SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 333-24001
Packard BioScience Company
(Exact name of registrant as specified in its charter)
Delaware 06-0676652
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Research Parkway, Meriden, Connecticut 06450
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-238-2351
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Shares of Common Stock Outstanding at May 11, 1998:
9,124,257
Packard BioScience Company (the "Company") has adjusted the allocation of the
purchase price for the March 31, 1998, acquisition of CCS Packard, Inc.
(formerly known as Carl Creative Systems, Inc.) ("CCS"). The adjustments are the
result of guidance which the Securities and Exchange Commission has recently put
forth pertaining to the valuation of acquired in-process research and
development which has not reached technological feasibility. The Company, its
independent accountants and its independent appraisers believe that 1) the
original appraisal was performed in accordance with standards established by the
American Society of Appraisers and 2) the original purchase price allocation was
performed in accordance with generally accepted accounting principles. The
original appraisal and purchase price allocation was reflected in the Company's
previously filed Form 10-Q for the quarterly period ended March 31, 1998. This
amended filing contains amended financial information and disclosure pertaining
to the period as of and for the three months ended March 31, 1998. Refer to
Notes 1 and 4 to the condensed consolidated financial statements.
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997
Condensed Consolidated Statements of Income (Loss) and Comprehensive
Income (Loss) for the Three Months Ended March 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 and DECEMBER 31, 1997
(Dollars in thousands)
ASSETS March 31, 1998 December 31, 1997
-------------- -----------------
(restated)
CURRENT ASSETS:
Cash and cash equivalents $ 11,852 $ 10,575
Accounts receivable, net 35,984 40,688
Inventories, net 30,026 27,538
Other current assets 6,398 6,242
--------- ---------
Total current assets 84,260 85,043
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost 34,080 33,160
Less - accumulated depreciation 15,970 15,240
--------- ---------
18,110 17,920
--------- ---------
OTHER ASSETS:
Goodwill, net 12,968 9,498
Deferred financing costs, net 9,505 9,891
Investments 4,683 8,216
Other 11,492 10,083
--------- ---------
38,648 37,688
--------- ---------
TOTAL ASSETS $ 141,018 $ 140,651
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ 1,161 $ 1,929
Current portion of long-term obligations 1,766 1,794
Accounts payable 13,478 13,995
Accrued liabilities 18,929 21,142
Deferred income 14,153 11,616
Income taxes payable 2,671 2,302
--------- ---------
Total current liabilities 52,158 52,778
--------- ---------
LONG-TERM OBLIGATIONS, net of current portion:
Notes and other long-term obligations 6,596 6,320
Term loan and credit facility 40,800 39,400
Senior subordinated notes 150,000 150,000
--------- ---------
Total long-term obligations, net 197,396 195,720
--------- ---------
DEFERRED INCOME TAXES 2,892 4,167
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Cumulative translation adjustment (821) (344)
Unrealized investment gains, net of taxes 1,055 2,885
--------- ---------
Accumulated other comprehensive income 234 2,541
Common stock 137 137
Retained deficit (9,968) (10,220)
--------- ---------
(9,597) (7,542)
Less: Treasury stock, at cost 100,845 103,448
Deferred compensation 986 1,024
--------- ---------
Total stockholders' deficit (111,428) (112,014)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 141,018 $ 140,651
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Dollars in thousands, except per share amounts)
For the Three Months Ended
March 31,
1998 1997
---------- -----------
(restated)
NET SALES $ 48,556 $ 42,560
COST OF SALES 22,842 19,486
---------- -----------
GROSS PROFIT 25,714 23,074
RESEARCH AND DEVELOPMENT EXPENSES 6,895 5,051
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 11,390 11,174
ACQUIRED IN-PROCESS RESEARCH AND
DEVELOPMENT CHARGE (Note 4) 2,680 --
RECAPITALIZATION CHARGE (Note 3) -- 17,979
---------- -----------
OPERATING PROFIT (LOSS) 4,749 (11,130)
INTEREST EXPENSE, NET (4,927) (1,510)
REALIZED INVESTMENT GAIN 2,173 --
---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,995 (12,640)
PROVISION FOR (BENEFIT FROM) INCOME
TAXES 773 (3,134)
---------- -----------
NET INCOME (LOSS) 1,222 (9,506)
---------- -----------
Other Comprehensive Income (Loss):
Unrealized investment loss, net of realized
investment gain (548) --
Foreign currency translation adjustments (477) 1,412
---------- -----------
Other comprehensive income (loss) (1,025) 1,412
---------- -----------
COMPREHENSIVE INCOME (LOSS) $ 197 $ (8,094)
========== ===========
Weighted average common shares outstanding,
excluding common share equivalents
(See Note 5) 9,037,455 20,395,772
Basic Earnings (Loss) Per Share $ 0.14 $ (0.47)
Diluted Earnings Per Share $ 0.14 N/A
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Dollars in thousands)
For the Three Months Ended
March 31,
1998 1997
--------- ---------
(restated)
CASH FLOWS FROM (USED FOR) OPERATING
ACTIVITIES:
Net income (loss) $ 1,222 $ (9,506)
Adjustments to reconcile net income (loss) to net cash
from (used for) operating activities:
Depreciation and amortization of intangibles 2,476 1,435
Amortization of deferred financing costs 386 129
Acquired in-process research and development charge 2,680 --
Realized investment gain (2,173) --
Other non-cash charges, net (151) 2,138
Changes in operating assets and liabilities 1,352 4,720
--------- ---------
Net cash from (used for) operating activities 5,792 (1,084)
--------- ---------
CASH FLOWS USED FOR INVESTING
ACTIVITIES:
Acquisition of a business, net of cash acquired (4,021) --
Investments in equity securities (64) (15)
Proceeds from sale of investments 2,750 --
Capital expenditures, net (656) (547)
Product lines, patent rights and licenses acquired (2,850) (171)
--------- ---------
Net cash used for investing activities (4,841) (733)
--------- ---------
CASH FLOWS FROM (USED FOR) FINANCING
ACTIVITIES:
Borrowings under long-term obligations 11,000 190,000
Repayments of long-term obligations (10,375) (4,620)
Purchase of treasury stock -- (208,691)
Sale of stock 111 17,551
Proceeds from exercise of stock options 2 8,330
Recapitalization costs deferred or charged to equity -- (15,295)
--------- ---------
Net cash from (used for) investing activities 738 (12,725)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (412) (1,527)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,277 (16,069)
CASH AND CASH EQUIVALENTS, beginning of period 10,575 37,826
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 11,852 $ 21,757
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND 1997
(RESTATED)
The condensed consolidated financial statements and related notes included
herein have been prepared by Packard BioScience Company (the "Company") without
audit, except for the December 31, 1997, condensed consolidated balance sheet
which was derived from the Company's annual report on Form 10-K for the year
ended December 31, 1997 (the "1997 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.
Note 1. Basis of Presentation, Significant Accounting Policies and Restatement:
The accompanying financial statements have been prepared in accordance with the
accounting policies described in Note 1 to the consolidated financial statements
included in the Company's 1997 Form 10-K. The Company's practices of recognizing
assets, liabilities, revenues, expenses and other transactions which impact the
accompanying financial information are consistent with such note.
The accompanying condensed consolidated financial statements as of and for the
three months ended March 31, 1998, have been restated to reflect a change in the
original purchase price allocation for the March 31, 1998, acquisition of CCS
Packard, Inc. (formerly known as Carl Creative Systems, Inc.) ("CCS"). Refer to
Note 4 to the condensed consolidated financial statements. The adjustments are
the result of guidance which the Securities and Exchange Commission has recently
put forth pertaining to the valuation of acquired in-process research and
development which has not reached technological feasibility. The Company, its
independent accountants and its independent appraisers believe that 1) the
original appraisal was performed in accordance with standards established by the
American Society of Appraisers and 2) the original purchase price allocation was
performed in accordance with generally accepted accounting principles. The
original appraisal and purchase price allocation was reflected in the Company's
previously filed Form 10-Q for the quarterly period ended March 31, 1998.
As a result of the restatement, the amount of purchase price assigned to
acquired in-process research and development has been reduced from $5.54 million
to $2.68 million in connection with the CCS acquisition. Restated goodwill
reflects a corresponding increase. The goodwill is being amortized over a
20-year period. The effect of the restatement on the Company's condensed
consolidated financial statements as of and for the three months ended March 31,
1998 is summarized below (in thousands, except per share amounts):
Three Months Ended
March 31, 1998
As Reported Restated
----------- --------
Operating Results:
Acquired In-Process Research
and Development Charge $ 5,540 $ 2,680
Earnings (loss) per share:
Basic $ (0.18) $ 0.14
Diluted N/A $ 0.14
Balance Sheet:
Goodwill, net $ 10,108 $ 12,968
Retained deficit $(12,828) $ (9,968)
The restatement had no effect on previously reported operating cash flow.
5
Note 2. Inventories:
Inventories consisted of the following at March 31, 1998 and December 31, 1997
(in thousands):
March 31, December 31,
1998 1997
-------- --------
Raw materials and parts $ 15,167 $ 14,908
Work in process 2,873 1,995
Finished goods 14,281 12,556
-------- --------
32,321 29,459
Excess and obsolete reserve (2,295) (1,921)
-------- --------
$ 30,026 $ 27,538
======== ========
The March 31, 1998 balances reflected above include a $1.0 million write-up of
acquired inventory to fair value in connection with the acquisition completed by
the Company on March 31, 1998 (see Note 4).
Note 3. 1997 Recapitalization:
Refer to Note 11 to the 1997 consolidated financial statements included in the
1997 Form 10-K for a detailed description of the Recapitalization of the Company
which occurred in March 1997 (the "Recapitalization").
Note 4. Acquisitions:
On September 3, 1997, the Company acquired all of the outstanding common stock
of Aquila Technologies Group, Inc. ("Aquila"), a manufacturer and distributor of
surveillance cameras, electronic seals and other equipment utilized in the
safeguarding of nuclear materials and an OEM manufacturer of process control
equipment. The Company acquired Aquila for approximately $6.7 million in cash
with additional future payments to be made contingent upon post-acquisition
operating results (the "Aquila Contingent Payments") through calendar year 2000
up to a maximum of $10.4 million in additional payments. An additional $1.2
million was earned as Aquila Contingent Payments during the period of September
4 through December 31, 1997 and is reflected as an increase in goodwill; $9.2
million in additional payments may still be made. Such Aquila Contingent Payment
was reflected as an increase in goodwill.
On March 31, 1998, the Company acquired all of the outstanding common stock of
Carl Creative Systems, Inc. ("CCS"), a developer, manufacturer and distributor
of high throughput liquid handling systems used in the life science, in-vitro
diagnostics and pharmaceutical drug discovery markets. The Company paid $5.1
million in cash and issued 108,883 common shares of the Company with an
appraised value of $13.96 per share. The acquisition resulted in a charge of
$2.68 million to write-off the value assigned to acquired in-process research
and development which had not reached technological feasibility and had no
probable alternative future uses. Additional contingent payments, up to a
maximum of $18.7 million, may be made through the year 2002, contingent upon CCS
achieving certain post-acquisition operating performance levels through calendar
2001 (the "CCS Contingent Payments" and collectively with the Aquila Contingent
Payments, the "Contingent Payments").
The Company has adjusted the purchase price allocation associated with the CCS
acquisition in response to recently communicated guidance from the Securities
and Exchange Commission on how the value of acquired in-process research and
development should be determined. The amount disclosed above and in the
accompanying condensed consolidated financial statements reflect the
restatement.
Both acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the purchase prices have been allocated to the
assets purchased and the liabilities assumed based upon the fair values at the
dates of acquisition. The excess of the purchase price of Aquila and CCS, in the
aggregate, over the fair values of the net assets acquired was approximately
$9.1 million (including the Aquila Contingent Payment referred to above) and has
been reflected as goodwill in the accompanying condensed consolidated balance
sheets. If future Contingent Payments are made, the related goodwill will
increase. The goodwill associated with these acquisitions is being amortized on
a straight-line basis over 20 years.
6
The operating results of Aquila and CCS have been reflected in the accompanying
condensed consolidated statements of income (loss) since the dates of
acquisition. The following unaudited consolidated information is presented on a
pro forma basis, as if the acquisitions had occurred as of the beginning of the
periods presented. In the opinion of management, the pro forma information
reflects all adjustments necessary for a fair presentation. The pro forma
adjustments primarily consist of: addback of the nonrecurring charge taken in
connection with the CCS acquisition associated with in-process research and
development costs, amortization of goodwill associated with the acquisitions,
adjustments to certain historical Aquila and CCS compensation levels to be more
indicative of post-acquisition levels, additional interest expense relating to
the financing of the acquisitions, and the related income tax effects, if any,
of the above.
(Dollars in thousands, except per share amounts)
For the Three Months Ended March 31,
1998 1997
---- ----
Net sales $50,598 $ 46,864
Operating profit (loss) $ 7,837 $(10,677)
Net income (loss) $ 4,222 $ (9,289)
Basic earnings (loss) per share $ 0.46 $ (0.45)
Diluted earnings per share $ 0.45 $ N/A
Note 5. Earnings Per Share:
In computing diluted earnings per share, outstanding stock options are factored
into the determination of weighted average common shares outstanding to the
extent they have a dilutive effect on earnings per share. During the three month
periods ending March 31, 1997, stock options were not factored into the
determination of weighted average common shares outstanding as their effect
would be anitdilutive in light of the net loss incurred during such period.
Note 6. Stock Dividend:
In May 1997, the Company's Board of Directors declared a one-for-one stock
dividend on all outstanding common shares. All historical share and per share
information, with the exception of treasury shares, have been restated to
reflect the effect of this stock dividend.
Note 7. Stockholders' Deficit:
Below is a summary of the changes in selected components of stockholders'
deficit during the three-month period ended March 31, 1998 (dollars in
thousands):
Retained Deficit Treasury Stock
---------------- --------------
(restated)
Balance, January 1, 1998 ($10,220) $103,448
Issuance of treasury stock in
connection with acquisition of
Carl Creative Systems, Inc. (862) (2,388)
Sale of treasury stock (108) (215)
Net income 1,222 --
---------- --------
Balance, March 31, 1998 ($ 9,968) $100,845
========== ========
7
Note 8. New Accounting Standard:
The Company adopted the accounting requirements of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
effective January 1, 1998. As required under SFAS No. 130, the Company has
presented the components of comprehensive income in the accompanying condensed
consolidated statements of income (loss) and comprehensive income (loss). The
unrealized investment loss component of comprehensive income during the
three-month period ending March 31, 1998, is net of realized pre-tax investment
gains of approximately $2.2 million.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
This report contains statements which, to the extent they are not recitations of
historical facts, constitute "forward-looking" statements and are prospective.
Many factors could cause actual results to differ materially from these
statements. These factors include, but are not limited to, (1) loss of market
share through competition, (2) dependence on customers' capital spending
policies and government funding, (3) limited sources of supply of key raw
materials, (4) reliance on, and ability to protect, key patents and intellectual
property, (5) complexity and technological feasibility of research and
development and new product introductions, (6) decline in utilization of
products and technology, (7) stability of economies overseas and fluctuating
foreign currencies, (8) changes in environmental laws and regulations, (9) loss
of key employees, and (10) other factors which might be described from time to
time in the Company's filings with the Securities and Exchange Commission. As a
result, there can be no assurances that the forward-looking statements will be
achieved.
General
The Company is a leading developer, manufacturer and marketer of analytical
instruments and related products and services for use in the drug discovery and
molecular biology segments of the life sciences industry and in nuclear
research, safeguarding and environmental remediation. Through Packard Instrument
Company, Inc. and several other wholly-owned subsidiaries (collectively,
"Packard"), the Company supplies bioanalytical instruments, and related
biochemical supplies and services, to the drug discovery, genomics and molecular
biology markets. Through certain divisions and wholly-owned subsidiaries
comprising Canberra Industries ("Canberra"), the Company manufactures analytical
instruments used to detect, identify and quantify radioactive materials for the
nuclear industry and related markets.
Effective September 1, 1997, the Company acquired Aquila Technologies Group,
Inc. (Aquila) and on March 31, 1998, the Company acquired Carl Creative Systems,
Inc. (CCS). See Note 4 to the Condensed Consolidated Financial Statements
included herein.
Results of Operations (dollars in millions)
Three Months Ended
March 31,
1998 1997 % Inc. (Dec.)
------ ------ -------------
(restated)
Total revenues:
Packard $29.7 $29.5 0.7%
Canberra 18.9 13.1 44.0%
------ ------ -----
48.6 42.6 14.1%
------ ------ -----
Gross profit:
Packard 16.2 16.5 (1.8)%
Canberra 9.5 6.6 44.7%
------ ------ -----
25.7 23.1 11.4%
------ ------ -----
Operating expenses:
Research and development 6.9 5.0 36.5%
Selling, general and administrative 11.4 11.2 1.9%
In-process research and
development charge 2.7 -- N/A
Recapitalization charge -- 18.0 N/A
------ ------
Operating profit (loss) 4.7 (11.1) N/A
Interest expense, net (4.9) (1.5) N/A
Realized investment gain 2.2 -- N/A
------ ------
Income (loss) before income taxes 2.0 (12.6) N/A
Provision for (benefit from) income
taxes 0.8 (3.1) N/A
------ ------
Net income (loss) $ 1.2 $(9.5) N/A
====== ======
9
Excluding the impact of changes in foreign currency exchange rates, consolidated
total revenues would have been $1.1 million higher for the three months ended
March 31, 1998. The 1998 period reflects the operating results of Aquila.
Aquila's post-acquisition operating results are included with those of Canberra
and the Company on a consolidated basis. During the three months ended March 31,
1998, Aquila generated net revenues of $4.3 million, gross profit of $1.7
million and operating income of approximately $1.3 million.
Packard's sales remained relatively flat with the prior year's first quarter due
largely to the unfavorable effect of the stronger U.S. dollar ($0.7 million
impact) as well as lower sales volume at most overseas locations. Sales at
Packard's Japanese subsidiary were down by approximately $1.2 million in the
first quarter of 1998 compared with the same period in 1997. These decreases
were offset by strong growth in Packard's domestic sales which increased by
almost $2.7 million in the 1998 period as compared with 1997.
Canberra's increased sales in 1998 are due primarily to the acquisition of
Aquila in September 1997, growth in the detectors business and improved results
at most overseas locations, particularly Austria. The strengthening U.S. dollar
unfavorably impacted Canberra's sales by approximately $0.4 million.
The Company's gross profit increased 11.5% during the three months ended March
31, 1998, as compared to the corresponding 1997 period. This increase is
attributable to the acquisition of Aquila as well as increased margin generated
by Packard's domestic business. These increases were partially offset by lower
margins generated at certain overseas locations as well as the unfavorable
impact of the stronger U.S. dollar.
Research and development spending during the three months ended March 31, 1998
increased to approximately 14.2% of net sales from 11.9% during the comparable
1997 period. The increase reflects the Company's continued commitment to new
product development and enhancement of its existing product lines. In addition,
the 1998 amount reflects the recognition of approximately $1.1 million of
charges reflecting the write-off of a license and other costs related to an
imaging technology project which was canceled in the first quarter of 1998.
Selling, general and administrative expenses were up slightly during 1998, as
compared to 1997, due primarily to the inclusion of Aquila, partially offset by
the effect of the stronger U.S. dollar.
During the first quarter of 1998, the Company recorded a $2.7 million charge to
write off in-process research and development ("R&D"), which had not reached
technological feasibility and had no probable alternative future uses, acquired
in connection with the Company's purchase of CCS. The charge represents that
portion of the purchase price which was assigned to the acquired R&D through
purchase accounting as determined by an independent appraisal.
During the first quarter of 1997, the Company recorded an $18.0 million charge
associated with the Recapitalization (refer to the Company's 1997 Form 10-K).
The consolidated operating profit (loss) of $4.7 million for the three months
ended March 31, 1998 compares with ($11.1) million during the corresponding 1997
period. Excluding the effects of the 1998 acquired in-process research and
development charge and the 1997 Recapitalization charge, operating profit
increased $0.6 million during the 1998 period, as compared to 1997, due
primarily to the acquisition of Aquila in September 1997 and strong U.S. sales,
partially offset by the increased research and development spending.
The increase in interest expense, net during 1998 is a direct result of the
funds used in connection with the Recapitalization effective March 4, 1997
(refer to the 1997 Form 10-K) and the associated increase in indebtedness.
During the first quarter of 1998, the Company sold a portion of the equity
investment it holds in a publicly traded company. In connection with such sale,
the Company realized a pre-tax gain of approximately $2.2 million.
10
For the three months ended March 31, 1998, the consolidated effective tax rate
was a provision of 89.4% compared to a 24.8% benefit during the same period in
1997. The 1998 effective rate reflects:
a) income taxes provided on foreign taxable income; and
b) no provision for income taxes being provided on domestically generated
taxable income (excluding the effect of the acquired in-process
research and development charge) in light of the Company's net
operating loss carryforward position generated in 1997, the tax
benefit for which had been fully reserved.
The 1997 benefit reflected the tax benefit provided on a portion of the
Recapitalization charges offset by taxes provided on income generated in high
tax rate countries such as Japan.
Financial Condition - Liquidity and Capital Resources
The Company has historically generated sufficient cash flow from operations to
meet its working capital requirements as well as to fund capital expenditures,
debt service and equity transactions such as dividend payments and stock
repurchases. In connection with the Recapitalization, the Company increased its
long-term indebtedness by $190.0 million and, as a result, debt service
requirements have increased significantly as compared to historical levels. The
Company has, as of May 5, 1998, $68 million of funds available under a revolving
credit facility secured as part of the Recapitalization. Monies available under
this credit facility are subject to certain restrictions and provisions
contained therein. Refer to the 1997 Form 10-K for a detailed description of the
Recapitalization including the related indebtedness and repayment terms and
conditions. Prior to the time at which significant levels of principal on the
term loan and subordinated notes becomes due in fiscal 2002, the Company will
evaluate and identify the most advantageous options available to service such
debt. Options may include refinancing such principal under potentially new terms
and conditions or repaying such debt through funds obtained through other
sources or means. However, there can be no assurance that any new financing will
be available or that the terms thereof will be favorable to the Company.
The Company expects to generate adequate cash from operations to meet most of
its working capital needs as well as to provide for necessary debt service
requirements during the next several years. The Company can and will borrow
monies from the revolving credit facility in order to meet temporary or seasonal
shortfalls which may arise in the level of cash generated from operations and to
fund the Contingent Payments. The Company expects that, should the generation of
excess available operating cash flow be insufficient, it will also utilize the
revolving credit facility to fund a significant portion of its strategic
acquisition program and new product development initiatives, as well as a
portion of capital expenditures for machinery, equipment and facility
expansions.
Operating activities generated $5.8 million of cash during the three months
ended March 31, 1998 compared to $1.1 million of cash utilized in operations in
the comparable 1997 period. The negative operating cash flow in 1997 was
primarily a result of the cash portion of the Recapitalization charge.
On March 31, 1998, the Company acquired all of the outstanding common stock of
CCS in exchange for $5.1 million in cash and 108,883 common shares of the
Company. The acquisition was funded through available cash and the revolving
credit facility. Additional CCS Contingent Payments, up to a maximum of $18.7
million, may be made through the year 2002, contingent upon CCS achieving
certain post-acquisition operating performance levels.
In September 1997, the Company acquired Aquila (refer to the Company's 1997 Form
10-K). Aquila manufactures surveillance cameras, electronic seals and other
equipment utilized in the safeguarding of nuclear materials and process controls
equipment. The Company financed the initial purchase price of approximately $6.7
million, including costs incurred in connection with the acquisition, through a
$7.0 million borrowing on the revolving credit facility discussed above. The
Company will make additional Aquila Contingent Payments based upon
post-acquisition operating performance through calendar year 2000. An additional
$1.2 million was earned as Contingent Payments during the period of September 4
to December 31, 1997.
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In May 1997, PJKK entered into an agreement to acquire the 40% interest held by
its minority stockholder for approximately $7.5 million (refer to the Company's
1997 Form 10-K). The acquisition has been funded through a combination of cash
on hand and notes payable issued to the minority stockholder. The Company
expects that PJKK will be able to fund the remainder of acquisition through a
similar combination of sources.
As of March 31, 1998 and 1997, the Company's order backlog was approximately
$42.2 million and $28.8 million, respectively. The March 31, 1998 backlog amount
includes $5.9 million and $4.3 million associated with Aquila and CCS,
respectively. The Company includes in backlog only those orders for which it has
received purchase orders and does not include in backlog orders for service. The
Company's backlog as of any particular date may not be representative of actual
sales for any succeeding period.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to Note 1 to the consolidated financial statements included in the
Company's Form 10-K for a discussion of the Company's hedging practice as it
relates to foreign currency transactions.
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PART II. OTHER INFORMATION
PACKARD BIOSCIENCE COMPANY
Item 1. Legal Proceedings
On March 5, 1996, Packard sued EG&G Instruments, a subsidiary of EG&G, Inc., in
District Court I in Munich, Germany, 21st Civil Division. In this suit, Packard
contended that an EG&G Instrument product infringed upon a Packard German patent
covering a Packard Viewplate product. Both parties dropped this lawsuit in late
March 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
27 Financial data schedule pursuant to Article 5 of
Regulation S-X
(b) Reports on Form 8-K
Not applicable.
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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 May 11, 1998.
PACKARD BIOSCIENCE COMPANY
By: /s/ Emery G. Olcott
---------------------------------------
Emery G. Olcott
Chairman of the Board, Chief
Executive Officer and President
By: /s/ Ben D. Kaplan
---------------------------------------
Ben D. Kaplan
Vice President and Chief
Financial Officer
By: /s/ David M. Dean
---------------------------------------
David M. Dean
Corporate Controller
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