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, 1999
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
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-0676652
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
800 Research Parkway, Meriden, Connecticut 06450
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 203-238-2351
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None
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Securities registered pursuant to Section 12(g) of the Act:
None
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(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 17, 2000: $806,040,125.
As of March 17, 2000, there were 47,414,125 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 (the "Company") is a leading global developer,
manufacturer and marketer of instruments and related consumables and services
for use in the life sciences research and nuclear industries. Our broad
technology portfolio and our experience in working in more than 60 countries
with market-leading customers have allowed us to establish a worldwide
leadership position in many of our primary product categories, with
well-recognized brand names and a reputation for high-quality, reliable
instruments. For the year ended December 31, 1999, we generated total revenues
of $264.9 million.
We are primarily focused on the rapidly growing areas of drug discovery,
genomics and biochip analysis. We are continuing to develop integrated platforms
built on our wide range of technologies and instrumentation. These platforms are
designed to support the industrialization of drug discovery by bringing the
benefits of miniaturization, automation and ultra-high throughput analysis to
these areas. Today, we believe we provide the most comprehensive integrated
solutions for drug screening applications that allow our customers to increase
speed, reduce cost, improve data accuracy and enhance productivity. We intend to
build upon our drug screening foundation by expanding on our evolving genomics,
biochip and microarray platforms.
Unless the context otherwise requires, all references herein to "we",
"us" and "our" are to the Company.
Packard, HTRF, TopCount, InstantImager, MultiPROBE, FlashPlate, Discovery,
PlateTrak, Cyclone (in the EU only) and LucLite are registered trademarks and
ALPHA, AlphaQuest and Biochip Arrayer are trademarks of the Company or its
subsidiaries.
Our History
We were founded in 1965 by Emery G. Olcott, our current President and
Chief Executive Officer, for the purpose of manufacturing nuclear instrument
modules, or NIMs. The sale of these electronic devices, which are used to detect
and measure the energy of radioactive materials, laid the business foundation
for Canberra to become a global leader in the areas of radiation exposure
measurement of humans, neutron counting, nuclear safeguards and high-purity
germanium detectors. Through the purchase of Packard Instrument Company from
United Technologies Corporation in 1986, we diversified our product portfolio
into bioanalytical instruments and biochemicals and supplies for the life
sciences research industry. During 1998, we acquired Carl Creative Systems,
Inc., currently known as CCS Packard, Inc., and BioSignal, Inc. CCS Packard is a
developer, manufacturer and distributor of high throughput liquid handling
systems used in the life sciences research, in-vitro diagnostics and
pharmaceutical drug discovery industries. BioSignal is a developer and supplier
of cloned drug targets and assay reagents used in pharmaceutical and
biotechnology research, and provides screening services to drug discovery
companies. In March 2000, we acquired a 51% interest in Carl Consumable
Products, LLC, a recently-formed designer and manufacturer of disposable pipette
tips for liquid dispensing robots used to automate drug discovery and genomics
research.
In March 1997, we completed a recapitalization transaction as a result of
which Stonington Capital Appreciation 1994 Fund, L.P. ("Stonington") acquired
approximately 69% of our common stock (the "Recapitalization").
Packard Instrument
Through our wholly-owned subsidiary, Packard Instrument, Inc. ("Packard"),
we are a leading company in laboratory automation and have developed scalable
platforms built on our worldwide leadership in the manufacturing and marketing
of bioanalytical instruments for use in the life sciences research industry.
Pharmaceutical and biotechnology companies have recognized that, in order to
advance the drug discovery process, significantly greater investments in
genomics research and advanced drug screening at high throughput rates are
required. Meeting this growing demand with integrated, multitechnology, scalable
solutions that span the drug discovery process is a key element of our growth
strategy. The development of our genomics analysis, biochip and microarray
platforms will complement our well-established drug screening platform.
Our rich portfolio of proprietary technologies is embodied in our
products, consumables and services. We own approximately 50 U.S. and foreign
patents and have over 30 patent applications pending in the United States and
abroad. According to a
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recent independent market study, Packard provides the broadest range of products
and services to the pharmaceutical drug screening industry. Packard's primary
products include: microwell plate readers; imaging systems; automated liquid
handling systems; laboratory robotics; bioanalytical spectrometers; and
biochemicals and related supplies.
Packard has strong long-term relationships with a broad customer base that
includes substantially all of the 50 largest pharmaceutical and biotechnology
companies. We have one of the largest installed bases in the life sciences
research industry with over 25,000 instruments. Packard's broad and well-
developed customer relationships and extensive installed base not only allow us
to generate a recurring revenue stream from services and sales of related
consumables, but also provide us with customer insights that are invaluable for
the development and commercialization of new products and technologies. Through
Packard's worldwide sales, marketing and service organization of approximately
400 individuals, we distribute our instruments and other products and provide
services to many of the leading pharmaceutical, biotechnology and agrochemical
companies as well as to prominent academic, government and medical laboratories.
Canberra Industries
Through our division, Canberra Industries ("Canberra"), we are the
worldwide leader in analytical instruments and systems used to detect, identify,
quantify and monitor radioactive materials for the nuclear industry and related
markets. Our thirty-five year history and what we believe to be the largest
installed base in the nuclear instrument industry provide us strong brand
recognition and an extensive worldwide distribution and support network.
Throughout our history we have enjoyed close relationships with key customers,
including the U.S. Department of Energy and the International Atomic Energy
Agency as well as major utilities and research laboratories, that have resulted
in the development of a number of our new technologies and products. More
recently, we have been applying our market and technology leadership to the
provision of measurement services to our customers.
We are also a leader in outsourced measurement services that add a new
value dimension to our marketplace. The U.S. Department of Energy alone has
budgeted $6.3 billion in the current fiscal year to spend on programs for
cleaning up sites that were used for the production of nuclear materials for
weapons. We believe that an increasing amount of resources spent each year on
cleanup efforts will be privatized, providing growth opportunities for
outsourced services, such as measurement services provided by Canberra. In
addition, we believe that remediation in the nuclear power industry, both
domestically and abroad, will provide significant additional opportunities for
growth.
PACKARD INSTRUMENT
Industry Overview
The life sciences research industry is undergoing fundamental change and
growth resulting principally from the explosive growth in gene discovery and the
increasing demand for greater efficiency in the drug discovery process. Industry
experts estimate that in the year 2000 the life sciences research industry will
spend more than $80 billion on drug discovery research and development.
Traditionally, chemists laboriously synthesized new compounds with potential
therapeutic activity one at a time or painstakingly isolated them from natural
resources. Today, combinatorial chemistry techniques are used to greatly
increase the supply and diversity of such compounds. Libraries of hundreds of
thousands, or even millions, of compounds are now available for testing in
biological assays against disease targets.
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Until recently, life sciences researchers had identified only a few
hundred targets. Driven by large-scale DNA sequencing projects, such as the
Human Genome Project, life sciences researchers expect to identify tens of
thousands of new gene targets as they decipher the genomes of both humans and
disease-causing organisms. Sifting through these massive gene pools to identify
disease-causing genes will require large-scale experimentation. Determining
which gene variations cause or play a role in diseases will be an even greater
challenge. Once potential targets are identified, they need to be screened
against hundreds of thousands, if not millions, of compounds, a process known as
"drug candidate screening." As a result of this dramatic increase in the need
for drug candidate screening, industry experts agree that new bioanalytical
tools and optimized processes will be required to improve the overall efficiency
of the drug discovery process. It is generally accepted that industrialization
and automation of repetitive activities will be required to streamline the drug
discovery process.
The following discussion describes the steps which lead to drug discovery.
Genomics
Structural Genomics
Interest in understanding the relationships between genes and diseases has
generated a worldwide effort to identify the structure and sequence of the genes
of many organisms, including the approximately 3 billion DNA base pairs
comprising the approximately 100,000 genes within the human genome. Known as the
Human Genome Project, this project is expected to identify most of the human
genes by the year 2001. While the portfolio of existing drugs is believed to act
only on approximately 500 gene products or targets, scientists believe that
5,000 to 10,000 gene products represent the majority of the important drug
targets from which therapeutic products may be developed. In addition to
human-related genomics, the sequencing of the genome of disease-causing
organisms is producing numerous potential targets for drugs to treat infectious
diseases.
Functional Genomics
We anticipate that, once researchers identify the structure of a gene and
sequence of its base pairs, the identification and validation of new drug
targets will require an understanding of the specific function and role of that
gene in diseases. This effort will require many years of additional research and
large-scale bioanalytical experimentation with millions of samples. Single
nucleotide polymorphism, or SNP, genotyping and gene expression analysis,
described below, are considered essential techniques to determine the function
and association of genes with specific diseases.
Single Nucleotide Polymorphism Genotyping. SNP genotyping is the process
of analyzing locations within a genome where variations in a gene sequence, or
genetic polymorphisms, are known to exist. Genetic polymorphisms play a role in
an individual's susceptibility to disease and response to drugs. SNPs are the
most common type of genetic variation. There are an estimated 3 to 10 million
SNPs in the human genome, but only a small fraction have been identified to
date. This number is expected to increase dramatically as both public efforts,
such as the SNP Consortium, and numerous individual companies that have
initiated programs, attempt to identify hundreds of thousands of human SNPs.
The identification of a SNP does not indicate whether or how it may relate
to human health. To relate SNPs to disease or drug response, SNPs must be
measured, or typed, in hundreds of thousands of people and correlated with
clinical data describing the health of those individuals. These studies will
require hundreds of millions of measurements. As more and more SNPs are
identified, a new market is quickly emerging for high throughput detection of
SNP genotypes. A portion of the need for this high throughput will be created in
the clinical trials and commercialization stages through "pharmacogenomics,"
which is an approach to drug development that utilizes genotypic information to
develop highly specific drugs.
Gene Expression Analysis. Gene expression is the process by which a gene's
coded information is ultimately translated into the production of proteins
within a cell. While all cells contain the full set of genomic DNA, different
cells express different sets of genes depending on cell type and environmental
conditions. Certain diseases also arise from the over or under expression of
genes. Gene expression levels are measured by detecting differences in messenger
RNA, or mRNA, patterns. mRNA serves as a template for the production of
proteins. A primary application of this process is
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differential gene expression analysis, where researchers compare the genes
expressed in healthy and diseased samples to identify specific genes involved in
a particular disease process. Another common application involves measuring a
change in expression of certain genes when researchers add drug candidates to
cells.
As researchers identify more genes from the genome sequencing projects, we
expect the market for expression analysis technologies to grow significantly.
For example, faster and more efficient instrumentation will enable researchers
to screen a compound library more effectively and look for those compounds that
affect expression of certain genes in a beneficial way, or develop a screening
system to assess the toxicological effect of a set of new drug leads.
Proteomics
Protein Function
Instead of analyzing a gene or its mRNA, proteomic research studies the
function of genes by direct analysis of the gene product, or protein. A
"proteome" is defined as a set of functional proteins encoded by a gene and is
the protein complement of the genome. A systematic analysis of the protein
profiles of healthy and diseased tissue may identify disease-specific proteins.
Initially, proteomics will complement functional genomics for the identification
and validation of targets. Once sets of candidate proteins believed to be
associated with certain diseases have been identified and characterized, high
throughput technologies will be required to screen the effect of drug candidates
on protein expression or to perform clinical studies and diagnostic analyses.
Targets
Targets are specific biological molecules, usually proteins, which are
believed to have a significant role in the onset or development of a disease.
Target identification involves acquiring knowledge about the role a particular
molecule plays in the body in order to determine whether it might be a good
target for further investigation. Target validation is the demonstration that
affecting the function of a particular target has a positive effect on the
course of a disease. Target validation employs a variety of scientific research,
including the analysis of mRNA, proteins and cells. Today, while this activity
is often associated with proteomic studies, it is most often initiated with
genomics studies.
Combinatorial Chemistry
Compounds
Over decades, chemists in major pharmaceutical and chemical companies
built up libraries of hundreds of thousands of compounds. These compounds were
usually obtained by chemical synthesis one at a time or, alternatively, by
isolation from natural sources. During the last few years, however, many
corporate and academic groups have developed combinatorial chemistry techniques
that combine compounds to greatly increase the supply and diversity of small
molecules for screening. As a result, most companies now have access to millions
of compounds to be tested against established or new targets and yield potential
lead compounds for the development of new medicines. These vast numbers of
compounds, combined with the explosion in new targets, present a substantial
challenge to the drug discovery process and create a need for faster and more
cost-efficient screening.
Drug Candidate Screening
Drug candidate screening generally involves testing of large libraries of
different compounds in relatively simple assays, or tests, containing targets
identified through genomics and proteomics research. Assays are employed to
determine the effect of a compound upon a particular target. When applied
methodically, assays can be used as screens to identify active chemicals,
referred to as "hits," that may produce a desired effect upon a target's
function. Lead compounds can be identified by additional screening of hits and
may then be optimized to generate candidate compounds for development as
potential medicines.
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Assays
Assay development, in the context of screening compounds against a new
target, refers to a test a researcher must develop for measuring whether
particular compounds in a library interact with the target in a certain manner.
The type of assay utilized for drug screening depends on the target under
investigation and the type of information being sought. Researchers design some
assays to measure whether and how tightly a compound binds to a target, such as
the binding of a drug to a protein. Other assays are designed to measure whether
and to what degree a compound reduces the biological activity of a target, such
as the activity of an enzyme. In other cases, researchers test compound
collections against living cells and measure a particular cellular response,
such as a change in expression level of one or more genes. Targets can be
incorporated into either biochemical or cell-based assays. A biochemical assay
involves a target that is isolated from its natural cellular environment.
Cell-based assays test compounds on targets functioning in the environment of
living human or other mammalian cells. For lead optimization, described below,
cell-based assays provide a number of advantages, including greater predictive
value of therapeutic effect and potential toxicity. However, cell-based assays
have typically been more difficult and time consuming to develop and to perform
due to difficulties in detecting the function of a target in a living cell and
the inherent technical complexities of using human or other mammalian cells in
drug screens.
Screening
Screening is the process of methodically testing libraries of compounds
for potential therapeutic value by using assays to determine if any of the
tested compounds affect a selected target. Primary screening involves performing
an identical test on each compound in a large library to identify hits.
Re-testing confirms initial hits and secondary screening refines the initial
evaluation of hits. For example, secondary screening may measure a hit's
"potency," which is the amount of the hit compound required to exert its effect,
and "specificity," which is the degree to which the hit exerts its effect on the
defined target rather than unintended targets. With the rapidly growing list of
targets identified by genomics programs, the major pharmaceutical companies are
moving towards screening up to 100 targets annually against libraries of up to
one million compounds using semi-automated or high throughput screening systems.
Lead Optimization
Lead optimization refers to the process of sorting through compounds that
emerge from the screening process, and involves conducting successive rounds of
chemical alterations and biological tests to find compounds likely to have
appropriate drug properties. Like target validation, lead optimization involves
a variety of methods, including protein and cellular analysis, chemical
synthesis and high throughput experimentation.
Drug Development
Early ADME/Tox and Pre-clinical Testing
ADME/Tox stands for the following properties of a lead compound:
absorption by the intestinal systems, distribution within the body, metabolism
by the liver and other systems, excretion and toxicity. The ADME/Tox phase is
typically conducted during pre-clinical studies. However, to avoid costly and
time-consuming pre-clinical experiments, simplified molecular and cellular model
systems that mimic mammalian physiology are often used to gain information about
the lead's solubility in blood plasma, its cell penetration capabilities or its
toxicity. These studies in these surrogate molecular and cellular systems,
referred to as "Early ADME/Tox," are bridging the gap between a need for high
throughput and true physiological information about lead compounds.
Clinical Trials and Commercialization
Clinical trials test pharmaceutical product candidates in humans to
demonstrate their safety and efficacy. Because clinical trials are the most
expensive part of drug development, pharmaceutical companies are attempting to
improve the outcomes of clinical trials by using genomic approaches to drug
development. In order to use genomics in a clinical trial, each patient's
genetic make-up must be analyzed. This could entail analysis of thousands of
different SNPs in a patient's DNA which, for a 1,000 patient trial, would
require generating millions of data points. The successful outcome of clinical
trials may result in regulatory approval to commercialize the new drug product.
Shortcomings of the Drug Discovery Process
Whereas many technology companies offer a solution for one individual
component of the broader drug discovery process, we are incorporating numerous
proven technologies into our product offerings so that the entire process can
operate with greater efficiency. Our approach is aimed at total integration of
our technologies, which were developed to eliminate present-day shortcomings
from the drug discovery process. These shortcomings result from insufficient
speed of analysis due to lack of integrated automation in moving samples through
the process, limitations on the ability to miniaturize assays and the high cost
of failures late in the drug development process. Our solutions address these
shortcomings with features such as miniaturization, automation and ultra-high
throughput. In addition, the development of our genomics analysis, biochip
and microarray platforms will complement our well-established drug screening
platform.
Packard's Technology Portfolio
We are developing one of the broadest portfolios of technologies, products
and services to support the drug discovery industry and to address current
shortcomings in most stages of the drug discovery process. We believe that, in
order to support more efficient drug discovery, industrialized platforms that
optimize the use of technology components are required. Please refer to
"--Intellectual Property" for more information regarding licenses relating to
these products.
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Proprietary Assay Reagents
We have internally developed or exclusively licensed a broad range of
proprietary assay technologies, which we believe exhibit significant advantages
over existing high throughput assays in terms of sensitivity, miniaturization
capability and versatility. Because these are "one-step" or homogeneous assays,
which do not require additional separation or washing steps, they enable high
throughput analysis and fully automated screening. In addition, our assay
portfolio covers a wide range of both biochemical and cell-based assays, and can
be used against most major classes of drug targets in most therapeutic areas.
Our assay portfolio consists of:
- ALPHA. Amplified Luminescent Proximity Homogeneous Assay, or ALPHA,
is a homogeneous assay technology for biochemical and molecular
assays exclusively licensed from Dade Behring, Inc. As a result of
its signal amplification characteristics, ALPHA has superior
sensitivity enabling ease of use, throughputs of greater than
250,000 samples per day and excellent miniaturization capabilities.
Without the need to increase reagent concentrations, ALPHA offers
the sensitivity of heterogeneous assays in a homogeneous format, and
enables assay miniaturization to very small volumes. Released to the
market in late 1999, this technology is expected to find widespread
acceptance for a wide range of drug discovery assays. In addition,
ALPHA can be configured to run two tests within one assay, which
makes it particularly useful for ultra-high throughput genomics
applications, such as SNP detection and gene expression analysis;
- BRET. We consider Bioluminescence Resonance Energy Transfer, or
BRET, a breakthrough luminescent assay technology for proteomic
studies in live mammalian cells. This new technology is in its final
stages of testing and we currently expect to make it commercially
available later this year. It is designed to significantly increase
the speed of developing assays for new gene targets by decreasing
steps necessary in protein analysis. This technology is licensed
exclusively from Vanderbilt University;
- LucLite. In 1996, we introduced, under the trade name LucLite, a
glow-type luminescent substrate that for the first time enabled
ultra-high throughput screening of gene expressions in cells. Today,
we estimate that LucLite reagents have been used to screen over 60
million compounds worldwide;
- FlashPlate. FlashPlate scintillation proximity assay technology was
introduced in the early 1990's for homogeneous radioisotopic
applications. Despite the trend away from the use of radioisotopes,
we believe that radioisotopic assays will remain useful for a
significant percentage of drug discovery assays because it is
possible to label a compound with a radioisotope without altering
its chemical structure. We currently distribute FlashPlates through
NEN Life Science Products, Inc. under an exclusive license
agreement; and
- HTRF. Introduced in 1996, Homogeneous Time-Resolved Fluorescence, or
HTRF, was the first homogeneous assay technology using fluorescence
as opposed to radioisotopic labeling that has found widespread use
in the pharmaceutical industry for high throughput screening of
enzyme, protein-protein interaction and other molecular interaction
assays. HTRF provides an improvement over homogeneous radioisotopic
assays as it does not require radioisotopic labeling, and provides
fivefold throughput increases to over 50,000 samples per day. This
technology is licensed exclusively from CIS bio international.
Proprietary Assay Formats
Today, the large majority of high throughput assays are conducted in
standardized plastic plates having 96 small reservoirs, or "wells," to
facilitate parallel experimentation. Driven by higher throughput needs, parallel
processing requirements and cost constraints, the industry is rapidly moving
towards miniaturized assay formats which include high-density microwell plates,
lab-on-a-chip and biochip/microarray formats. We believe that we are the only
company that will be able to offer all these assay formats and provide
compatible high throughput assay platforms. These capabilities will give our
customers a migration path to miniaturized assays as applications emerge.
- Microwell plates. We have built a reputation as a specialty
microwell plate supplier for high throughput assays in the drug
discovery market. We have proprietary plates for cell-based assays,
filtration assays and
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scintillation proximity assays in both 96- and 384-well formats. In
addition, we are working closely with other manufacturers to develop
1536-well plates suited for conducting the miniaturized assays
enabled by our new ALPHA and BRET assay technologies.
- LabCard chips. Through an agreement with ACLARA BioSciences, Inc.,
we have obtained exclusive access and distribution rights to 96-well
Oasis LabCard chips to enable miniaturization of homogeneous assays
beyond the capabilities of microwell plates. These LabCard chips are
similar in size and format to existing microwell plates. However,
through the use of microfluidic channels, one can conduct assays in
volumes as small as one thousandth the volume allowed by today's
microwell plates. Unlike microarrays that are limited to conducting
solid-phase DNA assays, the Oasis LabCard chips act as "wet chips,"
allowing assays to be conducted in solution phase, thus expanding
application versatility.
- Hydrogel chips. We have a co-exclusive license with Motorola, Inc.
to commercialize the biochip technology developed at Argonne
National Laboratory. Consisting of a thin hydrogel film on a glass
substrate, hydrogel chips provide a "three-dimensional" substrate
for the immobilization of nucleic acids and proteins in microarray
formats with densities of up to thousands of elements per square
centimeter. Microarrays can be produced in two formats: at the
bottom of the wells of microwell plates, so called Microarray
Plates, or on standard format glass microscope slides, so called
biochips. Because the hydrogel provides an aqueous microenvironment
for biological reactions, hydrogel chips are suited for the
production of both DNA-chips and protein-chips.
Proprietary Microfluidics and Robotics
We have internally developed a number of products to miniaturize sample
preparation and automate high throughput systems. Our microfluidics and robotics
portfolio includes:
- Piezo-tip microfluidics. This unique liquid handling technology
utilizes piezoelectric actuators to "squeeze" glass tips in order to
dispense pre-determined numbers of picoliter size droplets at high
frequency in miniaturized wells or on solid surfaces. This
"drop-on-demand" technology enables the tips to dispense volumes
ranging from 300 picoliters to several microliters with great
precision and accuracy. Several proprietary techniques are being
used to implement banks of piezo-tips on microfluidic robots able to
routinely aspirate, transfer and dispense minute quantities of
samples and reagents from standard labware to miniaturized devices
such as LabCard chips or microarrays.
- PlateTrak robotics. These industrial-strength microwell plate and
liquid handling robotics use linear bi-directional conveyor belts to
process samples at very high throughputs. The combination of various
process modules, such as 96- and 384-tip liquid dispensing, washing,
filtration, sealing, barcode reading and plate stacker modules,
permits the automation of virtually any high throughput sample
preparation protocol. In addition, a "pick-and-place" robotic arm
allows the system to support peripheral devices such as incubators,
thermal cyclers and microwell plate readers in the automation
process.
Proprietary Detection Technologies
We have developed a portfolio of ultra-high throughput detection
techniques to integrate our assay technologies with our robotics platforms.
Among the products incorporating these techniques are:
- Microwell Plate Readers. Microwell plate readers are bioanalytical
devices designed to measure sample activity in the wells of a
microwell plate. Our microwell plate readers use various proprietary
optical detection technologies to analyze samples from
scintillation, luminescence, fluorescence, time-resolved
fluorescence and ALPHA assays. Single-photon counting electronics
are combined with parallel detection optics to meet ultra-high
throughput needs.
- Fiber-optic Imagers. Fiber-optic imagers are bioanalytical devices
designed to obtain images and analyze the activity of samples in
various sample formats. The imagers we are currently developing use
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highly-sensitive "charge coupled devices," or CCD, coupled to the
sample through fiber optics to obtain images of sample arrays,
whether in microwell plate, LabCard chip or biochip/microarray
format. Our patented fiber-optic imaging technology avoids the use
of lenses to project images of samples onto the CCD detection
device. This results in better light gathering efficiencies, higher
measurement throughputs and more accurate and quantitative
analytical data.
Other Technologies and Services
We believe that our technologies in gene cloning and expression, and our
broad portfolio of proprietary assay development tools, provide opportunities
for high margin services and outsourcing arrangements.
- Rapid Expression and Target Validation. We hold various exclusive
and non-exclusive licenses to gene expression technologies,
including mammalian, viral and microbial expression systems. These
technologies, combined with gene cloning expertise and
state-of-the-art cell culture facilities, enable rapid genetic
engineering of cells expressing new protein targets for target
validation by pharmacological analysis.
- Assay Development and Screening Services. We have extensive
experience in the purification of a wide range of proteins,
including affinity purification with engineered genetic "tags." To
facilitate rapid assay development for high throughput screening, we
also maintain a portfolio of proprietary assays for receptors,
reporter genes, and biochemical and cell-based assays.
Packard's Industrialized Platforms and Solutions
According to a recent independent market research study, we provide the
broadest range of products and services to the pharmaceutical drug screening
industry. Whereas many technology companies offer a solution for one individual
component of the broader drug discovery process, we are integrating numerous
proven technologies into our product offerings so that the entire process can
operate with greater efficiency. Our approach is aimed at total integration of
our technologies, which were developed to eliminate present-day shortcomings
from the drug discovery process. Our integrated platforms are designed to
support the industrialization of drug discovery by bringing the benefits of
miniaturization, integration and automation to high throughput applications such
as drug screening, SNP detection and gene expression analysis. Today, we believe
we provide the most comprehensive integrated solutions for drug screening
applications that allow our customers to increase speed, reduce cost, improve
data accuracy and enhance productivity. We intend to build upon our drug
screening foundation by expanding on our evolving genomics, biochip and
microarray platforms.
The primary features of our integrated system are:
- Miniaturization. Unlike other microfluidic systems, our devices use
a miniaturization approach based on standardized microwell plate
sizes in order to maintain compatibility with most laboratory
equipment. Our
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piezo-tip dispensers can automatically miniaturize liquid handling
procedures to sub-nanoliter volumes. For solution-based assays, the
unique capillary design of the Oasis LabCard chips eliminates
evaporation problems, even when volumes as small as one-thousandth
of current microwell volumes are used. In addition, our piezo-tip
dispensers can be used to produce microarrays on chips for
solid-phase applications.
- Automation. Our PlateTrak microwell plate and liquid handling robots
were the first to use bi-directional conveyor belts to process
samples at very high throughput. The recent addition of on-line
incubation and detection makes this system the first to totally
integrate assay assembly, incubation and detection in one
space-saving analytical configuration. Complete experiments for both
molecular and live cell screening assays, as well as for high
throughput genomics assays such as SNP detection and gene
expression, can be automated using these platforms. Depending on the
assay, the PlateTrak robotic system will process and analyze samples
in microwell plates, LabCard chips or Microarray Plates.
- Ultra-High Throughput. By integrating our multi- detector microwell
plate readers and fiber-optic imaging detectors on our PlateTrak's
bi-directional robotic system, analytical throughputs will match the
proven high-speed sample preparation capabilities of the system.
Through the automated process line approach for sample preparation,
liquid handling, incubation and detection, throughputs of hundreds
of thousands of samples per day can be achieved for a wide range of
assays.
The advantages of our current industrialized platforms and those under
development are listed in the following table:
<TABLE>
<CAPTION>
Feature Enabling Technologies Benefits
------- --------------------- --------
<S> <C> <C>
Miniaturization - Piezo-tip liquid handling - Parallel analysis
- LabCard chips, Microarray Plates - Low cost per test
- ALPHA and BRET assays - Compound and target savings
Automation - PlateTrak robotic system - Reduces labor intensity
- Homogeneous, one-step assays - Enables miniaturization
- On-line fiber-optic imaging
Ultra-high throughput - Multi-tip liquid handling - Time savings
- Parallel plate processing - Faster lead discovery
- Parallel sample detection - Greater capacity
Multi-assay capability - Biochemical/binding assays - Target validation
- Cell-based functional assays - Lead discovery/optimization
- Microarray assays
High-quality data - Homogeneous, separation-free assays - Reduces false positives
- Assay portfolio - Reduces late failures
Standard assay formats - 96-, 384- and 1536-well plates - Migration to high-density formats
- Oasis LabCard chips - Compatibility with standard laboratory
- Microarray Plates equipment
Assay development services - "Gene-to-screen" assay development - Process integration
- Assay and platform integration - Savings in time and cost of assay
</TABLE>
For over five years, we have installed elements of our system at
substantially all of the 50 largest pharmaceutical and biotechnology companies
worldwide. Leading companies such as Merck, Amgen, Hoffmann-LaRoche,
Schering-Plough and AstraZeneca together have purchased hundreds of our
microwell plate readers and numerous liquid handling robots, and rely on us to
streamline their drug discovery process.
Industrialized Drug Screening Platform
Our industrialized drug screening platform allows high throughput
screening facilities to transition from conventional microwell plates, to
high-density microwell plates, to Oasis LabCard chips and ultimately to
Microarray Plates.
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Our platform builds upon PlateTrak "assembly-line" technology for ultra-high
throughput automation, proprietary piezo-tip dispensing technology for
miniaturization, ultra-sensitive luminescence detection technologies for both
biochemical and cell-based assays, and integrated detection capabilities using
either microwell plate readers or fiber-optic based imaging. We believe these
applications can be further extended beyond conventional screening by combining
the multi-tip liquid dispensing technology with multi-fiber optics imaging for
simultaneous injection of compounds and measurement of their instantaneous
response on live intact cells. Simultaneous data from all wells would provide
enhanced information on drug lead affinity, efficacy and function from a single
assay, thereby helping to identify drug candidate failures early in the process.
The following are the various elements of the platform:
- Automation. We believe our PlateTrak robotic system can automate the
sample preparation of virtually any high throughput screening
protocol using a modular conveyor approach that combines automated
microwell plate processing robotics with proprietary 96- and 384-tip
liquid dispensing modules. Today, assays can be conducted in 96-,
384- and 1536-well plates. We believe further miniaturization will
be possible through the use of piezo-tip liquid handling technology
and Oasis LabCard chips or Microarray Plates.
- Assays. Automated high throughput preparative tools are compatible
with our HTRF technology for biochemical assay measurements, as well
as with LucLite substrates for cell-based reporter gene assays. The
introduction of our ALPHA and BRET assay technologies is expected to
provide enhanced performance. ALPHA enables scaling down assays into
1536-well plates, and we plan to adapt ALPHA to the sub-microliter
format of the Oasis LabCard chips. BRET is still under development
and is expected to extend the applications of the platform to
functional genomics and proteomic assays in live cells. In addition,
by integrating our fiber-optic imaging technology onto the platform,
we intend to expand automated assay processing to allow for
scintillation proximity assays, as well as kinetic measurements of
compound-target interactions by measuring luminescence and
fluorescence signals in live cell assays.
- Detection. The integration of our microwell plate readers results in
high throughput screening platforms with superior performance for
scintillation, luminescence, HTRF and ALPHA assays. Our microwell
plate reader products are highly sensitive, high throughput
detection systems, capable of performing low-volume assays in
small-volume 384-well plates for HTRF, and 1536-well plates and
Oasis LabCard chips for ALPHA. Throughputs of 50,000 to over 250,000
samples per day can be achieved per instrument for HTRF and ALPHA,
respectively. In addition, by virtue of integrating fiber-optic
imaging technology, we believe our ultra-high throughput screening
platform will keep its competitive edge over other automated
screening systems.
Industrialized Genomics Analysis Platform
We are extending the applications of our industrialized high throughput
drug screening platform to genomics analysis. We believe that our industrial-
strength automated process line can be successfully adapted to meet the growing
high throughput requirements for SNP genotyping and gene expression analysis, so
called mRNA measurements. This platform is intended for use in candidate-gene
approaches, where a limited number of genes or SNPs suspected to be associated
with diseases are screened against large numbers of samples. These applications
include screening compound libraries for new drug leads, or studying the effect
of candidate drugs on expression levels of genes associated with drug toxicity
and efficacy, so called Early ADME/Tox studies. In addition, industry experts
anticipate that there will be large demand for screening SNP candidates in a
great number of individuals to confirm disease association, and to conduct
large-scale pharmacogenomics studies. Like our drug screening platform, we
believe that our integrated genomics system will address three key issues
associated with high throughput SNP genotyping: automation, throughput and cost.
The following are the various elements of the platform:
- Automation. By taking full advantage of the flexibility and parallel
plate processing capabilities of the PlateTrak robotic platform,
complex molecular biology sample preparation procedures, such as
DNA/RNA extraction, purification, amplification and hybridization,
can be totally automated at high throughput. Moreover, the use of
dual-color ALPHA reagents is expected to eliminate the need for post
amplification
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reactions. The simultaneous addition of amplification reagents,
hybridization probes and dual-color detection probes should offer
many procedural advantages, as it enables amplification and
detection in closed sample containers (sealed microwell plates or
LabCard chips). In addition to facilitating total automation, this
feature should eliminate potential lab contamination, which is a
major problem with open container DNA amplification systems such as
polymerase chain reaction, or PCR. This ability to avoid
cross-contamination will also eliminate "false positive" results,
giving the system the robustness required for industrial-strength
genotyping. We believe that, through the use of small-volume
384-well plates, the cost per SNP analysis can be reduced to levels
below that of most current, often laborious techniques. If we
succeed in adapting the system to use ACLARA's Oasis LabCard chips,
to which we have exclusive distribution rights, we will have a
competitive advantage to lower cost further to levels that make mass
analysis possible.
- Assays. Our preferred assay method for genomics analysis uses
hybridization with dual-color ALPHA detection. Two color detection
allows the determination of the two possible bases of SNPs in a
single well. Moreover, because at least one color must be present,
two color reactions have their inherent internal quality control.
ALPHA labels are very stable in stringent amplification and
hybridization reactions. In addition, the homogeneous, one-step
nature of ALPHA makes it possible to perform DNA amplification and
probe hybridization followed by detection in the same reaction wells
without having to open the wells after temperature cycling. Our
approach avoids evaporation, enables miniaturization and eliminates
cross-contamination by the amplified product. Other applications of
this ALPHA-based genetic analysis platform are: gene expression
analysis, DNA molarity testing and quantitative PCR amplification.
- Detection. This integrated genomics analysis platform will employ
high throughput laser-based ALPHA detectors using either multiple
discrete detectors or fiber-optic imaging technology. The
measurement time per SNP is just a few seconds, and so far, testing
conducted with real-world genomic samples gave consistent, high
signal-to-noise ratios, making it possible to automate genotype
determination through software interpretation of the data. We
believe that we will be able to achieve throughputs greater than
25,000 samples per day with a single, integrated system.
Although this high throughput genetic analysis platform is still under
development, most of its critical components and processes have been proven at
various customer and collaborator sites. The complete sample preparation process
has been automated at the genome center of the Whitehead Institute, while the
dual-color ALPHA chemistry has been evaluated by Dade Behring, Inc. Real-world
SNP analysis tests, using single-color ALPHA with genomic samples of the
Montreal Genome Centre, resulted in 99% genotype identification accuracy. The
use of dual-color ALPHA should result in further accuracy improvements. We
believe that by building upon our high throughput screening platform we can
bring the benefit of proven automation technology to SNP detection, and other
genetic analysis methods.
Biochips and Microarrays
Although still under development, most critical components and processes
of our biochip platform have been developed and tested. The biochip or
microarray is part of an integrated system that begins with the deposition of
genes and proteins, referred to as the "probe," on the surface of a flat
substrate, referred to as "chip." Sample DNA or protein, the "target," is
prepared independently and applied to the biochip for hybridization. After
hybridization between complementary DNA sequences in the sample target and the
probe DNA immobilized on the chip, the hybridization signals are detected and
analyzed.
The use of our proprietary non-contact, drop-on-demand piezo-tip
dispensing robotics enables the production of microarrays/biochips on virtually
any substrate, and with virtually any probe, whether synthetic DNA, gene
fragments or proteins. This flexibility enables the production of custom
biochips with low set-up costs and fast turn-around time. Our business model is
based on both the internal production of such chips, and the transfer of our
piezo-tip production tools and best production practices to customers against
the payment of technology transfer and licensing fees. We believe this gives us
a significant competitive advantage over our competitors as it enables our
customers to maintain confidentiality with respect to their bioinformatics.
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In addition, we plan to produce and distribute biochips made with our
proprietary hydrogel chip. This will result in differentiated performance and an
improved intellectual property position. The hydrogel chip is a
three-dimensional, porous substrate which avoids some of the fundamental array
density patents that encumber this field. In addition, hydrogel chips provide an
aqueous microenvironment for the immobilization of probes and the hybridization
of targets. We believe that this feature, and the fact that DNA is deposited
within a hydrogel film on the chip rather than synthesized, gives us
considerable freedom to operate in the DNA chip market. The following describes
this process.
- Biochip Production. The major advantages of our piezo-tip biochip
production tools are the high-quality and excellent precision of the
microarrays, the flexibility to dispense synthetic DNA, gene
fragments, or cDNA, and proteins on both porous and non-porous
substrates. Competing arraying technologies use pin tools to
dispense sample by touching the non-porous chip substrate.
Dispensing accuracy is affected by the quality of the pin, the
proximity of the pin to the substrate, and precision varies because
of non-uniformity of the substrate or surface variability between
substrates. In addition, we believe our production process offers
more flexibility than the photolithographic DNA synthesis method
where cDNA and proteins cannot be applied. As for the chip
substrate, we can produce biochips using either the customer's
substrate, or our own proprietary hydrogel substrate. Hydrogels
provide a three dimensional structure enabling biomolecular
interactions to occur in an aqueous microenvironment. Samples are
aspirated from source vessels such as microwell plates and arrayed
on biochip substrates by dispensing 300 picoliter droplets of probe
material.
Our first generation product, the Biochip Arrayer I, designed for
low throughput research applications, features four piezo-tip
dispensers. Our high throughput Biochip Arrayer II, currently under
development for high-capacity production applications, features 8
piezo-tips, upgradable to 48 tips, and is capable of "on-the-fly"
microarraying to produce hundreds of thousands of biochips per year.
Rather than dispensing and immobilizing probes on a single surface,
as is the case with conventional biochips, hydrogels can capture
probes in thousands of multiple layers, which will significantly
increase probe concentration. We believe that these features make
hydrogel chips suited for both genomics and proteomics applications.
- Sample Preparation. Sample preparation steps are virtually identical
to those described under the automation section of the
Industrialized Genomics Analysis Platform, although DNA
amplification and detection are not performed in closed containers.
Post amplification processing is required and typically consists of
pooling the amplification products in one sample mixture that is
then applied to the biochip for hybridization. For high throughput
applications, we can use our PlateTrak robotic system to automate
sample preparation. For low throughput, our MultiPROBE robotic
liquid handling system can be used.
- Assays. We can produce chips in two formats. The "biochip slide"
format makes the chip compatible with hybridization and washing
equipment commonly available in the lab for microscope slide
processing. This format is used for low throughput applications,
such as assay development or academic research, and may also be very
suitable for diagnostics applications. For higher throughput
applications, we plan to produce Microarray Plates by depositing
microarrays on the bottom of the wells of a 96-well plate. This
format works in conjunction with our PlateTrak robotic system for
high throughput applications.
Through a collaboration with and co-exclusive license from Boston
University, we have access to the so-called Positional Sequencing By
Hybridization, or PSBH, universal arrays. The PSBH approach offers
two potential advantages for conducting genetic analysis assays on
chips: the PSBH hybridization method makes SNP detection more
specific; and the PSBH methods permit the use of universal rather
than gene-specific arrays for SNP detection.
Products and Services
Increasingly, we are combining several of our products to create
"industrialized" automation platforms to support more efficient drug screening
and genomics analysis. We also provide biochemicals and supplies used with our
instruments and platforms, as well as related service and support. More
recently, we have also been providing outsourcing services to the pharmaceutical
industry. Our products and services consist of:
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Microwell Plate Readers. Our TopCount microwell plate reader was one of
the first instruments to provide high throughput microwell plate scintillation
counting to screen compounds in drug discovery, and for analysis in molecular
and cellular biology, immunology and biomedical research. Through the
introduction of several new products in the early 1990s, we rapidly penetrated
the microwell plate reader market, becoming one of the largest suppliers of
these types of instruments. In 1997, we introduced our Discovery microwell plate
reader, a proprietary instrument that uses time-resolved fluorescence for
detection, and is compatible with HTRF assays, and at the end of 1999, we
introduced our AlphaQuest reader, which is designed for ultra-high throughput
drug candidate screening using ALPHA assays. Our current microwell plate reader
products perform detection using both radioisotopic assays and a broad range of
non-isotopic methods such as colorimetric, luminescence, fluorescence,
time-resolved fluorescence and ALPHA methods.
Imaging Systems. Our current imaging systems are used to detect the
activity of isotopically-labeled samples, including gels, blots, DNA assays and
high-density arrays for use in drug development, genomics analysis and molecular
and cellular biology, including areas such as genomics, neuroscience, immunology
and biochemistry. We entered the imaging market with the introduction of our
InstantImager product in 1993. We believe that this product provides significant
benefits to users in terms of real-time, fast sample turnaround and enhanced
quantification capabilities. We broadened our product line in 1996 through the
addition of the Cyclone, a low-cost storage phosphor imager, and intend to
introduce additional imagers to our product line over the next several years,
including systems based on our proprietary fiber-optic imaging technology.
Automated Liquid Handling Systems. Our automated liquid handling systems
are used to prepare small volume samples to be dispensed into the wells of
microwell plates, which are then screened by microwell plate readers. Our
product line includes the MultiPROBE robotic liquid handler which is often sold
in conjunction with our TopCount microwell plate reader. We have also developed
a next generation instrument, the MultiPROBE II, which can be expanded to meet
the customer's needs. We recently introduced another new product, the Biochip
Arrayer, featuring our piezo-tip microfluidics technology for ultra-small volume
liquid handling. This capability and high-precision mechanics enables the
preparation of samples in higher density microplates, in Oasis LabCard chips and
on biochips.
Laboratory Robotics. Our laboratory robotics feature automatic microwell
plate processing robotic technology combined with proprietary 96-tip and 384-tip
liquid dispensing modules, and a variety of other sample processing and liquid
handling modules. Our PlateTrak conveyor belt-based system can be customized to
meet increasing sample throughput needs of customers in the high throughput
screening and genetic analysis markets. Through the addition in 1999 of a
"pick-and-place" robotic arm, the capabilities of our laboratory robotics system
have been extended to include a wide variety of peripheral laboratory equipment
and instrumentation.
Bioanalytical Spectrometers. Our bioanalytical spectrometers, used broadly
throughout life sciences research, use sensitive light measuring methods for
detecting radio-isotopic labeled compounds. We are a leading manufacturer and
marketer of bioanalytical spectrometry instruments, including liquid
scintillation counters, gamma counters and flow scintillation analyzers. These
instruments measure sample activity by detecting light generated through the
interaction of beta particles with "scintillation cocktails." Scintillation
cocktails are solutions of biochemicals used to dissolve a sample and to convert
sample activity to light. Gamma counters, on the other hand, use solid
scintillators. The light generated when gamma rays strike a sodium iodide
crystal detector is used to measure sample activity.
Biochemicals and Supplies. Our biochemicals and supplies are laboratory
consumables used for the operation of bioanalytical instruments, both those sold
by ourselves and those of our competitors. Biochemicals principally include
light-emitting scintillation cocktails used in conjunction with our
bioanalytical spectrometers. We are a leading biochemicals manufacturer for
scintillation cocktails and supplies, such as vials and microwell plates. In
early 1996, we introduced LucLite luminescence reagents for our TopCount product
and, in the same year, we introduced HTRF reagents. As part of our strategy of
focusing on nonisotopic processes, we acquired BioSignal, Inc. in 1998.
BioSignal's core competency is in the field of gene cloning, genetic engineering
of live cells and expression and production of recombinant proteins. These
products are sold as protein targets to the pharmaceutical industry. With our
highly-skilled workforce and specialized assay development and reagent
production labs, we are well positioned to convert many traditional
radioisotopic assays to non-isotopic assays that are compatible with our
analytical equipment. At the end of 1999, we introduced ALPHA reagents for use
in ultra-high throughput drug candidate screening applications. As a result of
its signal amplification characteristics, ALPHA has superior sensitivity,
enabling ease of use, throughputs of greater than 250,000 samples per day and
excellent
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miniaturization capabilities. Without the need to increase reagent
concentrations, ALPHA offers the sensitivity of heterogeneous assays in a
homogeneous format and enables assay miniaturization to very small volumes.
Service and Support. Our service and support offerings include field
service, customer support, applications assistance and training through an
organization of 207 factory-trained and educated service and application support
personnel around the world. We provide purchasers of our instruments with
service and support primarily on a fixed fee, annual contract basis. We believe
that our installed base of over 25,000 instruments provides us with stable,
recurring after-market service and support revenue, as well as product upgrade
and replacement opportunities.
Outsourcing. We believe that our technologies in gene cloning and
expression, and our broad portfolio of proprietary assay development tools,
provide opportunities for high margin services and outsourcing arrangements. In
the drug discovery market, we seek to collaborate with genomics and
combinatorial chemistry companies that we believe have access to considerable
numbers of new drug targets and compound libraries, and for which our
technologies could substantially accelerate the identification of candidate
compounds for drug development. To date, we have entered into such
collaborations with Millennium Pharmaceuticals, Inc. for target identification
and assay development, and ComGenex International, Inc. for compound library
screening.
Customers
Packard's customers include pharmaceutical, biotechnology and agrochemical
companies as well as academic institutions, government laboratories and private
foundations. A representative list of Packard's domestic and international
customers follows:
Amgen, Inc. Max-Planck-Institut
AstraZeneca plc Merck & Co., Inc.
Bristol-Myers Squibb Company Millennium Pharmaceuticals, Inc.
Cambridge University Monsanto Company
deCode Genetics, Inc. National Institutes of Health
E.I. DuPont de Nemours and Company Novo Nordisk A/S
Gen-Probe Incorporated Pasteur Institute
Genentech, Inc. Rhone-Poulenc Rorer
Glaxo Wellcome plc Sankyo Pharmaceutical Company
Harvard Medical School Schering-Plough
Hoechst Marion Roussel Takeda Pharmaceutical Company
Hoffmann-LaRoche AG University of California
Howard Hughes Medical Institute Whitehead Institute for Biomedical
Research/
Knoll/BASF, AG MIT Center for Genome Research
None of Packard's customers accounted for more than 5% of our total 1999
revenues.
CANBERRA INDUSTRIES
Canberra, founded in 1965, is the worldwide leader in analytical
instruments and systems used to detect, identify, quantify and monitor
radioactive materials for the nuclear industry and related markets. Canberra's
leading position in all of its major product lines and ability to provide
extensive services have enabled it to assemble what we believe to be the largest
base of installed equipment in the nuclear instrument industry, generating a
recurring stream of service revenues through strong customer relationships.
Canberra's primary products and services include: hardware and software for the
detection, analysis and containment of nuclear materials; and services related
to the analysis of nuclear materials, including measurement, expert data review,
site management, consulting services and after-sale support, service and
applications training.
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Canberra's customers include government institutions, utilities, research
laboratories, commercial analytical laboratories, and local, national and
international 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. In addition, Canberra has
leveraged its reputation for well-documented quality systems into markets that
require high levels of quality assurance. For example, Canberra is the only
company qualified to assay nuclear waste for shipment to the Waste Isolation
Pilot Plant under the waste acceptance criteria established by the U.S.
Department of Energy.
Industry Overview
The nuclear industry is divided into four key segments: nuclear research,
nuclear power, nuclear weapons and environmental monitoring and restoration.
These segments are all dependent on precision radiation detection and analysis
instrumentation and related support services. We estimate that Canberra has the
leading share of the worldwide nuclear instrument and system sales. We expect
that, as a result of the privatization of certain of the U.S. Department of
Energy's facilities and the deregulation of the U.S. electric utility industry,
a portion of previously captive sales will gradually become available, creating
opportunities for commercial providers like Canberra.
The emerging environmental cleanup of nuclear facilities represents a
significant growth market. The U.S. Department of Energy spent approximately
$5.8 billion in 1999 and has budgeted $6.3 billion in 2000 on programs for
cleaning up sites that were used for the production of nuclear materials for
weapons. During the 1990's, the U.S. Department of Energy negotiated cleanup
agreements with the states in which some of the largest and most contaminated
sites are located. These agreements call for aggressive cleanup schedules and
impose fines as high as $60,000 per day if the schedules are not met. In
addition, the U.S. Department of Energy has determined that accelerating closure
of nuclear facilities will result in enormous savings of approximately $1.5
million per day. For example, the U.S. Department of Energy estimates that
accelerating the closure of the Rocky Flats facility from 2010 to 2006 will
result in estimated total savings of $1.3 billion.
Traditional Applications
Traditional applications for Canberra's products are in the following
areas:
- radiochemistry, which is the investigation of the chemical
composition of substances and their radioisotopic constituents;
- nuclear research, which historically focused on basic research in
nuclear physics has shifted to applied topics such as environmental
restoration;
- worker health and safety, which measures the intake of radioactive
substances by workers who are exposed to nuclear materials; and
- nuclear safeguards, which is the containment of and accountability
for materials that could be used to make nuclear weapons.
Market trends in these traditional areas include a shift to integrated
instruments, which reduce the need for operator intervention, are more fully
automated and require less technical expertise to produce necessary data
analyses.
Emerging Applications
Increasing concerns about contamination of the environment from both
radioactive and non-radioactive pollutants are prompting decisions regarding the
permanent disposal of nuclear waste that is currently stored on-site by waste
generators. This disposal requires the treatment and shipment of large amounts
of radioactive waste, in which the radioactive content must be identified and
quantified using nondestructive assay methods, or NDA, prior to being treated,
shipped or stored. Emerging areas to which Canberra's products may apply are:
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- environmental restoration and waste management, or ERWM, the
"cleanup" market, in which "owners" must restore unused, underused
and obsolete nuclear facilities to an environmentally sound status,
and release them for public use within specified deadlines or face
significant penalties;
- environmental monitoring, which, through the use of measuring
instruments, both monitors radioactive and hazardous sites and
verifies the success of remediation and containment projects; and
- nuclear weapons stewardship, which includes fissile materials
disposition and safeguards, as well as development, production and
maintenance of nuclear weapons.
We estimate that, in addition to the $6.3 billion budgeted for cleaning up
nuclear weapon sites, the U.S. alone will spend an additional $2.0 billion each
year cleaning up sites used for the production of nuclear power and industrial
or medical processes. We believe that existing nuclear facilities will
increasingly require instrumentation to aid waste characterization,
decontamination and decommissioning. The move to privatization of certain of the
U.S. Department of Energy facilities is also creating opportunities for new
measurement, expert data review, and management and consulting services.
We believe that the applications of our products in nuclear weapons
stewardship are expanding due to:
- the submission of former weapons facilities to international
inspection. The United States and Russia are voluntarily placing
excess weapons material and unused weapons production sites under
the inspection of the International Atomic Energy Agency. The
ongoing inspection of these facilities will require the purchase of
large amounts of equipment for measurement, accountability and
containment and surveillance;
- the large volume of weapons materials being extracted from
decommissioned weapons. For example, there are approximately 50
metric tons of surplus weapons usable plutonium and 175 metric tons
of weapons usable uranium in the United States alone, which, under
its bilateral agreements with Russia, have to be rendered unusable
as weapons material. According to a U.S. Department of Energy's
fissile materials disposition program report, approximately $4.5
billion will be spent in Russia to safeguard and dispose of weapons
material before 2016. Current budgets for the U.S. include nearly
$200 million reserved this year for disposition activities, and
nearly $550 million for traditional safeguards activities. The U.S.
spending levels for these activities have been increasing each year
since 1995; and
- the disposition of those materials in new facilities. Both the
United States and Russia have plans to build facilities that will
convert material that could be used to make nuclear weapons into
either nuclear fuel or into waste material that cannot be diverted
to weapons use.
Western Europe, like the United States, also has a significant installed
base of nuclear instruments. However, we believe that this market differs from
the United States due to its higher use of commercial nuclear fuel reprocessing
which creates additional safeguards and other measurement opportunities. Central
Europe and the former Soviet Union face the same requirements to implement the
cleanup of contaminated facilities, but on an even larger scale. In other parts
of the world, we believe that Asia is the primary growth opportunity for
commercial applications of nuclear power. This growth potential is primarily due
to Japan's pursuit of energy self-sufficiency, as well as Korea's, Taiwan's,
India's, Pakistan's and China's nuclear power programs. China, India and
Pakistan, however, are subject to certain U.S. export controls that 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 for Canberra to supply safeguards, radiochemistry and waste
characterization systems.
Canberra's Solutions
Canberra has focused on the development of the infrastructure, technical
resources and support services necessary to meet the opportunities in the
emerging environmental restoration and waste management market. Based on our
experience and expertise in developing sophisticated nuclear instrumentation,
and years of working with customers in the environmental restoration and waste
management fields, we are well positioned to offer environmental cleanup
services to the U.S.
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Department of Energy with proven solutions and experienced personnel. As a
market leader offering a full range of products, we are poised to take advantage
of the potential opportunities in this industry. In response to market trends in
its traditional applications, Canberra has introduced instruments, such as the
Gamma Analyst and the Alpha Analyst, which are integrated spectroscopy
instruments that replace traditional multi-component systems with complete,
integrated solutions. In addition, Canberra's Laboratory Sourceless Object
Calibration Software was introduced last November to enhance automation features
and provide significant cost reductions in normal laboratory operations.
Canberra's experience providing environmental restoration and waste management
services at the Oak Ridge and Rocky Flats facilities in 1999 positions us for
strong growth in providing additional services at those locations. Canberra
plans to open offices at additional sites to take advantage of the environmental
restoration and waste management opportunities at these facilities as well. We
believe that with our broad range of commercially available instruments
certified by the International Atomic Energy Agency and our new Aquila-based
safeguards consulting services, we are well positioned to take advantage of the
emerging nuclear weapons stewardship opportunity. Our current development
strategy is focused on additional automation, data review and report generation
capability. We believe this strategy will significantly enhance our customers'
capability and flexibility to retrieve, evaluate and report on variations of
volumes of stored data.
Products and Services
We believe we are the world's largest manufacturer and distributor of
analytical instruments used to detect, identify, quantify and monitor
radioactive materials. We believe we are a leader among those companies that
manufacture instruments that can both quantify and identify radioisotopes rather
than merely measure gross radiation levels. Canberra's products and services
include the following:
Detectors and Components. Canberra produces detectors and other electronic
measurement components. These products are not used independently but are the
building blocks for assembling radiation measurement systems, which are utilized
for a variety of purposes.
Instruments. In 1995, Canberra introduced its first radioanalytic
instruments to the market with its Gamma and Alpha Analysts. These products
offer fully integrated solutions for automated sample counting. Recently,
Canberra embarked on a program of introducing a number of patentable software
features that significantly enhance the performance of these instruments. We
believe that these instruments will allow us to command higher margins than on
our detectors and components.
Applied Systems. Applied systems are custom-designed integrated radiation
measurement systems that are used for worker health and safety, radioactive
waste analysis, environmental monitoring and safeguards applications. Canberra
provides such systems as permanent installations, mobile facilities and
temporary rental units, all of which are available as complete turnkey systems.
Containment and Surveillance Systems. Through Aquila Technologies Group,
Canberra is the industry leader in the production of digital surveillance
systems and review stations, and electronic seals and tags for the worldwide
nuclear safeguards community. Canberra's broad line of International Atomic
Energy Agency certified equipment for use in nondestructive assays for material
control and accountability is a perfect complement to these systems.
Service and Support. Canberra's instrumentation and applied system product
segments generate continuing demand for technical support, product enhancement,
general repair and training. Canberra believes that it has developed a
reputation in the industry for high-quality customer service, provided by 150
factory-trained and educated service personnel worldwide. Its nearly $800
million installed product base provides it with stable, recurring after-market
service and support revenue, as well as product upgrade and replacement
opportunities.
Measurement, Management and Consulting Services. In response to the U.S.
Department of Energy's privatization initiatives, Canberra provides a number of
value-added services required by its customers. Its ability to assume total
performance responsibility for nuclear waste characterization in connection with
environmental restoration projects is a major benefit to customers. In addition,
through our controlling interest in Mobile Characterization Services, LLC, a
limited liability company formed to offer mobile characterization services to
the U.S. Department of Energy, Canberra is able to provide temporary on-site
radiation detection services, including all necessary equipment, mobile systems
and personnel to
18
<PAGE>
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. During 1999, Canberra began providing these
services at U.S. Department of Energy sites located in Tennessee and Colorado.
Customers
Customers of Canberra include U.S. Department of Energy sites: Los Alamos
National Laboratory, Savannah River Site and Rocky Flats; domestic nuclear
utilities: the Tennessee Valley Authority, Southern Nuclear Company, Florida
Power and Light Company; and international customers: Japan Nuclear Cycle
Development Institute, British Nuclear Fuels, Ltd., EURATOM and International
Atomic Energy Agency. Sales to the U.S. Department of Energy were approximately
5% of our total 1999 revenues and approximately 13% of Canberra's 1999 revenues.
Total U.S. Department of Energy sales are diversified among 13 major nuclear
sites in the United States, each with numerous and distinct projects,
laboratories and priorities. None of Canberra's customers accounted for more
than 5% of our total 1999 revenues.
BUSINESS - OTHER
Sales and Marketing and Service
As of December 31, 1999, the number of personnel employed in sales and
marketing and service were as follows:
Packard Canberra Total
------- -------- -----
Sales and Marketing ..................... 196 84 280
Service ................................. 198 114 312
--- --- ---
Total ................................... 394 198 592
=== === ===
Packard Instrument
Packard's marketing and sales organization is organized to: support its
major product lines; identify new market opportunities; lead acquisition
activities; and create new technology platforms.
Product and 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, genomics and biochip
analysis. Our 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. In addition, we expect to introduce our products to certain
geographic locations through the use of e-commerce by late 2000. We expect the
use of our Web site and associated e-mail links to foster interactive dialogue
with our customers around the world, helping to guide Packard's efforts to find
new ways to deliver customer benefits and to identify product innovations.
We have 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. Our
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 our global organization of direct sales representatives
and distributors, who are supported by a network of experienced application and
service support personnel, we have access to life sciences researchers in
academic, government, hospital and industrial laboratories worldwide.
19
<PAGE>
Canberra Industries
Canberra's marketing organization consists of product or applications
managers who are responsible for specific product or applications segments in
all industries. They define and promote products and applications into each
market segment and work with sales engineers for significant sales situations.
In addition, there is a business development group, which is responsible for
strategic marketing and investigation into and implementation of new
opportunities, both from a technical and market perspective.
In the United States, Canberra's sales, marketing and service force
currently consists of approximately 200 individuals who cover the breadth of its
product line and offer extensive support from field and in-house specialists.
Our European sales force is comprised of direct sales operations in Australia,
Belgium, France, Germany, Russia and the United Kingdom. The sales organization
for other international markets consists of one minority-owned distributor
covering Central Europe and the Ukraine, and approximately 40 independent
exclusive distributors covering over 50 countries. We compensate our sales force
with a combination of base salary and, to the extent sales and service goals are
achieved or exceeded, incentive compensation. We provide worldwide service and
support through three 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.
Research and Development
Packard Instrument
Our principal research and development mission is to develop a broad
portfolio of technologies, products and core competencies in drug screening,
genomics research and biochip analysis, which we have identified as the most
attractive areas of the life sciences research industry.
Packard's research and development expenditures were $17.7 million (of the
total $23.5 million) in 1997, $19.5 million (of the total $25.4 million,
excluding special charges of $3.8 million) in 1998 and $22.8 million (of the
total $30.1 million) in 1999. Our increased expenditures on research and
development during these periods reflects our investments to enhance existing
product lines in order to maintain our competitive position, but are primarily a
result of our strong research and development efforts to develop the
technologies and products for our integrated drug screening, genomics and
biochip platforms. Our internal technology and product development programs were
complemented by external collaborative efforts and alliances, and we
aggressively pursued both licensing and acquisitions of technology and
intellectual property.
We anticipate that we will continue to have significant research and
development expenditures on these programs. We plan to continue to pursue a
balanced research and development portfolio strategy of originating new products
from internal research and development programs, external collaborations and
alliances, and business and technology acquisitions.
Canberra Industries
Our technical expertise and new product development efforts are among the
best in the commercial nuclear instrument industry. In Canberra, we employ over
50 scientists, including Ph.D. qualified nuclear spectroscopists, Ph.D.
qualified nuclear engineers, certified health physicists, master degree
physicists, nuclear engineers and radiochemists. We believe that this group of
scientists and engineers enables us to transform research-level systems into
standardized, user-friendly products that have broad market support. An
important aspect of our technology commercialization is through Cooperative
Research and Development Agreements, or CRADAs, with the U.S. Department of
Energy. The CRADA process involves a commercial company and a national
laboratory sharing the cost of developing and commercializing innovative
technologies. We have entered into various CRADA, which typically require
milestone payments and future royalty payments upon satisfaction of certain
criteria.
Manufacturing
We have created a well-disciplined, low-cost manufacturing culture and
believe that we are a low-cost producer for instruments manufactured by both
Packard and Canberra. Our manufacturing facilities have established a "focused
cell
20
<PAGE>
system" in which employees are divided into distinct manufacturing cells, each
of which is wholly responsible for a specific product line. Employees are also
cross-trained to work on multiple cells. To further reduce our average
production cycle time and cost of raw materials, we use outsourced standard
components and sub-assemblies as well as standard, "off-the-shelf" products,
such as printed circuit boards and power supplies.
Packard Instrument
We manufacture all of our instruments at our Downers Grove, Illinois, and
Torrance, California, facilities. Chemical production of scintillation and
luminescence products occurs at our facility in Groningen, The Netherlands. Drug
targets obtained by gene expression are developed at our Montreal, Canada,
location. Our Downers Grove and Groningen 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 conform with current European Community directives
regarding safety, quality and electromagnetic compatibility and are qualified
under the European Community's CE mark.
Canberra Industries
We manufacture most of our nuclear instruments, radiation detectors and
applied systems at facilities located in Meriden, Connecticut, Oak Ridge,
Tennessee, Albuquerque, New Mexico, and Oxfordshire and Dorset, the United
Kingdom. Certain of our radiation detectors are also manufactured in our
facilities located in Olen, Belgium. We have 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. We have also qualified a significant portion of our product
line under the CE mark.
Competition
Packard Instrument
We compete with several manufacturers in both domestic and foreign markets
within all areas of the life sciences research industry. We also encounter
different competitors in each of our key product lines. A number of established
companies such as PE Biosystems, Amersham Pharmacia Biotech AB, Tecan AG,
PerkinElmer, Inc. (formerly EG&G, Inc.), Thermo Bioanalysis Corporation and
Beckman Coulter, Inc. compete with us across a broad range of product lines,
while several other companies compete with us in a specific product line.
In addition, we have various competitors that are focusing on the areas
that are being addressed by our integrated platforms. The principal competitors
in these areas are, in alphabetical order:
- for drug screening systems: Aurora Biosciences Corporation, Carl
Zeiss Jena GmbH, Cellomics, Inc., CyBio AG, Evotec BioSystems AG,
IGEN International, Inc., LJL BioSystems, Inc. and Molecular Devices
Corporation;
- for integrated genomics systems: Agilent Technologies, Inc., Caliper
Technologies Corporation Orchid Biocomputer, QIAGEN NV and Sequenom,
Inc.; and
- for biochips and microarray products: Affymetrix, Inc., Gene Logic,
Inc., Hyseq Inc., Illumina, Inc. and Nanogen, Inc.
We compete principally on the basis of technology innovation, the quality,
features, price and performance of our products, and our service and
applications support. Competition within our industry is primarily driven by the
need for innovative products and applications solutions that address the needs
of customers. We attempt to counter competition by seeking to develop
differentiated new products and by providing integrated solutions using quality
products supported by on-site services.
21
<PAGE>
Canberra Industries
Canberra's product areas are characterized by several large competitors.
PerkinElmer, Inc. and Eurisys Mesures compete in a number of Canberra's product
lines, and several companies compete in one of Canberra's product lines. Over
the past decade, there has been significant global consolidation in the
industry. Within the applied systems market, we believe that we are the only
company that has a leading position within every application. Canberra competes
principally on the basis of applications expertise, quality, product
reliability, performance, price, and service and support.
Raw Materials
We use many standard parts and components in our products and believe
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. We do not believe that the loss of any single vendor or supplier
would materially adversely affect our competitive position.
Intellectual Property
We own approximately 50 U.S. and foreign patents and have over 30
patent applications pending in the United States and abroad. Further, we license
certain intellectual property rights to or from third parties. In addition to
our patent portfolio, we possess a wide array of unpatented proprietary
technology and know-how. We also own numerous U.S. and foreign trademarks and
trade names and have applications for the registration of trademarks and trade
names pending in the United States and abroad. We believe that patents and other
proprietary rights are important to the development of our business, but also
rely upon trade secrets, know-how, continuing technological innovations and
licensing opportunities to develop and maintain our competitive position.
Packard licenses technology from a number of third parties including,
among others, Oasis LabCard chips from ACLARA BioSciences, Inc.; hydrogel chip
technology from Argonne National Laboratory; ALPHA chemistry from Dade Behring,
Inc.; liquid dispensing technology from Microdrop GmbH; fiber-optic imaging
technology from Cambridge Imaging Limited; HTRF chemistry from CIS bio
international; microwell plate technology from Massachusetts General Hospital;
reagent technology from Promega Corporation; BRET array chemistry from
Vanderbilt University; Cyclone imaging technology from Fuji Photo Film Company,
Ltd. and Alara, Inc.; and microarray technology from Boston University. These
licenses are generally long-term and require us to pay royalties to the licensor
in connection with sales of the product utilizing the licensed technology.
Certain of our licenses may be terminated by the licensor if we fail to meet
certain volume targets. The licenses are generally exclusive licenses, but some
are nonexclusive in particular geographic regions, and some of the exclusive
licenses may be converted to non-exclusive if we fail to meet certain
performance targets. In addition, some of these licenses are restricted to use
within defined fields of the life sciences research industry.
In some cases, litigation or other proceedings may be necessary to defend
against or assert claims of infringement, to enforce patents issued to us or our
licensors, to protect trade secrets, know-how or other intellectual property
rights owned by us, or to determine the scope and validity of our proprietary
rights or proprietary rights of third parties. Such litigation could result in
substantial costs to us and diversion of our resources. An adverse outcome in
any such litigation or proceeding could subject us to significant liabilities
and expenses, such as reasonable royalties, lost profits, attorney's fees, and
trebling of damages for willfulness, require us to cease using the disputed
intellectual property or cease the sale of a commercial product, or require us
to license the disputed rights from third parties, any of which could have a
material adverse effect on our business, financial condition and results of
operations.
Employees
As of January 31, 2000, we had 1,446 employees. Approximately 68% of our
employees as of that date were located in the United States. Our workforce is
predominantly non-unionized, and we believe that our relations with employees
are good.
22
<PAGE>
Environmental Matters
Our operations are subject to U.S. federal, state and 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 cleanup of, certain materials, substances and wastes. We believe our
operations are in material compliance with all applicable environmental laws and
regulations as currently interpreted. We and local authorities in Groningen, The
Netherlands, are in the process of negotiating a remediation plan involving
groundwater contamination that was present prior to the purchase of our
Duinkerkenstraat facility, as more fully described under "Legal Proceedings."
We 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 us, 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 manufacturing our products, or providing our services, or otherwise
adversely affect the demand for our products or services. During 1999, we did
not expense any amount relating to environmental remediation.
Regulation
We are not subject to direct governmental regulation other than the laws
and regulations generally applicable to businesses in the domestic and foreign
jurisdictions in which we operate.
In the ordinary course of business, we handle a variety of low-level
radioactive sources for purposes of quality control and calibration of our
products. We maintain U.S. Nuclear Regulatory Commission and appropriate state
licenses for all sources of radiation in our possession. In addition, we have a
radiation safety program at each licensed site the objective of which is to
assure proper handling and control of all radioactive materials. We believe that
we are in material compliance with all of our Nuclear Regulatory Commission and
state licenses.
Under its regulations, the Nuclear Regulatory Commission must be advised
of any proposed transfer of the ownership of a license granted by the Nuclear
Regulatory Commission. Pursuant to these regulations, the Nuclear Regulatory
Commission was advised of and consented to the transfer of ownership effected by
the 1997 Recapitalization.
Geographic Information
Financial information about our foreign and domestic operations and export
sales is set forth in Note 10 to the consolidated financial statements included
elsewhere in this Form 10-K.
ITEM 2: PROPERTIES
We currently have, either through direct ownership or through the
ownership by one of our subsidiaries, 11 domestic and 15 foreign active
subsidiaries, all of which are wholly-owned, with the exception of Mobile
Characterization Services, which is 55% owned, and Carl Consumable Products,
which is 51% owned.
Packard's products are manufactured by: Packard Instrument Company, Inc.,
which is located at Downers Grove, Illinois; CCS Packard, which is located at
Torrance, California; BioSignal, which is located in Montreal, Canada; and Carl
Consumable Products, which is located at Torrance, California. Packard's
biochemical products are produced in The Netherlands by Packard BioScience B.V.
Canberra's instruments, certain radiation detectors, applied systems,
safeguards and high-purity germanium are manufactured by certain of our
divisions located at our headquarters in Meriden, Connecticut, at Aquila
Technologies Group in Albuquerque, New Mexico, at Harwell Instruments in
Oxfordshire and Dorset, the United Kingdom, and at Tennelec in Oak Ridge,
Tennessee. In addition, certain radiation detectors are manufactured in Belgium
by our wholly-owned subsidiary Canberra Semiconductor N.V. Our other
subsidiaries are sales and service organizations or holding companies.
23
<PAGE>
As of February 29, 2000, we owned the manufacturing facilities set forth
below:
<TABLE>
<CAPTION>
Location Function Square Feet
- -------- -------- -----------
<S> <C> <C>
Meriden, Connecticut............. Headquarters, training, service, customer support, 170,000
engineering, sales and marketing, software development
and manufacturing (Packard and Canberra)
Downers Grove, Illinois.......... Manufacturing, service, engineering and research and 109,000
development (Packard)
Oak Ridge, Tennessee............. Administration, manufacturing and warehousing (Canberra) 34,000
Groningen, The Netherlands....... Manufacturing, marketing and research and development 69,000
(chemicals and supplies) (Packard)
Olen, Belgium.................... Detector manufacturing (Canberra) 10,000
</TABLE>
In addition, we lease the following manufacturing facilities:
<TABLE>
<CAPTION>
Square Lease
Location Function Feet Expiration
- -------- -------- ---- ----------
<S> <C> <C> <C>
Albuquerque, New Mexico.......... Administration, manufacturing, sales and 22,700 June 2004
marketing, engineering and warehousing (Canberra)
Torrance, California............. Administration, marketing, manufacturing, 70,000 December 2003
research and development and warehousing
(Packard)
Oxfordshire, United Kingdom...... Manufacturing and sales and marketing (Canberra) 19,000 Monthly
Dorset, United Kingdom........... Manufacturing (Canberra) 3,000 March 2010
Montreal, Canada................. Administration, marketing, research and 15,700 July 31, 2002
development and manufacturing (Packard)
</TABLE>
With the exception of two sales and distribution facilities occupied by
our foreign subsidiaries, which we own, we lease all the sales and distribution
facilities of our foreign subsidiaries. Two of our facilities in Groningen, The
Netherlands are currently being offered for sale.
CCS Packard continues to lease an approximately 17,000-square-foot
facility in Harbor City, California, that it used previously for administration,
manufacturing and warehousing. CCS Packard subleases this facility and the lease
expires in May 2002.
We believe that our facilities are suitable for their present and intended
purposes and are adequate for our current level of operations. We may, however,
expand our Downers Grove, Illinois facility or relocate to a new facility to
meet expected growth in research and development personnel.
ITEM 3: LEGAL PROCEEDINGS
We are currently, and may become from time to time, subject to claims and
suits arising in the ordinary course of our business, including those relating
to intellectual property matters, product liability, safety and health and
employment matters. In certain actions, plaintiffs request punitive or other
damages that may not be covered by insurance. We accrue for these items as they
become known and can be reasonably estimated. It is the opinion of management
that the various asserted
24
<PAGE>
claims and litigation in which we are currently involved will not have a
material adverse effect on our 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 our operating results for any particular period, depending upon
the level of income for such period.
We have received a Demand for Arbitration filed by Instrumentation
Development, Inc. with the American Arbitration Association. The demand alleges
breach of a collaboration and license agreement, and requests damages in the
range of $1.0 to $3.0 million. We are in the process of evaluating the merits of
the claim, if any, and intend to vigorously defend this action. Management
believes that this matter will not have a material adverse effect on our
consolidated results of operations or financial position.
We and provincial authorities in Groningen, The Netherlands, are in the
process of negotiating a remediation plan involving groundwater contamination at
our Duinkerkenstraat facility. Asserting that the causes of this contamination
entirely predate our acquisition of Packard in 1986, we had sought
indemnification under the purchase agreement from United Technologies Automotive
Holdings, Inc., a subsidiary of United Technologies Corporation. We agreed to
accept a lump-sum payment in August 1998 of $1.25 million from United
Technologies Automotive Holdings and fully released them from their
indemnification obligations. Packard BioScience BV has accrued for its expected
obligations to remediate the site; however, there can be no assurance that we
will not incur any additional costs.
On April 26, 1999, an action was filed by PerkinElmer Instruments, Inc.,
formerly EG&G Instruments, Inc., ("PE") in the U.S. District Court for the
Eastern district of Tennessee alleging that the Company infringed U.S. Patent
No. 5,872,363, which was issued on February 16, 1999. A settlement has been
reached with PE that required the Company to make a one-time settlement payment
in the amount of $100,000, as well as royalty payments on future product sales
which include the patented technology and certain other patented technologies.
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, 1999.
25
<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 currently publicly traded. As a result, there are no
established public trading markets for such securities. The fair values noted in
the table below, with the exception of the fourth quarter of 1999, are based
upon annual independent appraisals, discounted to reflect the effect of a lack
of liquidity. The fair value noted below for the fourth quarter of 1999 was
determined in accordance with financial reporting guidelines.
The fair market value of the Company's common stock as of the end of each
quarter of 1999 and 1998, is indicated below:
1999 1998
---- ----
1st Quarter.................. $3.352 $2.792
2nd Quarter.................. $3.352 $2.792
3rd Quarter.................. $3.352 $2.792
4th Quarter.................. $8.808 $3.352
No dividend was paid during 1999 or 1998. As a result of the 1997
Recapitalization, the Company is generally 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 5 to the consolidated
financial statements included in Part II of this Form 10-K).
On March 8, 2000, the Company filed a Form S-1 registration statement, as
amended on March 23, 2000, with the Securities and Exchange Commission relating
to a proposed initial public offering of its common stock (the "Offering"). See
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (Subsequent Events).
As of March 17, 2000, there were 272 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, 1997, 1998 and 1999, and as of December 31, 1998 and 1999,
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
1996, and as of December 31, 1995, 1996 and 1997, are derived from audited
consolidated financial statements of the Company that are not included in this
Form 10-K.
26
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
Years Ended December 31,
------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
Revenues ....................................................... $ 169,114 $ 184,018 $ 184,113 $ 228,164 $ 264,892
Cost of revenues (1) ........................................... 81,477 86,349 87,993 113,519 143,652
--------- --------- --------- --------- ---------
Gross profit ................................................... 87,637 97,669 96,120 114,645 121,240
Research and development expenses .............................. 14,414 17,852 23,480 29,228 30,109
Selling, general and administrative expenses (2) ............... 47,322 48,830 49,855 55,133 62,151
Other charges, net (3) ......................................... -- 837 18,429 7,511 --
--------- --------- --------- --------- ---------
Income from operations ......................................... 25,901 30,150 4,356 22,773 28,980
Interest expense ............................................... (616) (122) (18,119) (21,270) (23,053)
Other income (loss), net (4) ................................... (5) 1,741 1,167 4,025 1,057
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes and
minority interest ............................................ 25,280 31,769 (12,596) 5,528 6,984
Provision for income taxes ..................................... (9,875) (11,187) (5,941) (3,787) (7,436)
Minority interest in (income) loss of subsidiaries ............. (800) (1,346) (218) 164 254
--------- --------- --------- --------- ---------
Net income (loss) .............................................. $ 14,605 $ 19,236 $ (18,755) $ 1,905 $ (198)
========= ========= ========= ========= =========
Weighted average diluted shares outstanding (5) ................ 129,412 125,697 62,318 47,683 45,803
Diluted earnings (loss) per share (5) .......................... $ 0.11 $ 0.15 $ (0.30) $ 0.04 $ 0.00
Dividend declared and paid per share ........................... $ 0.03 $ 0.04 -- -- --
<CAPTION>
As of December 31,
------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ...................................... $ 22,515 $ 37,826 $ 10,575 $ 7,929 $ 7,576
Working capital ................................................ 51,341 59,216 32,265 24,747 38,565
Total assets ................................................... 120,602 137,925 140,651 169,134 205,995
Long-term debt, less current portion............................ 1,753 2,037 192,193 190,117 225,731
Stockholders' equity (deficit) ................................. 72,429 80,593 (112,014) (108,563) (107,890)
</TABLE>
- ----------
(1) Includes charges to expense the fair market value adjustments associated
with acquired inventories totaling $0.8 million in 1997, $1.5 million in
1998 and $1.0 million in 1999. Also includes a charge of $2.7 million in
1999 associated with modifying an existing license agreement and
terminating the production of an OEM clinical product.
(2) Includes a compensation charge in 1999 of $1.8 million associated with the
1999 vesting of stock options granted to certain of our employees.
(3) Other charges, net in 1996 and 1997 represents expenses incurred in
connection with the Company's 1997 Recapitalization. 1998 includes $6.1
million of charges associated with purchased in-process research and
development, a $12.1 million charge to settle a litigation, including
legal fees, and a $10.8 million gain the Company recognized in connection
with the sale of its gas generation product line.
(4) Includes interest income and foreign exchange transaction gains (losses).
In addition, 1998 includes a gain of $3.2 million recognized on the sale
of equity securities.
(5) Based upon the average shares outstanding during each period presented,
including the impact of outstanding options, except when such options are
anti-dilutive.
27
<PAGE>
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
our consolidated financial statements and accompanying 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 estimates.
These factors include the following:
- intense competition in the markets we target;
- our ability to successfully introduce new products and expand the
range of applications for our current products;
- our ability to effectively protect our intellectual property from
infringement;
- our ability to not infringe on intellectual property rights of
others;
- customers may face risks in the industries they serve, such as
pharmaceutical and biotechnology industries;
- decline in the use of processes and instruments that represent a
significant portion of our revenues;
- our ability to maintain and enhance collaborative and academic
arrangements and to establish additional relationships;
- dependence on capital spending policies of our customers and
governmental funding;
- availability of nuclear waste repositories;
- changes in environmental regulations;
- economic, political and other risks associated with international
sales and operations;
- limited source supply of key raw materials;
- our ability to attract and retain key employees;
- our ability to meet financial expectations of securities analysts
and investors; and
- no cash dividend may be paid to our shareholders in the future.
Overview
We are a leading global developer, manufacturer and marketer of
instruments and related consumables and services for use in the life sciences
research and nuclear industries. Through Packard Instrument, we are a leading
company in laboratory automation and have developed scalable platforms built on
our worldwide leadership in the manufacturing and marketing of bioanalytical
instruments for use in the life sciences research industry. Through Canberra
Industries, we are the worldwide leader in analytical instruments used to
detect, identify, quantify and monitor radioactive materials for the nuclear
industry and related markets.
Packard's revenues are derived primarily from sales of instruments with
additional sales from services. While outsourcing and support services continue
to be an important part of Packard's revenue stream, we are marketing Packard's
instruments as parts of integrated platforms, which we expect will generate
increasing instrument sales at higher gross margins than our services business.
Canberra has experienced significant growth in its base service business
resulting from our strategic focus on this area. Like Packard, Canberra is
marketing its instruments as parts of integrated systems. In addition, Canberra
is focusing on increasing revenues from emerging applications such as
environmental restoration and waste management, environmental monitoring and
nuclear weapons stewardship.
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<PAGE>
Results of Operations
Year Ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
Revenues:
Packard .............................. $ 120,286 $ 146,237 $ 158,889
Canberra ............................. 63,827 81,927 106,003
--------- --------- ---------
184,113 228,164 264,892
--------- --------- ---------
Gross profit:
Packard .............................. 65,621 76,883 81,168
Canberra ............................. 30,499 37,762 40,072
--------- --------- ---------
96,120 114,645 121,240
--------- --------- ---------
Operating expenses:
Research and development ............. 23,480 29,228 30,109
Selling, general and
administrative .................... 49,855 55,133 62,151
Other charges, net ................... 18,429 7,511 --
--------- --------- ---------
Income from operations .................. 4,356 22,773 28,980
Interest expense ........................ (18,119) (21,270) (23,053)
Other income, net ....................... 790 612 374
Foreign exchange transaction
gains, net ........................... 377 258 683
Gain on sale of stock ................... -- 3,155 --
--------- --------- ---------
Income (loss) before provision for
income taxes and minority
interest ............................. (12,596) 5,528 6,984
Provision for income taxes .............. (5,941) (3,787) (7,436)
Minority interest in (income) loss
of subsidiaries ...................... (218) 164 254
--------- --------- ---------
Net income (loss) ....................... $ (18,755) $ 1,905 $ (198)
========= ========= =========
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues
Overall. Consolidated revenues increased $36.7 million, or 16.1%, to
$264.9 million in 1999 from $228.2 million in 1998. Excluding the impact of
changes in foreign currency exchange rates, consolidated revenues would have
been approximately $1.9 million higher in 1999 than reported. The stronger U.S.
dollar in 1999, as compared to almost all European currencies, had a negative
impact on the U.S. dollar reported revenues. This was offset slightly by the
stronger Japanese yen in 1999 which resulted in higher translated revenues of
our Japanese subsidiary, Packard Japan KK. The 1999 period reflects a full year
of operations of CCS Packard, Inc. and BioSignal, Inc., subsidiaries which we
acquired effective March 31, 1998 and July 1, 1998. Had CCS Packard and
BioSignal been included for all of the prior year, 1998 revenue would have been
$3.5 million higher. In addition, we acquired the assets representing Harwell
Instruments, Ltd. effective January 1, 1999, which generated approximately $16.2
million of revenue in 1999, and Tennelec, Inc., effective April 1, 1999, which
generated approximately $4.0 million of revenue in 1999.
Packard Instrument. Packard's revenues increased $12.7 million, or 8.7%,
to $158.9 million in 1999 from $146.2 million in 1998. The 1999 increase was
attributable in part to strong growth in Packard's bioanalytical spectrometer
business, particularly the Liquid Scintillation Counter product line where sales
increased by approximately $2.9 million, or 28.1%, to $13.0 million in 1999 from
$10.1 million in 1998. In addition, the 1999 revenue increase was due in large
part to service revenue which increased $7.6 million, or 29.7%, to $33.0 million
in 1999 from $25.4 million in 1998. This increase
29
<PAGE>
was due in large part to Y2K compliance services being provided to customers.
These services, and the corresponding revenue, will not reoccur at the same
level as in 1999. These revenue increases were partially offset by the loss of
revenues from the sale of our gas generation product line at the end of 1998 and
a reduction of $4.8 million in revenues of our OEM clinical instruments due to
the customer exiting the marketplace. The revenue increase is also due partially
to the acquisitions of CCS Packard and BioSignal discussed above.
Canberra Industries. Canberra's revenues increased $24.1 million, or
29.4%, to $106.0 million in 1999, from $81.9 million in 1998. There was
significant growth in Canberra's base service business resulting from our
strategic focus on this area. The increase in service revenue of $8.4 million,
or 39.5%, to $29.4 million in 1999 compared to $21.0 million in 1998 was also
due in part to Canberra Oak Ridge, LLC, a new subsidiary we formed during 1999
to provide waste characterization and related consulting services. Canberra Oak
Ridge generated $1.0 million of service revenue in 1999. There was also growth
in Canberra's mobile waste characterization business performed by our
subsidiary, Mobile Characterization Services, LLC, in which we have a 55%
ownership interest. Mobile Characterization Services' revenues increased $1.0
million, or 133%, from $0.7 million in 1998 to $1.7 million in 1999 due
primarily to having a full year of operations reflected in our operating results
in 1999 versus only three months in 1998. We obtained a majority ownership in
Mobile Characterization Services effective October 1, 1998, and, therefore,
prior to that date, it was not consolidated with our results. A portion of the
1999 increase was also attributable to the acquisitions of Harwell Instruments
and Tennelec discussed above.
Gross Profit
Overall. Consolidated gross profit increased $6.6 million, or 5.8%, to
$121.2 million in 1999 from $114.6 million in 1998. Excluding the effect of
other costs of product sales and charges to expense the fair market value
adjustment associated with acquired inventories included in our cost of sales,
gross profit would have been $124.9 million in 1999 and $116.1 million in 1998.
As a percentage of revenues, gross profit was 45.8% for 1999 and 50.2% for 1998.
As a percentage of revenues, gross profit, excluding the charges discussed
above, was 47.2% for 1999 and 50.9% for 1998. The increase in gross profit
dollars over the last two years is due primarily to the acquisitions referred to
above. These dollar increases have been partially offset by foreign currency
fluctuations and the effect which the stronger U.S. dollar has on U.S. reported
operating results. The decline in gross profit percentage is due to several
factors:
- the significant growth in service revenue for Packard and Canberra
results in a reduction in the overall gross margin percentage
because service revenue generates a lower gross margin than product
sales. Service margin was 22.2% in 1999 and 23.8% in 1998, as
compared to product margins of 53.6% (excluding a one-time charge
described below) in 1999 and 57.1% in 1998;
- the acquisition of Harwell Instruments has reduced product gross
margins since its products have a lower average gross margin of
approximately 20.8%; and
- Canberra Oak Ridge has operated at a negative gross margin since it
commenced operations in 1999.
In addition, during 1999, our relationship with CIS bio international for
the production of an OEM clinical instrument was terminated. An existing license
agreement with CIS bio international was also modified. This termination and
modification resulted in a $2.7 million charge to reserve for any excess
inventory, to write-off equipment used to manufacture the terminated product and
to write-off the remaining license fees which had been capitalized.
Packard Instrument. Packard's gross profit increased by $7.0 million, or
9.1%, in 1999 to $83.9 million (excluding the charge described above) from $76.9
million in 1998. As a percentage of sales, the gross margin for 1999 was 52.8%
(excluding the same charge) compared to 52.6% in 1998. The 1999 dollar increase
is due primarily to a full year of operations of CCS Packard and BioSignal
service revenue growth. Service revenue was $33.0 million in 1999 compared to
$25.5 million in 1998, an increase of $7.5 million, or 29.7%. The 1998 gross
margin included $1.5 million of charges to expense the fair market value
adjustment associated with acquired inventories of CCS Packard and Tennelec.
Canberra Industries. Canberra's gross profit increased by $2.3 million, or
6.1%, to $40.1 million in 1999 from $37.8 million in 1998. As a percentage of
sales, the gross margin was 37.8% in 1999 and 46.1% in 1998. The decrease in the
30
<PAGE>
gross margin percentage is due primarily to the acquisition of Harwell in 1999
and the start-up operation addition of Canberra Oak Ridge in 1999. In addition,
the lower margin percentage on service sales reduced the gross margin
percentage. The 1999 gross margin includes a $1.0 million charge to expense the
fair market value adjustment associated with acquired inventory of Tennelec.
Operating Expenses
Research and Development Expenses. Research and development spending
increased $0.9 million, or 3.0%, to $30.1 million in 1999 from $29.2 million in
1998. The increased research and development spending represents investments,
primarily by Packard Instrument, in the areas of product enhancement, new
product development and other collaborative arrangements. The 1998 amount
includes charges totaling $3.8 million associated with terminating certain
collaborative agreements. Excluding these charges, the 1999 spending represents
an 18.5% increase over the 1998 level. We intend to use the proceeds from the
Offering to substantially increase research and development spending in order to
focus more heavily on selected key product/technology initiatives as well as to
accelerate the introduction of new products to the market. Although the
increased spending is expected to have a negative effect on our operating
results in the short term, it is expected that such investment will bring us
long-term benefits through more rapid revenue growth and resulting profits.
However, there can be no guarantee that the planned investment in research and
development will yield the benefits described.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.0 million, or 12.7%, to $62.2 million in
1999 from $55.1 million in 1998. Although selling, general and administrative
expenses have increased, primarily due to the acquisitions discussed above, as a
percentage of revenues, selling, general and administrative expenses declined
from 24.2% of revenues in 1998 to 23.5% of revenues in 1999. The percentage
decrease is due primarily to fixed selling, general and administrative costs
being spread over a greater revenue base. The 1999 amount includes a
compensation charge of $1.8 million associated with options granted to certain
of our employees in December 1999.
Other Charges, Net. In 1998, other charges, net consisted of a $12.1
million charge to settle certain litigation, $6.1 million of charges associated
with purchased in-process research and development in connection with the
acquisitions of CCS Packard and BioSignal and a $10.8 million gain recognized in
connection with the sale of our gas generation product line. There were no
comparable charges in 1999.
Interest Expense
Interest expense increased $1.8 million, or 8.4%, to $23.1 million in 1999
from $21.3 million in 1998. Interest expense has increased significantly over
the past three years due to the debt incurred in connection with the 1997
Recapitalization as well as borrowings on our revolving credit facility which
have been necessary to effect the acquisitions referred to above. We intend to
use a portion of the net proceeds from the Offering to repay approximately $68.8
million of outstanding indebtedness under our senior credit facility and may
also use a portion of the net proceeds to purchase, from time to time in the
open market, our 9 3/8% Senior Subordinated Notes due 2007, with the amount of
such purchases, if any, to be at the discretion of our management depending on
prevailing market prices for the notes and other factors deemed relevant at the
time. This should result in a significant reduction in future interest expense.
Foreign Exchange Transaction Gains, Net
Foreign exchange transaction gains, net increased $425,000, or 165%, to
$683,000 in 1999 from $258,000 in 1998. Foreign exchange transaction gains, net
are partially a result of foreign currency forward contracts that we
periodically purchase to hedge firm intercompany purchase commitments. In
addition, during a portion of 1999, two of our foreign subsidiaries had
outstanding borrowings under our revolving credit facility which were
denominated in currencies other than the subsidiaries' functional currency. As
such, all foreign currency transaction gains and losses during the period the
borrowings were outstanding are reflected in our operating results as foreign
currency transaction gains, net.
31
<PAGE>
Effective Tax Rates
Our consolidated effective tax rates were 106.5% in 1999 and 68.5% in
1998. The effective tax rates were higher than the Federal statutory rate of
35.0% primarily due to the following:
- the 1999 effective tax rate reflects an increase in the valuation
allowance for foreign tax credit carryforwards as their utilization
is unlikely primarily due to estimated future deductions associated
with anticipated stock option exercises as a result of the Offering.
As the stock options are exercised, we will benefit through reduced
cash income tax payments;
- the 1998 effective tax rate reflects the fact that no benefit was
provided on purchased in-process research and development charges
and goodwill amortization associated with the acquisitions of CCS
Packard and BioSignal since such amounts are not deductible; and
- the consolidated income tax provision for 1998 and 1999 reflects
taxes provided on income generated outside the United States in
countries where the statutory rates are higher than the statutory
rate in the United States, particularly Japan.
Minority Interest in (Income) Loss of Subsidiaries
Minority interest in (income) loss of subsidiaries increased $90,000, or
54.9%, to $254,000 in 1999 from $164,000 in 1998. Minority interest in (income)
loss of subsidiaries represents the minority shareholders' interest in
subsidiaries which we do not own 100%. For 1998 and 1999, the minority interest
represents the 45% of Mobile Characterization Services not owned by us.
Net Income (Loss)
Due to the factors set forth above, net income (loss) decreased $2.1
million to a net loss of $0.2 million in 1999 from net income of $1.9 million in
1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues
Overall. Consolidated revenues increased $44.1 million, or 23.9%, to
$228.2 million in 1998 from $184.1 million in 1997. Fluctuations in foreign
currency exchange rates negatively affected 1998 revenues by approximately $1.2
million when compared to what they would have been if translated at 1997
exchange rates. The 1998 increase was partially due to the 1998 acquisitions of
CCS Packard, which contributed approximately $12.0 million of revenues in 1998,
and BioSignal, which contributed $1.4 million of revenues in 1998. In addition,
1998 includes a full year of operations of Aquila Technologies Group, Inc., a
company which we acquired on September 1, 1997. Aquila's revenues were $17.3
million in 1998 as compared to $4.8 million in 1997 during the four month period
when it was owned by us.
Packard Instrument. Packard's revenues increased $25.9 million, or 21.6%,
to $146.2 million in 1998 from $120.3 million in 1997. The increase in 1998 was
due primarily to the acquisitions of CCS Packard and BioSignal, as well as
increased third party shipments from our Illinois production facility. Several
of Packard's overseas operations experienced significant revenue growth in 1998,
particularly in the U.K. and France. These increases were partially offset by
the effect of the stronger U.S. dollar in 1998, as compared to 1997, which
resulted in a $1.0 million decrease in revenues. In addition, Packard Japan KK's
revenues decreased by approximately $1.7 million in 1998 due to the stronger
U.S. dollar and the poor economic conditions in Japan.
Canberra Industries. Canberra's revenues increased $18.1 million, or
28.4%, to $81.9 million in 1998 from $63.8 million in 1997. The increase in 1998
is primarily due to the inclusion of Aquila's operations for a full year in 1998
compared to only four months in 1997, as well as growth in service revenue,
particularly in the U.S. Canberra's distribution operations in France and
Germany also experienced strong sales growth, offset by declining sales
performance at all other
32
<PAGE>
overseas distribution subsidiaries. Foreign exchange rate fluctuations had a
nominal effect on Canberra's revenues in 1998 when compared to 1997.
Gross Profit
Overall. Consolidated gross profit increased $18.5 million, or 19.3%, to
$114.6 million in 1998 from $96.1 million in 1997. Excluding the effect of
expensing the fair market value adjustment associated with acquired inventories,
consolidated gross profit was $116.1 million in 1998 compared to $96.9 million
in 1997. As a percentage of revenues, gross profit was 50.9% in 1998 and 52.6%
in 1997, excluding the effect of expensing the fair market value adjustment
associated with acquired inventories. The increase in gross profit dollars is
due primarily to the acquisitions referred to previously. The reduction in the
gross profit percentage from 1997 to 1998 is due primarily to an increase in our
service revenue which generates a lower gross margin percentage.
Packard Instrument. Packard's gross profit increased $11.2 million, or
17.0%, from $65.7 million in 1997 to $76.9 million in 1998. This increase was
due primarily to the 1998 acquisitions of CCS Packard and BioSignal partially
offset by lower margins generated at certain overseas locations. The 1998 gross
margin amount includes $1.5 million in charges to expense the fair market value
adjustments associated with acquired inventories of CCS Packard and BioSignal.
Canberra Industries. Canberra's gross profit increased $7.4 million, or
24.3%, from $30.4 million in 1997 to $37.8 million in 1998. The increase was due
to growth in Canberra's U.S. sales including service revenue. In addition,
Aquila Technologies Group, Inc. was included for a full year in 1998 versus only
four months in 1997. The 1997 gross margin included a $0.8 million charge to
expense the fair market value adjustment associated with acquired inventories of
Aquila Technologies Group, Inc.
Operating Expenses
Research and Development Expenses. Research and development spending
increased $5.7 million, or 24.5%, to $29.2 million in 1998 from $23.5 million in
1997. The 1998 amount includes charges of $3.8 million associated with
terminating certain collaborative agreements. The remainder of the increase in
research and development spending represents investments, primarily by Packard
Instrument, in the areas of product enhancement, new product development and
other collaborative arrangements.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $5.2 million, or 10.6%, to $55.1 million in
1998 from $49.9 million in 1997. Although overall selling, general and
administrative spending has increased, primarily due to the acquisitions
discussed above, as a percentage of revenues, selling, general and
administrative expenses have declined from 27.1% of revenues in 1997 to 24.2% of
revenues in 1998. This declining percentage relationship is due primarily to
fixed selling, general and administrative costs being spread over a greater
revenue base.
Other Charges, Net. Other charges, net decreased $10.9 million, or 59.2%,
to $7.5 million in 1998 from $18.4 million in 1997. In 1998, other charges, net
consisted of the cost to settle certain litigation ($12.1 million), charges for
purchased in-process research and development in connection with the acquisition
of CCS Packard and BioSignal ($6.1 million) and a gain recognized in connection
with the sale of our gas generation product line ($10.8 million). In 1997, other
charges, net represented costs associated with our 1997 Recapitalization.
Interest Expense
Interest expense increased $3.2 million, or 17.4%, to $21.3 million in
1998 from $18.1 million in 1997. Interest expense has increased significantly
over the past three years due to the debt incurred in connection with our 1997
Recapitalization as well as borrowings on our revolving credit facility which
have been necessary to effect the acquisitions referred to above.
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<PAGE>
Foreign Exchange Transaction Gains, Net
Foreign exchange transaction gains, net totaled $0.3 million in 1998
compared to $0.4 million in 1997. Foreign exchange transaction gains, net are a
result of foreign currency forward contracts we periodically purchase in an
effort to hedge firm intercompany purchase commitments.
Effective Tax Rates
Our consolidated effective tax rates were 68.5% in 1998 and 47.2% in 1997.
The 1997 effective tax rate represents an income tax provision (opposed to a
benefit) provided on the loss before income taxes reflected in the accompanying
consolidated statements of income (loss). The effective tax rates were higher
than the Federal statutory rate of 35.0% primarily due to the following:
- the 1998 effective tax rate reflects the fact that no benefit was
provided on the charges for purchased in-process research and
development and goodwill amortization associated with the
acquisitions of CCS Packard and BioSignal since such amounts are not
deductible;
- the 1997 effective tax rate reflects the valuation allowance
recorded for the 1997 state net operating loss carryforward. Such
allowance was provided due to the uncertainty of realization of the
carryforward; and
- the consolidated income tax provision for 1997 and 1998 reflects
taxes provided on income generated outside the United States in
countries where the statutory rates are higher than the statutory
rate in the United States, particularly Japan.
Minority Interest in (Income) Loss of Subsidiaries
Minority interest in (income) loss of subsidiaries increased $382,000, to
$164,000 in 1998 from ($218,000) in 1997. Minority interest in (income) loss of
subsidiaries in 1998 represents the 45% of Mobile Characterization Services we
do not own. In 1997, the minority interest pertained to the 40% of Packard Japan
KK we did not own prior to acquiring it in March, 1997.
Net Income (Loss)
Due to the factors above, net income (loss) increased $20.7 million to
$1.9 million in 1998 from ($18.8 million) in 1997.
Liquidity and Capital Resources
Our liquidity requirements arise from net cash used in operations,
including research and development expenditures, payments on outstanding
indebtedness and funding of acquisitions. We have met our cash requirements
through 1999 primarily through bank borrowings, the issuance of our 9 3/8%
Senior Subordinated Notes due 2007 and cash provided by operations.
Approximately half of our revenues are generated from foreign sources,
most of which is denominated in currencies other than the U.S. dollar. As such,
our reported operating results and financial position are affected by changes in
foreign currency exchange rates. A strengthening U.S. dollar against the
currencies through which we conduct our business may have a negative impact on
U.S. dollar reported operating results. To manage the exposure of fluctuating
foreign currency exchange rates, we employ hedging strategies. We purchase
various foreign currency forward contracts, at specified levels of coverage,
generally for the purpose of hedging firm inventory purchase commitments.
Net cash provided by operating activities was $6.5 million for 1999, $13.0
million for 1998 and $2.2 million for 1997. The 1999 operating cash flow is
primarily a result of that year's operating results prior to non-cash charges,
including the favorable effect of a full year of operations of the acquisitions
discussed above. These increases were partially offset by an increase in
accounts receivable, as well as a $3.0 million payment as part of the settlement
of the PerkinElmer
34
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Instruments, Inc. litigation in 1999. The 1998 operating cash flow is also a
result of that year's operating performance prior to non-cash charges, as well
as the addition of CCS Packard and BioSignal during that year. The growth in our
core product lines was also particularly strong within the Canberra operating
segment which has traditionally generated positive cash flow. 1998 results were
negatively affected by $4.0 million of payments made in 1998 in connection with
the PerkinElmer Instruments, Inc. litigation. The 1998 operating cash flow also
includes $10.8 million from the sale of our gas generation product line.
Operating cash flow for 1997 reflects the cash portion of the charge recorded in
connection with the Recapitalization of our company in 1997, which amounted to
approximately $9.4 million. Each of 1997, 1998 and 1999 reflects the negative
effect of the interest portion of our debt service requirements on our operating
cash flow.
Net cash used for investing activities was $39.8 million in 1999, $17.0
million in 1998 and $22.2 million in 1997. From 1997 to 1999, our use of cash
for investing purposes has increased dramatically, in accordance with our
strategic plan and direction. The cash used to acquire businesses consists of
the following:
- Aquila Technologies Group, Inc., which we initially purchased in
1997 for $6.7 million, with aggregate contingent earnout payments of
$5.7 million made or accrued as of December 31, 1999;
- CCS Packard, Inc., which we initially purchased in 1998 for
approximately $1.5 million of our common stock and $6.3 million in
cash, with aggregate contingent earnout payments of $9.4 million
made or accrued as of December 31, 1999;
- BioSignal, Inc., which we invested in initially in 1997 and
purchased the remaining interest of 81% in 1998 for approximately
$100,000 of our common stock and $8.6 million in cash;
- Harwell Instruments Ltd., which we purchased in 1999 for 6.0 million
British pounds sterling, or approximately $10.0 million; and
- Tennelec, Inc., which we purchased in 1999 for approximately $10.7
million.
There have also been significant levels of cash invested in our
infrastructure in order to provide for the needs of the growing segments. Two
new buildings were acquired and CCS Packard leased a facility requiring
leasehold and other improvements. Related to our growth strategy is the
investment of available cash into collaborations and other ventures which we
believe will bring future financial benefit to the organization. There was a
reduction in this area of technology investment during 1999, as compared to
prior years, in order to direct available cash to other requirements.
Net cash provided by (used for) financing activities was $34.9 million in
1999, $0.2 million in 1998 and ($4.7) million in 1997. Financing cash flows
consisted primarily of Recapitalization activity in 1997 including the initial
senior subordinated notes borrowing and term facility utilization and the use of
such borrowings to effect the Recapitalization and payment of related fees.
During 1998 and 1999, financing cash flow proceeds consisted primarily of
borrowings under the revolving credit facility to fund strategic acquisitions as
well as to fund working capital requirements, as needed. Such borrowings were
repaid, to the extent possible, from operating cash flows and other sources.
We had historically generated sufficient cash flow from operations to meet
our 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 the Recapitalization, we increased our long-term
indebtedness by $190.0 million and, as a result, debt service requirements were
increased significantly as compared with historical levels. The Recapitalization
and concurrent stock dividend had a significant impact on our consolidated
stockholders' equity by reducing our retained earnings to an accumulated deficit
and increasing our treasury stock by approximately $195 million in the
aggregate. As of February 29, 2000, we had approximately $16.1 million of funds
available under our $75 million revolving credit facility. Monies available
under this credit facility are subject to certain restrictions and provisions
contained therein.
Our 9-3/8% $150 million senior subordinated notes are redeemable after
March 1, 2002, starting at 104.688%, through March 1, 2004 at which time they
are redeemable at 100%. Certain circumstances may occur which would accelerate
the redemption of the notes.
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The senior credit facility consists of a $40 million term loan and a $75
million revolving credit facility. The term loan matures in 2003 and bears
interest at the Eurodollar rate plus 2.75%. The revolving credit facility
matures in 2002 and bears interest at (1) the Eurodollar rate plus 2.375% on
U.S. dollar denominated loans or (2) the cost of funds rate, as defined in the
revolving credit facility, plus 2.375% on non-U.S. dollar denominated loans. The
Eurodollar and cost of funds rates at December 31, 1999 were 6.04% and 3.53%,
respectively. The revolving credit facility contains certain customary financial
covenants. We were in compliance with all covenants at December 31, 1999.
Following the completion of the Offering, we intend to use significant
cash in the areas of acquisitions, collaborations and technology spending. In
addition, we plan to use a portion of the Offering proceeds to repay the term
loan and a portion of the revolving credit facility. We expect these reductions
to reduce our debt service requirements including related interest expense.
Subsequent to such repayment we expect to have $46.5 million available under the
revolving credit facility. In connection with the repayment of this debt, we
will incur charges for the write-off of deferred financing fees.
The revolving credit facility currently prohibits us from paying cash
dividends on our common stock. In addition, the guarantee and collateral
agreement supporting the revolving credit facility requires us to pledge
substantially all of our assets.
Seasonality
The following table summarizes the seasonality of our revenues and income
from operations by quarter for the last three years:
<TABLE>
<CAPTION>
1999
----
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues................... 22% 24% 24% 30%
Income from operations..... 23% 25% 14% 38%
<CAPTION>
1998
----
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues................... 21% 24% 24% 31%
Income from operations..... 23% 28% 24% 25%
<CAPTION>
1997
----
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues................... 23% 25% 23% 29%
Income from operations..... 29% 28% 16% 27%
</TABLE>
Income from operations percentages exclude the effect of:
- charges of $18.4 million associated with the 1997 Recapitalization;
- charges of $2.7 million associated with the termination of a product
line and the modification of a license in 1999;
- a compensation charge of $1.8 million associated with stock options
granted in December 1999;
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<PAGE>
- charges of $6.1 million related to purchased in-process research and
development in 1998;
- charges of $0.8 million in 1997, $1.5 million in 1998 and $1.0
million in 1999 to expense the fair market value adjustment
associated with acquired inventories;
- a $12.1 million litigation settlement charge in 1998; and
- a gain of $10.8 million recognized in 1998 in connection with the
sale of our gas generation product line.
Seasonality in revenues, which is typical in most years, is due primarily
to Canberra's dependence upon customers' seasonal purchasing patterns. Revenues
and income from operations are traditionally the highest in the fourth quarter.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, Accounting for Derivative Instruments and
Hedging Activities, which establishes the accounting and reporting standards for
derivative instruments and for hedging activities. We purchase forward contracts
to cover foreign exchange fluctuation risks on intercompany sales to certain of
our foreign operations. Such contracts qualify as foreign currency cash flow
hedges under Statement No. 133 and, as such, require that gains and losses on
such contracts be presented as a component of comprehensive income. The
effective date of the Statement (which was deferred through the issuance of
issued Statement of Financial Accounting Standard No. 137) is our calendar year
commencing January 1, 2001. The Statement is not expected to have a material
effect, upon its adoption, on our consolidated operating results or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. The
Bulletin, among other things, provides guidance on revenue recognition when
customer acceptance and installation provisions exist. We must adopt the
Bulletin as of January 1, 2000. The cumulative effect, if any, of adopting the
Bulletin will be recognized as of such date. We are in the process of
quantifying the effect, if any, resulting from adopting the Bulletin.
Subsequent Events
In March 2000, our Board of Directors vested all options outstanding under
our existing stock option plans, effective March 17, 2000. The accelerated
vesting will result in a non-cash compensation charge to us of $7.2 million in
the quarter ending March 31, 2000.
Canberra intends to terminate certain product lines associated with its
1999 acquisition of Harwell Instruments, Ltd. Harwell expects to eliminate
certain positions and facilities resulting in a charge to us of approximately
$2.5 million in the quarter ending March 31, 2000.
In connection with the Offering, certain members of our management will
gift certain shares of their own common stock to substantially all employees who
do not currently own shares or options to purchase shares of our common stock.
Based on the estimated initial public offering price of $17.00, this transfer
will result in a non-cash compensation charge to us of $1.9 million in the
quarter ending March 31, 2000.
Due to these events and the potential charge related to the adoption of
Staff Accounting Bulletin No. 101 discussed under "--New Accounting Standards,"
we expect to incur a loss for the first quarter of 2000.
On March 8, 2000, the Company filed a Form S-1 Registration Statement with
the Securities and Exchange Commission to register the Company's common stock
for public sale (the "Offering"). The Offering is expected to raise $200 million
before consideration of the underwriters' over-allotment and expenses associated
with the Offering. The Company plans to utilize a portion of the proceeds from
the Offering to repay the balance outstanding on the term loan and to reduce the
amount outstanding on the U.S. dollar denominated portion of the revolving
credit facility. Additionally, the
37
<PAGE>
Company may make open market purchases of its Senior Notes depending on
prevailing market prices for the Senior Notes and other factors deemed relevant
by management. The initial public Offering will not result in a change in
control, as defined in the Senior Notes. Accordingly, the Company is not
required to repurchase any Senior Notes as a result of the Offering.
In March 2000, the Company acquired a 51% equity interest in Carl
Consumable Products, LLC ("CCP") for an initial cash payment of $510,000, with
an option to acquire the remaining 49% equity interest for (a) a cash payment of
$490,000, plus (b) earn-out payments equal to 25% of the operating profit (as
defined in the purchase agreement) of CCP in excess of $530,000 which is
generated during the four-year period following exercise of the option (unless
the option is exercised prior to March 6, 2001, in which case the applicable
earn-out percentage will be increased from 25% to 35%). CCP is a new company
formed to design and manufacture sophisticated pipettes used in the liquid
dispensing process of drug discovery and genomic research.
Backlog
Our order backlog was approximately $47.6 million as of January 31, 2000
and $38.2 million as of January 31, 1999, including $2.5 million of the
terminated OEM clinical product line. We include in backlog only those orders
for which we have received purchase orders and do not include in backlog service
contracts or orders for service. Our backlog as of any particular date may not
be representative of actual sales for any succeeding period. We expect to ship
all of our January 31, 2000 backlog and recognize it as revenues during the
remainder of 2000.
Year 2000
Throughout 1999, we engaged in a comprehensive year 2000 compliance plan
pursuant to which we conducted an audit of internal systems, products, services
and vendors on which we rely. As part of our year 2000 compliance plan, we
identified areas believed to pose a year 2000-related risk, and tried to
implement all necessary corrective actions that we identified. As of February
29, 2000, we had identified only minor year 2000 related issues, and believe
that those problems that have been identified can be remedied and will not have
a material adverse effect on our financial condition or results of operations.
As of February 29, 2000, we incurred expenses of approximately $2.5 million
associated with our 2000 compliance efforts, the majority of which consisted of
internal time and costs. We do not expect our future costs related to the year
2000 to be material. We will continue to monitor our mission critical computer
applications, and those of our suppliers and vendors, throughout the year 2000
to ensure that any latent year 2000 matters that may arise are addressed
promptly.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign currency risk and interest rate risk are the primary sources of
market risk to our operations. We manage exposure on certain foreign currency
risks through the use of foreign currency forward contracts primarily for the
purpose of hedging firm inventory purchase commitments. We do not enter into
contracts for trading purposes. Outstanding foreign currency forward contracts
as of December 31, 1999 included $2.0 million denominated in Japanese Yen and
$0.3 million denominated in other currencies. As of December 31, 1999,
unrealized gains (losses) on foreign currency contracts were not significant.
As of December 31, 1999, we had aggregate variable rate long-term debt of
approximately $77.5 million, including borrowings outstanding on our term loan
of $37.4 million and on our revolving credit facility of $36.9 million. A 10%
change in interest rates would change the annual interest expense on our
long-term debt as of December 31, 1999 by approximately $580,000. As of December
31, 1999, $28.5 million of the borrowings on our revolving credit facility were
denominated in currencies other than the U.S. dollar, primarily the Eurodollar.
To the extent such borrowings remain outstanding, we will be subject to risks
associated with future foreign exchange fluctuations.
38
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
PACKARD BIOSCIENCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants................................... 41
Consolidated Balance Sheets as of December 31, 1998 and 1999............... 42
Consolidated Statements of Income (Loss) for the Years Ended December
31, 1997, 1998 and 1999.................................................. 44
Consolidated Statements of Comprehensive Income (Loss) for the Years
Ended December 31, 1997, 1998 and 1999................................... 45
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1998 and 1999................................... 46
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999...................................................... 48
Notes to Consolidated Financial Statements................................. 50
39
<PAGE>
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,
1998 and 1999, and the related consolidated statements of income (loss),
comprehensive income (loss), stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 14, 2000,
except for Note 15 as to which
the date is March 21, 2000
40
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 7,929 $ 7,576
Accounts receivable, net ................................ 48,218 63,350
Inventories, net ........................................ 30,633 34,191
Deferred income taxes ................................... 4,423 4,795
Other ................................................... 6,268 6,271
--------- ---------
Total current assets ................................. 97,471 116,183
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and improvements ................................... 1,820 1,866
Buildings and improvements .............................. 17,236 19,761
Machinery, equipment and furniture ...................... 24,413 29,702
--------- ---------
43,469 51,329
Less: Accumulated depreciation .......................... (17,902) (21,215)
--------- ---------
25,567 30,114
--------- ---------
OTHER ASSETS:
Goodwill, net of accumulated amortization ............... 24,030 41,919
Deferred financing costs, net of accumulated amortization 8,346 6,801
Investments ............................................. 850 847
Other ................................................... 12,870 10,131
--------- ---------
46,096 59,698
--------- ---------
$ 169,134 $ 205,995
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable ........................................... $ 3,221 $ 3,197
Current portion of long-term debt ....................... 3,496 2,113
Accounts payable ........................................ 16,956 19,405
Accrued liabilities ..................................... 26,802 28,896
Accrued acquisition payments (Note 12) .................. 7,274 6,089
Income taxes payable .................................... 2,603 3,614
Deferred income ......................................... 12,372 14,304
--------- ---------
Total current liabilities ............................ 72,724 77,618
--------- ---------
LONG-TERM DEBT, less current portion ...................... 190,117 225,731
--------- ---------
DEFERRED INCOME TAXES ..................................... 5,489 4,807
--------- ---------
OTHER NONCURRENT LIABILITIES .............................. 6,812 3,428
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 8, 11, 12 and 15)
MINORITY INTEREST IN EQUITY OF SUBSIDIARY ................. 2,555 2,301
--------- ---------
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
STOCKHOLDERS' DEFICIT:
Common stock (68,570,615 and 68,515,515 shares issued
and 45,750,975 and 46,268,825 shares outstanding as of
December 31, 1998 and 1999, respectively) ............ 137 137
Paid-in capital ........................................ -- 1,827
Accumulated other comprehensive income (cumulative
translation adjustment) .............................. 1,448 527
Accumulated deficit .................................... (10,012) (12,895)
--------- ---------
(8,427) (10,404)
Less: Treasury stock, at cost .......................... (99,341) (96,920)
Deferred compensation .................................. (795) (566)
--------- ---------
(100,136) (97,486)
--------- ---------
Total stockholders' deficit ......................... (108,563) (107,890)
--------- ---------
$ 169,134 $ 205,995
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
42
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net product sales ..................................................... $ 120,637 $ 154,685 $ 171,639
Service revenue ....................................................... 37,988 46,497 62,378
Chemicals and supplies sales .......................................... 25,488 26,982 30,875
--------- --------- ---------
184,113 228,164 264,892
--------- --------- ---------
Cost of product sales ................................................. 49,295 66,317 79,674
Other costs of product sales (Note 13) ................................ -- -- 2,703
Service expense ....................................................... 27,703 35,449 48,543
Cost of chemicals and supplies sales .................................. 10,195 10,253 11,732
Amortization of acquired inventory step-up (Note 12) .................. 800 1,500 1,000
--------- --------- ---------
87,993 113,519 143,652
--------- --------- ---------
Gross profit ........................................................ 96,120 114,645 121,240
Research and development expenses ..................................... 23,480 29,228 30,109
Selling, general and administrative expenses (Note 5) ................. 49,855 55,133 62,151
Other charges, net (Note 14) .......................................... 18,429 7,511
--------- --------- ---------
Income from operations .............................................. 4,356 22,773 28,980
--------- --------- ---------
Interest expense ...................................................... (18,119) (21,270) (23,053)
Other income, net ..................................................... 790 612 374
Foreign exchange transaction gains, net ............................... 377 258 683
Gain on sale of equity securities (Note 1) ............................ -- 3,155 --
--------- --------- ---------
Income (loss) before provision for income taxes and minority
interest .......................................................... (12,596) 5,528 6,984
Provision for income taxes ............................................ (5,941) (3,787) (7,436)
Minority interest in (income) loss of subsidiaries .................... (218) 164 254
--------- --------- ---------
Net income (loss) ................................................... $ (18,755) $ 1,905 $ (198)
========= ========= =========
Basic earnings (loss) per share ....................................... $ (0.30) $ 0.04 $ 0.00
========= ========= =========
Diluted earnings (loss) per share ..................................... $ (0.30) $ 0.04 $ 0.00
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
43
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net income (loss) ........................................ ($18,755) $ 1,905 ($ 198)
Other comprehensive income (loss):
Foreign currency translation adjustments ............... (2,746) 1,792 (921)
Unrealized investment income (loss), net of income taxes 2,885 (990) --
Reclassification adjustments, net ...................... -- (1,895) --
-------- -------- --------
Other comprehensive income (loss) ........................ 139 (1,093) (921)
-------- -------- --------
Comprehensive income (loss) .............................. ($18,616) $ 812 ($ 1,119)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
44
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------- Retained
Cumulative Unrealized Earnings
Paid-in Translation Investment (Accumulated
Shares Amount Capital Adjustment Gains, Net Deficit)
------ ------ ------- ---------- ---------- --------
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 .. 64,621,105 $ 129 $ 1,320 $ 2,402 $ -- $ 89,088
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation and
amortization ............. (4,490) (6)
Shares issued in connection
with exercise of stock
options, including related
tax benefits ............. 3,992,500 8 17,758 (2)
Purchase of treasury stock ..
Sale of treasury stock ...... (3,409)
Recapitalization costs ...... (864)
Stock dividend .............. (18,208) (77,142)
Change during year .......... (2,746)
Net loss .................... (18,755)
Unrealized investment gains,
net of income
taxes .................... 2,885
---------------------------------------------------------------------------------
BALANCE, December 31, 1997 .. 68,609,115 $ 137 $ -- ($ 344) $ 2,885 ($ 10,220)
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation and
amortization ............. (40,500) (36)
Shares issued in connection
with exercise of stock
options, including related
tax benefits ............. 2,000 (406)
Purchase of treasury stock ..
Sale of treasury stock ...... (108)
Issuance of shares in
connection with
acquisitions ............. (1,147)
Change during year .......... 1,792
Unrealized investment gains,
net of income
taxes .................... (2,885)
Net income .................. 1,905
---------------------------------------------------------------------------------
BALANCE, December 31, 1998 .. 68,570,615 $ 137 $ -- $ 1,448 $ -- ($ 10,012)
<CAPTION>
Treasury Stock
-------------------------
Deferred
Shares Amount Compensation
------ ------------ ------------
-------------------------------------------
<S> <C> <C> <C>
BALANCE, December 31, 1996 .. 3,889,345 ($ 11,128) ($ 1,218)
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation and
amortization ............. 194
Shares issued in connection
with exercise of stock
options, including related
tax benefits ............. (1,000) 4
Purchase of treasury stock .. 46,947,345 (208,882)
Sale of treasury stock ...... (5,520,800) 24,468
Recapitalization costs ...... (3,252)
Stock dividend .............. 21,731,645) 95,342
Change during year ..........
Net loss ....................
Unrealized investment gains,
net of income
taxes ....................
-------------------------------------------
BALANCE, December 31, 1997 ..
23,583,245 ($ 103,448) ($ 1,024)
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation and
amortization ............. 229
Shares issued in connection
with exercise of stock
options, including related
tax benefits ............. (215,515) 932
Purchase of treasury stock .. 82,140 (227)
Sale of treasury stock ...... (50,000) 219
Issuance of shares in
connection with
acquisitions ............. (580,230) 3,183
Change during year ..........
Unrealized investment gains,
net of income
taxes ....................
Net income ..................
-------------------------------------------
BALANCE, December 31, 1998 .. 22,819,640 ($ 99,341) ($ 795)
</TABLE>
45
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(Dollars in thousands)
(CONTINUED)
<TABLE>
<CAPTION>
Common Stock
--------------------- Retained
Cumulative Earnings
Paid-in Translation (Accumulated
Shares Amount Capital Adjustment Deficit)
------ ------ ------- ---------- --------
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1998...................... 68,570,615 $ 137 $ -- $ 1,448 ($ 10,012)
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation
and amortization.......... (55,100) (57)
Net shares issued in connection
with exercise of stock
options, including related
tax benefits.............. (2,628)
Compensation expense
recognized in connection
with grant of stock options 1,827
Purchase of treasury stock...
Change during year........... (921)
Net loss..................... (198)
-------------- ----------------------------------------------------
BALANCE, December 31,
1999...................... 68,515,515 $ 137 $ 1,827 $ 527 ($ 12,895)
============== ====================================================
<CAPTION>
Treasury Stock
-------------------------
Deferred
Shares Amount Compensation
------ ------------ ------------
-------------------------------------------
<S> <C> <C> <C>
BALANCE, December 31,
1998...................... 22,819,640 ($ 99,341) ($ 795)
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation
and amortization.......... 229
Net shares issued in connection
with exercise of stock
options, including related
tax benefits.............. (1,101,215) 4,821
Compensation expense
recognized in connection
with grant of stock options
Purchase of treasury stock... 528,265 (2,400)
Change during year...........
Net loss.....................
--------------------------------------------
BALANCE, December 31,
1999...................... 22,246,690 ($ 96,920) ($ 566)
============================================
</TABLE>
The accompanying notes are an intgegral part of these
consolidated financial statements.
46
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ (18,755) $ 1,905 $ (198)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of intangibles ............................. 6,372 8,398 9,544
Amortization of deferred financing costs ................................. 1,287 1,545 1,545
Other costs of product sales (Note 13) ................................... -- -- 2,703
Purchased in-process research and development charges (Note 12) .......... -- 6,120 -
Amortization of acquired inventory step-up (Note 12) ..................... 800 1,500 1,000
Compensation expense from stock options (Notes 5 and 11) ................. 9,436 -- 1,827
Gain on sale of equity securities ........................................ -- (3,155) --
Minority interest in net income (loss) of subsidiaries ................... 218 (164) (254)
Deferred income taxes, net ............................................... 1,113 (1,407) 560
(Gain) loss on sale of property, net ..................................... -- (426) 147
Other, net ............................................................... 39 41 (349)
Changes in assets and liabilities excluding effects of acquisitions and
dispositions:
Decrease (increase) in accounts receivable ............................... 3,077 (2,613) (11,371)
(Increase) decrease in inventories ....................................... (3,469) (1,971) 3,126
Decrease (increase) in other current assets .............................. 852 (25) (79)
(Increase) decrease in other noncurrent operating assets ................. (797) (1,387) 582
Increase (decrease) in accounts payable and other accrued expenses ....... 4,047 1,702 (3,043)
(Decrease) increase in deferred income ................................... (333) (741) 1,552
(Decrease) increase in other noncurrent liabilities ...................... (1,647) 3,637 (807)
--------- --------- ---------
Net cash provided by operating activities ................................ 2,240 12,959 6,485
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of acquired cash ............................ (7,491) (12,025) (28,539)
Investments in equity securities ........................................... (9,065) (68) --
Capital expenditures ....................................................... (3,622) (6,214) (9,970)
Product lines, patent rights and licenses acquired ......................... (2,036) (2,889) (1,292)
Proceeds from sale of fixed assets and investments ......................... 5 4,181 --
--------- --------- ---------
Net cash used for investing activities ................................... (22,209) (17,015) (39,801)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt ............................................... 206,710 41,500 57,388
Repayments of long-term debt ............................................... (14,992) (43,058) (22,700)
Purchase of treasury stock ................................................. (208,882) (121) (281)
Proceeds from sale of treasury stock ....................................... 21,059 481 299
(Decrease) increase in notes payable to banks .............................. (1,595) 1,291 174
Proceeds from exercise of stock options, including tax benefits ............ 8,333 57 --
Recapitalization fees deferred or charged to equity (Note 11) .............. (15,295) -- --
--------- --------- ---------
Net cash (used for) provided by financing activities ..................... (4,662) 150 34,880
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .................................... (2,620) 1,260 (1,917)
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS .................................. (27,251) (2,646) (353)
CASH AND CASH EQUIVALENTS, beginning of year ............................... 37,826 10,575 7,929
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year ..................................... $ 10,575 $ 7,929 $ 7,576
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ................................................................. $ 10,191 $ 20,744 $ 21,002
========= ========= =========
Income taxes ............................................................ $ 6,842 $ 5,465 $ 6,736
========= ========= =========
NON-CASH TRANSACTIONS:
Stock received in connection with cashless option exercise (Note 5) ........ $ -- $ -- $ 1,411
========= ========= =========
Stock issued in connection with acquisitions (Note 12) ..................... $ -- $ 1,620 $ --
========= ========= =========
Stock received in connection with equipment contribution (Note 12) ......... $ -- $ 3,186 $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
47
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
1. Operations and Significant Accounting Policies
Operations
Packard BioScience Company, a Delaware corporation, and subsidiaries (the
"Company") is a leading global developer, manufacturer and marketer of
instruments and related consumables and services for use in the life sciences
research and nuclear industries.
The Company operates primarily in two industry segments. Through its
Packard division, the Company supplies bioanalytical instruments, and the
related biochemical supplies and services, to the life sciences research
industry. The Canberra division manufactures and sells analytical instruments
and systems used to detect, identify, quantify and monitor radioactive materials
for the nuclear industry and related markets.
Consolidation
The accompanying consolidated financial statements include the accounts of
Packard BioScience Company and its majority-owned subsidiaries prepared in
accordance with accounting principles generally accepted in the United States.
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.
Gains and losses result from transactions which are denominated in other than
functional currencies. Such gains and losses are included in foreign exchange
transaction gains, net in the accompanying consolidated statements of income
(loss).
The Company purchases various foreign currency forward contracts primarily
for the purpose of hedging firm inventory purchase commitments. As of December
31, 1998 and 1999, the Company had total forward contracts outstanding of
approximately $3,320,000 and $2,300,000, respectively, whose settlement prices
substantially approximated year end exchange rates. The following table
summarizes by currency the outstanding forward contracts as of December 31, 1998
and 1999 (in thousands):
1998 1999
Japanese Yen .............................. $1,600 $2,000
British Pound Sterling .................... 1,200 --
All other ................................. 520 300
------ ------
$3,320 $2,300
====== ======
The forward contracts outstanding at December 31, 1999 mature at various
times through October, 2000. Transaction gains, inclusive of forward contracts
settled, were $377,000, $258,000 and $683,000 in 1997, 1998 and 1999,
respectively.
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.
48
<PAGE>
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.
Property, plant and equipment
Property, plant and equipment are recorded at cost. Machinery, equipment,
furniture and leasehold improvements are depreciated using the straight-line
method over their estimated useful lives or term of the lease, if shorter,
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
based upon the nature of the operations acquired. Goodwill included in the
accompanying consolidated balance sheets is being amortized over 20 to 40 years.
As of December 31, 1998 and 1999, accumulated amortization was approximately
$809,000 and $2,186,000, respectively.
Deferred financing costs, net of amortization
Deferred financing costs includes the portion of fees incurred by the
Company for issuance of debt instruments in connection with its 1997
Recapitalization, including the initial purchasers' discount (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. Accumulated amortization of deferred
financing costs was $2,833,000 and $4,378,000 as of December 31, 1998 and 1999,
respectively.
Investments
During 1997 and 1998, the Company held investment securities of a publicly
traded company. Such investments were available for sale and, as such, all
unrealized gains and losses were reflected in a separate component of
stockholders' deficit, net of income taxes. Such investments were sold during
1998 for a gain of $3,155,000.
Patent rights and license acquisitions
The Company capitalizes amounts paid for patent rights and licenses
acquired to manufacture and sell certain products. These amounts are amortized
over the lives of the respective agreements or the estimated lives of the
related products, if shorter. The amortization periods range from 3 to 10 years.
As of December 31, 1998 and 1999, the Company had an unamortized balance of
$7,304,000 and $5,489,000, respectively, associated with patent rights and
license acquisitions, which amounts were reflected in other assets in the
accompanying consolidated balance sheets.
Long-lived assets
The Company assesses the realizability of long-lived assets based upon the
estimated future profitability and cash flows of such assets. As of December 31,
1998 and 1999, the Company believes there was no impairment of the long-lived
assets as reported in the accompanying consolidated balance sheets. Refer to
Note 13 for a description of the Company's write-off of certain long-lived
assets during 1999 in connection with a license modification and the termination
of production of a certain product line.
Revenue recognition and deferred income
For the majority of the Company's product sales, 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.
49
<PAGE>
Revenues and estimated profits on long-term contracts are generally
recognized under the percentage-of-completion method of accounting using a
cost-to-cost methodology. Profit estimates are revised periodically based on
changes in facts. Over (under) billings were not material as of December 31,
1998 and 1999.
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 $10,310,000 and $15,380,000 at December 31,
1998 and 1999, respectively. If and when earnings are repatriated, credit for
foreign taxes already paid on subsidiary earnings and withholdings may offset a
portion of applicable U.S. income taxes.
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
dilutive. Basic and diluted weighted average shares outstanding during the years
ending December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Basic weighted average shares outstanding ...... 62,318,120 45,574,160 45,803,495
Dilutive effect of outstanding stock options ... -- 2,109,225 --
---------- ---------- ----------
Diluted weighted average shares outstanding .... 62,318,120 47,683,385 45,803,495
========== ========== ==========
</TABLE>
For 1997 and 1999, 1,750,240 and 4,651,965 of common stock equivalents,
respectively, were excluded from diluted weighted average shares outstanding as
their effect was antidilutive.
Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 as of December 31, 1998 and 1999:
Cash and cash equivalents -- The carrying amount approximates fair value
because of the short maturity of those instruments.
50
<PAGE>
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 debt -- The fair value of the Company's long-term debt 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 (see
Note 4) was $142,500,000 and $137,175,000 at December 31, 1998 and 1999,
respectively. The estimated fair value of all other long-term debt
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.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
New accounting standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," 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. The Company believes
that such contracts qualify as foreign currency cash flow hedges under SFAS No.
133 and, as such, gains and losses on such contracts will be presented as a
component of comprehensive income. The effective date of SFAS No. 133 (which was
deferred through the issuance of SFAS No. 137) is the Company's calendar year
commencing January 1, 2001. This statement is not expected to have a material
effect on the Company's consolidated operating results or financial position
upon adoption.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB No. 101"). SAB No. 101, among other things, provides guidance on revenue
recognition when customer acceptance and installation provisions exist. SAB No.
101 must be adopted by the Company on January 1, 2000. The cumulative effect, if
any, of applying SAB No. 101 will be recognized as of January 1, 2000. The
Company is in the process of quantifying the effect, if any, of SAB No. 101 on
its consolidated financial position and results of operations.
2. Accounts Receivable, Net
Accounts receivable are net of allowances for doubtful accounts totaling
$635,000 and $650,000 as of December 31, 1998 and 1999, respectively.
3. Inventories
Inventories consisted of the following at December 31, 1998 and 1999 (in
thousands):
1998 1999
---- ----
Raw materials and parts .................... $ 15,963 $ 19,028
Work in progress ........................... 4,189 3,031
Finished goods ............................. 14,210 17,394
-------- --------
34,362 39,453
Excess and obsolete reserves ............... (3,729) (5,262)
-------- --------
$ 30,633 $ 34,191
======== ========
51
<PAGE>
4. Long-Term Debt
The Company had the following long-term debt at December 31, 1998 and
1999, as described below (in thousands):
As of December 31, 1998:
<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
Term loan........................................ Eurodollar+2.75% 2003 2,035 37,365 39,400
Revolving credit facility........................ Eurodollar+2.375% 2002 -- -- --
Notes payable.................................... 3.5%--7.25% 1999 3,221 -- 3,221
Other obligations................................ 1.875%--9.0% 1999-2003 1,461 2,752 4,213
------ -------- --------
$6,717 $190,117 $196,834
====== ======== ========
</TABLE>
As of December 31, 1999:
<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
Term loan........................................ Eurodollar+2.75% 2003 400 36,965 37,365
Revolving credit facility:
Borrowings denominated in U.S. dollars......... Eurodollar+2.375% 2002 -- 8,425 8,425
Borrowings denominated in other currencies..... Cost of funds+2.375% 2002 -- 28,513 28,513
Notes payable.................................... 3.9%--4.0% 2000 3,197 -- 3,197
Other obligations................................ 1.875%--10.0% 2000-2004 1,713 1,828 3,541
------ -------- --------
$5,310 $225,731 $231,041
====== ======== ========
</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 initial purchasers' discount is reflected as
deferred financing costs in the accompanying consolidated balance sheets and is
being amortized over the term of the Senior Notes (10 years).
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. 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.
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 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 matures in 2003 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. On U.S. dollar denominated borrowings, 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).
52
<PAGE>
Outstanding borrowings on the revolving credit facility which are denominated in
currencies other than the U.S. dollar bear interest at the cost of funds rate
plus 2.375% (adjusted downward if the Company achieves certain financial ratio
levels). Cost of funds on non-U.S. dollar borrowings represents the rate at
which deposits in the applicable currency would be offered by banks
participating in the revolving credit facility. A maximum of $50 million can be
borrowed in currencies other than the U.S. dollar. 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, 1999, the Eurodollar rate and cost of funds rate were
6.04% and 3.53%, respectively.
The Financings contain certain financial covenants including, but not
limited to, a minimum fixed charge ratio test, a minimum interest ratio test and
a maximum leverage ratio and 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. In October 1999, the Company obtained an amendment to the
Agreement, which was effective as of September 30, 1999. Among other changes to
the prior terms of the facility, the amendment modified certain of the financial
covenants. The change included increasing the Company's maximum consolidated
leverage ratio (as defined in the Agreement). The maximum allowable consolidated
leverage ratio was 5.35:1.00 at December 31, 1999 and declines to 3.50:1.00
effective December 31, 2002. As of December 31, 1999, the Company was in
compliance with all covenants. In February 2000, the Company amended the
Agreement to increase allowable investments (as defined in the Agreement). In
connection with this amendment, the margins which are added to the base rates
described above were generally increased by 0.50%.
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, 1998 and 1999, consisted of amounts
outstanding under overseas lines of credit which permitted maximum borrowings of
approximately $12,000,000 and $7,600,000, respectively. Borrowings are due on
demand. At December 31, 1998 and 1999, $3,221,000 and $3,197,000, respectively,
were outstanding under these arrangements with interest rates ranging from 3.5%
to 7.25% and 3.9% to 4.0%, respectively. The weighted average interest rates on
these borrowings were 4.1% and 4.3% in 1998 and 1999, respectively. The maximum
amount outstanding on overseas lines of credit during 1998 and 1999 was
$3,221,000 and $3,996,000, respectively.
As of December 31, 1999, aggregate principal payments of long-term debt
during the next five years ending December 31 and thereafter are approximately
as follows (in thousands):
2000....................................................... $ 5,310
2001....................................................... 1,797
2002....................................................... 56,405
2003....................................................... 17,459
2004....................................................... 70
Thereafter................................................. 150,000
--------
Total...................................................... $231,041
========
5. Common Stock and Stock Options
At December 31, 1999 (see Note 15), the Company had 200,000,000 shares of
authorized common stock with a par value of $.002 per share and 1,000,000 shares
of authorized preferred stock.
The Company has granted non-qualified stock options to selected employees
under the Canberra Industries, Inc. Stock Option Plan of 1971, as amended (the
"1971 Plan") and the Management Stock Incentive Plan (the "1997 Plan") of 1997.
In connection with the 1997 recapitalization (see Note 11), the 1971 Plan was
frozen and no additional options can be granted from this plan. There are
11,124,460 options authorized to be granted under the 1997 Plan of which
3,431,710 are available for grant as of December 31, 1999. No additional options
may be granted under the 1997 Plan after March 4, 2007. 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 1,325,000 performance options to
various employees with an exercise price of $2.726 which exceeded
53
<PAGE>
the $2.225 fair value of the Company's stock on the date of grant. The options
expire at various dates through the year 2009. A summary of stock option
activity is as follows:
Weighted
Number Avg. Price
of Shares per Share
--------- ---------
Outstanding at December 31, 1996 ................. 13,718,500 $ 1.038
Granted .......................................... 4,807,500 2.362
Exercised or purchased by the Company (Note 11) .. (10,719,500) 1.036
----------- ----------
Outstanding at December 31, 1997 ................. 7,806,500 1.856
Granted .......................................... 1,117,500 2.780
Cancelled ........................................ (164,000) 2.074
Exercised ........................................ (85,000) 1.604
----------- ----------
Outstanding at December 31, 1998 ................. 8,675,000 1.970
Granted .......................................... 2,226,250 3.326
Cancelled ........................................ (308,740) 2.266
Exercised ........................................ (1,131,215) 0.788
----------- ----------
Outstanding at December 31, 1999 ................. 9,461,295 $ 2.420
=========== ==========
As of December 31, 1999, the outstanding options had the following
characteristics:
<TABLE>
<CAPTION>
Weighted Number Weighted Average
Weighted Average Exercisable Exercise Price
Number Range of Average Remaining as of as of
Outstanding Exercise Prices Exercise Price Contractual Life December 31, 1999 December 31, 1999
- ----------- --------------- -------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
379,045 $0.634 $0.634 Less than one year 379,045 $0.634
1,389,500 $1.286--$1.600 $1.376 5.2 years 1,389,500 $1.376
4,551,500 $2.226--$2.726 $2.370 7.4 years 3,257,500 $2.428
3,141,250 $2.792--$3.352 $3.172 9.3 years 826,250 $3.080
--------- ---------
9,461,295 5,852,295
========= =========
</TABLE>
During 1999, 870,955 options were exercised through a "cashless" option
conversion whereby employees tendered mature common shares owned by them with an
aggregate value equivalent to the aggregate option exercise price of those
options being exercised. In addition, common shares with a value equivalent to
the required income tax and other withholdings due by the employees associated
with the exercise of the options were also tendered. A total of 421,080 common
shares were tendered by the employees who participated in the cashless option
exercise.
In December 1999, the Company granted certain options to employees with an
exercise price of $3.352 per share. In accordance with financial reporting
guidelines, compensation expense of $9.1 million will be recorded over the
vesting period of the related options, of which $1.8 million was recorded in
1999 related to 1999 vesting (see Note 15). Such expense is included in selling,
general and administrative expenses in the accompanying consolidated statement
of income (loss).
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
($21,916,000), $366,000 and ($2,249,000) on a pro forma basis for the years
ended December 31, 1997, 1998 and 1999, 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:
54
<PAGE>
1997 1998 1999
---- ---- ----
Expected dividend yield.......... -- -- --
Expected stock price volatility.. N/A N/A N/A
Risk-free interest rate.......... 6.04%--6.49% 4.91%--5.89% 5.14%--6.88%
Expected life.................... 10 years 10 years 10 years
Weighted average fair value...... $0.956 $1.134 $5.714
In connection with the Recapitalization, 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 vesting period. Compensation expense, determined as of
the date of grant, is being recognized ratably in accordance with the vesting
schedule. Compensation expense recognized was $194,000, $191,000 and $178,000 in
1997, 1998 and 1999, respectively. At December 31, 1998 and 1999, $795,000 and
$566,000 of future compensation expense associated with 129,190 and 88,800
unvested shares, respectively, has been deferred and is included in deferred
compensation in the accompanying consolidated balance sheets.
6. Income Taxes
The sources of the Company's income (loss) before provision for income
taxes and minority interest were as follows (in thousands):
1997 1998 1999
---- ---- ----
United States ............... ($23,207) ($ 4,655) ($ 8,998)
Foreign ..................... 10,611 10,183 15,982
-------- -------- --------
($12,596) $ 5,528 $ 6,984
======== ======== ========
The provision for (benefit from) income taxes is as follows (in
thousands):
1997 1998 1999
---- ---- ----
Current:
Federal ...................... $ 92 ($ 601) $ 535
Foreign ...................... 4,774 4,393 6,288
State ........................ 50 526 57
------- ------- -------
4,916 4,318 6,880
------- ------- -------
Deferred:
Federal ...................... 784 29 312
Foreign ...................... (357) (527) 166
State ........................ 598 (33) 78
------- ------- -------
1,025 (531) 556
------- ------- -------
Total ...................... $ 5,941 $ 3,787 $ 7,436
======= ======= =======
55
<PAGE>
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 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
Amount Percent Amount Percent Amount Percent
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes ....................... ($12,596) $ 5,528 $ 6,984
======== ======== ========
Income tax (benefit) computed at statutory rate ......... $ (4,409) 35% $ 1,935 35% $ 2,445 35%
Change in valuation allowance ........................... 8,267 (66) (2,291) (41) 5,863 84
Net tax effect relating to foreign operations and sales . 2,532 (20) 720 13 (972) (14)
Research credits ........................................ -- -- (654) (12) -- --
State income taxes ...................................... (444) 4 341 6 201 3
Acquisition-related deductible charges .................. -- -- (394) (7) (571) (8)
Acquisition-related nondeductible charges ............... 25 -- 4,457 81 351 5
Restricted stock vesting ................................ (203) (2) (187) (3) (84) (1)
Other ................................................... 173 2 (140) (3) 203 3
-------- -------- -------- ------ -------- --------
$ 5,941 (47)% $ 3,787 69% $ 7,436 107%
======== ======== ======== ====== ======== ========
</TABLE>
At December 31, 1998 and 1999, deferred tax assets and liabilities were
comprised of the following (in thousands):
1998 1999
---- ----
Deferred tax assets:
Net operating loss carryforwards ....................... $ 1,374 $ 2,321
Inventory related items ................................ 2,290 2,966
Accruals not currently deductible ...................... 3,997 3,068
Stock option grant compensation ........................ -- 750
Foreign and other tax credit carryforwards ............. 5,786 11,356
Other .................................................. 377 315
-------- --------
Gross deferred tax assets ............................ 13,824 20,776
Less: valuation allowance .............................. (6,902) (12,765)
-------- --------
Total deferred tax assets, net of valuation allowance 6,922 8,011
-------- --------
Deferred tax liabilities:
International transactions ............................. 4,053 3,507
Accelerated depreciation ............................... 853 606
Transaction-related tax liabilities .................... 2,861 3,549
Other .................................................. 221 361
-------- --------
Total deferred tax liabilities ....................... 7,988 8,023
-------- --------
Net deferred tax liabilities ......................... ($ 1,066) ($ 12)
======== ========
At December 31, 1998, the Company had foreign tax credit and state net
operating loss carryforwards (tax effected) totaling approximately $6.9 million.
A valuation reserve was provided against such foreign tax credit and state net
operating loss carryforwards due to the uncertainty of the Company's ability to
utilize such credit carryforwards prior to their expiration.
At December 31, 1999, the Company had foreign tax credit carryforwards
totaling $10.4 million, which were fully offset by a valuation reserve due to
the uncertainty of the Company's ability to utilize such carryforwards prior to
their expiration. In addition, total state net operating loss carryforwards were
$2.4 million (tax effected) at December 31, 1999, which were fully reserved for,
also due to the uncertainty as to their utilization. The foreign tax credit and
state net operating loss carryforwards expire in 2002 to 2004 and in 2002 and
2003, respectively.
56
<PAGE>
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 11% of
annual pay. The Company makes matching contributions equal to 125% of a
participant's basic contribution, which amounted to approximately $1,600,000,
$1,652,000 and $1,907,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
Aquila Technologies Group, Inc. ("Aquila") 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 $36,000 and $42,000 during the years ended December 31, 1998 and 1999,
respectively.
The Company also had a noncontributory employee stock ownership plan
("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
trust had used the contributions to first service debt incurred, if any, and
then to purchase outstanding shares of the Company's stock. When employees
terminate their employment with the Company, they may choose to take the ESOP
portion of the Profit Sharing Plan distribution in the form of either cash or
shares of the Company's common stock, based upon the value of the common stock
on the date of distribution.
8. Commitments and Contingencies
The Company conducts certain of its operations from leased facilities and
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 that have initial or remaining non-cancelable lease terms
extending beyond December 31, 2000 (in thousands):
2000 ....................................................... $1,014
2001 ....................................................... 986
2002 ....................................................... 853
2003 ....................................................... 804
2004 ....................................................... 353
Thereafter ................................................. 1,170
------
$5,180
======
Rental expense for the years ended December 31, 1997, 1998 and 1999, was
approximately $4,037,000, $4,319,000, and $5,199,000, respectively.
The Company has entered into various cooperative research and development
agreements 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 of 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 consolidated 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.
57
<PAGE>
On November 2, 1998, the Company settled a lawsuit brought against it in
1996 by PerkinElmer Instruments, Inc. (formerly EG&G Instruments, Inc.) ("PE")
alleging patent infringement. The settlement requires the Company to make
payments totaling $10 million to settle the litigation and for a license to the
related technology through 2000. The Company also received a royalty-bearing
license for years subsequent to 2000. The licensed technology was not used
during the period from November 2, 1998 to December 31, 1999. Of the total
payments of $10 million, $7 million had been paid as of December 31, 1999, and
$3 million, which was accrued as of December 31, 1999, was paid in January 2000.
The total settlement of $12.1 million, including legal fees of $2.1 million, was
expensed in 1998 and is included in other charges, net in the accompanying
consolidated statement of income (loss).
On April 26, 1999, an action was filed by PE alleging that the Company
infringed a patent, which issued on February 16, 1999. A settlement has been
reached with PE that will require the Company to make a one-time settlement
payment in the amount of $100,000, as well as royalty payments on future product
sales which include the patented technology and certain other patented
technologies. The settlement amount was accrued as of December 31, 1999.
The Company has received a Demand for Arbitration filed by Instrumentation
Development, Inc. ("IDI") with the American Arbitration Association. The demand
alleges breach of a collaboration and license agreement, and requests damages in
the range of $1 to $3 million. The Company is in the process of evaluating the
merits of the claim, if any, and intends to vigorously defend this action.
Management believes that this matter will not have a material adverse effect on
the consolidated results of operations or financial position of the Company and
has accrued for the estimated settlement of such claim as of December 31, 1999.
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. Asserting that the
causes of this contamination entirely predate the Company's acquisition of this
location in 1986, the Company had sought indemnification under the purchase
agreement from the prior owner of the property. The Company accepted a payment
in 1998 of $1.25 million from the prior owner and fully released them from their
indemnification obligations. Such amount primarily represented reimbursement for
remediation costs previously paid for by the Company and estimated remaining
remediation costs. The Company has accrued for the estimated remaining
obligation to remediate the site; however, there can be no assurance that the
Company will not incur any additional costs.
9. Related Party Transactions
The accompanying consolidated statements of income (loss) include revenues
from CIS bio international of approximately $4,968,000 for 1997, and
reimbursements of research and development expenses of $236,000 for 1997. CIS
bio international was an affiliate of a significant stockholder prior to the
1997 recapitalization (see Note 11). As of the 1997 recapitalization, CIS bio
international is no longer a related party.
In connection with the 1997 recapitalization, Stonington Partners, Inc.,
the management company for the Company's majority shareholder, received a
structuring fee and reimbursement for certain expenses totaling $2.6 million in
the aggregate.
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.
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The following tables summarize the Company's operations by geographic area
and industry segment for 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
Geographic Area 1997 1998 1999
--------------- ---- ---- ----
<S> <C> <C> <C>
Revenues*
United States, including third party export
sales** ......................................... $ 104,764 $ 143,909 $ 124,135
Europe ............................................ 66,297 72,860 120,666
Japan ............................................. 13,052 11,395 20,091
--------- --------- ---------
Total consolidated .............................. $ 184,113 $ 228,164 $ 264,892
========= ========= =========
Income (loss) from operations
United States, including export sales*** .......... $ (4,525) $ 13,053 $ 12,885
Europe ............................................ 6,862 10,177 10,082
Japan ............................................. 2,989 2,456 5,292
Eliminations, net ................................. (970) (2,913) 721
--------- --------- ---------
Total consolidated .............................. $ 4,356 $ 22,773 $ 28,980
========= ========= =========
Total assets
United States ..................................... $ 121,692 $ 144,023 $ 185,994
Europe ............................................ 43,339 38,807 53,874
Japan ............................................. 8,737 9,802 11,288
Eliminations, net ................................. (33,117) (23,498) (45,161)
--------- --------- ---------
Total consolidated .............................. $ 140,651 $ 169,134 $ 205,995
========= ========= =========
</TABLE>
- ----------
* Includes only revenues from unaffiliated customers.
** Includes $30,690,000, $33,834,000 and $31,979,000 of third-party export
sales for 1997, 1998 and 1999, respectively.
*** Income (loss) from operations for 1997 includes recapitalization charges
of $18,429,000 and $800,000 to expense the fair market value adjustment
associated with acquired inventories. Income from operations for 1998
includes a $1,500,000 charge to expense the fair market value adjustment
associated with acquired inventories, a $6,120,000 charge for purchased
in-process research and development, a litigation settlement charge of
$12,144,000, including legal fees, and a gain on the sale of the gas
generation product line of $10,753,000. Income from operations for 1999
includes a $2,703,000 charge associated with terminating the production of
a product and modifying a license arrangement, a $1,000,000 charge to
expense the fair market value adjustment associated with acquired
inventories and a $1,827,000 compensation charge associated with the 1999
vesting of stock options granted to certain employees in December 1999.
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<PAGE>
Industry Segment 1997 1998 1999
---- ---- ----
Revenues*
Packard ........................ $ 120,286 $ 146,237 $ 158,889
Canberra ....................... 63,827 81,927 106,003
--------- --------- ---------
Total consolidated .......... $ 184,113 $ 228,164 $ 264,892
========= ========= =========
Income (loss) from operations
Packard** ...................... $ 17,654 $ 19,763 $ 20,409
Canberra*** .................... 7,649 14,484 12,031
General corporate expenses ..... (2,518) (3,963) (3,460)
Other charges, net**** ......... (18,429) (7,511) --
--------- --------- ---------
Total consolidated .......... $ 4,356 $ 22,773 $ 28,980
========= ========= =========
Capital expenditures
Packard ........................ $ 1,650 $ 4,669 $ 5,779
Canberra ....................... 1,972 1,545 4,191
--------- --------- ---------
Total consolidated .......... $ 3,622 $ 6,214 $ 9,970
========= ========= =========
Depreciation and amortization
Packard ........................ $ 3,396 $ 5,322 $ 6,166
Canberra ....................... 2,976 3,076 3,378
--------- --------- ---------
Total consolidated .......... $ 6,372 $ 8,398 $ 9,544
========= ========= =========
Total assets
Packard ........................ $ 95,540 $ 100,214 $ 118,532
Canberra ....................... 45,111 68,920 87,463
--------- --------- ---------
Total consolidated .......... $ 140,651 $ 169,134 $ 205,995
========= ========= =========
- ----------
* Includes only revenues from unaffiliated customers.
** The 1998 amount includes $1,500,000 to expense the fair market value
adjustment associated with acquired inventories. The 1999 amount includes
a $1,035,000 compensation charge associated with the 1999 vesting of
options granted to certain employees in December 1999.
*** The 1997 amount includes a $800,000 charge to expense the fair market
value adjustment associated with acquired inventories. The 1999 amount
includes a $792,000 compensation charge associated with the 1999 vesting
of options granted to employees in December 1999 and $1,000,000 to expense
the fair market value adjustment associated with acquired inventories.
**** The 1997 amount represents recapitalization expenses. The 1998 amount
consists of a $12,144,000 charge to settle litigation, including legal
fees, a $6,120,000 charge for purchased in-process research and
development and a $10,753,000 gain realized on the sale of the gas
generation product line.
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 $2.225 except for the option redemption where the price was $2.225 less the
exercise price of such stock options. The Company used the proceeds of the
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<PAGE>
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 Partners, Inc. 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 $18,429,000 of Recapitalization
related expenses have been included as other charges, net in the accompanying
consolidated statement of income (loss) for 1997 (see Note 14).
Pursuant to the terms of the 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 (see Note 15) and the tenth anniversary of the
Recapitalization, to require the Company to purchase common stock and options
held by such Management Stockholders upon 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. No such rights
have been exercised by the Management Stockholders or the Company. As of
December 31, 1999, if the Company was required to repurchase all of the common
stock and options held by such Management Stockholders, the estimated aggregate
cost would be approximately $11 million, based on the formula in the
Stockholders' Agreement.
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 obligated PJKK to acquire approximately 60% of the
minority interest in 1997, 20% in 1998 and the remainder in 1999. 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, 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 December 31, 1999 up to a maximum of $10.4 million in additional
payments. During the period September 1, 1997, through December 31, 1999,
contingent payments totaling $5.7 million have been earned and accrued.
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 ultra-high throughput liquid handling
systems used in the life science, in-vitro diagnostics and pharmaceutical drug
discovery markets. The Company issued 544,415 common shares of the Company
(valued at $2.792 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 for purchased
in-process research and development which had not reached technological
feasibility and had no probable alternative future uses. The value assigned to
purchased in-process research and development was determined by an independent
appraisal, utilizing the percentage-of-completion method. The acquisition also
resulted in a charge of $1.0 million during the three months ended June 30,
1998, to expense the step-up of inventory to fair value recorded at the date of
acquisition. Additional contingent payments, up to a maximum of $18.7 million,
may be made through 2002, contingent upon CCS achieving certain post acquisition
operating performance levels through December 31, 2001. During the period April
1, 1998 to December 31, 1999, contingent payments totaling $9.4 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 35,815 shares of
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<PAGE>
the Company's common stock valued at $2.792 per share. In connection with the
acquisition, the Company recognized a charge of $3.44 million associated with
purchased in-process research and development which had not reached
technological feasibility and had no probable future uses. The value assigned to
purchased in-process research and development was determined by an independent
appraisal, utilizing the percentage-of-completion method. The acquisition also
resulted in a charge of $0.5 million during the three months ended September 30,
1998, to expense the step-up of inventory to fair value recorded at the date of
acquisition.
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, 1999 are included in
the accompanying consolidated statements of income (loss).
On January 7, 1999, the Company acquired substantially all of the net
operating assets of Harwell Instruments from AEA Technologies plc, located in
the United Kingdom. A new subsidiary called Harwell Instruments, Ltd.
("Harwell") was formed to execute the acquisition. Harwell manufactures and
distributes nuclear instrumentation used in waste assay, safeguards, and
decommissioning and decontamination. The Company paid 6.0 million British pounds
sterling (approximately $10.0 million, including acquisition costs, based upon
foreign exchange rates in effect at time of acquisition) to acquire Harwell.
There was no inventory step-up in connection with this acquisition as Harwell
follows the percentage-of-completion method of revenue recognition.
On April 1, 1999, the Company acquired the net operating assets of
Tennelec/Nucleus, Inc. and formed a new subsidiary, Tennelec, Inc. ("Tennelec")
to effect the purchase. Tennelec manufactures and distributes nuclear
instrumentation and high-purity germanium crystals. The Company paid
approximately $10.7 million, including acquisition costs, for the net operating
assets received. The net operating assets reflect an accrual of approximately
$300,000 for estimated exit costs, as defined. The acquisition resulted in a
$1.0 million charge during the three months ended June 30, 1999, to expense the
step-up of inventory to fair value recorded at the date of acquisition.
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 estimated
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
$44.1 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 earned, 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.
The operating results of all acquisitions 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 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 write-offs, amortization of
goodwill associated with the acquisitions, adjustments to certain historical
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. No pro forma adjustments have been included for the sale of
the gas generation product line (see Note 14) since the effect is not material.
62
<PAGE>
(Dollars in thousands,
except per share amounts)
Unaudited
1998 1999
---- ----
Net sales ................................ $252,805 $268,196
Income from operations ................... 35,879 30,631
Net income ............................... 10,646 1,235
Basic income per share ................... 0.22 0.03
13. Other Costs of Product Sales
During 1999, the Company modified an existing license agreement and
terminated the production of an OEM clinical product. The modification and
termination resulted in a $2.7 million charge to cost of sales to expense the
remaining deferred licensing fees associated with the modified license ($0.9
million), reserve the value of the estimated excess inventory of the terminated
product ($1.6 million) and write-off the net book value of the equipment used to
manufacture the terminated product ($0.2 million). The charge associated with
the license fee was based upon the estimated future cash flows associated with
the underlying products.
14. Other Operating Charges, Net
Other operating charges, net in the accompanying consolidated statements
of income (loss) consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Recapitalization charges (Note 11) ............................ $18,429 $ --
Purchased in-process research and development charges (Note 12) -- 6,120
Settlement of litigation (Note 8) ............................. -- 12,144
Gain on sale of product line .................................. -- (10,753)
------- --------
$18,429 $ 7,511
======= ========
</TABLE>
In December 1998, the Company sold Packard's gas generation product line,
realizing a pre-tax gain of approximately $10.8 million.
15. Subsequent Events
In March 2000, the Company acquired a 51% equity interest in Carl
Consumable Products, LLC ("CCP") for an initial cash payment of $510,000, with
an option to acquire the remaining 49% equity interest for (a) a cash payment of
$490,000, plus (b) earn-out payments equal to 25% of the operating profit (as
defined in the purchase agreement) of CCP in excess of $530,000 which is
generated during the four-year period following exercise of the option (unless
the option is exercised prior to March 6, 2001, in which case the applicable
earn-out percentage will be increased from 25% to 35%). CCP is a new company
formed to design and manufacture sophisticated pipettes used in the liquid
dispensing process of drug discovery and genomic research.
In March 2000, the Company filed a Form S-1 Registration Statement with
the Securities and Exchange Commission to register the Company's common stock
for public sale (the "Offering"). The Offering is expected to raise $200 million
before consideration of the underwriters' over-allotment and expenses associated
with the Offering. The Company plans to utilize a portion of the proceeds from
the Offering to repay the balance outstanding on the term loan and to reduce the
amount outstanding on the U.S. dollar denominated portion of the revolving
credit facility. Additionally, the Company may make open market purchases of its
Senior Notes depending on prevailing market prices for the Senior Notes
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<PAGE>
and other factors deemed relevant by management. The Offering will not result in
a change in control, as defined in the Senior Notes. Accordingly, the Company is
not required to repurchase any Senior Notes as a result of the Offering.
Upon consummation of the Offering, the Management Stockholders' right to
require the Company to purchase common stock and options held by such Management
Stockholders, in certain circumstances, will terminate. The Company has included
the related common stock in stockholders' equity (deficit) in the accompanying
consolidated balance sheets.
On March 20, 2000, the Company's Board of Directors approved a 5 for 1
split of the Company's common stock, changed the par value of the Company common
stock to $0.002 and increased the number of authorized shares of common stock to
200,000,000. As a result, all share and per share information included in the
accompanying consolidated financial statements and notes thereto, have been
restated to reflect the effect of the split.
On March 20, 2000, the Company's Board of Directors also approved the
acceleration of the vesting of all outstanding unvested stock options, making
them 100% vested, effective March 17, 2000. This will result in the expensing of
the remaining non-cash compensation charge of $7.8 million in the quarter ending
March 31, 2000 (see Note 5).
In March 2000, certain members of the Company's management volunteered to
transfer by gift 113,700 shares of their own Company common stock to
substantially all of the Company's employees who did not own shares or options
to purchase shares of the Company's stock on the date of the gifting. This will
result in a non-cash compensation charge to the Company of $1.9 million in the
quarter ending March 31, 2000.
The Company intends to terminate certain product lines associated with its
Harwell acquisiton. Harwell will eliminate certain positions and facilities
resulting in a charge of approximately $2.5 million in the quarter ending March
31, 2000.
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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.
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
Executive Officers and Directors
The following table sets forth information concerning our directors and
executive officers. In connection with an application to list our common stock
on the Nasdaq National Market, as part of the proposed Offering, we will
undertake to appoint at least two additional directors within 90 days following
the Offering who will not be employees of Packard BioScience Company or
affiliated with management.
Name Age Position
- ---- --- --------
Emery G. Olcott.......... 61 Chairman of the Board, Chief Executive Officer
and President
Richard T. McKernan...... 62 Senior Vice President and Director of Packard
BioScience Company and President, Packard
Instrument
George Serrano........... 54 Vice President and Director of Packard
BioScience Company and President, Canberra
Ben D. Kaplan............ 42 Vice President and Chief Financial Officer
Timothy O. White, Jr..... 32 Vice President, General Counsel and Secretary
Staf van Cauter.......... 51 Vice President, Business Development, Packard
Instrument
Robert F. End............ 44 Director
Bradley J. Hoecker....... 38 Director
Alexis P. Michas......... 42 Director
Robert C. Salisbury...... 56 Director
Peter P. Tong............ 58 Director
Each of our directors holds office until his successor is duly elected and
qualified or until his resignation or removal if earlier. Except as set forth
below, no family relationship exists among any of the directors or executive
officers. Pursuant to a Stockholders' Agreement entered into in connection with
the 1997 recapitalization, Stonington has the right, subject to applicable law,
to nominate and remove our directors, as more fully described under "Related
Party Transactions - Stockholders' Agreement." All executive officers are
elected by the Board and serve at the discretion of the Board.
Emery G. Olcott is our Chief Executive Officer and President, positions he
has held since 1971. He also became Chairman of the Board effective as of the
closing of the 1997 recapitalization. Mr. Olcott co-founded Packard BioScience
Company in 1965. Mr. Olcott was the Chairman of the Board of Directors of Yankee
Energy System, Inc., a gas distribution company which was recently acquired by
Northeast Utilities, and has been elected to the Board of Directors of Northeast
Utilities. In addition, he is a Vice Chairman and Trustee of The Loomis Chaffee
School, and is a member of the Dean's Advisory Council for the Sloan School of
Management at the Massachusetts Institute of Technology. Mr. Olcott graduated
from Yale University in 1960 with a Bachelor of Science degree, and from MIT in
1963 with a Master of Science degree.
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<PAGE>
Richard T. McKernan is the President of Packard Instrument, a position he
has held since 1986. He has also been the Senior Vice President of Packard
BioScience Company since 1981 and a Director of Packard BioScience Company since
1980. Mr. McKernan is currently responsible for the development and execution of
the strategic plan and the performance of Packard Instrument Company, CCS
Packard, Packard BioScience BV, BioSignal and ten Packard Instrument
international sales subsidiaries. Mr. McKernan graduated from Pennsylvania State
University in 1959 with a Bachelor's degree in Electrical Engineering, and from
the University of Connecticut in 1964 with a Master's degree in Electrical
Engineering. He is a member of the Boards of New Britain General Hospital and
Connecticut United for Research Excellence, an industry and government
organization for the advancement of science.
George Serrano is the President of Canberra Industries, a position he has
held since January 1994. Mr. Serrano became a Director of Packard BioScience
Company effective as of the closing of the 1997 recapitalization. Mr. Serrano is
also a Vice President of Packard BioScience Company, a position he has held
since 1980. Mr. Serrano graduated from the University of Connecticut in 1968
with a Bachelor's degree in Business Administration, and from the University of
New Haven in 1980 with an Executive Master's degree in Business Administration.
In addition, Mr. Serrano is a retired Colonel of the U.S. Army Reserve, which he
joined in 1968.
Ben D. Kaplan is our Vice President and Chief Financial Officer, positions
he has held since February 1997. From September 1992 to January 1997, he was a
partner at Arthur Andersen LLP, a public accounting firm. Mr. Kaplan is
currently on the Board of Regents of the University of Hartford. Mr. Kaplan
graduated from the University of Hartford in 1979 with a Bachelor's degree in
Accounting and in 1980 with a Master's degree in Accounting.
Timothy O. White, Jr. is our Vice President, General Counsel and
Secretary. Mr. White has been our General Counsel and Secretary since May 1998,
and became a Vice President of Packard BioScience Company on March 20, 2000.
From September 1995 to May 1998, Mr. White was an attorney at the law firm of
Jacobs Chase Frick Kleinkopf & Kelley LLC. Prior to that time, Mr. White was an
attorney at the law firm of Ballard Spahr Andrews & Ingersoll, LLP. Mr. White
graduated from Hamilton College in 1990 with a Bachelor of Arts degree, and from
the University of Michigan Law School in 1994 with a Juris Doctor degree. Mr.
White is a nephew of Mr. Olcott, our Chairman, CEO and President.
Staf van Cauter is the Vice President, Business Development of Packard
Instrument, a position he has held since April 1990. From 1989 to 1998, Mr. van
Cauter was also Vice President, Marketing of Packard Instrument. Mr. van Cauter
is currently responsible for identifying emerging technologies for the
development of new products. Mr. van Cauter graduated form the Higher Institute
of Technology in Mechelen, Belgium, in 1972 with a Master of Science degree in
Industrial Engineering.
Robert F. End is a Partner and a Director of Stonington Partners, Inc., a
position that he has held since 1993, and is also a Partner and a Director of
Stonington Partners, Inc. II, a position he has held since 1994. He has also
been a Director of Merrill Lynch Capital Partners, Inc., a private investment
firm associated with Merrill Lynch & Co., since 1993 and a consultant to Merrill
Lynch Capital Partners since 1994. Mr. End is also a Director of Goss Holdings,
Inc. and United Artists Theatre Circuit, Inc. and several privately held
corporations. Mr. End graduated from Dartmouth College in 1977 with a Bachelor
of Arts degree and from the Amos Tuck School of Business in 1982 with a Master's
degree in Business Administration.
Bradley J. Hoecker is a Partner and a Director of Stonington Partners,
Inc. and Stonington Partners, Inc. II, positions that he has held since 1997.
Prior to his election as a Partner, Mr. Hoecker served as a Principal of
Stonington Partners, Inc. since its formation in 1993. He also has been a
consultant to Merrill Lynch Capital Partners since 1994. Mr. Hoecker is also a
Director of Merisel, Inc. and several privately held corporations. Mr. Hoecker
graduated from Southern Methodist University in 1984 with a Bachelor of Arts
degree, and from the Kellogg Graduate School of Management in 1989 with a
Master's degree in Management.
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Alexis P. Michas is Managing Partner and a Director of Stonington
Partners, Inc., a position he has held since 1993, and is also Managing Partner
and Director of Stonington Partners, Inc. II, a position he has held since 1994.
Mr. Michas has also been a Director of Merrill Lynch Capital Partners since
1989, and a consultant to Merrill Lynch Capital Partners since 1994. Mr. Michas
is also a Director of Borg-Warner Automotive, Inc., Burns International Services
Corporation, Dictaphone Corporation, Goss Graphic Systems, Inc. and several
privately held corporations. Mr. Michas graduated from Harvard College in 1980
with a Bachelor of Arts degree, and from Harvard Business School in 1984 with a
Master's degree in Business Administration.
Robert C. Salisbury is a private investor and advisor in the healthcare
and technology industries. From 1995 to 1998, Mr. Salisbury served as the
Executive Vice President and Chief Financial Officer of Pharmacia & Upjohn, Inc.
From 1974 to 1995, Mr. Salisbury acted in various capacities, first as Vice
President, then as Senior Vice President, and then as Executive Vice President
for Finance and Chief Financial Officer of The Upjohn Company. Mr. Salisbury is
also a director of Viragen Inc. Mr. Salisbury graduated from Florida State
University in 1972 with a Master's degree in Business Administration.
Peter P. Tong became a Management Partner of Stonington Partners, Inc. in
December 1999 and is also the President of Mandarin Partners Management, LLC, an
investment partnership. Mr. Tong served as the Co-President of Marquette Medical
Systems, 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. Mr.
Tong is also a director of Dictaphone Corporation and several privately held
corporations. Mr. Tong graduated from Kansas State University in 1963 with a
Bachelor's degree in Electrical Engineering, and from the University of
Wisconsin in 1965 with a Master's degree in Electrical Engineering.
Compensation of Directors
Currently, we do not pay any compensation to directors. Upon completion of
the proposed Offering and the appointment of independent directors to our Board
of Directors, directors who are our employees, or otherwise affiliated with
management or Stonington, will receive no compensation for their service as
members of our Board or its committees. Directors who are not our employees will
receive compensation and stock options under plans we intend to adopt in
connection with the proposed Offering, as described below. We reimburse all
directors for expenses incurred in connection with attendance at meetings. See
"The Non-Employee Director Stock and Option Compensation Plan."
Committees of the Board of Directors
We currently have an Audit Committee that consists of Messrs. Hoecker and
End. In connection with an application to list our common stock on the Nasdaq
National Market, as part of the proposed Offering, we expect to change the
membership of our Audit Committee to consist of three directors who are not
otherwise our employees or affiliated with our management, including Mr.
Salisbury who will act as Chairman. The functions of the Audit Committee are to:
- recommend annually to our Board of Directors the appointment of our
independent auditors;
- discuss and review in advance the scope and the fees of our annual
audit and review the results thereof with our independent auditors;
- review and approve non-audit services of our independent auditors;
- review compliance with our existing major accounting and financial
reporting policies;
- review the adequacy of major accounting and financial reporting
policies; and
- review our management's procedures and policies relating to the
adequacy of our internal accounting controls and compliance with
applicable laws relating to accounting practices.
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Our Compensation Committee currently consists of Messrs. End, Olcott and
Michas. We anticipate that, upon completion of the proposed Offering or shortly
thereafter, at least a majority of our Compensation Committee will consist of
directors who are not otherwise our employees or affiliated with our management.
The functions of the Compensation Committee are to:
- review and approve annual salaries, bonuses, and grants of stock
options under (and otherwise administer) our Management Stock
Incentive Plan for all executive officers and key members of our
management team; and
- review and approve the terms and conditions of all employee benefit
plans, including those we plan to adopt in connection with the
Offering, or changes to these plans.
In addition, our Board of Directors may form an Executive Committee, which
will have the authority to exercise the powers of our Board of Directors, other
than those reserved to the Audit Committee, the Compensation Committee or to our
full Board of Directors, between meetings of our full Board of Directors.
Compensation Committee Interlocks and Insider Participation
During 1999, the Compensation Committee consisted of Mr. Olcott, Mr. End
and Mr. Michas. Mr. Michas resigned from the Board in June 1999 and was
reelected in March 2000. Executive compensation is determined in accordance with
existing employment agreements and related amendments thereto. Mr. End is a
member of the Compensation Committee of United States Manufacturing Company and
Obagi Medical Products, Inc. Mr. Tong is a director of both these companies.
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ITEM 11: EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth the compensation we paid to our Chief
Executive Officer and each of our four most highly-compensated executive
officers (other than the Chief Executive Officer) whose total compensation
exceeded $100,000 during the last fiscal year, for the year ended December 31,
1999.
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------- Compensation
------------
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary($) Bonus($) Options(#) (1)(2)(3) ($)
- --------------------------- ---- --------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Emery G. Olcott,..................................... 1999 $367,308 $170,000 -- $55,850
Chairman of the Board, Chief Executive Officer and 1998 $355,385 $375,000 -- $18,000
President 1997 $348,340 $135,000 700,000 $2,197,128
Richard T. McKernan,................................. 1999 $272,308 $131,500 -- $15,400
President, Packard 1998 $266,058 $200,000 -- $8,000
1997 $251,656 $65,200 700,000 $1,207,328
George Serrano,...................................... 1999 $177,308 $62,500 125,000 $10,600
President, Canberra 1998 $167,308 $150,000 -- $8,000
1997 $161,153 $70,000 375,000 $163,066
Ben D. Kaplan,....................................... 1999 $207,308 $83,000 -- $8,975
Vice President and Chief Financial Officer 1998 $197,308 $140,000 -- $8,000
1997 $172,004 $60,000 500,000 $144,750
Staf van Cauter,..................................... 1999 $188,846 $42,000 -- $8,000
Vice President, Packard 1998 $185,866 $52,000 -- $8,000
1997 $167,044 $27,000 150,000 $28,000
</TABLE>
- ----------
(1) The 1999 amounts consist of contributions made by Packard BioScience
Company pursuant to its defined contribution plan in the amount of $8,000
for each individual listed and payments made for personal tax consultation
services provided by our income tax advisors ($47,850 for Mr. Olcott,
$7,400 for Mr. McKernan, $2,600 for Mr. Serrano and $975 for Mr. Kaplan).
(2) The 1998 amounts consist of payments made for personal tax services
rendered by our income tax advisors ($10,000 for Mr. Olcott) and
contributions we made pursuant to our defined contribution plan in the
amount of $8,000 for each individual listed.
(3) The 1997 amounts consist of payments made upon the termination of our
Supplemental Executive Retirement Plan (Mr. Olcott received $1,369,726 and
Mr. McKernan received $799,927), special bonuses for efforts expended in
connection with the 1997 recapitalization transaction ($255,000 for Mr.
Olcott, $250,000 for Mr. McKernan, $115,000 for Mr. Serrano, $140,000 for
Mr. Kaplan and $20,000 for Mr. van Cauter), contributions we made pursuant
to our defined contribution plan ($8,000 each for Messrs. Olcott,
McKernan, Serrano 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 for Mr. Olcott, $146,601 for Mr. McKernan and
$37,266 for Mr. Serrano) and payments made for personal tax consultation
services rendered by our income tax advisors ($40,580 for Mr. Olcott,
$2,800 for Mr. McKernan and $2,800 for Mr. Serrano).
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Option/SAR Grants
The following table provides information on grants of stock options and
stock appreciation rights in 1999 to the executive officers listed in the
Executive Compensation table.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARS
Underlying Granted to Exercise or Grant Date
Options/SARS Employees Base Price Expiration Present
Name Granted (#)(1) in Fiscal Year ($/Share) Date Value ($)(2)
---- -------------- -------------- --------- ---- ------------
<S> <C> <C> <C> <C> <C>
George Serrano................. 125,000 5.61% $3.352 6/11/09 $196,500
</TABLE>
- ----------
(1) The terms of the stock options granted in 1999 provided that the $3.352
options become exercisable in 20% annual installments commencing with the
date of grant.
(2) The grant date present value was determined using the Black-Scholes model
of option pricing. The assumptions used in calculating the grant date
present value were as follows:
Expected volatility.................................................. 0
Risk-free rate of return............................................. 6.33%
Dividend yield....................................................... 0
Expected life........................................................ 10 years
Minimum option value................................................. $1.572
Option/SAR Exercises and Year-End Values
The following table provides information for the listed executive
officers, regarding the number and value of all their unexercised stock options
and stock appreciation rights, or SARs, at December 31, 1999.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options/SARS In-the-Money Options/SARS
At Fiscal Year End (#)(1) At Fiscal Year End ($)(1)(2)
------------------------- ----------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Emery G. Olcott............ 250,000 $679,650 660,000 90,000 $4,138,530 $ 592,470
Richard T. McKernan........ 0 $ 0 910,000 90,000 $6,172,514 $ 592,470
George Serrano............. 190,000 $516,534 410,000 160,000 $2,604,935 $ 940,580
Ben D. Kaplan.............. 0 $ 0 300,000 200,000 $1,974,900 $1,316,600
Staf van Cauter............ 95,955 $260,863 174,045 50,000 $1,216,908 $ 329,150
</TABLE>
- -----------
(1) Effective March 17, 2000, our Board of Directors vested all options
outstanding under our existing stock option plans.
(2) The value of unexercised in-the-money options at year end was determined
based upon the estimated value of our common stock as of December 31,
1999, as determined by applying financial reporting guidelines.
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Employment Agreements
We have entered into employment agreements with Messrs. Olcott, McKernan,
Serrano, Kaplan, and van Cauter. Set forth below is a summary of the material
provisions of the employment agreements with these individuals. These
descriptions are qualified in their entirety by reference to the provisions of
those employment agreements.
The employment agreements with Messrs. Olcott, McKernan, Serrano, Kaplan
and van Cauter, each of whom is referred to in this description as the
"executive," supersede any other agreement between any of them and Packard
BioScience Company concerning their employment. Mr. Olcott serves as Chairman of
the Board, Chief Executive Officer and President of Packard BioScience Company;
Mr. McKernan serves as Senior Vice President and a Director of Packard
BioScience Company, and as President of Packard Instrument Company; Mr. Serrano
serves as Vice President and a Director of Packard BioScience Company, and as
President of Canberra Industries; Mr. Kaplan serves as Vice President and Chief
Financial Officer of Packard BioScience Company; and Mr. van Cauter serves as
Vice President of Packard Instrument Company, or in such other capacity as may
be assigned to him by the Chief Executive Officer of Packard BioScience Company
or the President of Packard Instrument Company. 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 each calendar month following
the 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 we affirmatively terminate
it. 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 our annual bonus incentive plans then
in effect.
Upon termination of employment by us other than for "cause" or
"disability," or upon termination by the executive for "good reason," as such
terms are defined in the employment agreements, we will pay to the executive an
amount in cash equal to the sum of: the accrued annual base salary as of the
date of 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 defined as the "accrued
obligations"; annual base salary and annual bonus amounts for the remainder of
the employment period; and 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 (or, if such benefit plans are not available, a comparable cash
payment) 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, we will pay to the executive or to his respective beneficiaries, all
amounts that would have been due had such executive remained in our employ until
the end of his employment period. If employment is terminated for cause, Packard
BioScience 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, we 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 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 and van
Cauter) after employment ends or, if later, for one year (two years in the case
of Messrs. Serrano and van Cauter) after employment would have ended had it not
been terminated prior to the end of the employment term, each executive will not
solicit any of our employees or compete with us. In consideration for such
noncompetition covenant, we will pay to each executive one-half of the sum of
his annual base salary and his target annual bonus (100% in the case of Messrs.
Olcott and McKernan), such amount payable in equal monthly installments during
the portion of the noncompetition period following the date of termination.
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<PAGE>
Canberra Industries, Inc. Stock Option Plan of 1971
We adopted this plan in 1971 for the purpose of retaining and attracting
personnel for positions of responsibility with us or any of our subsidiaries.
Under the 1971 plan, as amended, we have 1,036,545 vested options as of February
29, 2000 exercisable at prices ranging from $0.6334 to $1.60, as fixed from time
to time by our Compensation Committee. The options granted under the 1971 plan
expire on the tenth anniversary of the date of grant.
In the event of a change in our capital structure, including as a result
of reorganization, merger, consolidation or recapitalization, our Compensation
Committee is required to adjust the number and kind of shares for which options
may be granted.
Our Board of Directors may at any time amend or terminate the 1971 plan,
except that no termination or amendment may impair the rights of the
participants as they relate to outstanding options. In connection with the
recapitalization of our company in 1997, the 1971 plan was frozen and no
additional options may be granted under the plan.
Management Stock Incentive Plan
At the closing of the 1997 recapitalization, we adopted the Management
Stock Incentive Plan, pursuant to which our and our subsidiaries' directors,
officers and key employees will, as "eligible participants," be granted
nonstatutory stock options exercisable into shares of our common stock. This
plan is not related to our 1971 plan. The 1997 plan is administered by either
our Compensation Committee or our Board of Directors. The Compensation Committee
or the Board has the discretion to select those to whom options under the plan
will be granted from among those eligible. The Board or the Compensation
Committee has the authority to interpret and construe the plan, and any such
interpretation or construction of the provisions of the plan or of any options
granted under the plan is final and conclusive.
Options to purchase up to 11,124,460 shares of our common stock are
permitted to be granted under the plan. Certain of these options are granted at
an exercise price equal to fair market value on the date of grant. Twenty
percent of these options vest immediately upon grant, with the remainder
becoming vested in equal annual installments over a four-year period, provided
that the eligible participant continues to be employed by us or one of our
subsidiaries. Effective March 17, 2000, our Board of Directors vested all
options outstanding under the 1997 plan. The remaining options, to be granted at
a premium of fair market value, become vested and fully exercisable upon the
date of grant. In the event of an "extraordinary transaction," such as a merger
or consolidation, of Packard BioScience Company or a reduction in Stonington's
equity ownership in our company to below 50%, all outstanding options will
become fully vested upon consummation of the extraordinary transaction.
The terms and conditions of a new option grant under the plan are set
forth in a related option agreement. Options granted under the plan will
terminate upon the earliest to occur of (1) the tenth anniversary of the date of
the option agreement; (2) the date on which we acquire any shares of our common
stock or options granted under the plan or the 1971 plan, in each case, held by
an eligible participant, in connection with the exercise of a "put right" under
the Stockholders' Agreement described under "Related Party
Transactions--Stockholders' Agreement"; (3) the 180-day anniversary of the date
of death or "disability" or nine months after "retirement," as such terms are
defined in the Stockholders' Agreement, of the eligible participant; (4) the
30-day anniversary of the date that the eligible participant ceases to be a
full-time employee of us or one of our subsidiaries for any reason other than as
set forth in (3) above or in (5) below; and (5) 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 exercise price of options granted under
the 1997 plan must be made in cash.
If we repurchase options granted under the plan pursuant to the put and
call rights set forth in the Stockholders' Agreement, the shares covered by
those options will again be available for grant under the plan. In the event of
a 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 our common stock or like
event, the number or character of the shares subject to the option or the
exercise price of any such option may be appropriately adjusted as deemed
appropriate by our Compensation Committee or our Board.
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<PAGE>
The plan terminates upon, and no options may be granted under the plan
after, March 4, 2007, which is the tenth anniversary of the closing of the 1997
recapitalization, unless the plan has sooner terminated due to grant and full
exercise of options covering all the shares of common stock available for grant
under the plan. Our Board may at any time amend, suspend or discontinue the
plan, except that it may not alter, amend, discontinue or revoke or otherwise
impair any outstanding options granted under the plan and which remain
unexercised in a manner adverse to the holders of those options except if the
written consent of the holder is obtained.
We expect that, upon adoption of the new plans we intend to implement in
connection with the Offering discussed below, the 1997 plan will be frozen and
no additional options will be granted under the plan.
The Non-Employee Director Stock and Option Compensation Plan
In connection with the Offering, we intend to adopt and approve a
Non-Employee Director Stock and Option Compensation Plan. The purpose of this
plan will be to promote a greater identity of interests between our non-employee
directors and our stockholders and to attract and retain individuals to serve as
directors. The main material terms of this plan are summarized below.
General
The plan will be administered by our Board of Directors or a committee of
our Board of Directors designated for this purpose.
Our directors, who are neither our employees nor affiliates of Stonington,
will be eligible to participate in the plan as of the date of the pricing of the
Offering.
Our Board of Directors or its designated committee may adjust the awards
under the plan if there is any change in corporate capitalization, such as a
stock split, or a corporate transaction, such as a merger, consolidation,
separation, including a spin-off, or other distribution of our stock or
property, any reorganization or any partial or complete liquidation. Any option
that expires, is forfeited or is repurchased by us will again be available for
grant under the plan.
Common Stock
Each non-employee director may be permitted to make an annual irrevocable
election to receive shares of common stock in lieu of all, or a portion, of such
director's fees. The number of shares of common stock granted to each
non-employee director will be equal to the appropriate percentage of fees
payable to the director in each calendar quarter, divided by the fair market
value of a share of common stock on the last business day of the calendar
quarter. We will round the number of shares granted to the director down to the
nearest whole share of common stock and pay cash for the value of any fractional
share. Each director may defer the receipt of his or her cash payments into an
interest-bearing cash account and/or his or her elected or mandatory shares of
common stock into a share account which will be credited with additional shares
having a value equal to the dividends that would be paid on the shares credited
to the share account, if they were outstanding. When the director leaves our
Board of Directors or, if earlier, upon a change of control, the amount of cash
in his or her cash account, plus a number of shares of common stock equal to the
number of shares in his or her share account will be delivered to the director,
with cash being paid in lieu of any fractional shares.
Options
Each new non-employee director will be granted options for 15,000 shares
of common stock upon being elected or appointed to our Board of Directors and
upon being re-elected after each three-year term. The exercise price for all
options will be 100% of the fair market value of a share of common stock on the
date of the grant of such option, except that options granted before or upon
consummation of the Offering will be granted at the initial public offering
price. Each option will vest and become exercisable in equal installments on
each of the first three anniversaries of the date of grant of such option, if
the director remains a member of our Board of Directors at that time. Each
vested option will terminate one year after the director's service on our Board
of Directors ceases for any reason, other than for cause. If a director is
removed for cause, all vested and unvested options will be forfeited. However,
the options will expire no later than the tenth anniversary of the date
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<PAGE>
of grant. Any unvested options will terminate and be canceled as of the date a
director's service on our Board of Directors ceases for any reason. All
directors' options become fully vested and exercisable upon a change in control.
Transferability
Grants and awards under the plan will be nontransferable other than by
will or the laws of descent and distribution, or at the discretion of our Board
of Directors or the designated committee, by a written beneficiary designation
and, in the case of an option, by a gift to the director's immediate family.
This gift may be made directly to an immediate family member, or by means of a
trust or partnership or limited liability company. During the director's
lifetime, a director's option may be exercised only by the director, any such
permitted transferee or a guardian, legal representative or beneficiary.
Amendments
Our Board of Directors may at any time terminate or amend the plan, except
that no termination or amendment may impair the rights of directors relating to
outstanding options or awards. To the extent required by law or automated
quotation system rule, no amendment will be made without the approval of our
stockholders.
The 2000 Stock Incentive Plan
In connection with the Offering, we intend to adopt a new stock incentive
plan. This plan is designed to promote our success and enhance our value by
linking the interests of our officers, employees and consultants to those of our
stockholders and by providing participants with an incentive for outstanding
performance. This plan is further intended to provide flexibility in its ability
to motivate, attract and retain employees upon whose judgment, interest and
special efforts our business is largely dependent. Our officers, employees and
consultants, including employees who are members of our Board of Directors, and
officers, employees and consultants of our subsidiaries and affiliates are
eligible to participate in this plan. Non-employee directors are not eligible to
participate in the 2000 plan. This plan is intended to remain in effect until
2010. The description below summarizes the material terms of this plan.
General
The 2000 plan will be administered by the Compensation Committee of our
Board of Directors, or another committee designated by our Board of Directors,
and provides for the grant of stock options, both non-qualified and incentive
stock options and other types of equity-based awards.
The 2000 plan will provide for a maximum number of shares of common stock
available for grant each year based on a percentage of the aggregate number of
shares outstanding. In addition, the number of shares that may be granted to
each individual participant under the 2000 plan will be limited for each
calendar year.
The term of options granted under the 2000 plan may not exceed 10 years.
Unless otherwise determined by our Compensation Committee, options will vest
ratably on each of the first four anniversaries after the grant date and will
have an exercise price equal to the fair market value of the common stock on the
date of grant. Options granted under the 2000 plan may be incentive stock
options and qualified stock options.
A participant exercising an option may pay the exercise price in cash or,
if approved by our Compensation Committee, with previously acquired shares of
common stock or in a combination of cash and stock. Our Compensation Committee,
in its discretion, may allow the cashless exercise of options.
Options are nontransferable other than by will or the laws of descent and
distribution or, at the discretion of our Compensation Committee, by a written
beneficiary designation and, in the case of a nonqualified option, by a gift to
members of the holder's immediate family. The gift may be made directly or
indirectly or by means of a trust or partnership or limited liability company
and, during the participant's lifetime, may be exercised only by the
participant, any such permitted transferee or a guardian, legal representative
or beneficiary.
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At the time of the Offering, we expect to grant options to purchase up to
900,000 shares of common stock under the 2000 plan at an exercise price equal to
the initial public offering price. Any option that expires, is forfeited or
repurchased by us will again be available for grant under the plan.
Other Awards
The 2000 plan will allow for the grant of stock appreciation rights, or
SARs, alone or in tandem with options. An SAR permits a participant to receive,
upon exercise, cash or shares of common stock, or a combination thereof, as
determined by our Board of Directors or our Compensation Committee. The amount
of cash or the value of the shares is equal to the excess of the fair market
value of a share of common stock on the date of exercise over the SAR exercise
price, multiplied by the number of shares with respect to which the SAR is
exercised. The 2000 plan also will allow for the grant of restricted stock, the
vesting of which is subject to the achievement of performance goals or continued
service. Performance awards may be granted subject to performance goals and/or
service-based restrictions, and will be denominated and payable in cash or
shares of common stock or a combination as determined by our Board of Directors
or our Compensation Committee. Dividend and interest equivalents with respect to
awards and other awards based on the value of common stock may also be granted.
Change in Control
In the event of a change in control, or in the event of involuntary
termination of the optionee's employment within two years after a change of
control, any option or SAR that is not then exercisable and vested will become
fully exercisable and vested and remain exercisable for the option term,
restrictions on restricted stock will lapse and performance units will be deemed
earned. Change in control generally means: the acquisition of an amount of
common stock greater than the amount held, directly or indirectly, by Stonington
and representing at least 30% of the outstanding common stock or voting
securities; a change in the majority of the members of the Board of Directors,
unless approved by the incumbent directors or Stonington; the completion of a
merger involving our company in which, among other things, our stockholders do
not retain more than 50% of the common stock and voting power; or approval by
our stockholders of a liquidation, dissolution or sale of substantially all of
our assets.
Deferrals
The 2000 plan will allow our Board of Directors or Compensation Committee
to establish procedures for the deferral of the delivery of shares or cash
pursuant to awards made under the plan.
Amendments
Our Board of Directors may at any time amend or terminate the 2000 plan
and may amend the terms of any outstanding option or other award, except that no
termination or amendment may impair the rights of the participants as they
relate to outstanding options or awards. However, no such amendment to the 2000
plan will be made without the approval of our stockholders to the extent such
approval is required by law or stock exchange rule.
The Employee Stock Purchase Plan
In connection with the Offering, we intend to adopt an employee stock
purchase plan. The purpose of this plan is to further our long-term stability
and financial success by providing a method for employees to increase their
ownership of common stock. Under the purchase plan, shares of common stock will
be available for issuance and sale. Unless sooner terminated at the discretion
of our Board of Directors, the purchase plan will terminate on December 31,
2010.
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Eligibility
All of our employees and all of the employees of designated subsidiaries
generally will be eligible to participate in the purchase plan, other than
employees whose customary employment is 20 hours or less per week or is for not
more than five months in a calendar year, or who are ineligible to participate
due to restrictions under the Internal Revenue Code, and subject to compliance
with applicable U.S. and foreign securities laws.
General Description
A participant in the purchase plan may authorize regular salary deductions
at a maximum of 15% and a minimum of 1% of base compensation. The fair market
value of shares which may be purchased by any employee during any calendar year
may not exceed $25,000. The amounts so deducted and contributed will be applied
to the purchase of full shares of common stock, under options to purchase shares
at 85% of the lesser of the fair market value of such shares on the date of
purchase or on the offering date for such offering period. The offering dates
will be January 1 and July 1 of each purchase plan year, and each offering
period shall consist of one six-month purchase period. Any offering period,
however, beginning in 2000 would be commenced after July 1, and would be for
less than a six-month period. Shares will be purchased for participating
employees on the last business days of June and December for each purchase plan
year and each such participant will have the rights of a stockholder with
respect to such shares. Participants may decrease their payroll deductions at
any time but not more than once during any offering period.
Participants may increase or decrease their payroll deductions for any
subsequent offering period by notifying the purchase plan administrator no later
than 15 days prior to such offering period. Participants may also withdraw from
participation in the purchase plan at any time on or prior to the 15th day of
the last month of the offering period. If a participant withdraws from the
purchase plan, any contributions that have not been used to purchase shares will
be refunded. A participant who has withdrawn may not participate in the purchase
plan again until the next offering period.
In the event of retirement or other termination of employment before the
15th day of the last month in the offering period, any contributions that have
not yet been used to purchase shares will be refunded and a certificate issued
for the full shares in the participant's account. In the event of a
participant's death, any contributions that have not yet been used to purchase
shares and all shares in such participant's account will be delivered to the
participant's beneficiary designated in writing and filed with us, or, if no
beneficiary has been designated or survives the participant, to the
participant's estate. Any payroll deductions that have not been used to purchase
shares will be returned to the participant after the end of the applicable
offering period.
Amendments or Termination of the Purchase Plan
Our Board of Directors may amend the purchase plan in any respect,
although our stockholders must approve any amendment that would increase the
number of securities that may be issued under the purchase plan or would cause
the plan to fail to qualify for beneficial tax treatment under Section 423 of
the Internal Revenue Code. Our Board of Directors may suspend or terminate the
purchase plan at any time. However, in the event of a termination while an
offering period is in progress, our Compensation Committee may return
accumulated payroll deductions or shorten the offering period by setting a new
date of purchase.
Shares Reserved Under New Plans
A total of 7,000,000 shares of our common stock have been reserved for
issuance under the stock incentive, non-employee director compensation and
employee stock purchase plans we intend to adopt in connection with the
Offering.
76
<PAGE>
ITEM 12: SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock, including the percentage of total
voting power, as of March 17, 2000, on an actual basis and as adjusted to
reflect completion of the Offering, by:
- each of our executive officers;
- each director;
- each holder known to us to hold beneficially more than 5% of our
common stock; and
- all current directors and executive officers as a group.
Except as otherwise indicated in the footnotes below, each beneficial
owner has the sole power to vote and to dispose of all shares held by that
holder. You should keep the following points in mind as you read the information
in the table.
- The amounts and percentage of our common stock beneficially owned by
a holder are reported on the basis of the regulations of the SEC
that govern the determination of beneficial ownership of securities.
Under these regulations, a person or group of persons is deemed to
be a "beneficial owner" of a security if that person or group has or
shares "voting power," which includes the power to vote or to direct
the voting of the security, or "investment power," which includes
the power to dispose of or to direct the disposition of the
security. A person or group of persons is also deemed to be a
beneficial owner of any securities with respect to which that person
or group has a right to acquire beneficial ownership within 60 days
of March 17, 2000. Under these rules, more than one person may be
deemed a beneficial owner of the same security and a person may be
deemed to be a beneficial owner of securities as to which that
person has no economic interest.
- The percentage of our common stock outstanding is based on the
55,632,620 shares of our common stock outstanding as of March 17,
2000, including shares of common stock deemed outstanding pursuant
to the definition of beneficial ownership in the preceding
paragraph. These shares are deemed to be outstanding when computing
the percentage of ownership of each person or group of persons named
above, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person or group.
<TABLE>
<CAPTION>
Beneficial Ownership of
Common Stock
------------
Name and Address of Beneficial Owner* Shares (1) % (2)
- ------------------------------------- ---------- -----
<S> <C> <C>
Stonington Capital Appreciation 1994 Fund, L.P. (3).................. 31,955,605 57.4
Emery G. Olcott (4)(12).............................................. 2,606,155 4.7
Richard T. McKernan (5)(12).......................................... 1,640,095 3.0
George Serrano (6)(12)............................................... 1,004,070 1.8
Ben D. Kaplan (7).................................................... 520,000 **
Timothy O. White, Jr. (8)............................................ 194,125 **
Robert F. End (9).................................................... 0 --
Bradley J. Hoecker (9)............................................... 0 --
Alexis P. Michas (9)................................................. 0 --
Peter P. Tong (9)(10)................................................ 162,350 **
All directors and executive officers as a group (9 persons) (9)(11).. 6,126,795 11.0
</TABLE>
77
<PAGE>
- ----------
* The address for all of the members of our management and for Peter P. Tong
is: 800 Research Parkway, Meriden, Connecticut 06450. Refer to (3) below
for additional address information.
** Less than 1%.
(1) 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 are exercisable by May 17, 2000. In addition,
the amounts reflect the accelerated vesting of all unvested options
outstanding under our existing stock option plans resulting in all of them
becoming 100% vested, effective March 17, 2000.
(2) Amounts are based upon 47,414,125 shares of common stock outstanding and
8,218,495 options exercisable as of March 17, 2000.
(3) Stonington Capital Appreciation 1994 Fund, L.P. is the record holder of
30,898,890 shares of common stock. The Stonington fund also controls, but
disclaims beneficial ownership of, an additional 1,056,175 shares
purchased by two institutional investors pursuant to the Stockholders'
Agreement. The Stonington 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.
Stonington Partners, L.P., a Delaware limited partnership, is the general
partner in the Stonington fund with a 1% economic interest. Except for
such economic interest, Stonington Partners, L.P. disclaims beneficial
ownership of the shares set forth above. Stonington Partners, Inc. II is
the general partner of, with a 1% economic interest in, Stonington
Partners, L.P. Except for such economic interests, Stonington Partners,
Inc. II disclaims beneficial ownership of the shares set forth above.
Pursuant to a management agreement with the Stonington fund, Stonington
Partners, Inc. has full discretionary authority with respect to the
investments of the Stonington fund, including the authority to make and
dispose of such investments. Furthermore, Stonington Partners, Inc. has a
1% economic interest in Stonington Partners, L.P. Stonington Partners,
Inc. 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.
(4) Includes shares held by Mr. Olcott's spouse and in trust for one of his
children. Includes 565,000 shares subject to options which are exercisable
by May 17, 2000.
(5) Includes shares held by Mr. McKernan's spouse and the McKernan Family
Partnership. Includes 700,000 shares subject to options which are
exercisable by May 17, 2000.
(6) Includes 500,000 shares subject to options which are exercisable by May
17, 2000.
(7) Includes 500,000 shares subject to options which are exercisable by May
17, 2000.
(8) Includes shares held by Mr. White's wife, children and trust to which Mr.
White is beneficiary. Includes 50,000 shares subject to options which are
exercisable by May 17, 2000.
(9) Excludes shares held by the Stonington fund of which Mr. End, Mr. Hoecker,
Mr. Tong and Mr. Michas may be deemed to be beneficial owners as a result
of their ownership of stock in, and/or membership on the Boards of
Directors of, Stonington Partners, Inc. and Stonington Partners, Inc. II,
but they disclaim such beneficial ownership.
(10) Includes 50,000 shares subject to options which are exercisable by May 17,
2000.
(11) Includes shares held by certain family members, trusts and similar
entities. Includes 2,365,000 shares subject to options which are
exercisable by May 17, 2000.
78
<PAGE>
(12) Gives effect to a gift Messrs. Olcott, McKernan and Serrano and Messrs.
Orren Tench and Daniel Meert have agreed to make, in the aggregate, of
113,700 shares of their own common stock (50,000 shares by Mr. Olcott,
18,425 shares each by Messrs. McKernan and Tench and 13,425 shares each by
Messrs. Serrano and Meert), or 100 shares per employee, to substantially
all of our employees who do not currently own shares or options to
purchase shares of our common stock, subject to compliance with applicable
U.S. and foreign securities laws.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders' Agreement
In 1997, Packard BioScience Company, Stonington, three institutional
investors, certain members of our management and certain others of our
stockholders who did not sell their shares in the recapitalization entered into
a Stockholders' Agreement which contains, among other terms and conditions,
provisions relating to corporate governance, restrictions with respect to the
transfer of common stock, rights related to puts and calls, and registration
rights granted by us with respect to our common stock.
Pursuant to the terms of the Stockholders' Agreement, each party agreed to
elect an initial slate of directors of Packard BioScience Company who had been
nominated by Stonington, on condition that the initial slate consist of three
management stockholders, four designees of Stonington and two independent
directors mutually agreed upon by Stonington and our chief executive officer.
Now that the initial slate of directors has been elected, Stonington has the
right to nominate at any time and from time to time all of our directors,
including the right to reduce, expand and fill vacancies on our Board, and,
subject to applicable law, has the right to remove such directors at any time
and from time to time, and the other parties have agreed to vote in favor of
such nomination or removal of directors.
Under the Stockholders' Agreement, each party is, subject to certain
limitations, entitled to register shares of common stock in connection with a
registration statement prepared by us to register common equity beneficially
owned by Stonington. Stonington has the right to require us to take such steps
as necessary to register all or part of the common stock held by Stonington
under the Securities Act pursuant to the provisions of the Stockholders'
Agreement. After the Offering, each party other than Stonington will have the
right on one occasion to require us to register shares of common stock held by
such party 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 in connection with the registration of
common stock subject to such agreement.
The Stockholders' Agreement contains provisions relating to tag-along,
drag-along, put and call rights of the stockholders, all of which will terminate
upon consummation of the Offering. Pursuant to the Stockholders' Agreement,
following the Offering, the management stockholders and the stockholders who did
not sell their shares in the recapitalization will be able to transfer their
shares subject to applicable restrictions under the Securities Act and other
federal and state securities laws.
Other Related Party Transactions
In connection with the 1997 recapitalization, Stonington Partners, Inc.,
the management company of our controlling stockholder, received a structuring
fee and reimbursement for certain out-of-pocket expenses totaling $2.6 million
in the aggregate.
In connection with the proposed Offering, Messrs. Olcott, McKernan and
Serrano and Messrs. Orren Tench and Daniel Meert have agreed to transfer an
aggregate of 113,700 shares of their own common stock, or 100 shares per
employee, to substantially all of our employees who do not currently own shares
or options to purchase shares of our common stock, subject to compliance with
applicable U.S. and foreign securities laws.
79
<PAGE>
We paid Robert W. Baird & Co. Incorporated fees and expenses of $3,069,000
in 1997 in connection with the 1997 Recapitalization. In 1998, we paid Robert W.
Baird & Co. Incorporated a fee of $50,000 for financial advisory services. In
addition, Baird Capital Partners II Limited Partnership and BCP II Affiliates
Fund Limited Partnership, affiliates of Robert W. Baird & Co. Incorporated, own
an aggregate of 1,573,030 shares of our common stock which they acquired from us
in June 1997 for a total price of approximately $3.5 million.
80
<PAGE>
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 of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Income (Loss) for the Years Ended
December 31, 1997, 1998 and 1999
Consolidated Statements of Comprehensive Income (Loss) for the Years
Ended December 31, 1997, 1998 and 1999
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997, 1998 and 1999
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
Report of Independent Public Accountants on Financial Statement
Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves for the
Three-Year Period Ended December 31, 1999
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 (or documents filed previously by the Company under the Securities
Exchange Act of 1934). 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
3.2 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
81
<PAGE>
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 (the "Credit Agreement")(4.4)
4.5 Waiver and First Amendment, dated as of November 25,
1997, to the Credit Agreement*
4.6 Waiver to Credit Agreement and Guarantee and Collateral
Agreement, dated as of February 11, 1998*
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
4.9 Third Amendment, dated as of October 8, 1999, to the
Credit Agreement**
4.10 Fourth Amendment, dated as of February 8, 2000, 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. (the "Stockholders' Agreement") (10.7)
10.4 Amendment No. 1, dated as of June 2, 1997, to the
Stockholders' Agreement*
10.5 Amendment No. 2, dated as of January 27, 1998, to the
Stockholders' Agreement
10.6 Amendment No. 3, dated as of March 31, 1998, to the
Stockholders' Agreement
10.7 Employment Agreement, dated as of March 4, 1997, by and
between the Company and Emery G. Olcott (10.3)
10.8 Employment Agreement, dated as of March 4, 1997, by and
between the Company and Richard T. McKernan (10.4)
10.9 Employment Agreement by and between the Company and
George Serrano (10.8)
10.10 Employment Agreement by and between the Company and Staf
van Cauter (10.9)
10.11 Employment Agreement by and between the Company and
Orren K. Tench, Jr. (10.10)
10.12 Employment Agreement by and between the Company and Ben
D. Kaplan***
10.13 First Amendment to Employment Agreement by and between
the Company and Ben D. Kaplan
21 List of subsidiaries of the Company
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
82
<PAGE>
- ----------
*Filed with the Company's Form 10-K for the year ended December 31, 1997.
**Filed with the Company's Form 10-Q for the period ended September 30,
1999.
***Filed with the Company's Form 10-Q for the period ended June 30, 1997.
(b) Reports on Form 8-K:
The Company has not filed any reports on Form 8-K during the quarter ended
December 31, 1999.
83
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 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 30, 2000.
PACKARD BIOSCIENCE COMPANY
Date: March 30, 2000 By: /s/ Emery G. Olcott
-------------------------------------
Emery G. Olcott
Chairman of the Board, Chief
Executive Officer and President
Date: March 30, 2000 By: /s/ Ben D. Kaplan
-------------------------------------
Ben D. Kaplan
Vice President and Chief
Financial Officer
Date: March 30, 2000 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 30, 2000 By: /s/ Richard T. McKernan
-------------------------------------
Richard T. McKernan
Senior Vice President and Director
President, Packard
Date: March 30, 2000 By: /s/ George Serrano
-------------------------------------
George Serrano
Vice President and Director
President, Canberra
Date: March 30, 2000 By: /s/ Robert F. End
-------------------------------------
Robert F. End
Director
Date: March 30, 2000 By: /s/ Bradley J. Hoecker
-------------------------------------
Bradley J. Hoecker
Director
84
<PAGE>
Date: March 30, 2000 By: /s/ Alexis P. Michas
-------------------------------------
Alexis P. Michas
Director
Date: March 30, 2000 By: /s/ Robert C. Salisbury
-------------------------------------
Robert C. Salisbury
Director
Date: March 30, 2000 By: /s/ Peter P. Tong
-------------------------------------
Peter P. Tong
Director
No annual report or proxy material has been sent to the Company's security
holders.
85
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Packard BioScience Company:
We have audited in accordance with auditing standards generally accepted
in the United States, the consolidated balance sheets of Packard BioScience
Company and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of income (loss), comprehensive income (loss),
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1999, included in this Form 10-K, and have issued our
report thereon dated February 14, 2000, except for Note 15 as to which the date
is March 21, 2000. 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 89 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. This 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 14, 2000
86
<PAGE>
SCHEDULE II
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEAR PERIOD ENDED DECEMBER 31, 1999
<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, 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
For the year ended December 31, 1999:
Reserves which are deducted in the balance sheet
from assets to which they apply
Reserves for uncollectible amounts................ $635,154 $178,095 -- $163,342 $649,907
</TABLE>
- ----------
(a) Represents reserves recorded at dates of acquisition.
87
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PACKARD BIOSCIENCE COMPANY
PACKARD BIOSCIENCE COMPANY, a corporation incorporated under the General
Corporation Law of Delaware (the "Corporation"), hereby amends and restates its
Certificate of Incorporation, which was originally filed with the Secretary of
State on August 8, 1975 under the name Canberra Industries, Inc., as follows:
FIRST: The name of the corporation is Packard BioScience Company.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle;
and the name of the registered agent of the Corporation is the State of Delaware
at such address is Corporation Service Company.
THIRD: A. The nature of the business to be conducted and the purposes to
be promoted by the Corporation are as follows:
1. To engage in the development, manufacture, use, sale, purchase,
and distribution of electronic or mechanical equipment, products, instruments
and machinery.
2. To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
B. The Corporation shall have all powers granted by law and all
powers granted under the General Corporation Law of the State of Delaware.
FOURTH: A. The total number and classes of shares of stock which the
Corporation shall have authority to issue is (a) Two Hundred Million
(200,000,000) shares of Common Stock, all of which are $.002 par value and (b)
One Million (1,000,000) shares of Preferred Stock, all of which are $.01 par
value.
B. Shares of Preferred Stock may be issued from time to time in one
or more series. The Board of Directors is hereby authorized to fix the voting
rights, if any, designations, preferences and the relative, participating,
optional or other rights, if any, and the qualifications, limitations or
restrictions thereof, of any unissued shares of Preferred Stock; and to fix the
number of shares constituting such series, and to increase or decrease the
number of shares of any such series (but not the number of shares thereof then
outstanding).
C. There shall be no preemptive rights granted to any stockholder.
D. There shall be no cumulative voting rights granted to any
stockholder.
E. Each share of the Corporation's Common Stock, par value $.01 per
share, issued and outstanding or held in the treasury of the Corporation
immediately prior to the time when this Amended and Restated Certificate of
Incorporation shall have become effective is,
<PAGE>
without any action on the part of the respective holders thereof, subdivided and
reclassified as five (5) fully paid and nonassessable shares of Common Stock,
par value $.002 per share, and at the close of business on such date, each
holder of record of Common Stock shall, without further action, be and become
the holder of four (4) additional shares of Common Stock for each share of
Common Stock held of record immediately prior thereto.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed by,
or in the manner provided in, the By-Laws. The phrase "whole Board" and the
phrase "total number of directors" shall be deemed to have the same meaning, to
wit, the total number of directors which the Corporation would have if there
were no vacancies. No election of directors need be by written ballot.
2. The original By-Laws of the Corporation shall be adopted by the
incorporator unless the Certificate of Incorporation shall name the initial
Board of Directors therein. Thereafter, the power to make, alter, or repeal the
By-Laws, and to adopt any new By-Law, except a By-Law classifying directors for
election for staggered terms, shall be voted in the Board of Directors.
3. Whenever the Corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever the
Corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under the
provisions of the Certificate of Incorporation shall entitle the holder thereof
to the right to vote at any meeting of stockholders except as the provisions of
paragraph (b) (2) of Section 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of any such class
which is otherwise denied voting power shall entitle the holder thereof to vote
upon the increase or decrease in the number of authorized shares of said class.
SEVENTH: 1. The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in another capacity while holding such office, and
shall continue as to a person who had ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
-2-
<PAGE>
2. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director in his capacity as a director; provided, however, that a director shall
be liable to the extent provided by applicable law (i) for the breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
3. Expenses incurred by an officer or director of the Corporation in
defending a civil or criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such officer or
director to repay such amount if it shall be ultimately determined that such
officer or director is not entitled to be indemnified by the Corporation as
authorized by the Delaware General Corporation Law. Such expenses incurred by
other employees and agents of the Corporation may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
4. No amendment to or repeal of this Article SEVENTH shall apply to
or have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal, nor shall any such amendment or
repeal have any adverse effect on the right to indemnification or the obligation
of the Corporation to pay in advance expenses incurred by an officer or director
of the Corporation in defending any action, suit or proceeding arising out of or
with respect to any acts or omissions occurring prior to such amendment or
repeal.
EIGHTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article EIGHTH.
-3-
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation, which restates and integrates and further amends the provisions
of the Amended and Restated Certificate of Incorporation of this Corporation,
and which has been duly adopted in accordance with Sections 242 and 245 of the
Delaware General Corporation Law has been executed by its duly authorized
officer and attested this ___ day of March, 2000.
Attest: PACKARD BIOSCIENCE COMPANY
_______________________________ By:______________________________________
Timothy O. White, Jr. Emery G. Olcott
Secretary President and Chief Executive Officer
STATE OF CONNECTICUT )
) ss. Meriden
COUNTY OF NEW HAVEN )
On this ____ day of March, 2000, before me, the undersigned officer,
personally appeared Emery G. Olcott, who acknowledged himself to be the
President of Packard BioScience Company, a Delaware corporation, and that he as
such officer, being authorized so to do, executed the foregoing instrument for
the purposes therein contained, by signing the name of the corporation by
himself as such officer, and the said Emery G. Olcott acknowledged said
instrument to be the act and deed of said corporation, that his signing is his
act and deed and that the facts stated therein are true.
IN WITNESS WHEREOF, I hereunto set my hand.
--------------------------------------
Notary Public
My Commission Expires:
-4-
FOURTH AMENDMENT
FOURTH AMENDMENT (this "Fourth Amendment"), dated as of February 8,
2000, to the Credit Agreement, dated as of March 4, 1997, as modified by the
Waiver and First Amendment dated as of November 25, 1997, the Waiver dated as of
February 11, 1998, the Waiver and Second Amendment dated as of May 27, 1998, the
Waiver dated as of November 13, 1998 and the Third Amendment dated as of October
8, 1999 (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"), BANC OF AMERICA
SECURITIES LLC and CIBC OPPENHEIMER 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, N.A., as administrative agent.
W I T N E S S E T H :
WHEREAS, Packard has requested that the Lenders agree to amend the
Credit Agreement upon the terms and subject to the conditions set forth herein;
and
WHEREAS, the Lenders have agreed to such amendment 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. Amendments to Section 1.1. (a) The definition of "Applicable
Margin" set forth in Section 1.1 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"Applicable Margin": (a) in the case of Revolving Credit Loans, the
per annum rate determined pursuant to the Pricing Grid, (b) in the case of
Term Loans that are Base Rate Loans, 2-1/4% per annum, and (c) in the case
of Term Loans that are Eurodollar Loans, 3-1/4% per annum.
(b) Section 1.1 of the Credit Agreement is hereby amended by adding
the following new definition in the appropriate alphabetical order:
"CCP Earn-Out Payments": payments made by Packard or any of its
Subsidiaries in connection with the acquisition by Packard or any of its
Subsidiaries of the portion of the Capital Stock of Carl Consumable
Products LLC ("CCP") not already owned by it in an amount not to exceed
25% of the amount by which operating profit of CCP (determined in
accordance with the documentation entered into in connection with such
acquisition as originally in effect) exceeds $530,000, for each of the
fiscal years from 2000 through 2004.
3. Amendment to Section 5.7(d). The percentage "3-3/4%" set forth in
Section 5.7(d) of the Credit Agreement is hereby changed to "4-1/4%".
<PAGE>
2
4. Amendment to Section 8.2(c). Section 8.2(c) of the Credit
Agreement is hereby amended by adding the following parenthetical immediately
after the words "45 days after the end of each fiscal year of Packard" contained
therein:
"(or, in the case of Projections for the 2000 fiscal year, no later than
April 15, 2000)"
5. Amendments to Section 9.8(g). (a) Section 9.8(g) of the Credit
Agreement is hereby amended by (a) changing the amount "$70,000,000" to the
amount "$85,000,000".
(b) Section 9.8(g) of the Credit Agreement is hereby amended by
adding the following sentence to the end thereof.
"In addition to the foregoing, the CCP Earn-Out Payments shall be
permitted, and shall not count as utilization of any of the basket amounts
set forth in this paragraph."
6. Pricing Grid. The Pricing Grid is hereby amended and restated in
its entirety as follows:
<TABLE>
<CAPTION>
===============================================================================================================
Consolidated Leverage Ratio Applicable Margin Applicable Margin for Commitment Fee Rate
for Eurodollar Loans Base Rate Loans
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than or equal to
4.50:1.00 2.875% 1.875% 0.500%
- ---------------------------------------------------------------------------------------------------------------
Greater than or equal to
4.00:1.00, but less than
4.50:1.00 2.250% 1.250% 0.375%
- ---------------------------------------------------------------------------------------------------------------
Greater than or equal to
2.50:1.00, but less than 4.00 1.750% 0.750% 0.300%
- ---------------------------------------------------------------------------------------------------------------
Less than 2.50:1.00 1.250% 0.250% 0.250%
===============================================================================================================
</TABLE>
7. Conditions to Effectiveness. This Fourth Amendment shall become
effective (the actual date of such effectiveness, the "Fourth Amendment
Effective Date") as of the date first above written when (a) counterparts hereof
shall have been duly executed and delivered by the Required Lenders, Packard and
the Administrative Agent and acknowledged by each Subsidiary Guarantor and (b)
Packard shall have paid to the Administrative Agent for distribution to the
relevant Lenders an amendment fee (the "Amendment Fee") equal to 0.125% of the
sum of the Revolving Credit Commitment and Term Loans of each Lender that has
submitted an executed signature page to this Amendment by facsimile transmission
to the Administrative Agent or its counsel prior to 12:00 Noon, California time,
on February 15, 2000.
8. Representations. Packard represents and warrants that:
(a) this Fourth Amendment has been duly authorized, executed and
delivered by Packard;
(b) each of this Fourth Amendment, and the Credit Agreement as
amended by this Fourth Amendment, constitutes the legal, valid and binding
obligation of Packard;
<PAGE>
3
(c) each of the representations and warranties set forth in Section
6 of the Credit Agreement are true and correct as of the Fourth 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 Fourth Amendment; and
(d) after giving effect to this Fourth Amendment, there does not
exist any Default or Event of Default.
9. 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.
10. 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 Fourth
Amendment, including the reasonable fees and expenses of counsel to the
Administrative Agent.
11. Counterparts. This Fourth 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.
12. GOVERNING LAW. THIS FOURTH 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 Fourth
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:
CANBERRA SEMICONDUCTOR N.V.
By:______________________________________
Name:
Title:
<PAGE>
4
HARWELL INSTRUMENTS LIMITED
By:______________________________________
Name:
Title:
BANK OF AMERICA, N.A., as Administrative
Agent
By:______________________________________
Name: Dietmar Schiel
Title: Vice President
BANK OF AMERICA, N.A., 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. FLEET NATIONAL BANK
By:___________________________ By: ______________________________
Name: Name:
Title: Title:
<PAGE>
BANK OF SCOTLAND
By:______________________________________
Name:
Title:
IBJ WHITEHALL BANK & TRUST COMPANY
(fka IBJ Schroder Bank & Trust Company)
By:______________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:______________________________________
Name:
Title:
CITIZENS BANK OF MASSACHUSETTS
(successor to State Street Bank and
Trust Company)
By:______________________________________
Name:
Title:
ALLSTATE LIFE INSURANCE COMPANY
By:______________________________________
Name:
Title:
By:______________________________________
Name:
Title:
<PAGE>
ALLSTATE INSURANCE COMPANY
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
By:______________________________________
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By:_________________________________
Name:
Title:
COMMERCIAL LOAN FUNDING TRUST I
By: Lehman Commercial Paper, Inc.,
not in its individual capacity but
solely as Administrative Agent
By:_________________________________
Name:
Title:
FEDERAL STREET PARTNERS
By:______________________________________
Name:
Title:
<PAGE>
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management, as
Investment Advisor
By:_________________________________
Name:
Title:
CITIZENS BANK OF CONNECTICUT
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
Amendment No. 2 to Stockholders' Agreement
Amendment No. 2, dated as of January 23, 1998, to the Stockholders'
Agreement, dated as of March 4, 1997 (the "Stockholders' Agreement"), by and
among Packard BioScience Company, a Delaware corporation ("Packard"), the
Management Stockholders listed in Schedule 1 thereto, the Non-Management
Stockholders listed in Schedule 2 thereto, Merrill Lynch KECALP L.P. 1994,
KECALP Inc. and Stonington Capital Appreciation 1994 Fund, L.P.
WHEREAS, pursuant to, and in accordance with, Section 6.4 of the
Stockholders' Agreement, the parties hereto wish to amend the Stockholders'
Agreement on the terms contained herein.
NOW THEREFORE, the parties hereto agree as follows:
1. Amendments. The Stockholders' Agreement is hereby amended as follows:
(a) Definitions.
(i) The definition of the term "Institutional Investors" set
forth in the preamble to the Agreement is hereby amended by adding Merrill Lynch
KECALP L.P. 1997 thereto.
2. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Delaware without reference to
the application of principles of conflicts law.
3. Reaffirmation. In all respect not inconsistent with the terms and
provisions of this Agreement No. 2, the Stockholders' Agreement shall continue
to be in full force and effect in accordance with the terms and conditions
thereof, and is hereby ratified, adopted, approved and confirmed. From and after
the date hereof, each reference to the Stockholders' Agreement in any other
instrument or document shall be deemed a reference to the Stockholders'
Agreement as amended hereby, unless the context otherwise requires.
4. Waiver. None of the execution, delivery or performance of this
Amendment No. 2 shall operate as waiver of any condition, power, remedy or right
exercisable in accordance with the Stockholders' Agreement, or constitute a
waiver of any provision of the Stockholders' Agreement, except as expressly
provided herein.
<PAGE>
-2-
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Amendment No. 2, or has caused this Amendment No. 2 to be duly executed, as of
the date first above written.
PACKARD BIOSCIENCE COMPANY
By: /s/ Ben D. Kaplan
----------------------------------------
Name: Ben D. Kaplan
Title: Vice President and Chief
Financial Officer
STONINGTON CAPITAL APPRECIATION
1994 FUND, L.P.
By: Stonington Partners, L.P.,
its general partner
By: Stonington Partners, Inc. II,
its general partner
By: /s/ Judith A. Witterschein
----------------------------------------
Name: Judith A. Witterschein
Title: Vice President & Secretary
/s/ Emery G. Olcott
--------------------------------------------
Emery G. Olcott
/s/ Richard T. McKernan
--------------------------------------------
Richard T. McKernan
/s/ George Serrano
--------------------------------------------
George Serrano
/s/ Orren Tench
--------------------------------------------
Orren Tench
Amendment No. 3 to Stockholders' Agreement
Amendment No. 3 dated as of March 31, 1998, to the Stockholders'
Agreement, dated as of March 4, 1997 (the "Stockholders' Agreement"), by and
among Packard BioScience Company, a Delaware corporation ("Packard"), the
Management Stockholders listed in Schedule 1 thereto, the Non-Management
Stockholders listed in Schedule 2 thereto, Merrill Lynch KECALP L.P. 1994,
KECALP Inc. and Stonington Capital Appreciation 1994 Fund, L.P.
WHEREAS, pursuant to, and in accordance with, Section 6.4 of the
Stockholders' Agreement, the parties hereto wish to amend the Stockholders'
Agreement on the terms contained herein.
WHEREAS, pursuant to Section 6.4 of the Stockholders' Agreement only the
consent of Packard is required to add parties who become holders of stock,
options or other securities of Packard;
WHEREAS, pursuant to the Stock Purchase Agreement by and between Packard
and Richard A. Carl, an individual resident of Rancho Palos Verdes, dated March
31, 1998, Richard A. Carl is the holder of 81, 662 shares of Packard common
stock; and
WHEREAS, pursuant to the Agreement and Release by and among Packard, Carl
Creative Systems, Inc., a California corporation, and Daniel B. Roark, an
individual resident of Redmond, Washington, dated March 31, 1998, Daniel B.
Roark is the holder of 27,221 shares of Packard common stock.
NOW THEREFORE, the parties hereto agree as follows:
1. Amendments. The Stockholders' Agreement is hereby amended as follows:
Richard A. Carl and Daniel B. Roark shall be added to Schedule 1 to
the Stockholders' Agreement as Management Stockholders.
2. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Delaware without reference to
the application of principles of conflicts law.
3. Reaffirmation. In all respect not inconsistent with the terms and
provisions of this Amendment No. 3, the Stockholders' Agreement shall continue
to be in full force and effect in accordance with the terms and conditions
thereof, and is hereby ratified, adopted, approved and confirmed. From and after
the date hereof, each reference to the Stockholders' Agreement in any other
instrument or document shall be deemed a reference to the Stockholders'
Agreement as amended hereby, unless the context otherwise requires.
<PAGE>
-2-
4. No Waiver. None of the execution, delivery or performance of this
Amendment No. 3 shall operate as waiver of any condition, power, remedy or right
exercisable in accordance with the Stockholders' Agreement, or constitute a
waiver of any provision of the Stockholders' Agreement, except as expressly
provided herein.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Amendment No. 3 as of the date first above written.
PACKARD BIOSCIENCE COMPANY
By: /s/ Richard T. McKernan
----------------------------------------
Name: Richard T. McKernan
Title: Senior Vice President
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment"), dated this __
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.
<PAGE>
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
- ---------------------------------
Ben D. Kaplan
PACKARD BIOSCIENCE COMPANY
- ----------------------------------
Emery G. Olcott, President
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE COMPANY
(AS OF MARCH 29, 2000)
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. 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 Electronic S.A. France
Canberra-Packard GmbH Germany
Packard BioScience Holding, Ltd. United Kingdom
Packard BioScience, Ltd. United Kingdom
Harwell Instruments, Ltd. United Kingdom
Canberra-Packard s.r.l. Italy
Packard BioScience BV The Netherlands
Canberra-Packard Trading Corp. Russia
Canberra-Packard AG Switzerland
Packard Japan KK Japan
Greenstar USA, Inc. New Mexico
General Physics Institute, Inc. New Mexico
Tennelec, Inc. Delaware
Carl Consumable Products LLC California
Packard BioScience Holding BV The Netherlands
Canberra Colorado LLC Colorado
Canberra Oak Ridge LLC Tennessee
Note: All of the above are 100% wholly-owned subsidiaries with the exception of
Mobile Characterization Services LLC, Greenstar USA, Inc. and General Physics
Institute, Inc. The Company owns 55%, 49% and 49% of Mobile Characterization
Services LLC, Greenstar USA, Inc. and General Physics Institute, Inc.,
respectively.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K into the Company's previously filed
Registration Statement File No. 333-41075.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,576
<SECURITIES> 0
<RECEIVABLES> 64,000
<ALLOWANCES> 650
<INVENTORY> 34,191
<CURRENT-ASSETS> 116,183
<PP&E> 51,329
<DEPRECIATION> (21,215)
<TOTAL-ASSETS> 205,995
<CURRENT-LIABILITIES> 77,618
<BONDS> 0
0
0
<COMMON> 137
<OTHER-SE> (108,027)
<TOTAL-LIABILITY-AND-EQUITY> 205,995
<SALES> 264,892
<TOTAL-REVENUES> 264,892
<CGS> 143,652
<TOTAL-COSTS> 143,652
<OTHER-EXPENSES> 92,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,053
<INCOME-PRETAX> 6,984
<INCOME-TAX> 7,436
<INCOME-CONTINUING> (198)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (198)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
