Business context and reporting period
This filing is PerkinElmer, Inc.’s Form 10-K for the fiscal year ended December 28, 2014 (52 weeks), not a quarterly report. The supplied filing identifies PerkinElmer—not Revvity—as the registrant. PerkinElmer reported two segments: Human Health (diagnostics and research) and Environmental Health (environmental, industrial and laboratory services). It operated in more than 150 countries, with approximately 7,700 employees.
Financial performance and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $2.237 billion | $2.158 billion |
| Gross profit / margin | $1.005 billion / 44.9% | $976.1 million / 45.2% |
| Operating income / margin | $210.7 million / 9.4% | $227.8 million / 10.6% |
| Income from continuing operations | $161.2 million | $174.3 million |
| Net income | $157.8 million | $167.2 million |
| Diluted EPS | $1.39 | $1.47 |
| Cash from continuing operating activities | $282.3 million | $157.2 million |
- Revenue grew 4%: Human Health revenue increased 4% to $1.243 billion and Environmental Health revenue increased 4% to $993.8 million. International sales were $1.388 billion, described as approximately 60% of total sales.
- Gross margin declined 34 basis points. Management cited product mix, pricing pressure, foreign exchange and higher postretirement-plan mark-to-market losses, partly offset by volume and productivity initiatives.
- Operating income fell despite revenue growth, primarily reflecting a $75.9 million pretax postretirement-plan mark-to-market loss in FY2014 versus $17.6 million of pretax income in FY2013. Segment operating income rose to $220.2 million in Human Health and $109.1 million in Environmental Health; corporate operating loss widened to $118.6 million, principally due to the pension adjustment.
- Cash from continuing operations improved substantially. Investing activities used $297.5 million, including $271.5 million net for acquisitions and investments; capital expenditures were $29.1 million. Financing activities provided $30.9 million.
- Year-end cash was $174.8 million; total debt was approximately $1.053 billion, including $516.0 million drawn on the revolving facility, $497.7 million carrying value of 5% notes due 2021, and $39.3 million of financing-lease obligations. The company reported $171.8 million of additional revolver capacity and covenant compliance.
- Current assets were $1.069 billion and current liabilities $597.3 million. The company declared $0.28 per share in dividends for FY2014 and repurchased 1.4 million shares for $61.3 million under its repurchase programs.
Material changes versus the prior comparable period
- Revenue increased $79.6 million (4%), supported by diagnostics and laboratory services. Human Health growth was led by newborn and prenatal screening, infectious-disease testing and medical imaging; research growth was partly offset by academic-market weakness in Europe and patent expirations.
- Environmental Health growth came mainly from OneSource laboratory services; demand for some environmental and industrial products, particularly in Asian industrial markets, weakened.
- Operating income declined $17.1 million and net income declined $9.4 million. FY2014 included the adverse pension mark-to-market swing; FY2013 benefited from a $24.0 million discrete tax benefit, while FY2014’s effective tax rate on continuing operations was 5.0%.
- PerkinElmer acquired Perten Instruments for $269.9 million in cash in December 2014, plus two smaller businesses for $18.0 million cash and $4.3 million assumed debt. Perten’s purchase-price allocation remained preliminary.
- In January 2015, management announced that OneSource services for the life-sciences market would move from Environmental Health to Human Health for FY2015 reporting.
Outlook, risks and unusual items
- No numerical revenue or earnings guidance is provided. Management expected continued R&D investment in FY2015 and capital expenditures similar to FY2014, primarily for new products, process improvement, production shifts to lower-cost locations and information technology. FY2015 includes a 53rd week in the third quarter.
- Management cited opportunities from disease detection, contaminant regulations and laboratory-efficiency services, while identifying academic-market weakness, Asian industrial demand, pricing pressure and foreign-exchange movements as constraints.
- FY2014 restructuring and contract-termination charges were $13.4 million; management expected no significant future operating or cash-flow impact from those actions. A separate $1.0 million pretax restructuring charge related to the discontinued microarray laboratory was included in discontinued operations.
- The U.S. microarray-based diagnostic testing laboratory was shut down after inadequate payer reimbursement; discontinued operations reported a $3.4 million net loss after tax for FY2014. The company also settled long-running Enzo litigation: $7.0 million was paid into escrow, including $3.3 million charged in FY2014, plus $3.4 million of trial-preparation costs.
- Environmental remediation accruals were $12.3 million at year-end, generally expected to be paid over up to ten years. Management said ordinary-course legal contingencies were not expected to have a material adverse effect, but outcomes remain uncertain.
- Key risks include global economic and government-funding changes, product-development and competitive pressures, acquisition integration, limited-source suppliers, regulatory and product-liability exposure, foreign currency, pension assumptions, and debt and covenant constraints. Approximately $2.8 billion of net intangible assets and goodwill increases sensitivity to impairment assumptions.
- Approximately $170.3 million of cash was held by non-U.S. subsidiaries; management said $157.1 million could incur U.S. tax if transferred without proper planning. The company expected to meet U.S. liquidity needs from cash flows, domestic cash and borrowing.
Most important facts for investors to verify
- Confirm the issuer and period: this is PerkinElmer’s FY2014 10-K, not a Revvity filing or a standalone Q4 report.
- Assess normalized operating performance apart from the $75.9 million pension mark-to-market loss and compare segment results with the corporate allocation.
- Review cash conversion, acquisition spending and the integration and returns of Perten, including final purchase accounting.
- Monitor revolver utilization, variable-rate exposure, covenant headroom, pension contributions and the location and tax accessibility of cash.
- Track FY2015 segment comparability after the OneSource realignment, and the effects of the 53-week year, product mix, foreign exchange and market demand.
- Review remediation, tax and litigation contingencies, and the assumptions supporting goodwill and other intangible-asset valuations.