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 September 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 November 13, 2000: 66,729,649
<PAGE>
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Income (Loss)for the
Three and Nine Months ended September 30, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 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 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 and DECEMBER 31, 1999
(In thousands)
ASSETS September 30, 2000 December 31, 1999
--------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 52,828 $ 4,432
Accounts receivable, net 26,112 34,163
Inventories, net 19,075 18,791
Deferred income taxes 4,160 3,695
Net current assets of discontinued operations (Note 7) 27,756 31,382
Other current assets 3,913 3,558
-------- --------
Total current assets 133,844 96,021
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 27,332 24,804
Less: Accumulated depreciation (12,851) (11,560)
-------- --------
14,481 13,244
-------- --------
OTHER ASSETS:
Goodwill, net 20,415 19,855
Deferred financing costs, net 4,538 6,801
Net noncurrent assets of discontinued operations (Note 7) 38,404 36,428
Other 9,390 10,209
-------- --------
72,747 73,293
-------- --------
TOTAL ASSETS $221,072 $182,558
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------
CURRENT LIABILITIES:
Notes payable $ 2,389 $ 2,429
Current portion of long-term obligations 1,302 1,787
Accounts payable and accrued liabilities 17,775 42,579
Deferred income 9,250 10,660
-------- --------
Total current liabilities 30,716 57,455
-------- --------
LONG-TERM OBLIGATIONS, net of current portion 171,397 225,710
-------- --------
DEFERRED INCOME TAXES 4,493 4,471
-------- --------
OTHER NONCURRENT LIABILITIES 2,745 2,812
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT) (Note 3):
Common stock 164 137
Paid in capital 117,835 1,827
Accumulated deficit (20,579) (12,895)
Accumulated other comprehensive income
(cumulative translation adjustment) 813 527
-------- --------
98,233 (10,404)
Less: Treasury stock, at cost (86,083) (96,920)
Deferred compensation (429) (566)
-------- --------
Total stockholders' equity (deficit) 11,721 (107,890)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $221,072 $182,558
======== ========
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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------- --------------------------
<S> <C> <C> <C> <C>
NET SALES $37,030 $36,871 $115,446 $112,360
COST OF SALES 16,818 18,946 50,770 53,820
------- ------- -------- --------
GROSS PROFIT 20,212 17,925 64,676 58,540
RESEARCH AND DEVELOPMENT EXPENSES 6,674 5,748 19,950 16,693
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 6) 11,962 9,952 39,328 29,357
------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS 1,576 2,225 5,398 12,490
INTEREST EXPENSE, NET (3,410) (5,337) (13,715) (15,692)
FOREIGN EXCHANGE TRANSACTION GAINS
(LOSSES), NET (72) 136 32 (101)
------- ------- -------- --------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND EXTRAORDINARY ITEMS (1,906) (2,976) (8,285) (3,303)
(PROVISION FOR) BENEFIT FROM INCOME TAXES 667 (768) 2,900 (842)
------- ------- -------- --------
LOSS FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEMS (1,239) (3,744) (5,385) (4,145)
INCOME FROM DISCONTINUED OPERATIONS,
NET OF PROVISION FOR INCOME TAXES
(Note 7) 1,582 2,970 954 6,655
------- ------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 343 (774) (4,431) 2,510
EXTRAORDINARY ITEMS, NET OF INCOME TAXES
(Note 8) (615) -- (48) --
------- ------- -------- --------
NET INCOME (LOSS) $ (272) $ (774) $ (4,479) $ 2,510
======= ======= ======== ========
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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands)
For the Nine Months Ended
September 30,
2000 1999
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Net income (loss) ($ 4,479) $ 2,510
Adjustments to reconcile net income (loss) to loss from
continuing operations:
Income from discontinued operations, net 954 6,655
-------- --------
Loss from continuing operations (5,433) (4,145)
Adjustments to reconcile loss from continuing operations
to net cash provided by (used for) operating activities:
Non-cash stock compensation charges (Note 6) 4,724 --
Non-cash deferred financing fees writeoff (Note 8) 2,383 --
Depreciation and amortization of intangibles 5,287 5,045
Amortization of deferred financing costs 1,010 1,159
Other, net (5) (230)
Changes in operating assets and liabilities (15,562) (4,920)
-------- --------
Net cash used for continuing operations (7,596) (3,091)
Net cash provided by (used for) discontinued operations 10,193 (3,749)
-------- --------
Net cash provided by (used for) operating activities 2,597 (6,840)
-------- --------
INVESTING ACTIVITIES OF CONTINUING OPERATIONS:
Acquisitions of businesses, net of cash acquired (6,947) (4,546)
Capital expenditures, net (4,555) (4,422)
Product lines, patent rights and licenses acquired (794) (290)
-------- --------
Net cash used for continuing operations (12,296) (9,258)
Net cash used for discontinued operations (3,399) (26,885)
-------- --------
Net cash used for investing activities (15,695) (36,143)
-------- --------
FINANCING ACTIVITIES:
Borrowings under long-term obligations 74,315 52,342
Repayments of long-term obligations (125,856) (9,666)
Purchase of treasury stock (124) (120)
Proceeds from exercise of stock options 4,969 62
Proceeds from sale of common stock, net of expenses 110,292 42
-------- --------
Net cash provided by financing activities 63,596 42,660
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,047) (1,428)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 48,451 (1,751)
CASH AND CASH EQUIVALENTS, beginning of period 7,576 7,929
-------- --------
56,027 6,178
Cash of discontinued operations (3,199) (2,951)
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 52,828 $ 3,227
======== ========
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.
The Company's condensed consolidated financial statements have been restated to
reflect the net assets and operating results of the Canberra operating segment
as a discontinued operation (see Note 7). The accompanying notes (except for
Note 7) relate only to the Company's continuing operations.
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.
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 September 30, 2000, and December 31,
1999 (in thousands):
September 30, December 31,
2000 2000
------------ -----------
Raw materials and parts $10,717 $12,094
Work in process 796 644
Finished goods 10,201 9,132
------- -------
21,714 21,870
Excess and obsolete reserves (2,639) (3,262)
------- -------
$19,075 $18,608
======= =======
Note 3. Stockholders' Equity (Deficit):
----------------------------------------
<TABLE>
<CAPTION>
Below is a summary of the changes in selected components of stockholders' equity
(deficit) for the nine-month period ended September 30, 2000 (dollars in
thousands):
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 -- -- (4,479) --
Sale of stock, net 27 107,781 (3,205) 10,837
Non-cash stock compensation
charges -- 8,273 -- --
Restricted stock forfeitures -- (46) -- --
----- -------- ------- -------
Balance, September 30, 2000 $ 164 $117,835 ($20,579) ($86,083)
===== ======== ======= =======
</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:
----------------------
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 $20.4 million as of September 30, 2000. The goodwill amount
includes contingent payments earned through September 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 pro forma impact of the CCP and CIL acquisitions is immaterial to the
Company's historical actual results of operations. Accordingly, no pro forma
information is presented.
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
weighted average shares outstanding during the three and nine months ended
September 30, 2000 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic weighted average shares outstanding 62,118 45,762 55,785 45,754
====== ====== ====== ======
</TABLE>
For all periods presented in the accompanying condensed consolidated statements
of income (loss), common stock equivalents were excluded from diluted weighted
average shares outstanding as their effect was anti-dilutive in light of the
loss from continuing operations. The dilutive effect of outstanding stock
options would have been 4,140 and 2,095 during the three-month periods ended
September 30, 2000 and 1999, respectively, and 4,405 and 2,116 during the
nine-month periods ended September 30, 2000 and 1999, respectively.
Basic and diluted earnings (loss) per share for the three and nine months ended
September 30, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Loss from continuing operations before
extraordinary items ($0.02) ($0.08) ($0.10) ($0.09)
Income from discontinued operations, net 0.03 0.06 0.02 0.15
Extraordinary items, net (0.01) -- -- --
----- ----- ----- -----
Net income (loss) $0.00 ($0.02) ($0.08) $0.06
===== ===== ===== =====
</TABLE>
Note 6. 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 $4.1 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 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 $0.6 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 7. Discontinued Operations:
---------------------------------
On October 25, 2000, the Company's Board of Directors approved a formal plan to
dispose of the Canberra operating segment ("Canberra"). Potential acquirers and
bids are currently being evaluated by the Company. The Company expects to
complete the sale by the end of the first quarter of 2001.
Amounts previously reported for Canberra have been reclassified and presented as
discontinued operations in the accompanying condensed consolidated financial
statements. Summary information of the discontinued operations is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $23,278 $27,146 $67,817 $72,838
Total costs and expenses (20,758) (24,299) (66,227) (64,554)
(Provision for) benefit from income taxes (938) 123 (636) (1,629)
------- ------- ------- -------
Income from discontinued operations $ 1,582 $ 2,970 $ 954 $ 6,655
======= ======= ======= =======
</TABLE>
For purposes of presenting operating results of the Company's continuing
operations, all corporate interest expense and interest income has been charged
or credited to continuing operations. Corporate interest expense consists of all
interest associated with the subordinated notes, term loan facility and
revolving credit facility. Corporate interest income represents income earned on
corporate invested funds. None of this interest expense or income has been
allocated to discontinued operations. Discontinued operations includes interest
expense on local borrowings related to the applicable foreign subsidiaries.
<PAGE>
Results of discontinued operations for the nine-month period ended September 30,
2000, include charges associated with accelerated option vesting and gifted
shares of Company's common stock (see Note 6) totaling $3.5 million, and results
of discontinued operations for the nine-month period ended September 30, 1999,
include a $1.0 million charge associated with writing off the step-up in
inventory acquired in connection with Canberra's April 1, 1999, acquisition of
the net operating assets of Tennelec, Inc. Net assets of the discontinued
operations consisted of the following (in thousands):
September 30, 2000 December 31, 1999
------------------ -----------------
Total current assets $46,024 $51,543
Total current liabilities 18,268 20,161
------- -------
Net current assets $27,756 $31,382
======= =======
Total noncurrent assets $41,839 $39,703
Total noncurrent liabilities 3,435 3,275
------- -------
Net noncurrent liabilities $38,404 $36,428
======= =======
Note 8. 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 at a discount; and in August
2000, the Company amended and restated its revolving credit agreement. Due to
the substantial changes to the facility, the amendment was accounted for as an
extinquishment.
The senior subordinated notes were repurchased at a discount resulting in a gain
of $2.3 million. The Company expensed the remaining unamortized balance of
deferred financing fees (totaling $2.4 million) associated with the term loan
and original revolving credit agreement, as well as that portion applicable to
the senior subordinated notes that were repurchased. The gain, net of the
deferred fees write-off, is presented as extraordinary items, net of income
taxes, in the accompanying financial statements.
Note 9. Amended and Restated Credit Agreement:
-----------------------------------------------
In August 2000, the Company amended and restated its revolving credit facility
(the "Amended Agreement"). The Amended Agreement increased the amount available
under the facility from $75 million to $100 million. In addition, some of the
financial covenants were made less restrictive than those of the previous
facility. The Amended Agreement resulted in an extraordinary charge (see Note
8).
Note 10. Subsequent Events:
----------------------------
On October 2, 2000, the Company acquired the net operating assets of GSLI Life
Sciences ("GSLI"), a division of GSI Lumonics, Inc. The total amount paid
consisted of $40 million in cash and 4.6 million shares of Company common stock
valued at $66.2 million. GSLI is a leading provider of imaging equipment for
biochip and microarray applications.
The GSLI acquisition will be accounted for using the purchase method. The
acquisition will result in a charge in October 2000 totaling $12.1 million to
write off the value assigned to acquired in-process research and development
which had not yet reached technological feasibility. Goodwill of approximately
$90.5 million will be amortized over a 20-year period.
In October 2000, the Company acquired an 8% equity interest in Agencourt
Bioscience Corporation, a biotech company focused on providing nucleic acid
purification kits and other assays for the genomics and proteomics marketplaces.
The Company paid $1.25 million for this equity interest. Agencourt is controlled
by three sons of one of the Packard officers.
<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 platforms, 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;
- our customers are primarily from the pharmaceutical and biotechnology
industries and are subject to risks faced by those industries;
- decline in the use of processes and instruments that represent a
significant portion of our revenues;
- our ability to maintain and enhance existing collaborative and academic
arrangements and to establish additional relationships;
- our ability to pursue and consummate strategic acquisitions;
- our dependence on capital spending policies of our customers;
- economic, political and other risks associated with international sales and
operations;
- our ability to complete the sale of our Canberra operation in a timely and
orderly fashion;
- our ability to attract and retain key employees; and
- our ability to meet financial expectations of securities analysts and
investors.
Overview
--------
Packard BioScience Company ("Packard" or the "Company") and it subsidiaries are
leading global developers, manufacturers and marketers of instruments and
related consumables and services for use in drug discovery and other life
sciences research. The Company is a leader in laboratory automation and has
developed scalable platforms built on its worldwide leadership in the
manufacturing and marketing of bioanalytical instruments for use in the life
sciences research industry.
Packard's revenues are derived primarily from sales of instruments and
consumables with additional sales from service. 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.
The Company is in the process of disposing of its Canberra operating segment
which supplies analytical instruments and services to detect, identify and
quantify radioactive materials for the nuclear industry and related markets.
Refer to discussion on page 14. Unless otherwise indicated, the amounts below
relate to the Company's continuing operations and exclude the effect of
discontinued operations.
<PAGE>
<TABLE>
<CAPTION>
Results of Operations (dollars in millions)
---------------------
Three Months Ended Nine Months Ended
September 30, September 30,
% Inc. % Inc.
2000 1999 (Dec.) 2000 1999 (Dec.)
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Total net sales $ 37.0 $ 36.9 0.3% $115.4 $112.4 2.7%
Gross profit 20.2 17.9 12.8% 64.7 58.5 10.6%
Operating expenses:
Research and development 6.7 5.7 17.5% 20.0 16.7 19.8%
Selling, general and
administrative 11.9 10.0 19.0% 39.3 29.3 34.1%
------ ------ ------ ------ ------ ------
Income from continuing
operations 1.6 2.2 (27.3%) 5.4 12.5 (56.8%)
Interest expense, net (3.4) (5.3) (35.8%) (13.7) (15.7) (12.7%)
Foreign exchange transaction
gains (losses), net (0.1) 0.1 N/A 0.0 (0.1) N/A
------ ------ ------ ------ ------ ------
Loss from continuing
operations before income
taxes and extraordinary
items (1.9) (3.0) N/A (8.3) (3.3) N/A
(Provision for) benefit from
income taxes 0.7 (0.8) N/A 2.9 (0.8) N/A
------ ------ ------ ------ ------ ------
Loss from continuing
operations before
extraordinary items (1.2) (3.8) (60.5%) (5.4) (4.1) 31.7%
Discontinued operations, net 1.5 3.0 (50.0%) 0.9 6.6 (86.4%)
Extraordinary items, nets (0.6) -- N/A 0.0 -- N/A
------ ------ ------ ------ ------ ------
Net income (loss) $ (0.3) $ (0.8) N/A $ (4.5) $ 2.5 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.
Revenues
--------
Consolidated net sales were relatively flat ($37.0 million versus $36.9 million)
and increased 2.7% ($115.4 million versus $112.4 million) during the three
months and nine months ended September 30, 2000, respectively, as compared to
the prior year periods. Major factors causing the fluctuations between the
periods were:
a) the nine month period of 1999 includes approximately $3.9 million 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; and
b) foreign currency exchange rate fluctuations had an unfavorable effect
on 2000 consolidated revenues. Had exchange rates remained the same
during the three and nine months ended September 30, 2000, as in the
comparable 1999 periods, consolidated net sales would have been $1.4
million and $3.0 million higher, respectively.
Excluding the above-mentioned items, consolidated net sales during the three and
nine months ended September 30, 2000, would have increased 4.2% and 9.2%,
respectively, over the comparable 1999 periods. Packard has experienced strong
instrumentation sales growth in some of its major product lines including sample
preparation and automation where revenues have increased from $24.4 million
during the nine months ended September 30, 1999, to $33.0 million during the
nine months ended September 30, 2000, representing a 35.1% increase. This growth
has been substantially offset by a decline in revenues related to the Company's
radioactive-based or legacy products.
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 new product 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.
Gross Profit
------------
Consolidated gross profit was $20.2 million and $64.7 million during the three
and nine months ended September 30, 2000, respectively, compared to $17.9
million and $58.5 million during the comparable 1999 periods. Excluding the
effect of the sold and terminated product lines, the Company's consolidated
gross profit increased 12.7% during the 2000 year-to-date period as compared to
the 1999 period. As a percentage of revenues, the year-to-date 2000 gross profit
was 56.0% versus 52.9% in the 1999 period, excluding the effect of the item
mentioned above. The improvement was primarily attributable to increased, high
margin sales by Packard Japan KK ("PJKK") and a higher mix of CCS Packard, Inc.
("CCS") product sales. Service margins increased during the current year period
also, increasing from 22.1% during the 1999 year-to-date period to 24.6% in the
2000 period.
Operating Expenses
------------------
Research and Development -
Consolidated research and development expenses were $6.7 million and $20.0
million during the three and nine months ended September 30, 2000, respectively,
as compared to $5.7 million and $16.7 million during the comparable 1999
periods. These represent 17.5% and 19.8% increases over the prior year three and
nine month periods, respectively. The majority of research and development
spending, as well as the current year increase, was 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. The increased spending during the 2000 periods was a reflection of
this strategic initiative in the area of research and development.
Selling, General and Administrative -
Consolidated selling, general and administrative expenses totaled $11.9 million
and $39.3 million for the three and nine month periods ended September 30, 2000,
respectively. This compares to $10.0 million and $29.3 million for the three and
nine months ended September 30, 1999, respectively. The year-to-date 2000
increase over the comparable 1999 period (33.7%) was primarily due to a $4.1
million compensation charge recorded in the first quarter of 2000 associated
with certain stock options granted to employees in December 1999, and a $0.6
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 non-recurring
charges, selling, general and administrative expenses increased 17.7% during the
nine months ended September 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. In addition, the increase is
a result of additional spending for applications specialists and strengthening
of the sales and marketing organization. Continuing operations for all periods
presented includes the costs Packard will incur as a result of Canberra no
longer absorbing certain corporate overhead costs.
Interest Expense, Net
---------------------
Interest expense, net was $3.4 million and $13.7 million during the three and
nine months ended September 30, 2000, respectively, compared to $5.3 million and
$15.7 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.
For purposes of presenting operating results of the Company's continuing
operations, all corporate interest expense and interest income has been charged
or credited to continuing operations. Corporate interest expense consists of all
interest associated with the subordinated notes, term loan facility and
revolving credit facility. Corporate interest income represents income earned on
corporate invested funds. None of this interest expense or income has been
allocated to discontinued operations.
Foreign Currency Transaction Gains (Losses), Net
------------------------------------------------
During the nine months ended September 30, 2000, foreign currency transaction
losses, net was $0.1 million. Such gains and losses are primarily the result of
transactions conducted by the Company's foreign subsidiaries that are
denominated in currencies other than the subsidiaries' respective functional
currencies.
Effective Tax Rates
-------------------
The Company's effective tax rate was 35.0% during the nine months ended
September 30, 2000, compared to 25.5% (representing a provision on a pre-tax
loss) during the comparable 1999 period. Both periods reflect the effect of
nondeductible goodwill. The 1999 effective tax rate reflects the provision of
additional valuation reserves on foreign tax credit carryforwards in light of
the uncertainty as to their ultimate realizability.
Discontinued Operations, Net of Income Taxes
--------------------------------------------
On October 25, 2000, the Company's Board of Directors approved a formal plan to
dispose of the Canberra operating segment ("Canberra") by way of a sale.
Potential acquirers and bids are currently being evaluated by the Company. The
Company expects to complete the sale by the end of the first quarter of 2001.
Amounts previously reported for Canberra have been reclassified and presented as
discontinued operations in the accompanying condensed consolidated financial
statements. Summary information of the discontinued operations is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $23,278 $27,146 $67,817 $72,838
Total costs and expenses 20,758 24,299 66,227 64,554
(Provision for) benefit from income taxes (938) 123 (636) (1,629)
------- ------- ------- -------
Income from discontinued operations $ 1,582 $ 2,970 $ 954 $ 6,655
======= ======= ======= =======
</TABLE>
<PAGE>
Discontinued operations for the nine-month period ended September 30, 2000,
include charges associated with accelerated option vesting and gifted shares of
Company's common stock (see Note 6 to the accompanying condensed consolidated
financial statements) totaling $3.5 million. The nine-month period ended
September 30, 1999, included a $1.0 million charge associated with the write-off
of the step-up in inventory acquired in connection with the Company's April 1,
1999, acquisition of the net operating assets of Tennelec, Inc.
Extraordinary Items, Net of Income Taxes
----------------------------------------
During 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 and
amended and restated its revolving credit facility in August 2000. The senior
subordinated notes repurchase resulted in a pre-tax gain of approximately $2.3
million. This gain was 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 and the original revolving
credit facility. 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 $4.5 million during the nine months ended
September 30, 2000, compared to net income of $2.5 million in the comparable
1999 period. The 2000 period loss was attributable primarily to the nonrecurring
compensation charges discussed above and the fact that all corporate interest
expense is allocated to continuing operations, as discussed above.
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 used by continuing operating activities was $7.7 million during the
first nine months of 2000 as compared to $3.6 million of net cash used during
the comparable 1999 period. The increase in cash used by operating activities
between the periods presented is primarily the result of a greater reduction in
trade accounts payable and accruals during the current year period.
Net cash used for continuing investing purposes during the nine months ended
September 30, 2000, consisted primarily of amounts paid to acquire a 51%
interest in Carl Consumable Products, LLC ($0.5 million) and certain net
operating assets of Cambridge Imaging Limited ($1.5 million), as well as the
payment of contingent earnouts earned for the period ended December 31, 1999,
associated with the CCS acquisition (totaling $5.0 million). In addition,
approximately $4.6 million was expended on capital equipment and improvements.
During the nine months ended September 30, 1999, investing activities consisted
primarily of payment of earnouts associated with the CCS acquisition. In
addition, during this period, capital expenditures totaled $4.4 million.
The Company expects to generate a significant amount of cash in connection with
the sale of the Canberra operating segment. The Company is considering its
options as to the use of the expected proceeds. The Company will repay the
amounts outstanding under its amended and restated credit agreement or will be
restricted as to the use of the that same level of funds.
Financing activities during the first nine months 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 $5.0 million during the
first nine months of 2000. During the comparable prior year period, financing
activities consisted primarily of borrowings under the revolving credit facility
to fund contingent earnout payments associated with the CCS acquisition. In
addition, borrowings during this period were utilized to make the semi-annual
subordinated notes interest payment and to fund operating requirements, as
needed.
The Amended and Restated Credit Agreement (the "Agreement") increases the
Company's revolver from $75 million to $100 million. The Agreement provides for
a reduction in the revolver in the event of a sale of Canberra based upon a
stipulated formula.
Backlog
-------
As of September 30, 2000 and 1999, the Company's net third-party order backlog
was approximately $29.9 million and $22.2 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. The Company's backlog as of
any particular date may not be representative of actual sales for any succeeding
period.
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 Events
-----------------
Effective October 1, 2000, the Company acquired the net operating assets of GSLI
Life Sciences ("GSLI"), a division of GSI Lumonics, Inc. The total amount paid
consisted of $40 million in cash and 4.6 million shares of Company common stock.
GSLI is a leading provider of imaging equipment for biochip and microarray
applications.
The GSLI acquisition will be accounted for using the purchase method. The
acquisition will result in a charge in October 2000 totaling $12.1 million
(before the related income tax benefit) to write off the value assigned to
acquired in-process research and development which had not yet reached
technological feasibility.
In October 2000, the Company acquired an 8% equity stake in Agencourt Bioscience
Corporation, a biotech company focused on providing nucleic acid purification
kits and other assays for the genomics and proteomics marketplaces. The Company
paid $1.25 million for this equity stake. The Company paid $1.25 million for
this equity interest. Agencourt is controlled by three sons of one of the
Packard officers.
<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 June 30, 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:
A report on Form 8-K dated October 13, 2000 was filed on October
13, 2000.
A report on Form 8-K/A dated October 13, 2000 was filed on
November 13, 2000.
<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 November 14, 2000.
PACKARD BIOSCIENCE COMPANY
By: /s/ Emery G. Olcott
------------------------------------
Emery G. Olcott
Chairman of the Board and
Chief Executive Officer
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>
