—		(575	)
Cost of acquisitions, net of cash acquired		2,126			—			—			—		2,126

Net cash provided by (used in) investing activities		33,535			(1,595	)		(1,341	)		—		30,599

Financing Activities
Prepayment of indebtedness		(47,509	)		—			—			—		(47,509	)
Other debt (decreases) increases		(564	)		—			775			—		211
Payment of debt issuance costs		(1,356	)		—			—			—		(1,356	)
Cash dividends		(8,833	)		—			—			—		(8,833	)

Net cash (used in) financing activities		(58,262	)		—			775			—		(57,487	)

Effect of exchange rate changes on cash and cash equivalents		—			—			1,981			—		1,981

Net increase (decrease) in cash and cash equivalents		(5,712	)		(6,103	)		10,977			—		(838	)
Cash and cash equivalents, beginning of period		27,745			6,981			95,889			—		130,615

Cash and cash equivalents, end of period	$	22,033		$	878		$	106,866		$	—	$	129,777

(15) 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 where an estimated loss is 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, results of operations or cash flows of the Company.

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 the cost can be reasonably estimated. The Company had accrued $6.0 million as of March 28, 2004, representing management’s estimate of the total cost of ultimate disposition of known environmental matters. Such amount is not discounted and does not reflect the recovery of any amounts through insurance or indemnification arrangements. These cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the timeframe over which remediation may occur and the possible effects of changing laws and regulations. For sites where the Company has been named a PRP, management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. The Company expects that such accrued amounts could be paid out over a period of up to ten years. As assessments and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had or are expected to have a material effect on the Company’s financial position or results of operations. While it is reasonably possible that a material loss exceeding the amounts recorded may have been incurred, the potential exposure is not expected to be materially different than the amounts recorded.

On June 14, 2002, the Company sold its Security and Detection Systems business to L-3 Communications Corporation. L-3 and several of its affiliates were originally named as defendants in litigation arising out of the terrorist attacks on September 11, 2001. Among the claims made by the plaintiffs in that litigation were allegations that there were defects in the products of the Security and Detection Systems business that the Company sold to L-3. L-3 has asserted that the Company is contractually obligated to indemnify L-3 for any liability it may incur as a result of that litigation. However, L-3 has not been named as a defendant in the Amended Master Complaints filed by the plaintiffs on March 31, 2004 relating to the September 11, 2001 attacks. If necessary, the Company intends to contest this matter vigorously. The Company is unable, however, to reasonably estimate the amount of loss, if any, which may result from resolution of this matter.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q, including the following management’s discussion and analysis, contains forward-looking information that you should read in conjunction with the consolidated financial statements and notes to consolidated financial statements that we have included elsewhere in this quarterly report on Form 10-Q. 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,” “plans,” “anticipates,” “expects,” “will” and similar expressions are intended to identify forward-looking statements. Our actual results may differ materially from the plans, intentions or expectations we disclose in the forward-looking statements we make. We have included important factors below under the heading “Forward-Looking Information and Factors Affecting Future Performance” that we believe could cause actual results to differ materially from the forward-looking statements we make. We are not obligated to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a leading provider of scientific instruments, consumables and services to the pharmaceutical, biomedical, environmental testing and general industrial markets. We design, manufacture, market and service products and systems within three businesses, each constituting one reporting segment:

•

Life and Analytical Sciences. We are a leading provider of drug discovery, genetic screening, and environmental and chemical analysis tools, including instruments, reagents, consumables, and services.

•

Optoelectronics. We provide a broad range of digital imaging, sensor and specialty lighting components used in the biomedical, consumer products and other specialty end markets.

•

Fluid Sciences. We provide critical fluid control and containment solutions for highly demanding environments such as turbine engines and semiconductor fabrication facilities.

Formation of our Life and Analytical Sciences Business Unit

We combined our Life Sciences and Analytical Instruments businesses to form our Life and Analytical Sciences business in the fourth quarter of 2002 to improve our operational scale, which we believe will enable us to better serve our customers and more fully capitalize on the strengths of the combined businesses’ sales, service and research and development organizations. In the second quarter of 2003, we completed many of the changes involved in combining the two businesses, including the integration of facilities and management reporting and other systems. We have now aggregated the two segments into one reporting segment for financial statement purposes, as discrete financial information is now only available on a combined basis. For comparative purposes we have disclosed our Life and Analytical Sciences business as one reporting segment for all periods presented.

In connection with the combination of our Life Sciences and Analytical Instruments business units, we recorded a $26.0 million restructuring charge in the fourth quarter of 2002 as a result of workforce reductions, facility closures and contract terminations. These actions occurred during 2003 with the exception of lease commitment payouts and other spending, which we expect to complete in 2004. We achieved in excess of the original range of $12 million to $25 million in anticipated pre-tax cost savings in fiscal 2003 from the combination of our Life Sciences and Analytical Instruments businesses relative to our fiscal 2002 cost levels. We are targeting additional pre-tax cost savings from the combination of between $5 million and $20 million in fiscal 2004, for combined pre-tax cost savings of between $30 million and $45 million relative to our fiscal 2002 cost levels. Unforeseen factors may offset some or all of the estimated cost savings or other benefits from the integration. As a result, our actual cost savings, if any, could differ or be delayed, compared to our estimates.

Consolidated Results of Continuing Operations

Sales

Sales for the first quarter of 2004 were $393.5 million, versus $358.4 million for the first quarter of 2003, an increase of $35.1 million, or 10%. Changes in foreign exchange rates, primarily the Euro, increased sales by approximately $18.0 million in the first quarter of 2004, as compared to the first quarter of 2003. This increase in sales reflects a $17.0 million, or 7%, increase in our Life and Analytical Sciences segment sales, which includes approximately $15.2 million in sales attributable to favorable changes in foreign exchange rates compared to the first quarter of 2003. Our Optoelectronics segment sales grew $3.4 million, or 4%, including approximately $2.3 million in sales attributable to favorable changes in foreign exchange rates compared to the first quarter of 2003. Our Fluid Sciences segment sales grew $14.6 million, or 34%, including approximately $0.5 million in sales attributable to favorable changes in foreign exchange rates compared to the first quarter of 2003.

Cost of Sales

Cost of sales for the first quarter of 2004 was $241.5 million, versus $219.3 million for the first quarter of 2003, an increase of $22.2 million, or 10%. As a percentage of sales, cost of sales increased to 61.4% in the first quarter of 2004 from 61.2% in the first quarter of 2003, resulting in a decrease in gross margin of 20 basis points from 38.8% in the first quarter of 2003 to 38.6% in the first quarter of 2004. The decrease in gross margin was primarily attributable to overall sales increases in Fluid Sciences and increases in service within Life and Analytical Sciences, both of which have lower gross margins but also lower operating expenses.

Research and Development Expenses

Research and development expenses for the first quarter of 2004 were $20.6 million versus $20.9 million for the first quarter of 2003, a decrease of $0.3 million, or 1%. As a percentage of sales, research and development expenses decreased to 5.2% in the first quarter of 2004 from 5.8% in the first quarter of 2003, primarily due to the consolidation of research and development activities in our Life and Analytical Sciences segment to take advantage of increased synergies and corresponding cost savings as a result of fewer sites. We directed research and development efforts during the first quarters of 2004 and 2003 primarily toward genetic screening and biopharmaceutical end markets within our Life and Analytical Sciences reporting segment and medical digital imaging and industrial sensors within our Optoelectronics reporting segment. We expect our research and development efforts to continue to emphasize the health sciences end markets. Our current plans anticipate that our research and development spending for fiscal 2004 will be slightly higher as compared to our historical levels in fiscal 2003.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the first quarter of 2004 were $95.9 million, versus $92.9 million for the first quarter of 2003, an increase of $3.0 million, or 3%. As a percentage of sales, selling, general and administrative expenses decreased 150 basis points to 24.4% in the first quarter of 2004 from 25.9% in the first quarter of 2003. The decrease as a percentage of sales of 150 basis points in the first quarter of 2004, as compared to the first quarter of 2003, was primarily the result of productivity improvements resulting from our 2003 integration and restructuring efforts, and the overall growth of Fluid Sciences and increases in service within Life and Analytical Sciences which carry a lower selling, general and administrative expense structure.

Restructuring (Reversals) and Impairment Charges, Net

As discussed more fully in our annual report on Form 10-K for the fiscal year ended December 28, 2003, we have undertaken four separate restructuring actions over the past three years related to the impact of acquisitions, divestitures and the integration of our business units. Restructuring actions in 2001 and 2002 were recorded in

accordance with EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Restructuring actions taken in 2003 were recorded in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The principal actions associated with these plans related to workforce reductions and overhead reductions resulting from reorganization activities, including the closure of certain manufacturing and selling facilities. Details of these plans are discussed more fully in our 2003 Form 10-K.

In the quarter ended March 30, 2003, we recorded a pre-tax restructuring reversal of $0.4 million relating to our Q4 2001 Plan, discussed below, due to higher than expected attrition rates in several countries prior to ultimate termination and accordingly lower severance costs.

A description of each of the four restructuring plans and the activity recorded for the three-month period ended March 28, 2004 is as follows:

Q2 2003 Plan

During 2003, we incurred a $2.0 million restructuring charge in the Life and Analytical Sciences business and a $0.3 million restructuring charge in the Optoelectronics business. The purpose of the restructuring was to further improve performance and take advantage of synergies between our former Life Sciences and Analytical Instruments businesses. The principal actions in this restructuring plan included lower headcount due to the continued integration of the Life and Analytical Sciences business in a European manufacturing facility and a customer care center as well as a headcount reduction at one of the Optoelectronics manufacturing facilities to reflect recent declining demand for several product lines.

The following table summarizes the components of our Q2 2003 Plan activity for the first quarter of 2004:


	Headcount		Severance and Separation
	(In thousands)
Q2 2003 Restructuring Plan
Balance at December 28, 2003	9		$	288
Amounts paid	(2	)		(13	)

Balance at March 28, 2004	7		$	275

All remaining Q2 2003 Plan actions will be completed by the end of 2004.

Q4 2002 Plan

In connection with the our decision to combine the Life Sciences and Analytical Instruments businesses in order to reduce costs and achieve operational efficiencies, we recorded a pre-tax restructuring charge of $26.0 million during the fourth quarter of 2002. This plan allowed us to combine many business functions worldwide, with the intention to better serve our customers and more fully capitalize on the strengths of the businesses’ sales, service and research and development organizations. The principal actions in the restructuring plan included workforce reductions, closure of facilities and disposal of underutilized assets. The following table summarizes the components of our Q4 2002 Plan for the first quarter of 2004:


	Headcount		Severance			Abandonment of Excess Facilities			Total
	(In thousands, except for headcount)
Balance at December 28, 2003	65		$	2,770		$	1,530		$	4,300
Amounts paid	(33	)		(1,190	)		(384	)		(1,574	)

Balance at March 28, 2004	32		$	1,580		$	1,146		$	2,726

During the first quarter of 2004, we expended $1.6 million to execute these actions. The remaining liability represents severance and lease commitments. We expect to settle the remaining severance liability by the end of 2004. The lease commitments on unoccupied buildings extend until 2005.

Q1 2002 Plan

During the first quarter of 2002, we developed a plan to restructure several businesses within our Life and Analytical Sciences and Optoelectronics segments. The plan resulted in pre-tax restructuring charges totaling $9.2 million. The principal actions in the restructuring plan included workforce and overhead reductions resulting from reorganization activities, including the closure of a manufacturing facility, disposal of underutilized assets and general cost reductions. The restructuring activities were completed in 2003 with the exception of payments due on a leased facility exited in 2002, which will be paid through 2005. The following table summarizes the components of our Q1 2002 Plan for the first quarter of 2004:


	Abandonment of Excess Facilities
	(In thousands)
Balance at December 28, 2003	$	100
Amounts paid		(33	)

Balance at March 28, 2004	$	67

Q4 2001 Plan

During the fourth quarter of 2001, in connection with the integration of Packard Bioscience, which we acquired that quarter, and a restructuring of sales offices in Europe, we recorded a restructuring charge of $9.2 million in the Life and Analytical Sciences segment. The principal actions in the restructuring plan include the closing or consolidation of several leased sales and services offices in Europe, as well as costs associated with the closure of a manufacturing facility in Europe, the closure of leased manufacturing facilities in the United States and the disposal of related assets. These actions were designed to streamline the organization and take advantage of the synergies offered by the Packard acquisition as they relate to the legacy Life and Analytical Science segment.

The following table summarizes the components of our Q4 2001 Plan for the first quarter of 2004:


	Severance
	(In thousands)
Q4 2001 Plan
Balance at December 28, 2003	$	2,471
Amounts paid or incurred		(346	)

Balance at March 28, 2004	$	2,125

The remaining liability relates to European severance obligations and will be paid in 2004.

Integration Charges

In addition, as discussed in our annual report on Form 10-K for the fiscal year ended December 28, 2003, there have been integration reserves established relating to the acquisition of Packard. The integration activities were completed in early 2003 with the exception of $0.8 million of remaining payments due on leased facilities exited in 2001 that will be paid through 2005. During the first quarter of 2004, we expended $0.1 million to execute these actions.

Impairment

During the first quarter of 2004, we decided to significantly reduce the primary operations of our Optoelectronics Electroform product line, resulting in an impairment charge of $1.2 million. The $1.2 million impairment charge was primarily related to asset impairments of machinery and equipment.

Gains on Dispositions

Gains on dispositions resulted in a net gain of $0.4 million in the first quarter of 2004, compared to a net gain of $0.6 million in the first quarter of 2003. Gains on dispositions in the first quarter of 2004 totaled $0.4 million from the sale of a building. Gains on dispositions in the first quarter of 2003 included a $0.3 million gain from the sale of a building and a previously deferred $0.3 million gain from the sale of a business.

Amortization of Intangible Assets

Amortization of intangible assets was $7.1 million for the first quarter of 2004 and $7.2 million for the first quarter of 2003. Slight increases in the Life and Analytical Sciences segment amortization due to the effect of foreign exchange were offset by slight decreases in amortization in the Optoelectronics and Fluid Sciences segments in the first quarter of 2004, compared to the first quarter of 2003.

Interest and Other Expense, Net

Interest and other expense, net consisted of the following:


	Three Months Ended
	March 28, 2004			March 30, 2003
	(In thousands)
Interest income	$	(485	)	$	(1,017	)
Interest expense		9,775			14,265
Acceleration of amortization of debt issue costs		1,166			—
Other		(915	)		1,099

	$	9,541		$	14,347

Interest and other expense, net for the three months ended March 28, 2004 was $9.5 million, versus $14.3 million for the three months ended March 30, 2003, a decrease of $4.8 million, or 34%. The decrease in interest and other expense, net in the first quarter of 2004 as compared to the first quarter of 2003, was due primarily to lower outstanding borrowings, lower average borrowing rates resulting from our December 2003 amendment of our credit facility that reduced the interest rate margin attributable to our term loan and a fixed to floating interest rate swap that we entered into in January 2004 applicable to $100 million of our outstanding fixed rate debt. A discussion of our liquidity and our prospective borrowing costs is set forth under the heading “Liquidity and Capital Resources.” The decrease in interest expense for the first quarter of 2004, as compared to the first quarter of 2003, was offset by an increase of $1.2 million due primarily to our increased acceleration of the amortization of debt issuance costs resulting from partial prepayments of our term debt during the first quarter of 2004.

Provision/Benefit for Income Taxes

The first quarter 2004 provision for income taxes was $5.2 million, versus a provision of $1.6 million for the first quarter of 2003. Our effective tax rate for the first quarter of 2004 was 29% as compared to an effective tax rate of 32.5% for the first quarter of 2003. The reduced effective tax rate for the first quarter of 2004 was due to changes in our anticipated geographic pattern of earnings compared to the first quarter of 2003, reduced generation of net operating losses, and a lower U.S. tax cost on foreign earnings.

Discontinued Operations

We recorded the following gains and losses, which we report as the gain on dispositions of discontinued operations, during the three-month periods ended March 28, 2004 and March 30, 2003:


	Three Months Ended
	March 28, 2004		March 30, 2003
	(In thousands)
Gain on contract settlement associated with the Technical Services business	$	757	$	—
Gain on Security and Detection Systems business		—		33

Net gain on disposition of discontinued operations before income taxes		757		33
Provision for income taxes		263		13

Gain on disposition of discontinued operations, net of income taxes	$	494	$	20

During the three months ended March 28, 2004, we settled various claims under certain long-term contracts with our former Technical Services business, which we sold in August 1999. The net settlement resulted in a pre-tax gain of $0.8 million that we recognized in the first quarter of 2004 and included in gain on dispositions of discontinued operations.

In June 2002, we completed the sale of our Security and Detection Systems business for cash consideration of approximately $110.0 million, including a working capital adjustment. The gain of $0.03 million in the first quarter of 2003 relating to this business reflects adjustments attributable to revised estimates of the working capital adjustment and is included in gain on dispositions of discontinued operations. We have accounted for the Security and Detection Systems business as a discontinued operation in our consolidated financial statements.

Contingencies

We are conducting a number of environmental investigations and remedial actions at our current and former locations and, along with other companies, have been named a potentially responsible party for certain waste disposal sites. We accrue for environmental issues in the accounting period that our responsibility is established and when the cost can be reasonably estimated. We have accrued $6.0 million as of March 28, 2004, representing our management’s estimate of the total cost of ultimate disposition of known environmental matters. This 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 we have been named a potentially responsible party, our management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. We expect that such accrued amounts could be paid out over a period of up to ten years. As assessment 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 adverse effect on our financial position or results of operations. While it is possible that a material loss exceeding the amounts recorded may be incurred, we do not expect the potential exposure to be materially different from the amounts we recorded.

On June 14, 2002, we sold our Security and Detection Systems business to L-3 Communications Corporation. L-3 and several of its affiliates were originally named as defendants in litigation arising out of the terrorist attacks on September 11, 2001. Among the claims made by the plaintiffs in that litigation were allegations that there were defects in the products of the Security and Detection Systems business that we sold to L-3. L-3 asserted that we are contractually obligated to indemnify L-3 for any liability it may incur as a result of that litigation. However, L-3 has not been named as a defendant in the Amended Master Complaints filed by the plaintiffs on March 31, 2004 relating to the September 11, 2001 attacks. If necessary, we intend to contest this matter vigorously. We are unable, however, to reasonably estimate the amount of loss, if any, which may result from resolution of this matter.

Reporting Segment Results of Continuing Operations

Life and Analytical Sciences

Sales for the first quarter of 2004 were $249.2 million, versus $232.2 million for the first quarter of 2003, an increase of $17.0 million, or 7%. Changes in foreign exchange rates, primarily the Euro, increased sales by approximately $15.2 million in the first quarter of 2004, as compared to the first quarter of 2003. The following analysis compares selected sales by market and product type for the first quarter of 2004, as compared to the first quarter of 2003, and includes the effect of foreign exchange rate fluctuations. Sales to biopharmaceutical customers increased $5.6 million, sales to environmental and chemical analysis customers increased $4.2 million, sales to genetic screening customers increased $2.5 million and our OneSource^™ laboratory service sales increased by $4.7 million. Sales by type of product included increases in sales of instruments of $8.6 million and of consumables of $3.7 million and service of $4.7 million.

Operating profit for the first quarter of 2004 was $16.0 million, versus $11.6 million for the first quarter of 2003, an increase of $4.4 million. The increase in operating profit in the first quarter of 2004 as compared to the first quarter of 2003 was primarily the result of productivity improvements resulting from prior year integration and restructuring efforts, including a reduction of headcount as well as the closure of operating sites from the first quarter of 2003 to the first quarter of 2004. Amortization of intangible assets was $6.6 million for the first quarter of 2004, versus $6.5 million for the first quarter of 2003.

Optoelectronics

Sales for the first quarter of 2004 were $86.7 million, versus $83.3 million for the first quarter of 2003, an increase of $3.4 million, or 4%. Changes in foreign exchange rates increased sales by approximately $2.3 million in the first quarter of 2004, as compared to the first quarter of 2003. The overall sales increase in the first quarter of 2004, as compared to the first quarter of 2003, was primarily related to increases in sales within our imaging product line.

Operating profit for the first quarter of 2004 was $9.4 million, versus $8.7 million for the first quarter of 2003, an increase of $0.7 million. The increase in operating profit in the first quarter of 2004, as compared to the first quarter of 2003, was the result of increased sales volume which increased operating profit by $1.2 million and other factors, primarily productivity improvements which reduced expenses by approximately $1.3 million, offset in part by pricing reductions totaling $1.8 million. Amortization of intangible assets was $0.3 million for the first quarter of 2004 and $0.3 million for the first quarter of 2003.

Fluid Sciences

Sales for the first quarter of 2004 were $57.5 million, versus $42.9 million for the first quarter of 2003, an increase of $14.6 million, or 34%. Changes in foreign exchange rates increased sales by approximately $0.5 million. The following analysis of sales by product line for the first quarter of 2004, as compared to the first quarter of 2003, includes the effects of changes in foreign exchange rates. Sales increased $7.6 million in our semiconductor business, $4.9 million in our aerospace business, $1.8 million in our fluid testing business and $0.3 million in our energy technology business.

Operating profit for the first quarter of 2004 was $8.3 million, versus $2.4 million for the first quarter of 2003, an increase of $5.9 million. The increase in operating profit in the first quarter of 2004, as compared to the first quarter of 2003, was primarily the result of increased sales resulting in better leverage of fixed costs. Amortization of intangible assets was $0.2 million for the first quarter of 2004 and $0.4 million for the first quarter of 2003.

Liquidity and Capital Resources

We require cash to pay our operating expenses, make capital expenditures, service our debt and other long-term liabilities and pay dividends on our common stock. Our principal sources of funds are from our operations and the capital markets, particularly the debt markets. In the near term, we anticipate that our operations will generate sufficient cash to fund our operating expenses, capital expenditures, interest payments on our debt and dividends on our common stock. In the long-term, we expect to use internally generated funds and external sources to satisfy our debt and other long-term liabilities.

Principal factors that could affect the availability of our internally generated funds include:

•

deterioration of sales due to weakness in markets in which we sell our products and services,

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changes in our working capital requirements, and

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our ability to successfully repatriate cash balances from our foreign subsidiaries for use in settling domestic obligations.

Principal factors that could affect our ability to obtain cash from external sources include:

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financial covenants contained in our borrowings that limit our total borrowing capacity,

•

increases in interest rates applicable to our outstanding variable rate debt,

•

a ratings downgrade that would limit our ability to borrow under our accounts receivable facility and our overall access to the corporate debt market,

•

volatility in the markets for corporate debt,

•

a decrease in the market price for our common stock, and

•

volatility in the public equity markets.

Cash Flows

Operating Activities. Net cash generated by continuing operations operating activities was $25.8 million in the first quarter of 2004, compared to cash generated by continuing operations operating activities of $22.9 million for the first quarter of 2003. Contributing to the generation of cash from operating activities during the first quarter of 2004 was net income from continuing operations of $12.8 million and depreciation and amortization of $19.5 million. These amounts were offset by a net increase in working capital accounts of $13.7 million. Contributing to the net increase in working capital in the first quarter of 2004 were an increase in

inventory of $7.0 million and a decrease in accounts payable of $12.0 million offset by a $5.3 million reduction in accounts receivable. There was no incremental use of our accounts receivable securitization facility during the first quarter of 2004, which totaled $45.0 million at both December 28, 2003 and March 28, 2004. Net cash generated from changes in accrued expenses, restructuring, other assets and liabilities and other items totaled $7.2 million during the first quarter of 2004.

Investing Activities. Investing activities used $1.2 million of cash in the first quarter of 2004, compared to $30.6 million of cash generated in the first quarter of 2003. Included in the first quarter of 2003 was $32.5 million resulting from cash withdrawn from escrow to retire a portion of our outstanding zero coupon convertible debentures. In the first quarter of 2004, we made capital expenditures of $3.3 million mainly in the areas of tooling and productivity improvements. We also derived $2.1 million from proceeds from the sale of a building in the first quarter of 2004. In 2004, our current plans anticipate investing a total of approximately $30.0 to $40.0 million in capital expenditures.

Financing Activities. In the first quarter of 2004, we used $50.7 million of net cash in financing activities, compared to $57.5 million of cash used in the first quarter of 2003. Debt reductions during the first quarter of 2004 totaled $45.5 million and were mainly comprised of a $45.0 million use of cash to repay a portion of our term loan. We paid $8.9 million in dividends and received net cash proceeds from the exercise of employee stock options of $3.7 million in the first quarter of 2004.

Borrowing Arrangements

Senior Secured Credit Facility. In December 2002, we entered into a senior credit facility. This facility is comprised of a six-year term loan in the amount of $315.0 million and a $100.0 million five-year revolving credit facility. In the first quarter of 2004, we made $45 million of principal payments on the term loan. At March 28, 2004 we had $200 million outstanding under our term loan. We had no outstanding principal balance under our revolving credit facility at March 28, 2004 or at any other time during the year. This senior credit facility is secured primarily by a substantial portion of our and our subsidiaries’ domestic assets.

Interest rates under the senior credit facility applicable to the term loan and to the revolving credit facility are determined as a margin over either the Eurodollar rate or the base rate and are reset on a one month, three month or six month basis at our option. The base rate is the higher of (1) the corporate base rate announced from time to time by Bank of America, N.A. and (2) the Federal Funds rate plus 50 basis points. Effective as of December 29, 2003, the applicable margin for the term loan was 225 basis points for the Eurodollar rate and 125 basis points for the base rate. We may allocate all or a portion of our indebtedness under the senior credit facility to interest based upon the margin over the Eurodollar rate or the base rate. For the first quarter of 2004, we allocated our term loan indebtedness to the Eurodollar-based interest rate of 334 basis points.

The applicable margins for the term loan and the revolving credit facility vary based upon our leverage ratio at the end of the prior quarter. Our leverage ratio as of March 28, 2004 will trigger a 25 basis point reduction in the applicable margin for the term loan and the revolving credit facility.

The term loan is repayable in mandatory nominal quarterly installments of $0.8 million of the outstanding balance until December 2007, and thereafter in four equal quarterly installments of 25% of the then outstanding balance until December 2008. Additionally, annual payments of 50% of excess cash flow as defined in the credit agreement are payable six months following the end of each fiscal year. In the first quarter of 2004, we made $45.0 million in principal payments on the term loan. The revolving credit facility is available to us through December 2007 for our working capital needs. At no point during the three months ended March 28, 2004, did we have any outstanding principal balance under the revolving credit facility.

Our senior credit facility contains covenants that require us to maintain specific financial ratios, including:

•

a minimum interest coverage ratio,

•

a minimum fixed charge coverage ratio,

•

a maximum senior leverage ratio, and

•

a maximum total leverage ratio.

As of March 28, 2004, and at all other times during the first quarter of 2004, we were in compliance with all applicable covenants.

8⁷/8% Notes. In December 2002, we issued and sold ten-year senior subordinated notes at a rate of 8⁷/8% with a face value of $300.0 million. We received $297.5 million in gross proceeds from the issuance. We recorded deferred issuance costs of $7.0 million as a non-current asset. The debt, which matures in January 2013, is unsecured but is guaranteed by substantially all of our domestic subsidiaries. Interest on our 8⁷/8% notes is payable semi-annually on January 15 and July 15. Interest payments began on July 15, 2003. In January 2004, we swapped the fixed rate on $100 million of these notes to a floating rate using swap instruments which reset semi-annually in arrears based upon six-month USD LIBOR plus a spread of 427 basis points. The swap instruments reduced the annualized interest rate on the 8⁷/8% notes by approximately 90 basis points during the three months ended March 28, 2004. If a change of control occurs, each holder of 8⁷/8% notes may require us to repurchase some or all of its notes at a purchase price equal to 101% of the principal amount of the notes, plus accrued interest. Before January 15, 2006, we may redeem up to 35% of the aggregate principal amount of our 8⁷/8% notes with the net proceeds of specified public equity offerings at 108.875% of the principal amount of the notes, plus accrued interest, if at least 65% of the aggregate principal amount of the notes remains outstanding after the redemption. We may redeem some or all of our 8⁷/8% notes at any time on or after January 15, 2008, at a redemption price of 104.438%. The redemption price decreases to 102.958% on January 15, 2009, to 101.479% on January 15, 2010 and to 100% on January 15, 2011. The debt is subordinated to our senior credit facility. Our 8⁷/8% notes contain financial and other covenants. Most of these covenants terminate if the notes obtain an investment grade rating by Standard & Poor’s Rating Services and Moody’s Investors Service. At March 28, 2004, we were in compliance with all applicable covenants.

6.8% Notes. In December 2002, we initiated a tender offer for all of our outstanding 6.8% notes. We completed the tender offer and repurchased all but $4.7 million of these notes as of December 26, 2002. We paid consent payments pursuant to a consent solicitation we made concurrently with the tender offer. The consent solicitation eliminated substantially all of the restrictive covenants contained in the indenture governing our 6.8% notes as of December 29, 2002. We may from time to time repurchase outstanding 6.8% notes through open market purchases, privately negotiated transactions or otherwise. These notes are due to be paid in 2005.

Off-Balance Sheet Arrangements

Receivables Securitization Facility

In December 2001, we established a wholly owned consolidated subsidiary to purchase, on a revolving basis, certain of our accounts receivable balances and simultaneously sell an undivided interest in this pool of receivables to a financial institution. In September 2003, we amended the facility to increase total funding capacity from $50.0 million to $65.0 million to expand our sources of liquidity. Amounts funded under this facility were $45.0 million at March 28, 2004 and $45.0 million at December 28, 2003. As of March 28, 2004, we had approximately $20.0 million of un-drawn capacity available under the facility. The facility had an effective interest rate of approximately LIBOR plus 95 basis points as of March 28, 2004. The facility includes conditions that require us to maintain a senior unsecured credit rating of BB or above, as defined by Standard & Poor’s Rating Services, and Ba2 or above, as defined by Moody’s Investors Service. At March 28, 2004, we had a senior unsecured credit rating of BB+ with a stable outlook from Standard & Poor’s Rating Services, and of Ba2 with a stable outlook from Moody’s Investors Service. In January 2004, we entered into an agreement to extend the term of our accounts receivable securitization facility to January 28, 2005. We expect to renew this facility again in January 2005 as it currently provides us a vehicle to accelerate the cash collection of customer receivables.

Dividends

Our Board of Directors declared regular quarterly cash dividends of seven cents per share in the first quarter of 2004 and in each quarter of 2003. Our senior credit facility and the indenture governing our outstanding 8⁷/8% senior subordinated notes contain restrictions that may limit our ability to pay our regular quarterly cash dividend in the future.

Application of Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, restructuring, pensions and other post-retirement benefits, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are those policies that affect our more significant judgments and estimates used in preparation of our consolidated financial statements. We believe our critical accounting policies include our policies regarding revenue recognition, allowances for doubtful accounts, inventory valuation, value of long-lived assets, including intangibles, employee compensation and benefits, restructuring activities, gains or losses on dispositions and income taxes. For a more detailed discussion of our critical accounting policies, please refer to our annual report on Form 10-K for the fiscal year ended December 28, 2003.

Forward-Looking Information and Factors Affecting Future Performance

The following important factors affect our business and operations generally or affect multiple segments of our business and operations:

If we do not introduce new products in a timely manner, our products could become obsolete and our operating results would suffer.

We sell many of our products in industries characterized by rapid technological change, frequent new product and service introductions and evolving industry standards. Without the timely introduction of new products and enhancements, our products could become technologically obsolete over time, in which case our sales and operating results would suffer. The success of our new product offerings will depend upon several factors, including our ability to:

•

accurately anticipate customer needs,

•

innovate and develop new technologies and applications,

•

successfully commercialize new technologies in a timely manner,

•

price our products competitively and manufacture and deliver our products in sufficient volumes and on time, and

•

differentiate our offerings from our competitors’ offerings.

Many of our products are used by our customers to develop, test and manufacture their products. Therefore, we must anticipate industry trends and develop products in advance of the commercialization of our customers’ products. In developing new products, we may be required to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately foresee our customers’ needs and future activities, we may invest heavily in research and development of products that do not lead to significant sales.

In addition, some of our licensed technology is subject to contractual restrictions, which may limit our ability to develop or commercialize products for some applications. For example, some of our license agreements are limited to the field of life sciences research, and exclude clinical diagnostics applications.

Our debt may adversely affect our cash flow and may restrict our investment opportunities.

As of March 28, 2004, we had approximately $504.3 million in outstanding indebtedness, excluding obligations under our accounts receivable securitization facility.

Our level of indebtedness increases the possibility that we may be unable to generate sufficient cash to pay the principal or interest in respect of our indebtedness. We have $100.0 million in additional borrowing capacity available to us under our revolving credit facility. We may also obtain additional long-term debt and working capital lines of credit to meet future financing needs, which would have the effect of increasing our total leverage.

Our leverage could have negative consequences, including:

•

increasing our vulnerability to adverse economic and industry conditions,

•

limiting our ability to obtain additional financing,

•

limiting our ability to acquire new products and technologies through acquisitions or licensing,

•

requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes, including capital expenditures,

•

limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we compete, and

•

placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources.

A significant portion of our indebtedness bears interest at floating rates. As a result, our interest payment obligations on this indebtedness will increase if interest rates increase.

Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors beyond our control. Our business may not generate sufficient cash flow to meet these obligations or to successfully execute our business strategy. If we are unable to service our debt and fund our business, we may be forced to reduce or delay capital expenditures, seek additional financing or equity capital, restructure or refinance our debt or sell assets. We may not be able to obtain additional financing or refinance existing debt or sell assets on terms acceptable to us or at all.

Restrictions in our senior credit facility and the indenture governing our 8⁷/8% notes may limit our activities.

Our senior credit facility and the indenture relating to our 8⁷/8% notes contain, and future debt instruments to which we may become subject may contain, restrictive covenants that limit our ability to engage in activities that could otherwise benefit our company, including restrictions on our ability and the ability of our subsidiaries to:

•

incur additional indebtedness,

•

pay dividends on, redeem or repurchase our capital stock,

•

make investments,

•

create liens,

•

sell assets,

•

in the case of our restricted subsidiaries, incur obligations that restrict their ability to make dividend or other payments to us,

•

in the case of our restricted subsidiaries, guarantee or secure indebtedness,

•

enter into transactions with affiliates,

•

create unrestricted subsidiaries, and

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consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis.

We are also required to meet specified financial ratios under the terms of our senior credit facility. Our ability to comply with these financial restrictions and covenants is dependent on our future performance, which is subject to prevailing economic conditions and other factors, including factors that are beyond our control such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition.

Our failure to comply with any of these restrictions or covenants may result in an event of default under the applicable debt instrument, which could permit acceleration of the debt under that instrument and require us to prepay that debt before its scheduled due date. Also, an acceleration of the debt under our senior credit facility would trigger an event of default under our 8⁷/8% notes, and a default under our 8⁷/8% notes would trigger an event of default under the senior credit facility and possibly other debt.

If an event of default occurs, we may not have sufficient funds available to make the required payments under our indebtedness. If we are unable to repay amounts owed under our senior credit facility, those lenders may be entitled to foreclose on and sell the collateral that secures our borrowings under that agreement. Our inability to repay amounts owed under our senior credit facility may also cause a default under other of our obligations including our accounts receivable securitization facility.

Economic, political and other risks associated with foreign operations could adversely affect our international sales.

Because we sell our products worldwide, our businesses are subject to risks associated with doing business internationally. Our sales originating outside the United States represented more than 50% of our total sales in both the fiscal year ended December 28, 2003 and the first quarter of 2004. We anticipate that sales from international operations will continue to represent a substantial portion of our total sales. In addition, many of our manufacturing facilities, employees and suppliers are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:

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changes in foreign currency exchange rates,

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changes in a country’s or region’s political or economic conditions, particularly in developing or emerging markets,

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longer payment cycles of foreign customers and difficulty of collecting receivables in foreign jurisdictions,

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trade protection measures and import or export licensing requirements,

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differing tax laws and changes in those laws,

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difficulty in staffing and managing widespread operations,

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differing labor laws and changes in those laws,

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differing protection of intellectual property and changes in that protection, and

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differing regulatory requirements and changes in those requirements.

Our operating results may continue to be harmed by cyclical downturns affecting several of the industries into which we sell our products.

Some of the industries and markets into which we sell our products are cyclical. Industry downturns are often characterized by reduced product demand, excess manufacturing capacity and erosion of average selling prices and profits. Significant downturns in our customers’ markets and in general economic conditions have resulted in a reduced demand for several of our products and have hurt our operating results. For example, during 2003, our operating results were adversely affected by downturns in many of the markets we serve, including the pharmaceutical, biomedical, semiconductor and aerospace markets. Recent economic conditions have caused a decrease in capital spending by many of our customers, which in turn has adversely affected our sales and business. Although in the first quarter of 2004 some of our customers have demonstrated increased demand for our products, this increased demand may be only temporary and may not be sustained.

Our quarterly operating results are subject to significant fluctuation, and we may not be able to adjust our operations to effectively address changes we do not anticipate.

Given the nature of the markets in which we participate, we cannot reliably predict future sales and profitability. Changes in competitive, market and economic conditions may require us to adjust our operations, and we can offer no assurance of our ability to make such adjustments or to make them quickly enough to adapt to changing conditions. A high proportion of our costs are fixed, due in part to our significant sales, research and development and manufacturing costs. Thus, small declines in sales could disproportionately affect our operating results in a quarter. Factors that may affect our quarterly operating results include:

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demand for and market acceptance of our products,

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competitive pressures resulting in lower selling prices,

•

adverse changes in the level of economic activity in regions in which we do business,

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adverse changes in industries, such as pharmaceutical, biomedical, semiconductors and aerospace, on which we are particularly dependent,

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changes in the portions of our sales represented by our various products and customers,

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delays or problems in the introduction of new products,

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our competitors’ announcement or introduction of new products, services or technological innovations,

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increased costs of raw materials or supplies, and

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changes in the volume or timing of product orders.

If we do not successfully integrate our Life Sciences and Analytical Instruments business units, we may not achieve the benefits we anticipate we will derive from the combination of these businesses.

In 2003, we achieved in excess of the original range of $12 to $25 million in anticipated pre-tax cost savings from the combination of our Life Sciences and Analytical Instruments businesses, announced in the fourth quarter of 2002. In 2004, we are targeting additional pre-tax cost savings of between $5.0 million and $20.0 million, for a combined pre-tax cost savings of between $30.0 million and $45.0 million relative to fiscal 2002 cost levels. While we believe these cost savings to be reasonable, they are estimates that are inherently difficult to predict, are necessarily speculative in nature and are subject to various integration risks. The integration risks include the possibility that we may experience a loss of productivity, sales and key personnel and that the

information technology systems of these two businesses may not be fully compatible. If any of the potential difficulties were to occur and persist, the business results of our Life and Analytical Sciences reporting segment could suffer. In addition, unforeseen factors may offset some or all of the estimated cost savings or other benefits from the integration.

As a result of these integration risks and possible unforeseen factors, our actual cost savings, if any, could differ or be delayed, compared to our estimates. Moreover, our capability to more fully capitalize, through their combination, on the strengths of our former Life Sciences and Analytical Instruments businesses’ sales, service and research and development organizations may be compromised.

We may not be able to successfully execute acquisitions or license technologies, integrate acquired businesses or licensed technologies into our existing business or make acquired businesses or licensed technologies profitable.

We have in the past, and may in the future, supplement our internal growth by acquiring businesses and licensing technologies that complement or augment our existing product lines, such as our acquisition of Packard BioScience Company in November 2001. We may be unable to identify or complete promising acquisitions or license transactions for many reasons, including:

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competition among buyers and licensees,

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the need for regulatory and other approvals,

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our inability to raise capital to fund these acquisitions,

•

the high valuations of businesses and technologies, and

•

restrictions in the instruments governing our indebtedness, including the indenture governing our 8⁷/8% notes and our new senior credit facility.

Some of the businesses we may seek to acquire may be unprofitable or marginally profitable. Accordingly, the earnings or losses of acquired businesses may dilute our earnings. For these acquired businesses to achieve acceptable levels of profitability, we must improve their management, operations, products and market penetration. We may not be successful in this regard and may encounter other difficulties in integrating acquired businesses into our existing operations.

To finance our acquisitions, we may have to raise additional funds, either through public or private financings. We may be unable to obtain such funds or may be able to do so only on terms unacceptable to us.

If we are unable to renew our licenses or otherwise lose our licensed rights, we may have to stop selling products or we may lose competitive advantage.

We may not be able to renew our existing licenses or licenses we may obtain in the future on terms acceptable to us, or at all. If we lose the rights to a patented or other proprietary technology, we may need to stop selling products incorporating that technology and possibly other products, redesign our products or lose a competitive advantage. Potential competitors could in-license technologies that we fail to license and potentially erode our market share.

Our licenses typically subject us to various economic and commercialization obligations. If we fail to comply with these obligations we could lose important rights under a license, such as the right to exclusivity in a market. In some cases, we could lose all rights under the license. In addition, rights granted under the license could be lost for reasons out of our control. For example, the licensor could lose patent protection for a number of reasons, including invalidity of the licensed patent, or a third party could obtain a patent that curtails our freedom to operate under one or more licenses.

If we do not compete effectively, our business will be harmed.

We encounter aggressive competition from numerous competitors in many areas of our business. We may not be able to compete effectively with all of these competitors. To remain competitive, we must develop new products and periodically enhance our existing products. We anticipate that we may also have to adjust the prices of many of our products to stay competitive. In addition, new competitors, technologies or market trends may emerge to threaten or reduce the value of entire product lines.

If we fail to maintain satisfactory compliance with the regulations of the United States Food and Drug Administration and other governmental agencies, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil or criminal penalties.

Some of the products produced by our Life and Analytical Sciences business unit are subject to regulation by the United States Food and Drug Administration and similar international agencies. In addition, some of the activities of our Fluid Sciences business unit are subject to regulation by the United States Federal Aviation Administration. These regulations govern a wide variety of product activities, from design and development to labeling, manufacturing, promotion, sales, resales and distribution. If we fail to comply with those regulations or those of similar international agencies, we may have to recall products and cease their manufacture and distribution. In addition, we could be subject to fines or criminal prosecution.

Changes in governmental regulations may reduce demand for our products or increase our expenses.

We compete in markets in which we or our customers must comply with federal, state, local and foreign regulations, such as environmental, health and safety and food and drug regulations. We develop, configure and market our products to meet customer needs created by these regulations. Any significant change in these regulations could reduce demand for our products or increase our costs of producing these products.

Obtaining and enforcing patent protection for our proprietary products, processes and technologies may be difficult and expensive; we may infringe intellectual property rights of third parties.

Patent and trade secret protection is important to us because developing and marketing new technologies and products is time-consuming and expensive. We own many United States and foreign patents and intend to apply for additional patents to cover our products. We may not obtain issued patents from any pending or future patent applications owned by or licensed to us. The claims allowed under any issued patents may not be broad enough to protect our technology.

Third parties may seek to challenge, invalidate or circumvent issued patents owned by or licensed to us or claim that our products and operations infringe their patent or other intellectual property rights.

In addition to our patents, we possess an array of unpatented proprietary technology and know-how and we license intellectual property rights to and from third parties. The measures that we employ to protect this technology and these rights may not be adequate. Moreover, in some cases, the licensor can terminate a license or convert it to a non-exclusive arrangement if we fail to meet specified performance targets.

We may incur significant expense in any legal proceedings to protect our proprietary rights or to defend infringement claims by third parties. In addition, claims of third parties against us could result in awards of substantial damages or court orders that could effectively prevent us from manufacturing, using, importing or selling our products in the United States or abroad.

Our results of operations will be adversely affected if we fail to realize the full value of our intangible assets.

As of March 28, 2004, our total assets included $1.5 billion of net intangible assets. Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights and technology licenses, net of accumulated amortization. These assets have historically been amortized on a straight-line basis over their estimated useful lives. In connection with our adoption of SFAS No. 142, we discontinued the amortization of goodwill and indefinite lived intangible assets beginning in fiscal 2002. Instead, we test these items, at a minimum, on an annual basis for potential impairment by comparing the carrying value to the fair market value of the reporting unit to which they are assigned.

Future impairment testing may result in additional intangible asset write-offs, which could adversely affect our results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

We are exposed to market risks, relating to both currency exchange rates and interest rates. On occasion, in order to manage the volatility relating to these exposures, we may enter into various derivative transactions pursuant to our policies to hedge against known or forecasted market exposures. We briefly describe several of the market risks we face below. The following disclosure supplements the disclosure provided under the heading, “Item 7A. Quantitative and Qualitative Disclosure About Market Risk,” in our annual report on Form 10-K for the fiscal year ended December 28, 2003.

Foreign Exchange Risk. As a multinational corporation, we are exposed to changes in foreign exchange rates:

(1) Because a significant portion of our sales are international, volatility in exchange rates could have a material impact on our financial results. Reported sales made in foreign currencies by our international subsidiaries, when translated into U.S. dollars for financial reporting purposes, can fluctuate due to exchange rate movements. While exchange rate fluctuations can impact reported revenues and earnings, the impacts are purely a result of the translation effect and generally do not materially impact our short-term cash flows.

(2) Our foreign subsidiaries, on occasion, invoice third-party customers in foreign currencies other than the functional currency in which they primarily conduct business. Movements in the invoiced currency, as compared to the functional currency, result in both realized and unrealized transaction gains or losses that directly impact our cash flows and our results of operations.

(3) Our manufacturing and distribution organization is multi-national in nature. Accordingly, inventories may be manufactured in one location, stored in another, and distributed in a third location. This can result in a variety of intercompany transactions that are billed and paid in many different currencies. Our cash flows and our results of operations are therefore directly impacted by fluctuations in these currencies.

(4) The cash flow needs of each of our foreign subsidiaries vary through time. Accordingly, there may be times when a subsidiary is on the receiving side or the lending side of a short-term advance from either the parent company or another subsidiary. These advances, again being denominated in currencies other than a particular entity’s functional currency, can expose us to fluctuations in exchange rates that can impact both our cash flows and results of operations.

(5) In order to repay debt or take advantage of tax saving opportunities, we may remit cash from our foreign locations to the United States. When this occurs, we are liquidating foreign currency net asset positions and converting them into U.S. dollars. Our cash flows and our results of operations are therefore also impacted by these transactions.

We currently do not have outstanding any foreign exchange transactions to hedge translation exposures; however, from time to time, we enter into various financial instruments to hedge exposures to foreign currencies. The principal currencies hedged are the British Pound, Canadian Dollar, Euro, Japanese Yen, and Singapore Dollar.

Foreign Currency Risk — Value-at-Risk Disclosure — We continue to measure foreign currency risk using the Value-at Risk model described in our annual report on Form 10-K for the fiscal year ended December 28, 2003. These measures continue to approximate our risks.

Interest Rate Risk. Our debt portfolio includes both fixed rate and variable rate instruments. Fluctuations in interest rates can therefore have a direct impact on both our short-term cash flows, (as they relate to interest) and our earnings. In January 2004, we entered into interest rate swap agreements that effectively converted the fixed interest rate on $100 million of our 8⁷/8% notes to a variable interest rate which is reset semi-annually in arrears based upon six-month USD LIBOR plus 427 basis points. The swaps have the economic effect of modifying the interest obligations associated with these notes so that the interest payable on the notes effectively becomes variable. These swaps have been designated as fair value hedges. These swaps will be marked to market in our consolidated financial statements so that fair value movements in these swaps will be offset by the fair value movement in the debt.

Interest Rate Risk — Sensitivity — Our annual report on Form 10-K for the fiscal year ended December 28, 2003 presents sensitivity measures for our interest rate risk. We refer to the annual report on Form 10-K for the fiscal year ended December 28, 2003 for our sensitivity disclosure.

Item 4. Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 28, 2004. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 28, 2004, our disclosure controls and procedures were (1) designed to ensure that material information relating to PerkinElmer, including its consolidated subsidiaries, is made known to our chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by PerkinElmer in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 28, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to various claims, legal proceedings and investigations covering a wide range of matters that arise in the ordinary course of our business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved in a manner that is unfavorable to us.

On June 14, 2002, we sold our Security and Detection Systems business to L-3 Communications Corporation. L-3 and several of its affiliates were originally named as defendants in litigation arising out of the terrorist attacks on September 11, 2001. Among the claims made by the plaintiffs in that litigation were allegations that there were defects in the products of the Security and Detection Systems business that we sold to L-3. L-3 has asserted that we are contractually obligated to indemnify L-3 for any liability it may incur as a result of that litigation. However, L-3 has not been named as a defendant in the Amended Master Complaints filed by the plaintiffs on March 31, 2004 relating to the September 11, 2001 attacks. If necessary, we intend to contest this matter vigorously. We are unable, however, to reasonably estimate the amount of loss, if any, which may result from resolution of this matter.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the quarter ended March 28, 2004. The following matters were submitted to a vote of the stockholders at our 2004 annual meeting of stockholders held on April 27, 2004: (1) a proposal to elect the nine nominees for director named below for terms of one year each; (2) a proposal to ratify the selection of Deloitte & Touche LLP as our independent auditors for the current fiscal year; and (3) a proposal submitted by a stockholder requesting that our board of directors establish a policy of expensing in our annual income statement the costs of all future stock options we issue. The number of shares of common stock outstanding and eligible to vote as of the record date of February 27, 2004 was 127,551,038. Set forth below is the number of votes cast for or withheld with respect to each nominee for director and the number of votes cast for or against or abstaining, and if applicable the number of broker non-votes, for the other matters submitted to a vote of the stockholders at the meeting.

Proposal # 1 — To elect the following nominees as our directors for terms of one year each:


	For	Witheld
Erickson, T.J.	113,804,230	853,741
Lopardo, N.A.	112,391,155	2,266,816
Michas, A.P.	111,312,854	3,345,117
Mullen, J.C.	113,815,683	842,288
Sato, V.L.	113,825,363	832,608
Schmergel, G.	112,415,302	2,242,669
Sicchitano, K.J.	112,392,108	2,265,863
Summe, G.L.	109,411,521	5,246,450
Tod, G.R.	109,887,079	4,770,892

Proposal # 2 — To ratify the selection of Deloitte & Touche LLP as our independent auditors for the current fiscal year.


For	Against	Abstain
111,478,200	2,573,747	606,024

Proposal #3 — A stockholder proposal requesting that our board of directors establish a policy of expensing in our annual income statement the costs of all future stock options we issue.


For	Against	Abstaining	Broker Non-Votes
58,701,396	37,067,415	2,319,283	16,569,877

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits



10.1	*	Form of Stock Restriction Agreement dated January 27, 2004 between PerkinElmer, Inc. and each of Gregory L. Summe for 70,000 shares of common stock, Robert F. Friel for 30,000 shares of common stock, Peter B. Coggins for 30,000 shares of common stock, Terrance L. Carlson for 16,000 shares of common stock and Richard F. Walsh for 16,000 shares of common stock, is attached hereto as Exhibit 10.1. These Stock Restriction Agreements are identical in all material respects except that the shares awarded to Mr. Summe vest if his employment is terminated for any reason other than for cause.

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Confidential treatment requested for selected portions of this Exhibit,which portions have been filed separately with the Securities and Exchange Commission.

(b) Reports on Form 8-K

On January 29, 2004, we filed a Current Report on Form 8-K with the Securities and Exchange Commission for the purpose of furnishing under Item 12 (Results of Operations and Financial Condition) a copy of our press release dated January 28, 2004 announcing our financial results for the quarter and year ended December 28, 2003.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


PERKINELMER, INC.

By:		/s/ ROBERT F. FRIEL
		Robert F. Friel Senior Vice President and Chief Financial Officer (Principal Financial Officer)

May 7, 2004

EXHIBIT INDEX


Exhibit Number		Exhibit Name

10.1	*	Form of Stock Restriction Agreement dated January 27, 2004 between PerkinElmer, Inc. and each of Gregory L. Summe for 70,000 shares of common stock, Robert F. Friel for 30,000 shares of common stock, Peter B. Coggins for 30,000 shares of common stock, Terrance L. Carlson for 16,000 shares of common stock and Richard F. Walsh for 16,000 shares of common stock is attached hereto as Exhibit 10.1. These Stock Restriction Agreements are identical in all material respects except that the shares awarded to Mr. Summe vest if his employment is terminated for any reason other than for cause.

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Confidential treatment requested for selected portions of this Exhibit, which portions have been filed separately with the Securities and Exchange Commission.