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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended October 3, 1999, for PerkinElmer, Inc. (formerly EG&G, Inc.). The company is transitioning from a diversified industrial portfolio to a focused commercial high-technology enterprise. Key strategic milestones during this period include the divestiture of the Technical Services segment (classified as discontinued operations) and the acquisition of the Analytical Instruments Division (PEAI) from PE Corp. Effective October 26, 1999, the company began trading under the name PerkinElmer, Inc. (NYSE: PKI).

Key Financial Metrics

Note: Net Income is significantly influenced by a $106.3 million gain on the disposition of discontinued operations. Income from continuing operations was a loss of $5.8 million for the quarter and $0.5 million for the nine-month period.

Material Changes vs. Prior Period

• Revenue Growth: Sales from continuing operations increased 103% in the quarter and 51% for the nine months compared to the prior year. This growth was driven primarily by the PEAI acquisition ($179.9 million contribution in the quarter) and organic growth of approximately 9%.
• Operating Performance: Operating income from continuing operations declined from $10.2 million in Q3 1998 to a loss of $0.3 million in Q3 1999. This deterioration was caused by significant nonrecurring charges, including $7.4 million for inventory revaluation, $11.5 million in net restructuring charges, and $18.0 million in asset impairment charges.
• Discontinued Operations: The sale of the Technical Services segment generated a one-time net gain of $106.3 million, which drove the reported Net Income despite the loss in continuing operations.
• Debt Levels: Short-term debt increased to $319.7 million (from $157.9 million at year-end 1998) to finance acquisitions, including a $150 million note issued to PE Corp.

Guidance, Outlook, and Risks

• Restructuring Outlook: The company expects to incur $15 million to $20 million in cash outlays for Q3 1999 restructuring plans through fiscal 2000. These plans are projected to yield annual pre-tax cost savings of $12 million to $15 million.
• Capital Expenditures: Capital expenditures for fiscal 1999 are not expected to exceed $40 million.
• Tax Rate: Management expects the fiscal 1999 effective tax rate to approximate 32%, down from historical levels due to the revenue mix shift toward non-U.S. operations (PEAI).
• Year 2000 (Y2K) Readiness: The company reports that material remediation activities are complete. Estimated costs incurred through October 3, 1999, totaled $7.8 million. Remaining funding requirements are not considered significant.
• Subsequent Event: On October 5, 1999, the company announced an agreement to acquire Vivid Technologies, Inc. for approximately $63 million, expected to close in Q1 2000.
• Risks: Key risks include the integration of recent acquisitions, the impact of Y2K failures on third-party suppliers, and the volatility of foreign exchange rates.

Investor Verification Checklist

• Continuing vs. Discontinued Operations: Verify the distinction between the $103.8 million Net Income (driven by the $106.3 million divestiture gain) and the $5.8 million loss from continuing operations.
• Nonrecurring Charges: Assess the impact of the $23.0 million in-process R&D charge, $18.0 million asset impairment, and $11.5 million net restructuring charges on the true operating performance.
• Acquisition Integration: Monitor the integration progress of the PEAI and Lumen acquisitions, which drove revenue growth but also increased SG&A and restructuring costs.
• Debt Maturity: Review the $319.7 million short-term debt position, including the $150 million note to PE Corp, and the company's ability to refinance or pay down debt using operating cash flows.
• Segment Performance: Analyze the Instruments segment, which reported a $12.2 million operating loss in the quarter due to impairment and acquisition charges, despite strong revenue growth from PEAI.