SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 29, 2002
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PerkinElmer, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-5075 04-2052042
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
45 William Street, Wellesley, Massachusetts 02481
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (781) 237-5700
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS.
PerkinElmer, Inc., a Massachusetts corporation, is filing this current
report on Form 8-K for the purpose of filing with the Securities and Exchange
Commission its consolidated financial statements as of and for the fiscal years
ended December 30, 2001 and December 31, 2000 and our related Management's
Discussion and Analysis of Financial Condition and Results of Operations, as
well as selected historical financial information.
We are also filing this current report on Form 8-K for the purpose of
filing with the SEC our press release dated November 29, 2002 announcing our
planned private placement of senior subordinated notes.
On November 26, 2002, we received a report from Deloitte & Touche LLP
on our consolidated financial statements without qualification, emphasis of
matter or other modification as of and for the fiscal years ended December
30, 2001 and December 31, 2000. These financial statements were prepared solely
for the purpose of reflecting, for the periods specified above, our previously
announced reclassification of our Fluid Sciences business unit as a continuing
operation and our Telecommunications Component and Entertainment Lighting
businesses as discontinued operations.
In October 2001, our Board of Directors approved a plan to sell our
Fluid Sciences business unit, at which time the business was reflected as a
discontinued operation in our consolidated financial statements in accordance
with Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Due
to external market conditions, we did not complete the sale of this business
within the one-year time period afforded by APB No. 30. Accordingly, our Fluid
Sciences business unit is now included within our consolidated results from
continuing operations for our 2001 and 2000 fiscal years.
In June 2002, our Board of Directors approved a plan to shut down our
Telecommunications Component business and a plan to sell our Entertainment
Lighting business as part of our continued efforts to focus on higher growth
opportunities. These businesses are reflected as discontinued operations for our
2001 and 2000 fiscal years.
We previously announced the formation of our Life and Analytical
Sciences business unit in October 2002. We combined our Life Sciences and
Analytical Instruments businesses to improve operational scale. We expect that,
as a result of the combination of our Life Sciences and Analytical Instruments
businesses, various restructuring charges may be necessary in the fourth quarter
of 2002.
We are targeting annualized cost savings from the combination of our
Life Sciences and Analytical Instruments businesses of between $30.0 million and
$45.0 million. Because we anticipate that the benefits of the combination of
these businesses will not be fully realized until 2004, we are targeting cost
savings of between $12.0 million and $25.0 million in 2003. While we believe
these cost savings to be reasonable, they are estimates that are inherently
1
difficult to predict and are necessarily speculative in nature. In addition, we
cannot be sure that unforeseen factors will not offset 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.
We disclosed in our quarterly report on Form 10-Q for the quarter
ended September 29, 2002 that, over the first three quarters of 2002, our
operating results were adversely affected by downturns in many of the markets
we serve, including the pharmaceutical, biomedical, semiconductor and aerospace
markets. Current economic conditions have caused a decrease in capital spending
by many of our customers, which in turn has adversely affected our sales and
business. These trends have continued in the fourth quarter of 2002 and may
continue in 2003.
PRESENTATION OF FINANCIAL INFORMATION
In this current report on Form 8-K, we refer to our audited
consolidated financial statements for the fiscal years ended December 30, 2001
and December 31, 2000 and the related notes, together with the independent
auditors' reports thereon, as our audited consolidated financial statements. We
have prepared our audited consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America, or
GAAP.
We refer to our adjusted financial information for the fiscal years
ended December 30, 2001 and December 31, 2000 as our adjusted financial results.
When we refer to our adjusted results, we are referring to our results in
accordance with GAAP, excluding the impact of goodwill and intangible asset
amortization and the impact of nonrecurring items. Adjusted results are not a
measure of performance calculated in accordance with GAAP. We use adjusted
financial information for comparative purposes due to the number of changes
within our business portfolio in recent years and the resulting impact of the
associated charges. We believe this basis is useful to investors because these
charges are not part of our ongoing operations.
Except as otherwise noted, our consolidated financial information on a
GAAP and adjusted basis are presented for continuing operations. We have
classified as discontinued operations for all periods presented in this current
report on Form 8-K our Security and Detection Systems business, which we sold in
2002, our Telecommunications Component business, which we shut down during June
2002, and our Entertainment Lighting business, which we put up for sale in June
2002.
In this current report on Form 8-K, we sometimes refer to our organic
sales for specific periods. When we refer to our organic sales for any period,
we mean our sales from our historical operations for that period and sales from
our acquired businesses, assuming we owned them in those periods, in each case
as adjusted to eliminate the effects of our exited businesses and the impact of
foreign exchange. Organic sales is not a measure of performance calculated in
accordance with GAAP. Because organic sales does not have a standardized meaning
prescribed by GAAP, it may not be comparable to similar non-GAAP measures
presented by other companies. We refer to organic sales to provide an
understanding of the performance of our overall business, as presently
comprised.
We refer to the term "EBITDA" in various places in this current report
on Form 8-K. We calculate EBITDA using net income from continuing operations
before the effect of accounting changes, income tax expense, interest expense,
other income and expense and amortization and depreciation. EBITDA is not a
measure of performance calculated in accordance with GAAP. Because EBITDA does
not have a standardized meaning prescribed by GAAP, it may not be comparable to
similar non-GAAP measures
2
presented by other companies. We present EBITDA in this current report on Form
8-K because it is widely used by investors to evaluate a company's ability to
service debt.
We also refer to the term "adjusted EBITDA" in various places in this
current report on Form 8-K. We calculate adjusted EBITDA using EBITDA before the
impact of nonrecurring items. Adjusted EBITDA is not a measure of performance
calculated in accordance with GAAP. Because adjusted EBITDA does not have a
standardized meaning prescribed by GAAP, it may not be comparable to similar
non-GAAP measures presented by other companies. As with our other adjusted
financial information, we believe calculating EBITDA on an adjusted basis is
useful to investors because these charges are not part of our ongoing
operations.
FORWARD-LOOKING STATEMENTS
This current report on Form 8-K contains forward-looking statements
that are based on current expectations, estimates, forecasts and projections
about our company, the industries in which we operate and other matters, as well
as management's beliefs and assumptions and other statements regarding matters
that are not historical facts. These statements include, in particular,
statements about our plans, strategies and prospects under the headings
"Selected Historical Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Audited
Consolidated Financial Statements." For example, when we use words such as
"projects," "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "should," "would," "could" or "may," variations of such words or
other words that convey uncertainty of future events or outcome, we are making
forward-looking statements. Our forward-looking statements are subject to risks
and uncertainties. You should note that many important factors could affect us
in the future and could cause results to differ materially from those expressed
in our forward-looking statements. For a discussion of some of these factors,
please read carefully the information under the caption "Forward-Looking
Information and Factors Affecting Future Performance" in our most recently filed
quarterly report on Form 10-Q.
3
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth certain selected historical financial
information as of the end of and for each of the fiscal years in the five-year
period ended December 30, 2001. Except as otherwise noted:
- the selected historical financial information for and as of the end of
each of the fiscal years in the two-year period ended December 30, 2001
has been derived from our audited consolidated financial statements,
prepared in accordance with GAAP, which are included elsewhere in this
report,
- the selected historical financial information for and as of the end of
each of the fiscal years in the two-year period ended January 2, 2000 has
been derived from our audited consolidated financial statements, prepared
in accordance with GAAP, which are not included elsewhere in this report,
and has been adjusted, where appropriate, to account for both the
discontinuances of our Telecommunications Component and Entertainment
Lighting businesses and the reinclusion in continuing operations of our
Fluid Sciences business unit, and
- the selected historical financial information for and as of the end of
the fiscal year ended December 28, 1997 has been derived from our audited
consolidated financial statements as originally filed on March 23, 1998,
prepared in accordance with GAAP, which are not included elsewhere in
this report, and has not been adjusted to account for the discontinuances
of our Telecommunications Component, Entertainment Lighting, Technical
Services and Security and Detection Systems businesses.
Our historical financial information may not be indicative of our results of
operations or financial position to be expected in the future.
The selected historical financial information should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements, including the related
notes, included elsewhere in this report.
4
FISCAL YEAR ENDED
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DECEMBER 28, JANUARY 3, JANUARY 2, DECEMBER 31, DECEMBER 30,
1997 1999 2000 2000 2001
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales:
Life Sciences........ $-- $134,635 $158,009 $221,401 $346,110
Analytical
Instruments........ -- 108,430 443,344 617,699 568,373
Optoelectronics...... 261,291 274,507 421,514 447,129 380,227
Fluid Sciences....... -- 232,465 225,311 251,753 230,629
Other................ 1,199,514 27,645 -- -- --
---------- -------- ---------- ---------- ----------
Total sales.......... 1,460,805 777,682 1,248,178 1,537,982 1,525,339
Operating income
(loss)............... 59,589 114,785 59,624 179,858 129,715
Other expense, net..... 5,572 825 15,176 33,113 29,165
Income (loss) from
continuing operations
before taxes......... 54,026 113,960 44,448 146,745 100,550
Income (loss) from
continuing
operations, net of
income taxes......... 30,645 78,391 26,854 90,370 41,498
Income (loss) from
discontinued
operations, net of
income taxes......... 3,047 23,611 17,182 (4,303) (9,360)
Gain (loss) on
dispositions of
discontinued
operations, net of
income taxes......... -- -- 110,280 4,453 2,367
---------- -------- ---------- ---------- ----------
Net income (loss)
before effect of
accounting change.... 33,692 102,002 154,316 90,520 34,505
Effect of accounting
change, net of income
tax.................. -- -- -- -- --
---------- -------- ---------- ---------- ----------
Net income (loss)...... $33,692 $102,002 $154,316 $90,520 $34,505
========== ======== ========== ========== ==========
Basic earnings (loss)
per share:
Continuing
operations......... $0.33 $0.86 $0.29 $0.92 $0.40
Discontinued
operations......... 0.04 0.26 1.40 0.00 (0.07)
Effect of accounting
change, net of
income tax......... -- -- -- -- --
---------- -------- ---------- ---------- ----------
Net income (loss).... $0.37 $1.13 $1.69 $0.92 $0.33
Diluted earnings (loss)
per share:
Continuing
operations......... $0.33 $0.85 $0.29 $0.88 $0.39
Discontinued
operations......... 0.04 0.26 1.37 0.00 (0.07)
Effect of accounting
change, net of
income tax......... -- -- -- -- --
---------- -------- ---------- ---------- ----------
Net income (loss).... $0.37 $1.11 $1.66 $0.89 $0.32
Weighted-average common
shares outstanding:
Basic:............... 91,514 90,644 91,044 98,212 103,687
Diluted:............. 91,796 91,768 93,138 102,278 107,259
Cash dividends per
common share......... $0.28 $0.28 $0.28 $0.28 $0.28
5
FISCAL YEAR ENDED
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DECEMBER 28, JANUARY 3, JANUARY 2, DECEMBER 31, DECEMBER 30,
1997 1999 2000 2000 2001
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(IN THOUSANDS, EXCEPT RATIOS AND EMPLOYEE DATA)
CASH FLOW AND
LIQUIDITY MEASURES:
Net cash provided by
operating
activities.......... $32,142 $69,602 $117,295 $156,930 $145,268
Net cash provided by
(used in) investing
activities.......... 1,920 (43,850) (306,252) (407,448) 76,708
Net cash (used in)
provided by
financing
activities.......... (22,625) 14,027 61,983 259,789 (170,838)
Capital
expenditures........ 42,729 43,881 39,136 59,294 94,382(1)
ADJUSTED EBITDA(2):
Operating income...... $15,010 $114,785 $59,624 $179,858 $129,715
Depreciation and
amortization........ 41,583 47,862 64,185 74,253 88,472
Nonrecurring
charges(3).......... -- 64,371 45,801 38,664 106,179
(Gain) on
dispositions........ -- (70,271) (11,988) (37,739) (33,189)
------- -------- --------- ---------- ----------
Adjusted EBITDA..... $56,593 $156,747 $157,622 $255,036 $291,177
======= ======== ========= ========== ==========
OTHER RATIOS AND DATA:
Employee count(4)..... 15,000 13,000 12,000 12,500 11,400
Sales per
employee(5)......... $97,387 $59,822 $104,015 $123,039 $133,802
Ratio of earnings to
fixed charges(6).... 1.0x 9.5x 2.4x 4.1x 3.1x
AS OF
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DECEMBER 28, JANUARY 3, JANUARY 2, DECEMBER 31, DECEMBER 30,
1997 1999 2000 2000 2001
------------ ---------- ---------- ------------ ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Total assets............ $740,664 $1,103,351 $1,715,625 $2,260,760 $2,969,938
Short-term debt......... 46,167 157,888 382,162 185,411 125,984
Long-term debt.......... 114,863 129,835 114,855 583,337 598,125
Stockholders' equity.... 328,388 399,667 550,776 728,389 1,363,557
Common shares
outstanding........... 90,666 89,492 92,732 99,548 124,188
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(1) Capital expenditures in 2001 included approximately $30.0 million for
leasehold improvements to our Shelton, Connecticut facility.
(2) Represents net income before the effect of accounting change, income tax
expense, interest expense, other income and expense, amortization and
depreciation and before the impact of nonrecurring items.
6
Adjusted EBITDA is not a measure of performance calculated in accordance
with GAAP. For a discussion of the presentation of adjusted EBITDA in this
report, see "Presentation of Financial Information."
(3) Nonrecurring charges during the fiscal year ended December 30, 2001 are
detailed below:
FISCAL YEAR ENDED
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DECEMBER 30,
2001
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(IN THOUSANDS)
Acquisition related and other(a)... $99,179
Restructuring(b)................... 7,000
--------
$106,179
========
(a) Includes a $69.0 million charge associated with acquired in-process
research and development related to the Packard BioScience acquisition
in November 2001.
(b) Includes charges related to headcount reductions, facilities
consolidations and the disposal of related assets.
(4) Represents the approximate total number of employees employed by us and our
consolidated subsidiaries in continuing operations as of the end of the
referenced period. This data is not derived from our consolidated financial
statements.
(5) Represents (a) our total sales for the referenced period divided by (b) the
approximate total number of employees employed by us and our consolidated
subsidiaries in continuing operations as of the end of the referenced
period, which total is not derived from our consolidated financial
statements.
(6) Computed by dividing pre-tax income from continuing operations before
income or loss of equity method investees and fixed charges by fixed
charges. Fixed charges means the sum of the following: (a) interest
expense, (b) amortized premiums, discounts and capitalized expenses related
to indebtedness and (c) an estimate of the interest within rental expense.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 business units:
- Life and Analytical Sciences. We are a leading provider of drug
discovery, genetic screening and chemical analysis tools and
instrumentation. We are the world's fourth largest provider of life and
analytical sciences instruments, services and consumables, based on 2001
sales calculated by Strategic Directions International.
- Optoelectronics. We provide a broad range of digital imaging, sensor and
specialty lighting components used in the biomedical, consumer products
and other specialty end markets.
- Fluid Sciences. We provide critical fluid control and containment
solutions for highly demanding environments such as turbine engines and
semiconductor fabrication facilities.
Our Life and Analytical Sciences business unit comprises our Life Sciences
reporting segment and our Analytical Instruments reporting segment. Our
Optoelectronics and Fluid Sciences business units each constitute a single
reporting segment.
ACQUISITIONS AND DIVESTITURES
In July 2000, we completed our acquisition of NEN Life Sciences, Inc., a
provider of state-of-the-art drug discovery products, services, reagents and
technologies to the life sciences industry. We purchased NEN Life Sciences for
an aggregate purchase price of approximately $418 million. In connection with
the acquisition, we paid approximately $350 million in cash and issued warrants
to purchase approximately 600,000 shares of our common stock. In addition, we
repaid approximately $50 million of outstanding indebtedness of NEN Life
Sciences. We financed the acquisition and repayment of the outstanding
indebtedness with $410 million of commercial paper borrowings with a
weighted-average interest rate of 7%. These short-term borrowings were repaid in
August 2000 with proceeds from the issuance of our zero coupon convertible
debentures.
During October 2001, our Board of Directors approved a plan to sell our
Fluid Sciences business unit, at which time the business was reflected as a
discontinued operation in our consolidated financial
8
statements in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The sale of the business has not been completed due to
external market conditions. As APB No. 30 affords one year for the completion of
a disposition, we have reflected the Fluid Sciences business unit within our
consolidated results from continuing operations. All periods presented have been
adjusted to reflect this change.
In November 2001, we completed our acquisition of Packard BioScience
Company for a purchase price of approximately $733 million in the form of
approximately 22 million shares of our common stock and our assumption of $118
million in debt. The acquisition extended our capabilities in automated liquid
handling and sample preparation and strengthened our position as a global
provider of comprehensive drug discovery solutions. Packard BioScience, a global
developer, manufacturer and marketer of instruments, software and related
consumables and services for use in drug discovery and other life sciences
research, generated sales of approximately $165 million for its fiscal year
ended December 31, 2000.
In June 2001, our Board of Directors approved a plan to sell our Security
and Detection Systems business. In June 2002, we completed the sale of our
Security and Detection Systems business to L-3 Communications. We received cash
proceeds in this transaction of approximately $100 million. These proceeds are
subject to a working capital adjustment, which is not yet finalized. The
business and the associated impact of the disposition have been reflected as a
discontinued operation within our consolidated financial statements in
accordance with APB No. 30.
In June 2002, our Board of Directors approved a plan to shut down our
Telecommunications Component business and a plan to sell our Entertainment
Lighting business as part of our continued efforts to focus on higher growth
opportunities. Both businesses have been reflected as discontinued operations in
our consolidated financial statements in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment of Long-Lived
Assets," which we adopted as of the beginning of fiscal 2002.
CHANGE IN ACCOUNTING PRINCIPLE
In June 2001, The Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill and
indefinite-lived intangible assets are no longer systematically amortized, but
instead are subject to periodic impairment testing which, at a minimum, will
occur on an annual basis. We adopted SFAS No. 142 as of the beginning of fiscal
2002 and have accordingly ceased the amortization of goodwill and
indefinite-lived intangible assets. During the second quarter of 2002, we
completed our transitional implementation of the impairment testing provisions
of SFAS No. 142, which resulted in a $117.8 million before and after-tax charge
for goodwill associated with the lighting reporting unit within the
Optoelectronics business unit. In accordance with the provisions of SFAS No.
142, we have taken this charge as the effect of an accounting change as of the
beginning of fiscal 2002.
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CONSOLIDATED RESULTS OF CONTINUING OPERATIONS
REPORTED INCOME STATEMENT DATA
The table below presents our income from continuing operations before
effect of accounting change on a reported basis:
FISCAL YEAR ENDED
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DECEMBER 30, DECEMBER 31,
2001 2000
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(IN THOUSANDS)
Sales.............................. $1,525,339 $1,537,982
Cost of sales...................... 849,420 892,373
Research and development expenses
and in-process research and
development charges.............. 151,607 100,398
Selling, general and administrative
expenses......................... 420,786 396,792
Gains on dispositions and
restructuring charges, net....... (26,189) (31,439)
---------- ----------
Operating income................... 129,715 179,858
Other expense, net................. 29,165 33,113
---------- ----------
Income before income taxes......... 100,550 146,745
Provision for income taxes......... 59,052 56,375
---------- ----------
Income from continuing operations
before effect of accounting
change........................... $41,498 $90,370
========== ==========
ADJUSTED INCOME STATEMENT DATA
The table below presents our adjusted income, net of income tax, which
excludes goodwill and intangible amortization and the impact of nonrecurring
items:
FISCAL YEAR ENDED
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DECEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
(IN THOUSANDS)
Sales.............................. $1,525,339 $1,537,982
Cost of sales...................... 839,500 888,815
Research and development
expenses......................... 80,074 76,098
Selling, general and administrative
expenses......................... 359,135 359,078
---------- ----------
Adjusted operating income.......... 246,630 213,991
Other expense, net................. 33,438 34,013
---------- ----------
Adjusted income before income
taxes............................ 213,192 179,978
Provision for income taxes......... 60,909 53,184
---------- ----------
Adjusted income, net of income
tax.............................. $152,283 $126,794
========== ==========
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RECONCILIATION
The following table reconciles our adjusted income before income taxes set
forth above to income from continuing operations before effect of accounting
change:
FISCAL YEAR ENDED
---------------------------
DECEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
(IN THOUSANDS)
Adjusted income before income taxes... $213,192 $179,978
Nonrecurring items:
In-process research and development
charges.......................... (71,533) (24,300)
Gains on dispositions, net.......... 33,189 37,739
Restructuring charges............... (7,000) (6,300)
Integration and other charges....... (23,372) (8,064)
-------- --------
Net nonrecurring items........... (68,716) (925)
Goodwill and intangibles
amortization........................ (43,926) (32,308)
-------- --------
Income before income taxes............ 100,550 146,745
Provision for income taxes............ 59,052 56,375
-------- --------
Income from continuing operations
before effect of accounting change.. $41,498 $90,370
======== ========
ORGANIC SALES
The following table reconciles our organic sales to our sales in accordance
with GAAP. When we refer to our organic sales, we mean our sales for the
identified period and sales from our acquired businesses, assuming we owned them
in that period, and adjusted to eliminate the effects of our exited businesses
and foreign exchange. For a discussion of the presentation of organic sales
data, see the discussion in this report under the heading "Presentation of
Financial Information."
FISCAL YEAR ENDED
---------------------------
DECEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
(IN THOUSANDS)
LIFE SCIENCES
Sales.............................. $346,110 $221,401
Acquisitions....................... 165,837 248,144
Divestitures....................... (2,390) (9,371)
Foreign Exchange................... 12,410 --
---------- ----------
Organic Sales.................... $521,967 $460,174
---------- ----------
ANALYTICAL INSTRUMENTS
Sales.............................. $568,373 $617,699
Acquisitions....................... -- --
Divestitures....................... (47,372) (77,468)
Foreign Exchange................... 13,384 --
---------- ----------
Organic Sales.................... $534,385 $540,231
---------- ----------
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FISCAL YEAR ENDED
---------------------------
DECEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
(IN THOUSANDS)
OPTOELECTRONICS
Sales.............................. $380,227 $447,129
Acquisitions....................... -- --
Divestitures....................... (39,399) (73,012)
Foreign Exchange................... 3,597 --
---------- ----------
Organic Sales.................... $344,425 $374,117
---------- ----------
FLUID SCIENCES
Sales.............................. $230,629 $251,753
Acquisitions....................... 1,767 8,451
Divestitures....................... (6,829) (10,400)
Foreign Exchange................... 301 --
---------- ----------
Organic Sales.................... $225,868 $249,804
---------- ----------
PERKINELMER (TOTAL)
Sales.............................. $1,525,339 $1,537,982
Acquisitions....................... 167,604 256,595
Divestitures....................... (95,990) (170,251)
Foreign Exchange................... 29,692 --
---------- ----------
Organic Sales.................... $1,626,645 $1,624,326
========== ==========
SALES
Sales for 2001 were $1,525.3 million versus $1,538.0 million during 2000,
representing a decrease of $12.6 million or less than 1%. Incremental sales of
approximately $89 million from the acquisitions of Packard BioScience and NEN
Life Sciences mostly offset lower sales of $72 million associated with divested
businesses and the negative impact of foreign exchange of $30 million. Organic
sales were flat from 2000 to 2001 as a result of expansion within certain Life
Sciences end-markets and new product introductions, which were offset by
declines in electronic-based end-markets.
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COST OF SALES
Reported cost of sales of $849.4 million for 2001 versus $892.4 million
during 2000 represented a decrease of $43.0 million or 5%. On a
percentage-of-sales basis, cost of sales decreased to 56% in 2001 from 58%
during 2000. The decrease reflects our continued productivity and cost
containment gains in the form of headcount and facility rationalization and
further expansion and relocation into lower cost manufacturing geographies as
well as strategic moves into higher margin businesses.
Adjusted cost of sales, which excludes the impact of nonrecurring items,
was $839.5 million for 2001 versus $888.8 million for 2000, representing a
decrease of $49.3 million or 6%. Nonrecurring items for 2001 of $9.9 million
related principally to the amortization of the write-up of Packard BioScience
inventory included as part of purchase accounting, the cost of movements of
manufacturing facilities and charges associated with moves to lower cost
geographies. The results from 2000 included $3.6 million in nonrecurring charges
associated with reorganization-related activities and the write-up of inventory
acquired as part of the NEN Life Sciences acquisition.
RESEARCH AND DEVELOPMENT AND IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES
Reported research and development expenses including in-process research
and development charges increased to $151.6 million in 2001 from $100.4 million
in 2000, an increase of $51.2 million or 51%, primarily as a result of higher
in-process research and development charges in 2001. Research and development
efforts during 2001 were mainly directed in the end markets of drug discovery
tools, pharmaceutical and biomedical within the Life Sciences reporting segment.
Adjusted research and development costs, which exclude the impact of
nonrecurring items, were $80.1 million in 2001 versus $76.1 million in 2000, an
increase of $4.0 million or 5%. As a percentage of sales, research and
development costs on an adjusted basis represented 5% for both 2001 and 2000, a
trend reflective of our continued commitment to new product development.
Nonrecurring items in 2001 were $71.5 million associated with the write-off of
in-process technology acquired as part of our acquisition of
13
Packard BioScience. The results from 2000 included a similar charge of $24.3
million related to our acquisition of NEN Life Sciences.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Reported selling, general and administrative expenses for 2001 were $420.8
million versus $396.8 million for 2000, representing an increase of $24.0
million or 6%. The increase primarily reflects the inclusion of expenses
associated with Packard BioScience's operations of $9 million assumed during the
fourth quarter of 2001, increased amortization expenses associated with the NEN
Life Sciences and Packard BioScience acquisitions of $11.3 million and the
restructuring and reorganization related charges noted below.
Adjusted selling, general and administrative expenses, which exclude
goodwill and intangibles amortization and the impact of nonrecurring items,
remained constant at $359.1 million for 2001 and 2000. As a percentage of sales,
adjusted selling, general and administrative expenses were 24% in 2001 versus
23% in 2000. Goodwill and intangibles amortization increased to $43.9 million in
2001 from $32.3 million in 2000 as a result of the NEN Life Sciences acquisition
completed in 2000 and the Packard BioScience acquisition completed during the
fourth quarter of 2001. Nonrecurring charges of $17.7 million in 2001 included:
incentive payments associated with portfolio changes, charges associated with
the integration of general and administrative functions for the Life Sciences
and Analytical Instruments reporting segments and moves of certain manufacturing
operations to lower cost geographies and acquisition-related charges borne by
PerkinElmer. Nonrecurring charges during 2000 were $5.4 million, including
integration-related charges associated with the Packard BioScience acquisition.
14
DISPOSITIONS AND RESTRUCTURING CHARGES
Dispositions resulted in a net gain of $33.2 million for 2001 versus a net
gain of $37.7 million in 2000. The gain in 2001 resulted principally from the
$32.3 million gain on the sale of our Instruments for Research and Applied
Sciences business, previously part of our Analytical Instruments reporting
segment, and approximately $7.2 million in net gains, primarily resulting from
dispositions in our Optoelectronics and Analytical Instruments reporting
segments, offset in part by the $6.3 million loss resulting from the sale of our
Voltarc Technologies business, previously part of our Optoelectronics reporting
segment. The gain in 2000 included a gain of approximately $18 million on the
sale of buildings, a gain of approximately $10 million on the disposition of our
Berthold business, $7.2 million in gains from other dispositions, primarily
within the Optoelectronics reporting segment, and $2.5 million in gains
previously deferred from prior dispositions recognized as a result of the
resolution of uncertainties. The resulting impact for both years is considered
nonrecurring in our presentation of Adjusted Net Income. Net restructuring
charges were $7.0 million for 2001 versus $6.3 million in 2000. Charges for the
2001 year represented a $33.0 million integration charge associated with the
Packard BioScience acquisition, as well as additional funding for amendments to
existing plans for integration activities previously identified. Resultant
charges for both years are considered nonrecurring in our presentation of
adjusted net income. Note 3 to our consolidated financial statements, which are
included elsewhere in this report, further details our restructuring activities
in 2000 and 2001.
OTHER EXPENSE, NET
Other expense, net for 2001 was $29.2 million versus $33.1 million in 2000,
representing a decrease of $3.9 million or 12%. Other expense, net consisted
principally of interest from debt associated with prior acquisitions. The
decrease was caused primarily by the impact of nonrecurring gains, which
consisted of gains realized on the sale of investments of $4.3 million in 2001
compared to $0.9 million in 2000.
15
Other expense, net excluding nonrecurring items was $33.4 million versus
$34.0 million for 2000. Decreased interest rates offset the impact of higher
average debt levels resulting from the acquisition of NEN Life Sciences in 2000.
PROVISION/BENEFIT FOR INCOME TAXES
Provision for income taxes was $59.1 million in 2001 versus $56.4 million
in 2000. The 2001 tax rate was increased by the tax treatment of in-process
research and development charges associated with the Packard BioScience
acquisition. The $71.5 million purchased intellectual property research and
development charge is not deductible for tax purposes. The 2000 rate was
impacted to a lesser extent by similar in-process research and development
charges.
Provision for income taxes on adjusted net income was $60.9 million in 2001
and $53.2 million in 2000. The effective rate on an adjusted basis was 28.6% for
2001 versus 29.6% for 2000. The decrease in effective rate was primarily the
result of our continued expansion of manufacturing operations to lower tax
jurisdictions.
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
16
responsibility is established and when the cost can be reasonably estimated. We
have accrued $12.1 million as of December 30, 2001, representing 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,
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 five 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 effect on our financial position or
results of operations. While it is possible that a material loss exceeding the
amounts recorded may be incurred, the preliminary stages of the investigations
make it impossible for us to estimate the range of potential exposure.
We and certain of our officers have been named as defendants in a class
action lawsuit in which the plaintiffs have alleged various statements made by
us were misleading with respect to our prospects and future operating results.
We believe we have meritorious defenses to the lawsuits and we intend to contest
the actions vigorously. We are currently unable, however, to reasonably estimate
the amount of the loss, if any, that may result from the resolution of these
matters.
REPORTING SEGMENT RESULTS OF CONTINUING OPERATIONS
Our continuing operations are reported as four reporting segments,
reflecting our management methodology and structure. Our Security and Detection
Systems business, previously reported as part of our Analytical Instruments
reporting segment, has been classified as a discontinued operation for all
periods referenced in this report in accordance with Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." In June 2002, our Board of Directors
approved a plan to shut down our Telecommunications Component business and a
plan to sell our Entertainment Lighting business as part of our continued
efforts to focus on higher growth opportunities. Both businesses have been
reflected as discontinued operations in our consolidated financial statements in
accordance with Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment of Long-Lived Assets," which we adopted as of the beginning
of fiscal 2002. The accounting policies of our reporting segments are the same
as those described in the footnotes to the accompanying consolidated financial
statements. We evaluate performance based on operating profit of the respective
reporting segments. The discussion that follows is a summary analysis of the
primary changes in operating results by reporting segment for 2001 versus 2000.
17
LIFE SCIENCES
Sales for 2001 were $346.1 million versus $221.4 million in 2000, an
increase of $124.7 million or 56%. This increase reflects approximately $82
million from the combined impact of the inclusion of the results of operations
of NEN Life Sciences for a full year and ten months of results associated with
Packard BioScience as well as strong growth in the drug discovery and genetic
screening businesses and growth in related consumables resulting from new
product introductions and geographic expansions leading to organic growth in
excess of 13%.
The reported operating loss for 2001 was $46.4 million versus a loss of
$3.6 million in 2000 due to the inclusion of purchase accounting and
restructuring charges associated with the acquisition of Packard BioScience
during 2001, partially offset by similar charges during 2000 from the NEN Life
Sciences acquisition.
Adjusted operating profit excluding goodwill and intangibles amortization
and nonrecurring items was $63.5 million for 2001, which represented a $24.3
million or 62% increase over that of 2000. As a percentage of sales, adjusted
operating profit rose to 18.4% from 17.7% as a result of sales of higher margin
products and the impact of productivity and cost containment associated with the
consolidation of manufacturing and administrative sites. Goodwill and
intangibles amortization was $23.7 million for 2001 versus $9.3 million for 2000
as a result of the acquisitions discussed above. Nonrecurring charges during
2001 totaled $86.1 million, consisting of a $69.0 million charge associated with
acquired in-process research and development, $6.0 million in
integration-related charges outside the scope of purchase accounting, $3.4
million of net restructuring charges, a $3.3 million integration incentive
associated with the Packard BioScience acquisition, a net $2.9 million in other
charges which include the settlement of certain preacquisition contingencies
from a prior acquisition and a $1.5 million charge for the revaluation of
acquired inventory. The 2000 reported operating profit included $33.5 million in
nonrecurring charges.
18
ANALYTICAL INSTRUMENTS
Sales for 2001 were $568.4 million, a decrease of $49.3 million or 8%
versus the $617.7 million recognized during 2000. The decline in sales was
driven principally by the disposition of our Berthold business in late 2000,
which had sales of $30 million in the year 2000, as well as the impact of
unfavorable foreign exchange of approximately $14 million in 2001. Organically,
the business contracted 1%.
Reported operating profit for 2001 was $77.8 million versus $56.1 million
in 2000, an increase of $21.7 million or 39%. The increase during 2001 reflects
the impact of nonrecurring gains associated with the sale of our Instruments for
Research and Applied Sciences business, net of nonrecurring charges and the
benefits of productivity and cost containment actions. Results from 2000
included a net nonrecurring gain of approximately $10.0 million resulting from
the Berthold sale.
Adjusted operating profit before goodwill and intangibles amortization and
nonrecurring items was $72.2 million for 2001 versus $64.4 million for 2000, an
increase of $7.7 million or 12%. As a percentage of sales, adjusted operating
profit rose from 10% to 13% driven principally by reductions in headcount of
over 350 people as a result of transitioning European manufacturing to lower
cost Asian facilities as well as consolidating European sales and back office
operations. Adjusted operating profit for 2001 excludes goodwill and intangibles
amortization of $10.5 million and net nonrecurring gains of $16.1 million.
Nonrecurring items included: $32.1 million in gains realized on the disposal of
businesses, a restructuring charge of $5.3 million, a $2.3 million incentive
payment associated with the successful completion of the divestitures and $8.4
million in reorganization-related charges associated with the business' move to
lower cost geographies, consolidation of European finance functions and the move
to a new United States headquarters. Reported operating profit for 2000 included
goodwill and intangibles amortization of $13.5 million and nonrecurring gains of
$5.2 million. During the nine months ended September 30, 2001, nonrecurring
charges totaled $0.6 million and related to $0.4 million for reorganization
related charges, offset by a $1.0 million gain previously deferred from a prior
acquisition.
19
OPTOELECTRONICS
Sales for 2001 were $380.2 million, down $66.9 million or 15% from the
$447.1 million in sales for 2000. The lower sales were a result of an organic
sales decline of 8% as well as the impact of divested businesses and product
lines. This decline in organic sales reflects continued weakness in the
photography, semiconductor and telecommunications component markets which more
than offset strong growth in the digital imaging, sensors and biomedical
markets.
Reported operating profit for 2001 was $51.3 million, down $44.9 million or
47% from operating profit of $96.1 million for 2000. The decline was driven
principally by the decreases in sales discussed above and the costs associated
with moving to lower cost production locations and streamlining operations.
Adjusted operating profit for 2001 was $67.4 million, representing a $14.3
million or 17% decrease from $81.7 million for 2000. As a percentage of sales,
adjusted operating profit was 18% for both 2001 and 2000, with the impact of the
reduction in sales partially offset by cost savings and productivity
enhancements associated with reduced headcount and facility costs as well as
moves to lower cost geographies. The 2001 reported operating profit includes
goodwill and intangibles amortization of $7.0 million as well as nonrecurring
items of $5.8 million. Nonrecurring items were primarily comprised of a $5.5
million net loss realized on the disposal of certain businesses, a $1.8 million
retention incentive, reorganization-related charges of $4.9 million associated
with our further expansion and relocation into lower cost manufacturing
locations, restructuring and other charges of $0.6 million as well as a $3.6
million nonrecurring credit related to accruals no longer deemed necessary. The
2000 reported operating profit included goodwill and intangibles amortization of
$7.0 million and net nonrecurring gains of $21.4 million.
20
FLUID SCIENCES
Sales for 2001 were $230.6 versus $251.8 million for 2000, a decrease of
$21.1 million or 8%. On an organic basis, sales decreased 10%. The decrease in
reported sales was due principally to a decline in sales to the semiconductor
assembly markets partially offset by an increase in sales to the aerospace
market.
Reported operating profit for 2001 was $57.3 million versus $45.1 million
in 2000, an increase of $12.2 million or 27%. The increase was due to gains of
$6.6 million associated with the sale of two businesses disposed of during 2001,
other net nonrecurring gains and decreases in general and administrative costs.
Adjusted operating profit before goodwill and intangible amortization and
nonrecurring items for 2001 was $53.1 million versus $47.7 million, an increase
of $5.4 million or 11%. The 2001 reported operating profit included goodwill and
intangible amortization of $2.7 million and net nonrecurring items of $7.0
million. The net nonrecurring items, all of which occurred during the first two
quarters of the year, included $6.6 million in gains from the sale of two
businesses during the first half of 2001, $2.5 million in reversals of
previously announced restructuring charges, and $2.1 in restructuring-related
charges. The 2000 reported operating profit included goodwill and intangible
amortization of $2.5 million and net nonrecurring items of $0.2 million. The net
nonrecurring items included $2.4 million in restructuring charges and $0.4
million in restructuring-related charges offset by $2.8 million in gains from
dispositions.
CERTAIN QUARTERLY FINANCIAL DATA
The following income statement summary for the seven fiscal quarters ended
September 29, 2002 presents our results on both a GAAP and an adjusted basis.
The adjusted income statement gives effect, where appropriate, to our
reclassification of our Fluid Sciences business unit as a continuing operation
and the reclassification of our Telecommunications Component and Entertainment
Lighting businesses as discontinued operations. The reconciliation provides a
comparison of this adjusted basis to GAAP.
21
QUARTERLY GAAP INCOME STATEMENT
The following table sets forth our reported operating results for the seven
quarters ended September 29, 2002.
FISCAL 2001 FISCAL 2002
------------------------------------------------------ --------------------------------------------
FIRST SECOND THIRD FOURTH FULL FIRST SECOND THIRD NINE-MONTH
QUARTER QUARTER QUARTER QUARTER YEAR QUARTER QUARTER QUARTER PERIOD
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
(IN THOUSANDS)
Sales..................... $390,607 $380,429 $348,322 $405,981 $1,525,339 $346,293 $383,096 $366,011 $1,095,400
Cost of sales............. 222,182 207,722 192,649 226,867 849,420 220,563 223,198 219,256 663,017
Research and development
expenses................. 23,267 19,331 18,488 90,521 151,607 21,807 22,603 20,505 64,915
Selling, general and
administrative
expenses................. 96,078 99,405 84,498 114,616 394,597 118,819 119,886 109,556 348,261
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
Operating income from
continuing operations.... 49,080 53,971 52,687 (26,023) 129,715 (14,896) 17,409 16,694 19,207
Interest expense.......... 10,217 9,053 8,334 10,126 37,730 8,078 8,389 8,215 24,682
Other expense (income),
net...................... 1,945 (2,339) (3,848) (4,323) (8,565) 5,551 33 (3,484) 2,100
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
Income from continuing
operations before income
tax...................... 36,918 47,257 48,201 (31,826) 100,550 (28,525) 8,987 11,963 (7,575)
Provision (benefit) for
income taxes............. 13,794 15,222 14,215 15,821 59,052 (7,867) 2,912 2,213 (2,742)
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
Net income (loss) from
continuing operations
before effect of
accounting change........ 23,124 32,035 33,986 (47,647) 41,498 (20,658) 6,075 9,750 (4,833)
Income (loss) from
discontinued operations,
net of income taxes...... 371 (2,624) (2,767) (4,340) (9,360) (8,902) (4,205) (2,604) (15,711)
Gain (loss) on disposition
of discontinued
operations, net of income
tax...................... -- -- -- 2,367 2,367 -- (10,966) -- (10,966)
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
Net income (loss) before
effect of accounting
change................... 23,495 29,411 31,219 (49,620) 34,505 (29,560) (9,096) 7,146 (31,510)
Effect of accounting
change, net of income
taxes.................... -- -- -- -- -- (117,800) -- -- (117,800)
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
Net income (loss)......... $23,495 $29,411 $31,219 $(49,620) $34,505 $(147,360) $(9,096) $7,146 $(149,310)
======== ======== ======== ======== ========== ========= ======== ======== ==========
22
QUARTERLY ADJUSTED INCOME STATEMENT
The following adjusted income statement excludes goodwill and intangibles
amortization, gains on dispositions, restructuring charges and unusual items.
FISCAL 2001 FISCAL 2002
------------------------------------------------------ --------------------------------------------
FIRST SECOND THIRD FOURTH FULL FIRST SECOND THIRD NINE-MONTH
QUARTER QUARTER QUARTER QUARTER YEAR QUARTER QUARTER QUARTER PERIOD
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
(IN THOUSANDS)
Sales..................... $390,607 $380,429 $348,322 $405,981 $1,525,339 $346,293 $383,096 $366,011 $1,095,400
Cost of sales............. 222,268 205,536 189,174 222,522 839,500 201,830 223,198 219,256 644,284
Research and development
expenses................. 20,774 19,331 18,488 21,481 80,074 21,807 22,603 20,505 64,915
Selling, general and
administrative
expenses................. 90,002 93,275 75,025 100,833 359,135 104,477 112,829 102,436 319,742
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
Adjusted operating income
from continuing
operations............... 57,563 62,287 65,635 61,145 246,630 18,179 24,466 23,814 66,459
Interest expense.......... 10,217 9,053 8,334 10,126 37,730 8,078 8,389 8,215 24,682
Other expense (income),
net...................... 1,945 (2,339) (459) (3,439) (4,292) 5,551 33 (3,484) 2,100
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
Adjusted income from
continuing operations
before income taxes...... 45,401 55,573 57,760 54,458 213,192 4,550 16,044 19,083 39,677
Provision for income
taxes.................... 14,069 15,921 16,105 14,814 60,909 1,666 5,360 4,876 11,902
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
Adjusted net income from
continuing operations
before effect of
accounting change........ 31,332 39,652 41,655 39,644 152,283 2,884 10,684 14,207 27,775
Income (loss) from
discontinued operations,
net of income tax........ 371 (2,624) (2,767) (4,340) (9,360) (8,902) (4,205) (2,604) (15,711)
Gain (loss) on disposition
of discontinued
operation, net of income
tax...................... -- -- -- 2,367 2,367 -- (10,966) -- (10,966)
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
Adjusted net income (loss)
before effect of
accounting change........ 31,703 37,028 38,888 37,671 145,290 (6,018) (4,487) 11,603 1,098
Effect of accounting
change, net of income
taxes.................... -- -- -- -- -- (117,800) -- -- (117,800)
-------- -------- -------- -------- ---------- --------- -------- -------- ----------
Adjusted net income
(loss)................... $31,703 $37,028 $38,888 $37,671 $145,290 $(123,818) $(4,487) $11,603 $(116,702)
======== ======== ======== ======== ========== ========= ======== ======== ==========
23
RECONCILIATION
The following reconciliation reconciles adjusted income from continuing
operations before income taxes to net income from continuing operations before
effect of accounting change.
FISCAL 2001 FISCAL 2002
--------------------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD NINE-MONTH
QUARTER QUARTER QUARTER QUARTER FULL YEAR QUARTER QUARTER QUARTER PERIOD
------- ------- -------- -------- --------- -------- ------- ------- ----------
(IN THOUSANDS)
Adjusted income from
continuing operations
before income
taxes................ $45,401 $55,573 $57,760 $54,458 $213,192 $4,550 $16,044 $19,083 $39,677
Restructuring,
integration and other
nonrecurring items... 3,834 1,514 583 (3,114) 2,817 (8,750) -- -- (8,750)
In-process research and
development charge... (2,493) -- -- (69,040) (71,533) -- -- -- --
Inventory adjustment... -- -- -- -- -- (17,233) -- -- (17,233)
Goodwill and
intangibles
amortization......... (9,824) (9,830) (10,142) (14,130) (43,926) (7,092) (7,057) (7,120) (21,269)
------- ------- -------- -------- -------- -------- ------- ------- --------
Income (loss) from
continuing operations
before income
taxes................ 36,918 47,257 48,201 (31,826) 100,550 (28,525) 8,987 11,963 (7,575)
Provision (benefit) for
income taxes......... 13,794 15,222 14,215 15,821 59,052 (7,867) 2,912 2,213 (2,742)
------- ------- -------- -------- -------- -------- ------- ------- --------
Net income (loss) from
continuing operations
before effect of
accounting change.... $23,124 $32,035 $33,986 $(47,647) $41,498 $(20,658) $6,075 $9,750 $(4,833)
======= ======= ======== ======== ======== ======== ======= ======= ========
24
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities was $145.3 million in 2001
compared to $156.9 million in 2000. For 2001, this was comprised of net income
before depreciation, amortization and other non-cash items of $237.0 million
partially offset by gains on disposition of assets, net of $40.7 million and
$51.0 million net change in certain assets and liabilities and other items
during 2001. The 2000 operating cash flow was comprised of net income before
depreciation, amortization and other non-cash items of $218.9 million partially
offset by gains on dispositions of assets, net of $38.2 million and $23.7
million of net change in certain assets, liabilities and other items during the
period.
Included in the change in assets and liabilities for 2001 was a $35.5
million increase in inventory due to lower than planned sales in a number of the
reporting segments, primarily in the Optoelectronics reporting segment and
inventory safety stock for production moves, $35.5 million in restructuring
payments, partially offset by a $18.2 million reduction in accounts receivable
which is net of $37 million from the receivable securitization program discussed
below.
Capital expenditures were $94.4 million in 2001 versus $59.3 million in
2000. This increase was due to leasehold improvements at certain facilities,
particularly at our Shelton, Connecticut facility.
Cash flow from the sale of businesses, primarily Instruments for Research
and Applied Science and Voltarc, was $73.5 million and from the monetization of
assets was $61.2 million for 2001. Monetization of assets consisted of the sale
of, and the sale-leaseback of, facilities and equipment. Costs of acquisitions,
net of cash acquired, generated $34.1 million of cash in 2001, principally from
the Packard BioScience acquisition, versus a usage of $411.0 million in 2000.
During 2000, cash flow from the sale of businesses was $39.1 million and from
the monetization of assets was $42.3 million. Monetization of assets during 2000
included the sale of assets, nonstrategic investments and the sale-leaseback of
facilities.
Cash flows generated through operating and investing activities, along with
proceeds of $39.5 million from the exercise of stock options, were used in part
to reduce short-term commercial paper borrowings by $177.0 million during 2001.
In 2000, we issued convertible debt with net proceeds totaling $448.0 million.
These proceeds along with net borrowings under commercial paper of approximately
$37.0 million and proceeds from the exercise of stock options of $46.9 million
were used in part to reduce other debt balances by approximately $234.0 million.
Cash utilized in the payment of dividends to common stockholders totaled $28.3
million during 2001 and $27.5 million in 2000.
25
As of December 30, 2001, we had the following obligations under operating
leases: $22.2 million in 2002, $19.2 million in 2003, $16.8 million in 2004,
$13.4 million in 2005 and $146.8 million in 2006 and thereafter.
We require cash to pay our operating expenses, make capital expenditures
and acquisitions and service our debt, including principal and interest. 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 and interest payments on our debt. Depending on the size of the
transaction, we may require funds from external sources for acquisitions that we
effect for cash. We may also require funds from external sources to refinance
the principal of our debt as it matures, particularly the zero coupon
convertible debentures that holders will have the option to put in August 2003
and the $115.0 million of principal that becomes due on our 6.8% unsecured notes
in 2005.
Principal factors that could affect our internally generated funds include:
- increased working capital requirements, and
- deterioration of sales due to continued weakness in certain end-markets
into which we sell.
Principal factors that could affect our ability to obtain cash from
external sources include:
- borrowing requirements stemming from potential obligations noted above
that would reduce our overall borrowing capacity, and
- existence of a ratings downgrade that would impact our ability to borrow
under our receivable securitization program.
BORROWING ARRANGEMENTS
We maintain two unsecured revolving credit facilities. Both facilities were
amended in September 2002. Prior to their amendment, the facilities consisted of
a $270 million 364-day revolving credit facility, which will expire in March
2003, and a $100 million five-year revolving credit facility, which will expire
in March 2006. At maturity, we may convert borrowings outstanding under the
364-day facility into a one-year term note due in March 2004, subject to our
compliance with the facility's financial covenants.
During September 2002, we significantly amended both facilities as follows:
- the borrowing capacity under the 364-day facility was reduced from $270
million to $200 million;
- provisions were added that would further reduce the borrowing capacity
under the 364-day facility in amounts equal to:
- 100% of any amounts used by us to repurchase zero coupon convertible
debentures, and
- 50% of the net proceeds received by us from future asset sales and
capital market transactions, up to a maximum reduction of $100 million
(which maximum will be increased, on a dollar-for-dollar basis, for
every dollar of zero coupon convertible debentures we repurchase)
pursuant to this provision;
- the interest rate spread over LIBOR on borrowings under the facilities
increased by 37.5 basis points;
- the definition of EBITDA was revised to clarify certain non-operating
charges; and
- a new consolidated indebtedness leverage ratio was added.
As of September 29, 2002, there were no borrowings outstanding under the
364-day facility. Accordingly, as of September 29, 2002, borrowing availability
under the 364-day facility was approximately $115.6 million due to our
repurchases of zero coupon convertible debentures described above. As of
September 29, 2002, we had $73 million in borrowings outstanding under the
five-year facility and
26
$27 million of borrowing availability. Because of the long-term nature of the
five-year facility, these borrowings have been classified in long-term debt at
the end of the period.
At September 29, 2002, we had $438.8 million of long-term debt and at
December 30, 2001 we had $598.1 million of long-term debt. Included in these
amounts are $115.0 million of our 6.8% notes, which carry an interest rate of
6.8% and mature in 2005. During the fourth quarter of 2001, this fixed rate was
swapped to a floating rate. This interest rate swap instrument resets
semi-annually in arrears based upon six-month USD LIBOR. The fair value of this
instrument as of December 30, 2001 was $(2.3) million which is offset by a
corresponding gain on the underlying bond. Other long-term debt includes zero
coupon convertible debentures described below which had a $403.8 million
accreted value at September 29, 2002, net of repurchases, and a $483 million
accreted value at December 30, 2001. The carrying amount of the senior
subordinated ten-year notes issued by Packard BioScience and assumed by us
approximated the estimated fair value at December 30, 2001, based on a quoted
market price. The carrying amount of the unsecured ten year notes approximated
the estimated fair value at December 30, 2001, based on a quoted market price.
The estimated fair value of the zero coupon convertible debentures approximated
$512 million at December 30, 2001, also based on a quoted market price.
In August 2000, we sold zero coupon convertible debentures with an
aggregate purchase price of $460 million. We used the offering's net proceeds of
approximately $448 million to repay a portion of our commercial paper
borrowings, which had been increased temporarily to finance the NEN Life
Sciences acquisition. Deferred issuance costs of $12 million were recorded as a
non-current asset and are being amortized over three years. The zero coupon
convertible debentures are due August 2020 and were priced with a yield to
maturity of 3.5%. Net of repurchases through September 29, 2002, we would be
required to repay $749.7 million at maturity, comprised of $374.6 million of
original purchase price plus accrued original issue discount. We may redeem some
or all of the zero coupon convertible debentures at any time on or after August
7, 2003 at a redemption price equal to the issue price plus the accrued original
issue discount through the redemption date. Holders of the debentures may
require us to repurchase some or all of the zero coupon convertible debentures
on August 7, 2003 or on August 7, 2010, or at any time upon certain changes of
control, at a repurchase price equal to the initial issue price to the public
plus the accrued original issue discount through the date of the repurchase. As
of September 29, 2002, our obligation to repurchase the zero coupon convertible
debentures is considered short-term in nature. However, as of September 29,
2002, we had the ability to use existing borrowing available under the 364-day
facility and the five-year facility to refinance a portion of the aggregate
repurchase price on a long-term basis as well as the ability to issue treasury
shares to satisfy a portion of this potential repurchase obligation.
Accordingly, $250.5 million of the $403.8 million obligation has been classified
as long-term in nature. The remainder was included in short-term debt. We have
the right to repay some or all of the zero coupon convertible debentures with
shares of our common stock based on the then current market price, subject to
satisfying conditions within the trust indenture, including that the shares of
common stock must be issued either pursuant to an effective registration
statement or an exemption therefrom under applicable securities laws. We may
only exercise this right in connection with a repurchase at the option of the
holders or a repurchase in connection with certain changes in control. As of
September 29, 2002, the zero coupon convertible debentures were convertible into
8.8 million shares of our common stock at $44.00 per share.
In November 2001, we completed our acquisition of Packard BioScience and
assumed $118 million of senior subordinated ten-year notes issued in March 1997.
We redeemed the notes on March 1, 2002 at a rate of 104.688% in accordance with
the indenture dated as of March 4, 1997. As such, this amount was reclassified
to short-term on our December 30, 2001 balance sheet for presentation purposes.
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. As collections reduce the accounts receivable balances,
new receivables are sold. Our consolidated subsidiary retains the risk of credit
loss on the receivables. Under
27
the terms of this arrangement, we retain collection and administrative
responsibilities for the balances. The accounts receivable securitization
facility provides for up to $51.0 million in accounts receivable funding. The
facility is renewable by mutual agreement of the parties on an annual basis and
has an effective interest rate of approximately LIBOR plus 30 basis points.
Amounts funded by the counterparty under this facility were $38.0 million at
September 29, 2002 and $37.0 million at December 30, 2001. 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 November 22, 2002, we had a senior
unsecured credit rating of BBB- from Standard & Poor's Rating Services, which is
currently under review, and of Ba2 with a stable outlook from Moody's Investors
Service.
We are a party to an operating lease for our property located in Fremont,
California which was amended in September 2002. Prior to its amendment, the
lease had allowed us to lease a $30 million facility in our Optoelectronics
segment over a six-year term. The amendment increased the monthly amount payable
under the lease and shortened the term of the lease from December 2006 to the
earlier of the sale of our Fluid Sciences business unit or February 2003. At the
end of the lease term, we must purchase the property at a price equal to the
lessor's original cost of approximately $30 million, or otherwise obtain
alternative financing.
In the near term, we anticipate that our cash on hand and cash generated
from operations will be sufficient to fund our operating expenses, capital
expenditures and interest payments on our debt. However, during the next twelve
months we will require funds from external sources to refinance the principal of
our debt as it matures, particularly the zero coupon convertible debentures that
holders will have the option to put to us in August 2003 and any amounts
outstanding under the 2003 credit facility upon its expiration in March 2003. As
of September 29, 2002, we were in compliance with all covenants and other
requirements set forth in our credit agreements and indentures.
On October 28, 2002, we received a letter of commitment from Merrill Lynch
Capital Corporation to provide a new senior credit facility of up to $445.0
million, including a revolving credit facility of $100.0 million. The commitment
for the new senior credit facility is contingent upon completion of confirmatory
due diligence, final documentation and other customary conditions, as well as
our issuance of $225.0 million of unsecured senior subordinated notes. Proceeds
under the new borrowing arrangements will be used to repay existing
indebtedness.
Dividends
Our Board of Directors declared regular quarterly cash dividends of seven
cents per share in each quarter of 2001 and 2002, resulting in an annual
dividend rate of 28 cents per share.
Stock Split
At our 2001 Annual Meeting of Stockholders, our stockholders approved an
increase in the number of authorized shares of our common stock from 100,000,000
shares to 300,000,000 shares. On April 24, 2001, our Board of Directors approved
a two-for-one stock split. The stock split is retroactively reflected in this
offering memorandum.
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
28
assets and liabilities. On an ongoing basis, we evaluate our estimates,
including those related to bad debts, inventories, investments, intangible
assets, income taxes, restructuring, pensions and other post-retirement
benefits, and 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.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in preparation of our consolidated
financial statements.
Revenue recognition. Our product sales are recorded at the time when
persuasive evidence of an arrangement exists, delivery has occurred, the price
to the buyer is fixed or determinable and collectibility is reasonably assured.
A provision is made at the time the related sales are recognized for the cost of
any installation obligations and the estimated cost of product warranties. When
other significant obligations remain after products are delivered, including
certain customer acceptance provisions, sales are recognized only after such
obligations are fulfilled. If a loss is anticipated on any contract, a provision
for the entire loss is made immediately. Sales related to the sale of
maintenance contracts are deferred and amortized on a straight-line basis over
the service period.
Inventory valuation. We value inventory at the lower of the actual cost to
purchase and/or manufacture the inventory or the current estimated market value
of the inventory. Inventory quantities on hand are regularly reviewed, and where
necessary, provisions for excess and obsolete inventory are recorded based
primarily on either our estimated forecast of product demand and production
requirements for the next twelve months or historical trailing twelve month
usage. A significant increase in the demand for our products could result in a
short-term increase in the cost of inventory purchases while a significant
decrease in demand could result in an increase in the amount of excess inventory
quantities on hand requiring additional inventory write-downs.
Allowances for doubtful accounts. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
Value of long-lived assets. We periodically review the carrying value of
our long-lived assets and investments for continued appropriateness. This review
is based upon our projections of anticipated future cash flows, market
conditions, legal factors and operational performance. While we believe that our
future estimates are reasonable, different assumptions regarding items such as
future cash flows and the volatility inherent in markets which we serve could
materially affect our evaluations and result in impairment charges against the
carrying value of those assets.
Restructuring activities. Because of the diverse nature of our businesses
and our acquisition and divestiture activities, we periodically engage in formal
restructuring actions. These restructuring actions result in either direct
charges to our income statement or, if they meet certain criteria, are
capitalized as part of our acquisition of a specified entity. Our financial
statements detail the charges relative to such actions as well as the actual
spending that has occurred against the resulting accruals. Because these
accruals are estimates, they are subject to change as a result of deviations
from initial restructuring plans or subsequent information that may come to our
attention. When changes in estimates occur, they are reflected in our financial
statements either on the income statement line entitled "restructuring charges,
net" or, in certain limited circumstances when accruals have been made as part
of an acquisition and have been found not to be necessary, credited to goodwill.
NEW ACCOUNTING PRONOUNCEMENT
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which nullifies EITF Issue No.
94-3. SFAS No. 146 requires that a liability for a
29
cost associated with an exit or disposal activity be recognized when the
liability is incurred, whereas EITF No. 94-3 had recognized the liability at the
commitment date to an exit plan. We are required to adopt the provisions of SFAS
No. 146 effective for exit or disposal activities initiated after December 31,
2002.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
FINANCIAL INSTRUMENTS
Financial instruments that potentially subject us to concentrations of
credit risk consist principally of temporary cash investments and accounts
receivable. We believe we had no significant concentrations of credit risk as of
September 29, 2002 or December 30, 2001.
In the ordinary course of business, we enter into foreign exchange
contracts for periods consistent with our committed exposures to mitigate the
effect of foreign currency movements on transactions denominated in foreign
currencies. Transactions covered by hedge contracts include inter-company and
third-party receivables and payables. The contracts are primarily in European
and Asian currencies, have maturities that do not exceed 12 months, have no cash
requirements until maturity and are recorded at fair value on the consolidated
balance sheet. Credit risk and market risk are minimal as the foreign exchange
instruments are contracted with major banking institutions. Unrealized gains and
losses on our foreign currency contracts are recognized immediately in earnings
for hedges designated as fair value and, for hedges designated as cash flow, the
related unrealized gains or losses are deferred as a component of other
comprehensive income in the accompanying consolidated balance sheet. These
deferred gains and losses are recognized in income in the period in which the
underlying anticipated transaction occurs. Effectiveness of these cash flow
hedges is measured utilizing the cumulative dollar offset method and is reviewed
quarterly. For the year ended December 30, 2001, net losses from hedges
reclassified from other comprehensive income to sales and expense totaled
$36,000. The notional amount of the outstanding foreign currency contracts was
approximately $280 million as of December 30, 2001 and $190 million at December
31, 2000. At December 30, 2001, the approximate fair value for foreign currency
derivative instruments designated as fair value hedges was $560,000 and at
December 31, 2000 was not significant. The approximate fair value for foreign
currency derivative instruments designated as cash flow hedges was $380,000 and
is recorded in other current assets with the offset to other comprehensive
income. This gain will be recognized in earnings over the next 12 months.
MARKET RISK
Market Risk. We are exposed to market risk, including changes in interest
rates and currency exchange rates. To manage the volatility relating to these
exposures, we entered into various derivative transactions pursuant to our
policies to hedge against known or forecasted market exposures.
Foreign Exchange Risk. As a multinational corporation, we are exposed to
changes in foreign exchange rates. As our international sales grow, exposure to
volatility in exchange rates could have a materially adverse impact on our
financial results. Our risk from exchange rates is primarily related to non-
dollar denominated sales in Europe and Asia. We use foreign currency forward and
option contracts to manage the risk of exchange rate fluctuations. The
derivative instruments held by us are not leveraged and are not held for trading
purposes. We use forward contracts to hedge our net asset position and use a
combination of forward and option contracts to hedge anticipated cash flows. Our
hedging activity is intended to offset the impact of currency fluctuations on
assets, liabilities and cash flows denominated in foreign currencies. The
success of the hedging program depends on forecasts of transaction activity in
various currencies. To the extent that these forecasts are overstated or
understated during periods of currency volatility, we could experience
unanticipated currency gains or losses. The principal currencies hedged are the
British Pound, Canadian Dollar, Euro, Japanese Yen, and Singapore Dollar. In
those currencies where there is a liquid, cost-effective forward market, we
maintain hedge coverage between minimum and maximum percentages of our
anticipated transaction exposure for periods not to exceed one year. The gains
and losses on these contracts offset changes in the value of the related
exposure.
30
Interest Rate Risk. We maintain an investment portfolio consisting of
securities of various issuers, types and maturities. The investments are
classified as available for sale. These securities are recorded on the balance
sheet at market value, with any unrealized gain or loss recorded in
comprehensive income. These instruments are not leveraged, and are not held for
trading purposes.
Value-at-Risk. We utilize a Value-at-Risk ("VaR") model to determine the
potential loss in fair value of our interest rate and foreign exchange sensitive
derivative financial instruments within a 95% confidence interval. Our
computation was based on the interrelationships between movements in interest
rates and foreign currencies. These interrelationships were determined by
observing historical interest rate and foreign currency market changes over
corresponding periods. The assets, liabilities, firm commitments and anticipated
transactions, which are hedged by derivative financial instruments, were
excluded from the model. Our computations are based on the Monte Carlo
simulation, utilizing a 95% confidence interval and a holding period of 30 days.
The VaR model is a risk analysis tool and does not purport to represent actual
gains or losses in fair value that will be incurred by us. The VaR model
estimated that there is a 5% chance that the market value of the derivative
instruments held as of December 30, 2001 will deteriorate due to foreign
currency and interest rate fluctuations by more than $1.8 million. During the
four quarters ended December 30, 2001, the VaR ranged between $0.25 million and
$1.8 million, and averaged approximately $0.8 million.
Management periodically reviews its interest rate and foreign currency
exposures and evaluates strategies to manage such exposures in the near future.
We implement changes, when deemed necessary, in the management of hedging
instruments which mitigate our exposure.
Since we utilize interest rate and foreign currency sensitive derivative
instruments for hedging, a loss in fair value for those instruments is generally
offset by increases in the value of the underlying transaction.
It is our policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet our objectives as
stated above. We do not enter into foreign currency or interest rate
transactions for speculative purposes.
31
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
To the Board of Directors and Stockholders of PerkinElmer, Inc.
Wellesley, Massachusetts
We have audited the accompanying consolidated balance sheets of
PerkinElmer, Inc. and subsidiaries (the "Company") as of December 30, 2001 and
December 31, 2000, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of PerkinElmer, Inc. and
subsidiaries as of December 30, 2001 and December 31, 2000, and the results of
their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
November 26, 2002
32
CONSOLIDATED INCOME STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 30, 2001
2001 2000
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Sales:
Products.................................................. $1,327,473 $1,348,797
Services.................................................. 197,866 189,185
---------- ----------
Total sales................................................. 1,525,339 1,537,982
---------- ----------
Cost of sales:
Products.................................................. 739,234 782,489
Services.................................................. 110,186 109,884
---------- ----------
Total cost of sales......................................... 849,420 892,373
Selling, general and administrative expenses................ 420,786 396,792
Research and development expenses........................... 80,074 76,098
In-process research and development charges................. 71,533 24,300
Restructuring charges, net.................................. 7,000 6,300
Gains on dispositions, net.................................. (33,189) (37,739)
---------- ----------
Operating income from continuing operations................. 129,715 179,858
Other expense, net.......................................... 29,165 33,113
---------- ----------
Income from continuing operations before income taxes....... 100,550 146,745
Provision for income taxes.................................. 59,052 56,375
---------- ----------
Income from continuing operations........................... 41,498 90,370
Loss from discontinued operations, net of income taxes...... (9,360) (4,303)
Gain on disposition of discontinued operations, net of
income taxes.............................................. 2,367 4,453
---------- ----------
Net income............................................. $ 34,505 $ 90,520
========== ==========
Basic earnings (loss) per share
Continuing operations..................................... $ 0.40 $ 0.92
Discontinued operations................................... (0.07) 0.00
---------- ----------
Net income............................................. $ 0.33 $ 0.92
========== ==========
Diluted earnings (loss) per share
Continued operations...................................... $ 0.39 $ 0.88
Discontinued operations................................... (0.07) 0.00
---------- ----------
Net income............................................. $ 0.32 $ 0.89
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
33
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 30, 2001 AND DECEMBER 31, 2000
2001 2000
------------ ------------
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE DATA)
Current assets:
Cash and cash equivalents................................. $ 138,250 $ 125,551
Accounts receivable....................................... 319,063 318,139
Inventories............................................... 244,841 196,825
Other current assets...................................... 150,686 171,076
Current assets of discontinued operations................. 90,518 81,950
---------- ----------
Total current assets................................... 943,358 893,541
---------- ----------
Property, plant and equipment:
At cost................................................... 530,327 533,721
Accumulated depreciation.................................. (247,703) (271,279)
---------- ----------
Net property, plant and equipment........................... 282,624 262,442
Investments................................................. 18,197 26,226
Intangible assets........................................... 1,530,053 877,846
Other assets................................................ 102,055 103,088
Long-term assets of discontinued operations................. 93,651 97,617
---------- ----------
Total assets........................................... $2,969,938 $2,260,760
========== ==========
Current liabilities:
Short-term debt........................................... $ 125,984 $ 185,411
Accounts payable.......................................... 128,952 114,078
Accrued restructuring costs............................... 51,735 53,344
Accrued expenses.......................................... 427,550 329,671
Current liabilities of discontinued operations............ 20,814 35,578
---------- ----------
Total current liabilities.............................. 755,035 718,082
Long-term debt.............................................. 598,125 583,337
Long-term liabilities....................................... 253,164 230,941
Long-term liabilities of discontinued operations............ 57 11
Commitments and contingencies
Stockholders' equity:
Preferred stock -- $1 par value, authorized 1,000,000
shares; none issued or outstanding..................... -- --
Common stock -- $1 par value, authorized 300,000,000
shares; issued 145,101,000 and 122,908,000 in 2001 and
2000, respectively..................................... 145,101 122,908
Capital in excess of par value............................ 641,164 37,060
Retained earnings......................................... 842,004 835,917
Accumulated other comprehensive loss...................... (60,940) (39,042)
Cost of shares held in treasury -- 20,913,000 shares in
2001 and 23,360,000 shares in 2000..................... (203,772) (228,454)
---------- ----------
Total stockholders' equity............................. 1,363,557 728,389
---------- ----------
Total liabilities and stockholders' equity............. $2,969,938 $2,260,760
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
34
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED DECEMBER 30, 2001
ACCUMULATED
CAPITAL IN OTHER COST OF TOTAL
COMPREHENSIVE COMMON EXCESS OF RETAINED COMPREHENSIVE SHARES HELD STOCKHOLDERS'
INCOME STOCK PAR EARNINGS INCOME (LOSS) IN TREASURY EQUITY
------------- -------- ---------- -------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER
SHARE DATA)
BALANCE, JANUARY 3, 2000......... $120,204 $ -- $701,907 $(14,040) $(257,295) $ 550,776
Comprehensive income
Net income..................... $ 90,520 -- -- 90,520 -- -- 90,520
Other comprehensive income
(loss), net of tax Foreign
currency translation
adjustments.................. (25,484) -- -- -- (25,484) -- (25,484)
Unrealized gains on
securities arising during
the period................. 481
Reclassification
adjustment................. 1
--------
Net unrealized gains......... 482 -- -- -- 482 -- 482
--------
Other comprehensive loss....... (25,002)
--------
Comprehensive income............. $ 65,518
========
Cash dividends ($.28 per
share)......................... -- -- (27,533) -- -- (27,533)
Exercise of employee stock
options and related income tax
benefits....................... -- 17,230 16,000 -- 34,939 68,169
Issuance of common stock for
employee benefit plans......... -- 5,228 (155) -- 4,389 9,462
Purchase of common stock for
treasury....................... -- (102) -- -- (10,487) (10,589)
Mergers, acquisitions and
other.......................... 2,704 14,704 55,178 -- -- 72,586
-------- -------- -------- -------- --------- ----------
BALANCE, DECEMBER 31, 2000....... 122,908 37,060 835,917 (39,042) (228,454) 728,389
-------- -------- -------- -------- --------- ----------
Comprehensive income
Net income..................... $ 34,505 -- -- 34,505 -- -- 34,505
Other comprehensive income
(loss), net of tax Foreign
currency translation
adjustments.................. (20,976) -- -- -- (20,976) -- (20,976)
Unrealized gains on
derivative instruments..... 1,407 -- -- -- 1,407 -- 1,407
Unrealized losses on
securities arising during
the period................. (2,438)
Reclassification
adjustment................. 109
--------
Net unrealized losses........ (2,329) -- -- -- (2,329) -- (2,329)
--------
Other comprehensive loss....... (21,898)
--------
Comprehensive income............. $ 12,607
========
Cash dividends ($.28 per
share)......................... -- -- (28,294) -- -- (28,294)
Exercise of employee stock
options and related income tax
benefits....................... -- 20,723 -- -- 20,047 40,770
Issuance of common stock for
employee benefit plans......... -- 7,042 (124) -- 4,671 11,589
Purchase of common stock for
treasury....................... -- -- -- -- (1,784) (1,784)
Acquisition of AAS............... -- 3,252 -- -- 1,748 5,000
Acquisition of Packard........... 22,193 573,087 -- -- -- 595,280
-------- -------- -------- -------- --------- ----------
BALANCE, DECEMBER 30, 2001....... $145,101 $641,164 $842,004 $(60,940) $(203,772) $1,363,557
======== ======== ======== ======== ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
35
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 30, 2001
2001 2000
--------- ---------
(IN THOUSANDS)
Operating activities:
Net income................................................ $ 34,505 $ 90,520
Add net loss from discontinued operations................. 9,360 4,303
Deduct net gain on disposition of discontinued
operations............................................. (2,367) (4,453)
--------- ---------
Income from continuing operations......................... 41,498 90,370
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
In-process research and development charges............ 71,533 24,300
Non-cash portion of restructuring charges.............. 5,624 2,900
Depreciation and amortization.......................... 88,472 74,253
Stock-based compensation............................... 3,529 4,143
Deferred taxes......................................... 5,628 14,318
Amortization of deferred debt issuance cost and
accretion of discounts................................ 20,753 8,567
Gains on dispositions and sales of investments, net.... (40,738) (38,248)
Changes in assets and liabilities which provided (used)
cash, excluding effects from companies purchased and
divested:
Accounts receivable.................................. 18,219 439
Inventories.......................................... (35,518) (12,033)
Accounts payable..................................... 487 9,796
Tax benefit from exercise of common stock options.... 15,043 30,843
Accrued restructuring costs.......................... (35,452) (31,174)
Accrued expenses and other........................... (13,810) (21,544)
--------- ---------
Net cash provided by continuing operations operating
activities................................................ 145,268 156,930
Net cash used by discontinued operations operating
activities................................................ (21,969) (11,382)
--------- ---------
Net cash provided by operating activities................... 123,299 145,548
--------- ---------
Investing activities:
Capital expenditures...................................... (94,382) (59,294)
Proceeds from dispositions of businesses, net............. 73,505 39,148
Proceeds from dispositions of property, plant and
equipment.............................................. 61,243 42,276
Cost of acquisitions and investments, net of cash and cash
equivalents acquired................................... 34,149 (411,040)
Proceeds from sale (use from purchase) of investments,
net.................................................... 2,951 (20,457)
Other..................................................... (758) 1,919
--------- ---------
Net cash provided by (used in) continuing operations
investing activities...................................... 76,708 (407,448)
Net cash (used in) provided by discontinued operations
investing activities...................................... (10,947) 6,018
--------- ---------
Net cash provided by (used in) investing activities......... 65,761 (401,430)
Financing activities:
Proceeds from issuance of convertible debt................ -- 448,000
(Decrease) increase in commercial paper borrowings........ (177,000) 37,000
Other debt decreases...................................... (3,235) (233,991)
Proceeds from issuance of common stock.................... 39,475 46,902
36
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
2001 2000
--------- ---------
(IN THOUSANDS)
Purchases of common stock for treasury.................... (1,784) (10,589)
Cash dividends............................................ (28,294) (27,533)
--------- ---------
Net cash (used in) provided by continuing operations
financing activities...................................... (170,838) 259,789
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (5,523) (5,006)
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 12,699 (1,099)
Cash and cash equivalents at beginning of year.............. 125,551 126,650
--------- ---------
Cash and cash equivalents at end of year.................... $ 138,250 $ 125,551
========= =========
Supplemental disclosures of cash flow information for
continuing and discontinued operations (see also Note 2):
Cash paid during the year for
Interest............................................... $ 17,971 $ 45,236
Income taxes........................................... 18,211 21,819
Noncash investing and financing activities:
Stock issued to Packard shareholders................... 595,280 --
Packard debt assumed................................... 118,432 --
NEN debt assumed....................................... -- 48,262
Fair value of warrants issued in NEN acquisition....... -- 6,940
The accompanying notes are an integral part of these consolidated financial
statements.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS AND ACCOUNTING POLICIES
Nature of Operations: PerkinElmer, Inc. is a global high technology
company which designs, manufactures, markets and supports products, systems and
service offerings within four major business segments: Life Sciences, Analytical
Instruments, Optoelectronics and Fluid Sciences. In July 2001, PerkinElmer, Inc.
approved a plan to sell its Security and Detection Systems business, which is
presented as discontinued operations in accordance with Accounting Principles
Board (APB) Opinion No. 30, Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions ("APB No. 30") (see Note 6).
In June 2002, the Company approved separate plans to dispose of its Telecom
Components and Entertainment Lighting businesses. 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"); which the Company adopted as
of the beginning of fiscal 2002.
The consolidated financial statements include the accounts of PerkinElmer,
Inc. and its subsidiaries (the Company). All material intercompany balances and
transactions have been eliminated in consolidation.
Accounting Policies and Estimates: The preparation of consolidated
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
the Company evaluates its estimates, including those related to bad debts,
inventories, investments, intangible assets, income taxes, restructuring
activities, pensions and other post-retirement benefits, and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed 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.
Sales: The majority of the Company's product sales are recorded at the
time of shipment, when title and risk of ownership passes to the buyer and when
persuasive evidence of an arrangement exists, the seller's price to the buyer is
fixed or determinable and collectibility is reasonably assured. A provision is
made at the time the related revenue is recognized for the cost of any
installation obligations and the estimated cost of product warranties. When
other significant obligations remain after products are delivered, including
certain customer acceptance provisions, revenue is recognized only after such
obligations are fulfilled. If a loss is anticipated on any contract, a provision
for the entire loss is made immediately. Revenue related to the sale of
maintenance contracts is deferred and amortized on a straight-line basis over
the service period. Shipping and handling costs are reflected in both revenue
and cost of goods sold to the extent they are billed to customers. In all other
instances they are reflected as a component of cost of goods sold.
Inventories: Inventories, which include material, labor and manufacturing
overhead, are valued at the lower of cost or market. Substantially all
inventories are accounted for using the first-in, first-out (FIFO) method of
determining inventory costs. Inventory quantities on-hand are regularly
reviewed, and where necessary, provisions for excess and obsolete inventory are
recorded based primarily on either the Company's estimated forecast of product
demand and production requirements for the next twelve months or historical
trailing twelve month usage. A significant increase in the demand for the
Company's products could result in a short-term increase in the cost of
inventory purchases while a significant decrease in demand could result in an
increase in the amount of excess inventory quantities on hand requiring
additional inventory write-downs.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Allowance for Doubtful Accounts: The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowance may be required.
Property, Plant and Equipment: For financial statement purposes, the
Company depreciates plant and equipment using the straight-line method over
their estimated useful lives, which generally fall within the following ranges:
buildings -- 10 to 25 years; leasehold improvements -- estimated useful life or
remaining term of lease, whichever is shorter; machinery and equipment -- 3 to 7
years. Certain tooling costs are capitalized and amortized over a 3 year life,
while diminimus costs are expensed. For income tax purposes, the Company
depreciates plant and equipment over their estimated useful lives using
accelerated methods.
Pension Plans: The Company's funding policy provides that payments to the
U.S. pension trusts shall at least be equal to the minimum funding requirements
of the Employee Retirement Income Security Act of 1974. Non-U.S. plans are
accrued for, but generally not fully funded, and benefits are paid from
operating funds.
Translation of Foreign Currencies: For foreign operations with functional
currencies other than the U.S. dollar, asset and liability accounts are
translated at current exchange rates; income and expenses are translated using
weighted average exchange rates. Resulting translation adjustments, as well as
gains and losses from certain intercompany transactions, are reported in a
separate component of stockholders' equity. Translation adjustments for
operations in highly inflationary economies and exchange gains and losses on
transactions are included in earnings.
Intangible Assets: In accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, and APB Opinion No. 17, Intangible
Assets, the Company reviews long-lived assets and all intangible assets,
including goodwill, for impairment whenever events or changes in circumstances
indicate the carrying amount of such assets may not be recoverable.
Recoverability of these assets is determined by comparing the forecasted
undiscounted net cash flows of the operation to which the assets relate, to the
carrying amount including associated intangible assets of such operation. If the
operation is determined to be unable to recover the carrying amount of its
assets, then intangible assets are written down first, followed by the other
long-lived assets of the operation, to fair value. Fair value is determined
based on discounted cash flows or appraised values, depending upon the nature of
the assets. The Company adopted SFAS No. 144 in 2002. This standard is the
successor to SFAS No. 121. The adoption has no impact on the Company.
Stock-Based Compensation: As allowed by SFAS No. 123, Accounting for
Stock-Based Compensation, the Company has elected to account for stock-based
compensation at intrinsic value with disclosure of the effects of fair value
accounting on net income and earnings per share on a pro forma basis.
Investments and Marketable Securities: Investments where the Company does
not have the ability to exercise significant influence, generally where
ownership is less than 20%, are accounted for either in accordance with SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities or under
the cost method. For public companies that have readily determinable fair
values, the Company classifies its equity investments as either
available-for-sale or trading. Should securities be classified as available for
sale, the Company records these investments at their fair values with unrealized
gains and losses included in "accumulated other comprehensive income loss." If
investments are classified as trading, any unrealized gain or loss is recorded
directly to the income statement. Under the cost method of accounting,
investments in private companies are carried at cost and are adjusted only for
other-than-temporary declines in fair value, distributions of earnings and
additional investments.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments in business entities in which the Company does not have
control, but has the ability to exercise significant influence over operating
and financial policies, generally 20-50 percent ownership, are accounted for by
the equity method. If the Company has disproportionate capital at risk and the
equity method investee is recognizing losses, the Company records its
proportionate loss based on its proportionate capital at risk.
Fair Value of Financial Instruments: The Company's financial instruments
consist of accounts receivable, accounts payable, certain derivative instruments
used to manage foreign currency and interest rate risks, and long-term debt. The
fair value of the derivative instruments is discussed in Note 19, and the fair
value of the long-term debt is discussed in Note 13. The current carrying
amounts of other financial instruments are considered reasonable estimates of
their fair market value, due to the short maturity of these instruments, or as a
result of the competitive market interest rates, which have been negotiated.
Cash Flows: For purposes of the Consolidated Statements of Cash Flows, the
Company considers all highly liquid instruments with a purchased maturity of
three months or less to be cash equivalents. The carrying amount of cash and
cash equivalents approximates fair value due to the short maturities.
Environmental Matters: The Company accrues for costs associated with the
remediation of environmental pollution when it is probable that a liability has
been incurred and the Company's proportionate share of the amount can be
reasonably estimated. The recorded liabilities have not been discounted.
Comprehensive Income: The Company follows the provisions of SFAS No. 130,
Reporting Comprehensive Income. Comprehensive income is reflected in the
consolidated statements of stockholders' equity.
Derivative Instruments and Hedging: The Financial Accounting Standards
Board ("FASB") issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of SFAS No. 133, in June
1999. SFAS No. 133 was adopted by the Company on January 3, 2001. The statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative instrument and whether it qualifies for hedge accounting. The
effect of the adoption of SFAS No. 133 as of January 1, 2001 was not material.
Stock Splits: Per share amounts and share data have been retroactively
restated to give effect to the two-for-one stock split on June 1, 2001, effected
in the form of a 100% stock dividend for holders of record as of May 15, 2001.
Reclassifications: Certain financial statement amounts from prior years
have been reclassified for purposes of consistent presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141 and SFAS No. 142. SFAS No. 141 requires all business combinations
initiated after July 1, 2001 to be accounted for using the purchase method.
Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed at least annually for potential impairment by
comparing the carrying value to the fair value of the reporting unit to which
they are assigned. The provisions of SFAS No. 142 are effective for the
Company's current fiscal year. Accordingly, the Company has ceased goodwill
amortization as of the beginning of fiscal 2002. SFAS No. 142 requires that
goodwill be tested for impairment at the reporting unit level upon initial
adoption and at least annually thereafter, utilizing a two-step methodology. The
initial step requires the Company to determine the fair value of each reporting
unit and compare it to the carrying value, including goodwill of such unit. If
the fair value exceeds the carrying value, no impairment loss would be
recognized. However, if the carrying value of the reporting unit exceeds the
corresponding fair value, the goodwill of this unit may be impaired. The
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount, if any, of the impairment would then be evaluated in the third step of
the impairment testing which places the value of the goodwill balance to that
which would be accounted for under purchase accounting.
In connection with adopting this standard, the Company, assisted by
independent valuation consultants, completed the transitional testing of
goodwill using a measurement date of January 1, 2002. The results of this
testing indicate that the carrying values of the lighting reporting unit within
the Optoelectronics business unit exceeds the estimated fair value of this unit
as determined utilizing various valuation techniques including discounted cash
flow and comparative market analysis. Accordingly, an impairment charge has been
recognized as a change in accounting principle as of the beginning of 2002. The
impairment charge was $117.8 million on a before and after-tax basis.
In April 2002, the FASB issued SFAS No. 145, which rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt an amendment of APB No.
30, which required all gains and losses from the extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net of related
income tax effect. As a result, the criteria set forth by APB Opinion No. 30
will now be used to classify those gains and losses. The Company has elected to
early adopt the provisions of SFAS No. 145 as of July 2, 2002. As a result, the
$6.7 million net gain resulting from the early extinguishment of a portion of
the Company's zero coupon convertible debentures discussed in Note 6 was
recognized within other expense, net during the third quarter of 2002.
Additionally, the $5.5 million extraordinary loss resulting from the early
extinguishment of the Packard Notes during the first quarter of 2002 was
classified as other expense, net.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities ("SFAS No. 146") which nullifies EITF Issue No.
94-3, SFAS No. 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred, whereas EITF
No. 94-3 had recognized the liability at the commitment date to an exit plan.
The Company is required to adopt the provisions of SFAS No. 146 effective for
exit or disposal activities initiated after December 31, 2002.
NOTE 2: ACQUISITIONS AND DIVESTITURES
On November 13, 2001, the Company completed the acquisition of 100% of
Packard BioScience Company (Packard) for a purchase price of approximately $733
million consisting of approximately 22 million of the Company's common shares
and the assumption of $118 million in debt which was subsequently redeemed in
March 2002 (see Note 13). Packard is a global developer, manufacturer and
marketer of instruments and related consumables and services for use in drug
discovery and other life sciences research and generated sales of approximately
$165 million for its fiscal year ended December 31, 2000. The Company undertook
this acquisition to extend our capabilities in automated liquid handling and
sample preparation and strengthened our position as a global provider of
comprehensive drug discovery solutions.
Packard's operations, assumed as of the date of acquisition, are reported
within the results from operations of the Life Sciences segment. The acquisition
was accounted for as a purchase in accordance with SFAS No. 141, and the Company
has accordingly allocated the purchase price of Packard based upon the fair
values of the net assets acquired and liabilities assumed. The allocation of the
purchase price has not yet been finalized as the Company is awaiting the
resolution of certain contingencies. Portions of the net assets acquired and
liabilities assumed were valued by independent appraisers utilizing customary
valuation procedures and techniques. These intangible assets included $69.0
million in acquired in-process research and development for projects that had
not yet reached technological feasibility as of the acquisition date and for
which no future alternative use existed. These costs were expensed on the date
of the acquisition. Other acquired intangible assets valued at $237.3 million
included the fair value of trade names, trademarks, patents and developed
technology. Of this amount, $76.5 million has been ascribed to
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
trade names and trademarks for which an indefinite life has been assigned. The
Packard acquisition also resulted in a preliminary allocation to goodwill of
$410.6 million. Indefinite lived intangibles and goodwill are not being
amortized in accordance with SFAS No. 142, effective for all business
combinations completed subsequent to July 1, 2001.
In connection with this acquisition, the Company agreed to issue 0.311
shares of PerkinElmer common stock for each outstanding share of Packard common
stock. The Company also agreed to assume all outstanding options to purchase
Packard common stock, which became exercisable for shares of PerkinElmer common
stock following the merger after giving effect to the same exchange ratio
provided for in the merger agreement to the Packard common shareholders. The
purchase price for Packard has been allocated to the estimated fair value of
assets acquired and liabilities assumed based upon the Company's current
estimates of respective fair values. Some allocations are based on studies and
independent valuations, as discussed above.
The components of the estimated purchase price and preliminary allocation
are as follows (in thousands):
Preliminary allocation of purchase price:
Stock issued to Packard shareholders........................ $ 595,280
Debt assumed................................................ 118,432
Acquisition costs........................................... 20,261
---------
Total consideration and acquisition costs.............. $ 733,973
=========
Preliminary allocation of purchase price:
Current assets.............................................. 157,677
Property, plant and equipment............................... 23,186
Other assets................................................ 40,601
Identifiable intangible assets.............................. 237,320
In-process research and development......................... 69,040
Goodwill.................................................... 410,583
Liabilities assumed......................................... (204,434)
---------
$ 733,973
=========
As part of the Packard acquisition and included in liabilities assumed is
approximately $33.0 million in integration charges. The integration accrual was
recorded pursuant to a formal plan and includes initiatives to integrate the
operations of Packard and the Company and are principally comprised of amounts
related to employee separation costs and the termination of leases and other
contractual obligations.
TERMINATION OF
DISPOSAL OF LEASES AND
EMPLOYEE CERTAIN PRODUCT OTHER
SEPARATION LINES AND CONTRACTUAL
COSTS ASSETS OBLIGATIONS TOTAL
---------- --------------- -------------- -----
Packard Plan........................... $20.0 $3.0 $10.0 $33.0
On July 31, 2000, the Company completed its acquisition of 100% of NEN Life
Sciences, Inc. (NEN), a provider of state-of-the-art drug discovery products,
services, reagents and technologies to the life sciences industry for an
aggregate purchase price of approximately $418 million. The acquisition was
undertaken to expand the Company's drug discovery products, services, reagents
and technologies provided to the life sciences industry. In connection with the
acquisition, the Company paid approximately $350 million in cash and issued
warrants to purchase approximately 600,000 shares of the Company's
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock at $40.00 per share in exchange for all of the outstanding shares,
options and warrants of NEN. In addition, the Company repaid approximately $50
million of outstanding indebtedness of NEN. The Company financed the acquisition
and repayment of the outstanding indebtedness with $410 million of commercial
paper borrowings with a weighted-average interest rate of 7%. These short-term
borrowings were repaid in August 2000 with proceeds from the issuance of
long-term convertible debentures (see Note 13). NEN's operations, included in
the consolidated results of the Company from the date of acquisition, are
reported in the Life Sciences segment. The acquisition was accounted for as a
purchase under APB Opinion No. 16, Business Combinations, and the results of
operations of NEN are included in the Company's financial statements from the
date of acquisition.
The components of NEN's purchase price and allocation were as follows:
(IN THOUSANDS)
Consideration and acquisition costs:
Cash paid to NEN.......................................... $348,918
Debt assumed.............................................. 48,262
Acquisition costs......................................... 13,647
Fair value of warrants issued............................. 6,940
--------
Total.................................................. $417,767
========
Allocation of purchase price:
Current assets............................................ $ 34,327
Property, plant and equipment............................. 59,755
Other assets.............................................. 739
Acquired intangibles...................................... 75,900
In-process research and development....................... 24,300
Goodwill.................................................. 270,790
Liabilities............................................... (48,044)
--------
Total.................................................. $417,767
========
As part of the July 2000 acquisition of NEN, the Company recorded a $4.0
million integration charge for actions targeted at reduced employment costs,
consolidation of certain facilities and the termination of certain leases and
other contractual obligations.
During the second quarter of 2000, the Company finalized its integration
plan in connection with its acquisition of the Analytical Instruments Division
of PE Corp. Based on continued aggressive actions by the Company to improve the
cost structure of the acquired business, and increased costs related primarily
to employment integration, the Company increased its original estimate of
integration costs and related goodwill recorded at the acquisition date by $24.0
million in connection with purchase accounting.
The following table summarizes integration reserve activity during fiscal
2001 and 2000 related to the 1999 acquisition of Analytical Instruments and NEN
acquisitions as discussed above:
Total integration charges................................... $ 42.1
Amounts paid during 2000.................................... (9.8)
------
Accrued integration costs at December 31, 2000.............. 32.3
Amounts paid during 2001.................................... (23.1)
------
Accrued integration costs at December 30, 2001.............. $ 9.2
======
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma operating results for the Company, assuming the
acquisition of NEN and Packard occurred on January 3, 2000 are as follows:
2001 2000
----------- -----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
Sales from continuing operations............................ $1,691,332 $1,786,287
Income from continuing operations........................... 101,278 84,123
Net income.................................................. $ 94,285 $ 84,279
Basic earnings per share.................................... 0.77 0.70
Diluted earning per share................................... 0.74 0.67
The pro forma amounts in the previous table exclude the in-process research
and development charges of $69.0 million and $24.3 million for the Packard and
NEN acquisitions, respectively. The unaudited pro forma financial information is
provided for informational purposes only and is not necessarily indicative of
the Company's operating results that would have occurred had the acquisitions
been consummated on the dates for which the consummation of the acquisitions are
being given effect, nor is it necessarily indicative of the Company's future
operating results. The pro forma amounts do not reflect any operating
efficiencies and cost savings that the Company believes are achievable.
During the fourth quarter of 2001, the Company sold its IRAS business for
cash of $55.5 million, resulting in a pretax gain of approximately $32.3
million. Additionally, the Company has deferred a gain of approximately $3
million in connection with certain contingencies related to the sale. Also
during the fourth quarter of 2001, the Company sold its Voltarc business for
cash of $9.5 million and a note for approximately $8.0 million, resulting in a
pretax loss of approximately $6.3 million. The combined net income of the
disposed businesses were $5.4 million in 2000 and $1.4 million in 2001 through
the date of disposal.
During the fourth quarter of 2000, the Company sold its Berthold business
at a net pre-tax gain of $10 million. The Company deferred gain recognition of
approximately $11.9 million of sales proceeds from this divestiture in
connection with certain contingencies related to the sale, $2.0 million of which
was recognized during 2001 as a result of the resolution of certain events and
contingencies. Revenues for 2000 for the divested business was $30 million.
Also during 2000, the Company recorded a pre-tax gain of $16.7 million from
the sale of a building, and recognized $2.4 million in net losses related to
certain other asset dispositions.
During the first quarter of 2000, the Company sold its micromachined
sensors and specialty semiconductor businesses for cash of $24.3 million,
resulting in a pre-tax gain of $6.7 million. Combined financial results of the
divested businesses for 2000 were not material to the consolidated results of
the Company.
All of the gains described above are reported on the "Gains on
Dispositions, net" line in the consolidated income statements.
NOTE 3: RESTRUCTURING CHARGES
During the fourth quarter of 2001, the Company expanded its continuing
effort to restructure certain businesses to further improve performance. The
plan resulted in additional pre-tax restructuring charges of $9.2 million. The
principal actions in these restructuring plans primarily relate to employee
separation costs associated with the consolidation of certain European general
and managerial functions within both the
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Life Sciences and Analytical Instruments segments, as well as costs associated
with the closure of certain facilities and disposal of related assets.
TERMINATION OF
DISPOSAL OF LEASES AND
EMPLOYEE CERTAIN PRODUCT OTHER
SEPARATION LINES AND CONTRACTUAL
COSTS ASSETS OBLIGATIONS TOTAL
---------- --------------- -------------- -----
2001 Plan:
Life Sciences........................ $ 3.2 $0.1 $0.6 $ 3.9
Analytical Instruments............... 3.8 -- 1.5 5.3
----- ---- ---- -----
Total restructuring charges............ 7.0 0.1 2.1 9.2
Amounts paid during 2001............... (1.6) -- -- (1.6)
----- ---- ---- -----
Accrued restructuring costs at December
30, 2001............................. $ 5.4 $0.1 $2.1 $ 7.6
===== ==== ==== =====
During the fourth quarter of 2000, the Company recorded of a pre-tax
restructuring charge of $15.1 million for actions to be completed in 2001 (the
"2000 plan"). These charges related to the Company's Life Sciences and
Optoelectronics segments. The principal actions in the restructuring plans
included close-down or consolidation of a number of offices and facilities, the
closure of certain manufacturing facilities, and the disposal of underutilized
assets. The restructuring charges included: Life Sciences' actions associated
with rationalization of its distribution network and overall facility
consolidation and Optoelectronics' actions associated with its Lighting and
Imaging businesses related to employee separation costs and the closures of
certain manufacturing facilities. During 2001, the Company provided for an
additional $0.8 million under the 2000 plan as a result of additional needs
related to lease terminations. Also during 2001, due to the substantial
completion of the actions of the 2000 plan, the Company reevaluated its 2000
restructuring plans. As a result of this review, costs associated with the
previous Life Sciences plan related to the rationalization of its network and
facility consolidation were no longer required. As a result, the Company
recognized a restructuring credit of $0.5 million during 2001.
The following table summarizes activity related to the 2000 plan:
TERMINATION OF
DISPOSAL OF LEASES AND
EMPLOYEE CERTAIN PRODUCT OTHER
SEPARATION LINES AND CONTRACTUAL
COSTS ASSETS OBLIGATIONS TOTAL
---------- --------------- -------------- ------
Total restructuring charges........... $10.1 $ 2.9 $ 2.1 $ 15.1
Amounts incurred during 2000.......... -- -- -- --
----- ----- ----- ------
Accrued restructuring costs at
December 31, 2000................... 10.1 2.9 2.1 15.1
Additional amounts provided during
2001................................ -- -- 0.8 0.8
Amounts paid during 2001.............. (9.6) (2.9) (2.9) (15.4)
Amounts reversed during 2001.......... (0.5) -- -- (0.5)
----- ----- ----- ------
Accrued restructuring costs at
December 30, 2001................... $ -- $ -- $ -- $ --
===== ===== ===== ======
Also during 2000, as a result of the substantial completion of previously
announced restructuring plans, the Company recognized restructuring credits of
$6.3 million relating to 1999 and 1998 restructuring plans.
Additionally, during 1999, the Company recognized a $23.5 million
restructuring charge in connection with the closure and consolidation of certain
facilities, underutilized assets and product lines. As of
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 30, 2001 and December 31, 2000, $2.0 million and $5.9 million,
respectively, remained accrued for under this plan. Spending against this plan
totaled $1.4 million and reversals totaled $2.5 million during the year ended
December 30, 2001. During the year ended December 31, 2000, there were net
reversals of $2.5 million and amounts paid totaled $12.4 million.
Cash outlays during 2001 and 2000 were approximately $35.5 million and
$31.2 million, respectively, for the above discussed plans.
NOTE 4: OTHER EXPENSE
Other expense, net consisted of the following:
2001 2000
-------- --------
(IN THOUSANDS)
Interest income............................................. $ (3,730) $ (3,874)
Interest expense............................................ 37,730 37,418
Gains on sale of investments, net........................... (4,274) (1,294)
Other....................................................... (561) 863
-------- --------
$ 29,165 $ 33,113
======== ========
NOTE 5: INCOME TAXES
The components of income from continuing operations before income taxes for
financial reporting purposes were as follows:
2001 2000
-------- --------
(IN THOUSANDS)
U.S. ....................................................... $(18,641) $ 38,315
Non-U.S. ................................................... 119,191 108,430
-------- --------
$100,550 $146,745
======== ========
The components of the provision for income taxes for continuing operations
were as follows:
DEFERRED EXPENSE
CURRENT (BENEFIT) TOTAL
------- ----------------- -------
(IN THOUSANDS)
2001
Federal......................................... $20,971 $ 1,995 $22,966
State........................................... 1,732 2,516 4,248
Non-U.S. ....................................... 30,721 1,117 31,838
------- ------- -------
$53,424 $ 5,628 $59,052
======= ======= =======
2000
Federal......................................... $14,121 $12,571 $26,692
State........................................... 3,405 2,968 6,373
Non-U.S. ....................................... 24,627 (1,317) 23,310
------- ------- -------
$42,153 $14,222 $56,375
======= ======= =======
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total provision for income taxes included in the consolidated financial
statements was as follows:
2001 2000
------- -------
(IN THOUSANDS)
Continuing operations....................................... $59,052 $56,375
Discontinued operations..................................... (2,427) 4,894
------- -------
$56,625 $61,269
======= =======
The major differences between the Company's effective tax rate for
continuing operations and the federal statutory rate were as follows:
2001 2000
---- -----
Federal statutory rate...................................... 35.0% 35.0%
Non-U.S. rate differential, net............................. (9.8) (12.6)
State income taxes, net..................................... 2.7 2.9
Nondeductible goodwill amortization......................... 7.2 8.1
Nondeductible in-process research and development........... 24.9 7.8
Change in valuation allowance............................... (0.5) (1.7)
Other, net including tax settlement......................... (0.8) (1.1)
---- -----
Effective tax rate.......................................... 58.7% 38.4%
==== =====
The tax effects of temporary differences and carryovers that gave rise to
deferred income tax assets and liabilities as of December 30, 2001 and December
31, 2000 were as follows:
2001 2000
--------- --------
(IN THOUSANDS)
Deferred tax assets:
Inventory reserves........................................ $ 9,591 $ 2,789
Other reserves............................................ 12,217 21,761
Deferred income........................................... 1,152 6,179
Vacation pay.............................................. 4,303 5,478
Tax attributes carryover.................................. 52,691 22,698
Post-retirement health benefits........................... 4,699 4,981
Restructuring reserve..................................... 16,784 16,005
In-process research and development....................... 9,916 10,726
All other, net............................................ 47,744 46,850
--------- --------
Total deferred tax assets................................... 159,097 137,467
Deferred tax liabilities:
Pension contribution...................................... (12,195) (13,850)
Amortization.............................................. (97,256) (6,470)
Depreciation.............................................. (29,631) (39,209)
All other, net............................................ (5,152) (17,979)
--------- --------
Total deferred tax liabilities.............................. (144,234) (77,508)
Valuation allowance......................................... (42,561) (22,698)
--------- --------
Net deferred tax assets and (liabilities)................... $ (27,698) $ 37,261
========= ========
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 30, 2001, the Company had net operating loss carryovers
totalling approximately $110.0 million and foreign tax credits of approximately
$14.0 million subject to various carryforward periods. Based on the judgement of
the Company, the valuation allowance takes into consideration limitations
imposed upon the use of the tax attribute carryovers and reduces the value of
such items to the likely net realizeable amount.
Current deferred tax assets of $83 million and $62 million were included in
other current assets at December 30, 2001 and December 31, 2000, respectively.
Long-term deferred tax liabilities of $111 million and $24 million were included
in long-term liabilities at December 30, 2001 and December 31, 2000,
respectively.
In general, it is the practice and intention of the Company to reinvest the
earnings of its non-U.S. subsidiaries in those operations. With the exception of
APB No. 23 reserves that have specifically been identified as relating to
earnings expected to be repatriated, all earnings of foreign subsidiaries are
treated as permanently reinvested.
During the third quarter of 2001, the Company settled a U.S. Tax Court case
and reached an audit settlement with the Internal Revenue Service. As a result,
the Company received $2.5 million as a reduction to its 2001 full year tax
expense.
NOTE 6: DISCONTINUED OPERATIONS
In June 2002, the Company completed the sale of its Security and Detection
Systems business for cash consideration of approximately $100 million and a net
working capital adjustment, the amount of which has yet to be finalized. A net
pre-tax gain of $18.0 million was recorded pursuant to this transaction in the
second quarter of 2002 as a gain on the disposition of a discontinued operation.
The Company has accounted for its Security and Detection Systems business as a
discontinued operation in accordance with APB No. 30, and accordingly, the
results of operations and related cash flows of this business through the
disposal date have been segregated from continuing operations and reported as a
separate line on the Company's Consolidated Income Statements. The assets and
liabilities of the Security and Detection Systems business are reflected within
the assets and liabilities from discontinued operations in the accompanying
Consolidated Balance Sheets for the periods prior to its sale and the resulting
gain from the sale is presented as a component of net income within dispositions
of discontinued operations, net of income tax on the Company's Consolidated
Income Statements.
During June 2002, the Company approved separate plans to shutdown its
Telecommunications Components and sell its Entertainment Lighting businesses 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 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.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summary operating results of the discontinued operations of the Security
and Detection Systems, Telecommunications Components and Entertainment Lighting
businesses (through December 30, 2001) were as follows:
2001 2000
-------- --------
(IN THOUSANDS)
Sales....................................................... $ 76,424 $157,285
Costs and expenses.......................................... 83,620 150,547
-------- --------
Operating (loss) income from discontinued operations........ (7,196) 6,738
Other expense............................................... 6,124 8,994
-------- --------
Loss from discontinued operations before income taxes....... (13,320) (2,256)
(Benefit)/provision for income taxes........................ (3,960) 2,047
-------- --------
Loss from discontinued operations, net of income taxes...... $ (9,360) $ (4,303)
======== ========
NOTE 7: EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income by the
weighted-average number of common shares outstanding during the year. Diluted
earnings per share was computed by dividing net income by the weighted-average
number of common shares outstanding plus all potentially dilutive common shares
outstanding, primarily shares issuable upon the exercise of stock options using
the treasury stock method. The following table reconciles the number of shares
utilized in the earnings per share calculations:
2001 2000
------- -------
(IN THOUSANDS)
Number of common shares -- basic............................ 103,687 98,212
Effect of dilutive securities
Stock options............................................. 2,700 4,022
Restricted shares and other............................... 872 44
------- -------
Number of common shares -- diluted.......................... 107,259 102,278
======= =======
Options to purchase 8 million and 0.1 million shares of common stock were
not included in the computation of diluted earnings per share for 2001 and 2000,
respectively, because the options' exercise prices were greater than the average
market price of the common shares and thus their effect would have been
antidilutive. Additionally, the Company's zero coupon senior convertible
debentures (see Note 13) are convertible into 10.8 million shares of the
Company's common stock at December 30, 2001 at approximately $44.00 per share.
Conversion of the debentures was not assumed in the computation of diluted
earnings per share for 2001 and 2000 because the effect of assumed conversion
would have been antidilutive.
NOTE 8: ACCOUNTS RECEIVABLE
Accounts receivable were net of reserves for doubtful accounts of $13.0
million and $13.3 million as of December 30, 2001 and December 31, 2000
respectively.
During 2001, the Company established a wholly owned consolidated subsidiary
to fund, on a revolving basis, certain of the Company's accounts receivable
balances and simultaneously sell an undivided interest in this pool of
receivables to a financial institution. As collections reduce the balance of
sold accounts receivable, new receivables are sold. The Company's consolidated
subsidiary retains the risk of credit loss on the receivables and accordingly,
the full amount of the allowance for doubtful accounts has been provided for on
the Company's balance sheet. Under the terms of this arrangement, the Company
retains
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
collection and administrative responsibilities for the balances. The facility is
renewable by mutual agreement of the parties on an annual basis and has an
effective interest rate of approximately LIBOR plus 30 basis points. Amounts
funded under this facility during 2001 approximated $37 million. This amount has
reduced the outstanding receivable balance. The facility includes conditions
that require the Company to maintain a corporate 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 November 22, 2002 the Company had a senior
unsecured credit rating of BBB- from Standard & Poor's Rating Services, which is
currently under review, and of Ba2 with a stable outlook from Moody's Investors
Service.
NOTE 9: INVENTORIES
Inventories as of December 30, 2001 and December 31, 2000 consisted of the
following:
2001 2000
-------- --------
(IN THOUSANDS)
Raw materials............................................... $ 76,085 $ 71,140
Work in progress............................................ 60,872 48,378
Finished goods.............................................. 107,884 77,307
-------- --------
$244,841 $196,825
======== ========
NOTE 10: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, as of December 30, 2001 and
December 31, 2000 consisted of the following:
2001 2000
-------- --------
(IN THOUSANDS)
Land........................................................ $ 25,542 $ 26,058
Building and leasehold improvements......................... 140,100 143,046
Machinery and equipment..................................... 364,685 364,617
-------- --------
$530,327 $533,721
======== ========
NOTE 11: INVESTMENTS
Investments as of December 30, 2001 and December 31, 2000 consisted of the
following:
2001 2000
------- -------
(IN THOUSANDS)
Marketable securities....................................... $15,716 $21,936
Joint venture and other investments......................... 2,481 4,290
------- -------
$18,197 $26,226
======= =======
Marketable securities include equity and fixed-income securities held to
meet obligations associated with the supplemental executive retirement plan. As
of December 30, 2001, the fixed-income securities held within marketable
securities had maturities of between 3 and 30 years.
The net unrealized holding gain (loss) on marketable securities, net of
deferred income taxes, reported as a component of accumulated other
comprehensive income (loss) in stockholders' equity, was a $1.4 million loss and
a $0.9 million gain at December 30, 2001 and December 31, 2000, respectively.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Marketable securities classified as available for sale as of December 30,
2001 and December 31, 2000 consisted of the following:
GROSS UNREALIZED HOLDING
MARKET ---------------------------
VALUE COST GAINS (LOSSES)
------- ------- ------ --------
2001
Common stocks................................. $ 8,865 $10,864 $ 32 $(2,031)
Fixed-income securities....................... 6,098 6,066 32 --
Other......................................... 753 766 -- (13)
------- ------- ------ -------
$15,716 $17,696 $ 64 $(2,044)
======= ======= ====== =======
2000
Common stocks................................. $17,356 $16,021 $1,689 $ (354)
Fixed-income securities....................... 4,143 4,074 69 --
Other......................................... 437 492 -- (55)
------- ------- ------ -------
$21,936 $20,587 $1,758 $ (409)
======= ======= ====== =======
NOTE 12: INTANGIBLE ASSETS
Intangible assets consist mainly of goodwill from acquisitions accounted
for using the purchase method of accounting, representing the excess of cost
over the fair market value of the net assets of the acquired businesses.
Goodwill, net of accumulated amortization, was $1,034 million and $620 million
at December 30, 2001 and December 31, 2000, respectively. Other identifiable
intangible assets from acquisitions include patents, trademarks, trade names and
developed technology and are being amortized over periods of 10-40 years. Other
identifiable intangible assets, net of accumulated amortization, were $496
million and $258 million at December 30, 2001 and December 31, 2000,
respectively. Intangible assets as of December 30, 2001 and December 31, 2000
were as follows:
2001 2000
---------- --------
(IN THOUSANDS)
Goodwill.................................................... $1,109,041 $672,878
Other identifiable intangible assets........................ 532,127 297,431
---------- --------
1,641,168 970,309
Less: accumulated amortization.............................. (111,115) (92,463)
---------- --------
$1,530,053 $877,846
========== ========
As previously discussed, the issuance of SFAS No. 142 resulted in the
discontinuance of amortization goodwill and indefinite lived intangible
effective December 31, 2001. Instead, these items will be tested on an annual
basis for potential impairment by comparing the carrying value to the fair value
of the reporting unit to which they are assigned. The impact of the adoption of
SFAS No. 142 was an impairment charge totaling $117.8 million, which was
recorded in January 2002.
NOTE 13: DEBT
Short-term debt at December 30, 2001 was $126.0 million, principally
consisting of the notes assumed as part of the Packard transaction, which are
discussed below. There were no commercial paper borrowings outstanding at
December 30, 2001. Short-term debt at December 31, 2000 was $185.4 million and
was comprised primarily of commercial paper borrowings. The weighted average
interest rate on the commercial paper borrowings was 4.4% and 6.7%, during 2001
and 2000, respectively. Weighted average maturities were 20 days or less during
2001 and 60 days or less during 2000.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintains two unsecured credit facilities. Both facilities were
amended in September 2002. Prior to their amendment, the facilities consisted of
a $270 million 364-day revolving credit facility (the "364-day facility") which
will expire in March 2003, and a $100 million 5-year revolving credit facility
(the "5-year facility") which will expire in March 2006. Borrowings outstanding
under the 364-day facility at maturity may be converted, at the Company's
option, into a one-year term note due in March 2004, subject to the Company's
compliance with the facility's financial covenants.
During September 2002, the Company significantly amended both facilities as
follows:
- the borrowing capacity under the 364-day facility was reduced from $270
million to $200 million;
- provisions were added that would further reduce the borrowing capacity
under the 364-day facility in amounts equal to:
(A) 100% of any amounts used by the Company to repurchase zero coupon
convertible debentures; and
(B) 50% of the net proceeds received by the Company from future asset
sales and capital market transactions, up to a maximum reduction of
$100 million (which maximum will be increased, on a dollar-for-dollar
basis, for every dollar of zero coupon convertible debentures
repurchased by the Company) pursuant to this provision;
- the spread over LIBOR on borrowings under the facilities increased by
37.5 basis points;
- the definition of EBITDA was clarified to exclude certain non-operating
items; and
- a new consolidated indebtedness leverage ratio was added.
At December 30, 2001 and December 31, 2000, long-term debt was $598.1
million and $583.3 million, respectively. Included in these amounts are $115
million of unsecured ten-year notes issued in October 1995, which carry an
interest rate of 6.8% and mature in 2005. During the fourth quarter of 2001,
this fixed rate was swapped to a floating rate, resulting in an all-in cost of
funds of 4.46% during 2001, an annualized reduction of 2.34% from the fixed
rate. This interest rate swap instrument resets semi-annually in arrears based
upon six month USD LIBOR. The fair value of this instrument as of December 30,
2001 was $(2.3) million, which is offset by a corresponding gain on the
underlying bond. Other long term debt includes zero coupon senior convertible
debentures described below which had a $483 million accreted value at 2001 and a
$468 million accreted value at 2000. The carrying amount of the unsecured
ten-year notes and senior subordinated ten-year notes approximated the estimated
fair value at December 30, 2001, based on a quoted market price. The estimated
fair value of the convertible debentures approximated $512 million at December
30, 2001, also based on a quoted market price.
In August 2000, the Company sold zero coupon senior convertible debentures
with an aggregate purchase price of $460 million. The Company used the
offering's net proceeds of approximately $448 million to repay a portion of its
commercial paper borrowings, which had been increased temporarily to finance the
NEN acquisition. Deferred issuance costs of $12 million were recorded as a
noncurrent asset and are being amortized over three years. The debentures, which
were offered by a prospectus supplement pursuant to the Company's effective
shelf registration statement, are due August 2020, and were priced with a yield
to maturity of 3.5%. At maturity, the Company is required to repay $921 million,
comprised of $460 million of original purchase price plus accrued original issue
discount. The Company may redeem some or all of the debentures at any time on or
after August 7, 2003 at a redemption price equal to the issue price plus the
accrued original issue discount through the redemption date. Holders of the
debentures may require the Company to repurchase some or all of the debentures
in August 2003 and August 2010, or at any time when there is a change in control
of the Company, as is customary and ordinary for debentures of this nature, at a
repurchase price equal to the initial price to the public plus the accrued
original issue discount through the date of the repurchase. The debentures are
convertible into
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10.8 million shares of the Company's common stock at December 30, 2001 at
approximately $44.00 per share.
During the September 2002, the Company repurchased a portion of its zero
coupon convertible debentures due 2020 with a carrying amount of approximately
$91.8 million for approximately $84.4 million. These transactions resulted in a
gain of approximately $6.7 million net of a pro rata portion of deferred
issuance costs.
In November 2001, the Company completed its acquisition of Packard
BioScience Company and assumed $118 million of senior subordinated ten-year
notes issued in March 1997 at an interest rate of 9.375%. The Company redeemed
the notes on March 1, 2002 at a rate of 104.688% in accordance with the
indenture dated as of March 4, 1997. As a result, the Company recognized a
pre-tax loss on the retirement of this debt totaling $5.5 million.
On November 22, 2002, the Company launched a tender offer to retire the
$115 million outstanding principal on the ten-year notes.
NOTE 14: ACCRUED EXPENSES
Accrued expenses as of December 30, 2001 and December 31, 2000 consisted of
the following:
2001 2000
-------- --------
(IN THOUSANDS)
Payroll and incentives...................................... $ 34,580 $ 45,940
Employee benefits........................................... 43,513 46,952
Federal, non-U.S. and state income taxes.................... 83,067 42,480
Other accrued operating expenses............................ 266,390 194,299
-------- --------
$427,550 $329,671
======== ========
NOTE 15: EMPLOYEE BENEFIT PLANS
Except where noted otherwise, the following employee benefit plan
disclosures include amounts and information, on a combined basis, for both the
continuing and discontinued operations of the Company.
Savings Plan: The Company has a savings plan for the benefit of qualified
U.S. employees. Under this plan, for all business units except those within Life
Sciences, the Company contributes an amount equal to the lesser of 55% of the
amount of the employee's voluntary contribution or 3.3% of the employee's annual
compensation. For Life Sciences, the Company contributes an amount equal to the
lesser of 100% of the employee's voluntary contribution or 5.0% of the
employee's annual compensation. Savings plan expense charged to continuing
operations was $5.8 million in 2001 and $4.2 million in 2000.
Pension Plans: The Company has defined benefit pension plans covering
substantially all U.S. employees except those employed by Life Sciences and
non-U.S. pension plans for non-U.S. employees. The U.S. defined benefit pension
plans were closed to new hires effective January 31, 2001. The plans provide
benefits that are based on an employee's years of service and compensation near
retirement. Assets of the U.S. plan are comprised primarily of equity and debt
securities.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost included the following components:
2001 2000
-------- --------
(IN THOUSANDS)
Service cost................................................ $ 6,860 $ 7,830
Interest cost............................................... 19,011 19,315
Expected return on plan assets.............................. (23,235) (20,588)
Net amortization and deferral............................... (460) (486)
-------- --------
$ 2,176 $ 6,071
======== ========
The following table sets forth the changes in the funded status of the
principal U.S. pension plan and the principal non-U.S. pension plans and the
amounts recognized in the Company's consolidated balance sheets as of December
30, 2001 and December 31, 2000.
2001 2000
------------------- -------------------
NON-U.S. U.S. NON-U.S. U.S.
-------- -------- -------- --------
(IN THOUSANDS)
Actuarial present value of benefit
obligations:
Accumulated benefit obligations............ $111,610 $157,573 $112,940 $162,809
======== ======== ======== ========
Projected benefit obligations at beginning
of year.................................. $123,386 $174,351 $141,552 $171,106
Service cost............................... 2,020 4,840 3,206 4,624
Interest cost.............................. 7,054 11,957 7,119 12,196
Benefits paid and plan expenses............ (5,535) (13,077) (5,607) (9,677)
Participants' contributions................ 540 -- 194 --
Actuarial loss (gain)...................... 4,616 (9,974) (12,831) (3,898)
Plan Amendments............................ -- (861) -- --
Effect of exchange rate changes............ (6,778) -- (10,210) --
Dispositions............................... -- -- (17,584) --
Curtailment gain -- discontinued
operations............................... (2,672) -- -- --
Acquisitions............................... 2,229 -- 17,547 --
-------- -------- -------- --------
Projected benefit obligations at end of
year..................................... 124,860 167,236 123,386 174,351
-------- -------- -------- --------
Fair value of plan assets at beginning of
year..................................... 48,737 230,347 35,560 254,535
Actual return on plan assets............... (5,228) (8,685) 4,067 (14,038)
Benefits paid and plan expenses............ (5,535) (13,077) (5,607) (9,677)
Employer contribution...................... 5,133 -- 4,437 --
Participant contribution................... 540 -- 194 --
Effect of exchange rate changes............ (1,700) -- (2,841) --
Transfer out -- discontinued operations.... -- -- 12,927 (473)
-------- -------- -------- --------
Fair value of plan assets at end of year... 41,947 208,585 48,737 230,347
-------- -------- -------- --------
Plan assets less (greater) than projected
benefit obligations...................... 82,913 (41,349) 74,649 (55,996)
Unrecognized net transition asset
(obligation)............................. (277) -- (322) 512
Unrecognized net prior service costs....... (379) 623 (410) (52)
-------- -------- -------- --------
Unrecognized net gain (loss)............... 1,184 1,428 7,441 19,469
-------- -------- -------- --------
Accrued pension liability (asset).......... $ 83,441 $(39,298) $ 81,358 $(36,067)
======== ======== ======== ========
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2001 2000
------------------- -------------------
NON-U.S. U.S. NON-U.S. U.S.
-------- -------- -------- --------
(IN THOUSANDS)
Actuarial assumptions as of the year-end
measurement date:
Discount rate.............................. 5.7% 7.5% 6.0% 7.5%
Rate of compensation increase.............. 3.4% 4.5% 3.4% 4.5%
Expected rate of return on assets.......... 7.9% 9.0% 7.9% 9.0%
Non-U.S. accrued pension liabilities classified as long-term liabilities
totaled $80 million and $86 million as of December 30, 2001 and December 31,
2000, respectively. The U.S. pension asset was classified as other noncurrent
assets.
The Company also sponsors a supplemental executive retirement plan to
provide senior management with benefits in excess of normal pension benefits.
Effective July 31, 2000, this plan was closed to new entrants. At December 30,
2001 and December 31, 2000, the projected benefit obligations were $16.5 million
and $16.4 million, respectively. Assets with a fair value of $8.0 million and
$9.2 million segregated in a trust, were available to meet this obligation as of
December 30, 2001 and December 31, 2000, respectively. Pension expense for this
plan was approximately $1.1 million in 2001 and $2.0 million in 2000.
Postretirement Medical Plans: The Company provides health care benefits
for eligible retired U.S. employees under a comprehensive major medical plan or
under health maintenance organizations where available. The majority of the
Company's U.S. employees become eligible for retiree health benefits if they
retire directly from the Company and have at least ten years of service.
Generally, the major medical plan pays stated percentages of covered expenses
after a deductible is met and takes into consideration payments by other group
coverages and by Medicare. The plan requires retiree contributions under most
circumstances and has provisions for cost-sharing charges. Effective January 1,
2000, this plan was closed to new hires. For employees retiring after 1991, the
Company has capped its medical premium contribution based on employees' years of
service. The Company funds the amount allowable under a 401(h) provision in the
Company's defined benefit pension plan. Assets of the plan are comprised
primarily of equity and debt securities.
Net periodic post-retirement medical benefit cost (credit) included the
following components:
2001 2000
------- -------
(IN THOUSANDS)
Service cost................................................ $ 207 $ 232
Interest cost............................................... 646 992
Expected return on plan assets.............................. (1,062) (1,219)
Net amortization and deferral............................... (674) (1,516)
------- -------
$ (883) $(1,511)
======= =======
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the changes in the postretirement medical
plan's funded status and the amounts recognized in the Company's consolidated
balance sheets at December 30, 2001 and December 31, 2000.
2001 2000
------- -------
(IN THOUSANDS)
Actuarial present value of benefit obligations
Retirees.................................................... $10,651 $10,379
Active employees eligible to retire......................... 400 371
Other active employees...................................... 2,804 2,117
------- -------
Accumulated benefit obligations at beginning of year........ 13,855 12,867
------- -------
Service cost................................................ 207 232
Interest cost............................................... 646 992
Benefits paid............................................... (905) (1,196)
Actuarial loss.............................................. 1,315 430
Plan adjustments............................................ (6,109) 530
Curtailment gain -- discontinued operations................. (115) --
------- -------
Change in accumulated benefit obligations during the year... (4,961) 988
------- -------
Retirees.................................................... 5,720 10,651
Active employees eligible to retire......................... 422 400
Other active employees...................................... 2,752 2,804
------- -------
Accumulated benefit obligations at end of year.............. 8,894 13,855
Fair value of plan assets at beginning of year.............. 12,254 14,474
Actual return on plan assets................................ (422) (590)
Benefits paid and plan expenses............................. (1,377) (1,630)
------- -------
Fair value of plan assets at end of year.................... 10,455 12,254
Fair value of plan assets (greater) less than accumulated
benefit obligations....................................... (1,561) 1,601
Unrecognized prior service costs............................ 4,705 (489)
Unrecognized net gain....................................... 2,347 4,614
------- -------
Accrued post-retirement medical liability................... $ 5,491 $ 5,726
======= =======
Actuarial assumptions as of the year-end measurement date
Discount rate............................................. 7.5% 7.5%
Expected rate of return on assets......................... 9.0% 9.0%
Healthcare cost trend rate:
First year.................................................. * 8.0%
Ultimate.................................................... * 5.5%
Time to reach ultimate...................................... * 3 years
---------------
* In 2001, the Company moved entirely to a defined dollar plan. Accordingly,
such assumptions are no longer applicable.
The accrued postretirement medical liability included $4.5 million and $4.7
million classified as long-term liabilities as of December 30, 2001 and December
31, 2000, respectively.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Compensation Plans: During 1998, the Company implemented certain
nonqualified deferred compensation programs that provide benefits payable to
officers and certain key employees or their designated beneficiaries at
specified future dates, upon retirement or death. Benefit payments under these
plans are funded by a combination of contributions from participants and the
Company. In 2000, this plan was extended to cover members of the Board of
Directors.
NOTE 16: COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims, legal proceedings and
investigations covering a wide range of matters that arise in the ordinary
course of its business activities. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company has established accruals for matters
that are probable and reasonably estimable. Management believes that any
liability that may ultimately result from the resolution of these matters in
excess of amounts provided will not have a material adverse effect on the
financial position, results of operations, cash flows of the Company.
The Company and certain officers have been named as defendants in a class
action lawsuit in which the plaintiffs have alleged various statements made by
the Company and management were misleading with respect to the Company's
prospects and future operating results. The Company believes it has meritorious
defenses to the lawsuits and intends to contest 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
when the cost can be reasonably estimated. The Company has accrued $12.1 and
$8.8 million as of December 30, 2001 and December 31, 2000, respectively,
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 five years. As assessments and remediation activities progress at each
individual site, these liabilities are reviewed and adjusted to reflect
additional information as it becomes available. There have been no environmental
problems to date that have had or are expected to have a material effect on the
Company's financial position or results of operations. While it is reasonably
possible that a material loss exceeding the amounts recorded may have been
incurred, the preliminary stages of the investigations make it impossible for
the Company to reasonably estimate the range of potential exposure.
NOTE 17: STOCKHOLDERS' EQUITY
Stock-Based Compensation: Under the 2001 Incentive Plan, 8.8 million
additional shares of the Company's common stock were made available for option
grants, restricted stock awards, performance units and other stock-based awards.
Under the 1999 Incentive Plan, 7.0 million additional shares of the Company's
common stock were made available for similar stock-based awards. At December 30,
2001, 3.6 million shares of the Company's common stock were reserved for
employee benefit plans.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has nonqualified and incentive stock option plans for officers
and key employees. Under these plans, options may be granted at prices not less
than 100% of the fair market value on the date of grant. Options expire 7-10
years from the date of grant, and options granted become exercisable, in ratable
installments, over periods of 3-5 years from the date of grant. The Compensation
Committee of the Board of Directors, at its sole discretion, may also include
stock appreciation rights in any option granted. There are no stock appreciation
rights outstanding under these plans.
The following table summarizes stock option activity for the two years
ended December 30, 2001:
2001 2000
------------------------- -------------------------
NUMBER OF WEIGHTED- NUMBER OF WEIGHTED-
SHARES AVERAGE PRICE SHARES AVERAGE PRICE
--------- ------------- --------- -------------
(SHARES IN THOUSANDS)
Outstanding at beginning of year....... 9,650 $19.52 9,144 $11.77
Granted................................ 9,315 30.31 5,564 25.39
Exercised.............................. (2,073) 12.41 (3,724) 10.12
Lapsed................................. (907) 28.85 (1,334) 15.51
------ ------ ------ ------
Outstanding at end of year............. 15,985 $26.25 9,650 $19.52
====== ====== ====== ======
Exercisable at end of year............. 5,567 $17.43 2,490 $12.71
The following table summarizes information about stock options outstanding
at December 30, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ----------------------------------
ACTUAL RANGE OF NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
EXERCISE PRICES OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
150% INCREMENT DECEMBER 30, 2001 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 30, 2001 EXERCISE PRICE
--------------- ----------------- ----------------- -------------- ----------------- --------------
$ 1.56 -- 1.57....... 3,860 2.0 $ 1.56 3,860 $ 1.56
$ 3.11 -- 4.23....... 92,384 3.0 $ 4.08 92,384 $ 4.08
$ 4.67 -- 5.28....... 30,249 3.9 $ 4.68 30,249 $ 4.68
$ 7.04 -- 10.16...... 795,594 4.7 $ 8.64 711,934 $ 8.52
$10.77 -- 16.00...... 2,955,190 6.0 $13.85 2,187,126 $13.77
$16.59 -- 24.15...... 3,081,083 6.6 $19.81 1,921,203 $19.79
$25.05 -- 37.17...... 6,806,840 6.3 $30.42 407,574 $29.36
$37.98 -- 56.59...... 2,168,844 6.5 $46.19 179,649 $46.75
$57.22 -- 67.92...... 51,248 7.7 $58.32 32,584 $58.32
---------- --- ------ --------- ------
$1.56 -- 67.92...... 15,985,292 6.2 $26.25 5,566,563 $17.43
During 2001, approximately 6,071,000 and 1,190,000 options were granted
pursuant to the 2001 Incentive Plan and the 1999 Incentive Plan, respectively,
at exercise prices ranging from $23.84 per share to $50.28 per share. The
remaining options granted during 2001 were done so principally under plans
associated with Packard. At December 30, 2001, there were 3,491,000 common
shares available for grant under active equity plans.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted-average fair values of options granted during 2001 and 2000
were $14.40 and $9.91, respectively. The values were estimated on the date of
grant using the Black-Scholes option-pricing model. The following
weighted-average assumptions were used in the model:
2001 2000
---- ----
Risk-free interest rate..................................... 4.5% 6.5%
Expected dividend yield..................................... 1.0% 2.0%
Expected lives.............................................. 4.0 years 3.7 years
Expected stock volatility................................... 50% 46%
In April 1999, the Company's stockholders approved the 1998 Employee Stock
Purchase Plan, whereby participating employees currently have the right to
purchase common stock at a price equal to 85% of the lower of the closing price
on the first day or the last day of the six-month offering period. The number of
shares which an employee may purchase, subject to certain aggregate limits, is
determined by the employee's voluntary contribution, which may not exceed 10% of
base compensation. During 2001, the Company issued 449,082 shares under this
plan at a weighted-average price of $23.40 per share. During 2000, the Company
issued 420,534 shares under this plan at a weighted-average price of $21.82 per
share. There remains available for sale to employees an aggregate of 3.4 million
shares of the Company's stock out of 5 million shares authorized by the
stockholders.
The following table discloses pro forma net income and diluted earnings per
share had compensation cost for the Company's stock-based compensation plans
been determined based on the fair value approach:
2001 2000
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
Net income:
As reported............................................... $34,505 $90,520
Pro forma................................................. 8,216 77,635
Diluted earnings per share
As reported............................................... $ 0.32 $ 0.89
Pro forma................................................. $ 0.08 $ 0.76
Pro forma compensation cost may not be representative of that to be
expected in future years since the estimated fair value of stock options is
amortized to expense over the vesting period, and additional options may be
granted in future years.
Employee Stock Purchase Plan: The Company has an Employee Stock Purchase
Plan, whereby participating employees have the right to purchase common stock at
a price equal to 85% of the lower of the closing price on the first day or the
last day of the six-month offering period. The number of shares which an
employee may purchase, subject to certain aggregate limits, is determined by the
employee's voluntary contribution which may not exceed 10% of base compensation.
Other: The Company has granted restricted stock awards to certain
executive employees and directors which contain vesting provisions tied to
certain Company performance metrics. The shares available under these awards are
a component of the Company's 1999 Incentive Plan. The compensation associated
with the fair value of these awards is charged to expense over the period that
the performance targets are expected to be achieved. During 2001 and 2000, $3.5
million and $4.2 million, respectively, was charged to expense related to the
restricted shares awarded under this program. The total number of common shares
outstanding and subject to forfeiture under the restricted stock program totaled
400,000 at December 30, 2001 and 390,000 at December 31, 2000.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shareholder Rights Plan: Under a Shareholder Rights Plan, preferred stock
purchase rights were distributed on February 8, 1995 as a dividend at the rate
of one right for each share of common stock outstanding. Each right, when
exercisable, entitles a stockholder to purchase one one-thousandth of a share of
a new series of junior participating preferred stock at a price of $30. The
rights become exercisable only if a person or group acquires 20% or more or
announces a tender or exchange offer for 30% or more of the Company's common
stock. This preferred stock is nonredeemable and will have 1,000 votes per
share. The rights are nonvoting, expire in 2005 and may be redeemed prior to
becoming exercisable. The Company has reserved 70,000 shares of preferred stock,
designated as Series C Junior Participating Preferred Stock, for issuance upon
exercise of such rights. If a person (an Acquiring Person) acquires or obtains
the right to acquire 20% or more of the Company's outstanding common stock
(other than pursuant to certain approved offers), each right (other than rights
held by the Acquiring Person) will entitle the holder to purchase shares of
common stock of the Company at one-half of the current market price at the date
of occurrence of the event. In addition, in the event that the Company is
involved in a merger or other business combination in which it is not the
surviving corporation or in connection with which the Company's common stock is
changed or converted, or it sells or transfers 50% or more of its assets or
earning power to another person, each right that has not previously been
exercised will entitle its holder to purchase shares of common stock of such
other person at one-half of the current market price of such common stock at the
date of the occurrence of the event.
Comprehensive Income: The components of accumulated other comprehensive
income (loss) were as follows:
FOREIGN ACCUMULATED
CURRENCY UNREALIZED GAINS UNREALIZED GAINS OTHER
TRANSLATION ON DERIVATIVE (LOSSES) ON COMPREHENSIVE
ADJUSTMENTS INSTRUMENTS SECURITIES INCOME (LOSS)
----------- ---------------- ---------------- -------------
(IN THOUSANDS)
Balance, January 3, 2000...... $(14,461) $ -- $ 421 $(14,040)
Current year change........... (25,484) -- 482 (25,002)
-------- ------ ------- --------
Balance, December 31, 2000.... (39,945) -- 903 (39,042)
Current year change........... $(20,976) $1,407 $(2,329) $(21,898)
-------- ------ ------- --------
Balance, December 30, 2001.... $(60,921) $1,407 $(1,426) $(60,940)
======== ====== ======= ========
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects related to each component of other comprehensive income
(loss) were as follows:
TAX BEFORE-TAX (PROVISION) AFTER-TAX
AMOUNT BENEFIT AMOUNT
-------------- ----------- ---------
(IN THOUSANDS)
2001
Foreign currency translation adjustments......... $(20,976) $ -- $(20,976)
Unrealized gains on derivative instruments....... 1,407 -- 1,407
Unrealized gains (losses) on securities:
Losses arising during the period............... (3,709) 1,271 (2,438)
Reclassification adjustment for realized losses
included in net income...................... 167 (58) 109
-------- ------ --------
Net unrealized losses on securities.............. (3,542) 1,213 (2,329)
-------- ------ --------
Other comprehensive income (loss)................ $(23,111) $1,213 $(21,898)
======== ====== ========
2000
Foreign currency translation adjustments......... $(25,484) $ -- $(25,484)
Unrealized gains on securities:
Gains arising during the period................ 673 (192) 481
Reclassification adjustment for realized losses
included in net income...................... 1 -- 1
-------- ------ --------
Net unrealized gains............................. 674 (192) 482
-------- ------ --------
Other comprehensive income (loss)................ $(24,810) $ (192) (25,002)
======== ====== ========
NOTE 18: FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and accounts receivable. The Company believes it had no significant
concentrations of credit risk as of December 30, 2001.
In the ordinary course of business, the Company enters into foreign
exchange contracts for periods consistent with its committed exposures to
mitigate the effect of foreign currency movements on transactions denominated in
foreign currencies. Transactions covered by hedge contracts include intercompany
and third-party receivables and payables. The contracts are primarily in
European and Asian currencies, generally have maturities that do not exceed 12
months, have no cash requirements until maturity and are recorded at fair value
on the consolidated balance sheet. Credit risk and market risk are minimal as
the foreign exchange instruments are contracted with major banking institutions.
Gains and losses on the Company's foreign currency contracts are recognized
immediately in earnings for hedges designated as fair value and, for hedges
designated as cash flow, the related unrealized gains or losses are deferred as
a component of other comprehensive income in the accompanying consolidated
balance sheet. These deferred gains and losses are recognized in income in the
period in which the underlying anticipated transaction occurs. Effectiveness of
these cash flow hedges is measured utilizing the cumulative dollar offset method
and is reviewed quarterly. For the year ended December 30, 2001, net losses from
hedges reclassified from other comprehensive income to revenue and expense
totaled $36,000. The notional amount of the outstanding foreign currency
contracts was approximately $280 million as of December 30, 2001 and $190
million at December 31, 2000. At December 30, 2001, the approximate fair value
for foreign currency derivative instruments designated as fair value hedges was
$560,000. The approximate fair value for foreign currency derivative instruments
designated as cash flow hedges was $380,000 and is recorded in other current
assets with the offset to other comprehensive income. This gain will be
recognized in earnings over the next 12 months. At January 1, 2001, the fair
value of all derivative
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
instruments was not significant. Accordingly, when the Company adopted the
provisions of SFAS No. 133, there was no cumulative effect adjustment recorded.
NOTE 19: LEASES
The Company leases certain property and equipment under operating leases.
Rental expense charged to continuing operations for 2001 and 2000 amounted to
$20.5 million and $17.6 million, respectively. Minimum rental commitments under
noncancelable operating leases are as follows: $22.2 million in 2002, $19.2
million in 2003, $16.8 million in 2004, $13.4 million in 2005, $14.1 million in
2006 and $132.7 million after 2006.
Included in the lease commitments is a six-year operating lease agreement
signed in 2000 for a facility in the Optoelectronics segment. At the end of the
lease term, the Company, at its option, may: (i) renew the lease; (ii) purchase
the property at a price equal to the lessor's original cost (approximately $30
million); or (iii) allow the lease to expire and cause the property to be sold.
The Company's ability to cause the property to be sold depends upon its
compliance with certain terms of the lease. In September 2002, the lease was
amended. The effect of the amendment was to accelerate the termination date of
the lease to the earlier of the sale of the Fluid Sciences business or February
28, 2003. As a result, at termination the Company either must purchase the
building or secure alternative financing.
NOTE 20: INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company's businesses are reported as three reportable segments which
reflect the Company's management and structure under three strategic business
units ("SBUs"). The accounting policies of the reportable segments are the same
as those described in Note 1. The Company evaluates the performance of its
operating segments based on operating profit. Intersegment sales and transfers
are not significant.
The operating segments and their principal products and services are:
Life Sciences: Provider of drug discovery, genetic screening and
chemical analysis tools and instrumentation used in daily applications for
scientific research and clinical applications.
Analytical Instruments: Analytical tools employing technologies such
as molecular and atomic spectroscopy, high-pressure liquid chromatography,
gas chromatography and thermal analysis.
Optoelectronics: A broad spectrum of digital imaging, sensor and
specialty lighting components to customers in a wide variety of industries,
including the biomedical and consumer products markets.
Fluid Sciences: Products and services providing critical sealing and
fluid containment products and services for the aerospace, semiconductor
and power generation markets, as well as engine lubricant testing services.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales and operating profit by segment for the three years ended December
30, 2001 are shown in the table below:
2001 2000
---------- ----------
(IN THOUSANDS)
LIFE SCIENCES
Sales....................................................... $ 346,110 $ 221,401
Operating (loss)............................................ (46,366) (3,636)
ANALYTICAL INSTRUMENTS
Sales....................................................... 568,373 617,699
Operating profit............................................ 77,755 56,076
OPTOELECTRONICS
Sales....................................................... 380,227 447,129
Operating profit............................................ 51,268 96,126
FLUID SCIENCES
Sales....................................................... 230,629 251,753
Operating profit............................................ 57,272 45,071
OTHER
Sales....................................................... -- --
Operating (loss)............................................ (10,214) (13,779)
CONTINUING OPERATIONS
Sales....................................................... $1,525,339 $1,537,982
Operating profit............................................ $ 129,715 $ 179,858
The Company's Detection and Security Systems business (formerly included in
the Analytical Instruments segment) Telecommunications Components business and
Entertainment Lighting business (both formerly included in the Optoelectronics
segment) are presented as discontinued operations and, therefore, are not
included in the preceding table.
Additional information relating to the Company's operating segments is as
follows:
DEPRECIATION AND
AMORTIZATION EXPENSE CAPITAL EXPENDITURES
--------------------- ---------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(IN THOUSANDS)
Life Sciences.................................. $34,887 $17,719 $17,691 $16,239
Analytical Instruments......................... 17,952 21,172 32,295 3,881
Optoelectronics................................ 23,182 23,839 27,892 27,323
Fluid Sciences................................. 11,036 10,664 9,242 10,895
Other.......................................... 1,415 859 7,262 956
------- ------- ------- -------
Continuing operations.......................... $88,472 $74,253 $94,382 $59,294
======= ======= ======= =======
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TOTAL ASSETS
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS)
Life Sciences............................................... $1,051,667 $ 600,168
Analytical Instruments...................................... 591,752 726,109
Optoelectronics............................................. 471,193 462,616
Fluid Sciences.............................................. 121,040 123,096
Other....................................................... 550,117 169,204
Net current and long-term assets of discontinued
operations................................................ 184,169 179,567
---------- ----------
$2,969,938 $2,260,760
========== ==========
The following geographic area information for continuing operations
includes sales based on location of external customer and net property, plant
and equipment based on physical location:
2001 2000
---------- ----------
(IN THOUSANDS)
U.S. ....................................................... $ 731,053 $ 697,992
United Kingdom.............................................. 94,265 97,130
Germany..................................................... 93,117 99,342
Japan....................................................... 85,800 77,062
France...................................................... 51,814 51,788
Italy....................................................... 52,475 55,047
Other non-U.S. ............................................. 416,815 459,621
---------- ----------
$1,525,339 $1,537,982
========== ==========
NET PROPERTY, PLANT AND
EQUIPMENT
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS)
U.S. ....................................................... $160,523 $139,232
Canada...................................................... 35,203 19,051
Singapore................................................... 15,600 12,002
United Kingdom.............................................. 14,746 12,836
Philippines................................................. 7,960 8,646
China....................................................... 6,397 5,014
Other non-U.S. ............................................. 42,195 65,661
-------- --------
$282,624 $262,442
======== ========
64
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
23.1 Independent Auditors' Consent.
99.1 Press Release, dated November 29, 2002.
65
SIGNATURES
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 hereunto duly authorized.
PERKINELMER, INC.
Date: December 2, 2002 By: /s/ Robert F. Friel
-------------------------------
Robert F. Friel
Senior Vice President and
Chief Financial Officer
66
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
23.1 Independent Auditors' Consent.
99.1 Press Release, dated November 29, 2002.