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 June 27, 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. Yes x No ¨

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

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

Class

Outstanding at August 2, 2004

Common Stock, $1 par value per share

128,129,281

(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	25
	Overview	25
	Consolidated Results of Continuing Operations	25
	Reporting Segment Results of Continuing Operations	31
	Liquidity and Capital Resources	34
	Off-Balance Sheet Arrangements	36
	Application of Critical Accounting Policies and Estimates	37
	Forward-Looking Information and Factors Affecting Future Performance	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	43

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	44

Item 6.	Exhibits and Reports on Form 8-K	44

Signature		46

Exhibit Index		46

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PERKINELMER, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS


	Three Months Ended						Six Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
	(Unaudited)						(Unaudited)
	(In thousands except per share data)						(In thousands except per share data)
Sales	$	412,614		$	376,252		$	805,222		$	733,992
Cost of sales		246,473			223,296			486,839			441,344
Research and development expenses		22,264			21,877			42,892			42,728
Selling, general and administrative expenses		97,650			97,455			193,464			190,248
Restructuring reversals, net		—			(2,728	)		—			(3,173	)
Gains on dispositions		—			(1,108	)		(363	)		(1,688	)
Amortization of intangible assets		7,077			7,037			14,178			14,227

Operating income from continuing operations		39,150			30,423			68,212			50,306
Interest and other expense, net		9,865			14,165			19,411			28,502

Income from continuing operations before income taxes		29,285			16,258			48,801			21,804
Provision for income taxes		8,361			5,284			14,153			7,086

Income from continuing operations		20,924			10,974			34,648			14,718
Loss from discontinued operations, net of income taxes		(89	)		(883	)		(344	)		(2,285	)
Loss on disposition of discontinued operations, net of income taxes		—			(1,693	)		(198	)		(1,673	)

Net income	$	20,835		$	8,398		$	34,106		$	10,760

Basic earnings (loss) per share:
Continuing operations	$	0.16		$	0.09		$	0.27		$	0.12
Loss from discontinued operations, net of income tax		—			(0.01	)		—			(0.02	)
Loss on disposition of discontinued operations, net of income tax		—			(0.01	)		—			(0.01	)

Net income	$	0.16		$	0.07		$	0.27		$	0.09

Diluted earnings (loss) per share:
Continuing operations	$	0.16		$	0.09		$	0.27		$	0.12
Loss from discontinued operations, net of income tax		—			(0.01	)		—			(0.02	)
Loss on disposition of discontinued operations, net of income tax		—			(0.01	)		—			(0.01	)

Net income	$	0.16		$	0.07		$	0.26		$	0.08

Weighted average shares of common stock outstanding:
Basic		127,121			125,707			126,903			125,678
Diluted		129,362			126,898			129,148			126,636
Cash dividends per common share	$	0.07		$	0.07		$	0.14		$	0.14

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

PERKINELMER, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	June 27, 2004			December 29, 2003
	(Unaudited)
	(In thousands except per share data)
Current assets:
Cash and cash equivalents	$	196,728		$	191,499
Accounts receivable, net		273,921			288,027
Inventories		189,605			190,346
Other current assets		98,782			95,213
Current assets of discontinued operations		950			1,214

Total current assets		759,986			766,299
Property, plant and equipment:
At cost		619,712			619,201
Accumulated depreciation		(372,634	)		(352,530	)

Net property, plant and equipment		247,078			266,671
Investments		10,073			10,874
Intangible assets		410,571			424,703
Goodwill, net		1,026,959			1,034,911
Other assets		98,817			102,652
Long-term assets of discontinued operations		359			1,609

Total assets	$	2,553,843		$	2,607,719

Current liabilities:
Short-term debt	$	4,945		$	5,167
Accounts payable		129,925			154,426
Accrued restructuring costs and integration costs		5,152			8,055
Accrued expenses		301,272			283,868
Current liabilities of discontinued operations		540			499

Total current liabilities		441,834			452,015
Long-term debt		484,431			544,307
Long-term liabilities		260,388			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 127,836,000 and 126,909,000 at June 27, 2004 and December 28, 2003, respectively		145,101			145,101
Capital in excess of par value		685,885			681,550
Unearned compensation		(6,201	)		(3,494	)
Retained earnings		688,876			672,616
Accumulated other comprehensive income		22,366			30,908
Cost of shares held in treasury — 17,265,000 shares at June 27, 2004 and 18,192,000 shares at December 28, 2003		(168,837	)		(177,631	)

Total stockholders’ equity		1,367,190			1,349,050

Total liabilities and stockholders’ equity	$	2,553,843		$	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


	Six Months Ended
	June 27, 2004			June 29, 2003
	(Unaudited)
	(In thousands)
Operating activities:
Net income	$	34,106		$	10,760
Add net loss from discontinued operations		344			2,285
Add net loss on disposition of discontinued operations		198			1,673

Net income from continuing operations		34,648			14,718
Adjustments to reconcile net income from continuing operations to net cash provided by continuing operations:
Restructuring reversals, net of expense		—			(3,173	)
Stock-based compensation		5,095			5,266
Amortization of debt discount and issuance costs		3,561			6,179
Depreciation and amortization		38,502			38,544
Gains on dispositions and sales of investments, net		(363	)		(938	)
Changes in operating assets and liabilities:
Accounts receivable		10,689			51,574
Inventories		(607	)		15,962
Accounts payable		(23,881	)		(19,796	)
Accrued restructuring costs		(2,903	)		(11,183	)
Accrued expenses and other		18,090			(36,551	)

Net cash provided by operating activities from continuing operations		82,831			60,602
Net cash provided by operating activities from discontinued operations		362			309

Net cash provided by operating activities		83,193			60,911
Investing activities:
Cash withdrawn from escrow to repay debt		—			32,509
Capital expenditures		(8,370	)		(8,279	)
Proceeds from dispositions of property, plant and equipment, net		2,056			3,295
Settlement of disposition of businesses, net		—			(866	)
Proceeds related to acquisitions, net of cash acquired		2,765			534

Net cash (used in) provided by investing activities from continuing operations		(3,549	)		27,193
Net cash provided by investing activities from discontinued operations		306			250

Net cash (used in) provided by investing activities		(3,243	)		27,443
Financing activities:
Payment of debt issuance costs		—			(1,725	)
Prepayment of zero coupon convertible notes		—			(32,509	)
Prepayment of term loan debt		(60,000	)		(30,000	)
Decrease in other credit facilities		(456	)		(1,026	)
Proceeds from issuance of common stock		5,361			617
Cash dividends		(17,846	)		(17,660	)

Net cash used in financing activities		(72,941	)		(82,303	)

Effect of exchange rate changes on cash and cash equivalents		(1,780	)		7,957

Net increase in cash and cash equivalents		5,229			14,008
Cash and cash equivalents at beginning of period		191,499			130,615

Cash and cash equivalents at end of period	$	196,728		$	144,623

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 (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 and have been restated to reflect the discontinuance of the Electroformed Products and Ultraviolet businesses. 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. All such adjustments are of a normal recurring nature with the exception of those entries resulting from discontinued operations, gains and losses on dispositions. 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 six months ended June 27, 2004 and June 29, 2003 are not necessarily indicative of the results for the entire fiscal year.

In June 2004, the Company approved separate plans to shut down its Electroformed Products business and sell its Ultraviolet Lighting business. The Company has accounted for these businesses as discontinued operations in accordance with Statement of financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”).

(2) Gains on Dispositions

There were no net gains on dispositions in the second quarter of 2004, compared to a net gain of $1.1 million from the sale of buildings in the second quarter of 2003. During the six months ended June 27, 2004, the Company recognized a $0.4 million net gain from the sale of a building. During the six months ended June 29, 2003, the Company recognized a $1.4 million net gain from the sale of buildings and a previously deferred $0.3 million gain from the sale of a business.

(3) Restructuring (Reversals) Charges

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 Emerging Issues Task Force (“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 since 2002 were recorded in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”). 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 six-month period ended June 29, 2003, the Company recorded a pre-tax restructuring reversal of $5.5 million relating to its Q4 2002 Plan, described below, due to higher than expected attrition rates prior to ultimate termination which resulted in lower than expected severance costs on various executed plans in several countries.

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In the six-month period ended June 29, 2003, the Company also recorded an additional pre-tax restructuring charge of $0.6 million relating to its Q4 2001 Plan, described below, due to higher than expected employee separation costs associated with the closure of its European manufacturing facilities.

In addition, concurrent with the reevaluation of existing restructuring plans, the Company recorded a pre-tax restructuring charge of $1.7 million during the second quarter of 2003 (the “Q2 2003 Plan”) in accordance with SFAS No. 146. The principal actions within the Q2 2003 Plan related to a workforce reduction resulting from continued reorganization activities within the Life and Analytical Sciences and Optoelectronics businesses.

A description of each of the four restructuring plans and the activity recorded for the six-month period ended June 27, 2004 is as follows:

Q2 2003 Plan:

During 2003, the Company recognized 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 the Q2 2003 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 the Company’s Q2 2003 Plan activity for the six months ended June 27, 2004:


	Severance and Separation
	(In thousands)
Balance at December 28, 2003	$	288
Amounts paid		(19	)

Balance at June 27, 2004	$	269

The Company expects that 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 (the “Q4 2002 Plan”). The Q4 2002 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 six months ended June 27, 2004:


	Severance			Abandonment of Excess Facilities			Total
	(In thousands)
Balance at December 28, 2003	$	2,770		$	1,530		$	4,300
Amounts paid		(1,533	)		(548	)		(2,081	)

Balance at June 27, 2004	$	1,237		$	982		$	2,219

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Q4 2002 Plan resulted in the integration of the United States’ 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 Sciences research and development European facility with a former Analytical Instruments European facility.

The Company expects to settle the remaining severance liability under the Q4 2002 Plan by the end of 2004. The lease commitments on unoccupied buildings under the Q4 2002 Plan 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 “Q1 2002 Plan”). The Q1 2002 Plan resulted in pre-tax restructuring charges totaling $9.2 million. The principal actions in the Q1 2002 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 under the Q1 2002 Plan were completed in 2003 with the exception of payments due on a leased facility exited in 2002, which were finalized in 2004. The following table summarizes the components of the Q1 2002 Plan for the six months ended June 27, 2004:


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

Balance at June 27, 2004	$	—

Q4 2001 Plan:

During the fourth quarter of 2001, in connection with the integration of Packard BioScience Company (“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 “Q2 2001 Plan”). The principal actions in the Q4 2001 Plan included 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 Q4 2001 Plan for the six months ended June 27, 2004:


	Severance
	(In thousands)
Balance at December 28, 2003	$	2,471
Amounts paid		(587	)

Balance at June 27, 2004	$	1,884

The remaining liability under the Q4 2001 Plan relates to European severance obligations and is expected to be paid by 2005.

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Integration Charges:

In addition, as discussed in the Company’s 2003 Form 10-K, the Company established integration reserves relating primarily to the acquisition of Packard. The following table summarizes the activity in the reserves for the six months ended June 27, 2004:


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

Accrued integration cost at June 27, 2004	$	0.8

The integration activities were completed in 2003 with the exception of payments due on leased facilities exited in 2001 that the Company expects to pay through 2005.

(4) Inventories

Inventories consisted of the following:


	June 27, 2004		December 28, 2003
	(In thousands)
Raw materials	$	79,463	$	81,569
Work in progress		18,407		16,523
Finished goods		91,735		92,254

Total Inventories	$	189,605	$	190,346

(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 six months ended June 27, 2004, the Company paid $60.0 million of principal on its term loan which resulted in $1.5 million of accelerated amortization of debt issuance costs, included in Interest and Other Expense, Net. As of June 27, 2004 there was $185.0 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 $100.0 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 80 basis points during the six months ended June 27, 2004. The fair value of these swap instruments as of June 27, 2004 was approximately $4.5 million and is reported within the carrying amount of the debt. The Swaps have been designated as fair value hedges. The Swaps are marked to market in the Company’s consolidated financial statements. The increase in the fair value of the Swaps is offset by a commensurate decrease in the fair market value of the 8⁷/8% Notes.

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(6) Earnings Per Share

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


	Three Months Ended		Six Months Ended
	June 27, 2004	June 29, 2003	June 27, 2004	June 29, 2003
	(In thousands)		(In thousands)
Number of common shares — basic	127,121	125,707	126,903	125,678
Effect of dilutive securities
Stock options and employee stock purchase plan	1,919	721	1,923	478
Restricted stock	322	470	322	480

Number of common shares — diluted	129,362	126,898	129,148	126,636

Number of potentially dilutive securities excluded from calculation due to antidilution	5,955	13,516	6,352	13,842

Earnings per share shown on the face of the income statement may not always foot due to rounding of certain captioned amounts.

(7) Comprehensive Income

Comprehensive income consisted of the following:


	Three Months Ended					Six Months Ended
	June 27, 2004			June 29, 2003		June 27, 2004			June 29, 2003
	(In thousands)					(In thousands)
Net income	$	20,835		$	8,398	$	34,106		$	10,760
Other comprehensive income (loss):
Foreign currency translation adjustments		(5,420	)		29,748		(8,234	)		41,072
Unrealized gains (losses) on securities, net of tax		(186	)		608		(308	)		938

		(5,606	)		30,356		(8,542	)		42,010

Comprehensive income	$	15,229		$	38,754	$	25,564		$	52,770

The components of accumulated other comprehensive income were as follows:


	June 27, 2004			December 28, 2003
	(In thousands)
Foreign currency translation adjustments	$	35,670		$	43,904
Minimum pension liability		(13,038	)		(13,038	)
Unrealized (losses) gains on securities		(266	)		42

Accumulated other comprehensive income	$	22,366		$	30,908

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(8) Industry Segment Information

The accounting policies of the Company’s 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 a variety of precision valves, seals, bellows and pneumatic joints for critical control and containment systems for highly demanding environments such as turbine engines and semiconductor fabrication equipment.

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


	Three Months Ended						Six Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
	(In thousands)						(In thousands)
Life & Analytical Sciences
Sales	$	257,869		$	246,032		$	507,116		$	478,232
Operating profit		22,135			20,677			38,118			32,299
Optoelectronics
Sales		94,681			88,519			180,554			171,112
Operating profit		12,937			11,488			22,748			20,807
Fluid Sciences
Sales		60,064			41,701			117,552			84,648
Operating profit		9,181			3,133			17,490			5,513
Other
Sales		—			—			—			—
Operating loss		(5,103	)		(4,875	)		(10,144	)		(8,313	)
Continuing Operations
Sales	$	412,614		$	376,252		$	805,222		$	733,992
Operating profit		39,150			30,423			68,212			50,306

(9) Discontinued Operations

In June 2004, the Company approved and executed separate plans to shut down its Electroformed Products business and sell its Ultraviolet Lighting business as part of its continued efforts to focus on higher growth opportunities. The results of these businesses were previously reported as part of the Optoelectronics reporting segment. The Company has accounted for these businesses as discontinued operations in accordance with SFAS No. 144 and, accordingly, has presented the results of operations and related cash flows of these businesses as discontinued operations for all periods presented. The assets and liabilities of these disposal groups have been presented separately and are reflected within the assets and liabilities from discontinued operations in the accompanying consolidated balance sheets as of June 27, 2004 and December 29, 2003. The fixed assets and inventory of the Ultraviolet business were sold in July 2004 for approximate book value.

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the six months ended June 27, 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 that was recognized in the first quarter of 2004 and is included in gain on dispositions of discontinued operations for the six months ended June 27, 2004.

In June 2002, the Company approved separate plans to shut down its Telecommunications Component business and sell its Entertainment Lighting business. During June 2003, the Company completed the sale of a significant portion of its Entertainment Lighting business and abandoned the remaining assets. The Company recorded an incremental loss of $2.3 million ($1.7 million net of tax) pursuant to this transaction in the second quarter of 2003 as a loss on the disposition 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 six months ended June 29, 2003 reflects adjustments attributable to revised estimates of the working capital adjustment and is included in gain on dispositions of discontinued operations.

Summary operating results of the discontinued operations of the Entertainment Lighting, Telecommunication Component, Electroformed Products, Ultraviolet Lighting and Security and Detection businesses for the periods prior to disposition were as follows:


	Three Months Ended						Six Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
	(In thousands)						(In thousands)
Sales	$	2,028		$	3,154		$	3,116		$	6,109
Costs and expenses		2,246			4,793			3,698			9,817

Operating loss from discontinued operations		(218	)		(1,639	)		(582	)		(3,708	)
Other income, net		101			292			105			288

Operating loss from discontinued operations before income taxes		(117	)		(1,347	)		(477	)		(3,420	)
Benefit for income taxes		(28	)		(464	)		(133	)		(1,135	)

Loss from discontinued operations, net of taxes	$	(89	)	$	(883	)	$	(344	)	$	(2,285	)

The Company recorded the following gains and losses, which have been reported as the loss on dispositions of discontinued operations:


	Three Months Ended					Six Months Ended
	June 27, 2004		June 29, 2003			June 27, 2004			June 29, 2003
	(In thousands)					(In thousands)
Loss on Entertainment Lighting business	$	—	$	(2,317	)	$	—		$	(2,317	)
Loss on Electroformed Products business		—		—			(1,160	)		—
Gain on contract settlement associated with the Technical Services business		—		—			757			—
Loss on Security and Detection Systems business		—		(80	)		—			(47	)

Net loss on disposition of discontinued operations before income taxes		—		(2,397	)		(403	)		(2,364	)
Income tax benefit		—		(704	)		(205	)		(691	)

Loss on disposition of discontinued operations, net of income taxes	$	—	$	(1,693	)	$	(198	)	$	(1,673	)

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(10) Stock-Based Compensation

The Company accounts for stock option 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.

However, 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 applicable 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. As allowed by SFAS No. 123, Accounting for Stock-Based Compensation, (“SFAS No. 123”), 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 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						Six Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
	(In thousands, except per share)						(In thousands, except per share)
Net income as reported	$	20,835		$	8,398		$	34,106		$	10,760
Add: Stock-based employee compensation expense included in net income, net of related tax effects		526			455			897			910
Deduct: Total stock-based employee compensation expense determined under fair market value method for all awards, net of related tax effects		(4,376	)		(5,285	)		(8,696	)		(9,201	)

Pro forma net income	$	16,985		$	3,568		$	26,307		$	2,469

Earnings per share:
Basic — as reported	$	0.16		$	0.07		$	0.27		$	0.09
Basic — pro forma	$	0.13		$	0.03		$	0.21		$	0.02
Diluted — as reported	$	0.16		$	0.07		$	0.26		$	0.08
Diluted — pro forma	$	0.13		$	0.03		$	0.20		$	0.02

(11) Goodwill and Intangible Assets

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

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The changes in the carrying amount of goodwill for the six-month period ended June 27, 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
Purchase accounting adjustments		(2,765	)		—			—		(2,765	)
Foreign currency translation		(5,124	)		(63	)		—		(5,187	)

Balance, June 27, 2004	$	959,590		$	36,527		$	30,842	$	1,026,959

Purchase accounting adjustments of $2.8 million represent net amounts remitted back to the Company from an escrow account established in connection with an entity purchased in 2000.

Intangible asset balances at June 27, 2004 and December 28, 2003 were as follows:


	June 27, 2004			December 28, 2003
	(In thousands)
Amortizable intangible assets
Patents	$	95,333		$	95,260
Less: Accumulated depreciation		(32,223	)		(27,612	)

Net patents		63,110			67,648

Licenses		48,340			48,490
Less: Accumulated depreciation		(15,081	)		(12,430	)

Net licenses		33,259			36,060

Core technology		208,692			208,692
Less: Accumulated depreciation		(53,523	)		(46,730	)

Net core technology		155,169			161,962

Net amortizable intangible assets		251,538			265,670
Non-amortizable intangible assets, primarily trademarks and tradenames		159,033			159,033

TOTALS	$	410,571		$	424,703

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 and six months ended June 27, 2004 and June 29, 2003 is as follows:


	Three Months Ended						Six Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
	(In thousands)						(In thousands)
Balance beginning of period	$	10,041		$	10,229		$	9,798		$	9,809
Provision		3,362			4,683			6,647			8,313
Charges		(3,350	)		(4,637	)		(6,386	)		(7,933	)
Other		(93	)		325			(99	)		411

Balance end of period	$	9,960		$	10,600		$	9,960		$	10,600

(13) Employee Benefit Plans

Net periodic benefit cost (credit) included the following components for the three and six months ended June 27, 2004 and June 29, 2003:


	Defined Benefit Pension Benefits						Post-Retirement Medical Benefits
	Three Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
	(In thousands)
Service cost	$	1,647		$	1,248		$	35		$	30
Interest cost		5,405			5,251			128			136
Expected return on plan assets		(5,553	)		(5,423	)		(178	)		(186	)
Net amortization and deferral		394			232			(118	)		(117	)

Net periodic benefit cost (credit)	$	1,893		$	1,308		$	(133	)	$	(137	)


	Defined Benefit Pension Benefits						Post-Retirement Medical Benefits
	Six Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
	(In thousands)
Service cost	$	3,050		$	2,495		$	69		$	60
Interest cost		10,932			10,502			256			273
Expected return on plan assets		(11,153	)		(10,846	)		(355	)		(373	)
Net amortization and deferral		961			465			(235	)		(235	)

Net periodic benefit cost (credit)	$	3,790		$	2,616		$	(265	)	$	(275	)

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 the 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 statement 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 June 27, 2004

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Sales	$	69,884		$	185,144		$	201,146		$	(43,560	)	$	412,614
Cost of sales		52,680			121,963			115,390			(43,560	)		246,473
Selling, general and administrative expenses		15,473			40,679			41,498			—			97,650
Research and development expenses		614			12,493			9,157			—			22,264
Other operating (income) expense, net		1,146			7,149			(1,218	)		—			7,077

Operating (loss) income from continuing operations		(29	)		2,860			36,319			—			39,150
Other expenses (income) net		10,003			(240	)		102			—			9,865

(Loss) income from continuing operations before income taxes		(10,032	)		3,100			36,217			—			29,285
(Benefit) provision for income taxes		(2,909	)		771			10,499			—			8,361

(Loss) Income from continuing operations		(7,123	)		2,329			25,718						20,924
Equity earnings (loss) from subsidiaries, net of tax		28,047			25,718			—			(53,765	)		—

Income (loss) from continuing operations		20,924			28,047			25,718			(53,765	)		20,924
Loss from discontinued operations, net of income taxes		(89	)		—			—			—			(89	)

Net income (loss)	$	20,835		$	28,047		$	25,718		$	(53,765	)	$	20,835

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Income Statement

Six months ended June 27, 2004

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Sales	$	137,021		$	355,156		$	399,569	$	(86,524	)	$	805,222
Cost of sales		104,184			239,455			229,724		(86,524	)		486,839
Selling, general and administrative expenses		27,674			80,542			85,248		—			193,464
Research and development expenses		1,224			24,254			17,414		—			42,892
Other operating expense, net		891			12,546			378		—			13,815

Operating income (loss) from continuing operations		3,048			(1,641	)		66,805		—			68,212
Other expenses (income) net		19,658			(459	)		212		—			19,411

(Loss) income from continuing operations before income taxes		(16,610	)		(1,182	)		66,593		—			48,801
(Benefit) provision for income taxes		(4,817	)		(343	)		19,313		—			14,153

(Loss) Income from continuing operations		(11,793	)		(839	)		47,280		—			34,648
Equity earnings (loss) from subsidiaries, net of tax		46,441			47,280			—		(93,721	)		—

Income (loss) from continuing operations		34,648			46,441			47,280		(93,721	)		34,648
Loss from discontinued operations, net of income taxes.		(542	)		—			—		—			(542	)

Net income (loss)	$	34,106		$	46,441		$	47,280	$	(93,721	)	$	34,106

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Income Statement

Three months ended June 29, 2003

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Sales	$	53,446		$	152,576		$	194,065		$	(23,835	)	$	376,252
Cost of sales		42,140			97,351			107,640			(23,835	)		223,296
Selling, general and administrative expenses		15,983			41,663			39,809			—			97,455
Research and development expenses		1,117			11,532			9,228			—			21,877
Other operating expense (income), net		2,085			3,900			(2,784	)		—			3,201

Operating income (loss) from continuing operations…		(7,879	)		(1,870	)		40,172			—			30,423
Other expenses (income) net		17,641			(1,370	)		(2,106	)		—			14,165

(Loss) income from continuing operations before income taxes		(25,520	)		(500	)		42,278			—			16,258
(Benefit) provision for income taxes		(8,294	)		(162	)		13,740			—			5,284

(Loss) income from continuing operations		(17,226	)		(338	)		28,538			—			10,974
Equity earnings (loss) from subsidiaries, net of tax		28,200			28,538			—			(53,406	)		—

Income (loss) from continuing operations		10,974			28,200			28,538			(53,406	)		10,974
Loss from discontinued operations, net of income taxes.		(2,576	)		—			—			—			(2,576	)

Net income (loss)	$	8,398		$	28,200		$	28,538		$	(53,406	)	$	8,398

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Income Statement

Six months ended June 29, 2003

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Sales	$	105,276		$	289,050		$	378,178		$	(38,512	)	$	733,992
Cost of sales		82,942			180,160			216,754			(38,512	)		441,344
Selling, general and administrative expenses		24,469			78,882			86,897			—			190,248
Research and development expenses		2,095			23,572			17,061			—			42,728
Other operating (income) expense, net		326			10,031			(991	)		—			9,366

Operating (loss) income from continuing operations		(4,556	)		(3,595	)		58,457			—			50,306
Other expenses net		18,220			9,028			1,254			—			28,502

(Loss) income from continuing operations before income taxes		(22,776	)		(12,623	)		57,203			—			21,804
(Benefit) provision for income taxes		(7,402	)		(4,102	)		18,590			—			7,086

(Loss) income from continuing operations		(15,374	)		(8,521	)		38,613			—			14,718
Equity earnings (loss) from subsidiaries, net of tax		30,092			38,613			—			(68,705	)		—

Income (loss) from continuing operations		14,718			30,092			38,613			(68,705	)		14,718
Loss from discontinued operations, net of income taxes.		(3,958	)		—			—			—			(3,958	)

Net income (loss)	$	10,760		$	30,092		$	38,613		$	(68,705	)	$	10,760

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Balance Sheet

June 27, 2004

(Unaudited)

(In thousands)


	Parent Company Only			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	30,900		$	—	$	165,828	$	—		$	196,728
Accounts receivable, net		29,796			41,391		202,734		—			273,921
Inventories		22,251			78,424		88,930		—			189,605
Other current assets		38,984			18,944		40,854		—			98,782
Current assets of discontinued operations		950			—		—		—			950

Total current assets		122,881			138,759		498,346		—			759,986

Property, plant and equipment, net		28,815			137,796		80,467		—			247,078
Investments		8,113			1,150		810		—			10,073
Intangible assets		32,126			1,079,155		326,249		—			1,437,530
Intercompany receivable/ (payable), net		(1,273,163	)		841,670		431,493		—			—
Investment in subsidiary		3,028,256			1,014,463		—		(4,042,719	)		—
Other assets		82,482			5,182		11,153		—			98,817
Long-term assets of discontinued operations		359			—		—		—			359

Total assets	$	2,029,869		$	3,218,175	$	1,348,518	$	(4,042,719	)	$	2,553,843

Current liabilities:
Short-term debt	$	3,150		$	—	$	1,795	$	—		$	4,945
Accounts payable		20,128			44,296		65,501		—			129,925
Accrued restructuring and integration costs		—			3,875		1,277		—			5,152
Accrued expenses		111,637			77,972		111,663		—			301,272
Current liabilities of discontinued operations		540			—		—		—			540

Total current liabilities		135,455			126,143		180,236		—			441,834
Long-term debt		484,431			—		—		—			484,431
Long-term liabilities		42,793			63,776		153,819		—			260,388
Total stockholders’ equity		1,367,190			3,028,256		1,014,463		(4,042,719	)		1,367,190

Total liabilities and stockholders’ equity	$	2,029,869		$	3,218,175	$	1,348,518	$	(4,042,719	)	$	2,553,843

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		$	—	$	152,139		—		$	191,499
Accounts receivable, net		27,208			57,019		203,800		—			288,027
Inventories		20,459			80,458		89,429		—			190,346
Other current assets		38,082			21,248		35,883		—			95,213
Current assets of discontinued operations		1,214			—		—		—			1,214

Total current assets		126,323			158,725		481,251		—			766,299

Property, plant and equipment, net		29,439			149,704		87,528		—			266,671
Investments		7,910			994		1,970		—			10,874
Goodwill and intangible assets		29,470			1,098,624		331,520		—			1,459,614
Intercompany receivable/(payable), net		(1,013,702	)		767,949		245,753		—			—
Investment in subsidiary		2,809,480			829,571		—		(3,639,051	)		—
Other assets		85,139			6,874		10,639		—			102,652
Long-term assets of discontinued operations		1,609			—		—		—			1,609

Total assets	$	2,075,668		$	3,012,441	$	1,158,661	$	(3,639,051	)	$	2,607,719

Current liabilities:
Short-term debt	$	3,150		$	—	$	2,017		—		$	5,167
Accounts payable		26,311			51,746		76,369		—			154,426
Accrued restructuring and integration costs		—			4,497		3,558		—			8,055
Accrued expenses		107,689			84,166		92,013		—			283,868
Current liabilities of discontinued operations		499			—		—		—			499

Total current liabilities		137,649			140,409		173,957		—			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			2,809,480		829,571		(3,639,051	)		1,349,050

Total liabilities and stockholders’ equity	$	2,075,668		$	3,012,441	$	1,158,661	$	(3,639,051	)	$	2,607,719

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Cash Flow Statement

Six months ended June 27, 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	$	59,774		$	4,353		$	18,704		$	—	$	82,831
Net cash provided by discontinued operating activities		362			—			—			—		362

Net cash provided by (used in) operating activities		60,136			4,353			18,704			—		83,193

Investing Activities
Proceeds from Disposition of business, P,P&E, net		2,056			—			—			—		2,056
Capital expenditures		(1,004	)		(4,353	)		(3,013	)		—		(8,370	)
Settlement from dispositions of Businesses, net		2,765			—			—			—		2,765
Net cash (used in) provided by Continuing Operations		3,817			(4,353	)		(3,013	)		—		(3,549	)
Net cash provided by Discontinued Operations		306			—			—			—		306

Net cash (used in) provided by investing activities		4,123			(4,353	)		(3,013	)		—		(3,243	)

Financing Activities
Payment of term loan debt		(60,000	)		—			—			—		(60,0000
Increase (decrease) in other debt facilities		(234	)		—			(222	)		—		(456	)
Proceeds from issuance of common stock for employee benefit plans		5,361			—			—			—		5,361
Cash dividends		(17,846	)		—			—			—		(17,846	)

Net cash (used in) provided by financing activities		(72,719	)		—			(222	)		—		(72,941	)

Effect of exchange rates on cash and cash equivalents		—			—			(1,780	)		—		(1,780	)

Net increase (decrease) in cash and cash equivalents		(8,460	)		—			13,689					5,229
Cash and cash equivalents, beginning of period		39,360			—			152,139			—		191,499

Cash and cash equivalents, end of period	$	30,900		$	—		$	165,828		$	—	$	196,728

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Cash Flow Statement

Six months ended June 29, 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	$	47,992		$	(1,777	)	$	14,387		$	—	$	60,602
Net cash provided by discontinued operating activities		309			—			—			—		309

Net cash provided by (used in) operating activities		48,301			(1,777	)		14,387			—		60,911

Investing Activities
Cash held in escrow		32,509			—			—			—		32,509
Proceeds from Disposition of business, P,P&E, net		3,295			—			—			—		3,295
Capital expenditures		(692	)		(5,204	)		(2,383	)		—		(8,279	)
Settlement from dispositions of Businesses, net		(866	)		—			—			—		(866	)
Cost of acquisitions, net of cash Acquired		534			—			—			—		534

Net cash (used in) provided by Continuing Operations		34,780			(5,204	)		(2,383	)		—		27,193
Net cash provided by Discontinued Operations		250			—			—			—		250

Net cash (used in) provided by investing activities		35,030			(5,204	)		(2,383	)		—		27,443

Financing Activities
Payment of Zero Coupon Convertible Notes		(32,509	)		—			—			—		(32,509	)
Payment of term loan debt		(30,000	)		—			—			—		(30,000	)
Increase (decrease) in other debt facilities		(1,116	)		—			90			—		(1,026	)
Proceeds from issuance of common stock for employee benefit plans		617			—			—			—		617
Payment of debt issuance costs		(1,725	)		—			—			—		(1,725	)
Cash dividends		(17,660	)		—			—			—		(17,660	)

Net cash (used in) provided by financing activities		(82,393	)		—			90			—		(82,303	)

Effect of exchange rates on cash and cash equivalents		—			—			7,957			—		7,957

Net increase (decrease) in cash and cash equivalents		938			(6,981	)		20,051					14,008
Cash and cash equivalents, beginning of period		27,745			6,981			95,889			—		130,615

Cash and cash equivalents, end of period	$	28,683		$	—		$	115,940		$	—	$	144,623

PERKINELMER, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(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. We intend to defend ourselves vigorously in these matters. 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 the Company. The Company has established accruals for matters that are probable and reasonably estimable. We are currently unable, however, to determine whether resolution of these matters will have a material adverse impact on our financial position or results of operations.

The Company and certain officers have been named as defendants in a class action lawsuit filed in July 2002, and the Company and certain officers and directors have been named as defendants in a purported derivative lawsuit filed in June 2004, in which the plaintiffs in both suits have alleged various statements made by the Company and management, during the same time period for both suits, were misleading with respect to the Company’s prospects and future operating results. Further information with respect to the derivative lawsuit is contained in Part II, Item 1 Legal Proceedings of this quarterly report. The Company believes that it has meritorious defenses to both lawsuits and is contesting the actions vigorously. The Company is currently unable, however, to reasonably estimate the amount of the loss, if any, that may result from resolution of these matters.

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 $4.4 million as of June 27, 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.

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 a variety of precision valves, seals, bellows and pneumatic joints for critical control and containment systems for highly demanding environments such as turbine engines and semiconductor fabrication equipment.

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 enables 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 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 were completed 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 second quarter of 2004 were $412.6 million, versus $376.3 million for the second quarter of 2003, an increase of $36.3 million, or 10%. Changes in foreign exchange rates, primarily the Euro, increased sales by approximately $7.3 million in the second quarter of 2004 as compared to the second quarter of 2003.

This increase in sales reflects an $11.9 million, or 5%, increase in our Life and Analytical Sciences segment sales, which grew from $246.0 million in the second quarter of 2003 to $257.9 million in the second quarter of 2004, and includes approximately $6.0 million in sales attributable to favorable changes in foreign exchange rates compared to the second quarter of 2003. Our Optoelectronics segment sales grew $6.2 million, or 7%, from $88.5 million in the second quarter of 2003 to $94.7 million in the second quarter of 2004, including approximately $1.1 million in sales attributable to favorable changes in foreign exchange rates compared to the second quarter of 2003. Our Fluid Sciences segment sales grew $18.4 million, or 44%, from $41.7 million in the second quarter of 2003 to $60.1 million in the second quarter of 2004, including approximately $0.2 million in sales attributable to favorable changes in foreign exchange rates compared to the second quarter of 2003.

Sales for the six-month period ended June 27, 2004 were $805.2 million, versus $734.0 million for the six-month period ended June 29, 2003, an increase of $71.2 million, or 10%. Changes in foreign exchange rates, primarily the Euro, increased sales by approximately $25.3 million in the six-month period ended June 27, 2004, as compared to the six-month period ended June 29, 2003. This increase in sales reflects a $28.9 million, or 6%, increase in our Life and Analytical Sciences segment sales, which grew from $478.2 million in the six-month period ended June 29, 2003 to $507.1 million in the six-month period ended June 27, 2004 and includes approximately $21.2 million in sales attributable to favorable changes in foreign exchange rates compared to the six-month period ended June 29, 2003. Our Optoelectronics segment sales grew $9.5 million, or 6%, from $171.1 million in the six-month period ended June 29, 2003 to $180.6 million in the six-month period ended June 27, 2004, including approximately $3.4 million in sales attributable to favorable changes in foreign exchange rates compared to the six-month period ended June 29, 2003. Our Fluid Sciences segment sales grew $33.0 million, or 39%, from $84.6 million in the six-month period ended June 29, 2003 to $117.6 million in the six-month period ended June 27, 2004, including approximately $0.7 million in sales attributable to favorable changes in foreign exchange rates compared to the six-month period ended June 29, 2003

Cost of Sales

Cost of sales for the second quarter of 2004 was $246.5 million, versus $223.3 million for the second quarter of 2003, an increase of $23.2 million, or 10%. As a percentage of sales, cost of sales increased to 59.7% in the second quarter of 2004 from 59.3% in the second quarter of 2003, resulting in a decrease in gross margin of 40 basis points from 40.7% in the second quarter of 2003 to 40.3% in the second quarter of 2004. The decrease in gross margin was primarily attributable to a higher percentage of total sales coming from our Fluid Sciences segment, which has lower gross margins than our Optoelectronics and Life and Analytical Sciences segments but also lower operating expenses as a percentage of sales.

Cost of sales for the six-month period ended June 27, 2004 was $486.8 million, versus $441.3 million for the six-month period ended June 29, 2003, an increase of $45.5 million, or 10%. As a percentage of sales, cost of sales increased to 60.5% in the six-month period ended June 27, 2004 from 60.1% in the six-month period ended June 29, 2003, resulting in a decrease in gross margin of 40 basis points from 39.9% in 2003 to 39.5% in 2004. The decrease in gross margin was primarily attributable to a higher percentage of total sales coming from our Fluid Sciences segment, which has lower gross margins than our Optoelectronics and Life and Analytical Sciences segments but also lower operating expenses as a percentage of sales.

Research and Development Expenses

Research and development expenses for the second quarter of 2004 were $22.3 million versus $21.9 million for the second quarter of 2003, an increase of $0.4 million, or 2%. As a percentage of sales, research and development expenses decreased to 5.4% in the second quarter of 2004 from 5.8% in the second quarter of 2003, primarily due to the consolidation of research and development activities to take advantage of increased

synergies and corresponding cost savings as a result of fewer research and development sites. We directed our research and development efforts during the second quarters of 2004 and 2003 primarily toward genetic screening and biopharmaceutical end markets within our Life and Analytical Sciences reporting segment and digital imaging and industrial products within our Optoelectronics reporting segment. We expect our research and development efforts to continue to emphasize the health sciences end markets. We expect our research and development spending as a percentage of revenue for fiscal 2004 to remain substantially similar to our historical levels in fiscal 2003.

Research and development expenses for the six-month period ended June 27, 2004 were $42.9 million versus $42.7 million for the six-month period ended June 29, 2003, an increase of $0.2 million, or 0.5%. As a percentage of sales, research and development expenses decreased to 5.3% in the six-month period ended June 27, 2004 from 5.8% in the six-month period ended June 29, 2003, primarily due to the consolidation of research and development activities to take advantage of increased synergies and corresponding cost savings as a result of fewer research and development sites.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the second quarter of 2004 were $97.7 million, versus $97.5 million for the second quarter of 2003, an increase of $0.2 million, or 0.2%. As a percentage of sales, selling, general and administrative expenses decreased 220 basis points to 23.7% in the second quarter of 2004 from 25.9% in the second quarter of 2003. The decrease as a percentage of sales of 220 basis points in the second quarter of 2004 as compared to the second quarter of 2003 was primarily the result of productivity improvements resulting from prior year integration and restructuring efforts, increased sales from our Fluid Sciences segment and increased service revenue from our Life and Analytical Sciences segment. Both our Fluid Sciences segment and our Life and Analytical Sciences segment’s service revenues have lower operating expenses as a percentage of sales than our Optoelectronics segment and other Life and Analytical Sciences product lines.

Selling, general and administrative expenses for the six-month period ended June 27, 2004 were $193.5 million, versus $190.2 million for the six-month period ended June 29, 2003, an increase of $3.3 million, or 2%. As a percentage of sales, selling, general and administrative expenses decreased 190 basis points to 24.0% in the six-month period ended June 27, 2004 from 25.9% in the six-month period ended June 29, 2003. The decrease as a percentage of sales of 190 basis points in the six-month period ended June 27, 2004 as compared to the six-month period ended June 29, 2003 was primarily the result of productivity improvements resulting from prior year integration and restructuring efforts, increased sales from our Fluid Sciences segment and increased service revenue from our Life and Analytical Sciences segment. Both our Fluid Sciences segment and our Life and Analytical Sciences segment’s service revenues have lower operating expenses as a percentage of sales than our Optoelectronics segment and other Life and Analytical Sciences product lines.

Restructuring (Reversals), 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 since 2002 were recorded in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”). 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 six-month period ended June 29, 2003, we recorded a pre-tax restructuring reversal of $5.5 million relating to our Q4 2002 Plan, described below, as higher than expected attrition rates prior to ultimate termination resulted in reduced severance costs on various executed plans in several countries.

In the six-month period ended June 29, 2003, we also recorded an additional pre-tax restructuring charge of $0.6 million relating to our Q4 2001 Plan, described below, due to higher than expected employee separation costs associated with the closure of our European manufacturing facilities.

In addition, concurrent with the reevaluation of our existing restructuring plans, we recorded a pre-tax restructuring charge of $1.7 million during the second quarter of 2003 (the “Q2 2003 Plan”) in accordance with SFAS No. 146. The principal actions within the Q2 2003 Plan related to a workforce reduction resulting from continued reorganization activities within the Life and Analytical Sciences and Optoelectronics businesses.

A description of each of our four restructuring plans and the activity recorded for the six-month period ended June 27, 2004 is as follows:

Q2 2003 Plan

During 2003, we recognized 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 six months ended June 27, 2004:


	Severance and Separation
	(In thousands)
Balance at December 28, 2003	$	288
Amounts paid		(19	)

Balance at June 27, 2004	$	269

We anticipate that all remaining Q2 2003 Plan actions will be completed by the end of 2004.

Q4 2002 Plan

In connection with 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. The Q4 2002 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 Q4 2002 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 six months ended June 27, 2004:


	Severance			Abandonment of Excess Facilities			Total
	(In thousands)
Balance at December 28, 2003	$	2,770		$	1,530		$	4,300
Amounts paid		(1,533	)		(548	)		(2,081	)

Balance at June 27, 2004	$	1,237		$	982		$	2,219

The Q4 2002 Plan 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.

We expect to settle the remaining severance liability under the Q4 2002 Plan by the end of 2004. Our 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 Q1 2002 Plan resulted in pre-tax restructuring charges totaling $9.2 million. The principal actions in the Q1 2002 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 were paid in 2004. The following table summarizes the components of our Q1 2002 Plan for the six months ended June 27, 2004:


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

Balance at June 27, 2004	$	—

Q4 2001 Plan

During the fourth quarter of 2001, in connection with the integration of Packard Bioscience Company (“Packard”), 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 Q4 2001 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 six months ended June 27, 2004:


	Severance
	(In thousands)
Balance at December 28, 2003	$	2,471
Amounts paid		(587	)

Balance at June 27, 2004	$	1,884

The remaining liability under the Q4 2001 Plan relates to European severance obligations and is expected be paid by 2005.

Integration Charges

In addition, as discussed in our annual report on Form 10-K for the fiscal year ended December 28, 2003, we have established integration reserves relating to the acquisition of Packard. The integration activities were completed in early 2003 with the exception of $0.9 million of remaining payments due on leased facilities exited in 2001 that will be paid through 2005. During the six months ended June 27, 2004, we expended $0.1 million to execute these actions.

Gains on Dispositions

There were no net gains on dispositions in the second quarter of 2004, compared to a net gain of $1.1 million, from the sales of buildings, in the second quarter of 2003.

Gains on dispositions resulted in a net gain of $0.4 million in the six-month period ended June 27, 2004 compared to a net gain of $1.7 million in the six-month period ended June 29, 2003. Gains on dispositions in the six-month period ended June 27, 2004 totaled $0.4 million from the sale of a building. Gains on dispositions in the six-month period ended June 29, 2003 included a $1.4 million gain from the sale of buildings 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 second quarter of 2004 and $7.0 million for the second quarter of 2003. The change was the result of a slight increase in the Life and Analytical Sciences segment amortization due to the effect of foreign exchange.

Interest and Other Expense, Net

Interest and other expense, net consisted of the following:


	Three Months Ended						Six Months Ended
	June 27, 2004			June 29, 2003			June 27, 2004			June 29, 2003
	(In thousands)						(In thousands)
Interest income	$	(355	)	$	(698	)	$	(840	)	$	(1,715	)
Interest expense		9,272			14,040			19,047			28,305
Acceleration of amortization of debt issue costs		366			619			1,532			619
Other		582			204			(328	)		1,293

	$	9,865		$	14,165		$	19,411		$	28,502

Interest and other expense, net for the three months ended June 27, 2004 was $9.9 million, versus $14.2 million for the three months ended June 29, 2003, a decrease of $4.3 million, or 30%. The decrease in interest and other expense, net in the second quarter of 2004 as compared to the second quarter of 2003, was due primarily to lower outstanding borrowings, and secondarily attributable to 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. Fixed to floating interest rate swaps that we entered into in January 2004 applicable to $100 million of our outstanding fixed rate debt further decreased our effective interest rate. For the six months ended June 27, 2004, interest and other expense, net was $19.4 million versus $28.5 million for the comparable period in 2003, a decrease of $9.1 million, or 32%. The decrease primarily relates to the aforementioned lower outstanding borrowings. Lower average interest rates related to the amendment of our credit facility in December 2003 and the floating interest rate swaps that we entered into in January 2004 also contributed to the decrease. The decrease in interest expense for the six months ended June 27, 2004 as compared to the comparable period in 2003 was offset in part by an increase of $0.9 million in accelerated amortization of debt issuance costs resulting from partial prepayments of our term debt during the six months ended June 27, 2004. A discussion of our liquidity and our prospective borrowing costs is set forth below under the heading “Liquidity and Capital Resources.”

Provision/Benefit for Income Taxes

The second quarter 2004 provision for income taxes was $8.4 million, compared to a provision of $5.3 million for the second quarter of 2003. The effective tax rate for the second quarter of 2004 was 28.6%, compared to an effective tax rate of 32.5% for the second quarter of 2003. The provision for income taxes was $14.2 million for the six-month period ended June 27, 2004, compared to a provision of $7.1 million for the six-month period ended June 29, 2003. The effective tax rate was 29% during the six-month period ended June

27, 2004 compared to an effective tax rate of 32.5% for the six-month period ended June 29, 2003. The reduced effective tax rates for the quarter and six-month periods ended June 27, 2004 compared to 2003 were due to changes in our anticipated 2004 geographic pattern of earnings, reduced generation of net operating losses that were not tax beneficial, and a lower U.S. tax cost on foreign earnings.

Discontinued Operations

We recorded the following gains and losses, which we report as the loss on dispositions of discontinued operations, during the six-month periods ended June 27, 2004 and June 29, 2003:


	Three Months Ended					Six Months Ended
	June 27, 2004		June 29, 2003			June 27, 2004			June 29, 2003
	(In thousands)					(In thousands)
Loss on Entertainment Lighting business	$	—	$	(2,317	)	$	—		$	(2,317	)
Loss on Impairment of Electroformed Products business		—		—			(1,160	)		—
Gain on contract settlement associated with the Technical Services business		—		—			757			—
Loss on Security and Detection Systems business		—		(80	)		—			(47	)

Net (loss) gain on disposition of discontinued operations before income taxes		—		(2,397	)		(403	)		(2,364	)
(Benefit) provision for income taxes		—		(704	)		(205	)		(691	)

(Loss) on disposition of discontinued operations, net of income taxes	$	—	$	(1,693	)	$	(198	)	$	(1,673	)

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 $4.4 million as of June 27, 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.

Reporting Segment Results of Continuing Operations

Life and Analytical Sciences

Sales for the second quarter of 2004 were $257.9 million, versus $246.0 million for the second quarter of 2003, an increase of $11.9 million, or 5%. Changes in foreign exchange rates, primarily the Euro, increased sales by approximately $6.0 million in the second quarter of 2004, as compared to the second quarter of 2003. The following analysis compares selected sales by market and product type for the second quarter of 2004, as

compared to the second quarter of 2003, and includes the effect of foreign exchange rate fluctuations. Sales to biopharmaceutical customers increased $1.3 million, sales to environmental and chemical analysis customers increased $6.5 million, sales to genetic screening customers increased $0.9 million and sales of our OneSourceTM laboratory services increased $3.2 million. Sales by type of product included increases in sales of instruments of $10.8 million and services of $3.2 million offset in part by a decrease in sales of consumables of $2.1 million.

Sales for the six-month period ended June 27, 2004 were $507.1 million, versus $478.2 million for the six-month period ended June 29, 2003, an increase of $28.9 million, or 6%. Changes in foreign exchange rates, primarily the Euro, increased sales by approximately $21.2 million in the six-month period ended June 27, 2004, as compared to the six-month period ended June 29, 2003. The following analysis compares selected sales by market and product type for the six-month period ended June 27, 2004, as compared to the six-month period ended June 29, 2003, and includes the effect of foreign exchange rate fluctuations. Sales to biopharmaceutical customers increased $6.9 million, sales to environmental and chemical analysis customers increased $10.6 million, sales to genetic screening customers increased $3.4 million and sales of our OneSourceTM laboratory services increased $8.0 million. Sales by type of product included increases in sales of instruments of $19.4 million, services of $8.0 million and consumables of $1.5 million.

Operating profit for the second quarter of 2004 was $22.1 million, versus $20.7 million for the second quarter of 2003 an increase of $1.4 million, or 7%. The increase in operating profit in the second quarter of 2004 as compared to the second quarter of 2003, was primarily the result of increased sales volume and productivity improvements resulting from prior year integration and restructuring efforts. In addition, operating profit in the second quarter of 2003 included restructuring reversals and gains on dispositions totaling $3.1 million. Amortization of intangible assets was $6.6 million for the second quarter of 2004, versus $6.5 million for the second quarter of 2003.

Operating profit for the six-month period ended June 27, 2004 was $38.1 million, versus $32.3 million for the six-month period ended June 29, 2003, an increase of $5.8 million, or 18%. The increase in operating profit in the six-month period ended June 27, 2004 as compared to the six-month period ended June 29, 2003, was primarily the result of increased sales volume and productivity improvements resulting from prior year integration and restructuring efforts. In addition, operating profit for the six months ended June 29, 2003 included restructuring reversals and gains on dispositions totaling $3.3 million. Amortization of intangible assets was $13.1 million for the six-month period ended June 27, 2004, versus $13.0 million for the six-month period ended June 29, 2003.

Optoelectronics

Sales for the second quarter of 2004 were $94.7 million, versus $88.5 million for the second quarter of 2003, an increase of $6.2 million, or 7%. Changes in foreign exchange rates increased sales by approximately $1.1 million in the second quarter of 2004, as compared to the second quarter of 2003. The following analysis of sales by product line for the second quarter of 2004, as compared to the second quarter of 2003, includes the effects of changes in foreign exchange rates. Sales of digital imaging products increased by $4.5 million and sales within our industrial systems product line increased by $3.4 million. These increases were offset in part by sales decreases totaling $1.7 million in our sensors and specialty lighting product lines.

Sales for the six-month period ended June 27, 2004 were $180.6 million, versus $171.1 million for the six-month period ended June 29, 2003, an increase of $9.5 million, or 6%. Changes in foreign exchange rates increased sales by approximately $3.4 million in six-month period ended June 27, 2004, as compared to the six-month period ended June 29, 2003. The following analysis of sales by product line for the six-month period ended June 27, 2004, as compared to the six-month period ended June 29, 2003, includes the effects of changes in foreign exchange rates. Sales of digital imaging products increased by $6.8 million and sales within our industrial systems product line increased by $4.3 million. These increases were offset in part by sales decreases totaling $1.6 million in our sensors and specialty lighting product lines.

Operating profit for the second quarter of 2004 was $12.9 million, versus $11.5 million for the second quarter of 2003, an increase of $1.4 million, or 12%. The increase in operating profit in the second quarter of 2004 as compared to the second quarter of 2003, was primarily the result of increased sales volume which increased operating profit by approximately $3.0 million and productivity improvements of approximately $1.6 million, both offset in part by pricing reductions of approximately $2.4 million. In addition, operating profit in the second quarter of 2003 included restructuring reversals and gains on dispositions totaling $0.8 million. Amortization of intangible assets was $0.3 million for the second quarter of 2004 and $0.3 million for the second quarter of 2003.

Operating profit for the six-month period ended June 27, 2004 was $22.7 million, versus $20.8 million for the six-month period ended June 29, 2003, an increase of $1.9 million, or 9%. The increase in operating profit in the six-month period ended June 27, 2004 as compared to the six-month period ended June 29, 2003 was primarily the result of increased sales volume which increased operating profit by approximately $4.1 million and productivity improvements of approximately $2.5 million, both offset by pricing reductions of approximately $4.2 million. In addition, operating profit for the six-month period ended June 27, 2004 and June 29, 2003 included restructuring reversals and gains on dispositions of $0.4 million and $0.9 million, respectively. Amortization of intangible assets was $0.6 million for the six-month period ended June 27, 2004 and $0.6 million for the six-month period ended June 29, 2003.

Fluid Sciences

Sales for the second quarter of 2004 were $60.1 million, versus $41.7 million for the second quarter of 2003, an increase of $18.4 million, or 44%. Changes in foreign exchange rates increased sales by approximately $0.2 million in the second quarter of 2004, as compared to the second quarter of 2003. The following analysis of sales by product line for the second quarter of 2004, as compared to the second quarter of 2003, includes the effects of changes in foreign exchange rates. Sales increased $8.9 million in our semiconductor business, $8.5 million in our aerospace business and $1.1 million in our fluid testing business. The increase in our semiconductor business is partly attributable to a ramp-up in that market after a long down cycle, and the increase in our aerospace business is partly attributable to a gradual recovery in the end markets for these products. These increases were offset in part by a $0.1 million decrease in sales in our energy technology business.

Sales for the six-month period ended June 27, 2004 were $117.6 million, versus $84.6 million for the six-month period ended June 29, 2003, an increase of $33.0 million, or 39%. Changes in foreign exchange rates increased sales by approximately $0.7 million in the six-month period ended June 27, 2004, as compared to the six-month period ended June 29, 2003. The following analysis of sales by product line for the six-month period ended June 27, 2004, as compared to the six-month period ended June 29, 2003, includes the effects of changes in foreign exchange rates. Sales increased $16.6 million in our semiconductor business, $13.2 million in our aerospace business, $3.0 million in our fluid testing business and $0.2 million in our energy technology business. The increase in our semiconductor business is partly attributable to a ramp-up in that market after a long down cycle, and the increase in our aerospace business is partly attributable to a gradual recovery in the end markets for these products.

Operating profit for the second quarter of 2004 was $9.2 million, versus $3.1 million for the second quarter of 2003 an increase of $6.1 million, or 197%. The increase in operating profit in the second quarter of 2004 as compared to the second quarter of 2003, was the result of both increased sales and the related better leverage of fixed costs. Amortization of intangible assets was $0.2 million for the second quarter of 2004 and $0.2 million for the second quarter of 2003.

Operating profit for the six-month period ended June 27, 2004 was $17.5 million, versus $5.5 million for the six-month period ended June 29, 2003, an increase of $12.0 million, or 218%. The increase in operating profit in the six-month period ended June 27, 2004 as compared to the six-month period ended June 29, 2003 was primarily the result of improved fixed cost leverage due to higher sales volume. In addition, operating profit for the six months ended June 29, 2003 included

restructuring reversals and gains on dispositions totaling $0.6 million. Amortization of intangible assets was $0.4 million for the six-month period ended June 27, 2004 and $0.6 million for the six-month period ended June 29, 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:

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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,

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

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

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volatility in the markets for corporate debt,

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

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volatility in the public equity markets.

Cash Flows

Operating Activities. Net cash generated by continuing operations operating activities was $82.8 million in the six months ended June 27, 2004 compared to cash generated by continuing operations operating activities of $60.6 million for the six months ended June 29, 2003. Contributing to the generation of cash from operating activities during the six months ended June 27, 2004 was net income from continuing operations of $34.6 million and depreciation and amortization of $38.5 million. These amounts were offset in part by a net increase in working capital accounts of $13.8 million. Contributing to the net increase in working capital in the six months ended June 27, 2004 were an increase in inventory of $0.6 million and a decrease in accounts payable of $23.9 million offset in part by a $10.7 million reduction in accounts receivable. There was no incremental use of our accounts receivable securitization facility during the six months ended June 27, 2004, which totaled $45.0 million at both December 28, 2003 and June 27, 2004. Net cash generated from changes in accrued expenses, restructuring, other assets and liabilities, and other items totaled $23.5 million during the six months ended June 27, 2004.

Investing Activities. Investing activities related to continuing operations used $3.5 million of cash in the six months ended June 27, 2004, compared to $27.2 million of cash generated by investing activities in the six months ended June 29, 2003. In the six months ended June 27, 2004, we made capital expenditures of $8.4 million mainly for tooling and productivity improvements and for system and facility costs related to integration activities. We also derived $2.1 million from the sale of a building, $2.8 million from the settlement of the escrow related to the 2000 NEN acquisition and $0.3 million from discontinued operations investing activities in the six months ended June 27, 2004. The $27.4 million of cash generated from investing activities in the

six-month period ended June 29, 2003 was primarily comprised of $32.5 million of cash withdrawn from escrow to repay debt, $3.3 million of proceeds from dispositions of property, plant and equipment, $0.5 million from proceeds related to acquisitions and $0.3 million from discontinued operations investing activity, offset by capital expenditures of $8.3 million and business disposition transaction payments of $0.9 million. In fiscal year 2004, we expect to incur a total of approximately $20.0 million to $30.0 million in capital expenditures, however, our capital expenditure spend is dependent on economic conditions.

Financing Activities. In the six months ended June 27, 2004, we used $72.9 million of net cash in financing activities, compared to $82.3 million of cash used in the six months ended June 29, 2003. Debt reductions during the six months ended June 27, 2004 totaled $60.5 million, primarily comprised of $60.0 million used to repay a portion of our term loan. We paid $17.8 million in dividends and received net cash proceeds from the exercise of employee stock options of $5.4 million in the six months ended June 27, 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. Over the last six quarters, we have paid down a significant portion of this loan. In the second quarter of 2004, we made $15.0 million of principal payments on the term loan. At June 27, 2004 we had $185.0 million outstanding under our term loan. We had no outstanding principal balance under our revolving credit facility at June 27, 2004 or at any other time during the year. Our 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 May 14, 2004, and for the remainder of the second quarter of 2004, the applicable margin for the term loan was 200 basis points for the Eurodollar rate and 100 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 second quarter of 2004, we allocated our term loan indebtedness primarily to the Eurodollar-based interest rate, resulting in an average rate of 328 basis points.

The term loan is repayable in mandatory nominal quarterly installments of $0.8 million 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 six months ended June 27, 2004, we made $60.0 million in principal payments on the term loan, thereby satisfying the 50% of excess cash flow obligation. The revolving credit facility is available to us through December 2007 for our working capital needs. At no point during the six months ended June 27, 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:

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a minimum interest coverage ratio,

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a minimum fixed charge coverage ratio,

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a maximum senior leverage ratio, and

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a maximum total leverage ratio.

As of June 27, 2004, and at all other times during the second 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 maturity of the swaps are the same as the maturity of the related notes. The swap instruments reduced the annualized interest rate on the 8⁷/8% notes by approximately 80 basis points during the six months ended June 27, 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 June 27, 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 June 27, 2004 and $45.0 million at March 28, 2004. As of June 27, 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 June 27, 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 June 27, 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 currently plan 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 second quarters of 2004 and 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:

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 six months 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.

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:

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accurately anticipate customer needs,

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innovate and develop new technologies and applications,

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successfully commercialize new technologies in a timely manner,

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

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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 June 27, 2004, we had approximately $489.4 million in outstanding indebtedness.

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:

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increasing our vulnerability to adverse economic and industry conditions,

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limiting our ability to obtain additional financing,

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

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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,

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

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

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

Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors beyond our control. Our business may not generate sufficient cash flow to meet these obligations or to successfully execute our business strategy. If we are

unable to service our debt and fund our business, we may be forced to reduce or delay capital expenditures, seek additional financing or equity capital, restructure or refinance our debt or sell assets. We may not be able to obtain additional financing or 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:

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incur additional indebtedness,

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pay dividends on, redeem or repurchase our capital stock,

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make investments,

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create liens,

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sell assets,

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

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

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enter into transactions with affiliates,

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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.

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 second 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,

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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.

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,

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the high valuations of businesses and technologies, and

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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 June 27, 2004, our total assets included $1.4 billion of net intangible assets. Net intangible assets consist principally of goodwill associated with acquisitions and costs associated with securing patent rights, trademark rights and technology licenses, net of accumulated amortization. These assets have historically been amortized on a straight-line basis over their estimated useful lives. In connection with our adoption of SFAS No. 142, we discontinued the amortization of goodwill and indefinite lived intangible assets beginning in fiscal 2002. Instead, we 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. We believe that 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 27, 2004. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of June 27, 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 June 27, 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. We intend to defend ourselves vigorously in these matters. 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. We are currently unable, however, to determine whether resolution of these matters will have a material adverse impact on our financial position or results of operations.

In papers dated June 28, 2004, David Jaroslawicz filed a purported derivative lawsuit in the United States District Court for the District of Massachusetts, Civil Action No. 04-CV-11469 GAO, against certain senior officers and four directors of the Company, and nominal defendant PerkinElmer, Inc. The lawsuit seeks an unspecified amount of damages and purports to make claims of breach of fiduciary duty, gross negligence, breach of contract, breach of duty of loyalty and unjust enrichment. The complaint contains allegations similar to those included in a currently pending class action lawsuit that have been disclosed in the Company’s previously filed quarterly and annual reports in addition to claims that certain defendants engaged in insider trading and that members of the Company’s Audit Committee breached their duties to the Company by failing to establish and maintain an adequate system of internal controls to assure that proper revenue recognition practices were being followed. The Company believes that it has meritorious defenses to the lawsuit and is contesting the action vigorously. The Company currently is unable, however, to reasonably estimate the amount of the loss, if any, that may result from resolution of this matter.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


Exhibit Number		Exhibit Name

10.1	*	Form of Amended and Restated Restricted Stock 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 Amended and Restated Restricted Stock 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. In addition, these Amended and Restated Restricted Stock Agreeements supersede the Restricted Stock Agreements with these executive officers dated January 27, 2004 and filed as Exhibit 10.1 to PerkinElmer, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2004.

10.2		Employment Agreements (1) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Gregory L. Summe dated July 27, 2004 is attached hereto as Exhibit 10.2(a); (2) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Robert F. Friel dated June 23, 2004 is attached hereto as Exhibit 10.2(b), and is representative of the employment agreements of the executive officers listed herein at numbers (2) through and including (4) ; (3) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Terrance L. Carlson dated June 10, 2004; (4) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Richard F. Walsh dated June 1, 2004;


Exhibit Number		Exhibit Name
		(5) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Jeffrey D. Capello dated June 11, 2004 is attached hereto as Exhibit 10.2(c) and is representative of the employment agreements of the executive officers listed herein at numbers (5) through and including (7); (6) Amended and Restated Employment Agreement between PerkinElmer, Inc. and John P. Murphy dated June 10, 2004; (7) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Peter B. Coggins dated June 14, 2004; and (8) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Robert A. Barrett dated June 10, 2004 is attached hereto as Exhibit 10.2(d).

10.3		Amendment to Equity Awards (1) Amendment to Equity Awards between PerkinElmer, Inc. and Gregory L. Summe dated July 27, 2004 is attached hereto as Exhibit 10.3(a). (2) Amendment to Equity Awards between PerkinElmer, Inc. and Robert F. Friel, dated as of June 23, 2004, is attached hereto as Exhibit 10.3(b), and is representative of the amendments to equity awards entered into between PerkinElmer, Inc. and each of the following executive officers: Jeffrey D. Capello dated as of June 11, 2004, Terrance L. Carlson dated as of June 10, 2004, Peter B. Coggins dated as June 14, 2004, John P. Murphy dated as of June 10, 2004 and Richard F. Walsh dated as of June 1, 2004. (3) The Amendment to Equity Awards between PerkinElmer, Inc. and Robert A. Barrett dated as of June 10, 2004 is identical in all material respects except for the deletion of paragraph (iii) in Mr. Barrett’s amendment.

10.4		Amendment to Vested Option Awards (1) Amendment to Vested Option Awards from PerkinElmer, Inc. to Gregory L. Summe dated July 27, 2004 is attached hereto as Exhibit 10.4(a). (2) Amendment to Vested Option Awards from PerkinElmer, Inc. to Robert F. Friel dated June 23, 2004 is attached hereto as Exhibit 10.4(b) and is representative of the Amendments to Vested Option Awards from PerkinElmer, Inc. to each of the following executive officers: Robert A. Barrett dated as of June 10, 2004, Jeffrey D. Capello dated as of June 11, 2004, Terrance L. Carlson dated as of June 10, 2004, Peter B. Coggins dated as of June 14, 2004, John P. Murphy dated as of June 10, 2004 and Richard F. Walsh dated as of June 1, 2004.

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 April 23, 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 April 22, 2004 announcing our financial results for the quarter ended March 28, 2004.

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)

August 6, 2004

EXHIBIT INDEX


Exhibit Number		Exhibit Name

10.1	*	Form of Amended and Restated Restricted Stock 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 Amended and Restated Restricted Stock 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. In addition, these Amended and Restated Restricted Stock Agreeements supersede the Restricted Stock Agreements with these executive officers dated January 27, 2004 and filed as Exhibit 10.1 to PerkinElmer, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 28, 2004.

10.2		Employment Agreements (1) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Gregory L. Summe dated July 27, 2004 is attached hereto as Exhibit 10.2(a); (2) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Robert F. Friel dated June 23, 2004 is attached hereto as Exhibit 10.2(b), and is representative of the employment agreements of the executive officers listed herein at numbers (2) through and including (4) ; (3) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Terrance L. Carlson dated June 10, 2004; (4) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Richard F. Walsh dated June 1, 2004; (5) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Jeffrey D. Capello dated June 11, 2004 is attached hereto as Exhibit 10.2(c) and is representative of the employment agreements of the executive officers listed herein at numbers (5) through and including (7); (6) Amended and Restated Employment Agreement between PerkinElmer, Inc. and John P. Murphy dated June 10, 2004; (7) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Peter B. Coggins dated June 14, 2004; and


Exhibit Number		Exhibit Name
		(8) Amended and Restated Employment Agreement between PerkinElmer, Inc. and Robert A. Barrett dated June 10, 2004 is attached hereto as Exhibit 10.2(d).

10.3		Amendment to Equity Awards (1) Amendment to Equity Awards between PerkinElmer, Inc. and Gregory L. Summe dated July 27, 2004 is attached hereto as Exhibit 10.3(a). (2) Amendment to Equity Awards between PerkinElmer, Inc. and Robert F. Friel, dated as of June 23, 2004, is attached hereto as Exhibit 10.3(b), and is representative of the amendments to equity awards entered into between PerkinElmer, Inc. and each of the following executive officers: Jeffrey D. Capello dated as of June 11, 2004, Terrance L. Carlson dated as of June 10, 2004, Peter B. Coggins dated as June 14, 2004, John P. Murphy dated as of June 10, 2004 and Richard F. Walsh dated as of June 1, 2004. (3) The Amendment to Equity Awards between PerkinElmer, Inc. and Robert A. Barrett dated as of June 10, 2004 is identical in all material respects except for the deletion of paragraph (iii) in Mr. Barrett’s amendment.

10.4		Amendment to Vested Option Awards (1) Amendment to Vested Option Awards from PerkinElmer, Inc. to Gregory L. Summe dated July 27, 2004 is attached hereto as Exhibit 10.4(a). (2) Amendment to Vested Option Awards from PerkinElmer, Inc. to Robert F. Friel dated June 23, 2004 is attached hereto as Exhibit 10.4(b) and is representative of the Amendments to Vested Option Awards from PerkinElmer, Inc. to each of the following executive officers: Robert A. Barrett dated as of June 10, 2004, Jeffrey D. Capello dated as of June 11, 2004, Terrance L. Carlson dated as of June 10, 2004, Peter B. Coggins dated as of June 14, 2004, John P. Murphy dated as of June 10, 2004 and Richard F. Walsh dated as of June 1, 2004.

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.