SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 333-24001
PACKARD BIOSCIENCE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 06-0676652
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 RESEARCH PARKWAY, MERIDEN, CONNECTICUT 06450
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 203-238-2351
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)has been subject to
such filing requirements for the past 90 days. YES [ X ] NO [ ]
Shares of Common Stock Outstanding at May 11, 1998:
9,154,869
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997
Condensed Consolidated Statements of Income (Loss) and Comprehensive
Income (Loss) for the Three and Six Months Ended June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 and DECEMBER 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 DECEMBER 31, 1997
------ ------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,074 $ 10,575
Accounts receivable, net 39,692 40,688
Inventories, net 30,284 27,538
Other current assets 6,837 6,242
-------- --------
Total current assets 87,887 85,043
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 35,787 33,160
Less - accumulated depreciation 16,851 15,240
-------- --------
18,936 17,920
-------- --------
OTHER ASSETS:
Goodwill, net 10,319 9,498
Deferred financing costs, net 9,118 9,891
Investments 2,915 8,216
Other 11,739 10,083
-------- --------
34,091 37,688
-------- --------
TOTAL ASSETS $140,914 $140,651
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES:
Notes payable $ 1,270 $ 1,929
Current portion of long-term obligations 1,486 1,794
Accounts payable 14,605 13,995
Accrued liabilities 19,374 21,142
Deferred income 13,177 11,616
Income taxes payable 2,980 2,302
-------- --------
Total current liabilities 52,892 52,778
-------- --------
LONG-TERM OBLIGATIONS, net of current portion:
Notes and other long-term obligations 6,425 6,320
Term loan and credit facility 41,200 39,400
Senior subordinated notes 150,000 150,000
-------- --------
Total long-term obligations, net 197,625 195,720
-------- --------
DEFERRED INCOME TAXES 2,207 4,167
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Cumulative translation adjustment (779) (344)
Unrealized investment gains, net of taxes 19 2,885
-------- --------
Accumulated other comprehensive income (760) 2,541
Common stock 137 137
Deficit (10,058) (10,220)
-------- --------
(10,681) (7,542)
Less: Treasury stock, at cost 100,215 103,448
Deferred compensation 914 1,024
-------- --------
Total stockholders' deficit (111,810) (112,014)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $140,914 $140,651
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 53,995 $ 45,142 $102,551 $ 87,702
COST OF SALES 26,778 21,383 49,620 40,869
--------- --------- -------- ---------
GROSS PROFIT 27,217 23,759 52,931 46,833
RESEARCH AND DEVELOPMENT
EXPENSES 5,659 5,322 12,554 10,373
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 13,373 11,568 24,763 22,742
ACQUIRED IN-PROCESS RESEARCH AND
DEVELOPMENT CHARGE (Note 4) 0 0 5,540 0
RECAPITALIZATION CHARGE (Note 3) 0 0 0 17,979
--------- --------- -------- ---------
OPERATING PROFIT (LOSS) 8,185 6,869 10,074 (4,261)
INTEREST EXPENSE, NET (4,928) (4,625) (9,855) (6,135)
REALIZED INVESTMENT GAINS 960 0 3,133 0
--------- --------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 4,217 2,244 3,352 (10,396)
PROVISION FOR (BENEFIT FROM)
INCOME TAXES 1,150 927 1,923 (2,207)
--------- --------- -------- ---------
NET INCOME (LOSS) 3,067 1,317 1,429 (8,189)
--------- --------- -------- ---------
Other comprehensive income (loss):
Unrealized investment loss (470) 0 (1,018) 0
Foreign currency translation adjustments 42 167 (435) 1,579
--------- --------- -------- ---------
Other comprehensive income (loss) (428) 167 (1,453) 1,579
--------- --------- -------- ---------
COMPREHENSIVE INCOME (LOSS) $ 2,639 $ 1,484 $ (24) $ (6,610)
========= ========= ========= ==========
Basic weighted average common shares
outstanding 9,137,887 8,776,817 9,082,439 15,426,226
Basic Earnings (Loss) Per Share $0.34 $0.15 $0.16 $(0.53)
Diluted Earnings (Loss) Per Share $0.32 $0.15 $0.15 $(0.53)
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income (loss) $ 1,429 $(8,189)
Adjustments to reconcile net income (loss) to
net cash from (used for) operating activities:
Depreciation and amortization of intangibles 4,040 3,039
Amortization of deferred financing costs 773 515
Acquired in-process research and development
charge 5,540 0
Amortization of acquired inventory step-up 1,000 0
Realized investment gains (3,133) 0
Other non-cash charges, net (194) 3,733
Changes in operating assets and liabilities (3,544) 3,058
------- -------
Net cash from operating activities 5,911 2,156
------- -------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Purchase of minority interest in subsidiary 0 (7,551)
Acquisition of a businesses, net of cash acquired (4,505) 0
Investments in equity securities and ventures (487) 0
Proceeds from sale of investments 4,137 0
Capital expenditures, net (2,390) (1,674)
Product lines, patent rights and licenses acquired (3,041) (1,256)
------- -------
Net cash used for investing activities (6,286) (10,481)
------- -------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Borrowings under long-term obligations 16,500 194,710
Repayments of long-term obligations (15,747) (4,272)
Purchase of treasury stock (11) (208,847)
Sale of stock 461 21,050
Proceeds from exercise of stock options 35 8,330
Recapitalization costs deferred or charged to
equity 0 (15,295)
------- -------
Net cash from (used for) investing activities 1,238 (4,324)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (364) (1,709)
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 499 (14,358)
CASH AND CASH EQUIVALENTS, beginning of period 10,575 37,826
------- -------
CASH AND CASH EQUIVALENTS, end of period $11,074 $23,468
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
The condensed consolidated financial statements and related notes included
herein have been prepared by Packard BioScience Company ("the Company") without
audit, except for the December 31, 1997, condensed consolidated balance sheet
which was derived from the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures which normally accompany financial statements prepared in
accordance with generally accepted accounting principles have been omitted from
the accompanying condensed consolidated financial statements, as permitted by
the Securities and Exchange Commission's rules and regulations. The Company
believes that the accompanying disclosures and notes are adequate to make the
financial statements not misleading. Such financial statements reflect all
adjustments which are normal and recurring and, in the opinion of management,
necessary for a fair presentation of the results of operations and financial
position of the Company for the periods reported herein.
Note 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements have been prepared in accordance with the
accounting policies described in Note 1 to the consolidated financial
statements included in the Company's 1997 Form 10-K. The Company's practices
of recognizing assets, liabilities, revenues, expenses and other transactions
which impact the accompanying financial information are consistent with such
note.
Note 2. INVENTORIES:
Inventories consisted of the following at June 30, 1998, and December 31, 1997
(in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Raw materials and parts $15,740 $14,908
Work in process 2,511 1,995
Finished goods 14,310 12,556
------- -------
32,561 29,459
Excess and obsolete reserve (2,277) (1,921)
------- -------
$30,284 $27,538
======= =======
</TABLE>
Note 3. 1997 RECAPITALIZATION:
Refer to Note 11 to the 1997 consolidated financial statements included in the
Company's 1997 Form 10-K for a detailed description of the Recapitalization of
the Company which occurred in March 1997 ("the Recapitalization").
Note 4. ACQUISITIONS:
On September 3, 1997, the Company acquired all of the outstanding common stock
of Aquila Technologies Group, Inc. ("Aquila"), a manufacturer and distributor
of surveillance cameras, electronic seals and other equipment utilized in the
safeguarding of nuclear materials and an OEM manufacturer of process control
equipment. The Company acquired Aquila for approximately $6.7 million in cash
with additional future payments to be made contingent upon post-acquisition
operating results ("Aquila Contingent Payments") through calendar year 2000 up
to a maximum of $10.4 million in additional payments. An additional
$1.7 million was earned as Aquila Contingent Payments during the period since
acquisition through June 30, 1998, and $8.7 million in additional payments may
still be made. The Aquila Contingent Payments are reflected as an increase in
goodwill.
On March 31, 1998, the Company acquired all of the outstanding common stock of
Carl Creative Systems, Inc. (now known as "CCS Packard, Inc.") ("CCS"), a
developer, manufacturer and distributor of high throughput liquid handling
systems used in the life science, in-vitro diagnostics and pharmaceutical drug
discovery markets. The Company issued 108,883 common shares of the Company
(valued at $13.96 per share) and paid $6.3 million in cash, including costs
incurred in connection with the acquisition. The acquisition resulted in a
charge of $5.54 million to write-off the appraisal value of acquired in-process
research and development which had not reached technological feasibility and had
no probable alternative future uses. In addition, the acquisition resulted in
a one-time charge of $1.0 million during the three months ended June 30, 1998,
associated with the write-off of the step-up in acquired inventory which was
recorded at fair value at the date of acquisition. Additional contingent
payments, up to a maximum of $18.7 million, may be made through the year 2002,
contingent upon CCS achieving certain post-acquisition operating performance
levels through calendar 2001 ("CCS Contingent Payments" and collectively with
the Aquila Contingent Payments, the "Contingent Payments").
Both acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the purchase prices have been allocated to the
assets purchased and the liabilities assumed based upon the fair values at the
dates of acquisition. The excess of the purchase price of Aquila and CCS, in
the aggregate, over the fair values of the net assets acquired was
approximately $6.7 million (including the Aquila Contingent Payment referred to
above) and has been reflected as goodwill in the accompanying condensed
consolidated balance sheets. As future Contingent Payments are made, the
related goodwill will increase. The goodwill associated with these
acquisitions is being amortized on a straight-line basis over a period of
20 years from the initial acquisition dates.
The operating results of Aquila and CCS have been reflected in the accompanying
condensed consolidated statements of income (loss) since the dates of
acquisition. The following unaudited consolidated information is presented on
a pro forma basis, as if the acquisitions had occurred as of the beginning of
the periods presented. In the opinion of management, the pro forma information
reflects all adjustments necessary for a fair presentation. The pro forma
adjustments primarily consist of: addback of nonrecurring charges taken in
connection with the CCS acquisition associated with in-process research and
development costs and acquired inventory step-up writeoff, amortization of
goodwill associated with the acquisitions, adjustments to certain historical
Aquila and CCS compensation levels to be more indicative of post-acquisition
levels, additional interest expense relating to the financing of the
acquisitions, and the related income tax effects, if any, of the above.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 53,995 $ 50,681 $104,593 $ 97,545
Operating profit (loss) $ 9,175 $ 8,057 $ 17,048 $ (2,584)
Net income (loss) $ 3,954 $ 2,242 $ 8,213 $ (7,011)
Basic earnings (loss) per share $ 0.43 $ 0.25 $ 0.90 $ (0.45)
</TABLE>
Note 5. EARNINGS PER SHARE:
In computing diluted earnings per share, outstanding stock options were
factored into the determination of weighted average common shares outstanding
to the extent they had a dilutive effect on earnings per share. During the
six month period ending June 30, 1997, stock options were not factored into the
determination of weighted average common shares outstanding as their effect
would be anitdilutive in light of the net loss incurred during such period.
Note 6. STOCK DIVIDEND:
In May 1997, the Company's Board of Directors declared a one-for-one stock
dividend on all outstanding common shares. All historical share and per share
information, with the exception of treasury shares, have been restated to
reflect the effect of this stock dividend.
Note 7. NEW ACCOUNTING STANDARD:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") which establishes the
accounting and reporting standards for derivative instruments and for hedging
activities. The Company purchases forward contracts to cover foreign exchange
fluctuation risks on intercompany sales to certain of its foreign operations.
Such contracts qualify as foreign currency cash flow hedges under SFAS No. 133
and, as such, require that gains and losses on such contracts be presented as a
component of comprehensive income. SFAS No. 133 is effective for the Company
commencing January 1, 2000. This statement is not expected to have not have a
material effect on the Company's operating results or financial position.
Note 8. SUBSEQUENT EVENT - BIOSIGNAL, INC. ACQUISITION:
On July 7, 1998, the Company acquired BioSignal, Inc., a biotechnology company
located in Montreal, Canada which is involved in the development and
commercialization of cloned drug targets as drug screening reagents for use in
pharmaceutical and biotechnology research. The Company, which held a 19%
ownership interest in BioSignal prior to the acquisition, purchased the
remaining 81% interest for approximately $11.0 million, which includes
liabilities assumed and shares of the Company to be issued. The acquisition
will be accounted for under the purchase accounting method. The accompanying
financial statements do not reflect the acquisition.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
This report contains statements which constitute "forward-looking" statements
and are prospective. In addition, the Company may occasionally make forward-
looking statements and estimates such as forecasts and projections of the
Company's future performance and statements of managements' plans and
objectives. These forward-looking statements may be contained in, among other
things, filings with the Securities and Exchange Commission and press releases
made by the Company, and oral and written statements made by officers of the
Company. Many factors could cause actual results to differ materially from
these statements. These factors include, but are not limited to, (1) loss of
market share through competition, (2) dependence on customers' capital spending
policies and government funding, (3) limited source supply of key raw materials,
(4) reliance on, and ability to protect, key patents and intellectual property,
(5) complexity and technological feasibility of research and development and
new product introductions, (6) decline in utilization of products and
technology, (7) stability of economies overseas and fluctuating foreign
currencies, (8) changes in environmental laws and regulations, (9) loss of key
employees, and (10) other factors which might be described from time to time in
the Company's filings with the Securities and Exchange Commission. As a result,
there can be no assurances that the forward-looking statements will be achieved.
GENERAL
The Company is a leading developer, manufacturer and marketer of analytical
instruments and related products and services for use in the drug discovery and
molecular biology segments of the life sciences industry and in nuclear
research, safeguarding and environmental remediation. Through Packard
Instrument Company, Inc., a wholly-owned subsidiary, and several other wholly-
owned subsidiaries (collectively, "Packard"), the Company supplies
bioanalytical instruments, and related biochemical supplies and services, to
the drug discovery, genomics and molecular biology markets, and through certain
divisions and wholly-owned subsidiaries comprising Canberra Industries
("Canberra"), the Company manufactures analytical instruments used to detect,
identify and quantify radioactive materials for the nuclear industry and
related markets.
RESULTS OF OPERATIONS (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
% Inc. % Inc.
1998 1997 (DEC.) 1998 1997 (DEC.)
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Total revenues:
Packard $35.6 $31.4 13.4% $65.3 $60.8 7.3%
Canberra 18.4 13.7 33.8% 37.3 26.9 38.8%
----- ----- ----- ----- ----- -----
54.0 45.1 19.6% 102.6 87.7 16.9%
----- ----- ----- ----- ----- -----
Gross profit:
Packard 18.3 17.2 6.8% 34.5 33.6 2.6%
Canberra 8.9 6.6 34.5% 18.4 13.2 39.5%
----- ----- ----- ----- ----- -----
27.2 23.8 14.6% 52.9 46.8 13.0%
----- ----- ----- ----- ----- -----
Operating expenses:
Research and development 5.7 5.3 6.3% 12.5 10.4 21.0%
Selling, general and administrative 13.4 11.6 15.6% 24.8 22.7 8.9%
In-process research and development
charge - - - 5.5 - N/A
Recapitalization charge - - - - 18.0 N/A
----- ----- ----- ----- ----- -----
Operating profit (loss) 8.1 6.9 19.2% 10.1 (4.3) N/A
Interest expense, net (4.9) (4.7) 6.6% (9.8) (6.1) N/A
Realized investment gains 1.0 - N/A 3.1 N/A
----- ----- ----- ----- ----- -----
Income (loss) before income taxes 4.2 2.2 87.9% 3.4 (10.4) N/A
Provision for (benefit from) income
taxes 1.1 0.9 24.1% 1.9 (2.2) N/A
----- ----- ------ ----- ----- -----
Net income (loss) $ 3.1 $ 1.3 132.9% $ 1.4 $(8.2) N/A
----- ----- ------ ----- ----- -----
</TABLE>
<PAGE>
Excluding the impact of changes in foreign currency exchange rates,
consolidated total revenues would have been $0.8 million and $1.9 million
higher for the three months and six months ended June 30, 1998, respectively.
The 1998 periods reflect the operating results of Aquila Technologies Group,
Inc. ("Aquila"), which was acquired on September 3, 1997. In addition, the
three month period ended June 30, 1998, reflects the operating results of Carl
Creative Systems, Inc. ("CCS"), which was acquired on March 31, 1998. Aquila's
post-acquisition operating results are included with those of Canberra; CCS'
post-acquisition operating results are included with those of Packard. Both
companies are included in the Company's consolidated operating results since
their respective dates of acquisition. Selected operating information
associated with Aquila and CCS during the periods presented in the accompanying
financial statements are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------------ ----------------
<S> <C> <C>
Net Sales -
Aquila $ 3,867 $ 8,134
CCS $ 4,516 $ 4,516*
Operating Profit -
Aquila $ 1,015 $ 2,267
CCS $ 2,344 $ 2,344*
</TABLE>
* Represents results from date of acquisition (March 31, 1998).
Packard's sales increased approximately $4.2 million and $4.4 million in the
three-month and six-month periods ended June 30, 1998, respectively, in
comparison with the prior year periods. The increases were due to the
inclusion of CCS in 1998. The stronger U.S. dollar caused sales during the
first six months of 1998 to be $1.3 million lower than they would have been had
exchange rates been the same as during the comparable 1997 period. Lower sales
volume at many overseas locations also contributed to the decline, particularly
at Packard's Japanese subsidiary ("PJKK") where sales decreased approximately
$0.3 million and $1.4 million (exclusive of the impact of the stronger U.S.
dollar) in the second quarter and year-to-date 1998 periods, respectively, as
compared with the same periods in 1997. These decreases were offset by strong
growth in sales of Packard's domestic operations which increased by
approximately $1.8 million, excluding CCS, during the six months ended June 30,
1998, as compared with 1997.
Canberra's increased sales in 1998 are due primarily to the acquisition of
Aquila in September 1997 and growth in the instruments and detectors
businesses. The strengthening U.S. dollar unfavorably impacted Canberra's
sales by approximately $0.6 million during the six months ended June 30, 1998,
when compared to results calculated by applying exchange rates in effect during
the comparable 1997 period.
The Company's gross profit increased 14.6% and 13.0% during the three months
and six months ended June 30, 1998, respectively, as compared to the
corresponding 1997 periods. These increases are attributable primarily to the
acquisition of Aquila in September 1997 and CCS in March 1998. These increases
were partially offset by lower margins generated at certain overseas locations
as well as the unfavorable impact of the stronger U.S. dollar. In addition,
gross profit during the three months ended June 30, 1998, reflects a one-time
charge of $1.0 million associated with the write-off of acquired CCS inventory
which was recorded at fair market value at the date of acquisition under
purchase accounting requirements.
Research and development spending, as a percentage of net sales, was relatively
consistent between 1998 and 1997 (ranging from 10.5% to 12.2%). Excluding
Aquila and CCS from the 1998 year-to-date period, research and development
spending, as a percentage of net sales, was approximately 13.2%. Research and
development spending, in terms of total dollars, has increased in 1998 in
comparison with 1997, reflecting the Company's continued commitment to new
product development and enhancement of its existing product lines. In
addition, the 1998 amount reflects the recognition of approximately
$1.0 million of costs related to a project which was canceled in the first
quarter of 1998.
Selling, general and administrative expenses were up slightly during 1998, as
compared to 1997, due primarily to the inclusion of Aquila and CCS (since March
31, 1998), partially offset by the effect of the stronger U.S. dollar. As a
percentage of net sales, such expenses are down in 1998 compared with 1997.
During the first quarter of 1998, the Company recorded a $5.5 million charge
associated with the writeoff of in-process research and development ("R&D")
acquired in connection with the Company's purchase of CCS. The charge
represents that portion of the purchase price which was assigned to the
acquired R&D through purchase accounting as determined by an independent
appraisal.
In March of 1997, the Company recorded an $18.0 million charge associated with
the Recapitalization (refer to the Company's 1997 Form 10-K).
Consolidated operating profit of $ $8.2 million and $10.1 million for the three
months and six months ended June 30, 1998 compares with $6.9 million and ($4.3)
million during the corresponding 1997 periods. Excluding the effects of the
1998 charges associated with the CCS acquired research and development and
acquired inventory, and the 1997 Recapitalization charge, operating profit
increased $2.9 million during the six months ended June 30, 1998 period, as
compared to corresponding 1997 period, due primarily to the acquisitions of
Aquila and CCS, partially offset by the increased research and development
spending and the stronger U.S. dollar in 1998.
The increase in interest expense, net during 1998 is a direct result of the
funds used in connection with the Recapitalization effective March 4, 1997
(refer to the 1997 Form 10-K) and increased indebtedness associated with
acquisitions of Aquila and CCS.
During the six months ended June 30, 1998, the Company sold a portion of the
marketable equity investment it holds in a publicly traded company. In
connection with such sales, the Company has realized gains aggregating
approximately $3.1 million.
For the six months ended June 30, 1998, the consolidated effective tax rate
was a provision of 57.4% compared to a 21.7% benefit during the same period in
1997. The 1998 effective rate reflects:
a) income taxes provided on taxable income generated overseas;
b) no tax benefit on the writeoff of acquired in-process R&D; and
c) no provision for federal income taxes being provided on domestically
generated taxable income in light of the Company's net operating loss
carryforward position generated in 1997.
The 1997 benefit reflected the tax benefit provided on a portion of the
Recapitalization charges offset by taxes provided on income generated in high
tax countries such as Japan.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated sufficient cash flow from operations to
meet its working capital requirements as well as to fund capital expenditures,
debt service and equity transactions such as dividend payments and stock
repurchases. In connection with the Recapitalization, the Company increased
its long-term indebtedness by $190.0 million and, as a result, debt service
requirements have increased significantly as compared to historical levels.
The Company has, as of August 7, 1998, $62 million of funds available under a
revolving credit facility secured as part of the Recapitalization. Monies
available under this credit facility are subject to certain restrictions and
provisions contained therein. Refer to the 1997 Form 10-K for a detailed
description of the Recapitalization including the related indebtedness and
repayment terms and conditions. Prior to the time at which significant levels
of principal on the term loan and subordinated notes becomes due in fiscal
2002, the Company will evaluate and identify the most advantageous options
available to service such debt. Options may include refinancing such principal
under potentially new terms and conditions or repaying such debt through funds
obtained through other sources or means. However, there can be no assurance
that any new financing will be available or that the terms thereof will be
favorable to the Company.
The Company expects to generate adequate cash from operations to meet most of
its working capital needs as well as to provide for necessary debt service
requirements during the next several years. The Company can and will borrow
monies from the revolving credit facility in order to meet temporary or
seasonal shortfalls which may arise in the level of cash generated from
operations and to fund the Contingent Payments. The Company expects that,
should the generation of excess available operating cash flow be insufficient,
it will also utilize the revolving credit facility to fund a significant
portion of its strategic acquisition program and new product development
initiatives, as well as a portion of capital expenditures for machinery,
equipment and facility expansions.
Operating activities generated $5.9 million of cash during the six months ended
June 30, 1998, compared to $2.2 million of cash in the comparable 1997 period.
The improvement is due primarily to the cash portion of the Recapitalization
charge which was paid during the 1997 period.
On March 31, 1998, the Company acquired all of the outstanding common stock of
CCS. The Company issued 108,883 common shares of the Company and paid $6.3
million in cash, including costs incurred in connection with the acquisition.
The acquisition was funded through available cash and the revolving credit
facility. Additional CCS Contingent Payments, up to a maximum of $18.7
million, may be made through the year 2002, contingent upon CCS achieving
certain post-acquisition operating performance levels.
In September 1997, the Company acquired Aquila (refer to the Company's 1997
Form 10-K). Aquila manufactures surveillance cameras, electronic seals and
other equipment utilized in the safeguarding of nuclear materials and process
controls equipment. The Company financed the initial purchase price of
approximately $6.7 million, including costs incurred in connection with the
acquisition, through the revolving credit facility. The Company will make
additional Aquila Contingent Payments based upon post-acquisition operating
performance through calendar year 2000. An additional $1.7 million was earned
as Contingent Payments during the period of September 4, 1997, to June 30,
1998.
In May 1997, PJKK entered into an agreement to acquire the 40% interest held by
its minority stockholder for approximately $7.5 million (refer to the Company's
1997 Form 10-K). The acquisition has been funded through a combination of cash
on hand and notes payable issued to the minority stockholder. The Company
expects that PJKK will be able to fund the remainder of acquisition through a
similar combination of sources.
As of June 30, 1998 and 1997, the Company's gross order backlog was
approximately $40.6 million and $23.5 million, respectively. The June 30,
1998, backlog amount includes $5.6 million and $3.2 million associated with
Aquila and CCS, respectively. The Company includes in backlog only those
orders for which it has received purchase orders and does not include in
backlog orders for service. The Company's backlog as of any particular date
may not be representative of actual sales for any succeeding period.
YEAR 2000
The Company is currently in the process of addressing issues associated with
the year 2000 and its effect on date sensitive management information and other
data systems which the Company operates (the "Year 2000"). All aspects of the
Company's business including administration, production and distribution are
being evaluated as to the effect of Year 2000. Based upon preliminary
estimates, management does not believe the costs associated with complying with
Year 2000 requirements will have a material effect on the Company's consolidated
financial position or on its results of operations. Managements' estimate is
based on numerous assumptions pertaining to future events including compliance
of the Company's customers and vendors with Year 2000 as well as other factors.
As such, there can be no guarantee that such estimates will be achieved and,
therefore Year 2000 could have a material adverse financial impact.
SUBSEQUENT EVENT - ACQUISITION OF BIOSIGNAL
On July 7, 1998, the Company acquired BioSignal, Inc., a company located in
Montreal, Canada, which is involved in the development and commercialization
of cloned drug targets as drug screening reagents for use in pharmaceutical
and biotechnology research. The Company, which held a 19% ownership interest
in BioSignal prior to the acquisition, purchased the remaining 81% interest
for approximately $11.0 million which includes liabilities assumed and shares
of the Company to be issued. The cash portion of the purchase price was funded
through the revolving credit facility. The acquisition will be accounted for
under the purchase accounting method. In connection with the acquisition, the
Company will incur a charge of approximately $6 million to $7 million to
writeoff the in-process R&D acquired.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to Note 1 to the consolidated financial statements included in the
Company's Form 10-K for a discussion of the Company's hedging practice as it
relates to foreign currency transactions.
<PAGE>
PART II. OTHER INFORMATION
PACKARD BIOSCIENCE COMPANY
Item 1. Legal Proceedings
Legal proceedings and related developments were disclosed in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998,
and in the Company's 1997 Form 10-K.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial data schedule pursuant to Article 5 of
Regulation S-X
(b) Reports on Form 8-K
Not applicable.
<PAGE>
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 thereunto duly authorized, in the City of Meriden, State of
Connecticut, on August 7, 1998.
PACKARD BIOSCIENCE COMPANY
By: /s/ Emery G. Olcott
Emery G. Olcott
Chairman of the Board, Chief
Executive Officer and President
By: /s/ Ben D. Kaplan
Ben D. Kaplan
Vice President and Chief
Financial Officer
By: /s/ David M. Dean
David M. Dean
Corporate Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5 EXHIBIT 27
<MULTIPLIER>1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,074
<SECURITIES> 0
<RECEIVABLES> 40,282
<ALLOWANCES> 590
<INVENTORY> 30,284
<CURRENT-ASSETS> 87,887
<PP&E> 35,787
<DEPRECIATION> 16,851
<TOTAL-ASSETS> 140,914
<CURRENT-LIABILITIES> 52,892
<BONDS> 0
0
0
<COMMON> 137
<OTHER-SE> (111,947)
<TOTAL-LIABILITY-AND-EQUITY> 140,914
<SALES> 102,551
<TOTAL-REVENUES> 102,551
<CGS> 49,620
<TOTAL-COSTS> 42,857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,855
<INCOME-PRETAX> 3,352
<INCOME-TAX> 1,923
<INCOME-CONTINUING> 1,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,429
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
