SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from --------------- to ---------------
Commission File Number 333-24001
Packard BioScience Company
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0676652
------------------------------------------ -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Research Parkway, Meriden, Connecticut 06450
------------------------------------------ -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-238-2351
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
Shares of Common Stock Outstanding at August 4, 2000: 61,824,275
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 2
Condensed Consolidated Statements of Income (Loss) for the
Three and Six Months Ended June 30, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 and DECEMBER 31, 1999
(In thousands)
ASSETS June 30, 2000 December 31, 1999
------ ------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 46,565 $ 7,576
Accounts receivable, net 46,185 63,350
Inventories, net 35,147 34,191
Deferred income taxes 5,332 4,795
Other current assets 7,317 6,271
-------- --------
Total current assets 140,546 116,183
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 54,365 51,329
Less - accumulated depreciation (23,342) (21,215)
-------- --------
31,023 30,114
-------- --------
OTHER ASSETS:
Goodwill, net 42,489 41,919
Deferred financing costs, net 4,646 6,801
Other 10,581 10,978
-------- --------
57,716 59,698
-------- --------
TOTAL ASSETS $229,285 $205,995
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Notes payable $ 4,313 $ 3,197
Current portion of long-term obligations 817 2,113
Accounts payable and accrued liabilities 34,092 58,004
Deferred income 14,066 14,304
-------- --------
Total current liabilities 53,288 77,618
-------- --------
LONG-TERM OBLIGATIONS, net of current portion 154,551 225,731
-------- --------
DEFERRED INCOME TAXES 4,880 4,807
-------- --------
OTHER NONCURRENT LIABILITIES 3,490 3,428
-------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN EQUITY OF SUBSIDIARIES 2,367 2,301
-------- --------
STOCKHOLDERS' EQUITY (DEFICIT) (Note 3):
Common stock 164 137
Paid in capital 117,931 1,827
Accumulated deficit (20,309) (12,895)
Accumulated other comprehensive income
(cumulative translation adjustment) 477 527
-------- --------
98,263 (10,404)
Less: Treasury stock, at cost (87,095) (96,920)
Deferred compensation (459) (566)
-------- --------
Total stockholders' equity (deficit) 10,709 (107,890)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $229,285 $205,995
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $60,471 $62,479 $122,956 $121,180
COST OF SALES 29,569 32,006 59,909 61,389
AMORTIZATION OF ACQUIRED INVENTORY
STEP-UP (Note 4) 0 1,000 0 1,000
RESTRUCTURING CHARGE (Note 8) 0 0 2,372 0
------- ------- -------- --------
GROSS PROFIT 30,902 29,473 60,675 58,791
RESEARCH AND DEVELOPMENT EXPENSES 9,137 7,534 17,572 14,809
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 7) 16,076 14,658 40,559 29,191
------- ------- -------- --------
INCOME FROM OPERATIONS 5,689 7,281 2,544 14,791
INTEREST EXPENSE, NET (3,960) (5,333) (9,916) (10,600)
FOREIGN EXCHANGE TRANSACTION GAINS
(LOSSES), NET (151) 1,048 131 791
------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST AND EXTRAORDINARY ITEMS 1,578 2,996 (7,241) 4,982
PROVISION FOR (BENEFIT FROM) INCOME TAXES 175 764 (2,535) 1,827
MINORITY INTEREST IN (INCOME) LOSS
OF SUBSIDIARIES 15 (121) (66) 128 128
------- ------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 1,418 2,111 (4,772) 3,283
EXTRAORDINARY ITEMS, NET OF INCOME TAXES
(Note 9) 567 0 567 0
------- ------- -------- --------
NET INCOME (LOSS) $ 1,985 $ 2,111 ($ 4,205) $ 3,283
======= ======= ======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(In thousands)
For the Six Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 4,205) $ 3,283
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Non-cash stock compensation charges (Note 7) 8,273 0
Non-cash deferred financing fees writeoff (Note 9) 1,437 0
Depreciation and amortization of intangibles 5,078 4,672
Amortization of deferred financing costs 718 773
Amortization of acquired inventory step-up 0 1,000
Minority interest in net income (loss) of
subsidiaries 66 (128)
Other, net (34) (269)
Changes in operating assets and liabilities (3,200) (10,622)
------- -------
Net cash provided by (used for)
operating activities 8,133 (1,291)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired (8,107) (28,198)
Capital expenditures, net (4,053) (4,912)
Product lines, patent rights and licenses acquired (770) (267)
------- -------
Net cash used for investing activities (12,930) (33,377)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term obligations 30,937 44,687
Repayments of long-term obligations (100,695) (3,366)
Purchase of treasury stock (124) (120)
Proceeds from exercise of stock options 4,354 13
Proceeds from sale of common stock, net of expenses 110,293 42
------- -------
Net cash provided by investing activities 44,765 41,256
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (979) (2,704)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 38,989 3,884
CASH AND CASH EQUIVALENTS, beginning of period 7,576 7,929
------- -------
CASH AND CASH EQUIVALENTS, end of period $46,465 $11,813
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements and related notes included
herein have been prepared by Packard BioScience Company (the "Company") without
audit, except for the December 31, 1999, condensed consolidated balance sheet
which was derived from the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 (the "Company's 1999 Form 10-K"), pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures which normally accompany financial statements prepared
in accordance with generally accepted accounting principles have been omitted
from the accompanying condensed consolidated financial statements, as permitted
by the Securities and Exchange Commission's rules and regulations. The Company
believes that the accompanying disclosures and notes are adequate to make the
financial statements not misleading. Such financial statements reflect all
adjustments which are normal and recurring and, in the opinion of management,
necessary for a fair presentation of the results of operations and financial
position of the Company for the periods reported herein. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1999 Form 10-K.
Note 1. Basis of Presentation and Significant Accounting Policies:
----------------------------------------------------------
General -
-------
The accompanying financial statements have been prepared in accordance with the
accounting policies described in Note 1 to the consolidated financial statements
included in the Company's 1999 Form 10-K. The Company's practices of recognizing
assets, liabilities, revenues, expenses and other transactions which impact the
accompanying financial information are consistent with such note.
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" ("SFAS No. 133"), which establishes the accounting and
reporting standards for derivative instruments and for hedging activities. The
Company purchases forward contracts to cover foreign exchange fluctuation risks
on intercompany sales to certain of its foreign operations. Such contracts
qualify as foreign currency cash flow hedges under SFAS No. 133 and, as such,
require that gains and losses on such contracts be presented as a component of
comprehensive income. The effective date of SFAS No. 133 (which was deferred
through the issuance of SFAS No. 137 and amended through the issuance of SFAS
No. 138) 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. The
Company is required to adopt SAB No. 101, effective January 1, 2000, by December
31, 2000. The Company has not yet quantified the cumulative effect of adopting
SAB No. 101, as of January 1, 2000, which could be material to the Company's
consolidated operating results or financial position.
Stock Split -
-----------
On March 20, 2000, the Company's Board of Directors approved a 5-for-1 split of
the Company's common stock. All share and per share information included in the
accompanying condensed consolidated financial statements and notes hereto have
been restated to reflect the effect of the split.
<PAGE>
Reclassifications -
-----------------
Certain reclassifications have been made to prior period information in order to
make it consistent with the current period presentation.
Note 2. Inventories:
-----------
Inventories consisted of the following at June 30, 2000, and December 31, 1999
(in thousands):
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Raw materials and parts $20,090 $19,028
Work in process 3,852 3,031
Finished goods 16,656 17,394
------- -------
40,598 39,453
Excess and obsolete reserves (5,451) (5,262)
------- -------
$35,147 $34,191
======= =======
</TABLE>
Note 3. Stockholders' Equity (Deficit):
------------------------------
Below is a summary of the changes in selected components of stockholders' equity
(deficit) for the six-month period ended June 30, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
Common Paid-In Accumulated Treasury
Stock Capital Deficit Stock
----- ------- ----------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ 137 $ 1,827 ($12,895) ($96,920)
Net loss 0 0 (4,205) 0
Sale of stock, net 27 107,877 (3,209) 9,825
Non-cash stock compensation charges 0 8,273 0 0
Restricted stock forfeitures 0 (46) 0 0
----- -------- -------- --------
Balance, June 30, 2000 $ 164 $117,931 ($20,309) ($87,095)
===== ======== ======== ========
</TABLE>
Sale of stock, net includes proceeds from the exercise of stock options as well
as sales and purchases of treasury stock. In addition, the effect of the
Company's initial public offering (refer to the following paragraph) is
reflected in these amounts.
On April 19, 2000, the Company completed the registration for public sale of the
Company's common stock (the "Offering"). The Offering raised approximately $110
million, including the over-allotment option, after consideration of expenses of
$12 million associated with the Offering.
Note 4. Acquisitions:
------------
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 acquisition resulted in a $1.0 million charge during the
three months ended June 30, 1999, to writeoff the step-up in inventory acquired
which was recorded at fair value at the date of acquisition.
<PAGE>
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 in each
calendar year occurring 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 April 2000, the Company acquired certain net operating assets, primarily
intangibles, of Cambridge Imaging Limited ("CIL"), effective March 31, 2000. The
Company paid $1.25 million initially with additional contingent payments, up to
$4.0 million, that may be made through April 2005, subject to the operations
achieving certain post-acquisition performance levels through calendar year
2004. The assets and technology acquired will be used to develop and manufacture
biomedical imaging technology and devices.
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 has been reflected as
goodwill in the accompanying condensed consolidated balance sheets. Net goodwill
totals approximately $42.5 million as of June 30, 2000. The goodwill amount
includes contingent payments earned through June 30, 2000, and will increase to
the extent future contingent payments are earned. The goodwill is being
amortized on a straight-line basis over 20 to 40 years from the initial
acquisition dates.
The operating results of Tennelec, CCP and CIL have been reflected in the
accompanying condensed consolidated statements of income (loss) since their
respective dates of acquisition. The following unaudited consolidated
information is presented on a pro forma basis, as if the acquisitions had
occurred as of the beginning of the periods presented. In the opinion of
management, the pro forma information reflects all adjustments necessary for a
fair presentation. The pro forma adjustments primarily consist of: addback of
nonrecurring charges taken in connection with the acquisitions associated with
acquired inventory step-up writeoff, amortization of goodwill associated with
the acquisitions, pre-acquisition operating results, 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. The
1999 results do not eliminate sales and cost of sales of those products that the
Company has removed from the market. There are no pro forma adjustments related
to CCP or CIL since they are start-up operations.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000* 1999
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 60,471 $62,475 $122,956 $124,484
Income from operations $ 5,689 $ 8,353 $ 2,544 $ 16,507
Net income (loss) $ 1,985 $ 2,792 ($ 4,205) $ 4,247
Basic earnings (loss) per share $ 0.03 $ 0.06 ($ 0.08) $ 0.09
*Refer to Notes 7, 8 and 9 for a description of special charges and
extraordinary items reflected in the 2000 period presented.
</TABLE>
<PAGE>
Note 5. 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 three and six months
ended June 30, 2000 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic weighted average shares outstanding 58,049 45,751 53,055 45,752
Dilutive effect of outstanding stock options 3,906 2,123 N/A 2,130
------ ------ ------ ------
Diluted weighted average shares outstanding 61,955 47,874 53,055 47,882
====== ====== ====== ======
</TABLE>
For the six-month period ended June 30, 2000, 4,277 of common stock equivalents
were excluded from diluted weighted average shares outstanding as their effect
was anti-dilutive.
Basic and diluted earnings (loss) per share for the three and six months ended
June 30, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC -
Income (loss) before extraordinary items $0.02 $0.05 ($0.09) $0.07
Extraordinary items 0.01 0.0 0.01 0.0
----- ----- ----- -----
Net income (loss) $0.03 $0.05 ($0.08) $0.07
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
DILUTED -
Income (loss) before extraordinary items $0.02 $0.04 ($0.09) $0.07
Extraordinary items 0.01 0.00 0.01 0.00
----- ----- ----- -----
Net income (loss) $0.03 $0.04 ($0.08) $0.07
===== ===== ===== =====
</TABLE>
Note 6. Segment Information:
-------------------
Refer to Management's Discussion and Analysis of Financial Condition and Results
of Operations included in Item 2 of this Form 10-Q for a discussion of segment
operating performance for the six months ended June 30, 2000. The Company's
total assets, by industry segment, as of June 30, 2000 and December 31, 1999,
are as follows:
<PAGE>
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Packard $111,323 $112,123
Canberra 76,909 83,986
Corporate 41,053 9,886
-------- --------
Total $229,285 $205,995
======== ========
</TABLE>
Note 7. Stock Compensation Charges:
--------------------------
In December 1999, the Company granted certain options to employees which, in
accordance with financial reporting guidelines, required the Company to
recognize compensation expense over the vesting period of such options. On March
20, 2000, the Company's Board of Directors approved the acceleration of the
vesting of all outstanding unvested stock options, making them 100% vested,
effective March 17, 2000. This resulted in the recognition of a non-cash
compensation charge of $7.3 million during the three months ended March 31,
2000, associated with the options granted in December 1999.
In March 2000, certain members of the Company's management gifted 107,400 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
common stock on the date of the gifting. This resulted in a non-cash
compensation charge of $1.0 million during the three months ended March 31,
2000.
Both of the charges discussed above are included in selling, general and
administrative expenses in the accompanying condensed consolidated statements of
income (loss).
Note 8. Restructuring Charge:
--------------------
The Company has decided to terminate certain product lines and eliminate certain
positions and facilities associated with its Harwell Instruments, Ltd.
("Harwell") subsidiary which was acquired in 1999. The estimated costs
associated with this restructuring (approximately $2.4 million) have been
recorded as a component of cost of goods sold as of June 30, 2000. Included in
this amount is $0.8 million of severance and employee-related costs, $1.3
million of facility closing and relocation-related costs, and $0.3 million to
dispose of inventory which Harwell will not continue to use or manufacture.
Approximately seven employees, consisting of manufacturing, sales, service and
administrative positions will be terminated. A nominal amount of severance
payments had been made as of June 30, 2000.
Note 9. Extraordinary Items:
-------------------
In April 2000, the Company utilized $68.2 million of the proceeds from the
Offering (see Note 3) to pay off its remaining term facility ($37.3 million) and
the U.S. dollar denominated balance of its revolving credit facility ($30.9
million). In May 2000, the Company repurchased approximately $22.5 million of
its senior subordinated notes in the open market. The repurchase resulted in a
gain as the senior subordinated notes were repurchased at a discount. The
Company also wrote off the remaining unamortized balance of deferred financing
fees associated with the term loan as well as that portion applicable to the
senior subordinated notes that were repurchased. The gain on the note
repurchases ($2.3 million) referred to above is reflected as an extraordinary
item in the accompanying condensed consolidated statements of income (loss), net
of the extraordinary expense associated with the deferred financing fees
writeoff ($1.4 million) and income taxes ($0.3 million).
<PAGE>
Note 10. Subsequent Event:
----------------
The Company has retained the services of Robert W. Baird & Co., an investment
banking firm, to assist the Company in exploring strategic alternatives for
Canberra.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and accompanying notes included
elsewhere in this Form 10-Q.
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, but are not limited to, 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;
- potential infringement of 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;
- our 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; and
- our ability to meet financial expectations of securities analysts and
investors.
OVERVIEW
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. Packard Instrument
is a leader in laboratory automation and has developed scalable platforms built
on our worldwide leadership in the manufacturing and marketing of bioanalytical
instruments for use in the life sciences research industry. Canberra Industries
is a 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 and
consumables with additional sales from service. While outsourcing and support
services continue to be an important part of Packard's revenue stream, the
Company is moving towards marketing Packard's instruments as parts of integrated
platforms, which the Company expects will generate increasing instrument and
consumable sales at higher gross margins than our service business.
Canberra has experienced growth in its base services business resulting from the
Company's strategic focus on this area. Like Packard, Canberra is moving towards
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.
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS (dollars in millions)
Three Months Ended Six Months Ended
June 30, June 30,
% Inc. % Inc.
2000 1999 (Dec.) 2000 1999 (Dec.)
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Total net sales:
Packard $ 38.6 $ 37.3 3.5% $ 78.5 $ 75.5 3.8%
Canberra 21.9 25.2 (13.1%) 44.5 45.7 (2.6%)
------ ------ ------ ------ ------ ------
60.5 62.5 (3.2%) 123.0 121.2 1.5%
------ ------ ------ ------ ------ ------
Gross profit:
Packard 22.1 19.7 12.2% 44.5 40.6 9.6%
Canberra 8.8 9.8 (10.2%) 16.2 18.2 (11.0%)
------ ------ ------ ------ ------ ------
30.9 29.5 4.7% 60.7 58.8 3.2%
------ ------ ------ ------ ------ ------
Operating expenses:
Research and development 9.1 7.5 21.3% 17.6 14.8 18.9%
Selling, general and
administrative 16.1 14.7 9.5% 40.6 29.2 39.0%
------ ------ ------ ------ ------ ------
Income from operations 5.7 7.3 (21.9%) 2.5 14.8 (83.1%)
Interest expense, net (4.0) (5.3) (24.5%) (9.8) (10.6) (7.5%)
Foreign exchange transaction
gains (losses), net (0.1) 1.0 N/A 0.1 0.8 N/A
------ ------ ------ ------ ------ ------
Income (loss) before income
taxes, minority interest
and extraordinary items 1.6 3.0 (46.7%) (7.2) 5.0 N/A
Provision for (benefit from)
income taxes 0.2 0.8 (75.0%) (2.5) 1.8 N/A
Minority interest in (income)
loss of subsidiaries 0.0 (0.1) N/A (0.1) 0.1 N/A
------ ------ ------ ------ ------ ------
Income (loss) before
extraordinary items 1.4 2.1 (33.3%) (4.8) 3.3 N/A
Extraordinary items, net of
income taxes 0.6 0.0 N/A 0.6 0.0 N/A
------ ------ ------ ------ ------ ------
Net income (loss) $ 2.0 $ 2.1 (4.8%) $ (4.2) $ 3.3 N/A
====== ====== ====== ====== ====== ======
</TABLE>
INITIAL PUBLIC OFFERING
On April 19, 2000, the Company completed the registration of the Company's
common stock for public sale (the "Offering"). The Offering raised approximately
$110 million, after consideration of the expenses associated with the Offering
and the exercise of the underwriters' over-allotment option. The following
management's discussion and analysis of the Company's results of operations and
financial condition includes a historical discussion covering the reporting
periods included within this Form 10-Q as well as a discussion of the use of the
proceeds of the Offering and how this is expected to effect the Company's future
operating results and financial condition.
RESULTS OF OPERATIONS
Revenues
--------
Overall -
Consolidated net sales decreased 3.2% ($60.5 million versus $62.5 million) and
increased 1.5% ($123.0 million versus $121.2 million) during the three months
and six months ended June 30, 2000, respectively, as compared to the prior year
periods. Major factors causing the fluctuations between the periods were:
<PAGE>
a) the three and six month periods of 1999 include approximately $0.8
million and $3.9 million, respectively, of revenues associated with
certain Packard product lines that were either sold or terminated in
1999 and, therefore, did not contribute to revenues in the 2000 period;
b) the six months ended June 30, 2000, includes approximately $0.8 million
of revenues associated with the Company's 1999 acquisition of Tennelec,
Inc. ("Tennelec") that were not present during the first three months
of 1999 as Tennelec was acquired effective April 1, 1999; and
c) foreign currency exchange rate fluctuations had an unfavorable effect
on 2000 consolidated revenues. Had exchange rates remained the same
during the three and six months ended June 30, 2000, as in the
comparable 1999 periods, consolidated net sales would have been $1.3
million and $2.8 million higher, respectively.
Excluding the above-mentioned items, consolidated net sales during the three and
six months ended June 30, 2000, would have increased 0.2% and 6.5%,
respectively, over the comparable 1999 periods. The Company's revenue growth has
been attributable primarily to the Packard operating segment.
Packard -
Packard's net sales increased from $37.3 million to $38.6 million during the
three months ended June 30, 2000, as compared to the 1999 period, representing a
3.5% increase. During the six months ended June 30, 2000, Packard's net sales
increased 3.8%, from $75.5 million to $78.5 million, when compared to the
comparable 1999 period. Excluding the effect of product lines sold and
terminated, as well as the effect of foreign exchange rate fluctuations,
Packard's net sales increased 7.5% and 11.8%, during the three and six months
ended June 30, 2000, respectively, as compared to the prior year periods. On a
year-to-date basis, Packard's service revenues have increased 10.5%, from $14.5
million in 1999 to $16.0 million in 2000, primarily due to Y2K services which
are not expected to continue at the same level over the remainder of 2000. In
addition, Packard has experienced strong instrumentation sales growth in some of
its major product lines including liquid handling where revenues have increased
from $15.9 million during the six months ended June 30, 1999, to $22.3 million
during the six months ended June 30, 2000, representing a 40.3% increase.
A portion of the Offering proceeds is being used to increase Packard's spending
associated with research and development, new product development, enhancement
of existing products and strategic collaborations and acquisitions. The Company
has identified several key areas of focus where it has begun to increase
spending in order to accelerate development and market introduction. Assuming
that Packard is successful in these areas, it is expected that incremental
revenues from instruments and consumables will be generated, however, there can
be no guarantee that such success and resulting increased revenues will be
achieved.
Canberra -
Canberra's net sales decreased from $25.2 million during the three months ended
June 30, 1999, to $21.9 million during the three months ended June 30, 2000,
representing a 13.1% decrease. On a year-to-date basis, Canberra's net sales
have decreased 2.6%, from $45.7 million during the 1999 period to $44.5 million
during the 2000 period. The 2000 periods include approximately $0.8 million of
incremental revenues associated with the Company's April 1, 1999 acquisition of
Tennelec. Excluding the effect of the Tennelec acquisition, as well foreign
currency exchange rate fluctuations, Canberra's net sales have decreased 1.6%
during the year-to-date 2000 period as compared to the same period in 1999.
Canberra has experienced strong growth in its services business, increasing from
$12.9 million during the six months ended June 30, 1999, to $14.9 million during
the comparable current year period, representing a 14.9% increase. This increase
was attributable to Y2K related services, growth in Canberra's core services
business and the exploitation of new service opportunities, which generated
approximately $0.9 million in revenues during the current year-to-date period.
However, Canberra's product sales have decreased particularly in the area of
large systems. This has been partially offset by stronger 2000 sales of detector
equipment.
In July 2000, Canberra received its largest product order in the history of the
Company, consisting of five waste assay systems to be supplied to a Department
of Energy ("DOE") facility at a total price of $7.3 million. In addition,
Canberra received a $24.3 million blanket purchase order for waste
characterization services to be utilized at DOE facilities over the next five
years.
<PAGE>
Gross Profit
------------
Overall -
Consolidated gross profit was $30.9 million and $60.7 million during the three
and six months ended June 30, 2000, respectively, compared to $29.5 million and
$58.8 million during the comparable 1999 periods. Excluding the effect of the
Packard sold and terminated product lines, the acquisition of Tennelec
(including the writeoff of the stepup in acquired inventory during the 1999
periods totaling $1.0 million), and the $2.4 million Harwell restructuring
reserve, the Company's consolidated gross profit increased 6.8% during the 2000
year-to-date period as compared to the 1999 period. The Company intends to
terminate certain product lines associated with its Harwell acquisition. Harwell
will also eliminate certain positions and facilities in connection with this
plan. The estimated cost associated with this restructuring is approximately
$2.4 million including severance, facility closing costs and inventory. As a
percentage of revenues, the year-to-date 2000 gross profit was 51.3% versus
50.0% in the 1999 period, excluding the effect of items mentioned above. The
improvement was primarily attributable to increased, high margin sales by
Packard Japan KK ("PJKK"). Gross profit on service revenues increased from $6.5
million during the 1999 year-to-date period to $7.9 million during the
comparable 2000 period. Service margins increased during the current year period
also, increasing from 23.7% during 1999 to 25.5% in the 2000 period.
Packard -
Packard's gross profit increased from $19.7 million during the three months
ended June 30, 1999, to $22.1 million during the comparable current year period,
a 12.2% increase. On a year-to-date basis, Packard's gross profit increased from
$40.6 million during the 1999 period to $44.5 million during the current year
period, representing a 9.6% increase. Excluding sold or terminated product lines
from the 1999 periods, Packard's gross margin during the three months and six
months ended June 30, 2000, increased 13.3% and 12.7%, respectively, when
compared to the prior year periods. The gross margin percentages, excluding sold
and terminated product lines, increased from 55.1% during the six months ended
June 30, 1999, to 56.7% during the six months ended June 30, 2000. This increase
is primarily due to higher margin sales at PJKK and a higher mix of CCS Packard,
Inc. ("CCS") product sales.
Canberra -
Canberra's gross profit decreased from $9.8 million during the three months
ended June 30, 1999, to $8.8 million during the comparable 2000 period. For the
six months ended June 30, Canberra's gross profit decreased from $18.2 million
in 1999 to $16.2 million in 2000. Excluding the incremental 2000 revenues and
the resulting gross profit associated with the Tennelec acquisition (including
the writeoff of the stepup in acquired inventories totaling $1.0 million) and
the $2.4 million charge associated with the Harwell restructuring reserve,
Canberra's gross profit would have decreased from $19.6 million during the six
months ended June 30, 1999, to $18.6 million during the current year period. As
a percentage of revenues, Canberra's gross margin has remained relatively
consistent between years at approximately 42%.
OPERATING EXPENSES
Research and Development
------------------------
Overall -
Consolidated research and development expenses were $9.1 million and $17.6
million during the three and six months ended June 30, 2000, respectively, as
compared to $7.5 million and $14.8 million during the comparable 1999 periods.
These represent 21.3% and 18.9% increases over the prior year three and six
month periods, respectively. The majority of research and development spending,
as well as the current year increase, was by Packard in the areas of new product
development and enhancement. The Company is utilizing a portion of the Offering
proceeds to increase funding of Packard's research and development programs in
order to accelerate the development and market introduction of key products and
platforms. In addition, the Company plans to utilize a portion of the proceeds
to aggressively pursue strategic collaborations and potential acquisitions. The
increased spending during the 2000 periods was a reflection of this strategic
initiative in the area of research and development.
<PAGE>
Packard -
Packard's research and development spending increased from $5.7 million in the
second quarter of 1999 to $7.0 million during the comparable 2000 period,
representing a 24.2% increase. On a year-to-date basis, Packard's research and
development spending has increased 21.3%, from $10.9 million in 1999 to $13.3
million in 2000. The increased spending is a direct result of the strategic
focus described above. Packard intends to continue to spend research and
development dollars at an increased level through the remainder of 2000 and
beyond.
Canberra -
Canberra's second quarter 2000 research and development expenses were $2.1
million, up 12.5% from the comparable 1999 period of $1.9 million. Year-to-date
Canberra research and development spending was $4.3 million, up 11.2% from the
prior year-to-date amount of $3.9 million. Canberra's increased research and
development spending is on a few discreet projects which are not expected to
extend beyond 2001.
Selling, General and Administrative
-----------------------------------
Overall -
Consolidated selling, general and administrative expenses totaled $16.1 million
and $40.6 million for the three and six month periods ended June 30, 2000,
respectively. This compares to $14.7 million and $29.2 million for the three and
six months ended June 30, 1999, respectively. The year-to-date 2000 increase
over the comparable 1999 period (39.0%) was primarily due to a $7.3 million
compensation charge recorded in the first quarter of 2000 associated with
certain stock options granted to employees in December 1999, and a $1.0 million
compensation charge associated with stock that Company senior management gifted
to certain employees in March 2000. Both of these charges represent non-cash,
non-recurring charges to the Company. Excluding these 2000 charges and
incremental selling, general and administrative costs associated with the
Tennelec acquisition, selling, general and administrative expenses increased
9.1% during the six months ended June 30, 2000, versus the prior-year period,
due primarily to additional corporate expenses incurred as a result of the
Offering as well as higher goodwill amortization expense resulting from
contingent earnout payments made in the first quarter of 2000. However, as a
percentage of revenues, such costs were relatively flat at approximately 26%.
Packard -
Packard's selling, general and administrative expenses increased from $9.4
million during the three months ended June 30, 1999, to $11.1 million during the
comparable 2000 period. On a year-to-date basis, Packard's selling, general and
administrative expenses increased from $18.7 in 1999 to $21.8 million in 2000
(excluding Packard's portion of the compensation charges discussed above),
representing a 16.6% increase. As a percentage of revenues, Packard's selling,
general and administrative expenses were 27.9% during the six months ended June
30, 2000, as compared to 26.2% during the comparable 1999 period. The increase
is a result of additional spending for applications specialists and
strengthening the sales and marketing organization.
Canberra -
Canberra's selling, general and administrative expenses were $5.0 million and
$10.4 million (excluding Canberra's portion of the compensation changes
discussed above as well the incremental costs associated with the Tennelec
acquisition) during the three and six months ended June 30, 2000, respectively,
compared to $5.3 million and $10.9 million in the comparable 1999 periods. As a
percentage of revenues, the expenses were comparable between periods at
approximately 23.5%.
<PAGE>
Interest Expense, Net
---------------------
Interest expense, net was $4.0 million and $9.8 million during the three and six
months ended June 30, 2000, respectively, compared to $5.3 million and $10.6
million during the comparable 1999 periods. The decreased interest expense, net
was attributable to lower average borrowings outstanding during each of the 2000
periods, as compared to the 1999 periods, as a result of the Company's repayment
of the term loan facility balance ($37.3 million) and a portion of the revolving
credit facility ($30.9 million) in April 2000 and the repurchase of $22.5
million of senior subordinated notes in May 2000. In addition, the Company had a
higher average invested cash balance during the 2000 periods, generating a
higher level of interest income. The debt repayments and invested cash balances
were a direct result of the Offering. The above factors, which resulted in
reducing interest expense, net, were partially offset by higher average interest
rates (approximately 100 to 150 basis points higher) on the Company's variable
rate indebtedness during the 2000 periods.
Foreign Currency Transaction Gains (Losses), Net
------------------------------------------------
During the six months ended June 30, 2000, foreign currency transaction gains
(losses), net was a net gain of $0.1 million versus a net gain of $0.8 million
in the prior year period. The 1999 amount included approximately $1.1 million of
gains associated with the Company's conversion of certain euro denominated
indebtedness into British pounds sterling. To the extent the Company has loans
outstanding at foreign subsidiaries which are denominated in currencies other
than such subsidiary's functional currency, resulting gains and losses
attributable to foreign currency fluctuations are reflected in the Company's
operating results while such loans are outstanding.
Effective Tax Rates
-------------------
The Company's effective tax rate was 35.0% during the six months ended June 30,
2000, compared to 36.7% during the comparable 1999 period. Both periods reflect
the effect of nondeductible goodwill. The 2000 period reflects U.S. pre-tax
losses resulting from the nonrecurring special compensation charges arising in
connection with the Offering, which mitigates the effect of higher
overseas tax rates. In addition, the 2000 period reflects increased research and
development credits resulting from higher planned research and development
spending as a result of the Offering.
Minority Interest in (Income) Loss of Subsidiaries
--------------------------------------------------
Minority interest in (income) loss of subsidiaries generally represents the 45%
minority interest in the Company's subsidiary, Mobile Waste Characterization
Services, LLC.
Extraordinary Items, Net of Income Taxes
----------------------------------------
As discussed above, during the three months ended June 30, 2000, the Company
repaid the outstanding balance on its term loan facility ($37.3 million) and a
portion of its revolving credit facility indebtedness ($30.9 million). In
addition, the Company repurchased $22.5 million of senior subordinated notes, at
a discount from par, during May 2000. The senior subordinated notes repurchase
resulted in a pre-tax gain of approximately $2.3 million. This gain was
partially offset by the writeoff of unamortized deferred financing costs
associated with the repayment of the term loan and the portion of the senior
subordinated notes that were repurchased. Such unamortized costs were
approximately $1.4 million. The gain, net of the deferred financing fees
writeoff and income taxes, is reflected as extraordinary items, net in the
accompanying condensed consolidated financial statements.
Net Income (Loss)
-----------------
The Company incurred a net loss of $4.2 million during the six months ended June
30, 2000, compared to net income of $3.3 million in the comparable 1999 period.
The 2000 period loss was attributable to the nonrecurring compensation and
restructuring charges discussed above, offset partially by the extraordinary
items.
<PAGE>
LIQUIDITY AND FINANCIAL RESOURCES
The Company's liquidity requirements arise from cash used for operations,
including research and development expenditures, payments on outstanding
indebtedness and funding of acquisitions and other collaborations. The Company's
2000 and 1999 cash requirements have been met primarily through cash generated
from operations and borrowings through the Company's revolving credit facility
and overseas bank facilities. In addition, the 2000 period reflects the
Company's receipt of net proceeds totaling approximately $110 million from the
Offering. Approximately $90.7 million of such proceeds was used to repay the
Company's outstanding term loan indebtedness and a portion of the revolving
credit facility balance as well as to repurchase a portion of the outstanding
senior subordinated notes. The remaining cash is available for the Company's
general corporate requirements.
Approximately half of the Company's revenues are generated from foreign sources,
most of which are denominated in currencies other than the U.S. dollar. As such,
the Company's reported earnings and financial position are affected by changes
in foreign currency exchange rates. A strengthening U.S. dollar against the
currencies through which the Company conducts its business has had, and may
continue to have, a negative impact on U.S. dollar denominated operating
results. To manage the exposure of foreign currency exchange rates, the Company
employs hedging strategies. The Company purchases various foreign currency
forward contracts, at specified levels of coverage, generally for the purpose of
hedging firm intercompany inventory purchase commitments.
Net cash generated by operating activities was $7.6 million during the first
half of 2000 as compared to $1.3 million of net cash used during the comparable
1999 period. The increase in cash generated by operating activities between the
periods presented was primarily a result of strong accounts receivable
collection experience in the 2000 period as well as a greater reduction in
inventory levels. This increase in operating cash flow was partially offset by a
decrease in accounts payables and accrued liabilities.
Net cash used for investing purposes during the six months ended June 30, 2000,
consisted primarily of amounts paid to acquire a 51% interest in CCP ($0.5
million) and certain net operating assets of CIL ($1.5 million), as well as the
payment of contingent earnouts earned for the period ended December 31, 1999,
associated with the Aquila Technologies Group, Inc. ("Aquila") and CCS
acquisitions (totaling $6.2 million). In addition, approximately $4.1 million
was expended on capital equipment and improvements. During the six months ended
June 30, 1999, investing activities consisted of the acquisition of Harwell
($10.0 million), the acquisition of Tennelec ($10.7 million) and the payment of
earnouts associated with the Aquila and CCS acquisitions (totaling $7.3
million). In addition, during this period, capital expenditures totaled $4.9
million.
Financing activities during the first half of 2000 consisted primarily of
receipt of the net proceeds from the Offering and a use of a substantial portion
of such proceeds, combined with available invested cash, to paydown $101 million
of indebtedness. Additional borrowings under the Company's revolving credit
facility were used to fund the payment of the contingent earnout payments
referred to above and the March 2000 semi-annual interest payment ($7.0 million)
associated with the Company's outstanding subordinated notes. The borrowings
were also utilized to fund operating requirements, as needed. In addition,
proceeds from the exercise of stock options totaled $4.4 million during the
first half of 2000. During the comparable prior year period, financing
activities consisted primarily of borrowings under the revolving credit facility
to fund the acquisitions of Harwell and Tennelec as well as to fund contingent
earnout payments associated with the Aquila and CCS acquisitions. In addition,
borrowings during this period were utilized to make the semi-annual subordinated
notes interest payment and to fund operating requirements, as needed.
BACKLOG
As of June 30, 2000 and 1999, the Company's gross third-party order backlog was
approximately $47.2 million and $47.8 million, respectively. The Company
includes in backlog only those orders for which it has received purchase orders
and does not include in backlog orders for service or its services business. The
Company's backlog as of any particular date may not be representative of actual
sales for any succeeding period.
<PAGE>
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" ("SFAS No. 133"), which establishes the accounting and
reporting standards for derivative instruments and for hedging activities. The
Company purchases forward contracts to cover foreign exchange fluctuation risks
on intercompany sales to certain of its foreign operations. Such contracts
qualify as foreign currency cash flow hedges under SFAS No. 133 and, as such,
require that gains and losses on such contracts be presented as a component of
comprehensive income. The effective date of SFAS No. 133 (which was deferred
through the issuance of SFAS No. 137 and amended through the issuance of SFAS
No. 138) 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 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. The Company is required to adopt SAB No. 101,
effective January 1, 2000, by December 31, 2000. The Company has not yet
quantified the cumulative effect of adopting SAB No. 101, as of January 1, 2000,
which could be material to the Company's consolidated operating results or
financial position.
SUBSEQUENT EVENT
The Company has retained the services of Robert W. Baird & Co., an investment
banking firm, to assist the Company in exploring strategic alternatives for
Canberra.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in this area since the filing of the
Company's 1999 Form 10-K.
<PAGE>
PART II. OTHER INFORMATION
PACKARD BIOSCIENCE COMPANY
Item 1. Legal Proceedings
There has been no significant change in this area since the filing of the
Company's Form 10-Q for the quarter ended March 31, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
27 Financial data schedule pursuant to
Article 5 of Regulation S-X
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Meriden, State of
Connecticut, on August 7, 2000.
PACKARD BIOSCIENCE COMPANY
By: /s/ Emery G. Olcott
-------------------------------------------
Emery G. Olcott
Chairman of the Board, Chief
Executive Officer and President
By: /s/ Ben D. Kaplan
-------------------------------------------
Ben D. Kaplan
Vice President and Chief
Financial Officer
By: /s/ David M. Dean
-------------------------------------------
David M. Dean
Corporate Controller
<PAGE>
