SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 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 - 6450
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 203-238-2351
Securities registered pursuant
to Section 12(b) of the Act:
Title Of Each Class Name Of Each Exchange On Which Registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
None (Title of Class)
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 ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. (X).
Aggregate market value of voting and non-voting stock held by non-affiliates of
the registrant as of March 19, 1999: $153,332,966.
As of March 19, 1999, there were 9,148,745 shares of the registrant's common
stock outstanding.
Documents incorporated by reference in this report: None.
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PART I
ITEM 1: BUSINESS
General
Packard BioScience Company and subsidiaries (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 the nuclear instrumentation
industry. 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 (collectively, "Canberra"), the Company manufactures analytical
instruments and systems used to detect, identify, quantify and safeguard
radioactive materials for the nuclear industry and related markets. The Company
believes that it is the worldwide market leader in many of its primary product
markets, with well-recognized brand names and a reputation for high-quality,
reliable instruments.
The Company was founded in 1965 by Emery G. Olcott, its current President
and Chief Executive Officer. The Company began as a manufacturer of nuclear
instrument modules ("NIMs"), which are electronic devices used to detect and
measure radioactive materials and the energy they emit. Throughout the 1970s and
into the early 1980s, the Company maintained a leadership position in the
nuclear spectroscopy market and continued to grow. Expertise in measuring
radiation exposure of humans (health physics) was increased through the
acquisition of Radiation Management Corporation in 1983. Subsequent acquisitions
by Canberra included Nuclear Data, Inc. in 1989, which specialized in
computer-based spectroscopy systems and health physics software; Jomar Systems,
Inc. in 1990, which specialized in neutron counting devices; Aquila Technologies
Group, Inc. ("Aquila") in 1997, a manufacturer and distributor of
instrumentation used in the business of nuclear safeguarding; and Harwell
Instruments, Ltd. ("Harwell") in January, 1999, a manufacturer and distributor
of nuclear instrumentation which is located in the United Kingdom. In addition,
in October, 1998, the Company acquired a controlling interest in Mobile
Characterization Services, LLC ("MCS"), which provides specialized equipment
used to characterize radioactive waste in order to determine its proper
treatment and/or disposal.
In 1986, the Company purchased Packard from a subsidiary of United
Technologies Corporation. Packard was founded in 1949 by Lyle E. Packard. The
original product manufactured by Packard was a geiger counter particularly
suited to laboratory measurements of low energy radioactivity. In 1954, Packard
introduced the first commercial liquid scintillation counter, called the
Tri-Carb(R) Spectrometer. With a rapid succession of technological innovations,
Packard established leadership in the emerging scintillation spectrometry
industry. In 1967, Packard was acquired by the American Bosch Arma Corporation,
which later became part of the Automotive Division of United Technologies
Corporation. During the 1960s and 1970s, Packard increased its international
presence, establishing several sales and service companies in Europe and
Australia. In 1980, Packard developed a manufacturing presence for biochemicals
and supplies in Groningen, The Netherlands. The Company's acquisition of Packard
capitalized on its knowledge of nuclear physics, but at the same time
diversified its product portfolio by addressing entirely new markets. In 1988,
the Company acquired Radiomatic Instruments and Chemical Co., a manufacturer of
flow scintillation analyzers, which complemented Packard's product line. During
1998, the Company acquired Carl Creative Systems, Inc. (currently known as CCS
Packard, Inc. ("CCS")) and BioSignal, Inc. ("BioSignal"). CCS is a developer,
manufacturer and distributor of high-throughput liquid handling systems used in
the life science, in-vitro diagnostics and pharmaceutical drug discovery
markets. BioSignal, located in Montreal, Quebec, Canada, is a developer and
distributor of cloned drug targets used in pharmaceutical and biotechnology
research.
Packard BioScience Company currently has four domestic and fifteen foreign
active subsidiaries, all of which are wholly-owned, with the exception of MCS
which is 55% owned by the Company. Packard Instrument Company, Inc. (Downers
Grove, Illinois), CCS (Torrance, California) and BioSignal (Montreal, Canada),
are the manufacturing facilities of Packard's products, with the exception of
biochemical products, which are produced in the Netherlands by Packard
Instrument B.V. Canberra's instruments, certain radiation detectors, applied
systems and safeguards are manufactured by certain divisions of the Company
located at its headquarters in Meriden, Connecticut, at Aquila (Albuquerque, New
Mexico) and at Harwell (Oxfordshire and Dorset, United Kingdom); certain
radiation detectors are manufactured in Belgium by Canberra Semiconductor N.V.
The Company's other subsidiaries are sales and service organizations.
In March 1997, the Company completed a transaction to effect a
recapitalization of the Company (the "Recapitalization"). Refer to the
consolidated financial statements included in Part II on this Form 10-K for a
detailed description of the Recapitalization.
The principal executive offices of the Company are located at 800 Research
Parkway, Meriden, Connecticut 06450. Its telephone number is (203) 238-2351.
Packard
Packard is a worldwide leader in the manufacturing and marketing of
bioanalytical instruments for use in the life science research industry.
Packard's instruments and biochemicals are used principally in laboratory
research related to high-throughput screening, genetic
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analysis, immunology, virology, biochemistry, toxicology and metabolism studies,
primarily as part of the drug discovery research process. Over the past five
years, pharmaceutical and biotechnology companies have attempted to advance the
drug discovery process through genomic research and accelerated drug screening
and have invested considerable resources in this process, resulting in increased
demand for Packard's newer products. Packard's primary products include
bioanalytical spectrometers, microplate readers, imaging systems, robotic liquid
handling systems and biochemicals and related supplies. Packard believes that
its strong, long-term relationships with its customers have been a key component
of its development of new products which respond to these industry trends. In
addition, the Company believes that the quality and reliability of its products
have generated a large installed base of instruments which allows Packard to
generate a recurring stream of revenue from service and from sales of
biochemicals and other consumables. Packard distributes and services its
instruments and other products through an international sales and service
organization to many of the leading pharmaceutical, biotechnology and
agrochemical companies as well as to prominent academic, federal and hospital
laboratories.
Life science is the study of the characteristics, behavior and structure of
living organisms and their component systems. Life science researchers utilize a
variety of instruments and related biochemicals and supplies in drug discovery,
the study of life processes, biotechnology and environmental testing. Two major
branches of life science are cellular biology and molecular biology. Cellular
biology is the study of live, intact cells. Molecular biology is the study of
cell components including DNA, RNA and proteins. The Company estimates that in
1998 annual sales to the global life sciences industry for instrumentation,
related service and biochemicals totaled in excess of $4.0 billion. The segments
of this industry on which the Company focuses are bioanalytical spectrometers,
microplate readers, imaging systems, robotic liquid handling systems, and
radioisotopic and non-radioisotopic biochemicals and supplies, for which the
Company estimates 1998 annual sales total in excess of $1.0 billion.
The bioanalytical instrument market includes primarily bioanalytical
spectrometers, microplate readers, imaging systems and robotic liquid handling
systems. Bioanalytical spectrometers are used to measure biologically active
molecules, cells and sub-cellular components, the composition and function of
body tissues and organs, the dynamics of living systems, and the mechanics of
disease. They are used by researchers in pharmaceutical companies, biotechnology
companies, and academic institutions as well as customers in hospitals,
environmental testing laboratories and clinical testing laboratories.
Bioanalytical spectrometer samples are contained in vials, test tubes and
chromatographic flow-through cells.
A major application of Packard's bioanalytical instruments is for use in
the drug discovery process. The pharmaceutical industry has traditionally gained
most of its drug leads by evaluating natural and synthetic compounds from their
chemical libraries for molecules with possible therapeutic benefit. However, new
tools for drug discovery allowing for more rapid, thorough and efficient
identification of drug leads have evolved over the past five years. In addition,
two major technological innovations have substantially increased the number of
possible drug leads, and new avenues for disease treatment are now available.
First, molecular and cellular biology and the study of the human genome have
facilitated the identification of complex disease mechanisms and identified
genetic targets as potential and known causes of diseases. Second, combinatorial
chemistry, the production of hundreds of thousands of compounds from
functionally diverse chemicals, has enabled chemists to synthesize huge numbers
of new substances which can then be tested for disease-fighting capability. As a
result of these innovations, a challenge for pharmaceutical companies is how to
screen this large number of candidate drug compounds against a proliferating
number of disease targets. Pharmaceutical groups require the capability to
screen millions of potential drug leads against many new disease targets in
shorter time periods and have turned to instrumentation for "high throughput
screening."
Makers of bioanalytical instruments, like Packard, have addressed this need
and helped to make the new approach to drug discovery possible by combining the
detection capabilities of its bioanalytical instruments with advances in "high
throughput screening." "High throughput screening" is a general term that refers
to automated liquid handling robotics systems and new microplate detection
instruments currently being used in drug research. Using high throughput
screening, research groups have been able to screen tens and even hundreds of
thousands of compounds a week, well beyond previous limits. The result has been
an increase in both the speed with which tests can be conducted and the volume
of information available on the binding characteristics of a given drug
candidate or the biological target.
The bioanalytical instrument market includes products that provide
researchers with the ability to detect the activity of biological samples by
measuring minute amounts of light. Today, there exist three different labeling
methods: isotopic, fluorescent and chemiluminescent labeling. Fluorescent and
chemiluminescent labels are considered non-isotopic methods. Isotopic methods
allow a researcher to recognize the activity of a particular molecule or
compound by labeling it with a radioactive molecule. Rather than utilize
radioactivity, fluorescent or chemiluminescent labeling distinguishes a specific
molecule or compound to be analyzed by attaching an organic light-emitting
molecule.
Microplate readers are used primarily by researchers at drug companies and
biotechnology companies when studying cellular and molecular biology.
Microplates are used in drug discovery and development for screening potential
drug candidates and by scientists conducting evaluation assays. Microplate
readers quantify the results of tests performed in the depressions, or "wells,"
of small plastic trays. Microplate readers miniaturize the tests and, therefore,
reduce the amount of samples, labels and time needed to perform such tests.
Because of their advanced technology and differentiating characteristics, both
bioanalytical spectrometers and microplate readers are expected to be sold at
higher margins than more standard instruments.
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Imaging systems are also used in the study of molecular and cellular
biology, primarily by researchers in core academic facilities and target drug
discovery groups in pharmaceutical and biotechnology companies. Imaging system
samples are analyzed in flat (two-dimensional) formats, such as electrophoresis
gels, blotting membranes or DNA array supports. Robotic liquid handling systems
are used in laboratories to transfer liquids from one piece of labware or
apparatus to another, add or mix reagents, perform dilutions, perform washing
steps, or otherwise manipulate liquid samples for analytical procedures. These
instruments have become important as laboratory research tools because
microplate readers have reduced the size and increased the number of samples.
Robotics are necessary to complete precise measurements and handle a large
number of minute samples. Packard sells robotic liquid handlers that are used to
prepare samples in microplate readers and bioanalytical spectrometers, as well
as robotic handling equipment to process samples prepared in microplates at high
throughput.
There is a trend in the life science research market moving away from
radioisotopic processes and instruments towards the use of non-isotopic
instrumentation. Because isotopic labeling has been the most widely-used
ultrasensitive biological test, it is the benchmark against which the
reliability and sensitivity of various new non-isotopic methods are measured.
Radioisotopic labeling is currently the most specific, easy to use and cost
effective method of testing compounds. Additionally, the Company believes that
scientists who currently use radioisotopes for testing new clinical entities
tend to be reluctant to switch methodology because of the potential sources for
experimental error involved in altering the biological activity of the
molecules. Because radioisotopes are chemically identical to stable elements,
they can be used as effective labels without modifying reaction chemistry.
However, the Company believes that the trend towards gradual substitutions of
many of the isotopic methods and in other biomedical assays is likely to
continue. Because of their radioactivity, isotopic labels are environmentally
unfriendly and difficult and potentially dangerous to handle. Radioisotopic
by-products bring about waste disposal problems that are becoming increasingly
more expensive to save. Packard's research and development and new product
introductions focus primarily on the non-isotopic market.
Canberra
Canberra is the worldwide leader in the manufacture and marketing of
precision instruments which use advanced analytical techniques to detect,
quantify, identify and monitor radioisotopes. Canberra offers its customers a
full array of nuclear instruments and related services including: (i) a broad
product line of basic hardware and software for detection, signal processing,
data acquisition and display, and basic analysis of all types of radiation and
the containment and surveillance of nuclear materials; (ii) "applied systems,"
which are integrated systems of software and hardware that address a specific
application and serve as turn-key operations; (iii) product and applications
training and customer service and support; and (iv) measurement, management and
consulting services which add value to its other product lines. This
comprehensive product and service offering has enabled Canberra to amass what it
believes to be the largest base of installed equipment in the nuclear instrument
industry, which generates a recurring stream of service revenues. Canberra's
customers include government institutions, utilities, research laboratories,
commercial analytical laboratories and international, national and local
regulatory agencies. In support of its worldwide customer base, Canberra has
developed an extensive sales and service organization, with locations near most
major nuclear sites in the world.
The Company estimates that worldwide sales in 1998 of instruments and
services to the segments of the industry it serves were approximately $220
million, of which approximately $150 million were generated by commercial
suppliers such as Canberra. The remaining sales were generated by captive
systems integrators (e.g., U.S. Department of Energy ("DOE") facilities such as
Los Alamos), which build some of their own equipment. The Company estimates that
Canberra has a more than 50% market share of the $150 million worldwide
commercial nuclear instrument sales. Due to privatization of the DOE facilities
and to deregulation of the U.S. electric utility industry, the Company believes
the captive portion of these sales are gradually beginning to open to commercial
companies like Canberra.
The traditional end users for Canberra's products are the radiochemistry,
nuclear research, worker health and safety, and safeguards businesses.
Radiochemistry is a basic analytical tool for the investigation of the chemical
composition of substances by analyzing their radioactive isotopic constituents.
As the use of radiochemical techniques has grown in recent years, the need has
grown for highly automated instruments, like those manufactured by Canberra,
that can analyze a larger number of samples more efficiently. The nuclear
research business has historically focused on basic research in nuclear physics.
In areas such as the pacific rim and South America, funding for such research
has increased, while in many industrialized countries, the focus has shifted
from basic research to applied topics such as environmental restoration. The
worker health and safety market requires instruments that measure the intake of
radioactive substances by workers who are exposed to nuclear materials.
Safeguarding is the containment and accounting of nuclear materials that could
be used to make nuclear weapons.
In addition to these traditional end users, the Company believes that
demand for its instruments may develop in the future in several emerging areas.
Given concerns about contamination of the environment (both radioactive and
non-radioactive), there is a need for measuring instruments both to monitor
radioactive and hazardous sites and to verify the success of remediation and
containment projects. The market for instruments used to characterize nuclear
waste has developed as decisions are made regarding the permanent disposal of
nuclear waste which is, for the most part, currently stored on-site by waste
generators. The use of nuclear instruments to help safeguard the Cold War's
legacy of weapons grade nuclear material has emerged as a market for Canberra's
instruments. Finally, in addition to safeguarding nuclear materials, the
decontamination and decommissioning of nuclear weapons and other nuclear sites
also represents an opportunity for makers of nuclear instruments.
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The United States has the most significant installed base of nuclear
instruments, especially in the areas of research and radiochemistry. The Company
believes that existing nuclear facilities in the United States represent
opportunities in the areas of waste characterization and decontamination and
decommissioning. Worker health and safety is becoming an increasingly important
opportunity in the United States with the advent of more stringent regulatory
requirements at DOE facilities. Additionally, the Company believes that the move
to privatization of DOE facilities is creating opportunities for new
measurement, management and consulting services.
Western Europe, like the United States, also has a significant installed
base. However, the Company believes that it differs from the United States due
to its high degree of commercial fuel reprocessing which creates additional
safeguards and other measurement opportunities. Central Europe and the former
Soviet Union face the same legacy of contaminated facilities as does the United
States, but on an even larger scale.
In other parts of the world, the Company believes that Asia is the primary
growth opportunity for commercial applications of nuclear power. This growth
potential is primarily due to Japan's aggressive pursuit of energy
self-sufficiency, as well as Korea, Taiwan, India and China becoming more active
nuclear markets. China and India, however, are subject to certain United States
export controls which may limit Canberra's ability to sell goods and services
into those markets. In addition, South America is increasing its use of nuclear
energy resulting in increased opportunities to supply safeguards, radiochemistry
and waste characterization systems.
Products and Services
Packard
Packard provides the following products and services:
Bioanalytical Spectrometers. Bioanalytical spectrometers, used broadly
throughout life sciences research, use sensitive light measuring methods for
detecting radioisotopic labeled compounds. Packard is a leading manufacturer and
marketer of bioanalytical spectrometry instruments, including its Liquid
Scintillation Counter ("LSC"), Gamma Counter and Flow Scintillation Analyzer
("FSA") instruments. LSC and FSA spectrometers measure the emission of beta
particles from labeled samples by detecting the light these particles emit in a
liquid scintillation cocktail. Gamma Counters measure light given off when gamma
rays from labeled samples strike a sodium iodide crystal detector. Packard's
bioanalytical spectrometers typically range in price from approximately $16,000
to $165,000 per instrument.
Microplate Readers. Packard's microplate readers provide high-throughput
microplate scintillation counting used to screen compounds in drug discovery,
molecular and cellular biology, immunology and biomedical research. Packard's
current products perform detection using both radioisotopic and non-isotopic
methods such as luminescence, flourescence and colorimetric methods.
Additionally, Packard introduced in 1997 the Discovery(TM) microplate reader
using the time-resolved fluorescence method for detection, called Homogeneous
Time-Resolved Fluorescence ("HTRF(TM)"), a proprietary instrument. HTRF(TM) is a
homogeneous non-isotopic detection technique licensed from CIS bio international
and marketed by Packard for high throughput screening applications. Through the
introduction of the Matrix 9600 and TopCount instruments in the early 1990s,
Packard rapidly penetrated the microplate reader market, becoming one of the
largest suppliers of these types of instruments. Packard's microplate readers
typically range in price from approximately $6,000 to $200,000 per instrument.
Imaging Systems. Packard's current imaging systems are used to detect the
activity of isotopically-labeled samples, including gels, blots, DNA assays and
high-density microplates for use in drug development and molecular and cellular
biology, including areas such as genomics, neuroscience, immunology and
biochemistry. Packard entered the imaging market with the introduction of its
InstantImager in 1993. The Company believes that this product provides
significant benefits to users in terms of real-time, fast sample turnaround and
enhanced quantification capabilities. Packard has broadened its product line
through the addition of the Cyclone, a low-cost storage phosphor imager in 1996
and intends to introduce additional non-isotopic imagers over the next several
years. Packard's imaging systems typically range in price from approximately
$13,000 to $75,000 per instrument.
Robotic Liquid Handling Systems. Packard's robotic liquid handling systems
are used to prepare small volume samples to be dispensed into the wells of
microplates, which are then screened by microplate readers. Packard believes
that it has a strong position in the drug discovery market, the current primary
market for the Company's robotic liquid handling systems, where its MultiPROBE
robotic liquid handler is often sold in conjunction with the TopCount microplate
reader. Packard has developed its next generation instrument for this market,
the MultiPROBE II. Another new product, the Biochip Arrayer(TM) with ultrasmall
volume liquid handling capability and high precision mechanics to prepare
samples in higher density microplates and on DNA assays, is scheduled to be
introduced by mid-1999. Packard's robotic liquid handling systems typically
range in price from approximately $18,000 to $500,000 per system.
The 1998 acquisition of CCS complements Packard's robotic liquid handling
product line. CCS' products feature automatic microplate processing robotics
combined with proprietary 96-tip and 384-tip liquid dispensing modules. CCS'
system, the PlateTrak, can
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be customized to meet the increasing sample throughput needs of customers in the
high throughput screening and genetic analysis markets. CCS microplate
processing robotics typically range in prices from $60,000 to $350,000 per
system.
Other Instruments. Packard manufactures other instruments for certain
original equipment manufacturers, which principally include customized robotic
liquid handling systems and the KRYPTOR fluorescence immunoassay instrument,
developed in conjunction with CIS bio international for the immunoassay segment
of the clinical diagnostic market. The hydrogen generator product line was sold
in December, 1998.
Biochemicals and Supplies. Packard believes that it is the leading
biochemicals manufacturer for scintillation cocktails and supplies (e.g., vials
and microplates), with an estimated 50% share of the sales of radioisotopic
products, which Packard estimates to be approximately $35.0 million annually.
Biochemicals and supplies sold by Packard are laboratory consumables used in the
operation of life science analytical instruments. Biochemicals principally
include light-emitting scintillation cocktails used in conjunction with
Packard's bioanalytical spectrometers. Scintillation cocktails are solutions of
biochemicals and radioactively labeled compounds used in a particular
bioanalytical spectrometer called a liquid scintillation counter. In early 1995,
Packard introduced luminescence reagents for its TopCount product and, in 1996,
introduced HTRF(TM) reagents licensed from CIS bio international. To further
accelerate the transformation from a radioisotopic biochemical company to a
non-isotopic company, Packard acquired BioSignal during 1998. BioSignal's core
competency is in the field of gene cloning, genetic engineering of cell lives
and the expression and production of recombinant proteins. With its
highly-skilled workforce and specialized assay development and reagent
production labs, BioSignal is well positioned to convert many traditional
radioisotopic assays to non-isotopic assays compatible with Packard's analytical
equipment.
Service and Support. Packard provides purchasers of its instruments with
service and support primarily on a fixed fee, annual contract basis. Packard's
service and support include field service, customer support, applications
assistance and extensive training through an organization of approximately 170
factory-trained and educated service and application support personnel around
the world. Its installed product base provides it with stable, recurring
aftermarket service and support revenue as well as product upgrade and
replacement opportunities.
Canberra
Canberra is the world's largest manufacturer and distributor of analytical
instruments used to detect, identify, quantify and contain radioactive
materials. Whereas there are many manufacturers of gross counting instruments
that measure radiation without regard to the source or type of emitter, the
Company believes that it is a leader among those companies that manufacture
instruments which can both quantify and identify the radioisotopes under
investigation through spectroscopic analysis. The Company has identified gross
counting as an opportunity to supply additional product to its existing customer
base. The acquisition of Harwell provides an entree to that market. In addition
to its products, Canberra provides a variety of services to its customers,
including aftermarket product support and on-site analysis.
Instruments and Detectors. Canberra's instruments are stand-alone
electronic measurement components. These products are not used independently but
are the building blocks for assembling radiation measurement applications, which
are utilized for a variety of purposes. Canberra has three key instrument
product lines: NIMs, radiation detectors, and data acquisition systems ("DAS").
NIMs are used to amplify, filter, shape, time and in other ways process the
signals generated by radiation detectors. DAS are used to sort digitized data
from the NIMs into frequency distributions according to incoming pulse heights.
Applied Systems. Applied systems are integrated turn-key radiation
measurement systems that have all the required hardware and software necessary
to meet specific application needs. This category of products has recently been
the fastest growing segment of Canberra's business. Canberra manufactures both
standard systems and customized systems used for more specific applications.
Canberra's standard systems are used for worker health and safety systems,
radioactive waste analysis, environmental monitoring and safeguards
applications. The worker health and safety systems include whole body counters,
in vitro analysis systems and database information systems, and provide accurate
measurement of internal radiation dosage, maintain long-term records of exposure
and control access to radiation areas, a key component in worker health and
safety. Canberra provides such systems as permanent installations, mobile
facilities and temporary rental units, and all are available as complete
turn-key systems.
The Company believes that the application of safeguards, the means of
accounting for fissile materials and preventing diversion, is expanding due to:
(i) the growth of reprocessing facilities and associated mixed oxide (MOX) fuel
facilities, (ii) the submission of former weapons facilities to international
inspection, (iii) the large volume of weapons materials being extracted from
decommissioned weapons, and (iv) the disposition of those materials in new
facilities. Aquila is an industry leader in the production of digital
surveillance systems and review stations, and electronic seals and tags for the
worldwide nuclear safeguards community. Digital surveillance cameras, Gemini
Automatic Review Stations and IN SITU verifiable seals are some of Aquila's more
prominent products.
Harwell specializes in waste assay, safeguards and
decommissioning/decontamination equipment. In addition, the Company offers
traditional environmental and health physics monitoring instruments, as well as
specialized reactor control and monitoring systems used by nuclear energy
production facilities to extend life cycles.
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The Company believes that Canberra has been a commercial leader in
radioactive waste analysis systems for nearly 20 years. The new waste assay
systems that the Company has developed and is continuing to develop address the
needs of temporary and permanent off-site repositories that are currently being
planned and established for radioactive waste. Canberra's full array of
transportable radioanalysis systems, which range from portable systems to mobile
trailers, address the requirements for environmental restoration and monitoring.
With the introduction of its in situ object counting system ("ISOCS"), Canberra
believes it is positioned to capture new business.
Service and Support. Canberra's instrumentation and applied system product
segments generate continuing service demand in the form of maintenance, product
enhancement, general repair and training. Canberra believes that it has
developed a reputation in the industry for high quality customer service,
provided by approximately 100 factory-trained and educated service personnel
worldwide. Its installed product base provides it with stable, recurring
aftermarket service and support revenue as well as product upgrade and
replacement opportunities.
Measurement, Management and Consulting Services. Canberra is providing a
number of value added services required by its customers. These services were
developed in response to the DOE's privatization initiatives. An example of
Canberra's full service approach is its ability to assume total performance
responsibility for nuclear waste characterization in connection with
environmental restoration projects. Canberra can provide all necessary
equipment, mobile systems and personnel to characterize and sort waste into
treatment and disposal streams. Canberra's environmental restoration specialists
review data and work with team members to maximize operational efficiencies.
Canberra, through is MCS subsidiary, provides characterization of containerized
waste based on fixed-unit pricing.
Canberra is the controlling member of MCS, a limited liability corporation
that was formed to offer mobile characterization services to the DOE. MCS offers
complete transuranic ("TRU") waste characterization services including
non-destructive analysis, non-destructive examination, headspace gas analysis,
repackaging, hazardous material sampling and analysis, and TRUPACT-II loading.
A permanent waste repository has been constructed in Carlsbad, New Mexico,
called the Waste Isolation Pilot Plant (the "WIPP"). The WIPP, which was
officially opened on March 22, 1999, will provide permanent underground storage
for the DOE's TRU produced since 1970. It is estimated that there are
approximately 3 million barrels and 1 million boxes of TRU stored at sites
around the country. In order to move this waste to the WIPP, it must be
characterized. Such characterization, which MCS performs, is estimated to cost
between $200 to $3,000 per barrel.
Research and Development
The Company's research and development ("R&D") efforts are focused on
supporting its business development efforts, and each project is scrutinized for
feasibility, return on investment and time to market. The Company has a program
of both internal and external R&D projects in support of its overall growth
initiatives. The Company's R&D expenditures during 1996, 1997 and 1998 were
$17.9 million, $23.5 million and $29.2 million, respectively. The Company's
increased expenditures on R&D during the 1996 through 1998 period primarily
reflects Packard's investments in product enhancements and new product
development.
Packard's principal R&D mission is to develop a broad portfolio of
technologies, products and core competencies in what it believes are the two
most attractive business segments of the life sciences industry, drug discovery
and genomic research. Packard's R&D focus is on the development and rapid
commercialization of technology. Rather than seek to develop fundamental
technological advances through its own research, Packard emphasizes evolutionary
technological improvements and the commercial application of technologies
obtained through acquisitions, licenses, joint ventures or collaborations as
well as its own research. Because of its strong, long-term customer
relationships, Packard's customers often identify technologies of which the
customer has become aware that would be suitable for development and
commercialization by Packard. In addition, Packard's global research and
technology collaborations complement its internal R&D resources by expanding the
breadth of Packard's basic research. Products are developed by cross-functional
teams and reviewed by a peer group to enhance institutional learning.
The Company believes that Canberra's technical expertise and new product
development efforts are among the best in the commercial nuclear instrument
industry. It employs over 50 Ph.D. nuclear spectroscopists, Ph.D. nuclear
engineers, certified health physicists, master-degreed physicists, nuclear
engineers and radiochemists. The Company believes that this group of scientists
and engineers enables Canberra to transform research-level systems into
standardized, user-friendly products that enjoy broad market support. An
important route to technology commercialization is through Cooperative Research
and Development Agreements ("CRADA") with the DOE. The CRADA process is one in
which a commercial company and a national laboratory share the cost of
developing and commercializing innovative technologies. The Company has entered
into various CRADA's requiring milestone payments and future royalty payments
upon satisfaction of certain criteria as specified in such agreements.
7
<PAGE>
Marketing, Sales and Service
Packard's organization is divided into four business units, organized to
support its major product lines and identify new market opportunities, lead
acquisition activities and create new technology platforms. Business unit
managers in each business unit have responsibility for maintaining a leadership
position with existing products. New market development managers have
responsibility for cultivating new markets, identifying new technologies and
creating new products in Packard's principal growth areas of drug discovery and
genomic research. Packard's marketing strategy relies heavily on extensive
training of direct sales and distributor organizations, consultative selling
approaches, responsive on-site customer support, applications education and the
use of electronic communication vehicles such as Lotus Notes, E-mail and an
Internet WorldWide Website. These communication links give business unit
managers, new market development managers and application scientists the ability
to have interactive dialogue with customers around the world, helping to guide
Packard's efforts to find new ways to deliver customer benefits and to identify
product innovations.
Packard has direct sales and service organizations in the United States,
Australia, Austria, Belgium, Denmark, France, Germany, Italy, Japan, The
Netherlands, Russia, Switzerland and the United Kingdom. Products are also sold
through exclusive, independent distributors in Canada, Mexico, South Korea,
Spain, Taiwan and over 40 other countries active in bioanalytical research.
Packard's sales representatives are compensated with a combination of base
salary and, to the extent sales and service goals are achieved or exceeded,
incentive compensation. Through its global organization of direct sales
representatives and distributors, who are supported by a network of experienced
application and service support personnel, Packard has access to life sciences
researchers in academic, government, hospital and industrial laboratories
worldwide.
Packard has skilled service engineers and technical specialists available
worldwide providing service, maintenance and application consulting in the
laboratory. With the added convenience of service agreements and routine,
preventive and value-added maintenance, Packard seeks to ensure that its
instrumentation is producing precise results for its customers. In addition, the
close relationship between customers and service personnel provide Packard with
access to new product and application ideas as well as new sales opportunities.
Canberra's marketing organization is divided into two groups: (i) industry
or market specialists, who are responsible for sales and marketing strategy in
Canberra's largest industry segments (i.e. nuclear power, nuclear fuel
manufacturing and weapons material production); and (ii) product or applications
managers who are responsible for specific product or applications segments in
all industries. The two groups work as a team in defining and promoting products
and applications into each market segment. They also form a team with the sales
engineers for significant sales situations. In addition, there is a business
development group which is responsible for strategic marketing for Canberra and
investigation into and implementation of new opportunities, both from a
technical and market perspective. Canberra's marketing strategy is to use its
applications expertise to capture more value from its existing customer base. In
so doing, Canberra seeks to exploit its ability to offer worldwide distribution,
worldwide service, multi-platform software support, as well as worldwide
applications and training support.
In the United States, Canberra's sales force consists of 13 sales engineers
who cover the breadth of its product line with extensive support from field and
in-house specialists. Canberra's European sales force is comprised of direct
sales operations in Austria, Belgium, France, Germany and the United Kingdom,
and distributors in the remainder of Europe. The sales organization for other
international markets consists of direct sales operations in Russia and
Australia, one minority-owned distributor covering Central Europe and the
Ukraine, and approximately 40 independent exclusive distributors covering over
50 countries. Canberra compensates its sales force with a combination of base
salary and, to the extent sales and service goals are achieved or exceeded,
incentive compensation. Canberra provides worldwide service and support through
two manufacturing locations in the United States and three in Europe, five
U.S.-based field service offices, and sales and service offices in nine
countries. The Company has sales and service operations near most major nuclear
sites and has a strong international presence and contacts in emerging markets
such as South America. The Company believes that it is well recognized in the
industry for high quality service, and that its extensive sales and distribution
network provide it with strong relationships with almost every major user of
nuclear instruments in the world.
As of December 31, 1998, the number of Company employees in sales and
marketing and service were as follows:
Packard Canberra Total
------- -------- -----
Sales and Marketing .................. 171 83 254
Service .............................. 169 104 273
--- --- ---
Total ............................ 340 187 527
=== === ===
Manufacturing
The Company has created a well-disciplined, low cost manufacturing culture
and believes that it is a low cost producer for instruments manufactured by both
Packard and Canberra. The Company's manufacturing facilities have established a
"focused cell system" in which employees are divided into distinct manufacturing
cells, each of which is wholly responsible for a specific product line.
8
<PAGE>
Employees are also cross-trained to work on multiple cells. To further reduce
its average production cycle time and the cost of raw materials, the Company
uses outsourced standard components and sub-assemblies as well as standard,
"off-the-shelf" products, such as printed circuit boards and power supplies.
Packard manufactures all of its instruments at its Downers Grove, Illinois,
and Torrance, California, facilities. Chemical production of scintillation and
luminescence products occurs at Packard's facility in Groningen, The
Netherlands. Cloned drug targets are developed at its Montreal, Canada,
location. With the exception of CCS, Packard's manufacturing operations are
certified to ISO 9001 quality standards, and all Packard products sold in the
United States, Canada and Mexico are certified by the Canadian Standards
Association, which monitors safety standards throughout North America. All of
Packard's instruments sold in Europe are in conformity with current European
Community directives regarding safety, quality and electromagnetic compatibility
and have qualified under the European Community's "CE Mark."
Canberra manufactures most of its nuclear instruments, radiation detectors
and applied systems at its Meriden, Connecticut, and Albuquerque, New Mexico
facilities. In addition, the recent acquisition of Harwell has added two
manufacturing locations in the U.K. Certain of Canberra's radiation detectors
are also manufactured in its Olen, Belgium, facility. Canberra has established a
certified and documented quality system as a means of ensuring that products and
services conform to specifications, and this system has been certified to ISO
9001 quality standards and complies with the American National Standards
Institute quality standards. The Company has also qualified a significant
portion of its product line under the "CE Mark."
Customers
The Company's customers include pharmaceutical, biotechnology, electric
utility, chemical and industrial companies as well as academic institutions,
government laboratories and private foundations. Customers of Packard include
Amgen Inc., Bristol-Meyers Squibb Company, Fujisawa Pharmaceutical Co. Ltd.,
Genentech, Inc., Gen-Probe Incorporated, Glaxo Wellcome PLC, Harvard Medical
School, Hoffman LaRoche AG, Merck & Co., Inc., National Institutes of Health,
Pasteur Institute, and the University of California. Customers of Canberra
include DOE sites Los Alamos National Laboratory, Savannah River Site and Rocky
Flats; Tennesse Valley Authority; Southern Nuclear Company; Florida Power and
Light Company; Japan Nuclear Cycle Development Institute; British Nuclear Fuels,
Ltd.; EURATOM and the International Atomic Energy Agency. Sales to the DOE were
approximately 3.9% of the Company's 1998 revenues and approximately 10.8% of
Canberra's 1998 revenues. Total DOE sales are diversified among 13 major nuclear
sites in the United States, each with numerous and distinct projects,
laboratories and priorities. Moreover, the nuclear mission of the DOE is divided
into four diverse categories: research and development, environmental
restoration and management, treaty compliance monitoring (SALT, START, and Non
Proliferation Treaty (NPT)) and new weapons production. No customer of the
Company accounted for more than 10% of the Company's revenues in 1998.
Competition
Packard competes with several manufacturers in both domestic and foreign
markets within the drug discovery and molecular biology segments of the life
sciences instrumentation industry. Moreover, Packard encounters different
competitors in each of its key product lines. Beckman Instruments, Inc., EG&G
Wallac Inc. and Tecan AG compete in a number of Packard's product lines, and
several companies compete in one of Packard's product lines. Packard competes
principally on the basis of quality, product features, product performance,
price and service. Competition within the markets that Packard serves is
primarily driven by the need for innovative products that address the needs of
customers. Packard attempts, to the extent possible, to counter competition by
seeking to develop differentiated new products and provide quality products and
services that meet customers' needs.
Canberra's product areas are characterized by several large competitors.
Over the past decade, there has been significant global consolidation in the
industry. Within the applied systems market, the Company believes that it is the
only company that has a leading position within every category it serves.
Canberra competes principally on the basis of applications expertise and also
benefits from superior quality, product reliability, performance and service.
EG&G Ortec and Eurisys Mesures compete in a number of Canberra's product lines,
and several companies compete in one of Canberra's product lines.
Raw Materials
The Company uses many standard parts and components in its products and
believes there are a number of competent vendors for most parts and components.
However, a number of important components are developed by and purchased from
single sources due to price, quality, technology (including patent protection)
or other considerations. On March 5, 1999, the Company announced the signing of
a purchase agreement to acquire the operating assets of Tennelec/Nucleus, Inc.
and formed a new subsidiary, Tennelec, Inc. ("Tennelec") to effect the purchase
which is expected to become effective on or about April 1, 1999. Tennelec
manufactures alpha beta systems and alpha spectroscopy and gamma spectroscopy
systems. In addition, Tennelec manufactures high purity germanium which the
Company uses as part of the manufacture of high resolution radiation detectors.
The Company believes that the acquisition of Tennelec will assure the Company of
the necessary supply of germanium.
9
<PAGE>
Intellectual Property
The Company owns numerous United States and foreign patents, and has patent
applications pending in the United States and abroad. Further, the Company
licenses certain intellectual property rights to or from third parties. In
addition to its patent portfolio, the Company possesses a wide array of
unpatented proprietary technology and know-how. The Company also owns numerous
United States and foreign trademarks and trade names and has applications for
the registration of trademarks and trade names pending in the United States and
abroad. The Company believes that patents and other proprietary rights are
important to the development of its business, but also relies upon trade
secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position.
Packard licenses technology from a number of third parties, including,
among others, licenses in connection with certain of its liquid handling
systems, imager products and microplate readers. The licenses are generally
long-term and require Packard to pay royalties to the licensor in connection
with sales of the product utilizing the licensed technology. Certain of the
licenses, including the license agreement with CIS bio international for
HTRF(TM) technology in connection with Packard's Discovery(TM) product, may be
terminated by the licensor if Packard fails to meet certain volume targets. THE
licenses are generally exclusive licenses, but some are nonexclusive in
particular geographic regions and others may be made nonexclusive if Packard
fails to meet certain volume targets. Packard does not believe that it is
dependent on any single license or that the loss of any single license would
have a material adverse effect on the Company's results of operations.
In some cases, litigation or other proceedings may be necessary to defend
against or assert claims of infringement, to enforce patents issued to the
Company or its licensors, to protect trade secrets, know-how or other
intellectual property rights owned by the Company, or to determine the scope and
validity of the proprietary rights of the Company or of third parties. Such
litigation could result in substantial costs to and diversion of resources by
the Company. An adverse outcome in any such litigation or proceeding could
subject the Company to significant liabilities and expenses (e.g., reasonable
royalties, lost profits, attorney's fees, trebling of damages for willfulness,
etc.), require the Company to cease using the disputed intellectual property or
cease the sale of a commercial product, or require the Company to license the
disputed rights from third parties, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
During 1998, the Company resolved litigation concerning intellectual
property. See "ITEM 3: LEGAL PROCEEDINGS."
Employees
As of February 28, 1999, the Company had 1,315 employees. 67% of employees
as of that date were located in the United States. The Company's workforce is
predominantly non-union, and the Company believes that its relations with
employees are satisfactory.
Environmental Matters
The Company's operations are subject to federal, state, local and foreign
environmental laws and regulations that impose limitations on the discharge of,
and establish standards for the possession, distribution, handling, generation,
emission, release, discharge, export, import, treatment, storage and disposal
and clean up of, certain materials, substances and wastes. To the best of the
Company's knowledge, its operations are in material compliance with all
applicable environmental laws and regulations as currently interpreted. The
Company and local authorities in Groningen, The Netherlands, are in the process
of negotiating a remediation plan involving groundwater contamination at the
Duinkerkenstraat facility. See "ITEM 3:LEGAL PROCEEDINGS."
Management cannot predict with any certainty whether future events, such as
changes in existing laws and regulations or the discovery of conditions not
currently known to the Company, may give rise to additional environmental costs.
Furthermore, actions by federal, state, local and foreign governments concerning
environmental matters could result in laws or regulations that could increase
the costs of producing the Company's products, or providing its services, or
otherwise adversely affect the demand for its products or services. During 1998,
the Company did not expense any amount relating to environmental remediation.
Regulation
The Company, in the ordinary course of business, handles a variety of
low-level radioactive sources for purposes of quality control and calibration of
its products. The Company maintains United States Nuclear Regulatory Commission
("NRC") and appropriate state licenses for all sources of radiation in its
possession. In addition, the Company has a radiation safety program at each
licensed site the objective of which is to assure proper handling and control of
all radioactive materials. The Company believes that it is in material
compliance with all of its NRC and state licenses.
Under NRC regulations, the NRC must be advised of any proposed transfer of
the ownership of a license granted by the NRC. Pursuant to these regulations,
the NRC was advised of and consented to the transfer of ownership effected by
the Recapitalization.
10
<PAGE>
Geographic Information
Financial information about the Company's foreign and domestic operations
and export sales is set forth in Note 10 to the consolidated financial
statements included in Part II of this Form 10-K, to which reference is hereby
made.
ITEM 2: PROPERTIES
As of March 19, 1999, the Company owned the manufacturing facilities set
forth below:
<TABLE>
<CAPTION>
Location Function Square Feet
- -------- -------- -----------
<S> <C> <C>
Meriden, Connecticut.................. Headquarters, training, service, customer support, engineering, 170,000
software development and manufacturing (Packard and Canberra)
Downers Grove, Illinois............... Manufacturing, service, engineering and R&D (Packard) 109,000
Groningen, The Netherlands............ Manufacturing (chemicals and supplies) (Packard) 31,000
Olen, Belgium......................... Detector manufacturing (Canberra) 10,000
</TABLE>
In addition, the Company leases the following facilities:
<TABLE>
<CAPTION>
Lease
Location Function Square Feet Expiration
- -------- -------- ----------- ----------
<S> <C> <C> <C>
Albuquerque, New Mexico .............. Administration, manufacturing and warehousing 22,700 June 2004
(Canberra)
Torrance, California ................. Administration, manufacturing and warehousing 70,000 December 2003
(Packard)
Oxfordshire, United Kingdom .......... Manufacturing (Canberra) 19,000 March 2010
Dorset, United Kingdom ............... Manufacturing (Canberra) 3,000 March 2010
Montreal, Canada ..................... Administration and manufacturing (Packard) 15,000 July 31, 1999 &
Dec. 31, 1999
</TABLE>
The Company owns two sales and distribution facilities occupied by its
foreign subsidiaries. The others are leased.
CCS continues to lease a facility in Harbor City, California, that it used
previously for administration, manufacturing and warehousing. CCS is in the
process of identifying a sublessor for this facility. It is approximately 17,000
square feet and the lease expires in May 2002.
The Company believes that its facilities are suitable for their present and
intended purposes and are adequate for the Company's current and expected level
of operation.
ITEM 3: LEGAL PROCEEDINGS
The Company is currently, and is from time to time, subject to claims and
suits arising in the ordinary course of its business, including those relating
to intellectual property matters, product liability, safety and health and
employment matters. In certain such actions, plaintiffs request punitive or
other damages that may not be covered by insurance. The Company accrues for
these items as they become known and can be reasonably estimated. It is the
opinion of management that the various asserted claims and litigation in which
the Company is currently involved will not have a material adverse effect on the
Company's financial position or results of operations. However, no assurance can
be given as to the ultimate outcome with respect to such claims and litigation.
The resolution of such claims and litigation could be material to the Company's
operating results for any particular period, depending upon the level of income
for such period.
On March 5, 1996, Packard sued EG&G Instruments, Inc., a subsidiary of
EG&G, Inc., in District Court I in Munich, Germany, 21st Civil Division. In this
suit, Packard contended that an EG&G Instruments, Inc. product infringed upon a
Packard German patent covering a Packard Viewplate product. Both parties dropped
this lawsuit in late March, 1998.
On November 2, 1998, the Company settled the lawsuit brought against it in
1996 by EG&G Instruments, Inc. In the lawsuit, EG&G Instruments, Inc. alleged
that the Company infringed on a patent surrounding EG&G's automatic pole-zero
cancellation circuit. The settlement calls for the Company to make payments to
EG&G totaling $10 million for a license to the related technology through the
year 2000 and to settle the litigation. The Company also received a
royalty-bearing license for years subsequent to calendar 2000. Of the total
payments of $10 million, $4 million was paid in November, 1998; $3 million was
paid in January, 1999; and the remaining $3 million
11
<PAGE>
will be paid in January, 2000. The Company is required to make these payments,
regardless of whether the Company uses, sells or manufactures products which may
infringe on the patent referred to above.
The Company and provincial authorities in Groningen, The Netherlands, are
in the process of negotiating a remediation plan involving groundwater
contamination at the Company's Duinkerkenstraat facility. The Company believes
that the causes of this contamination entirely predate the Company's acquisition
of Packard in 1986 and had sought indemnification under the purchase agreement
from United Technologies Automotive Holdings, Inc. ("UTAH"), a subsidiary of
United Technologies Corporation. The Company agreed to accept a lump-sum payment
in August, 1998, of $1.25 million from UTAH and fully released them from their
indemnification obligations. Packard BioScience BV ("PBBV") has accrued for its
expected obligations to remediate the site, however, there can be no assurance
that PBBV will not incur any additional costs.
Two unrelated lawsuits have been brought against the Company by former
employees. The Company believes that the asserted claims are without merit, and
intends to vigorously defend against both claims. Although there can be no
assurances with respect to the outcome of litigation, the Company believes that
neither action will have a material effect on the results of operations or
financial position of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ending December 31, 1998.
12
<PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has not been registered under The Securities Act
of 1933 and is not publicly traded. As a result, there are no established public
trading markets for such securities. The fair values noted in the table below
are based upon annual independent appraisals, discounted to reflect the effect
of a lack of liquidity, with the exception of the first three quarters of 1997
which are based upon the arm's-length value assigned to the Company's common
stock in connection with the Recapitalization.
The fair market value of the Company's common stock as of the end of each
quarter of 1998 and 1997, is indicated below (all amounts reflect the Company's
one-for-one stock dividend declared in May 1997, described in Note 5 to the
consolidated financial statements contained herein):
1998 1997
---- ----
1st Quarter............................ $13.96 $11.125
2nd Quarter............................ $13.96 $11.125
3rd Quarter............................ $13.96 $11.125
4th Quarter............................ $16.76 $13.96
No dividend was paid during 1998 or 1997. In connection with the
Recapitalization transaction effected in March, 1997, the Company is prohibited
from paying any future cash dividends (refer to ITEM 7: MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and Note 4 to the
consolidated financial statements included in Part II of this Form 10-K).
As of March 19, 1999, there were 190 record holders of the Company's common
stock.
ITEM 6: SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data with respect to the Company for the periods ended and as of the dates
indicated. The selected historical consolidated financial data for the years
ended December 31, 1998, 1997 and 1996 are derived from the audited consolidated
financial statements of the Company included elsewhere in this Form 10-K. This
information should be read in conjunction with the consolidated financial
statements of the Company, the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Form 10-K. The selected historical consolidated financial data for the
years ended December 31, 1995 and 1994, are derived from audited consolidated
financial statements of the Company that are not included in this Form 10-K.
13
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
(Dollars in Thousands, Except Per Share Amounts)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
Revenues ...................................... $ 165,384 $ 169,114 $ 184,018 $ 184,113 $ 228,164
Cost of revenues .............................. 85,299 82,635 85,757 87,616 113,261
------------ ------------ ------------ ------------ ------------
Gross profit .................................. 80,085 86,479 98,261 96,497 114,903
Research and development
expenses ................................. 13,726 14,414 17,852 23,480 29,228
Selling, general and administrative
expenses .................................. 45,062 47,322 48,830 49,855 54,969
Sale of product line (1) ...................... -- -- -- -- (10,753)
Settlement of litigation (2) .................. -- -- -- -- 12,144
Other charges (3) ............................. 3,450 -- 837 18,429 6,120
------------ ------------ ------------ ------------ ------------
Income from operations ........................ 17,847 24,743 30,742 4,733 23,195
Interest expense .............................. (558) (616) (122) (18,119) (21,270)
Other income (expense), net ................... 2,940 1,153 1,149 790 612
Gain on sale of stock (4) ..................... -- -- -- -- 3,155
Flood savings (5) ............................. 551 -- -- -- --
------------ ------------ ------------ ------------ ------------
Income (loss) before provision
for income taxes and minority
interest .................................. 20,780 25,280 31,769 (12,596) 5,692
Provision for income taxes .................... 8,470 9,875 11,187 5,941 3,787
Minority interest in income of
subsidiary ............................... 768 800 1,346 218 --
------------ ------------ ------------ ------------ ------------
Net income (loss) ............................. $ 11,542 $ 14,605 $ 19,236 $ (18,755) $ 1,905
============ ============ ============ ============ ============
Weighted average, diluted, shares
outstanding (6) ........................... 26,646,136 25,882,444 25,139,484 12,463,671 9,114,832
Diluted earnings (loss) per
share (6) ................................. $ 0.43 $ 0.56 $ 0.77 $ (1.50) $ 0.20
Balance Sheet Data:
Working capital ............................... $ 44,776 $ 51,341 $ 59,216 $ 32,265 $ 24,747
Total assets .................................. 115,212 120,602 137,925 140,651 169,134
Long-term debt (net of current
portion) .................................. 2,399 1,753 2,037 192,193 190,117
Stockholders' equity (deficit) ................ 65,867 72,429 80,593 (112,014) (108,563)
</TABLE>
- -----------
(1) Represents the gain recognized by the Company in connection with the sale
of a product line during 1998 (refer to Note 13 to the consolidated
financial statements included herein).
(2) Represents the cost of settling a lawsuit during 1998, including associated
legal fees (refer to Note 8 to the consolidated financial statements
included herein).
(3) Amount in 1994 relates to a restructuring charge incurred in connection
with the Company's shutdown of its Itasca, Illinois, facility and the
relocation of most of those operations to Meriden, Connecticut. Most of the
costs incurred related to employee terminations and a lease buy-out.
Amounts in 1996 and 1997 relate to expenses incurred in connection with the
Recapitalization (refer to Note 11 to the consolidated financial statements
included herein). The 1998 amount represents charges to write-off the value
of in-process research and development acquired during 1998 (refer to Note
12 to the consolidated financial statements included herein).
(4) Represents the gain recognized on sale of equity securities sold by the
Company during 1998.
(5) During 1994, the recorded obligation associated with terminating a lease
obligation of the Company's old headquarters, which were flooded in 1992,
was settled for an amount less than that accrued as of December 31, 1993.
14
<PAGE>
(6) The weighted average shares outstanding and earnings (loss) per share
amounts have been computed based on the average shares outstanding during
each of the periods presented, including the impact of outstanding options
determined under the treasury stock method, with the exception of 1997. The
1997 weighted average shares outstanding and loss per share amounts exclude
the impact of outstanding options as their effect is anti-dilutive.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes included elsewhere in
this Form 10-K.
This report contains statements which, to the extent they are not
recitations of historical facts, constitute "forward-looking" statements. 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, the
Company supplies bioanalytical instruments and related biochemical supplies and
services to the drug discovery and molecular biology markets, and through
Canberra, the Company manufactures and sells analytical instruments used to
detect, identify and quantify radioactive materials for the nuclear industry and
related markets.
15
<PAGE>
Results of Operations (Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Packard ............................................. $ 122,676 $ 120,286 $ 146,237
Canberra ............................................ 61,342 63,827 81,927
--------- --------- ---------
184,018 184,113 228,164
--------- --------- ---------
Gross profit:
Packard ............................................. 68,158 65,918 77,148
Canberra ............................................ 30,103 30,579 37,755
--------- --------- ---------
98,261 96,497 114,903
--------- --------- ---------
Operating expenses:
Research and development ............................ 17,852 23,480 29,228
Selling, general and administrative ................. 48,830 49,855 54,969
Purchased research and development
charges .......................................... -- -- 6,120
Sale of product line ................................ -- -- (10,753)
Settlement of litigation ............................ -- -- 12,144
Recapitalization charges ............................ 837 18,429 --
--------- --------- ---------
Income from operations ................................. 30,742 4,733 23,195
Interest expense ....................................... (122) (18,119) (21,270)
Other income, net ...................................... 1,149 790 612
Gain on sale of stock .................................. -- -- 3,155
--------- --------- ---------
Income (loss) before provision for
income taxes and minority interest .................. 31,769 (12,596) 5,692
Provision for income taxes ............................. 11,187 5,941 3,787
Minority interest in income of
subsidiary .......................................... 1,346 218 --
--------- --------- ---------
Net income (loss) ...................................... $ 19,236 $ (18,755) $ 1,905
========= ========= =========
</TABLE>
Consolidated revenues increased 23.9%, from $184.1 million in 1997 to
$228.2 million in 1998. Excluding the impact of changes in foreign currency
exchange rates, consolidated revenues would have been $1.2 million, $8.3 million
and $6.0 million higher than reported in 1998, 1997 and 1996, respectively. The
1998 period reflects the acquisition of CCS and BioSignal since their
acquisition dates of March 31, 1998, and July 1, 1998, respectively. During the
period from their acquisition through December 31, 1998, CCS and BioSignal have
generated net third-party revenues (excluding sales through the Company's
subsidiaries) of $10.9 million and $1.4 million, respectively, and operating
profit of $4.3 million and $0.2 million, respectively. In September, 1997, the
Company acquired Aquila. During the four months ended December 31, 1997, and the
year ended December 31, 1998, Aquila generated net third-party revenues totaling
$4.8 million and $17.3 million, respectively, and operating profit of $0.9
million and $3.9 million, respectively.
Packard's revenues increased in 1998, as compared to 1997, due primarily to
the acquisitions of CCS and BioSignal as well as increased third-party shipments
from Packard's Illinois production facility. The stronger U.S. dollar during
1998 caused sales to be $1.0 million lower than they would have been had
exchange rates been the same as during 1997. Several of Packard's overseas
distribution operations experienced strong sales growth, particularly the U.K.
and France. Revenues at the Company's Japanese subsidiary, Packard Japan KK
("PJKK"), declined approximately $1.7 million in 1998 versus the 1997 level due
partially to the stronger U.S. dollar in 1998 as well as reduced sales volume
resulting from economic conditions and pressures in the Far East.
Revenues of Packard decreased slightly during 1997 as compared to 1996 due
primarily to the stronger U.S. dollar during 1997 and reduced sales at PJKK. The
lower sales volume at PJKK was a result of the Japanese government's efforts
during 1996 to stimulate the Japanese economy through increased spending in
areas including the Company's products and services. During 1997, the Japanese
government's spending level in these areas decreased dramatically. Sales at PJKK
declined from $21.7 million in 1996 to $13.1 million in 1997. Of this decline,
$1.5 million was attributable to the stronger U.S. dollar, compared to the
Japanese yen, during 1997. This decrease was partially offset by increases in
sales of new products including the HTRF instrument, Kryptor, liquid handling
equipment and imagers, as well as increased chemical and supply sales.
Revenues of Canberra increased significantly during 1998 compared to 1997
due to the inclusion of Aquila for the full year 1998 ($17.3 million in
revenues) as opposed to only the four months ending December 31, 1997 ($4.8
million in revenues) (post-acquisition period) as well as growth in Canberra's
service business, particularly in the U.S. Growth in service was one of
Canberra's
16
<PAGE>
primary strategic initiatives during 1998. Canberra's distribution operations in
France and Germany experienced strong sales growth, offset by declining sales
performances at all other overseas distribution subsidiaries. Foreign exchange
rates had a nominal effect on net revenues of Canberra in 1998 compared to 1997.
During 1998, the Company obtained a 55% ownership position in MCS, a mobile
waste characterization operation. In connection with this ownership, Canberra
contributed equipment to MCS to be used in its characterization services. Such
contribution was treated as a sale, and gross margin was recognized to the
extent of the ultimate minority interests in MCS (45%). Canberra's net revenues
for 1998 include $2.1 million associated with the equipment contribution.
Canberra's increased revenues in 1997 of $2.5 million to $63.8 million was
due primarily to the acquisition of Aquila in September, 1997. This increase was
negatively affected by the unfavorable exchange impact of the strengthening U.S.
dollar in 1997 as compared to 1996, as well as pressure within some of the
European countries in which Canberra operates to purchase products manufactured
within such countries rather than from overseas.
The Company's gross profit increased 19.1% in 1998 as a result of the
acquisitions discussed above and growth in the Company's U.S. sales. This
increase was partially offset by lower margins generated at certain overseas
locations as well as the unfavorable impact of the stronger U.S. dollar during
1998. The 1998 gross margin includes charges totaling $1.5 million associated
with the write-off of the step-up in acquired CCS and BioSignal inventory which
was recorded at fair value at the dates of acquisition as required under
purchase accounting. In addition, the 1998 margin reflects $1.3 million of costs
associated with the equipment contributed to MCS discussed above.
The decrease in the Company's gross profit in 1997 as compared to 1996 was
due to the lower sales volume at PJKK as well as unfavorable currency exchange
rate fluctuations. PJKK's gross profit declined from $10.2 million in 1996 to
$6.0 million in 1997. This decline was partially offset by $1.8 million of gross
profit generated by Aquila since the acquisition, as well as new product
introductions mentioned above. The Aquila gross profit was partially offset by a
one-time $0.8 million charge to write-off acquired inventory recorded a fair
value, similar to CCS and BioSignal discussed above.
The Company's research and development costs increased from $23.5 million
in 1997 to $29.2 million in 1998. The 1998 amount includes certain one-time
charges to terminate certain collaborative arrangements totaling $3.8 million.
The remainder of the 1998 increase, as well as most of the 1997 increase,
reflects investments, primarily Packard, in the areas of product enhancement,
new product development and other collaborative research and development
arrangements.
The increase in the Company's selling, general and administrative costs
during 1998 is primarily due to the addition of CCS and BioSignal. Similarly,
the increase in 1997 over 1996 was due to the inclusion of Aquila during a
portion of 1997.
In connection with the acquisitions of CCS and BioSignal, the Company
recognized charges totaling $6.1 million representing the value of acquired
in-process research and development ("R&D"), as determined by an independent
appraiser, which had not reached technological feasibility and had no
alternative future uses at the acquisition dates. The values were determined
utilizing the percentage-of-completion guidelines for valuing acquired
in-process R&D recently put forth by the Securities and Exchange Commission.
During 1997 and 1996, the Company incurred charges totaling $18.4 million and
$0.8 million, respectively, associated with a Recapitalization transaction
completed in March, 1997. Refer to Note 11 to the consolidated financial
statements included in this Form 10-K for a detailed description of the
transaction and related costs.
In December, 1998, the Company sold Packard's gas generation product line,
realizing a pre-tax gain of approximately $10.8 million.
In November, 1998, the Company settled a patent infringement lawsuit
brought against it in 1996. The settlement provides for payments to be made to
the plaintiff totaling $10 million for a license to the related technology
through the year 2000 and to settle the litigation. The Company also received a
royalty-bearing license for years subsequent to calendar 2000. As the Company is
required to make these payments regardless of whether it uses, sells or
manufactures products which may infringe on the underlying patent, the total
settlement, plus $2.1 million in related legal costs incurred by the Company,
was recorded in 1998. Refer to ITEM 3: LEGAL PROCEEDINGS included elsewhere in
this Form 10-K for more information.
Interest expense increased during 1998 due to the increased debt incurred
in connection with the Recapitalization being outstanding for a full year versus
a partial year in 1997, as well as to additional debt incurred to effect the
1998 acquisitions discussed above. Similarly, the increase in interest expense
in 1997, as compared to 1996, was due to the increased Recapitalization-related
indebtedness.
During 1998, the Company sold all of the marketable equity securities it
held in a publicly-traded company, realizing gains totaling $3.2 million.
17
<PAGE>
The Company's effective tax rate, expressed as a percentage of pre-tax
income, is not meaningful in 1998. The 1998 consolidated income tax provision
reflects the following:
a) income taxes provided on taxable income generated overseas;
b) no tax benefit provided on the write-off of acquired in-process R&D;
c) a valuation allowance has been provided against foreign tax credits
generated in 1998 which will be carried forward to future years as
well as state net operating loss carryforwards as realization of such
carryforwards is uncertain; and
d) no net provision for federal income taxes provided on
domestically-generated taxable income in light of the Company's net
operating loss carryforward generated in 1997 that was utilized in
1998.
The 1997 consolidated effective tax rate was 47%, representing a provision
on a pre-tax loss. The effective rate in 1997 reflects the Company's recognition
of a valuation allowance against the future tax benefit associated with the 1997
domestic net operating loss carryforward and credit carryforwards. As
realization of such carryforwards was uncertain, a valuation allowance was
provided against the related tax assets. The effective tax rate in 1996 was 35%.
Liquidity and Capital Resources
Approximately half of the Company's revenues are generated from foreign
sources, most of which is denominated in currencies other than the U.S. dollar.
As such, the Company's reported operating results are effected by changes in
foreign currency exchange rates. A strengthening U.S. dollar against the
currencies through which the Company conducts foreign business has a negative
impact on U.S. dollar reported operating results. To manage the exposure of
fluctuating foreign currency exchange rates, the Company employs hedging
strategies. Refer to Note 1 to the consolidated financial statements for a
description of the Company's hedging practices.
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 1997, in connection with a Recapitalization transaction,
the Company increased its long-term indebtedness by $190.0 million and, as a
result, debt service requirements were increased significantly as compared to
historical levels. The Company has, as of March 19, 1999, approximately $42.3
million of funds available under a $75 million 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 Note
4 to the consolidated financial statements contained in this Form 10-K for a
description of the indebtedness and repayment terms and conditions.) Prior to
the time at which significant levels of principal on the term loan and
subordinated notes become 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, to
fund contingent payments associated with recent acquisitions (see Note 12 to the
consolidated financial statements included herein) and to fund acquisitions. The
Company expects that, should the generation of excess available operating cash
flow be insufficient, it will 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 as well as technology related
investments.
Operating activities generated $13.0 million, $2.2 million and $33.2
million of cash during 1998, 1997 and 1996, respectively. The increased cash
flow in 1998 is primarily a result of 1) additional operating cash flow
generated by CCS and BioSignal, acquired during 1998; and 2) the net cash gain
of approximately $10.8 million realized on the sale of a Packard product line.
In addition, the 1998 business reflects improved operating performance in the
Company's core business segments, particularly Canberra. These improvements and
increases were partially offset by the settlement of a patent infringement
lawsuit during 1998 (see ITEM 3: LEGAL PROCEEDINGS) which resulted in the
Company's payment of $4 million, plus $2.1 million in related legal costs, in
1998 with additional payments of $3 million to be made in each of 1999 and 2000.
The reduced operating cash flow in 1997 compared with 1996 was primarily a
result of the cash portion of the Recapitalization charge ($9.0 million)
recognized in 1997, the additional interest incurred on the Recapitalization
indebtedness and the lower operating results during 1997 as compared to the
prior year. The Company utilized a significant amount of cash (approximately
$25.1 million) during 1997 and 1996 to fund Recapitalization related fees and
other related expenses.
18
<PAGE>
During 1998, the Company's investing cash flow requirements consisted
primarily of the following:
o In March 1998, the Company acquired 100% of the outstanding common stock of
CCS. 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 cash payment was funded through a
borrowing under the revolving credit facility, a portion of which was
subsequently paid down. 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. During the period from acquisition through December 31,
1998, the maximum contingent payment was earned ($4.5 million), which was
paid in March 1999. Such contingent payment, as well as future contingent
payments, will be made from available cash, borrowings under the revolving
credit facility, or a combination of these sources. (Refer to Note 12 to
the consolidated financial statements included herein.)
o In July 1998, the Company acquired the remaining 81% ownership interest in
BioSignal, having previously acquired a 19% ownership interest (see below).
The Company paid approximately $8.6 million in cash and issued 7,163 shares
of the Company's common stock (valued at $13.96 per share) at the
acquisition date. The cash portion of the acquisition was funded through a
borrowing on the revolving credit facility, a portion of which was
subsequently paid down. There are no future contingent payments involved in
this acquisition. (Refer to Note 12 to the consolidated financial
statements included herein.)
o Net proceeds totaling $4.1 million were generated in connection with the
Company's sale of equity securities in a publicly-traded company.
During 1997, the Company's investing cash flow requirements consisted
primarily of the following:
o 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
Note 12 to the consolidated financial statements included herein.) The
acquisition has been funded through a combination of cash on hand and notes
payable to the minority stockholder. PJKK has funded, and the Company
expects it will continue to fund, the remainder of the debt service
obligations as they become due without additional funding by the parent
company.
o In August 1997, the Company acquired an initial 19% equity interest in
BioSignal. The initial investment of approximately $1.5 million was funded
through available cash.
o In September 1997, the Company acquired Aquila. (Refer to Note 12 to the
consolidated financial statements included herein.) The Company financed
the initial purchase price of approximately $6.7 million, including costs
incurred in connection with the acquisition, through a borrowing under the
revolving credit facility discussed above. A portion of this borrowing was
subsequently paid down. The Company may make additional future payments
contingent upon post-acquisition operating results through calendar year
2000 up to a maximum of $10.4 million in additional payments. For the
period from its acquisition in September, 1997, through December 31, 1998,
$4.5 million of such contingent payments have been earned, $1.7 million of
which the Company had paid as of December 31, 1998, and the remainder was
paid in March 1999. The contingent payments have and will be made from
available cash, borrowings on the revolving credit facility, or a
combination of these sources.
In addition to the above investments, the Company's combined capital
expenditures and technology-related investments totaled approximately $9.1
million in 1998 as compared with $5.7 million and $6.8 million in 1997 and 1996,
respectively.
The revolving credit facility contains certain financial covenants with
which the Company must comply. At December 31, 1998, the Company was in
compliance with all such requirements.
The revolving credit facility limits, among other things, the amount of
annual expenditures which the Company may incur associated with capital and
technology items to a maximum of $10 million plus up to $3 million of unspent
funds from the prior year. On November 25, 1997, the Company obtained an
amendment to the revolving credit agreement which allows the Company to exclude
from the definition of capital expenditures the lesser of the net proceeds of
certain asset sales, as defined, or certain costs relating to enhancing the
Company's management information systems. As of December 31, 1998, $15.3 million
was available for capital expenditures and technology acquisitions during 1999.
The revolving credit facility prohibits the Company from paying cash
dividends on its common stock. In addition, the guarantee and collateral
agreement supporting the revolving credit facility required the Company to
pledge 65% of its stock ownership in foreign subsidiaries.
19
<PAGE>
Seasonality
Below is a table summarizing the seasonality of the Company's revenues and
operating results by quarter, by year:
<TABLE>
<CAPTION>
For The Year Ended December 31, 1998
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues................. 21% 24% 24% 31%
Operating Profit*........ 23% 28% 24% 25%
<CAPTION>
For The Year Ended December 31, 1997
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues................. 23% 25% 23% 29%
Operating Profit*........ 29% 29% 16% 26%
<CAPTION>
For The Year Ended December 31, 1996
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues................. 25% 24% 22% 29%
Operating Profit* ....... 31% 24% 15% 30%
</TABLE>
* Percentages exclude the effect of 1) the in-process R&D charges in 1998;
2) the inventory step-up amortization in 1998 and 1997; 3) the litigation
settlement charge in 1998; 4) the gain recognized in connection with the 1998
sale of a product line; and 5) the Recapitalization charges recorded during 1997
and 1996.
Seasonality in revenues, which is typical in most years, is due primarily
to Canberra's dependence upon customers' seasonal purchasing patterns. Operating
profit, as a percentage of the total year, had historically been at its lowest
in the third quarter. The first quarter of 1996 reflects the unusually strong
revenues and profits generated at PJKK. The first and second quarter of 1997
operating profit percentages reflect the overall decline in operating results
for the full year and, in particular, the lower fourth quarter of 1997 operating
performance. A portion of the third quarter and the fourth quarter of 1997
reflect the addition of Aquila. The quarterly amounts and percentages for 1998
reflect the addition of CCS effective April 1, 1998, and the addition of
BioSignal effective July 1, 1998.
Backlog
As of February 28, 1999 and 1998, the Company's order backlog was
approximately $37.3 million and $34.2 million, respectively. The Company
includes in backlog only those orders for which it has received purchase orders
and does not include in backlog service contracts or orders for service. The
Company's backlog as of any particular date may not be representative of actual
sales for any succeeding period. All of the February 28, 1999, backlog should be
shipped by the Company and recognized as revenues during the remainder of 1999.
Year 2000
The Company has been and continues assessing the implications of, and
implementing changes relating to, the year 2000 ("Y2K") issue as it affects the
Company's business operations. The term "Y2K issue" is used to refer to all
difficulties the turn of the century may introduce to users of computers and
other electronic equipment. In general terms, the Y2K issue arises from the fact
that many existing computer systems and other equipment containing
date-sensitive embedded technology (including non-information technology
equipment and systems) use only two digits to identify a year in the date field,
with the assumption that the first two digits of the year are always "19." This,
as well as certain other common date-related programming errors, may result in
miscalculations, other malfunctions or the total failure of such systems. Some
of the Company's products contain date-sensitive technology, and the Company's
business operations are dependent upon the proper functioning of computer
systems and other equipment containing date-sensitive technology. A failure of
such products, systems or equipment to be Y2K compliant could have a material
adverse effect on the Company. If not remedied, potential risks include business
interruption or shutdown, loss of customers, harm to the Company's reputation,
financial loss and legal liability.
The Company's assessment of the Y2K issue is organized to address the three
major affected areas: 1) products and services which the Company provides to its
customers; 2) supplier implications; and 3) administrative and management
information systems used by the Company. The assessment and resulting action
plans are in various stages of completion. Areas which require corrective action
have been identified as a result of the work performed to date and a significant
amount of such corrective action has already been successfully completed.
However, additional assessments need to be performed by the Company in order to
minimize the risks
20
<PAGE>
and exposures associated with Y2K. The following is an overview of the Company's
current state of readiness as it relates to Y2K along with a summary of the
process the Company plans to follow to address Y2K issues, including the related
potential risks and costs:
1) Products and Services
Within the products and services area, the Company has been divided
into its major business segments, Canberra and Packard. Certain
management personnel within each segment have been assigned the
responsibility to perform the Y2K product assessments. Both Canberra
and Packard have completed testing of all of their active products to
identify Y2K-related problems, and each has disclosed the results of
those tests on the Company's internet web pages. Ad hoc reviews have
been, and will continue to be, performed on inactive product lines to
assess the likelihood of Y2K problems occurring and the corrective
action, if any, that will be taken.
Canberra has developed and tested upgrades for each of its active
products that the Company believes will remedy known Y2K problems.
Packard has developed and tested upgrades for most of its active
products that the Company believes will remedy known Y2K problems and
is working to complete development and testing of additional fixes by
April 30, 1999.
The Company has adopted a policy of notifying all of its customers of
the Y2K status of the product purchased by such customers, either
through direct mailing or through direct telephone contact with the
customer. Current customers of the Company are asked to review the
Company's internet web page for the most up-to-date information with
respect to the Company's products. While it is the Company's objective
to notify all of its customers of potential Y2K issues, and to
implement corrective actions in a timely manner where feasible, there
can be no assurance that the Company will accomplish this objective or
adequately address all Y2K issues or problems which may arise.
2) Vendors/suppliers
Company management has contacted each of its vendors and service
providers to determine whether the vendor/service provider is Y2K
compliant, and what risks non-compliance poses to the Company. To
date, the Company has received responses from a majority of its
vendors/suppliers. The Company has identified certain of its
vendors/suppliers which it believes to be critical to the Company's
day-to-day operations. To the extent these critical vendors/suppliers
do not respond to the Company's inquiries, or are not Y2K compliant,
the Company intends to contact each individually to further assess
their respective Y2K compliance levels, and to develop contingency
plans to remediate the risks posed by such vendors/suppliers. If the
third parties with which the Company interacts have Y2K problems that
are not remedied, resulting problems could include the inability to
obtain crucial supplies or services, the loss of telecommunications
and electrical service, the receipt of inaccurate financial and
billing-related information, and the disruption of capital flow
potentially resulting in liquidity stress.
As part of the assessment in this area, contingency plans are being
developed in order to minimize the effect of Y2K considerations. Such
contingency plans may include identification of acceptable,
alternative suppliers and vendors where such Y2K exposures appear not
to exist or advance purchasing of required supplies or materials at
levels necessary to sustain business operations for an extended period
of time if a Y2K problem were expected to arise.
3) Administration
The Company has completed an internal audit of all hardware and system
software utilized by the Company. The Company believes it has
identified all hardware and software that is not Y2K compliant, and is
in the process of replacing such non-compliant hardware and software
where deemed appropriate. The Company estimates that 80% of such items
have been replaced to date, and expects to have all material
non-compliant systems remediated, upgraded or replaced on or before
May 31, 1999. Testing will be on-going as items are replaced. The
Company may need to make capital expenditures of up to $0.75 million
to purchase lap-top and desk-top computers, many of which were already
scheduled for replacement. All other administrative systems are
expected to be Y2K compliant by the third quarter of 1999. The Company
does not expect this portion of the Y2K compliance program to be
material to the consolidated financial position or results of
operations.
The Company is following a formal assessment to address other Y2K
administrative implications such as facility security systems, HVAC
requirements, production machinery and power needs, etc. The Company
expects to complete such assessments by August 31, 1999. Many of the
Y2K exposures identified associated with administrative technology can
be addressed through manual versus automated means or other acceptable
contingency plans. As part of management's assessment, such
contingency plans are being identified.
21
<PAGE>
4) Costs
The Company estimates the total cost associated with required
modifications to become Y2K compliant to be $2.5 million. The total
amount expended through December 31, 1998, was approximately $1.75
million, of which $0.15 million related to the cost to repair or
replace software and related hardware problems, approximately $1.5
million related to the cost of replacing, upgrading or remediating
non-compliant product, and approximately $0.1 million related to the
cost of identifying and communicating with customers and other third
parties. The estimated future cost of completing the Company's Y2K
compliance efforts is expected to be approximately $0.75 million, of
which $0.25 million relates to the cost to repair or replace software
and related hardware problems, approximately $0.5 million relates to
the cost of replacing, upgrading or remediating non-compliant product,
and an immaterial amount associated with identifying and communicating
with customers and other third parties. The Company has funded, and
expects to continue to fund, the costs of its Y2K efforts through
operating cash flow, and to expense such costs as incurred.
5) Risk
This description of matters relating to the Y2K problem contains a
number of forward-looking statements. The Company's assessment of the
costs of its Y2K program and the timetable for completing its Y2K
preparations are based on current estimates, which reflect numerous
assumptions about future events, including the continued availability
of certain resources, the timing and effectiveness of third-party
remediation plans and other factors. The Company can give no assurance
that these estimates will be achieved, and actual results could differ
materially from those currently anticipated. In addition, there can be
no assurance that he Company's Y2K program will be effective or that
its contingency plans will be sufficient. Specific factors that might
cause material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability
to locate and correct relevant computer software codes and embedded
technology, the results of internal and external testing and the
timeliness and effectiveness of remediation efforts of third parties.
Due to the general uncertainty in the Y2K problem, resulting in part
from the uncertainty as to the Y2K readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether
the consequences of Y2K failures will have a material impact on the
Company's results of operations, liquidity or financial condition. The
Company believes that with the completion of its Y2K compliance plans
as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
The Euro
Effective January 1, 1999, the European single currency called "the Euro"
was officially introduced as a major world currency. At its introduction, eleven
of the fifteen European Union ("EU") countries replaced their existing
currencies with the Euro. During the three years following its introduction,
adopting countries have agreed to phase-out existing national currencies. During
this transition period, existing national currencies of adopting countries will
co-exist with the Euro at fixed exchange rates. The Euro is expected to 1)
create greater price competitiveness and uniformity throughout the EU by
eliminating the effect of fluctuating currencies; 2) enhance cross-border trade
within the EU; and 3) lower costs of conducting business within the EU by
stabilizing or reducing interest rates and exchange rate effects.
The Company has evaluated the impact which the Euro will have on its
worldwide operations. Specific areas considered were 1) foreign exchange risk
management policies; 2) pricing strategies; 3) information technology
requirements associated with implementing the Euro; and 4) related tax and
financial reporting considerations. Management does not believe that the Euro
will have a material effect on the Company's results of operations or financial
position.
Subsequent Events
On January 7, 1999, the Company acquired Harwell Instruments from AEA
Technologies plc, located in the United Kingdom. The Company formed a new UK
subsidiary called Harwell Instruments, Ltd. ("Harwell"), which executed the
acquisition. Harwell specializes in instruments used in waste assay, safeguards,
and decommissioning and decontamination. In addition, it manufactures
traditional environmental and health physics monitoring instruments, as well as
specialized reactor control and monitoring systems used extensively by nuclear
energy generation facilities in extending the life cycle of such plants. The
Company paid 5.6 million British pounds (approximately $9.2 million including
acquisition costs) for Harwell. The funds were borrowed under the revolving
credit facility through its offshore fronting arrangement. The borrowing is
denominated in Euros (10.7 millon). The Company may make additional payments
based upon net assets received.
22
<PAGE>
On March 4, 1999, the Company signed an agreement to purchase the net
operating assets of Tennelec/Nucleus, Inc. ("TNI") and formed a new subsidiary,
Tennelec, Inc., to effect the purchase. TNI manufactures and distributes nuclear
instrumentation and high-purity germanium crystals. The Company will pay
approximately $9.3 million, subject to adjustment, for the actual net operating
assets received. The acquisition is expected to become effective on or about
April 1, 1999. The acquisition will be funded through a borrowing under the
revolving credit facility.
On March 19, 1999, the Board of Directors of the Company passed a
resolution to increase the number of stock options available under the company
stock option plan by 1 million options.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company purchases various foreign currency forward contracts primarily
for the purpose of hedging firm inventory purchase commitments. Refer to Note 1
to the consolidated financial statements contained herein for a description of
the Company's hedging practice as it relates to foreign currency transactions.
The Company is subject to fluctuations in the variable interest rate associated
with borrowings under the revolving credit facility.
23
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants ................................................................................ 24
Consolidated Balance Sheets as of December 31, 1997 and 1998 ............................................................ 25
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the Years Ended December 31, 1996,
1997 and 1998 ........................................................................................................ 26
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1996, 1997 and 1998 .......... 27
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 .............................. 29
Notes to Consolidated Financial Statements .............................................................................. 30
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Packard BioScience Company:
We have audited the accompanying consolidated balance sheets of Packard
BioScience Company (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of income (loss) and
comprehensive income (loss), stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Packard BioScience Company
and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 23, 1999,
except for Footnote 15,
for which the date is
March 4, 1999
24
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1998
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 10,575 $ 7,929
Accounts receivable, net ............................................... 40,688 48,218
Inventories, net ....................................................... 27,538 30,633
Deferred income taxes .................................................. 1,970 4,423
Other .................................................................. 4,272 6,268
--------- ---------
Total current assets .......................................... 85,043 97,471
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and improvements .................................................. 1,755 1,820
Buildings and improvements ............................................. 15,308 17,236
Machinery, equipment and furniture ..................................... 16,097 24,413
--------- ---------
33,160 43,469
Less: Accumulated depreciation ........................................ (15,240) (17,902)
--------- ---------
17,920 25,567
--------- ---------
OTHER ASSETS:
Goodwill, net of accumulated amortization .............................. 9,498 24,030
Deferred financing costs, net of accumulated amortization .............. 9,891 8,346
Investments ............................................................ 8,216 850
Other .................................................................. 10,083 12,870
--------- ---------
37,688 46,096
--------- ---------
$ 140,651 $ 169,134
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable .......................................................... $ 1,929 $ 3,221
Current portion of long-term obligations ............................... 1,794 3,496
Accounts payable ....................................................... 13,995 16,956
Accrued liabilities .................................................... 21,142 34,076
Income taxes payable ................................................... 2,302 2,603
Deferred income ........................................................ 11,616 12,372
--------- ---------
Total current liabilities ..................................... 52,778 72,724
--------- ---------
LONG-TERM OBLIGATIONS, less current portion ................................ 192,193 190,117
--------- ---------
DEFERRED INCOME TAXES ...................................................... 4,167 5,489
--------- ---------
OTHER NONCURRENT LIABILITIES ............................................... 3,527 6,812
--------- ---------
COMMITMENTS AND CONTINGENCIES - See Note 8
MINORITY INTEREST IN EQUITY OF SUBSIDIARY .................................. -- 2,555
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Cumulative translation adjustment ...................................... (344) 1,448
Unrealized investment gains, net of taxes .............................. 2,885 --
--------- ---------
Accumulated other comprehensive income ................................. 2,541 1,448
Common stock ........................................................... 137 137
Retained earnings (deficit) ............................................ (10,220) (10,012)
--------- ---------
(7,542) (8,427)
Less: Treasury stock, at cost ......................................... 103,448 99,341
Deferred compensation ........................................... 1,024 795
--------- ---------
104,472 91,709
--------- ---------
Total stockholders' equity (deficit) .......................... (112,014) (108,563)
--------- ---------
$ 140,651 $ 169,134
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
25
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED
DECEMBER 31, 1996, 1997 AND 1998
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
NET PRODUCT SALES .................................................................. $ 124,067 $ 120,637 $ 154,685
SERVICE REVENUE .................................................................... 37,197 37,988 46,497
CHEMICALS AND SUPPLIES SALES ....................................................... 22,754 25,488 26,982
--------- --------- ---------
184,018 184,113 228,164
--------- --------- ---------
COST OF PRODUCT SALES .............................................................. 49,551 49,718 67,559
SERVICE EXPENSE .................................................................... 26,649 27,703 35,449
COST OF CHEMICALS AND SUPPLIES SALES ............................................... 9,557 10,195 10,253
--------- --------- ---------
85,757 87,616 113,261
--------- --------- ---------
Gross profit ................................................................ 98,261 96,497 114,903
RESEARCH AND DEVELOPMENT EXPENSES .................................................. 17,852 23,480 29,228
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ....................................... 48,830 49,855 54,969
PURCHASED RESEARCH AND DEVELOPMENT CHARGES (Note 12) ............................... -- -- 6,120
SETTLEMENT OF LITIGATION (Note 8) .................................................. -- -- 12,144
GAIN ON SALE OF PRODUCT LINE (Note 13) ............................................. -- -- (10,753)
RECAPITALIZATION CHARGES (Note 11) ................................................. 837 18,429 --
--------- --------- ---------
Operating profit ............................................................ 30,742 4,733 23,195
INTEREST EXPENSE ................................................................... (122) (18,119) (21,270)
INTEREST INCOME .................................................................... 1,149 790 612
GAIN ON SALE OF STOCK (Note 1) ..................................................... -- -- 3,155
--------- --------- ---------
Income (loss) before provision for income taxes and minority interest ....... 31,769 (12,596) 5,692
PROVISION FOR INCOME TAXES ......................................................... 11,187 5,941 3,787
MINORITY INTEREST IN INCOME OF SUBSIDIARY .......................................... 1,346 218 --
--------- --------- ---------
NET INCOME (LOSS) ........................................................... $ 19,236 $ (18,755) $ 1,905
========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE .................................................... $ 0.78 ($ 1.50) $ 0.21
========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE .................................................. $ 0.77 ($ 1.50) $ 0.20
========= ========= =========
Net income (loss) .................................................................. $ 19,236 ($ 18,755) $ 1,905
Other comprehensive income (loss):
Unrealized investment income (loss), net of income taxes ....................... -- 2,885 (990)
Reclassification adjustment, net ............................................... -- -- (1,895)
Foreign currency translation adjustments ....................................... (1,662) (2,746) 1,792
--------- --------- ---------
Other comprehensive income (loss) .................................................. (1,662) 139 (1,093)
--------- --------- ---------
Comprehensive income (loss) ........................................................ $ 17,574 ($ 18,616) $ 812
========= ========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
26
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Cumulative Unrealized Retained Treasury Stock
------------------- Paid-in Translation Investment Earnings -------------------- Deferred
Shares Amount Capital Adjustment Gains, Net (Deficit) Shares Amount Compensation
------ ------ ------- ---------- ---------- --------- ------ ------ ------------
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995 ...................... 12,899,219 $129 $ 1,030 $ 4,064 $ -- $ 74,827 464,227 $ (6,265) $(1,356)
Net shares issued in
connection with restricted
stock plan including
deferred compensation
and amortization .......... 1,602 36 138
Shares issued in connection
with exercise of stock
options, including related
tax benefits .............. 23,400 254
Purchase of treasury stock .. 313,642 (4,863)
Cash dividend paid - $ 40
per share .................. (4,972)
Change during year .......... (1,662)
Net income .................. 19,236
Other ....................... (3)
------------------------------------------------------------------------------------------------------
BALANCE, December 31,
1996 ...................... 12,924,221 $129 $1,320 $ 2,402 $ -- $ 89,088 777,869 $ (11,128) $(1,218)
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation
and amortization .......... (898) (6) 194
Shares issued in connection
with exercise of stock
options, including related
tax benefits .............. 798,500 8 17,758 (2) (200) 4
Purchase of treasury stock .. 9,389,469 (208,882)
Sale of treasury stock ...... (3,409) (1,104,160) 24,468
Recapitalization fees ....... (864) (3,252)
Stock dividend .............. (18,208) (77,142) (4,346,329) 95,340
Change during year .......... (2,746)
Net loss .................... (18,755)
Unrealized investment
gains,
net of income
taxes ..................... 2,885
------------------------------------------------------------------------------------------------------
BALANCE, December 31,
1997 ...................... 13,721,823 $137 $ 0 $ (344) $2,885 $(10,220) 4,716,649 $(103,448) $(1,024)
</TABLE>
27
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(Dollars in thousands, except share amounts)
(CONTINUED)
<TABLE>
<CAPTION>
Common Stock Cumulative Unrealized Retained Treasury Stock
------------------- Paid-in Translation Investment Earnings ---------------------- Deferred
Shares Amount Capital Adjustment Gains, Net (Deficit) Shares Amount Compensation
------ ------ ------- ---------- ---------- --------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net shares forfeited
in connection with
restricted stock
plan including
deferred compensation
and amortization ....... (8,100) (36) 229
Shares issued in
connection with
exercise of stock
options, including
related tax benefits ... 400 (406) (43,103) 932
Purchase of treasury
stock .................. 16,428 (227)
Sale of treasury
stock .................. (108) (10,000) 219
Issuance of shares in
connection with
acquisitions (1,147) (116,046) 3,183
Change during year ....... 1,792
Unrealized and realized
gains, net of income
taxes .................. (2,885)
Net income ............... 1,905
------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 13,714,123 $137 $ 0 $1,448 $ 0 ($10,012) 4,563,928 ($ 99,341) ($ 795)
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
28
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................................................... $ 19,236 ($ 18,755) $ 1,905
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of intangibles ............................................ 5,135 6,372 8,398
Amortization of deferred financing costs ................................................ -- 1,287 1,545
Purchased in-process research and development charges (see Note 12) ..................... -- -- 6,120
Write-off of acquired inventory step-up (see Note 12) ................................... -- 800 1,500
Compensation expense from stock options exercised ....................................... -- 9,436 --
Gain on sale of stock ................................................................... -- -- (3,155)
Minority interest in net income of subsidiary ........................................... 1,346 218 --
Deferred income taxes, net .............................................................. 802 1,113 (1,407)
Gain on sale of property, net ........................................................... -- -- (426)
Other ................................................................................... 371 39 (123)
Changes in assets and liabilities excluding effects from company and
product line acquisitions and dispositions:
(Increase) decrease in accounts receivable ............................................ (1,043) 3,077 (2,613)
Increase in inventories ............................................................... (653) (3,469) (1,971)
Decrease (increase) in other current assets ........................................... 2,111 852 (25)
Increase in other noncurrent operating assets ......................................... (459) (797) (1,387)
Increase in accounts payable and other accrued expenses ............................... 6,681 4,047 1,702
Decrease in deferred income ........................................................... (1,130) (333) (741)
Increase (decrease) in other noncurrent liabilities ................................... 790 (1,647) 3,637
--------- --------- ---------
Net cash provided by operating activities ............................................... 33,187 2,240 12,959
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of acquired cash ........................................... -- (7,491) (12,025)
Investments in equity securities .......................................................... (1,768) (9,065) (68)
Capital expenditures ...................................................................... (2,715) (3,622) (6,214)
Product lines, patent rights and licenses acquired ........................................ (4,046) (2,036) (2,889)
Proceeds from sale of fixed assets and investments ........................................ 43 5 4,181
--------- --------- ---------
Net cash used for investing activities .................................................. (8,486) (22,209) (17,015)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term obligations ....................................................... 23 206,710 41,500
Repayments of long-term obligations ....................................................... (693) (14,992) (43,058)
Purchase of treasury stock ................................................................ (3,751) (208,882) (121)
Proceeds from sale of treasury stock ...................................................... -- 21,059 481
Increase (decrease) in notes payable to banks ............................................. 1,529 (1,595) 1,291
Proceeds from exercise of stock options, including tax benefits ........................... 254 8,333 57
Recapitalization fees deferred or charged to equity (see Note 11) ......................... -- (15,295) --
Dividends paid ............................................................................ (4,972) -- --
--------- --------- ---------
Net cash provided by (used for) financing activities .................................... (7,610) (4,662) 150
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ..................................................... (1,780) (2,620) 1,260
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................................ 15,311 (27,251) (2,646)
CASH AND CASH EQUIVALENTS, beginning of year ................................................ 22,515 37,826 10,575
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year ...................................................... $ 37,826 $ 10,575 $ 7,929
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ................................................................................ $ 249 $ 10,191 $ 20,744
========= ========= =========
Income taxes ............................................................................ $ 5,935 $ 6,842 $ 5,465
========= ========= =========
NON-CASH FINANCING ACTIVITIES:
Debt issued for the purchase of treasury stock ............................................ $ 1,112 $ -- $ --
========= ========= =========
Stock issued under terminated restricted stock plan ....................................... $ 54 $ -- $ --
========= ========= =========
Stock issued in connection with acquisitions (see Note 12) ................................ $ -- $ -- $ 1,620
========= ========= =========
Stock received in connection with equipment contribution (see Note 12) .................... $ -- $ -- $ 3,186
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
29
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
1. Operations and Significant Accounting Policies:
Operations -
Packard BioScience Company and subsidiaries (the Company) is a worldwide
developer, manufacturer and marketer of analytical instruments and related
products and services that have applications extending into the physics
research, environmental monitoring, life sciences research and health care
clinical testing markets. In March, 1997, the Company changed its name from
Canberra Industries, Inc. to Packard BioScience Company.
The Company operates primarily in two industry segments. Through its
Packard segment, the Company supplies bioanalytical instruments, and the
related biochemical supplies and services, to the drug discovery and
molecular biology markets. The Canberra segment manufactures analytical
instruments and systems used to detect, identify and quantify radioactive
materials for the nuclear industry and related markets.
Consolidation -
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Foreign Operations -
The Company translates foreign currency financial statements using the
current rate method. Translation gains and losses are recorded as a
separate component of stockholders' equity (deficit), cumulative
translation adjustment.
The Company purchases various foreign currency forward contracts primarily
for the purpose of hedging firm inventory purchase commitments. As of
December 31, 1997 and 1998, the Company had total forward contracts
outstanding of approximately $10,879,000 and $3,320,000, respectively,
whose settlement prices substantially approximated year end exchange rates.
The following table summarizes by currency the outstanding forward
contracts as of December 31, 1997 and 1998 (in thousands):
1997 1998
---- ----
Japanese Yen..................... $1,000 $1,600
British Pound Sterling........... -- 1,200
French Franc..................... 2,400 370
Italian Lira..................... -- 150
German Deutschemark ............. 4,979 --
Belgian Franc.................... 2,500 --
------- ------
$10,879 $3,320
======= ======
The forward contracts outstanding at December 31, 1998, mature at various
times through September 30, 1999. Foreign exchange transaction gains,
inclusive of forward contracts settled, were $592,000, $377,000 and
$346,000 in 1996, 1997 and 1998, respectively, and were included in cost of
sales in the accompanying consolidated statements of income.
Cash and Cash Equivalents -
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
Inventories -
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method. A reserve for potential nonsaleable inventory due
to excess stocks or obsolescence is provided based upon a detailed review
of inventory components, past history, and expected future usage.
30
<PAGE>
Property, Plant and Equipment -
Property, plant and equipment are recorded at cost. Equipment, furniture
and leasehold improvements are depreciated using the straight-line method
over their estimated useful lives or term of the lease ranging from 2 to 20
years. Buildings and improvements are depreciated over 5 to 40 years using
the straight-line method.
Goodwill, Net of Amortization -
The Company estimates the life of goodwill for each individual acquisition.
Goodwill included in the accompanying consolidated balance sheets is being
amortized over 20 to 40 years. As of December 31, 1997 and 1998, the
Company had accumulated amortization of approximately $150,000 and
$809,000, respectively. The Company assesses realizability of goodwill
based on future estimates of profitability of businesses acquired. Based on
this assessment, the Company believes there is no impairment of goodwill as
of December 31, 1998.
Deferred Financing Costs, Net of Amortization -
Deferred financing costs represent a portion of fees incurred by the
Company for issuance of debt instruments in connection with its 1997
Recapitalization (see Note 11). Such costs are being amortized over the
average life of the debt to which they relate, ranging from 5 to 10 years.
Investments -
As of December 31, 1997, investments consisted primarily of a marketable
equity investment which the Company held in a publicly-traded business. The
Company classified this investment as available for sale. As such, the
investment was reflected in the accompanying consolidated balance sheets at
its market value as of December 31, 1997, and the unrealized gain, net of
income taxes, was reflected in a separate component of stockholders' equity
(deficit) titled, "Unrealized investment gains, net of income taxes." Such
investment was sold during 1998. All other investments are reflected using
the cost method.
Patent Rights and License Acquisitions -
The Company capitalizes amounts paid for patent rights and licenses
acquired to manufacture certain products. These amounts are amortized over
the lives of the respective agreements or the estimated lives of the
products, if shorter. The amortization lives range from 3 to 10 years. As
of December 31, 1997 and 1998, the Company had an unamortized balance of
$5,216,000 and $7,304,000, respectively, associated with patent rights and
license acquisitions, which amounts were reflected in other assets in the
accompanying consolidated balance sheets.
Revenue Recognition and Deferred Income -
Revenue is recognized when title to a product is transferred or services
have been rendered. Revenues from service contracts are recognized on a
straight-line basis over the contract period. Deferred income results from
the advance billing of certain field service maintenance contracts and
other customer advances.
Warranty -
The Company generally provides a warranty for one year subsequent to
installation of its product. The Company accrues for the estimated cost of
the warranty at the time of sale of the related product.
Income Taxes -
The Company uses an asset and liability approach for financial accounting
and reporting of income taxes. The provision for income taxes includes
Federal, foreign and state income taxes currently payable and those
deferred because of temporary differences between income reported for tax
and financial statement purposes.
The Company has not provided for possible U.S. taxes on undistributed
earnings of foreign subsidiaries that are considered to be reinvested
indefinitely. Undistributed earnings of foreign subsidiaries considered to
be reinvested indefinitely amounted to $10,050,000 and $10,310,000 at
December 31, 1997 and 1998, respectively. If and when earnings are
remitted, credit for foreign taxes already paid on subsidiary earnings and
withholdings may offset a portion of applicable U.S. income taxes.
31
<PAGE>
Earnings Per Share -
Basic earnings per share is computed based upon the weighted average shares
outstanding during each of the periods presented. Diluted earnings per
share is computed based upon the weighted average shares outstanding during
each of the periods presented, including the impact of outstanding options,
determined under the treasury stock method, to the extent their inclusion
is not anti-dilutive. Basic and diluted weighted average shares outstanding
during the years ending December 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Basic weighted average shares outstanding............. 24,524,810 12,463,624 9,114,832
Dilutive effect of outstanding stock options ......... 856,497 350,048 421,845
---------- ---------- ---------
Diluted weighted average shares outstanding........... 25,381,307 12,813,672 9,536,677
========== ========== =========
</TABLE>
Use of Estimates in Preparation of Financial Statements -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of income and expenses during
the reporting periods. Operating results in the future could vary from the
amounts derived from management's estimates and assumptions.
Disclosures About Fair Values of Financial Instruments -
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents - The carrying amount approximates fair
value because of the short maturity of those instruments.
Mortgage Receivable - At December 31, 1998, the Company has two
long-term mortgages receivable with a total face amount of $3,300,000,
which exceeded the current carrying value of $851,000 included in
other assets in the accompanying consolidated balance sheets. The
estimated fair value of these investments are approximately $2,500,000
based upon a third-party offer to purchase the mortgages.
Notes Payable - The fair value of the Company's notes payable are
estimated to approximate recorded amounts due to the relative short
maturity.
Long-term Obligations - The fair value of the Company's long-term
obligations is estimated based on the quoted market prices for similar
issues or on the current rates offered to the Company for obligations
with the same remaining maturities. The estimated fair value of the
Senior Notes described in Note 4 was $142,500,000 at December 31,
1998. The estimated fair value of all other long-term obligations
approximated their carrying amount.
Foreign Currency Contracts - The fair value of foreign currency
contracts (primarily used for hedging firm commitments) is estimated
by obtaining closing rates and comparing them to the actual contract
rates. The total value of the open contracts approximated the
estimated fair value.
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.
32
<PAGE>
2. Accounts Receivable, Net:
Accounts receivable are net of allowances for doubtful accounts totaling
$582,000 and $635,000 as of December 31, 1997 and 1998, respectively.
3. Inventories:
Inventories consisted of the following at December 31 (in thousands):
1997 1998
---- ----
Raw materials and parts.................. $14,908 $15,963
Work in progress......................... 1,995 4,189
Finished goods........................... 12,556 14,210
------- -------
29,459 34,362
Excess and obsolete reserve.............. (1,921) (3,729)
------- -------
$27,538 $30,633
======= =======
4. Long-term Obligations and Notes Payable:
The Company had the following notes payable and long-term obligations at
December 31, 1997 and 1998, as described below (in thousands):
As of December 31, 1997:
<TABLE>
<CAPTION>
Interest Rate Maturity Current Long-term Total
------------- -------- ------- --------- -----
<S> <C> <C> <C> <C> <C>
Senior subordinated notes ................... 9.375% 2007 $ -- $150,000 $150,000
Bank term loan .............................. LIBOR + 2.75% 2003 400 39,400 39,800
Bank revolving credit facility .............. LIBOR + 2.375% 2002 -- -- --
Notes payable ............................... 3.9% to 4.0% 1998 1,929 -- 1,929
Other obligations ........................... 2.0% to 13.0% 1998-2002 1,394 2,793 4,187
-------- -------- --------
$ 3,723 $192,193 $195,916
======== ======== ========
As of December 31, 1998:
<CAPTION>
Interest Rate Maturity Current Long-term Total
------------- -------- ------- --------- -----
<S> <C> <C> <C> <C> <C>
Senior subordinated notes ................... 9.375% 2007 $ -- $150,000 $150,000
Bank term loan .............................. LIBOR + 2.75% 2003 2,035 37,365 39,400
Bank revolving credit facility .............. LIBOR + 2.375% 2002 -- -- --
Notes payable ............................... 3.5% to 7.25% 1999 3,221 -- 3,221
Other obligations ........................... 1.875% to 9.0% 1999-2003 1,461 2,752 4,213
-------- -------- --------
$ 6,717 $190,117 $196,834
======== ======== ========
</TABLE>
During 1997, the Company issued $150,000,000 principal amount of 9.375%
senior subordinated notes (the "Senior Notes") due March 1, 2007. The
proceeds received from the sale of the Senior Notes, net of initial
purchasers' discount of $4,500,000, were used to repay certain of the
outstanding indebtedness under previous obligations and to repurchase
certain of the Company's outstanding common stock (see Note 11).
The Senior Notes are redeemable, at the option of the Company, after March
1, 2002, at rates starting at 104.688% of the principal amount reduced
annually through March 1, 2004, at which time they become redeemable at
100% of the principal amount. According to the terms of the Senior Notes,
if a change of control occurs, as defined, each holder of Senior Notes will
have the right to require the Company to repurchase such holder's Senior
Notes at 101% of the principal amount thereof.
33
<PAGE>
Other circumstances exist under the terms of the Senior Notes which would
permit or require the Company to partially redeem the Senior Notes earlier
than their stated maturity date. Such circumstances include the Company's
receipt of proceeds from a public offering of the Company's common stock or
the proceeds received upon the sale of a stipulated amount of assets.
During 1997, the Company also entered into a senior credit agreement (the
"Agreement" and together with the Senior Notes, the "Financings") with a
group of banks which provides for a $40,000,000 term loan facility and the
availability of up to $75,000,000 in a revolving credit facility with a
sub-limit for letters of credit up to $11,000,000 in the aggregate. The
term loan facility matures in six years and bears interest, at the
Company's option, at the customary base rate (defined as a certain bank's
reference rate, or the federal funds rate plus 0.5%, whichever is higher)
plus 1.75% (adjusted downward if the Company achieves certain financial
ratio levels), or at the customary reserve adjusted Eurodollar rate plus
2.75%. The outstanding revolving credit facility balance, if any, is due
and payable on March 31, 2002. The revolving credit facility bears
interest, at the Company's option, at the customary base rate plus 1.375%,
or at the customary reserve adjusted Eurodollar rate plus 2.375% (adjusted
downward if the Company achieves certain financial ratio levels). The
credit agreement also provides for a commitment fee of 0.5% (adjusted
downward if the Company achieves certain financial ratio levels) on any
unused portion of the revolving credit facility. At December 31, 1998, the
one-month Eurodollar rate was 5.63%.
The Agreement contains certain financial covenants including, but not
limited to, a minimum fixed charge coverage test, a minimum interest
coverage test and a maximum leverage test. The Financings contain certain
financial and non-financial covenants including, but not limited to,
limitations on capital expenditures and technology acquisitions. The
Company is prohibited by the Financings from paying any cash dividends and
is limited in the amount of capital stock that it may repurchase, the
incurrence of additional indebtedness and liens or dispositions of assets
by the Company or any of its subsidiaries. As of December 31, 1998, the
Company was in compliance with all covenants.
In connection with the Agreement, the Company pledged as collateral
substantially all of the tangible and intangible assets of the Company and
most of its domestic subsidiaries, and 65% of the capital stock of the
Company's foreign subsidiaries.
Notes payable existing at December 31, 1997 and 1998, consisted of amounts
outstanding under overseas lines of credit which permitted maximum
borrowings of approximately $9,000,000 and $12,000,000, respectively.
Borrowings are due on demand. At December 31, 1997 and 1998, $1,929,000 and
$3,221,000, respectively, were outstanding under these arrangements with
interest rates ranging from 3.9% to 4.0% and 3.5% to 7.25%, respectively.
The weighted average interest rates on these borrowing were 3.9% and 4.1%
in 1997 and 1998, respectively. The maximum amount outstanding during 1998
was $3,221,000.
Other long-term obligations as of December 31, 1997 and 1998, consist
primarily of notes payable related to the acquisition of a minority
interest described in Note 12. These notes payable have an effective
interest rate of 1.875% and are payable through 2001. In addition, the
December 31, 1998, balance includes $690,000 of debt held by the Company's
Canadian subsidiary, BioSignal (see Note 12). The debt consists of Canadian
governmental development loans as well as a note payable to a prior
shareholder. The governmental development loans mature through 2003 and
bear interest at rates ranging from 0% to one-half of the current prime
rate (Canadian). The prior shareholder note matures in 1999 and bears
interest at the prime rate (Canadian) plus 1.25%.
As of December 31, 1998, aggregate principal payments of long-term
obligations and notes payable required during the next five years ending
December 31 and thereafter are approximately as follows (in thousands):
1999......................................... $ 6,717
2000......................................... 1,593
2001......................................... 1,598
2002......................................... 19,249
2003......................................... 17,389
Thereafter................................... 150,288
5. Common Stock and Stock Options:
At December 31, 1998, the Company had authorized common stock of 15,000,000
shares with a par value of $.01 per share. A one-for-one dividend of common
stock on all outstanding shares was effected May 15, 1997. The average
number of shares, the number of stock options outstanding, the number of
unvested restricted stock shares and all per share amounts, as presented in
the consolidated financial statements and accompanying notes, have been
retroactively restated for the stock dividend. The dividend has not been
retroactively reflected in the consolidated statements of stockholders'
equity (deficit).
34
<PAGE>
The Company has granted non-qualified stock options to selected employees.
The exercise price of most options at the date of grant is the fair value
based upon an independent appraisal. During 1997, the Company granted
265,000 performance options to various employees with an exercise price of
$13.625 which exceeded the $11.125 fair value of the Company's stock on the
date of grant. The options expire at various dates through the year 2008. A
summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Number Avg. Price
of Shares Per Share
--------- ----------
<S> <C> <C>
Outstanding at December 31, 1995 ............................. 2,477,900 $ 4.80
Granted .................................................... 330,000 8.00
Cancelled .................................................. (17,400) 5.41
Exercised .................................................. (46,800) 3.82
---------- ------
Outstanding at December 31, 1996 ............................. 2,743,700 5.19
Granted .................................................... 961,500 11.81
Exercised or purchased by the Company ...................... (2,143,900) 5.18
---------- ------
Outstanding at December 31, 1997 ............................. 1,561,300 9.28
Granted .................................................... 227,500 13.90
Cancelled .................................................. (32,800) 10.37
Exercised .................................................. (17,000) 8.02
---------- ------
Outstanding at December 31, 1998 ............................. 1,735,000 $ 9.85
---------- ------
</TABLE>
As of December 31, 1998, 273,000 of the 1,735,000 options have exercise
prices between $3.17 and $4.06, with a weighted averaged exercise price of
$3.22 and a weighted average remaining contractual life of 2 years. All of
these options are exercisable as of December 31, 1998.
Of the total options outstanding at December 31, 1998, 306,900 have
exercise prices between $6.43 and $8.00, with a weighted average price of
$6.88 and a weighted average remaining contractual life of 6.1 years. All
of these options are exercisable as of December 31, 1998.
The remaining 1,155,100 options have exercise prices between $11.125 and
$13.96, with a weighted average exercise price of $12.21 and a weighted
average remaining contractual life of 8.7 years. Of the 1,155,100 options,
583,200 are exercisable as of December 31, 1998, at a weighted average
price of $12.48.
If compensation cost for stock options granted under these plans had been
determined under the fair-value based methodology of SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income (loss)
would have been $18,937,000, ($21,916,000) and ($5,365,000) on a pro forma
basis for the years ended December 31, 1996, 1997 and 1998, respectively.
For purposes of this calculation, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model
(minimum value method) with the following assumptions:
Expected dividend yield..................... N/A
Expected stock price volatility............. N/A
Risk-free interest rate..................... 4.91% - 5.89%
Expected life of options.................... 10 years
The Company terminated a restricted stock plan which provided for the
issuance of common stock for no consideration to officers and key
employees, with vesting over an eight-year period. No new shares can be
granted but shares previously issued are still vesting over the original
grant period. Compensation expense, determined as of the date of grant, is
being recognized ratably in accordance with the vesting schedule.
Compensation expense recognized was $173,000, $194,000 and $191,000 in
1996, 1997 and 1998, respectively. At December 31, 1997 and 1998,
$1,024,000 and $795,000 of future compensation expense associated with
167,531 and 129,190 unvested shares, respectively, has been deferred and is
included in deferred compensation in the accompanying consolidated balance
sheets.
35
<PAGE>
6. INCOME TAXES:
The sources of the Company's income (loss) before provision for income
taxes and minority interest were as follows (in thousands):
1996 1997 1998
---- ---- ----
United States .............. $ 15,271 $(23,207) $ (4,491)
Foreign .................... 16,498 10,611 10,183
-------- -------- --------
$ 31,769 $(12,596) $ 5,692
======== ======== ========
The provision for income taxes is as follows (in thousands):
1996 1997 1998
---- ---- ----
Current:
Federal ................ $ 2,697 $ 92 $ (601)
Foreign ................ 7,081 4,774 4,393
State .................. 694 50 526
-------- -------- --------
10,472 4,916 4,318
-------- -------- --------
Deferred:
Federal ................ 674 784 29
Foreign ................ (113) (357) (527)
State .................. 154 598 (33)
-------- -------- --------
715 1,025 (531)
-------- -------- --------
Total ............... $ 11,187 $ 5,941 $ 3,787
======== ======== ========
A reconciliation between the income tax expense recognized in the Company's
consolidated statements of income (loss) and comprehensive income (loss)
and the income tax expense computed by applying the statutory federal
income tax rate to the income (loss) before income taxes follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes .............. $ 31,769 $(12,596) $ 5,692
======== ======== ========
Income tax computed at statutory rate .......... $ 11,119 35% $ (4,409) 35% $ 1,992 35%
Change in valuation allowance .................. -- -- 8,267 (66) (2,291) (40)
Net tax effect relating to foreign
operations and sales ........................ (973) (3) 2,532 (20) 720 13
Research credits ............................... (162) (1) -- -- (654) (11)
State income taxes ............................. 880 3 (444) 4 341 6
Non-deductible transaction-related
charges ..................................... -- -- 25 -- 4,063 71
Other .......................................... 273 1 (30) -- (384) (7)
-------- -------- -------- -------- -------- --------
$ 11,187 35% $ 5,941 (47%) $ 3,787 67%
======== ======== ======== ======== ======== ========
</TABLE>
36
<PAGE>
At December 31, 1997 and 1998, deferred tax assets and liabilities were
comprised of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards ..................................... $ 7,715 $ 1,374
Inventory related items .............................................. 1,329 2,290
Accruals not currently deductible .................................... 1,486 3,997
Foreign and other tax credit carryforwards ........................... 3,178 5,786
Other ................................................................ 551 377
-------- --------
Gross deferred tax assets ......................................... 14,260 13,824
Less: valuation allowance ............................................ 9,193 6,902
-------- --------
Total deferred tax assets, net of valuation allowance ............. 5,066 6,922
-------- --------
Deferred tax liabilities:
Unrealized investment gains .......................................... 1,971 --
International transactions ........................................... 3,823 4,053
Accelerated depreciation ............................................. 359 853
Transaction-related tax liabilities .................................. 888 2,861
Other ................................................................ 222 221
-------- --------
Total deferred tax liabilities .................................... 7,263 7,988
-------- --------
Net deferred tax liabilities ...................................... $(2,197) $ (1,066)
======== ========
</TABLE>
During 1997, the Company incurred a domestic net operating loss of
approximately $18.1 million and recorded a deferred tax asset representing
the future benefit of such loss carryforwards (federal and state). In
addition, as of December 31, 1997, the Company had generated foreign tax
credit carryforwards totaling $3.2 million and had recorded a corresponding
deferred tax asset. A valuation allowance was provided on such deferred tax
assets at December 31, 1997, due to the uncertainty as to the Company's
ability to utilize such loss and foreign tax credit carryforwards. The
federal portion of the loss carryforwards was fully utilized in 1998 and
the federal loss carryforward valuation allowance was reversed in 1998.
During 1998, the Company generated additional foreign tax credits
carryforwards totaling approximately $3.2 million of which $2.2 million
will be carried forward. Due to the uncertainty of the Company's ability to
utilize such credit carryforwards, an additional valuation allowance was
provided against the associated deferred tax asset. The foreign tax credits
expire beginning in 2001.
7. Benefit Plans:
Packard BioScience Company and certain domestic subsidiaries offer a
contributory defined contribution plan (the "Profit Sharing Plan") covering
substantially all domestic employees who have completed at least one year
of service, as defined. Commencing in 1997, the Profit Sharing Plan
provided that eligible participants may make a basic contribution from 1%
to 4% of their annual pay, with additional contributions allowed up to an
additional 7% of annual pay. The Company makes matching contributions equal
to 125% of a participant's basic contribution, which amounted to
approximately $1,600,000 and $1,652,000 for the years ended December 31,
1997 and 1998, respectively. Prior to 1997, the Company made matching
contributions equal to 80% of a participant's basic contribution, which was
limited to 3% of their annual pay. Total matching contributions for the
year ended December 31, 1996, were $729,000.
Another domestic subsidiary, Aquila Technologies Group, Inc. (see Note 12),
maintains a similar defined contribution plan whereby Aquila makes a
matching contribution equal to a percentage of the employees' annual
salaries, as defined. Matching contributions were $10,000 and $36,000
during the four-months ended December 31, 1997 and the year ended December
31, 1998, respectively.
The Company also had a noncontributory employee stock ownership plan (the
ESOP) and related trust, which was merged into the Profit Sharing Plan in
March, 1997. Each year the Company made a contribution from profits, as
defined, of an amount determined by its Board of Directors, but not to
exceed 15% of the aggregate compensation of all participants in the ESOP in
any plan year. Contributions under the ESOP for any individual participant
in any year were limited to the lower of $30,000 or 25% of the
participant's compensation. The Company provided for contributions of
$800,000 in 1996, plus interest due by the ESOP. The trust had used the
contributions to first service debt incurred, if any, and then to purchase
outstanding shares of the Company's stock.
37
<PAGE>
8. Commitments and Contingencies:
The Company conducts certain of its operations from leased facilities. In
addition, the Company leases automobiles and various types of machinery and
equipment under operating leases.
The following is a schedule of future minimum rental payments under
operating leases (excluding autos) that have initial or remaining
non-cancelable lease terms extending beyond December 31, 1999 (in
thousands):
1999.......................... $ 858
2000.......................... 931
2001.......................... 938
2002.......................... 811
2003.......................... 758
Thereafter.................... 1,489
------
$5,785
======
Rental expense for the years ended December 31, 1996, 1997 and 1998, was
approximately $4,005,000, $4,037,000 and $4,319,000, respectively.
The Company has entered into various cooperative research and development
agreements in 1997 and 1998 requiring the Company, upon satisfaction of
certain criteria, to make milestone payments and future royalty payments as
specified in the agreements.
The Company is currently, and is from time to time, subject to claims and
suits arising in the ordinary course of its business, including those
relating to intellectual property matters, product liability, safety and
health and employment matters. In certain such actions, plaintiffs request
punitive or other damages that may not be covered by insurance. The Company
accrues for these items as they become known and can be reasonably
estimated. It is the opinion of management that the various asserted claims
and litigation in which the Company is currently involved will not have a
material adverse effect on the Company's financial position or results of
operations. However, no assurance can be given as to the ultimate outcome
with respect to such claims and litigation. The resolution of such claims
and litigation could be material to the Company's operating results for any
particular period, depending upon the level of income for such period.
On November 2, 1998, the Company settled the lawsuit brought against it in
1996 by EG&G Instruments, Inc., a subsidiary of EG&G, Inc. In the lawsuit,
EG&G Instruments, Inc. alleged that the Company infringed on a patent
surrounding EG&G's automatic pole-zero cancellation circuit. The settlement
calls for the Company to make payments totaling $10 million for a license
to the related technology through the year 2000 and to settle the
litigation. The Company also received a royalty-bearing license for years
subsequent to calendar 2000. Of the total payments of $10 million, $4
million was paid in November, 1998, and $3 million will be paid in each of
1999 and 2000. The Company is required to make these payments, regardless
of whether the Company uses, sells or manufactures products which may
infringe on the patent referred to above.
Two unrelated lawsuits have been brought against the Company by former
employees. The Company believes that the asserted claims are without merit,
and intends to vigorously defend against both claims. Although there can be
no assurances with respect to the outcome of litigation, the Company
believes that neither action will have a material effect on the results of
operations or financial position of the Company.
9. Related Party Transactions:
The Company had a trade receivable of approximately $2,328,000 at December
31, 1997, from CIS bio international, an affiliate of a significant
stockholder prior to the Recapitalization described in Note 11. In
addition, the accompanying consolidated statements of income (loss) include
revenues from CIS bio international of approximately $1,065,000 and
$4,968,000 for 1996 and 1997, respectively, and reimbursements of research
and development expenses of $1,536,000 and $236,000 for 1996 and 1997,
respectively. Subsequent to the 1997 Recapitalization, CIS bio
international is no longer a related party.
10. Geographic Information and Industry Segments:
The Company operates predominately in three major geographic areas and two
industry segments. Transfers between geographic areas are made at the
estimated market value of the merchandise transferred. The eliminations
result from intercompany or intersegment sales, receivables and profit in
inventory.
38
<PAGE>
The following tables summarize the Company's operations by geographic area
and industry segment for 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
Geographic Areas 1996 1997 1998
---------------- ---- ---- ----
Revenues*
<S> <C> <C> <C>
United States, including third party export sales**...... $ 88,552 $ 105,020 $ 144,044
Europe .................................................. 73,808 66,297 72,860
Japan ................................................... 21,741 13,052 11,395
Eliminations, net ....................................... (83) (256) (135)
--------- --------- ---------
Total consolidated ................................... $ 184,018 $ 184,113 $ 228,164
========= ========= =========
Operating profit (loss)***
United States, including export sales ................... $ 16,165 $ (4,525) $ 13,217
Europe .................................................. 9,745 6,993 10,312
Japan ................................................... 6,623 3,235 2,579
Eliminations, net ....................................... (1,791) (970) (2,913)
--------- --------- ---------
Total consolidated ................................... $ 30,742 $ 4,733 $ 23,195
========= ========= =========
Identifiable assets
United States ........................................... $ 105,495 $ 121,692 $ 144,023
Europe .................................................. 44,044 43,339 38,807
Japan ................................................... 12,999 8,737 9,802
Eliminations, net ....................................... (24,613) (33,117) (23,498)
--------- --------- ---------
Total consolidated ................................... $ 137,925 $ 140,651 $ 169,134
========= ========= =========
</TABLE>
* Includes only sales to unaffiliated customers.
** Includes $20,162,000, $30,690,000 and $33,834,000 of third-party export
sales for 1996, 1997 and 1998, respectively.
*** Operating profit (loss) for 1996 and 1997 includes Recapitalization charges
of $837,000 and $18,429,000, respectively, within the United States related
to transactions as described in Note 11. Operating profit for 1998 includes
acquisition-related charges totaling $7,620,000, litigation settlement
charge of $12,144,000, and gain on sale of product line of $10,753,000.
39
<PAGE>
<TABLE>
<CAPTION>
Industry Segment 1996 1997 1998
---------------- ---- ---- ----
<S> <C> <C> <C>
Revenues*
Packard ................................................ $ 122,676 $ 120,286 $ 146,237
Canberra ............................................... 61,342 63,827 81,927
--------- --------- ---------
Total consolidated ................................. $ 184,018 $ 184,113 $ 228,164
========= ========= =========
Operating profit (loss)
Packard** .............................................. $ 25,737 $ 17,951 $ 13,907
Canberra ............................................... 8,401 7,729 14,642
General corporate expenses ............................. (2,318) (2,518) (3,963)
Settlement of litigation ............................... -- -- (12,144)
Gain on sale of product line ........................... -- -- 10,753
Recapitalization charges ............................... (837) (18,429) --
Eliminations ........................................... (241) -- --
--------- --------- ---------
Total consolidated ................................. $ 30,742 $ 4,733 $ 23,195
========= ========= =========
Capital expenditures
Packard ................................................ $ 1,513 $ 1,650 $ 4,669
Canberra ............................................... 1,202 1,972 1,545
--------- --------- ---------
Total consolidated ................................. $ 2,715 $ 3,622 $ 6,214
========= ========= =========
Depreciation and amortization
Packard ................................................ $ 2,971 $ 3,396 $ 5,322
Canberra ............................................... 2,164 2,976 3,076
--------- --------- ---------
Total consolidated ................................. $ 5,135 $ 6,372 $ 8,398
========= ========= =========
Identifiable assets
Packard ................................................ $ 98,912 $ 95,540 $ 100,215
Canberra ............................................... 39,013 45,111 68,920
--------- --------- ---------
Total consolidated ................................. $ 137,925 $ 140,651 $ 169,134
========= ========= =========
</TABLE>
* Includes only sales to unaffiliated customers.
** Includes 1998 acquisition-related charges totaling $7,620,000.
11. Recapitalization and Stock Purchase Agreement:
On March 4, 1997, Stonington Capital Appreciation 1994 Fund, L.P.
(Stonington) acquired approximately 69% of the common stock of the Company
on a fully-diluted basis as a result of the transactions described below.
The transactions included (a) acquisition by Stonington and certain other
investors of $54.0 million of common stock from certain continuing
stockholders, (b) acquisition by Stonington of $17.5 million of common
stock from the Company, (c) a tender offer by the Company to all
non-continuing stockholders for $208.6 million, and (d) cancellation of all
stock options held by the non-continuing stockholders for $3.3 million. The
price per share for the above transactions was $22.25 (prior to the effect
of a one-for-one stock dividend) except for the option redemption where the
price was $22.25 (prior to the effect of a one-for-one stock dividend) less
the exercise price of such stock options. The Company used the proceeds of
the stock offering, $8.3 million from the exercise of certain options, cash
on hand and $190.0 million in proceeds from the Financings to redeem the
shares in the tender offer, purchase certain outstanding options
(approximately $12.9 million) and pay transaction fees and expenses
(approximately $21.5 million), of which $2.6 million was paid to
Stonington. All of the foregoing transactions are collectively referred to
as the Recapitalization. The transaction fees and expenses include costs
associated with the stock offering, the Financings and other expenses. As a
part of the Recapitalization, the Company and certain executives of the
Company who were party to a supplemental retirement plan (SERP) agreed to
terminate the plan for a payment of $2.4 million in the aggregate. The
transaction fees and expenses also include the cost of terminating the
SERP. Approximately $837,000 and $18,429,000 of Recapitalization related
expenses have been included as Recapitalization charges in the accompanying
consolidated statements of income (loss) for 1996 and 1997, respectively.
Pursuant to the terms of a Stockholders Agreement among the Company,
Stonington, certain other stockholders of the Company, and certain members
of management of the Company ("Management Stockholders"), the Management
Stockholders have the right, prior to the earlier of an initial public
offering of common stock of the Company and the tenth anniversary of the
Recapitalization, to require the Company to purchase common stock and
options held by such Management Stockholders upon
40
<PAGE>
termination of employment due to death, disability, retirement or certain
cases of involuntary termination. Under certain circumstances, the Company
may pay or may be required to pay for the common stock or options with a
subordinated note of the Company.
12. Acquisitions:
In May, 1997, a subsidiary of the Company, Packard Japan KK ("PJKK"),
entered into an agreement, for a fixed amount denominated in Japanese yen,
to acquire the 40% interest held by its minority stockholder for
approximately $7.5 million. The agreement obligates PJKK to acquire
approximately 60% of the minority interest in 1997, 20% in 1998 and the
remainder in 1999, assuming PJKK generates sufficient earnings to allow the
transaction to occur in accordance with Japanese laws and regulations.
Under the agreement, the minority stockholder has surrendered the rights to
any dividends from PJKK subsequent to December 31, 1996. The Company has
reflected the acquisition in full as of the effective date of the agreement
which was April 1, 1997, and, as a result, the minority interest has been
eliminated and the related acquisition obligations as well as resulting
goodwill have been recorded as of such date.
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 original
equipment 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
through calendar year 2000 up to a maximum of $10.4 million in additional
payments. During the period September 1, 1997, through December 31, 1998,
contingent payments totaling $4.5 million have been earned.
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. Allocation of
the purchase price to the net assets acquired resulted in a charge of $2.68
million to write-off the value assigned to acquired in-process research and
development which had not reached technological feasibility and had no
probable alternative future uses. The value assigned to the acquired
in-process research and development was determined by an independent
appraisal, utilizing the percentage-of-completion guidance recently put
forth by the Securities and Exchange Commission. The acquisition also
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 of 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. During
the period April 1, 1998, through December 31, 1998, contingent payments
totaling $4.5 million have been earned and accrued.
On July 1, 1998, the Company acquired 100% of the outstanding common stock
of BioSignal, Inc. ("BioSignal"), a biotechnology company located in
Canada. Prior to the July acquisition, the Company owned a 19% interest in
BioSignal. The Company acquired the remaining 81% ownership interest for
approximately $8.6 million in cash and 35,817 shares of the Company's
common stock valued at $13.96 per share. Of the stock, 7,163 shares were
issued at the acquisition date with the remainder to be issued at future
milestone dates, if achieved. In connection with the acquisition, the
Company recognized a charge of $3.44 million associated with the value
assigned to acquired in-process research and development which had not
reached technological feasibility and had no probable future uses. The
value assigned to the acquired in-process research and development was
determined by an independent appraisal, utilizing the
percentage-of-completion guidance recently put forth by the Securities and
Exchange Commission. The acquisition also resulted in the recognition of a
$0.5 million write-up in inventory acquired, which was charged to
operations during the three months ended September 30, 1998.
On October 1, 1998, the Company obtained a controlling interest (55%) in
Mobile Characterization Services LLC ("MCS"), a limited liability company
that was formed to provide waste characterization services. The controlling
interest was achieved through the Company's contribution of equipment to
MCS, which are used to perform the characterization, as well as contributed
services. The results of MCS from October 1, 1998, through December 31,
1998, are included in the accompanying consolidated statements of income
(loss) and comprehensive income (loss).
All of the above 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
prices, in the aggregate, over the fair values of the net assets acquired
was approximately $13.8 million (including the earned contingent payments
referred to above) and has been reflected as goodwill in the accompanying
consolidated balance sheets. As contingent payments are made, the related
goodwill will increase. The goodwill associated with these acquisitions is
being amortized on a straight-line basis over 20 to 40 years from the
initial acquisition dates.
41
<PAGE>
The operating results of Aquila, CCS, BioSignal and MCS have been reflected
in the accompanying condensed consolidated statements of income (loss)
since their 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 acquisitions
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, adjustments to
reflect additional interest expense relating to the financing of the
acquisitions, and adjustments to reflect the related income tax effects, if
any, of the above.
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Amounts)
UNAUDITED
For the years ended December 31,
1997 1998
---- ----
<S> <C> <C>
Net sales ................................... $ 211,626 $ 245,124
Operating profit ............................ $ 9,125 $ 32,444
Net income (loss) ........................... $ (17,525) $ 8,943
Basic income (loss) per share ............... $ (1.29) $ 0.98
</TABLE>
13. Sale of Product Line:
In December, 1998, the Company sold Packard's gas generation product line,
realizing a net pre-tax gain of approximately $10.8 million. Such gain is
reflected as an unusual item in the accompanying consolidated statements of
income (loss) and comprehensive income (loss).
14. Subsequent Event - Harwell Instruments, Ltd. Acquisition:
On January 7, 1999, the Company acquired Harwell Instruments from AEA
Technologies plc, located in the United Kingdom. The Company formed a new
subsidiary called Harwell Instruments, Ltd. ("Harwell"), which executed the
acquisition. Harwell manufactures and distributes nuclear instrumentation
used in waste assay, safeguards and decommissioning and decontamination.
The Company paid 5.6 million British pounds sterling (approximately $9.2
million, including acquisition costs, based upon foreign exchange rate in
effect at time of acquisition) to acquire Harwell and may make additional
payments based on actual net assets acquired.
15. Subsequent Event - Tennelec/nucleus, Inc. Acquisition:
On March 4, 1999, the Company signed an agreement to purchase the net
operating assets of Tennelec/Nucleus, Inc. ("TNI") and formed a new
subsidiary, Tennelec, Inc., to effect the purchase. TNI manufactures and
distributes nuclear instrumentation and high-purity germanium crystals. The
Company will pay approximately $9.3 million, subject to adjustment, for the
actual net operating assets received. The acquisition is expected to become
effective March 31, 1999.
ITEM 9: CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable; there was no change in or disagreements with the Company's
independent public accountants.
42
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
Executive Officers and Directors
The following table sets forth information concerning the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Emery G. Olcott..................... 60 Chairman of the Board, Chief Executive Officer and President
Richard T. McKernan................. 61 Senior Vice President and Director of the Company and President, Packard
George Serrano...................... 53 Vice President and Director of the Company and President, Canberra
Ben D. Kaplan....................... 41 Vice President and Chief Financial Officer
Timothy O. White, Jr. .............. 31 General Counsel and Secretary
Robert F. End....................... 43 Director
Bradley J. Hoecker.................. 37 Director
Alexis P. Michas.................... 41 Director
Peter P. Tong....................... 57 Director
</TABLE>
The directors are appointed to serve in such positions until such time as
the Board elects and qualifies their successors.
Emery G. Olcott is the Chief Executive Officer and President of the
Company, positions he has held for at least five years. He also became Chairman
of the Board effective as of the Recapitalization closing. Mr. Olcott co-founded
the Company in 1965. Mr. Olcott is the Chairman of the Board of Directors of
Yankee Energy System, Inc., a gas distribution company.
Richard T. McKernan is the President of Packard, a position he has held for
at least five years, and a Senior Vice President and Director of the Company.
George Serrano is the President of Canberra, a position he has held since
January 1994. Mr. Serrano became a Director of the Company effective as of the
Recapitalization closing. Mr. Serrano is also a Vice President and Secretary of
the Company, a position he has held for at least five years. From April 1991 to
December 1993, he was the Vice President for Canberra International Operations,
during which time he managed the Company's sales and service subsidiaries and
European operations.
Ben D. Kaplan has been a Vice President and the Chief Financial Officer of
the Company since February 1997. From August 1992 to January 1997, he was a
partner at Arthur Andersen LLP, a public accounting firm.
Timothy O. White, Jr. is General Counsel and Secretary of the Company, a
position he has held since May 1998. From September 1995 to May 1998, Mr. White
was an associate at the law firm of Jacobs Chase Frick Kleinkopf & Kelley LLC.
Prior to that time, Mr. White was an associate at the law firm of Ballard Spahr
Andrew & Ingersol.
Robert F. End is a Partner and a Director of Stonington Partners, Inc.
("Stonington I"), a position that he has held since 1993, and is also a Partner
and a Director of Stonington Partners, Inc. II, a Delaware corporation
("Stonington II"), a position he has held since 1994. He has also been a
Director of Merrill Lynch Capital Partners, Inc. ("MLCP"), a private investment
firm associated with Merrill Lynch & Co., since 1993 and a Consultant to MLCP
since 1994. Mr. End is also a Director of Goss Graphic Systems, Inc. and United
Artists Theatre Circuit, Inc. and several privately held corporations.
Bradley J. Hoecker is a Partner of Stonington I and Stonington II,
positions that he has held since 1997. Prior to his election as a Partner, Mr.
Hoecker served as a Principal of Stonington I since its formation in 1993. Mr.
Hoecker is also a Director of Merisel, Inc. and several privately-held
corporations.
Alexis P. Michas is a Managing Partner and a Director of Stonington I, a
position he has held since 1993, and is also a Managing Partner and a Director
of Stonington II, a position he has held since 1994. Mr. Michas has also been a
Director of MLCP since 1989. Mr. Michas is also a Director of Blue Bird
Corporation, Borg-Warner Automotive, Inc., Borg-Warner Security Corporation,
Dictaphone Corporation, Goss Graphic Systems, Inc. and several privately held
corporations.
43
<PAGE>
Peter P. Tong served as the Co-President of Marquette Electronics, Inc., a
manufacturer of medical equipment, from January 1996 to May 1996. From 1991 to
1996, he served as President, Chairman and Chief Executive Officer of E for M
Corporation, also a manufacturer of medical equipment. Since May 1996, Mr. Tong
has been self-employed as a private investor. Mr. Tong is also a director of
Dictaphone Corporation and several privately held corporations.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its
Chief Executive Officer and to each of its four most highly-compensated
executive officers (other than the Chief Executive Officer) whose total
compensation exceeded $100,000 during the last fiscal year, for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
Summary Compensation Table
Long-term
Annual Compensation Compensation
------------------- ------------ All Other
Name and Principal Position Year Salary Bonus Securities Compensation
--------------------------- ---- ------ ----- Underlying ------------
Options (1)(2)(3)
------- ---------
($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
Emery G. Olcott, Chairman of the Board,
Chief Executive
Officer and President ......................... 1998 $ 355,385 $ 375,000 -- $ 18,000
1997 $ 348,340 $ 135,000 140,000 $2,197,128
1996 $ 358,752 $ 330,000 30,000 $ 51,448
Richard T. McKernan, President,
Packard ..................................... 1998 $ 266,058 $ 200,000 -- $ 8,000
1997 $ 251,656 $ 65,200 140,000 $1,207,328
1996 $ 241,539 $ 145,000 50,000 $ 18,805
George Serrano, President,
Canberra .................................... 1998 $ 167,308 $ 150,000 -- $ 8,000
1997 $ 161,153 $ 70,000 75,000 $ 163,066
1996 $ 158,848 $ 94,000 25,000 $ 10,287
Ben D. Kaplan, Vice President and
Chief Financial Officer (4)
1998 $ 197,308 $ 140,000 -- $ 8,000
1997 $ 172,004 $ 60,000 100,000 $ 144,750
Staf van Cauter, Vice President,
Packard ..................................... 1998 $ 185,866 $ 52,000 -- $ 8,000
1997 $ 167,044 $ 27,000 30,000 $ 28,000
1996 $ 173,312 $ 38,500 20,000 $ 7,389
Orren K. Tench, Jr., Vice President and
General Manager, Canberra ................... 1998 $ 126,039 $ 97,000 -- $ 8,000
1997 $ 145,262 $ 50,000 30,000 $ 281,462
1996 $ 139,539 $ 60,000 -- $ 9,037
</TABLE>
- -----------
(1) The 1998 amounts consist of payments made for personal tax services
rendered by the Company's income tax advisors ($10,000 for Mr. Olcottt) and
company contributions made pursuant to the Company's defined contribution
plan in the amount of $8,000 for each individual listed.
(2) 1997 amounts consist of payments made upon the termination of the Company's
supplemental executive retirement plan ("SERP") (Messrs. Olcott, McKernan
and Tench received $1,369,726, $799,927 and $246,700, respectively),
special bonuses for efforts expended in connection with the
Recapitalization transaction ($255,000, $250,000, $115,000, $140,000 and
$20,000 for Messrs. Olcott, McKernan, Serrano, Kaplan and van Cauter,
respectively), Company contributions made pursuant to the Company's defined
contribution plan ($8,000 each for Messrs. Olcott, McKernan, Serrano, Tench
and van Cauter and $4,750 for Mr. Kaplan), payments made for premiums and
liquidation of cash surrender values of split-dollar life insurance
policies ($523,822, $146,601, $37,266 and $25,762 for Messrs. Olcott,
McKernan, Serrano and Tench, respectively) and payments made for personal
tax consultation services rendered by the Company's income tax advisors
($40,580, $2,800, $2,800 and $1,000 for Messrs.Olcott, McKernan, Serrano
and Tench, respectively).
44
<PAGE>
(3) 1996 amounts consist of split-dollar premiums in the amount of $44,059,
$11,416, $2,898 and $1,648 paid by the Company on behalf of Messrs. Olcott,
McKernan, Serrano and Tench, respectively, and Company contributions made
pursuant to the Company's defined contribution plans in the amount of
$7,389 for each of Messrs. Olcott, McKernan, Serrano, van Cauter and Tench.
(4) Mr. Kaplan commenced employment with the Company in February 1997 and, as
such, there was no 1996 compensation.
Option/SAR Grants in Last Fiscal Year
There were no options/SARs granted to the named executive officers during
the year ended December 31, 1998.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Option/SAR Values as of December 31, 1998
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options/sars In-the-money Options/sars
At Fiscal Year End (#) At Fiscal Year End ($)(1)
---------------------- -------------------------
Shares
Acquired On Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Emery G. Olcott................. 0 $ 0 173,000 27,000 $1,166,355 $152,145
Richard T. McKernan............. 0 $ 0 173,000 27,000 $1,156,695 $152,145
George Serrano.................. 0 $ 0 109,000 18,000 $ 850,585 $101,430
Ben D. Kaplan................... 0 $ 0 40,000 60,000 $ 225,400 $338,100
Staf van Cauter................. 0 $ 0 49,000 15,000 $ 499,935 $ 84,525
Orren K. Tench, Jr.............. 0 $ 0 24,000 6,000 $ 85,240 $ 33,810
</TABLE>
- -----------
(1) The value of unexercised in-the-money options at year end was determined
based upon the fair value of the Company's common stock, as determined by
an independent appraisal, which is $16.76 per share as of December 31,
1998.
Employment Agreements
The Company has entered into employment agreements with Messrs. Olcott,
McKernan, Serrano, Kaplan, van Cauter and Tench. Set forth below is a summary of
the material provisions of the employment agreements with Messrs. Olcott,
McKernan, Serrano, Kaplan, van Cauter and Tench, which is qualified in its
entirety by reference to the provisions of such employment agreements, copies of
which have been incorporated by reference as exhibits hereto.
The employment agreements with Messrs. Olcott, McKernan, Serrano, Kaplan,
van Cauter and Tench (each, an "Executive") supersede any other agreement
between any of them and the Company concerning their employment. Mr. Olcott
serves as Chairman of the Board, Chief Executive Officer and President of the
Company; Mr. McKernan serves as Senior Vice President and a Director of the
Company, and as President of Packard; Mr. Serrano serves as Vice President,
Secretary and a Director of the Company, and as President of Canberra; Mr.
Kaplan serves as Vice President and Chief Financial Officer; Mr. van Cauter
serves as Vice President of Packard, or in such other capacity as may be
assigned to him by the Chief Executive Officer of the Company or the President
of Packard; and Mr. Tench serves as a Vice President of the Company and General
Manager of its Detector Products Division. Each of the employment agreements
provides for an initial employment term of three years, except for an initial
employment term of two years in the case of Mr. van Cauter. Under each
employment agreement, the initial employment term will be automatically extended
for additional 13-month terms on the first day of the calendar month following
each anniversary of the date of the employment agreements, beginning on the
second anniversary of the date of the employment agreements (the first
anniversary in the case of Mr. van Cauter), unless affirmatively terminated by
the Company. There is an agreed-upon annual base salary for each executive, with
annual increases no less than the increase in the U.S. Consumer Price Index -
All Urban Consumers. Each Executive is also eligible to receive an annual cash
bonus determined in accordance with the terms of the Company's annual bonus
incentive plans then in effect.
Upon termination of employment by the Company other than for "cause" or
"disability," or upon termination by the Executive for "good reason" (as such
terms are defined in the employment agreements), the Company will pay to the
Executive an amount in cash equal to the sum of (i) accrued annual base salary
as of the date of
45
<PAGE>
termination, a pro rata portion of the target annual bonus accrued to the date
of termination and any other accrued but unpaid annual bonuses, vacation pay or
deferred compensation not yet paid (the "Accrued Obligations"), (ii) annual base
salary and annual bonus amounts for the remainder of the employment period, and
(iii) additional contributions to the thrift savings plan, if any, to which the
Executive would have been entitled had his employment continued for a period of
three years (two years in the case of Mr. van Cauter) after the date of
termination. In addition, the Executive will be entitled to participate in all
welfare benefit plans for a period of three years (two years in the case of Mr.
van Cauter) after the date of termination on terms at least as favorable as
those that would have been applicable had his employment not been terminated
and, to the extent that any form of compensation will not be fully vested or
require additional service, the Executive will be credited with additional
service of three years (two years in the case of Mr. van Cauter) after the date
of termination. Upon termination of employment due to death or disability, the
Company will pay to the Executive or to his respective beneficiaries, all
amounts that would have been due had such Executive remained in the employ of
the Company until the end of his employment period. If employment is terminated
for cause, the Company will pay to the Executive annual base salary through the
date of termination and any deferred compensation not yet paid, and if the
Executive voluntarily terminates employment other than for good reason, the
Company will pay to the Executive in a lump sum the Accrued Obligations other
than any accrued bonus amount.
Excluding Mr. Kaplan, each of the employment agreements also provides that,
during employment and (unless employment terminates by reason of death or
disability) for one year (two years in the case of Messrs. Serrano, van Cauter
and Tench) after employment ends or, if later, for one year (two years in the
case of Messrs. Serrano, van Cauter, and Tench) after employment would have
ended had it not been previously terminated, each Executive will not solicit any
employees of the Company or compete with the Company. In consideration for such
noncompetition covenant, the Company will pay to each Executive the sum of his
annual base salary and his target annual bonus, such amount payable in equal
monthly installments during the portion of the noncompetition period following
the date of termination.
Management Stock Incentive Plan
At the Recapitalization closing, the Company adopted the Management Stock
Incentive Plan (the "Plan") pursuant to which directors, officers and key
employees of the Company and its subsidiaries (the "Eligible Participants") will
be granted nonstatutory stock options exercisable into shares of Common Stock
(the "New Options"). The Plan is not related to the Company's Stock Option Plan
of 1971 (the "Existing Options"). The Plan is administered by either the
Compensation Committee of the Board (the "Committee") or the Board. The
Committee or the Board has the discretion to select those to whom New Options
will be granted (from among those eligible). The Board or the Committee has the
authority to interpret and construe the Plan, and any interpretation or
construction of the provisions of the Plan or of any New Options granted under
the Plan by the Board or the Committee will be final and conclusive.
New Options to purchase up to 952,840 shares of Common Stock at an exercise
price equal to $11.125 per share (the "Incentive Options") are permitted to be
granted under the Plan. The Incentive Options vest ratably and become
exercisable per year on each of the first through fifth anniversaries of the
date of grant, provided that the Eligible Participant continues to be employed
by the Company or a subsidiary of the Company. In addition, New Options to
purchase up to 278,052 shares of Common Stock at an exercise price equal to
$13.625 per share (the "Performance Options") are permitted to be granted under
the Plan. All of the Performance Options will be vested and fully exercisable
immediately upon the date of grant. In the event of an Extraordinary Transaction
(as defined in the Plan) of the Company prior to the fifth anniversary of the
date of grant of an Incentive Option, all outstanding Incentive Options will
become fully vested upon consummation of the Extraordinary Transaction. The
Company granted 208,500 Incentive Options and 5,000 Performance Options during
1997.
The terms and conditions of a New Option grant are set forth in a related
New Option agreement (the "New Option Agreement"). New Options granted under the
Plan will terminate upon the earliest to occur of (a) the tenth anniversary of
the date of the New Option Agreement; (b) the date on which the Company acquires
any shares of Common Stock, Existing Options or New Options held by the Eligible
Participant in connection with the exercise of a Put Right (as defined in the
Stockholders' Agreement); (c) the one-hundred-eighty-day anniversary of the date
of death, Retirement (as defined in the Stockholders' Agreement) or Disability
(as defined in the Stockholders' Agreement) of the Eligible Participant; (d) the
thirty-day anniversary of the date that the Eligible Participant ceases to be a
full-time employee of the Company or its subsidiaries for any reason other than
as set forth in (c) above or in (e) below; and (e) immediately upon an Eligible
Participant's voluntary termination of employment other than due to death,
Retirement or Disability, or termination for Cause (as defined in the
Stockholders' Agreement). Payment of the New Option exercise price must be made
in cash.
If New Options granted under the Plan are repurchased by the Company
pursuant to the "Put Rights" and "Call Rights" contained in the Stockholders'
Agreement, described below, the shares covered by such New Options will again be
available for grant under the Plan. In the event of the declaration of a stock
dividend, or a reorganization, merger, consolidation, acquisition, disposition,
separation, Recapitalization, stock split, split-up, spin-off, combination or
exchange of any shares of Common Stock or like event, the number or character of
the shares subject to the New Option or the exercise price of any New Option may
be appropriately adjusted as deemed appropriate by the Committee or the Board.
46
<PAGE>
The Plan terminates upon, and no New Options will be granted after, the
tenth anniversary of the Recapitalization closing, unless the Plan has sooner
terminated due to grant and full exercise of New Options covering all the shares
of Common Stock available for grant under the Plan. The Board may at any time
amend, suspend or discontinue the Plan; provided, however, that the Board may
not alter, amend, discontinue or revoke or otherwise impair any outstanding New
Options granted under the Plan and which remain unexercised in a manner adverse
to the holders thereof, except if the written consent of such holder is
obtained.
Compensation of Directors
The Company does not pay any compensation to directors.
Compensation Committee Interlocks and Insider Participation
During 1998, the Compensation Committee consisted of Mr. Olcott, Alexis P.
Michas and Robert F. End. Executive compensation is determined in accordance
with existing employment agreements and related amendments thereto.
47
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock of the Company as of December 31, 1998, by (i)
each stockholder known to the Company to own beneficially more than 5% of the
outstanding Common Stock of the Company and (ii) each director, each executive
officer and all directors and officers as a group. Except as set forth in the
footnotes to the table, each stockholder listed below has informed the Company
that such stockholder has sole voting and investment power with respect to the
shares of Common Stock of the Company beneficially owned by such stockholder.
<TABLE>
<CAPTION>
Shares of Company
Common Stock
Beneficially Owned (a)
Name and Address* ----------------------
of Beneficial Owner Number Percent (b)
------------------- ------ -----------
<S> <C> <C>
Stonington Capital Appreciation 1994 Fund, L.P. ("The Fund") (c)........... 6,404,496 62.1%
Emery G. Olcott (d)........................................................ 513,842 5.0%
Richard T. McKernan (e).................................................... 316,904 3.1%
George Serrano (f)......................................................... 186,900 1.8%
Ben D. Kaplan (g).......................................................... 44,000 **
Timothy O. White, Jr. (h).................................................. 28,100 **
Robert F. End (i).......................................................... 0 --
Bradley J. Hoecker (i) .................................................... 0 --
Alexis P. Michas (i)....................................................... 0 --
Peter P. Tong (j).......................................................... 26,470 **
Directors and Executive Officers as a group (10 persons) (i)(k)............ 1,116,216 10.82%
</TABLE>
- -----------
* The address of all Company management and Peter P. Tong is: 800 Research
Parkway, Meriden, Connecticut 06450. Refer to (c) below for additional
address information.
** Signifies less than 1%.
(a) The figures assume exercise by only the stockholder or group named in each
row of all options for the purchase of Common Stock held by such
stockholder or group which were exercisable by March 1, 1999.
(b) Figures are based upon 9,150,195 shares of Common Stock outstanding as of
December 31, 1998.
(c) The Fund is the record holder of 6,179,778 shares of Common Stock. The Fund
also controls, but disclaims beneficial ownership of, an additional 224,718
shares purchased by two institutional investors pursuant to the
Stockholders' Agreement. The Fund is a Delaware limited partnership whose
limited partners consist of certain institutional investors, formed to
invest in corporate acquisitions organized by Stonington Partners, L.P.
("SPLP"). SPLP, a Delaware limited partnership, is the general partner of
the Fund, with a 1% economic interest in the Fund. Except for such economic
interest, SPLP disclaims beneficial ownership of the shares set forth
above. Stonington II is the general partner of SPLP with a 1% economic
interest in SPLP. Except for such economic interests, Stonington II
disclaims beneficial ownership of the shares set forth above.
Pursuant to a management agreement with the Fund, Stonington has full
discretionary authority with respect to the investments of the Fund,
including the authority to make and dispose of such investments.
Furthermore, Stonington has a 7.4% economic interest in SPLP. Stonington
disclaims beneficial ownership of the shares set forth above. The address
for each of the entities listed in this footnote, as well as Stonington
management included in the table above, is c/o Stonington Partners, Inc.,
767 Fifth Avenue, New York, NY 10153.
(d) Includes shares held by Mr. Olcott's spouse and mother. Includes 173,000
shares subject to options which were exercisable by March 1, 1999. Mr.
Olcott's address is c/o Packard BioScience Company, 800 Research Parkway,
Meriden, Connecticut 06450.
(e) Includes shares held by Mr. McKernan's spouse and the McKernan Family
Partnership. Includes 173,000 shares subject to options which were
exercisable by March 1, 1999.
(f) Includes 109,000 shares subject to options which were exercisable by March
1, 1999.
(g) Includes 40,000 shares subject to options which were exercisable by March
1, 1999.
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<PAGE>
(h) Includes shares held by Mr. White's wife, children and trust to which Mr.
White is beneficiary. Includes 1,000 shares subject to options which were
exercisable by March 1, 1999.
(i) Excludes shares held by the Fund of which Mr. End, Mr. Hoecker and Mr.
Michas may be deemed to be beneficial owners as a result of their ownership
of stock in, and membership on the Boards of Directors of, Stonington and
Stonington II, but they disclaim such beneficial ownership.
(j) Includes 4,000 shares subject to options which were exercisable by March 1,
1999.
(k) Includes shares held by certain family members, trusts and similar
entities. Includes 722,800 shares subject to options which were exercisable
by March 1, 1999.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders' Agreement
The Company, the Fund, three institutional investors, the Management
Stockholders, certain Continuing Stockholders and other stockholders of the
Company (each, a "Stockholder") entered into a stockholders' agreement (the
"Stockholders' Agreement"), which contains, among other terms and conditions,
provisions relating to corporate governance, certain restrictions with respect
to the transfer of Common Stock by certain parties thereunder, certain rights
related to puts and calls and certain registration rights granted by the Company
with respect to shares of Common Stock.
Pursuant to the terms of the Stockholders' Agreement, each of the
Stockholders has agreed to elect an initial slate of directors of the Company
who have been nominated by the Fund; provided that such initial slate shall
consist of three Management Stockholders, four designees of the Fund and two
independent directors mutually agreed upon by the Fund and the Chief Executive
Officer of the Company. After the initial slate of directors has been elected,
the Fund has the right to nominate at any time and from time to time all
directors of the Company (including the right to reduce or expand the Board of
Directors and to fill vacancies created thereby) and, subject to applicable law,
has the right to remove such directors at any time and from time to time and
each of the Stockholders has agreed to vote in favor of such nomination or
removal of directors. The initial slate of directors has been elected.
Pursuant to the terms of the Stockholders' Agreement, in the event that,
prior to an Initial Public Offering (as defined in the Stockholders' Agreement),
the Fund proposes to sell securities which, in the aggregate, represent 40% or
more of the common equity on a fully diluted basis to a third party which is
not, and following such sale will not be, an affiliate of the Fund, the
Management Stockholders and the Continuing Stockholders have the right to elect
to participate in such sale with respect to a certain number of shares of Common
Stock held by them on a pro rata basis. In the event that, prior to an Initial
Public Offering, the Fund proposes to sell securities which, in the aggregate,
represent 40% or more of the common equity on a fully diluted basis to a third
party which is not, and following such sale will not be, an affiliate of the
Fund, the Fund has the right to require each Management Stockholder, Continuing
Stockholder and such other Stockholders who have agreed to be bound by the
Stockholders' Agreement to participate in such sale with respect to a certain
number of shares of Common Stock held by them on a pro rata basis.
Management Stockholders and Continuing Stockholders are not permitted,
without the prior consent of the Company, to sell or transfer shares of Common
Stock, other than to permitted transferees (I.E., family members, in the case of
Management Stockholders, and, upon the death of a Management Stockholder or a
Continuing Stockholder, to his or her estate or executors), prior to the
occurrence of the earlier of March 4, 2002, and an Initial Public Offering.
Following an Initial Public Offering, Management Stockholders and Continuing
Stockholders may transfer shares subject to applicable restrictions under the
Securities Act and other federal and state securities laws. On or after March 4,
2002, and prior to March 4, 2007, if an Initial Public Offering has not
occurred, Management Stockholders and Continuing Stockholders are permitted to
sell Common Stock to third parties after first giving the Company, the other
Management Stockholders and the Continuing Stockholders a right of first refusal
for the same number of shares of Common Stock at the same price.
49
<PAGE>
Prior to the earlier of an Initial Public Offering or March 4, 2007, the
Company has the right to require a Management Stockholder to sell to the Company
his or her shares of Common Stock, New Options and Existing Options upon a
termination of employment for any reason. Such right is exercisable within a
period of 190 days after the date of termination of employment, subject to
certain extensions, at a price per share, depending on the reason for
termination of employment and whether such shares were shares of Common Stock
retained by such Management Stockholder in the Recapitalization or Existing
Options, equal to the Fair Value Price (as defined in the Stockholders'
Agreement) or the Original Purchase Price (as defined in the Stockholders'
Agreement) of a share of Common Stock and at a price per New Option or Existing
Option equal to the difference between the Fair Value Price or the Original
Purchase Price of the shares of Common Stock covered by such New Option or
Existing Option and the exercise price of the shares of Common Stock covered by
such New Option or Existing Option, multiplied by the number of shares of Common
Stock covered by the New Option or Existing Option.
Prior to the earlier of an Initial Public Offering or March 4, 2007, each
Management Stockholder has the right to require the Company to purchase his or
her shares of Common Stock, New Options or Existing Options upon termination of
employment due to death, Disability, Retirement or certain instances of
Involuntary Termination (as defined in the Stockholders' Agreement). Such a
right is exercisable within a period of 180 days after the date of termination
of employment due to death, Disability, Retirement or certain instances of
Involuntary Termination, subject to certain extensions, (a) at a price per share
of Common Stock equal to the Fair Value Price thereof, and (b) at a price per
New Option or Existing Option equal to the difference between the Fair Value
Price of the shares of Common Stock covered by such New Option or Existing
Option and the exercise price of the shares of Common Stock covered by such New
Option or Existing Option, multiplied by the number of shares of Common Stock
covered by the New Option or Existing Option. If the payment for the shares of
Common Stock, New Options or Existing Options would constitute or cause a breach
or default under any agreement or instrument to which the Company or any of its
subsidiaries is bound or violate any law applicable to the Company or any of its
subsidiaries, the Company is permitted to pay for the shares or options with a
subordinated note of the Company that will, among other things, contain
subordination terms which are reasonably satisfactory to the relevant senior
lenders to the Company or any of its subsidiaries.
In the event that a Management Stockholder's employment is terminated due
to Voluntary Resignation (as defined in the Stockholders' Agreement) or
Involuntary Termination, but not if such termination is for Cause (as defined in
the Stockholders' Agreement), and the Company does not repurchase such
Management Stockholder's Existing Options pursuant to the Company's rights set
forth in the preceding paragraph, the Stockholders' Agreement provides that the
term of such Existing Options shall be extended for five years from such
termination or until 30 days following an Initial Public Offering, if sooner.
The Company has also agreed, pursuant to the Stockholders' Agreement, to
indemnify Management Stockholders against additional tax liability arising from
the exercise of "Put Rights" and "Call Rights" contained in the Stockholders'
Agreement resulting in "dividend" distributions under Section 302 of the Code.
Stockholders are, subject to certain limitations, entitled to register
shares of Common Stock in connection with a registration statement prepared by
the Company to register common equity beneficially owned by the Fund. The Fund
has the right to require the Company to take such steps as necessary to register
all or part of the Common Stock held by the Fund under the Securities Act
pursuant to the provisions of the Stockholders' Agreement. After an Initial
Public Offering, Stockholders other than the Fund have the right on one occasion
to require the Company to take such steps as necessary to register shares of
Common Stock held by such Stockholders under the Securities Act, subject to
certain minimum amounts and other limitations. The Stockholders' Agreement
contains customary terms and provisions with respect to, among other things,
registration procedures and certain rights to indemnification granted by parties
thereunder in connection with the registration of Common Stock subject to such
agreement.
Other Related Party Transactions
Prior to the Recapitalization, Compagnie Oris Industrie, S.A. ("Oris")
owned 30.7% of the outstanding Common Stock of the Company. Oris sold all of its
shares of Common Stock pursuant to the Recapitalization and does not own any
Common Stock of the Company. In 1996, Packard entered into an agreement with CIS
bio international ("CIS"), an affiliate of Oris, pursuant to which Packard
agreed to become the exclusive worldwide manufacturer of the KRYPTOR system for
CIS. The agreement terminates on December 31, 2002, but may be extended upon
agreement of the parties. In 1995, Packard entered into another agreement with
CIS pursuant to which Packard obtained a 10-year license to certain HTRF(TM)
technology owned by CIS. Packard agreed to pay CIS $700,000 plus specified
annual royalties. CIS may cancel the license or make it nonexclusive if certain
targets are not met. CIS may also cancel the license if the Company is
controlled by a competitor of CIS. The Company had revenues from CIS of
approximately $1,065,000 and $4,968,000 for 1996 and 1997, respectively, and CIS
reimbursed the Company for certain R&D expenses in the amounts of $1,536,000 and
$236,000 for 1996 and 1997, respectively. The Company also had a non-interest
bearing, trade receivable from CIS of approximately $1,061,000 at December 31,
1996.
Stonington Partners, L.P. received a structuring fee and reimbursement for
certain out-of-pocket expenses totaling $2.6 million in the aggregate.
50
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K:
1. Financial Statements.
Report on Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1998
Consolidated Statements of Income (Loss) and Comprehensive Income
(Loss) for the Years Ended December 31, 1996, 1997 and 1998
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998
Notes to Consolidated Financial Statements
2. Financial Statements Schedules.
Report of Independent Auditors on Consolidated Financial Statement
Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable
or required.
3. Exhibits.
Unless otherwise indicated, all exhibits are hereby incorporated by
reference to the Company's Registration Statement on Form S-4, Commission File
No. 333-24001. Following a description of each exhibit that is incorporated by
reference to such registration statement is a number in parenthesis indicating
the exhibit number by which such exhibit is identified in such registration
statement.
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Company (3.1)
3.2 By-Laws of the Company (3.2)
4.1 Indenture, dated as of March 4, 1997, between the Company
and The Bank of New York, as Trustee (4.1)
4.2 Form of 9 3/8% Senior Subordinated Notes due 2007 (4.2)
4.3 Form of 9 3/8% Senior Subordinated Notes due 2007, Series B
(4.3)
4.4 Credit Agreement, dated as of March 4, 1997, by and among
the Company, the Subsidiary Borrowers from time to time
party thereto, the several banks and other financial
institutions or entities from time to time party thereto,
Canadian Imperial Bank of Commerce, as documentation agent,
BancAmerica Securities, Inc. and CIBC Wood Gundy Securities
Corp., each as a co-arranger and a co-syndication agent, and
Bank of America National Trust and Savings Association, as
administrative agent (4.4)
4.5 Waiver and First Amendment, dated as of November 25, 1997,
to the Credit Agreement (incorporated by reference to the
Company's Form 10-K for the year ended December 31, 1997)
51
<PAGE>
Exhibit No. Description
----------- -----------
4.6 Waiver to Credit Agreement and Guarantee and Collateral
Agreement, dated as of February 11, 1998 (incorporated by
reference to the Company's Form 10-K for the year ended
December 31, 1997)
4.7 Waiver and Second Amendment, dated as of May 27, 1998, to
the Credit Agreement*
4.8 Waiver, dated as of November 13, 1998, to the Credit
Agreement*
10.1 Management Stock Incentive Plan (10.5)
10.2 Stock Option Plan of 1971 (10.6)
10.3 Stockholders' Agreement, dated as of March 4, 1997, by and
among the Company, Merrill Lynch KECALP L.P. 1994, KECALP
Inc., the Management Investors listed in Schedule 1 thereto,
the Non-Management Investors listed in Schedule 2 thereto
and Stonington Capital Appreciation 1994 Fund, L.P. (10.7)
10.4 Amendment No. 1 to Stockholders' Agreement; Amendment No. 1,
dated as of June 2, 1997, to the Stockholders' Agreement,
dated as of March 4, 1997 (incorporated by reference to the
Company's Form 10-K for the year ended December 31, 1997)
10.5 Employment Agreement, dated as of March 4, 1997, by and
between the Company and Emery G. Olcott (10.3)
10.6 Employment Agreement, dated as of March 4, 1997, by and
between the Company and Richard T. McKernan (10.4)
10.7 Employment Agreement by and between the Company and George
Serrano (10.8)
10.8 Employment Agreement by and between the Company and Staf van
Cauter (10.9)
10.9 Employment Agreement by and between the Company and Orren K.
Tench, Jr. (10.10)
10.10 Employment Agreement by and between the Company and Ben D.
Kaplan (incorporated by reference to the Company's Form 10-Q
for the period ended June 30, 1997)
10.11 First Amendment to Employment Agreement by and between the
Company and Ben D. Kaplan*
21 List of subsidiaries of the Company*
27 Financial Data Schedule*
- ----------
*Filed herewith.
(b) Reports on Form 8-K:
The Company has not filed any reports on Form 8-K during the quarter ended
December 31, 1998.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 19, 1999.
PACKARD BIOSCIENCE COMPANY
Date: March 19, 1999 By: /s/ EMERY G. OLCOTT
----------------------------------------
Emery G. Olcott
Chairman of the Board, Chief
Executive Officer and President
Date: March 19, 1999 By: /s/ BEN D. KAPLAN
----------------------------------------
Ben D. Kaplan
Vice President and Chief
Financial Officer
Date: March 19, 1999 By: /s/ DAVID M. DEAN
----------------------------------------
David M. Dean
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 19, 1999 By: /s/ RICHARD T. MCKERNAN
----------------------------------------
Richard T. McKernan
Senior Vice President and Director
President, Packard
Date: March 19, 1999 By: /s/ GEORGE SERRANO
----------------------------------------
George Serrano
Vice President, Secretary and Director
President, Canberra
Date: March 19, 1999 By: /s/ ROBERT F. END
----------------------------------------
Robert F. End
Director
Date: March 19, 1999 By: /s/ BRADLEY J. HOECKER
----------------------------------------
Bradley J. Hoecker
Director
Date: March 19, 1999 By: /s/ ALEXIS P. MICHAS
----------------------------------------
Alexis P. Michas
Director
Date: March 19, 1999 By: /s/ PETER P. TONG
----------------------------------------
Peter P. Tong
Director
No annual report or proxy material has been sent to the Company's security
holders.
53
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Packard BioScience Company:
We have audited in accordance with generally accepted auditing standards,
the consolidated balance sheets of Packard BioScience Company and subsidiaries
as of December 31, 1997 and 1998, and the related consolidated statements of
income (loss) and comprehensive income (loss), stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1998, included in this Form 10-K, and have issued our report thereon dated
February 23, 1999, except for Footnote 15 for which the date is March 4, 1999.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule on page 55 is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The information reflected in the schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 23, 1999
54
<PAGE>
SCHEDULE II
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEAR PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance At Charged to Charged to Balance
Beginning Costs and Other At End of
Description of Period Expenses Accounts Deductions Period
----------- --------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1996:
Reserves which are deducted in the balance
sheet from assets to which they apply -
Reserves for uncollectible amounts ............... $421,363 $100,113 -- $ 46,138 $475,338
======== ========
For the year ended December 31, 1997:
Reserves which are deducted in the balance
sheet from assets to which they apply -
Reserves for uncollectible amounts ............... $475,338 $165,898 $ 40,000(a) $ 98,740 $582,496
======== ========
For the year ended December 31, 1998:
Reserves which are deducted in the balance
sheet from assets to which they apply -
Reserves for uncollectible amounts ............... $582,496 $337,879 $ 20,315(a) $305,536 $635,154
======== ========
</TABLE>
(a) Represents recorded reserves at dates of acquisition.
55
EXHIBIT 4.7
WAIVER AND SECOND AMENDMENT
WAIVER AND SECOND AMENDMENT (this "Second Amendment"), dated as of May 27,
1998, to the Credit Agreement, dated as of March 4, 1997, as amended by the
Waiver and First Amendment thereto dated as of November 25, 1997 (as the same
may be further amended, supplemented or otherwise modified from time to time,
the "Credit Agreement"), among Packard Bioscience Company, a Delaware
corporation ("PACKARD"), the Subsidiary Borrowers party thereto, the lenders
from time to time parties thereto (the "Lenders"), Bancamerica Robertson
Stephens (formerly known as BancAmerica Securities, Inc.) and Cibc Oppenheimer
CORP. (formerly known as Cibc-wood Gundy Securities Corp.), as co-arrangers and
co-syndication agents (in such capacities, the "Co-arrangers" and the
"Co-syndication Agents"), Canadian Imperial Bank of Commerce, as documentation
agent (in such capacity, the "Documentation Agent"), and Bank of America
National Trust and Savings Association, as administrative agent.
W I T N E S S E T H :
WHEREAS, Packard has requested that the Lenders agree to waive compliance
with certain provisions of the Credit Agreement and amend certain provisions of
the Credit Agreement upon the terms and subject to the conditions set forth
herein; and
WHEREAS, the Lenders have agreed to such waivers and amendments only upon
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein have the
meanings ascribed to such terms in the Credit Agreement.
2. Waiver of Section 8.9. The Administrative Agent and the Lenders hereby
waive compliance with the provisions of Section 8.9 to the extent said
provisions would require (a) the Capital Stock of MCS to be pledged as
Collateral under the Guarantee and Collateral Agreement or (b) MCS to become a
party to the Guarantee and Collateral Agreement, grant a security interest in
any of its Property or become a Subsidiary Guarantor.
3. Amendment of Section 1.1. Section 1.1 of the Credit Agreement is hereby
amended by inserting in correct alphabetical order the following definition:
" "MCS": Mobile Characterization Services, LLC, a New Mexico limited
liability company."
4. Amendment of Section 1.2. Section 1.2 of the Credit Agreement is hereby
amended by adding the following new clause (e) to the end thereof:
"(e) Notwithstanding anything in this Agreement to the contrary, for
the purposes of calculating Consolidated EBITDA, the portion of
Consolidated EBITDA attributable to MCS shall appropriately reflect
the percentage economic interest in MCS held by Packard (directly or
indirectly). It is understood that no other calculations pursuant to
this Agreement shall be adjusted in such manner."
5. Amendment of Section 9.5(C). Section 9.5(c) of the Credit Agreement is
hereby amended by adding the following words to the end thereof:
"or Dispositions constituting investments in MCS expressly permitted
by Section 9.8(g)"
6. Amendment of Section 9.8(G). Section 9.8(g) of the Credit Agreement is
hereby amended by:
(a) re-numbering clause (iii) thereof as clause (iv); and
(b) inserting the following new clause (iii):
"(iii) not more than $4,500,000 of such investments (whether in the
form of contributions of cash or Property or otherwise, valued at net
book value in the case of contributions of Property) shall be made
during the term of this Agreement in MCS and its Subsidiaries,"
56
<PAGE>
7. Amendment of Section 9.14. Section 9.14 of the Credit Agreement is
hereby amended by adding a new clause (iv) to the end thereof which shall read
in its entirety as follows:
"or (iv) any restrictions with respect to MCS imposed pursuant to its
limited liability company agreement as originally in effect."
8. Conditions to Effectiveness. This Second Amendment shall become
effective (the actual date of such effectiveness, the "SECOND AMENDMENT
EFFECTIVE DATE") as of the date first above written when counterparts hereof
shall have been duly executed and delivered by each of the parties hereto and
acknowledged by each Subsidiary Guarantor.
9. Representations. Packard represents and warrants that:
(a) this Second Amendment has been duly authorized, executed and
delivered by Packard;
(b) each of this Second Amendment, and the Credit Agreement as amended
by this Second Amendment, constitutes the legal, valid and binding
obligation of Packard;
(c) each of the representations and warranties set forth in Section 6
of the Credit Agreement are true and correct as of the Second Amendment
Effective Date; provided that references in the Credit Agreement to this
"Agreement" shall be deemed references to the Credit Agreement as amended
by this Second Amendment; and
(d) after giving effect to this Second Amendment, there does not exist
any Default or Event of Default.
10. Continuing Effect. Except as expressly amended or waived hereby, the
Credit Agreement shall continue to be and shall remain in full force and effect
in accordance with its terms.
11. Expenses. Packard agrees to pay and reimburse the Administrative Agent
for all of its out-of-pocket costs and expenses incurred in connection with the
negotiation, preparation, execution, and delivery of this Second Amendment,
including the reasonable fees and expenses of counsel to the Administrative
Agent.
12. Counterparts. This Second Amendment may be executed on any number of
separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
13. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
PACKARD BIOSCIENCE COMPANY
By:
----------------------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Administrative Agent
By:
----------------------------------------------------
Name:
Title:
57
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE, as Documentation
Agent and as a Lender
By:
----------------------------------------------------
Name:
Title:
CIBC OPPENHEIMER CORP. (formerly known as CIBC-Wood
Gundy Securities Corp.), as a Co-Arranger and a
Co-Syndication Agent
By:
----------------------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
(as successor by merger with Bank of America Illinois,
as a Lender
By:
----------------------------------------------------
Name:
Title:
ABN AMRO BANK N.V., as a Lender
By:
----------------------------------------------------
Name:
Title:
By:
----------------------------------------------------
Name:
Title:
BANKBOSTON, N.A. (formerly known as The First National
Bank of Boston), as a Lender
By:
----------------------------------------------------
Name:
Title:
BANK OF SCOTLAND, as a Lender
By:
----------------------------------------------------
Name:
Title:
FLEET NATIONAL BANK, as a Lender
By:
----------------------------------------------------
Name:
Title:
58
<PAGE>
IBJ SCHRODER BANK & TRUST COMPANY, as a Lender
By:
----------------------------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK
BRANCH, as a Lender
By:
----------------------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY, as a Lender
By:
----------------------------------------------------
Name:
Title:
ALLSTATE LIFE INSURANCE COMPANY, as a Lender
By:
----------------------------------------------------
Name:
Title:
THE ING CAPITAL SENIOR SECURED HIGH INCOME FUND,
L.P., as a Lender
By:
----------------------------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.,
as a Lender
By:
----------------------------------------------------
Name:
Title:
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, as a
Lender
By:
----------------------------------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO, as a Lender
By:
----------------------------------------------------
Name:
Title:
59
<PAGE>
COMMERCIAL LOAN TRUST I, as a Lender
By:
----------------------------------------------------
Name:
Title:
FEDERAL STREET PARTNERS, as a Lender
By:
----------------------------------------------------
Name:
Title:
PAMCO CAYMAN LTD., as a Lender
By:
----------------------------------------------------
Name:
Title:
ML CBO IV (CAYMAN) LTD., as a Lender
By: Protective Asset Management Company as Collateral
Manager
By:
----------------------------------------------------
Name:
Title:
60
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned does hereby acknowledge and consent to the foregoing Second
Amendment. The undersigned does hereby confirm and agree that, after giving
effect to such Second Amendment, the Guarantee and Collateral Agreement and the
other Security Documents in favor of the Administrative Agent to which it is a
party are and shall continue to be in full force and effect and are hereby
confirmed and ratified in all respects.
PACKARD INSTRUMENT COMPANY, INC.
By:
Name:
Title:
AQUILA TECHNOLOGIES GROUP, INC.
By:
Name:
Title:
CARL CREATIVE SYSTEMS
By:
Name:
Title:
61
EXHIBIT 4.8
WAIVER
WAIVER (this "WAIVER"), dated as of November 13, 1998, with respect to the
Credit Agreement, dated as of March 4, 1997, as amended by the Waiver and First
Amendment thereto dated as of November 25, 1997 and the Waiver and Second
Amendment thereto dated as of May 27, 1998 (as the same may be further amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among PACKARD BIOSCIENCE COMPANY, a Delaware corporation ("PACKARD"), the
Subsidiary Borrowers party thereto, the lenders from time to time parties
thereto (the "LENDERS"), NATIONSBANC MONTGOMERY SECURITIES LLC (formerly known
as BANCAMERICA SECURITIES, INC.) and CIBC OPPENHEIMER CORP. (formerly known as
CIBC-WOOD GUNDY SECURITIES CORP.), as co-arrangers and co-syndication agents (in
such capacities, the "CO-ARRANGERS" and the "CO-SYNDICATION AGENTS"), CANADIAN
IMPERIAL BANK OF COMMERCE, as documentation agent (in such capacity, the
"DOCUMENTATION AGENT"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as administrative agent.
W I T N E S S E T H :
WHEREAS, Packard has requested that the Lenders agree to waive compliance
with certain provisions of the Credit Agreement upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the Lenders have agreed to such waivers only upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein have the
meanings ascribed to such terms in the Credit Agreement.
2. Waiver of Section 9.5. The parties hereto hereby waive compliance with
the provisions of Section 9.5 of the Credit Agreement to the extent said
provisions would prohibit or restrict the Disposition of Packard=s hydrogen
generator product line. It is understood that such Disposition (a) shall not
constitute utilization of any of the Abasket@ amounts referred to in Section 9.5
and (b) shall constitute an AAsset Sale@ for the purposes of the Credit
Agreement.
3. Conditions to Effectiveness. This Waiver shall become effective (the
actual date of such effectiveness, the AWAIVER EFFECTIVE Date@) as of the date
first above written when counterparts hereof shall have been duly executed and
delivered by Packard, the Administrative Agent and the Required Lenders and
acknowledged by each Subsidiary Guarantor.
4. Representations. Packard represents and warrants that:
(a) this Waiver has been duly authorized, executed and delivered by
Packard;
(b) each of this Waiver, and the Credit Agreement as modified by this
Waiver, constitutes the legal, valid and binding obligation of Packard;
(c) each of the representations and warranties set forth in Section 6
of the Credit Agreement are true and correct as of the Waiver Effective
Date; provided that references in the Credit Agreement to this AAgreement@
shall be deemed references to the Credit Agreement as modified by this
Waiver; and
(d) after giving effect to this Waiver, there does not exist any
Default or Event of Default.
5. Continuing Effect. Except as expressly waived hereby, the Credit
Agreement shall continue to be and shall remain in full force and effect in
accordance with its terms.
6. Expenses. Packard agrees to pay and reimburse the Administrative Agent
for all of its out-of-pocket costs and expenses incurred in connection with the
negotiation, preparation, execution, and delivery of this Waiver, including the
reasonable fees and expenses of counsel to the Administrative Agent.
7. Counterparts. This Waiver may be executed on any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
62
<PAGE>
8. GOVERNING LAW. THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
PACKARD BIOSCIENCE COMPANY
By:
----------------------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Administrative Agent
By:
----------------------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
(as successor by merger with Bank of America Illinois),
as a Lender
By:
----------------------------------------------------
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
By:
----------------------------------------------------
Name:
Title:
ABN AMRO BANK N.V.
By:
----------------------------------------------------
Name:
Title:
By:
----------------------------------------------------
Name:
Title:
BANKBOSTON, N.A. (formerly known as The First National
Bank of Boston)
By:
----------------------------------------------------
Name:
Title:
BANK OF SCOTLAND
By:
----------------------------------------------------
Name:
Title:
63
<PAGE>
FLEET NATIONAL BANK
By:
----------------------------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By:
----------------------------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK
BRANCH
By:
----------------------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
----------------------------------------------------
Name:
Title:
ALLSTATE LIFE INSURANCE COMPANY
By:
----------------------------------------------------
Name:
Title:
By:
----------------------------------------------------
Name:
Title:
THE ING CAPITAL SENIOR SECURED HIGH INCOME FUND, L.P.
By: ING Capital Advisors, Inc., as Investment Advisor
By:
----------------------------------------------------
Name:
Title:
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By:
----------------------------------------------------
Name:
Title:
64
<PAGE>
SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as Investment
Advisor
By:
----------------------------------------------------
Name:
Title:
COMMERCIAL LOAN FUNDING TRUST I
By: Lehman Commercial Paper, Inc.
By:
----------------------------------------------------
Name:
Title:
FEDERAL STREET PARTNERS
By:
----------------------------------------------------
Name:
Title:
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management, as Investment Advisor
By:
----------------------------------------------------
Name:
Title:
65
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned does hereby acknowledge and consent to the
foregoing Waiver. Each of the undersigned does hereby confirm and agree that,
after giving effect to such Waiver, the Guarantee and Collateral Agreement and
the other Security Documents in favor of the Administrative Agent to which it is
a party are and shall continue to be in full force and effect and are hereby
confirmed and ratified in all respects.
PACKARD INSTRUMENT COMPANY, INC.
By:
Name:
Title:
AQUILA TECHNOLOGIES GROUP, INC.
By:
Name:
Title:
CCS PACKARD, INC.
By:
Name:
Title:
66
EXHIBIT 10.11
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), dated this 22nd
day of October, 1998, is made and entered into by and between Packard BioScience
Company, a Delaware corporation (the "Company"), and Ben D. Kaplan (the
"Executive").
WHEREAS, the Company and the Executive entered into an employment agreement,
dated March 4, 1997 (the "Employment Agreement"); and
WHEREAS, the Company and Executive desire to amend the Employment Agreement to
provide for automatic renewals of the Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained herein, and
for other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the Company and Executive hereby amend the Employment
Agreement as follows:
1. Section 1 of the Employment Agreement is hereby amended by adding the
following language to the end of such Section 1:
"; provided, however, that commencing on the date two years after the date
of this Employment Agreement (the "Initial Renewal Date"), and on the first
day of each calendar month thereafter (each such date and the Initial
Renewal Date shall be hereinafter referred to as a "Renewal Date"), unless
previously terminated, the Employment Period shall be automatically
extended so as to terminate thirteen calendar months after such Renewal
Date, unless at least sixty days prior to the Renewal Date the Company
shall give notice to the Executive that the Employment Period shall not be
so extended."
2. Except as specifically amended hereby, the Employment Agreement shall
remain in full force and effect.
3. The Company and the Executive acknowledge that this Agreement supersedes
any other agreement between them with respect to the subject matter hereof,
and that this Amendment shall be incorporated into and shall form an
integral part of the Employment Agreement.
4. This Amendment may be executed in several counterparts, each of which shall
be deemed an original, and said counterparts shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the Executive has executed this Amendment and, pursuant to
the authorization of its Board of Directors, the Company has caused this
Amendment to be executed on its behalf, all as of the date first above written.
EXECUTIVE
/s/ BEN D. KAPLAN
- -----------------------------
Ben D. Kaplan
PACKARD BIOSCIENCE COMPANY
/s/ EMERY G. OLCOTT
- -----------------------------
Emery G. Olcott
President
67
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE COMPANY
(AS OF MARCH 19, 1999)
Entity Place of Incorporation
------ ----------------------
Amplitudes, Incorporated Connecticut
Canberra Corporation (Dormant) Delaware
Canberra-Packard International, Inc. Barbados
Packard Instrument Company, Inc. Delaware
Aquila Technologies Group, Inc. New Mexico
BioSignal, Inc. Canada
CCS Packard, Inc. California
Mobile Characterization Services LLC New Mexico
Canberra-Packard Inc. (Dormant) Delaware
Canberra-Packard Pty. Ltd. Australia
Canberra-Packard Ges m.b.h. Austria
Canberra-Packard Benelux NV SA
(includes Canberra-Packard Danish branch) Belgium
Canberra Semiconductor NV Belgium
Packard Instrument S.A. France
Canberra Electronique S.A. France
Canberra-Packard GmbH Germany
Canberra-Packard Ltd. Great Britain
Canberra-Packard s.r.l. Italy
Packard BioScience BV The Netherlands
Canberra-Packard Trading Corp. Russia
Canberra-Packard AG Switzerland
Harwell Instruments, Ltd. United Kingdom
Packard Instruments International S.A. (Dormant) Panama
Packard Japan KK Japan
Greenstar USA, Inc. New Mexico
General Physics Institute, Inc. New Mexico
Tennelec, Inc. Delaware
NOTE: All of the above are 100% wholly-owned subsidiaries with the exception of
Packard Japan KK, Mobile Characterization Services LLC, Greenstar USA, Inc. and
General Physics Institute, Inc. The Company owns 55%, 49% and 49% of Mobile
Characterization Services, Greenstar USA, Inc. and General Physics Institute,
Inc., respectively. The Company is currently in the process of acquiring the
remaining minority interest in Packard Japan KK.
68
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,929
<SECURITIES> 0
<RECEIVABLES> 48,853
<ALLOWANCES> 635
<INVENTORY> 30,633
<CURRENT-ASSETS> 97,471
<PP&E> 43,469
<DEPRECIATION> 17,902
<TOTAL-ASSETS> 163,402
<CURRENT-LIABILITIES> 72,724
<BONDS> 0
0
0
<COMMON> 137
<OTHER-SE> (114,432)
<TOTAL-LIABILITY-AND-EQUITY> 163,402
<SALES> 228,164
<TOTAL-REVENUES> 228,164
<CGS> 113,261
<TOTAL-COSTS> 113,261
<OTHER-EXPENSES> 91,708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,270
<INCOME-PRETAX> 5,692
<INCOME-TAX> 3,787
<INCOME-CONTINUING> 1,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,905
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
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