PerkinElmer Announces Financial Results for the Third Quarter of 2009
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WALTHAM, Mass.--(BUSINESS WIRE)-- PerkinElmer, Inc. (NYSE: PKI), a global leader focused on improving the health and safety of people and the environment, today reported financial results for the third quarter ended October 4, 2009. The Company reported GAAP earnings per share from continuing operations of $0.14, down from the same period a year ago, primarily due to restructuring charges in the third quarter of 2009 and the benefit of tax audit settlements in the same period a year ago. On a non-GAAP basis, which includes the adjustments noted in the attached reconciliation, the Company announced adjusted earnings per share of $0.30, exceeding the Company's prior guidance of $0.25-$0.27.
Revenue from continuing operations in the third quarter of 2009 was $437.1 million, a decrease of 9% as compared to the same period a year ago. Foreign exchange rates had an unfavorable impact of 2% and acquisitions had a favorable impact of 1%. Organic revenue, which includes the adjustments noted in the attached reconciliation, declined by 8% as compared to the third quarter of 2008. Revenue from continuing operations in the Human Health and Environmental Health segments decreased by 8% and 9%, respectively, as compared to the same period a year ago. As compared to the third quarter of 2008, organic revenue in the Human Health segment declined by 7% and organic revenue in the Environmental Health segment declined by 8%.
GAAP operating profit from continuing operations for the third quarter of 2009 was $26.4 million, as compared to $43.1 million for the same period a year ago. On a non-GAAP basis, which includes the adjustments noted in the attached reconciliation, adjusted operating profit was $54.6 million, as compared to $64.2 million in the third quarter of 2008.
GAAP earnings per share from continuing operations for the third quarter of 2009 was $0.14, as compared to $0.35 for the same period in 2008. On a non-GAAP basis, which includes the adjustments noted in the attached reconciliation, adjusted earnings per share was $0.30 as compared to $0.34 in the third quarter of 2008. Operating cash flow from continuing operations was $35.7 million in the third quarter of 2009, as compared to $22.3 million in the third quarter of 2008.
Financial Overview by Reporting Segment
Human Health reported revenue of $180.2 million for the third quarter of 2009. The segment's GAAP operating profit was $18.9 million, compared to $21.4 million for the same period a year ago. On a non-GAAP basis, which includes the adjustments noted in the attached reconciliation, the segment's adjusted operating profit was $34.2 million, as compared to $35.9 million in the third quarter of 2008. As a percentage of revenue, the segment's adjusted operating profit was 19.0%, an increase of approximately 80 basis points as compared to the third quarter of 2008.
During the third quarter of 2009, the Company acquired SYM-BIO LifeScience and Surendra Genetic Labs, which expanded the Company's maternal and newborn diagnostics business while increasing access to advanced health screening in China and India. Additionally, the Company purchased certain assets from GE Healthcare, solidifying its leading position in radiochemical research consumables.
Environmental Health reported revenue of $256.9 million for the third quarter of 2009. The segment's GAAP operating profit was $15.5 million, compared to $30.5 million for the same period a year ago. On a non-GAAP basis, which includes the adjustments noted in the attached reconciliation, the segment's adjusted operating profit was $28.3 million, as compared to $37.1 million in the third quarter of 2008. As a percentage of revenue, the segment's adjusted operating profit was 11.0%, a decrease of approximately 210 basis points as compared to the third quarter of 2008.
"The organization continues to perform very well through this difficult environment, improving our operational execution, while building a stronger company through introducing innovative new products and expanding our capabilities in key growth areas," said Robert Friel, Chairman and CEO of PerkinElmer. "Overall we believe our end markets are stabilizing and we are seeing some encouraging signs of sequential improvement."
Financial Guidance
For the full year 2009, the Company forecasts GAAP earnings per share from continuing operations in the range of $0.77 to $0.80 and, on a non-GAAP basis, which includes the adjustments noted in the attached reconciliation, adjusted earnings per share from continuing operations in the range of $1.23 to $1.26.
Conference Call Information
The Company will discuss its third quarter results and its outlook for business trends in a conference call on October 29, 2009 at 5:00 p.m. Eastern Time (ET). To access the call, please dial (617) 597-5376 prior to the scheduled conference call time and provide the access code 82595541. A replay of this conference call will be available approximately two hours after the call. The replay phone number is (617) 801-6888 and the code number is 33651295.
A live audio webcast of the call will be available on the Investor section of the Company's Web site, www.perkinelmer.com. Please go to the site at least 15 minutes prior to the call in order to register, download, and install any necessary software. An archived version of the webcast will be posted on the Company's Web site for a two week period beginning approximately two hours after the call.
Use of Non-GAAP Financial Measures
In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this earnings announcement also contains non-GAAP financial measures. The reasons that we use these measures, a reconciliation of these measures to the most directly comparable GAAP measures, and other information relating to these measures are included below following our GAAP financial statements.
Factors Affecting Future Performance
This press release contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements relating to estimates and projections of future earnings per share, cash flow and revenue growth and other financial results, developments relating to our customers and end-markets, and plans concerning business development opportunities. Words such as "believes," "intends," "anticipates," "plans," "expects," "projects," "forecasts," "will" and similar expressions, and references to guidance, are intended to identify forward-looking statements. Such statements are based on management's current assumptions and expectations and no assurances can be given that our assumptions or expectations will prove to be correct. A number of important risk factors could cause actual results to differ materially from the results described, implied or projected in any forward-looking statements. These factors include, without limitation: (1) markets into which we sell our products decline or do not grow as anticipated; (2) fluctuations in the global economic and political environments; (3) our failure to introduce new products in a timely manner; (4) our ability to execute acquisitions and license technologies, or to successfully integrate acquired businesses and licensed technologies into our existing business or to make them profitable; (5) our failure to adequately protect our intellectual property; (6) the loss of any of our licenses or licensed rights; (7) our ability to compete effectively; (8) fluctuation in our quarterly operating results and our ability to adjust our operations to address unexpected changes; (9) significant disruption in third-party package delivery and import/export services or significant increases in prices for those services; (10) disruptions in the supply of raw materials and supplies; (11) the manufacture and sale of products may expose us to product liability claims; (12) our failure to maintain compliance with applicable government regulations; (13) regulatory changes; (14) our failure to comply with healthcare industry regulations; (15) economic, political and other risks associated with foreign operations; (16) our ability to retain key personnel; (17) significant disruption in our information technology systems; (18) restrictions in our credit agreements; (19) our ability to realize the full value of our intangible assets; (20) significant fluctuations in our stock price; (21) reduction or elimination of dividends on our common stock; and (22) other factors which we describe under the caption "Risk Factors" in our most recent quarterly report on Form 10-Q and in our other filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release.
About PerkinElmer
PerkinElmer, Inc. is a global leader focused on improving the health and safety of people and the environment. The Company reported revenue of approximately $2 billion in 2008, has around 8,500 employees serving customers in more than 150 countries, and is a component of the S&P 500 Index. Additional information is available through www.perkinelmer.com or 1-877-PKI-NYSE.
PerkinElmer, Inc. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
Three Months Ended Nine Months Ended
(In thousands, September 28, September 28,
except per October 4, 2009 2008 October 4, 2009 2008
share data)
Sales $ 437,065 $ 478,747 $ 1,303,214 $ 1,442,432
Cost of sales 249,495 273,124 740,216 829,665
Research and
development 27,336 26,192 78,877 82,963
expenses
Selling,
general and 121,431 129,800 373,807 402,384
administrative
expenses
Restructuring
and lease 12,383 6,495 20,206 6,190
charges, net
Operating
income from 26,420 43,136 90,108 121,230
continuing
operations
Interest (124 ) (1,064 ) (777 ) (3,249 )
income
Interest 4,147 6,371 12,964 18,435
expense
Gains on
dispositions
of - - - (1,158 )
investments,
net
Other expense, 798 742 1,652 2,280
net
Income from
continuing
operations 21,599 37,087 76,269 104,922
before income
taxes
Provision for
(benefit from) 5,578 (4,596 ) 22,232 12,908
income taxes
Net income
from 16,021 41,683 54,037 92,014
continuing
operations
(Loss) income
from
discontinued (864 ) 2,075 (4,828 ) 2,747
operations,
net of income
taxes
(Loss) gain on
disposition of
discontinued (1,568 ) 8,144 (3,556 ) 985
operations,
net of income
taxes
Net income $ 13,589 $ 51,902 $ 45,653 $ 95,746
Diluted
earnings
(loss) per
share:
Continuing $ 0.14 $ 0.35 $ 0.46 $ 0.77
operations
(Loss) income
from
discontinued (0.01 ) 0.02 (0.04 ) 0.02
operations,
net of income
taxes
(Loss) gain on
disposition of
discontinued (0.01 ) 0.07 (0.03 ) 0.01
operations,
net of income
taxes
Net income $ 0.12 $ 0.43 $ 0.39 $ 0.80
Weighted
average
diluted shares 116,641 119,609 116,487 119,029
of common
stock
outstanding
ABOVE PREPARED IN ACCORDANCE WITH GAAP
Additional
Supplemental
Information:
(per share,
continuing
operations)
GAAP diluted
EPS from $ 0.14 $ 0.35
continuing
operations
Amortization
of intangible 0.08 0.08
assets, net of
income taxes
Purchase
accounting
adjustments, 0.01 0.00
net of income
taxes
Tax benefit
from audit - (0.12 )
settlements
Restructuring
and lease
charges, net 0.07 0.04
of income
taxes
Adjusted EPS $ 0.30 $ 0.34
PerkinElmer, Inc. and Subsidiaries
SALES AND OPERATING PROFIT (LOSS)
Three Months Ended Nine Months Ended
(In thousands) October 4, September October 4, September
2009 28, 2008 2009 28, 2008
Human Health Sales $ 180,197 $ 196,697 $ 542,311 $ 580,699
OP$ reported 18,890 21,392 55,646 52,854
OP% reported 10.5% 10.9% 10.3% 9.1%
Amortization
of intangible 9,958 10,311 29,964 30,718
assets
Purchase
accounting 967 482 2,050 2,771
adjustments
Restructuring
and lease 4,411 3,682 9,185 3,721
charges, net
OP$ adjusted 34,226 35,867 96,845 90,064
OP% adjusted 19.0% 18.2% 17.9% 15.5%
Environmental Sales 256,868 282,050 760,903 861,733
Health
OP$ reported 15,505 30,512 58,622 98,468
OP% reported 6.0% 10.8% 7.7% 11.4%
Amortization
of intangible 4,628 3,760 12,046 11,295
assets
Purchase
accounting 199 - 795 -
adjustments
Restructuring
and lease 7,972 2,813 11,021 2,469
charges, net
OP$ adjusted 28,304 37,085 82,484 112,232
OP% adjusted 11.0% 13.1% 10.8% 13.0%
Corporate OP$ reported (7,975) (8,768) (24,160) (30,092)
Continuing Sales $ 437,065 $ 478,747 $ 1,303,214 $ 1,442,432
Operations
OP$ reported 26,420 43,136 90,108 121,230
OP% reported 6.0% 9.0% 6.9% 8.4%
Amortization
of intangible 14,586 14,071 42,010 42,013
assets
Purchase
accounting 1,166 482 2,845 2,771
adjustments
Restructuring
and lease 12,383 6,495 20,206 6,190
charges, net
OP$ adjusted $ 54,555 $ 64,184 $ 155,169 $ 172,204
OP% adjusted 12.5% 13.4% 11.9% 11.9%
SALES AND REPORTED OPERATING PROFIT PREPARED IN ACCORDANCE WITH GAAP
PerkinElmer, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands) October 4, 2009 December 28, 2008 Current assets: Cash and cash equivalents $ 150,586 $ 179,110 Accounts receivable, net 348,399 327,636 Inventories, net 224,427 197,967 Other current assets 110,489 111,087 Current assets of discontinued operations 17,363 14,947 Total current assets 851,264 830,747 Property, plant and equipment, net: At cost 608,858 570,257 Accumulated depreciation (397,503 ) (365,843 ) Property, plant and equipment, net 211,355 204,414 Marketable securities and investments 2,190 3,459 Intangible assets, net 474,614 452,473 Goodwill 1,473,547 1,396,292 Other assets, net 41,370 38,760 Long-term assets of discontinued operations 4,446 5,622 Total assets $ 3,058,786 $ 2,931,767 Current liabilities: Short-term debt $ 146 $ 40 Accounts payable 158,957 169,447 Accrued restructuring and integration costs 17,585 5,904 Accrued expenses 318,952 323,815 Current liabilities of discontinued 17,288 17,036 operations Total current liabilities 512,928 516,242 Long-term debt 576,734 509,040 Long-term liabilities 364,267 335,354 Long-term liabilities of discontinued 3,099 3,188 operations Total liabilities 1,457,028 1,363,824 Commitments and contingencies Total stockholders' equity 1,601,758 1,567,943 Total liabilities and stockholders' equity $ 3,058,786 $ 2,931,767 PREPARED IN ACCORDANCE WITH GAAP
PerkinElmer, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Nine Months Ended
October 4, 2009 September 28, October 4, 2009 September 28,
2008 2008
(In
thousands)
Operating
activities:
Net income $ 13,589 $ 51,902 $ 45,653 $ 95,746
Add: loss
(income) from
discontinued 864 (2,075 ) 4,828 (2,747 )
operations,
net of income
taxes
Add: loss
(gain) on
disposition
of 1,568 (8,144 ) 3,556 (985 )
discontinued
operations,
net of income
taxes
Net income
from 16,021 41,683 54,037 92,014
continuing
operations
Adjustments
to reconcile
net income
from
continuing
operations
to net cash
provided by
continuing
operations:
Stock-based 2,641 5,399 10,806 13,671
compensation
Restructuring
and lease 12,383 6,495 20,206 6,190
charges, net
Amortization
of deferred 635 634 1,905 1,431
debt issuance
costs
Depreciation
and 23,196 22,517 67,075 66,433
amortization
Amortization
of acquired 285 - 500 -
inventory
revaluation
Gains on
dispositions, - - - (1,158 )
net
Changes in
operating
assets and
liabilities:
Accounts
receivable, (8,973 ) (14,097 ) (11,733 ) (6,898 )
net
Inventories, (2,210 ) (4,352 ) (16,326 ) (16,113 )
net
Accounts 2,180 (7,453 ) (12,543 ) (1,136 )
payable
Accrued
expenses and (10,504 ) (28,550 ) (20,063 ) (35,412 )
other
Net cash
provided by
operating 35,654 22,276 93,864 119,022
activities of
continuing
operations
Net cash
(used in)
provided by
operating (1,252 ) 10,131 (8,242 ) 8,247
activities of
discontinued
operations
Net cash
provided by 34,402 32,407 85,622 127,269
operating
activities
Investing
activities:
Capital (7,792 ) (13,726 ) (20,839 ) (31,622 )
expenditures
Changes in
restricted - 334 1,412 334
cash balances
Payments for
business - (12 ) - (160 )
development
activity
Proceeds from
disposition
of - - - 1,158
investments,
net
Payments for
acquisitions
and
investments, (73,468 ) (894 ) (122,690 ) (87,252 )
net of cash
and cash
equivalents
acquired
Net cash used
in investing
activities of (81,260 ) (14,298 ) (142,117 ) (117,542 )
continuing
operations
Net cash used
in investing
activities of (840 ) (291 ) (1,015 ) (1,864 )
discontinued
operations
Net cash used
in investing (82,100 ) (14,589 ) (143,132 ) (119,406 )
activities
Financing
Activities:
Payments on (92,000 ) (21,000 ) (277,611 ) (531,500 )
debt
Proceeds from 142,500 44,000 339,500 409,500
borrowings
Proceeds from
the sale of
senior - - - 150,000
subordinated
debt
Payments of
debt issuance - (128 ) (7 ) (1,969 )
costs
Settlement of
cash flow - - - (11,702 )
hedges
Proceeds from
(payments on) 2 (12 ) (79 ) (511 )
other credit
facilities
Tax benefit
from exercise 5 251 30 359
of common
stock options
Proceeds from
issuance of
common stock 183 25,067 2,262 43,435
under stock
plans
Purchases of (32 ) (56,731 ) (14,619 ) (57,139 )
common stock
Dividends (8,170 ) (8,318 ) (24,528 ) (24,805 )
paid
Net cash
provided by
(used in) 42,488 (16,871 ) 24,948 (24,332 )
financing
activities
Effect of
exchange rate
changes on 4,457 (5,590 ) 4,038 1,929
cash and cash
equivalents
Net decrease
in cash and (753 ) (4,643 ) (28,524 ) (14,540 )
cash
equivalents
Cash and cash
equivalents 151,339 193,451 179,110 203,348
at beginning
of period
Cash and cash
equivalents $ 150,586 $ 188,808 $ 150,586 $ 188,808
at end of
period
PREPARED IN ACCORDANCE WITH GAAP
PerkinElmer, Inc. and Subsidiaries
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
PKI
Three Months Ended
September 09 September 08
Adjusted gross margin:
GAAP gross margin $ 187.6 42.9 % $ 205.6 43.0 %
Amortization of intangible assets 9.5 2.2 % 9.5 2.0 %
Purchase accounting adjustments 0.5 0.1 % 0.5 0.1 %
Adjusted gross margin $ 197.5 45.2 % $ 215.6 45.0 %
Adjusted SG&A:
GAAP SG&A $ 121.4 27.8 % $ 129.8 27.1 %
Amortization of intangible assets (4.5 ) -1.0 % (4.1 ) -0.9 %
Purchase accounting adjustments (0.7 ) -0.2 % - 0.0 %
Adjusted SG&A $ 116.2 26.6 % $ 125.7 26.3 %
Adjusted R&D:
GAAP R&D $ 27.3 6.3 % $ 26.2 5.5 %
Amortization of intangible assets (0.5 ) -0.1 % (0.5 ) -0.1 %
Adjusted R&D $ 26.8 6.1 % $ 25.7 5.4 %
Adjusted operating profit:
GAAP operating profit $ 26.4 6.0 % $ 43.1 9.0 %
Amortization of intangible assets 14.6 3.3 % 14.1 2.9 %
Purchase accounting adjustments 1.2 0.3 % 0.5 0.1 %
Restructuring and lease charges, 12.4 2.8 % 6.5 1.4 %
net
Adjusted operating profit $ 54.6 12.5 % $ 64.2 13.4 %
PKI
Three Months Ended
September 09 September 08
Adjusted EPS:
GAAP EPS $ 0.12 $ 0.43
Discontinued operations (0.02 ) 0.09
GAAP EPS from continuing operations $ 0.14 $ 0.35
Amortization of intangible assets, 0.08 0.08
net of income taxes
Purchase accounting adjustments, 0.01 0.00
net of income taxes
Tax benefit from audit settlements - (0.12 )
Restructuring and lease charges, 0.07 0.04
net of income taxes
Adjusted EPS $ 0.30 $ 0.34
PKI
FY 09 FY 08
Adjusted EPS: Projected
GAAP EPS $ 0.70 - $0.73 $ 1.07
Discontinued operations (0.07 ) 0.01
GAAP EPS from continuing operations $ 0.77 - $0.80 $ 1.06
Amortization of intangible assets, 0.32 0.30
net of income taxes
Discontinuance of interest rate
contract related to acquisition - 0.09
financing, net of income taxes
Purchase accounting adjustments, 0.02 0.02
net of income taxes
Tax benefit from audit settlements - (0.12 )
Restructuring and lease charges, 0.12 0.04
net of income taxes
Adjusted EPS $ 1.23 - $1.26 $ 1.39
Human Health
Three Months Ended
September 09 September 08
Adjusted operating profit:
GAAP operating profit $ 18.9 10.5 % $ 21.4 10.9 %
Amortization of intangible assets 10.0 5.5 % 10.3 5.2 %
Purchase accounting adjustments 1.0 0.5 % 0.5 0.2 %
Restructuring and lease charges, 4.4 2.4 % 3.7 1.9 %
net
Adjusted operating profit $ 34.2 19.0 % $ 35.9 18.2 %
Environmental Health
Three Months Ended
September 09 September 08
Adjusted operating profit:
GAAP operating profit $ 15.5 6.0 % $ 30.5 10.8 %
Amortization of intangible assets 4.6 1.8 % 3.8 1.3 %
Purchase accounting adjustments 0.2 0.1 % - 0.0 %
Restructuring and lease charges, 8.0 3.1 % 2.8 1.0 %
net
Adjusted operating profit $ 28.3 11.0 % $ 37.1 13.1 %
PerkinElmer, Inc. and Subsidiaries
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
PKI
Q309
Organic revenue growth:
Reported revenue growth -9%
Less: effect of foreign exchange rates -2%
Less: effect of acquisitions 1%
Organic revenue growth -8%
Human Health
Q309
Organic revenue growth:
Reported revenue growth -8%
Less: effect of foreign exchange rates -2%
Less: effect of acquisitions 1%
Organic revenue growth -7%
Environmental Health
Q309
Organic revenue growth:
Reported revenue growth -9%
Less: effect of foreign exchange rates -2%
Less: effect of acquisitions 1%
Organic revenue growth -8%
Organic Revenue and Organic Revenue Growth
We use the term "organic revenue" to refer to GAAP revenue, excluding the effect of foreign currency translation and acquisitions. We use the related term "organic revenue growth" to refer to the measure of comparing current period organic revenue with the corresponding period of the prior year. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better measure the performance of our investments in technology, to evaluate the long-term performance trends and to assess our ability to invest in the business. Organic revenue growth also provides for easier comparisons of our performance with prior and future periods and relative comparisons to our peers. We exclude the effect of foreign currency translation from these measures because foreign currency translation is subject to volatility and can obscure underlying trends. We exclude the effect of acquisitions because acquisition activity can vary dramatically between reporting periods and between us and our peers, which we believe makes comparisons of long-term performance trends difficult for management and investors, and could result in overstating or understating to our investors the performance of our operations.
Adjusted Gross Margin and Adjusted Gross Margin Percentage
We use the term "adjusted gross margin" to refer to GAAP gross margin, excluding amortization of intangible assets, and inventory fair value adjustments related to business acquisitions, and including estimated revenue from contracts acquired in the acquisition of ViaCell, Inc., or ViaCell, that will not be fully recognized due to business combination accounting rules. We use the related term "adjusted gross margin percentage" to refer to adjusted gross margin as a percentage of GAAP revenue. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better measure the performance of our investments in technology, to evaluate the long-term profitability trends and to assess our ability to invest in the business. We exclude amortization of intangible assets from these measures because intangibles amortization charges do not represent what our management and what we believe our investors consider to be costs of producing our products and could distort the additional value generated over the cost of producing those products. In addition, inventory fair value adjustments related to business acquisitions charges also do not represent what our management and what we believe our investors consider to be costs used in producing our products. We include estimated revenue from contracts acquired in the ViaCell acquisition that will not be fully recognized because our GAAP revenue for the periods subsequent to our acquisition do not reflect the full amount of storage revenue on these contracts that would have otherwise been recorded by ViaCell. The non-GAAP adjustment is intended to reflect the full amount of such revenue. Our management and we believe our investors will use this adjustment as a measure of the ongoing performance of the ViaCell business because customers have historically renewed these contracts, although there can be no assurance that customers will do so in the future.
Adjusted Selling, General and Administrative (SG&A) Expense and Adjusted SG&A Percentage
We use the term "adjusted SG&A expense" to refer to GAAP SG&A expense, excluding amortization of intangible assets, and contingent consideration and other costs related to business acquisitions. We use the related term "adjusted SG&A percentage" to refer to adjusted SG&A expense as a percentage of GAAP revenue. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better measure the cost of the internal operating structure, our ability to leverage that structure and the level of investment required to grow our business. We exclude amortization of intangible assets and contingent consideration and other costs related to business acquisitions from these measures because intangibles amortization charges and contingent consideration and other costs related to business acquisitions do not represent what our management and what we believe our investors consider to be costs that support our internal operating structure and could distort the efficiencies of that structure.
Adjusted Research and Development (R&D) Expense and Adjusted R&D Percentage
We use the term "adjusted R&D expense" to refer to GAAP R&D expense, excluding amortization of intangible assets. We use the related term "adjusted R&D percentage" to refer to adjusted R&D expense as a percentage of GAAP revenue. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to better understand and evaluate our internal technology investments. We exclude amortization of intangible assets from these measures because intangibles amortization charges do not represent what our management and what we believe our investors consider to be internal investments in R&D activities and could distort our R&D investment level.
Adjusted Operating Profit and Adjusted Operating Profit Margin
We use the term "adjusted operating profit" to refer to GAAP operating profit, excluding amortization of intangible assets, inventory fair value adjustments related to business acquisitions, contingent consideration and other costs related to business acquisitions, and restructuring and lease charges, and including estimated revenue from contracts acquired in the ViaCell acquisition that will not be fully recognized due to business combination accounting rules. Adjusted operating profit is calculated by subtracting adjusted R&D expense, adjusted SG&A expense, and restructuring and lease charges from adjusted gross margin. We use the related term "adjusted operating profit margin" to refer to adjusted operating profit as a percentage of GAAP revenue. We believe that these non-GAAP measures, when taken together with our GAAP financial measures, allow us and our investors to analyze the costs of the different components of producing and selling our products, to better measure the performance of our internal investments in technology and to evaluate the long-term profitability trends of our core operations. Adjusted operating profit also provides for easier comparisons of our performance and profitability with prior and future periods and relative comparisons to our peers. We believe our investors do not consider the items that we exclude from adjusted operating profit to be costs of producing our products, investments in technology and production, and costs to support our internal operating structure, and so we present this non-GAAP measure to avoid overstating or understating to our investors the performance of our operations. We exclude restructuring and lease charges because they tend to occur due to an acquisition, divestiture, repositioning of the business or other unusual event that could distort the performance measures of our internal investments and costs to support our internal operating structure. We include estimated revenue from contracts acquired in the ViaCell acquisition that will not be fully recognized because our GAAP revenue for the periods subsequent to our acquisition do not reflect the full amount of storage revenue on these contracts that would have otherwise been recorded by ViaCell. The non-GAAP adjustment is intended to reflect the full amount of such revenue. Our management and we believe our investors will use this adjustment as a measure of the ongoing performance of the ViaCell business because customers have historically renewed these contracts, although there can be no assurance that customers will do so in the future.
Adjusted Earnings per Share
We use the term "adjusted earnings per share," or "adjusted EPS," to refer to GAAP earnings per share, excluding discontinued operations, amortization of intangible assets, inventory fair value adjustments related to business acquisitions, contingent consideration and other costs related to business acquisitions, restructuring and lease charges, and income from significant tax audit settlements, and including estimated revenue from contracts acquired in the ViaCell acquisition that will not be fully recognized due to business combination accounting rules. Adjusted earnings per share is calculated by subtracting adjusted R&D expense, adjusted SG&A expense, restructuring and lease charges, other income/expense and provision for taxes from adjusted gross margin. We believe that this non-GAAP measure, when taken together with our GAAP financial measures, allows us and our investors to analyze the costs of producing and selling our products and the performance of our internal investments in technology and our internal operating structure, to evaluate the long-term profitability trends of our core operations and to calculate the underlying value of the core business on a dilutive share basis, which is a key measure of the value of the Company used by our management and we believe used by investors as well. Adjusted earnings per share also facilitates the overall analysis of the value of the Company and the core measure of the success of our operating business model as compared to prior and future periods and relative comparisons to our peers. We exclude discontinued operations, amortization of intangible assets, inventory fair value adjustments related to business acquisitions, contingent consideration and other costs related to business acquisitions, restructuring and lease charges and income from significant tax audit settlements, as these items do not represent what our management and what we believe our investors consider to be costs of producing our products, investments in technology and production, and costs to support our internal operating structure, which could result in overstating or understating to our investors the performance of our operations. We include estimated revenue from contracts acquired in the ViaCell acquisition that will not be fully recognized because our GAAP revenue for the periods subsequent to our acquisition do not reflect the full amount of storage revenue on these contracts that would have otherwise been recorded by ViaCell. The non-GAAP adjustment is intended to reflect the full amount of such revenue. Our management and we believe our investors will use this adjustment as a measure of the ongoing performance of the ViaCell business because customers have historically renewed these contracts, although there can be no assurance that customers will do so in the future.
***
The non-GAAP financial measures described above are not meant to be considered superior to, or a substitute for, our financial statements prepared in accordance with GAAP. There are material limitations associated with non-GAAP financial measures because they exclude charges that have an effect on our reported results and, therefore, should not be relied upon as the sole financial measures to evaluate our financial results. Management compensates and believes that investors should compensate for these limitations by viewing the non-GAAP financial measures in conjunction with the GAAP financial measures. In addition, the non-GAAP financial measures included in this earnings announcement may be different from, and therefore may not be comparable to, similar measures used by other companies.
Each of the non-GAAP financial measures listed above are also used by our management to evaluate our operating performance, communicate our financial results to our Board of Directors, benchmark our results against our historical performance and the performance of our peers, evaluate investment opportunities including acquisitions and discontinued operations, and determine the bonus payments for senior management and employees.
Source: PerkinElmer, Inc.
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