RVTY

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended January 2, 2000, for PerkinElmer, Inc. (formerly EG&G, Inc.). The company is a global technology provider serving telecom, medical, pharmaceutical, chemical, semiconductor, and photographic markets. During the reporting period, the company completed a strategic transformation, changing its name from EG&G, Inc. to PerkinElmer, Inc. in October 1999. The company operates through four continuing segments: Life Sciences, Optoelectronics, Instruments, and Fluid Sciences. The Technical Services segment was divested in August 1999 and is reported as discontinued operations.

Key Financial Metrics

Segment Performance (1999 Sales): Instruments ($607.3M), Optoelectronics ($412.6M), Fluid Sciences ($179.7M), and Life Sciences ($163.6M).

Material Changes vs. Prior Period

• Revenue Growth: Sales from continuing operations increased 60% to $1.36 billion, driven primarily by the acquisition of the Analytical Instruments Division of PE Corp. (PEAI) and the Lumen Technologies acquisition. Organic growth was 8%.
• Profitability: Reported operating income from continuing operations decreased to $66.7 million from $119.7 million in 1998. This decline was due to significant nonrecurring charges, including $23 million for in-process R&D, $18 million in asset impairments, and $11.5 million in net restructuring charges. On an adjusted basis (excluding nonrecurring items), operating profit increased 107% to $118.7 million.
• Net Income: Net income rose to $154.3 million, largely due to a $110.3 million after-tax gain on the disposition of the Technical Services segment (discontinued operations).
• Debt Levels: Short-term debt increased significantly to $382.2 million to fund acquisitions and working capital, compared to $157.9 million in 1998.

Guidance, Outlook, and Risks

Management Commentary: Management highlighted a successful transition to a high-technology commercial company. Adjusted EPS (excluding nonrecurring items and discontinued operations) increased 81% to $1.36. The company expects to incur $25-$30 million in cash outlays for restructuring plans in fiscal 2000, with anticipated annual savings of $27-$30 million once fully implemented.

Risks and Contingencies:

• Legal Proceedings: The company faces an IRS audit asserting $74 million in tax deficiencies for 1985-1994. It also faces civil false claims lawsuits related to former DOE contracts, though management believes these will not have a material impact.
• Environmental: The company has accrued $12.3 million for environmental remediation but notes that a material loss exceeding recorded amounts is reasonably possible.
• Integration: Success depends on integrating acquired businesses (PEAI, Lumen, Vivid) and executing restructuring plans.
• Market Risks: Exposure to foreign currency fluctuations and interest rate changes, though hedging strategies are in place.

Investor Verification Checklist

• Adjusted vs. Reported Earnings: Verify the sustainability of earnings by analyzing the "Adjusted" EPS ($1.36) versus reported EPS ($3.31), noting the heavy reliance on the one-time gain from the Technical Services divestiture.
• Acquisition Integration: Monitor the integration progress and cost synergies of the PEAI and Lumen acquisitions, which drove revenue growth but also incurred significant charges.
• Restructuring Execution: Track the cash outlays for restructuring ($25-$30M expected in 2000) and the realization of projected cost savings.
• Debt Management: Review the company's ability to service increased short-term debt levels ($382M) and the refinancing of credit facilities.
• Legal and Tax Exposure: Follow the status of the IRS tax dispute ($74M claim) and ongoing environmental remediation costs.