SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-0676652
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
800 Research Parkway, Meriden, Connecticut 06450
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 203-238-2351
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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NONE
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. (X).
Aggregate market value of voting and non-voting stock held by non-affiliates of
the registrant as of April 30, 2001: $176,152,622.
As of April 30, 2001, there were 68,124,753 shares of the registrant's common
stock outstanding.
Documents incorporated by reference in this report: Yes.
PART I
ITEM 1: BUSINESS
We are a global developer, manufacturer and marketer of instruments and
related consumables and services for use in drug discovery and other life
sciences research, such as basic human disease research, genetic analysis and
biotechnology. We believe our broad technology portfolio and our experience
working in more than 60 countries with market-leading customers have allowed us
to establish a worldwide leadership position in many of our primary product
categories. Established on a strong lineage of bioanalytical instrumentation, we
are positioning ourselves to benefit from the fundamental change and growth the
life sciences research industry is undergoing resulting principally from the
rapid acceleration in gene discovery. We have developed advanced technologies
through substantial investments in research and development and intellectual
property, as well as through acquisitions and strategic alliances. For the year
ended December 31, 2000, we generated revenues of $165.4 million and a loss from
continuing operations, after taxes and before extraordinary items, of $10.8
million.
Our products are intended to meet the experimentation needs of a diverse
customer base, including pharmaceutical, biotechnology, agricultural and
diagnostics companies, as well as academic institutions and government agencies.
We are primarily focused on integrating our products to form platforms in the
following rapidly growing areas:
o DRUG SCREENING--the process of testing vast libraries of different
compounds in relatively simple tests, known as assays, containing
biological molecules, called targets, which are believed to have a
significant role in the onset or development of a disease,
o FUNCTIONAL GENOMICS--the analysis of gene variations and function
and their association with specific diseases, and
o PROTEOMICS--the study of the function of genes by direct analysis of
the proteins produced by such genes for the identification and
validation of targets.
Pharmaceutical and biotechnology companies have recognized that
understanding genetic variation and gene and protein function is critical to the
advancement of the drug discovery process. This, along with the accelerated
completion of the sequencing of various genomes, including the completion of the
initial high-volume stages of sequencing the human genome, is expected to result
in significantly greater investments in functional genomics and proteomics
research and more advanced downstream drug screening. The ability of researchers
to apply genomic and proteomic information to the discovery and development of
new drugs in the stages following the initial sequencing of the human genome, or
the post-genomic era, is currently subject to the limitations of the analytical
processes and instruments that provide the information. These shortcomings
result from insufficient speed of analysis due to the lack of integrated
automation in moving samples through the process, limitations in the ability to
miniaturize assays and the high cost of failures late in the drug development
process. Automation, high throughput rates and the simultaneous measurement of
more than one target from the same sample, or multiplex analysis, will be
required to meet the demands of researchers who need to process the billions of
tests necessary to convert raw genetic data into medically valuable information.
Based on industry experts' forecasts, we estimate that in the year 2001 the life
sciences research industry will invest more than $80 billion in basic life
sciences research and drug discovery and development, approximately $4.6 billion
of which will be in the areas we serve with our platforms, products and
services.
Whereas many technology companies offer a solution for one or more of the
shortcomings affecting the drug discovery process, we are integrating numerous
proven products and innovative technologies into our platforms so that the
entire process can operate with greater efficiency. Our solutions for drug
screening applications, which feature automation, miniaturization and high
sample throughput, allow our customers to increase speed, reduce cost, improve
data accuracy and enhance
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productivity. In addition, our technologies are available in modular formats to
address specific market needs.
We own approximately 65 U.S. and foreign patents and have over 40 patent
applications pending in the United States and abroad. Our rich portfolio of
proprietary technologies is embodied in our products, consumables and services.
According to a 2000 independent market research study, we provide the broadest
range of products and services to the pharmaceutical drug screening industry.
Our primary products include:
o automated liquid handling and sample preparation systems--robotic
devices for sample preparation and dispensing of liquids designed to
enable the automation of most laboratory testing procedures,
o microwell plate readers and plate imaging systems--analytical
equipment for the high throughput analysis of samples in
standardized, palm-sized plastic plates, known as microwell plates,
with small wells for holding up to 1,536 samples,
o drug screening and detection reagents--reagents and other
consumables used for the preparation of drug screening assays,
making possible their high throughput detection in miniaturized
sample formats such as microwell plates,
o biochip systems and related microarray analysis
software--instruments and software to enable the production,
detection and analysis of simultaneous gene and protein assays in
microarray or biochip formats, both of which are chips containing
dense grids of genes or proteins, and
o bioanalytical scintillation instruments--essential instruments for
fundamental life sciences research applications using scintillation
detection, or the process that converts radioisotopic sample
activity to light measurements; as we are increasingly using our
capital resources and expertise to pursue new opportunities in the
fast growing fields of drug screening, functional genomics and
proteomics, we refer to our bioanalytical scintillation instruments
product category and other radioisotopic instruments and consumables
as our "legacy products."
As part of our strategy we plan to:
o FOCUS ON HIGH GROWTH OPPORTUNITIES--continue the development of
existing and new platforms to address the large-scale experimental
needs of the post-genomic era in drug screening, functional genomics
and proteomics,
o CONTINUE TECHNOLOGICAL INNOVATION--accelerate investments in
technologies associated with our products and services through
research and development, partnerships, licensing arrangements and
acquisitions,
o MAXIMIZE THE BENEFITS OF OUR LEADERSHIP POSITIONS AND GLOBAL
PRESENCE--leverage our high brand recognition, established customer
base and well-developed sales and marketing infrastructure to
commercialize new products and platform technologies, and
o GROW RECURRING REVENUE STREAM--continue to develop and increase
sales of consumables, outsourcing and other services.
We have strong long-term relationships with a broad customer base that
includes substantially all of the 50 largest pharmaceutical and biotechnology
companies. We also have one of the largest installed bases in the life sciences
research industry with over 27,000 instruments. Our broad and well-developed
customer relationships and extensive installed base not only allow us to
generate a recurring revenue
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stream from services and sales of related consumables, but also provide us with
customer insights that are invaluable for the development and commercialization
of new products and technologies. Through our worldwide sales, marketing and
service organization of approximately 400 individuals, we distribute our
instruments and other products and provide services to many of the leading
pharmaceutical, biotechnology and agrochemical companies, as well as to
prominent academic, government and medical laboratories.
Unless the context otherwise indicates, all references herein to the
"Company," "Packard," "we," "us" and "our" are to Packard BioScience Company.
Our principal executive offices are located at 800 Research Parkway,
Meriden, Connecticut 06450. Our telephone number is (203) 238-2351. We maintain
a website at www.packardbioscience.com. Information contained in our website
does not constitute a part of this prospectus. The reference above to our
website is intended to be an inactive textual reference only.
Packard, BioSignal, HTRF, TopCount, MultiPROBE, FlashPlate, Discovery,
Tri-Carb, Auto-Gamma, Radiomatic, SignalScreen, AlphaQuest, Cyclone (in the EU
only), LucLite, PlateTrak, QuantArray, ScanArray, SpotArray and BioChip Arrayer
(in the EU only) are registered trademarks, and ALPHA, AlphaScreen, BRET2,
Fusion, HydroGel, DNATrak, GenomeTrak, MiniTrak, PlateStak, AlphaGenomics,
Talon, ArrayInformatics and ImageTrak are trademarks, of Packard BioScience
Company or its subsidiaries. MassPrep is a registered trademark of Waters
Corporation, SPA is a registered trademark of Amersham-Pharmacia Biotech AB, and
SPRI is a trademark of Agencourt Bioscience Corporation.
RECENT DEVELOPMENTS
In October 2000, we completed the acquisition of the life sciences
division of GSI Lumonics, Inc. for approximately $40 million in cash and
approximately 4.5 million shares of our common stock. The business we acquired
generated revenues of approximately $16 million for the year ended December 31,
2000, and is now a part of our subsidiary Packard BioChip Technologies, LLC, an
entity formed to consolidate our various technologies in the area of biochips.
As a result of the acquisition, based on a 2000 independent research report,
Packard BioChip Technologies became a leading provider of imaging equipment and
software for biochip and microarray applications.
In February 2001, we completed the sale of our Canberra Industries
division, a manufacturer of analytical instruments and systems used to detect,
identify, quantify and monitor radioactive materials for the nuclear industry
and related markets, to COGEMA, S.A., a France-based industrial group with
worldwide operations in the nuclear energy sector, for $170 million. We believe
the sale of Canberra will allow us to further focus and build on our global
presence in the life sciences research industry, and to continue our accelerated
research and development efforts with a significantly strengthened balance
sheet.
On April 27, 2001, we withdrew, due to unfavorable market conditions, a
registration statement on Form S-1 which we had filed on February 9, 2001,
relating to an offering of 10 million shares of the Company's common stock by
selling stockholders and us.
On July 16, 2001, we and PerkinElmer, Inc. announced that we had entered
into an agreement and plan of merger, dated as of July 13, 2001, providing
for the merger of us and PerkinElmer. The transaction is valued at
approximately $650 million, including net indebtedness, and is structured as
a tax-free, all-stock merger. If the merger is completed, we will become a
wholly-owned subsidiary of PerkinElmer, and holders of our common stock will
be entitled to receive 0.311 of a PerkinElmer share for each of their shares
of our common stock. The merger, which is subject to customary closing
conditions and regulatory approvals, as well as the approval of both our and
PerkinElmer's shareholders is expected to close during the fourth quarter of
2001. In
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connection with the merger, some of our stockholders that represent in the
aggregate a majority of our outstanding shares have also entered into a
stockholder's and voting agreements with PerkinElmer.
OUR HISTORY
We were founded in 1965 by Emery G. Olcott, our current Chairman and Chief
Executive Officer, under the name Canberra Industries, for the purpose of
manufacturing nuclear instrument modules. The sale of these electronic devices,
which are used to detect and measure the energy of radioactive materials, laid
the business foundation for our Canberra division to become a global leader in
the areas of radiation exposure measurement of humans, neutron counting, nuclear
safeguards and high-purity germanium detectors. Through the purchase of Packard
Instrument Company from United Technologies Corporation in 1986, we diversified
our product portfolio into bioanalytical instruments and biochemicals and
supplies for the life sciences research industry. In March 1997, we completed a
recapitalization transaction as a result of which Stonington Capital
Appreciation 1994 Fund, L.P. acquired approximately 69% of our common stock, and
changed our name to Packard BioScience Company. During 1998, we acquired Carl
Creative Systems, Inc., currently known as CCS Packard, Inc., and BioSignal,
Inc., currently known as BioSignal Packard, Inc. CCS Packard is a developer,
manufacturer and distributor of high throughput liquid handling systems used in
the life sciences research, in-vitro diagnostics and pharmaceutical drug
discovery industries. BioSignal Packard is a developer and supplier of cloned
drug targets and assay reagents used in pharmaceutical and biotechnology
research, and provides screening services to drug discovery companies. In March
2000, we acquired a 51% interest in Carl Consumable Products, LLC, a designer
and manufacturer of disposable pipette tips for liquid dispensing robots used to
automate drug discovery and genomics research. In April 2000, we complemented
our drug screening platform by adding fiber-optic imaging technology through the
acquisition of the optical imaging assets, primarily intangibles, of Cambridge
Imaging Limited. In October 2000, we acquired the life sciences division of GSI
Lumonics, Inc. for approximately $40 million in cash and approximately 4.5
million shares of our common stock. Also, in October 2000, we began to account
for Canberra as a discontinued operation. On February 27, 2001, we sold Canberra
to COGEMA, S.A. for $170 million.
INDUSTRY OVERVIEW - LIFE SCIENCES RESEARCH AND DRUG DISCOVERY
The life sciences research industry is undergoing fundamental change and
growth resulting principally from the rapid growth in gene discovery and the
increasing demand for greater efficiency in the drug discovery process. Based on
industry experts' forecasts, we estimate that in the year 2001 the life sciences
research industry will invest more than $80 billion in basic life sciences
research and drug discovery and development, approximately $4.6 billion of which
will be in the areas we serve with our platforms, products and services.
Traditionally, chemists laboriously synthesized new compounds with potential
therapeutic activity one at a time or painstakingly isolated them from natural
sources. Today, combinatorial chemistry techniques, or the large scale
production of new chemicals by reacting a set of materials in all possible
combinations, are used to greatly increase the supply and diversity of such
compounds. Libraries of hundreds of thousands, or even millions, of compounds
are now available for testing in biological assays against disease targets.
Until recently, life sciences researchers had identified only a few
hundred targets. Driven by large-scale DNA sequencing projects, such as the
Human Genome Project, life sciences researchers expect to identify tens of
thousands of new gene targets as they decipher the genomes of both humans and
disease-causing organisms. Sifting through these massive gene pools to identify
disease-causing genes will require large-scale experimentation. Determining
which gene variations cause or play a role in diseases will be an even greater
challenge. Once potential targets are identified, they need to be screened
against hundreds of thousands, if not millions, of compounds, a process known as
"drug candidate screening." As a result of this dramatic increase in the need
for drug candidate screening, industry experts agree that new bioanalytical
tools and optimized processes will be required to improve the overall
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efficiency of the drug discovery process. It is generally accepted that
industrialization and automation of repetitive activities will be required to
streamline the drug discovery process.
The various phases of the modern drug discovery process are as follows.
Drug targets, which are genes and proteins that are believed to have a
significant role in the onset or development of a disease, are identified using
genomics and proteomics techniques. These targets are incorporated into tests,
known as assays, and then rapidly tested against hundreds of thousands of
compounds to determine whether a particular compound reacts with a particular
target, a process known as screening. The compounds that act on a target are
classified as leads and are then subjected to further testing to optimize the
leads, a process known as lead optimization. The drug candidates emerging from
this drug candidate screening process enter the drug development phases where
they are tested and optimized for therapeutic efficacy and safety in the early
ADME/Tox and pre-clinical testing phases, and for commercial viability in the
clinical trial phase. (ADME/Tox stands for the following properties of a lead
compound: absorption by the intestinal systems, distribution within the body,
metabolism by the liver and other systems, excretion and toxicity.) Ultimately,
the compounds that make it through this attrition process are commercialized as
therapeutic drugs. To improve the efficiency of this process, the industry is
looking for tools that improve testing speeds throughout the process, enable
test miniaturization to keep costs under control, and methods to bring the drug
selection process forward and avoid late failures in the clinical trials phase.
A more detailed discussion of the process of drug discovery follows.
GENOMICS
STRUCTURAL GENOMICS
Interest in understanding the relationships between genes and diseases has
generated a worldwide effort to identify the structure and sequence of the genes
of many organisms, including the approximately 3 billion DNA base pairs, or the
letters of DNA coding in the human genome, comprising the approximately 30,000
to 40,000 genes within the human genome. Known as the Human Genome Project, this
project is expected to identify most of the human genes within the next couple
of years. While the portfolio of existing drugs is believed to act only on
approximately 500 gene products or targets, scientists believe that from 5,000
to 10,000 gene products represent the majority of the important drug targets
from which therapeutic products may be developed. In addition to human-related
genomics, the sequencing of the genome of disease-causing organisms is producing
numerous potential targets for drugs to treat infectious diseases.
FUNCTIONAL GENOMICS
We anticipate that, once researchers identify the sequence and structure
of a gene, the identification and validation of new drug targets will require an
understanding of the specific function and role of that specific gene in
diseases. This effort will require many years of additional research and
large-scale bioanalytical experimentation with millions of samples. Single
nucleotide polymorphism, or SNP, genotyping and gene expression analysis,
described below, are considered essential techniques to determine the function
and association of genes with specific diseases.
SINGLE NUCLEOTIDE POLYMORPHISM (SNP) GENOTYPING. SNP genotyping is the
process of analyzing locations within a genome where variations in a gene
sequence, or genetic polymorphisms, are known to exist. Genetic polymorphisms
may play a role in an individual's susceptibility to disease and response to
drugs. SNPs are the most common type of genetic variation. There are an
estimated 3 to 10 million SNPs in the human genome, and efforts are under way by
various public groups, such as the SNP Consortium, and numerous individual
companies, to identify these millions of human SNPs.
The identification of a SNP does not indicate whether or how it may relate
to human health. To relate SNPs to disease or drug response, SNPs must be
measured, or typed, in hundreds of thousands of
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people and correlated with clinical data describing the health of those
individuals. These studies will require hundreds of millions of measurements. As
more and more SNPs are identified, a new market is quickly emerging for high
throughput detection of SNP genotypes. A portion of the need for this high
throughput will be created in the clinical trials and commercialization stages
through pharmacogenomics, which is an approach to drug development that utilizes
genotypic information to develop highly specific drugs.
GENE EXPRESSION ANALYSIS. Gene expression is the process by which a gene's
coded information is ultimately translated into the production of proteins
within a cell. While all cells contain the full set of genomic DNA, different
cells express different sets of genes depending on cell type and environmental
conditions. Some diseases also arise from the over or under expression of genes.
Gene expression levels are measured by detecting differences in the patterns of
messenger RNA, or mRNA, which are molecules copied from a DNA sequence that are
used by cells to initiate the production of proteins, mRNA serves as a template
for the production of proteins. A primary application of this process is
differential gene expression analysis, where researchers compare the genes
expressed in healthy and diseased samples to identify specific genes involved in
a particular disease process. Another common application involves measuring a
change in expression of particular genes when researchers add drug candidates to
cells.
As researchers identify more genes from the genome sequencing projects, we
expect the market for expression analysis technologies to grow significantly.
For example, faster and more efficient instrumentation will enable researchers
to screen a compound library more effectively and look for those compounds that
affect expression of particular genes in a beneficial way, or develop a
screening system to assess the toxicological effect of a set of new drug leads.
PROTEOMICS
PROTEIN FUNCTION
Instead of analyzing a gene or its mRNA, proteomic research studies the
function of genes by direct analysis of the gene product, or protein. A
"proteome" is defined as the complete set of proteins present in a given tissue,
cell or biological system at a given time. It is in essence the protein
complement of the genome. A systematic analysis of the protein profiles of
healthy and diseased tissue may identify disease-specific proteins. Initially,
proteomics will complement functional genomics for the identification and
validation of targets. Once sets of candidate proteins believed to be associated
with some diseases have been identified and characterized, high throughput
technologies will be required to determine the effect of drug candidates on
protein function or to perform clinical studies and diagnostic analyses.
TARGETS
Targets are specific biological molecules, usually proteins, which are
believed to have a significant role in the onset or development of a disease.
Target identification involves acquiring knowledge about the role a particular
molecule plays in the body in order to determine whether it might be a good
target for further investigation. Target validation is the demonstration that
affecting the function of a particular target has a positive effect on the
course of a disease. Target validation employs a variety of scientific research,
including the analysis of mRNA, proteins and cells. Today, while this activity
is often associated with proteomic studies, it is most often initiated with
genomics studies.
COMBINATORIAL CHEMISTRY
Over decades, chemists in major pharmaceutical and chemical companies
built up libraries of hundreds of thousands of compounds. These compounds were
usually obtained by chemical synthesis one at a time or, alternatively, by
isolation from natural sources. During the last few years, however, many
corporate and academic groups have developed combinatorial chemistry techniques
to greatly increase the supply and diversity of small molecules for screening.
As a result, most companies now have access to millions of compounds to be
tested against established or new targets and yield potential lead
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compounds for the development of new medicines. These vast numbers of compounds,
combined with the explosion in new targets, present a substantial challenge to
the drug discovery process and create a need for faster and more cost-efficient
screening.
DRUG CANDIDATE SCREENING
Drug candidate screening generally involves testing of large libraries of
different compounds in relatively simple assays, or tests, containing targets
identified through genomics and proteomics research. Assays are employed to
determine the effect of a compound upon a particular target. When applied
methodically, assays can be used as screens to identify active chemicals,
referred to as "hits," that may produce a desired effect upon a target's
function. Lead compounds can be identified by additional screening of hits and
may then be optimized to generate candidate compounds for development as
potential medicines.
ASSAYS
Assay development, in the context of screening compounds against a new
target, refers to a test a researcher must develop for measuring whether
particular compounds in a library interact with the target in a particular
manner. The type of assay utilized for drug screening depends on the target
under investigation and the type of information being sought. Researchers design
some assays to measure whether and how tightly a compound binds to a target,
such as the binding of a drug to a protein. Other assays are designed to measure
whether and to what degree a compound reduces the biological activity of a
target, such as the activity of an enzyme. In other cases, researchers test
compound collections against living cells and measure a particular cellular
response, such as a change in expression level of one or more genes. Targets can
be incorporated into either biochemical or cell-based assays. A biochemical
assay involves a target that is isolated from its natural cellular environment.
Cell-based assays test compounds on targets functioning in the environment of
living human or other mammalian cells. For lead optimization, described below,
cell-based assays provide a number of advantages, including greater predictive
value of therapeutic effect and potential toxicity. However, cell-based assays
have typically been more difficult and time consuming to develop and to perform
due to difficulties in detecting the function of a target in a living cell and
the inherent technical complexities of using human or other mammalian cells in
drug screens.
SCREENING
Screening is the process of methodically testing libraries of compounds
for potential therapeutic value by using assays to determine if any of the
tested compounds affect a selected target. Primary screening involves performing
an identical test on each compound in a large library to identify hits.
Re-testing confirms initial hits and secondary screening refines the initial
evaluation of hits. For example, secondary screening may measure a hit's
"potency," which is the amount of the hit compound required to exert its effect,
and "specificity," which is the degree to which the hit exerts its effect on the
defined target rather than unintended targets. With the rapidly growing list of
targets identified by genomics programs, the major pharmaceutical companies are
moving towards screening up to 100 targets annually against libraries of up to
one million compounds using semi-automated or high throughput screening systems.
LEAD OPTIMIZATION
Lead optimization refers to the process of sorting through compounds that
emerge from the screening process, and involves conducting successive rounds of
chemical alterations and biological tests to find compounds likely to have
appropriate drug properties. Like target validation, lead optimization involves
a variety of methods, including protein and cellular analysis, chemical
synthesis and high throughput experimentation.
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DRUG DEVELOPMENT
EARLY ADME/TOX AND PRE-CLINICAL TESTING
ADME/Tox stands for the following properties of a lead compound:
absorption by the intestinal systems, distribution within the body, metabolism
by the liver and other systems, excretion and toxicity. The ADME/Tox phase is
typically conducted during pre-clinical studies. However, to avoid costly and
time-consuming pre-clinical experiments, simplified molecular and cellular model
systems that mimic mammalian physiology are often used to gain information about
the lead's solubility in blood plasma, its cell penetration capabilities or its
toxicity. These studies in these surrogate molecular and cellular systems,
referred to as "Early ADME/Tox," are bridging the gap between a need for high
throughput and true physiological information about lead compounds.
CLINICAL TRIALS AND COMMERCIALIZATION
Clinical trials test pharmaceutical product candidates in humans to
demonstrate their safety and efficacy. Because clinical trials are the most
expensive part of drug development, pharmaceutical companies are attempting to
improve the outcomes of clinical trials by using genomic approaches to drug
development. In order to use genomics in a clinical trial, each patient's
genetic make-up must be analyzed. This could entail analysis of thousands of
different SNPs in a patient's DNA which, for a 1,000 patient trial, would
require generating millions of data points. The successful outcome of clinical
trials may result in regulatory approval to commercialize the new drug product.
SHORTCOMINGS OF THE DRUG DISCOVERY PROCESS
Based on industry experts' forecasts, we estimate that in the year 2001
the life sciences research industry will spend more than $80 billion for
research and development of new pharmaceuticals, more than $1.9 billion of which
will be spent on drug candidate screening in the areas we serve. Despite these
heavy investments, the largest companies in the industry do not believe they
have the means to generate an adequate rate of new drug applications for
regulatory approval. A significant opportunity to discover greater numbers of
higher quality drug candidates has been created by the recent dramatic increases
in the number of potential targets and the size and diversity of compound
libraries. These increasing numbers of gene targets and compounds, however, have
also created shortcomings in the drug discovery process.
We believe that the following technology limitations are hindering
efficiency improvements in the drug discovery process.
INSUFFICIENT SPEED DUE TO LACK OF INTEGRATED AUTOMATION
Most drug discovery facilities rely on screening massive numbers of
samples for functional genomics and drug screening applications. Throughput is
currently limited by the preparation and movement of samples through the process
of plate and liquid handling, incubation, washing and finally into the detection
area, as opposed to the actual analysis time. For example, to perform one high
throughput screen, researchers typically need to remove thousands of compounds
from storage and transfer small amounts of these compounds to hundreds of new
plates. They then add fluid to dilute them and transfer a portion of the diluted
compound to another set of plates. After adding a target and reagents, they move
the plates to an incubation station and incubate the reaction mixture for a
precise period of time. In some cases, they then may separate the non-active
portion from the reaction by washing the plates. They then transfer the plates
to a detection instrument to scan the plates and to see the results. Finally,
they discard all the plates. The whole process can take a team of researchers
weeks or months to complete, and must be repeated to test the same compounds
against the next pharmaceutical target.
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We believe that, in order for drug discovery to reach the next level of
performance, each process module, including robotics, liquid handling, assay
reagents, detection systems and data management software, must be linked and
integrated in a highly automated or industrialized manner.
LIMITATIONS IN THE MINIATURIZATION OF ASSAYS
To stay competitive and meet their goals for operational and financial
growth, pharmaceutical companies will have to increase significantly the number
of new drugs they introduce into clinical trials each year. Capacity increases
in drug candidate screening, SNP detection, gene expression and protein function
analysis will be required to meet these objectives. However, industry experts
agree that such capacity increases will not be economically feasible unless
assays can be miniaturized. Assays can generally be divided into liquid phase
assays, in which the assay components are mixed and the results measured without
an additional processing step, and solid phase assays, in which at least one
assay component is attached to an inert solid support. Many drug screening
assays are liquid phase assays, and are processed in the wells of microwell
plates. Functional genomics and proteomics assays on the other hand are often
processed on microarrays, which are high-density arrays of biological samples on
a solid support, called a microspot. Each microspot of the array represents a
solid phase assay. The following fundamental problems need to be addressed to
successfully miniaturize these two types of assays:
o Liquid phase or microwell plate assays:
-- highly sensitive assay chemistries and detection equipment are
required to measure biological reactions in small microliter
volumes, without substantially increasing the concentration of
the reagents.
-- sample preparation and liquid handling must be performed in
small volumes such as 384- or 1536-well microwell plates
rather than 96-well microwell plates, requiring the ability to
accurately dispense volumes at the sub-microliter level.
o Solid phase or microarray assays:
-- deposition of the assay component, whether a nucleic acid or a
protein, on a solid phase must be performed with great
accuracy and precision at the sub-nanoliter (one billionth of
a liter) level in order to realize the advantages that can be
obtained from simultaneous analysis of data obtained from gene
and protein chips.
-- high-resolution imaging equipment with great detection
sensitivity and a wide dynamic range is required to
automatically measure and analyze batches of microarrays
without much user intervention.
TOO MANY FAILURES, TOO LATE IN THE PROCESS
The cost of drug discovery increases exponentially as a lead moves through
the discovery process. The cost of screening a compound is usually below ten
dollars, while the cost of developing a drug candidate at later stages of the
development can run in the hundreds of millions of dollars, especially during
clinical trials and the regulatory approval process. With the largest cause of
failure in the clinic being toxicology issues, the incorporation of high
throughput approaches for ADME/Tox screening in discovery will greatly benefit
any pharmaceutical company. Drug lead failures late in the process should be
significantly reduced through the use of so-called functional assays that
monitor the effect of drug candidates on living cells, and the implementation of
high throughput gene expression profiling using microarray formats to reject
compounds having unacceptable toxicity profiles.
9
OUR TECHNOLOGY PORTFOLIO
We have developed and continue to develop a broad portfolio of
technologies, products and services to support the drug discovery industry and
to address current shortcomings in most stages of the drug discovery process. We
believe that, in order to support more efficient drug discovery, industrialized
platforms that optimize the use of technology components are required. Please
refer to "--Intellectual Property" for more information regarding licenses
relating to these products.
PROPRIETARY ASSAY REAGENTS AND DRUG SCREENING TECHNOLOGIES
We have internally developed or exclusively licensed a broad range of
proprietary assay technologies, which we believe exhibit significant advantages
over existing high throughput assays in terms of sensitivity, miniaturization
capability and versatility. Because these are "one-step" or homogeneous assays,
which do not require additional separation or washing steps, they enable high
throughput analysis and fully automated screening. In addition, our assay
portfolio covers a wide range of both biochemical and cell-based assays, and can
be used against most major classes of drug targets in most therapeutic areas.
Our assay portfolio consists of:
o ALPHASCREEN. Amplified Luminescent Proximity Homogeneous Assay, or
ALPHA, is a homogeneous assay technology for biochemical and
molecular assays exclusively licensed from Dade Behring, Inc. As a
result of its signal amplification characteristics, ALPHA has
superior sensitivity enabling ease of use, throughputs of greater
than 250,000 samples per day and excellent miniaturization
capabilities. Without the need to increase reagent concentrations,
ALPHA offers the sensitivity of heterogeneous assays in a
homogeneous format, and enables assay miniaturization to very small
volumes. We released ALPHA to the market in late 1999 under the
trade name AlphaScreen. We expect this technology to find widespread
acceptance for a wide range of drug discovery assays. In addition,
AlphaScreen can be configured to run two tests within one assay,
which makes it particularly useful for ultra-high throughput
genomics applications, such as SNP detection;
o BRET2. We consider Bioluminescence Resonance Energy Transfer, or
BRET, a breakthrough luminescent assay technology for proteomic
studies in live mammalian cells. We released this new technology to
the market in August 2000 under the trade name BRET2. This
technology allows the study of protein-to-protein interactions in
live cell assays. For example, BRET2 enables the analysis of a new
class of drug targets identified by the Human Genome Project,
so-called orphan receptors targets, which are unknown receptor
molecules on the surface of a cell that may interact with particular
drug compounds. The fundamental technology is licensed exclusively
from Vanderbilt University.
o LUCLITE. In 1996, we introduced, under the trade name LucLite, a
glow-type luminescent substrate which are reagents that emit light
where particular genes are present in a cell. For the first time
LucLite enabled ultra-high throughput screening of gene expressions
in cells. Today, we estimate that LucLite reagents have been used to
screen over 60 million compounds worldwide;
o FLASHPLATE. FlashPlate scintillation proximity assay technology,
which is a process of converting radioisotopic activity into light
when two molecules interact, was introduced in the early 1990's for
homogeneous radioisotopic applications. Despite the trend away from
the use of radioisotopes, we believe that radioisotopic assays will
remain useful for a significant percentage of drug discovery assays
because it is possible to label a compound with a radioisotope
without altering its chemical structure. We currently distribute
FlashPlates through PerkinElmer's life sciences division, under an
exclusive license agreement;
10
o RAPID EXPRESSION AND TARGET VALIDATION. We hold various exclusive
and non-exclusive licenses to gene expression technologies,
including a range of expression systems. These technologies,
combined with gene cloning expertise and state-of-the-art cell
culture facilities, enable rapid genetic engineering of cells
expressing new protein targets for target validation by
pharmacological analysis; and
o ASSAY DEVELOPMENT AND SCREENING SERVICES. We have extensive
experience in the purification of a wide range of proteins,
including the purification of proteins by working them with
engineered genetic "tags." To facilitate rapid assay development for
high throughput screening, we also maintain a portfolio of
proprietary assays for receptors, reporter genes, and biochemical
and cell-based assays.
PROPRIETARY ASSAY FORMATS AND CONSUMABLES
Today, the large majority of high throughput assays are conducted in
standardized plastic plates having 96 small reservoirs, or "wells," to
facilitate parallel experimentation. Driven by higher throughput needs, parallel
processing requirements and cost constraints, the industry is rapidly moving
towards miniaturized assay formats which include high-density microwell plates,
containing 384 and 1536 wells, and biochip/microarray formats. We believe that
we are one of few companies that will be able to offer both of these assay
formats and provide compatible high throughput assay platforms. These
capabilities will give our customers a migration path to miniaturized assays as
applications emerge.
o MICROWELL PLATES. We have built a reputation as a specialty
microwell plate supplier for high throughput assays in the drug
discovery market. We have proprietary plates for cell-based assays,
filtration assays and scintillation proximity assays in both 96- and
384-well formats. In addition, we are working closely with other
manufacturers to develop 1536-well microwell plates suited for
conducting the miniaturized assays enabled by our new ALPHA screen
and BRET assay technologies.
o 3D HYDROGEL MICROARRAY CHIPS. We have a co-exclusive license
pursuant to which each of Motorola, Inc. and ourselves, has a right
to commercialize the biochip technology developed at Argonne
National Laboratory. Consisting of a thin hydrogel film on a glass
substrate, our HydroGel chips provide a three-dimensional substrate
for the immobilization of nucleic acids and proteins in microarray
formats with densities of thousands of elements per square
centimeter. Microarrays can be produced in two formats, at the
bottom of the wells of microwell plates, so-called microarray
plates, or on standard format glass microscope slides, so-called
biochips. Because the HydroGel provides an aqueous microenvironment
for biological reactions, we believe our 3D HydroGel chips are
suited for the production of both DNA-chips and protein-chips.
o PIPETTING TIPS. Pipetting tips are disposable tips used on the
dispensing heads of our automatic liquid handling robots. The
quality and consistency in performance of these tips define to a
large degree the precision and accuracy of dispensing. To ensure
this quality and consistency, we have developed our own tip molding
facility and have patented a unique tip design. We believe that the
ability to match the quality of the disposable tips to the
capabilities of the liquid handling equipment gives us a competitive
advantage, especially when dispensing very small volumes of liquids.
PROPRIETARY LIQUID HANDLING AND ROBOTIC SYSTEMS
We have internally developed a number of products to automate sample
preparation and to process samples with industrial-strength robotic systems. Our
liquid handling systems and robotics portfolio includes:
11
o MULTIPROBE LIQUID HANDLERS. These robotic systems allow researchers
to automatically process samples using a wide variety of sample and
reagent containers at a throughput and capacity far beyond those
achievable with manual pipetting. Key features of the MultiPROBE
systems are their ability to computer control innumerable liquid
handling processes performed in laboratories, such that virtually
any routine sample preparation process can be automated. MultiPROBE
can process samples with up to eight tips simultaneously, and offers
the capability to both automatically adapt tip spacing to
accommodate various containers and interchange disposable and fixed
pipetting tips without user intervention. In addition, MultiPROBE
can be equipped with a robotic gripper system, designed to move
common labware within the workspace of the MultiPROBE. Introduced in
January 2001 under the Talon trade name, this system provides
unattended automation for many labor-intensive sample preparation
routines.
o PLATETRAK ROBOTICS. These industrial-strength microwell plate and
liquid handling robotics use linear bi-directional conveyor belts to
process samples at very high throughputs. The combination of various
process modules, such as 96- and 384-tip liquid dispensing, washing,
filtration, sealing, barcode reading and plate stacker modules,
permits the automation of virtually any high throughput sample
preparation protocol in 96-, 384- and 1536-well microwell plates. In
addition, a "pick-and-place" robotic arm allows the system to
support peripheral devices such as incubators, thermal cyclers and
microwell plate readers in the automation process. The recent launch
of our ImageTrak fiber-optic imager further expands the applications
of the PlateTrak robotics platform to automated ultra-high
throughput drug screening. In addition, the introduction of our
GenomeTrak and DNATrak systems allow high throughput DNA extraction
and preparation for genomic applications.
PROPRIETARY MICROWELL PLATE READER AND IMAGING TECHNOLOGIES
We have developed a portfolio of ultra-high throughput detection
techniques to integrate our assay technologies with our robotics platforms.
Among the products incorporating these techniques are:
o MICROWELL PLATE READERS. Microwell plate readers are bioanalytical
devices designed to measure sample activity in the wells of a
microwell plate. Our microwell plate readers use various proprietary
optical detection technologies to analyze samples from absorbance,
scintillation, luminescence, fluorescence, time-resolved
fluorescence, AlphaScreen and BRET2 assays. Single-photon counting
electronics are combined with parallel detection optics to meet
ultra-high throughput needs. We believe that our Fusion universal
microwell plate reader, which was launched in June 2000, is the only
microwell plate reader capable of measuring samples in virtually any
microwell plate assay format, using all detection techniques
mentioned above.
o IMAGETRAK FIBER-OPTIC IMAGERS. Fiber-optic imagers are bioanalytical
devices designed to obtain images and analyze the activity of
samples in various sample formats. In January 2001, we launched our
ImageTrak fiber-optic imager. This system uses highly-sensitive
"charge coupled devices," or CCD, coupled to the sample through
fiber optics to obtain images of samples in a wide variety of
microwell plates, including 96-, 384- and 1536-well microwell
plates. Our patented fiber-optic imaging technology avoids the use
of lenses to project images of samples onto the CCD detection
device. This results in better light gathering efficiencies, higher
measurement throughputs and more accurate and quantitative
analytical data for both fluorescent and luminescent assays. In
addition, ImageTrak permits the simultaneous injection and reading
of all samples in a microwell plate, enabling the study of the
immediate effect of drug candidates on disease targets in live
cells.
12
PROPRIETARY BIOCHIP SYSTEMS AND RELATED MICROARRAY ANALYSIS SOFTWARE
Both through internal development and acquisitions we have assembled a
portfolio of proprietary products and technologies for the production and
analysis of samples on biochips and microarrays:
o INKJET PRINTING ROBOTICS. This proprietary liquid handling
technology utilizes piezoelectric actuators to "squeeze" glass tips
in order to dispense pre-determined numbers of picoliter size
droplets at high frequency on the solid surface of a biochip or
microarray. This "drop-on-demand" or "inkjet printing" technology
enables the tips to dispense volumes ranging from 300 picoliters to
several nanoliters with great precision and accuracy. Several
patented techniques are being used to implement banks of inkjet
printing tips on micro-precision robots able to routinely aspirate,
transfer and dispense minute quantities of samples and reagents from
standard labware to miniaturized devices such as microarray plates
and biochips. Commercialized under the trade name BioChip Arrayer,
this technology enables industrial scale production of high-quality
gene and protein chips.
o SPOTARRAY. SpotArray, which we expect to start delivering in the
third quarter of 2001, is being developed as an economical
alternative to our inkjet printing technology. It is a pin tool
printer designed for printing microarrays in academic and research
settings. SpotArray features a small footprint for space-constrained
laboratories and incorporates features including an integrated
enclosure, humidity control, and a barcode reader. SpotArray
features intuitive, integrated software for array design and spotter
operation, and hardware sensors are integrated with the software
operation to prevent operation errors. Advanced motion control,
replaceable spotting pins, and a pin washer provide fast, reliable
operation for small-scale microarray production.
o SCANARRAY LASER SCANNERS. Our ScanArray scanners use patented
confocal optics and up to five laser wavelengths to provide both
sensitivity and versatility for the imaging and analysis of
microarrays and biochips. These proprietary capabilities allow users
to extend their experiments to a wide variety of microarray
applications, including SNP detection, gene expression analysis and
protein chip studies. A patented barcode reader option and a biochip
autoloader permit hands-off imaging and analysis of up to 20
microarrays.
o QUANTARRAY ANALYSIS SOFTWARE. Our QuantArray analysis software
enables researchers to easily and accurately visualize and quantify
gene expression data. Developed for Windows NT, QuantArray provides
automated analysis of two, three, four and five color microarray
images without the need to manually draw grids. Furthermore, when
used in conjunction with our ScanArray systems, QuantArray provides
one-step, automatic scanning and quantification before exporting
data to bioinformatics software packages. QuantArray's real-time
image display allows the user to view microarray experimental
results in seconds.
o ARRAYINFORMATICS. Our ArrayInformatics software, which we expect to
start delivering in the third quarter of 2001, will be one of the
first commercial products to incorporate microarray process
information, microarray spot data, and data visualization into one
integrated product. Users can store and analyze five channels of
microarray spot data and graphically visualize an audit trail of
data transformations. ArrayInformatics is designed to facilitate
data collection from all our biochip products including QuantArray,
ScanArray, and SpotArray. In addition, data can be imported from
other third-party bioinformatics products.
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OUR INDUSTRIALIZED PLATFORMS AND SOLUTIONS
According to a 2000 independent market research study, we provide the
broadest range of products and services to the pharmaceutical drug screening
industry. Whereas many technology companies offer a solution for one or more
individual components of the broader drug discovery process, we are integrating
numerous proven technologies into our product offerings so that the entire
process can operate with greater efficiency. Our approach is aimed at
integrating our technologies, using modular, scalable, integrated platforms that
are suitable for high throughput industrial applications, while keeping our
individual components and products sufficiently flexible and convenient for
smaller scale academic research.
Our integrated platforms are designed to support the industrialization of
drug discovery by bringing the benefits of miniaturization, integration and
automation to high throughput applications such as drug screening, SNP
detection, gene expression and protein function analysis. Today, we believe we
provide the most comprehensive integrated solutions for drug screening
applications that allow our customers to increase speed, reduce cost, improve
data accuracy and enhance productivity. We intend to build upon our drug
screening foundation to expand the application scope of our platforms to the
growing large-scale experimentation needs of the functional genomics and
proteomics fields.
The primary features of our integrated system are:
o MINIATURIZATION. Unlike other microfluidic formats, such as
lab-on-a-chip technologies, our devices use a practical
miniaturization approach based on the standardized footprint of
microwell plates and microscope slides. This allows us to maintain
compatibility with most laboratory equipment. Our small volume
pipetting tips currently can handle microliter volumes accurately in
high-density microwell plates, and we believe they will be able to
dispense sub-microliter volumes by the end of 2001. Our inkjet
printing technology can accurately miniaturize liquid handling
procedures to sub-nanoliter volumes. This enables assay
miniaturization beyond the current capabilities of other liquid
handling technologies. In combination with high-precision robotics,
our inkjet printing technology enables the production of high
quality microarrays on microscope slides or biochips, and on the
bottom of microwell plates.
o AUTOMATION. Our PlateTrak microwell plate and liquid handling robots
were the first to use bi-directional conveyor belts to process
samples at very high throughput. The recent addition of integrated
incubation and imaging makes this system the first to integrate
assay assembly, incubation and detection in one space-saving
analytical configuration. Complete experiments for both biochemical
and live cell screening assays, as well as for high throughput
genomics assays such as DNA extraction and SNP detection, can be
automated using these platforms. Depending on the assay, the
PlateTrak robotic system will process and analyze samples in
standard microwell and high-density microwell plates. For lower
throughput microwell plate applications, our new Talon integrated
MultiPROBE robotics platform provides similar functionality to the
PlateTrak platform, while for microarray applications, our patented
ScanArray system with barcode reader and automatic biochip loader
enables the automation of gene and protein chip analysis.
o ULTRA-HIGH THROUGHPUT. By integrating our Fusion multi-mode
microwell plate reader or ImageTrak fiber-optic imaging detector
with our PlateTrak's bi-directional robotic system, analytical
throughputs can now match the proven high-speed sample preparation
capabilities of the robotics system. Through this automated process
line approach for sample preparation, liquid handling, incubation
and detection, throughputs of hundreds of thousands of samples per
day can be achieved for a wide range of microwell plate assays. A
similar integrated approach combining the ScanArray with QuantArray
and ArrayInformatics addresses the needs of high throughput
microarray analysis and data interpretation.
14
The advantages of our current industrial-strength platforms and those
under development are listed in the following table:
FEATURE ENABLING TECHNOLOGIES BENEFITS
AUTOMATION o PlateTrak robotic system o High throughput drug screening and DNA preparation
o MultiPROBE/Talon liquid handling o Flexible automation of most sample preparation
procedures
o Inkjet printing of biochips/microarrays o High quality production of gene and protein chips
MINIATURIZATION o AlphaScreen assays o Compound and target savings in drug screening
o Low-volume dispensing in 384- and 1536 o Reduction of assay volumes
-well microwell plates
o AlphaGenomics assay o Cost effective and accurate SNP detection
ULTRA-HIGH THROUGHPUT o Fusion multi-mode plate reader o High throughput analysis of biochemical and SNP
assays
o ImageTrak plate imager o Cell-based drug discovery
o ScanArray biochip imager o Automatic analysis of gene and protein chips
For over five years, we have installed elements of our systems at
substantially all of the 50 largest pharmaceutical companies and at many
renowned academic institutions worldwide. Leading companies have purchased
hundreds of our microwell plate readers and numerous liquid handling robots and
use our products and services to streamline their drug discovery process. We
have installed over 350 microarray scanning and production systems.
INDUSTRIALIZED DRUG SCREENING PLATFORM
Our industrialized drug screening platform allows assay development and
high throughput screening facilities to transition from conventional microwell
plates, to high-density microwell plates, and ultimately to microarray plates.
Our platform builds upon PlateTrak "assembly-line" technology for high
throughput automation and dispensing, ultra-sensitive AlphaScreen and BRET2
screening technologies for miniaturization of both biochemical and cell-based
assays, and integrated microwell plate readers and imagers for ultra-high
throughput analysis. With the recent introduction of the ImageTrak system, we
believe we now offer the most advanced technology for cell-based assays based
upon our multi-tip liquid dispensing technology with multi-fiber optics imaging
for simultaneous injection of compounds and measurement of their instantaneous
response on live intact cells. Simultaneous data from all wells will provide
enhanced information on drug lead affinity, efficacy and function from a single
assay, thereby helping to identify drug candidate failures early in the process.
Our customers apply our industrialized drug screening platform to improve
the efficiency of the three screening stages of the drug discovery process:
assay development, screening and lead optimization. These stages include many
standardized, repetitive tasks and our platform brings process automation, high
throughput analysis and assay miniaturization to these phases to improve the
productivity of the drug screening operation. Our platform is designed as a
modular assembly of screening components to process and test hundreds of
thousands of compounds in small volume assays in an automated fashion. We
provide both the assay reagents and consumables, or assay formats, to
efficiently convert targets into assays. Our automation equipment and liquid
handling robotics automatically process these assays in microwell plates, and
our microwell plate readers and imagers, or
15
detectors, can screen hundreds of thousands of compounds each day and analyze
their effect on assay targets to discover new drug leads. The following are the
various elements of the platform:
o AUTOMATION. We believe our PlateTrak robotic system can automate the
sample preparation of virtually any high throughput screening
protocol using a modular conveyor approach that combines automated
microwell plate processing robotics with proprietary 96- and 384-tip
liquid dispensing modules. Today, assays can be conducted in 96-,
384- and 1536-well microwell plates at ultra-high throughputs. For
lower throughput applications, such as assay development, secondary
screening, lead follow-up and ADME/Tox studies, our Talon integrated
MultiPROBE platform provides automation of the sample preparation
steps of virtually any assay procedure.
o ASSAYS. Automated high throughput preparative tools are compatible
with conventional scintillation proximity assays for biochemical
interaction measurements, as well as with our LucLite reagents for
cell-based reporter gene assays, or assays that allow the
measurement of the function of an unknown gene by coupling it to a
gene with a known function. The introduction of our AlphaScreen and
BRET2 assay technologies is expected to provide enhanced performance
for most drug screening applications. AlphaScreen, launched in late
1999, is an enabling technology for scaling down high throughput
screening assays into 1536-well microwell plates, and BRET2,
launched in August 2000, extends the applications of our platforms
to functional genomics and proteomic assays in live cells. In
addition, by integrating our ImageTrak fiber-optic imaging
technology onto the platform, we are expanding our automated assay
processing to enable the kinetic measurements of compound-target
interactions by measuring luminescence and fluorescence signals in
live cell assays, and we believe we will be able to measure
proximity assays, such as Scintillation Proximity Assay, or SPA,
which are radioisotopic assays that emit light when two specific
molecules interact.
o DETECTION. The integration of our TopCount and Fusion microwell
plate readers results in high throughput screening platforms with
superior performance for scintillation, luminescence, fluorescence,
AlphaScreen and BRET2 assays. Our microwell plate reader products
are highly sensitive, high throughput detection systems, capable of
performing low-volume assays in small-volume 384- and 1536-well
microwell plates. Throughputs of 50,000 to over 250,000 samples per
day can be achieved per instrument for BRET2 and AlphaScreen,
respectively. In addition, with the introduction of multi-technology
detection on the Fusion universal microwell plate reader for assay
development and high throughput screening, and the ImageTrak for
ultra-high throughput cell-based and biochemical screening
applications, we believe that our drug screening platform will keep
its competitive edge over other automated screening systems.
Today, the current applications of our major product lines collectively
span the stages of the drug discovery process from target identification to
clinical trials.
Our AlphaScreen brings reliable, high throughput screening capabilities to
miniaturized sample formats, including 1536-well microwell plates. We believe
that AlphaScreen enables miniaturization of the broadest range of assays of any
non-isotopic high throughput screening technology. The following table
illustrates some of the features of our AlphaScreen assay technology:
TRADITIONAL NON-ISOTOPIC HIGH
THROUGHPUT SCREEN* ALPHASCREEN
---------------------------------- -----------------------
Typical Assay Volume 50 to 250 microliter 5 to 50 microliter
Assay Volume Lower Limit 10 microliter < 1 microliter
Reagent/Target/Compound Savings 1 x Up to 10 x
16
Microwell Plate Format Typically 96 and 384 96, 384 and 1536
Low Affinity Protein Interactions No Yes
SNP Discovery and Scoring Some Yes
Adaptable to Various Assay Classes Typically to 40% of all classes Up to 70% of all classes
Integral Signal Amplification No Yes
Signal/Background Ratio Low High
Sensitivity 1 x Up to 10 x
- -----------------------
* Based on publicly available third party sources.
INDUSTRIALIZED FUNCTIONAL GENOMICS PLATFORM
We are extending the applications of our industrialized high throughput
drug screening platform to functional genomics applications. The systems we have
developed for the MIT Center for Genome Research are evidence of the fact that
our industrial strength process-line automation systems are very well suited for
DNA sample preparation for high throughput genomics applications. In addition,
our proven AlphaScreen platform is being adapted to enable reliable and
economical high throughput SNP genotyping in microwell plate formats. This
platform, which is being commercialized under the trade name AlphaGenomics, will
be suited for screening of SNP candidates in a great number of individuals to
confirm disease association, and to conduct large-scale pharmacogenomics
studies. For other large-scale functional genomics applications, such as gene
expression profiling, it is beneficial to study the effects of experiments on
many genes simultaneously. This parallel approach of examining genes is powerful
since subtle patterns can often be revealed. The biochip or microarray is one of
the very few assay formats that can carry out such highly parallel analysis. To
address this fast emerging market, we have designed proprietary BioChip Arrayer
production tools using patented inkjet printing technology to manufacture
high-quality microarrays, and through the acquisition of the life sciences
division of GSI Lumonics, Inc., based on a 2000 independent research report, we
have become the leading provider of microarray imaging and software analysis
tools.
Our integrated functional genomics platform will integrate
miniaturization, parallellization, and automation for all steps involved in
DNA-based testing, ranging from sample preparation to analytical procedures and
data management.
By adapting our drug screening platform to specific functional genomics
requirements, we can improve efficiency in three additional stages of the drug
discovery process: the functional genomics, early ADME/Tox and clinical trial
phases. Because of the recent discovery of many new genes, automation will be
required to associate genetic variation and function with disease, and to speed
the identification of new targets in the functional genomics process. For
example, our high throughput platform can be applied to the Early ADME/Tox
phase, enabling the study of which genes react to drug candidates, thus speeding
up the identification of valid drug leads in the Early ADME/Tox phase. Moreover,
it is anticipated that the application of this platform to clinical trials for
high-throughput SNP genotyping will enhance the selection of commercially viable
drugs. Our industrialized functional genomics platform will address these needs
with automated systems and reagents for high throughput DNA extraction and
purification, microwell plates, microarrays and consumables, or assay reagents
and formats, to enable the analysis of gene expression and genotyping, or
assays, and high throughput microwell plate reader and microarray imaging
systems, or detectors. Below are the various elements of the platform:
o DNA PREPARATION AUTOMATION. By taking full advantage of the
flexibility and plate processing capabilities of the PlateTrak and
MultiPROBE/Talon robotic platforms, complex molecular biology sample
preparation procedures, such as DNA/RNA
17
extraction, purification and amplification, can be automated at
medium to very high throughput. For instance, the innovative
combination of the Agencourt DNA preparation chemistry with our
MiniTrak and PlateTrak sample processing robots has resulted in the
recent launch of our DNATrak and GenomeTrak platforms. These fully
automated systems are able to process from 7,500 to 25,000 DNA preps
per day, which we believe to be the highest throughput systems for
nucleic acid purification, at a cost per DNA preparation of two to
five times lower than the price of current leading chemistries. To
achieve this performance and economy, we automated a patented
procedure known as a Solid-Phase Reversible Immobilization, or SPRI,
developed at the Whitehead Institute. The technology has been proven
at various high throughput genome centers, including those at the
Whitehead Institute, Washington University and Baylor College of
Medicine. Overall, this procedure is fast, simple and highly
automatable, and the samples from the SPRI procedure generate high
quality data, allowing us to offer enhanced productivity solutions
for DNA sequencing, the identification of SNPs, or a front-end for
our biochip platform.
o ALPHAGENOMICS. The AlphaScreen technology, initially developed for
miniaturized high throughput screening in microwell plates with up
to 1536 wells, has been adapted for reliable and economic SNP
genotyping applications. By combining the simple mix-and-measure
assay format of the ALPHA detection technology with polymerase chain
reaction, or PCR, for DNA amplification, a single step SNP
genotyping method has been developed, called AlphaGenomics. This
assay offers numerous procedural advantages over many other SNP
genotyping techniques that typically rely on a multistep process
based on PCR followed by additional steps for SNP detection.
AlphaScreen enables single-step amplification and detection in
closed sample containers such as sealed microwell plates. In
addition to facilitating automation, this feature reduces potential
lab contamination, which is a major problem with open container DNA
amplification systems such as PCR. This ability to avoid
cross-contamination also reduces potential false positive results,
giving the system the reliability required for industrial-strength
genotyping. Other SNP detection methods have been developed that
reduce sample processing to a single step. However, these methods
may necessitate the design of costly fluorescence-labeled DNA probes
specific for the detection of each SNP. In contrast, AlphaScreen
uses two inexpensive universal probes, and the reactions are run in
generic PCR amplification machines, followed by reading on a
standard microwell plate reader such as our Fusion system. We
believe that through the use of these low-cost universal probes and
the ability to miniaturize the AlphaGenomics assay in standard
equipment using small-volume 384-well microwell plates, and possibly
1536-well microwell plates in the future, the cost per SNP analysis
can be reduced to levels below that of most current, often laborious
and difficult to automate, techniques. In addition, a dual color
AlphaGenomics method has been developed, enabling the discrimination
of two SNPs in a single well. Since at least one color must be
detected, two color reactions have their inherent internal quality
control as well, and the extreme sensitivity of the ALPHA labels
allows the use of very little genomic DNA per assay, making the
method suitable for large-scale studies where samples are to be
analyzed for large numbers of SNPs. Although this high throughput
SNP detection platform is still under development, most of its
critical components and processes have been proven at various
customer and collaborator sites, and a SNP scoring success rate of
99% has been demonstrated. Therefore, we believe that by building
upon the industrial strength of our high throughput AlphaScreen
platform, AlphaGenomics can bring the benefits of proven automation
technology and economical analysis to SNP detection.
o BIOCHIPS AND MICROARRAY PRODUCTS. The biochip or microarray is one
of very few assay formats that can analyze multiple genes
simultaneously, as is needed to meet the demands of the high growth
in the amount of genetic information available, and to
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convert raw genetic data into medically valuable information. It is
part of an integrated system that begins with the deposition of
synthetic DNA or gene replica, referred to as the probe, on the
surface of a flat substrate, referred to as a chip. Sample DNA, the
target, is prepared independently and applied to the biochip for
hybridization. After hybridization between complementary DNA
sequences in the sample target and the probe DNA immobilized on the
chip, the hybridization signals are detected and analyzed. Through
internal research and development, we have designed BioChip Arrayer
production tools based on our patented inkjet printing technology,
and through the acquisition of the life sciences division of GSI
Lumonics, Inc., based on a 2000 independent research report, we have
become the leading provider of microarray imaging and software
analysis tools. To focus our commercialization efforts on this fast
growing emerging market, we have created Packard BioChip
Technologies, LLC. This subsidiary will continue to develop the
components of our biochip platform with the aim of offering our
customers a range of instrumentation and software that spans the
entire microarray process, from production, to analysis, to data
interpretation. Our strategy is to commercialize our own portfolio
of microarray products in conjunction with technology transfer and
licensing agreements to address the market potential for functional
genomics applications in a wide range of industries. We believe we
are well positioned to achieve this goal because we have a spectrum
of printing technologies, including the SpotArray for small-scale
research applications and the BioChip Arrayer for industrial-scale
microarray production, complemented by a broad product line of
ScanArray microarray scanners, and QuantArray and ArrayInformatics
software.
INDUSTRIALIZED PROTEOMICS PLATFORM
Proteomics, a relatively new field in drug discovery and life sciences
research, has recently grown in prominence. It is widely believed that
proteomics will have an impact on medicine and the biotechnology and
pharmaceutical industries comparable in importance to that of the Human Genome
Project. While the Human Genome Project has almost finished deciphering the
entire sequence of human DNA, it has not yet identified the role of millions of
human proteins. Identifying those proteins that are the most promising targets
for a new generation of drugs remains a monumental task, and will require the
systematic characterization of protein profiles, in both healthy and diseased
tissues. In general, proteomics research can be divided into two categories: the
first aims to identify genome-wide alterations in the quantity and quality of
unknown proteins; the second aims to profile a limited number of
well-characterized proteins in normal and diseased states. Both methods require
large-scale parallel analysis of proteins. The first method, protein
identification, generally involves the separation of protein sample components
using a gel, followed by removal of the separated sample components from the gel
and robotic handling and preparation of the sample for analysis with mass
spectrometry, an analytical method that uses the weight of molecules to measure
unknown samples. The second method, protein profiling between healthy
individuals and patients, requires novel tools, for example, in the form of
protein chips, which operate much in the same manner as DNA chips or gene chips
analyzing differences in gene expression.
Proteomics is expected to have an impact on many phases of the drug
discovery process. For instance, in the protein function phase, our sample
preparation systems and protein chip technologies will assist in the
identification and selection of new protein targets. In addition, we believe
that virtually all phases of the drug discovery process, including drug
screening and ADME/Tox studies, will derive efficiency gains from the use of
protein chips because they enable multiplex assays, or the simultaneous analysis
of multiple targets against a single compound. Moreover, the applications
potential will extend beyond drug discovery into the clinical trials and drug
commercialization phases, such as the use of protein chips in diagnostic tests
and personalized medicine. Our industrialized proteomics platform is comprised
of various products, including tools for the production of biochips with
proprietary printing technologies and instruments for the detection and analysis
of microarrays, such as laser scanning
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imaging systems and data analysis software. Assays and various
biochip and microarray assay formats are under development to
address needs in the various phases of the process.
o PROTEIN CHIPS. The major advantages of our patented inkjet printing
robots for protein chip production are the high quality and
precision of the microarrays, and the flexibility to dispense
proteins on both porous and non-porous substrates and in various
formats. Competing arraying technologies use pin tools to dispense
samples by touching a non-porous chip substrate. Dispensing accuracy
is affected by the quality of the pin and the proximity of the pin
to the substrate, and precision varies because of non-uniformity of
the substrate or surface variability between substrates. In
addition, the steel pins used to array nucleic acids may not be
appropriate for proteins.
We can produce biochips using either a customer's substrate, or our
own proprietary HydroGel substrate. HydroGels provide a
three-dimensional structure enabling biomolecular interactions to
occur in an aqueous microenvironment. We believe that this aqueous
microenvironment is critical to maintain full functional activity of
the proteins on the surface of a chip. Samples are drawn from source
vessels such as microwell plates and arrayed on biochip substrates
by dispensing 300 picoliter droplets of probe material. Our first
generation product, the BioChip Arrayer I, designed for low
throughput research applications, features four piezo-tip
dispensers. Our high throughput BioChip Arrayer II, which we expect
to start delivering in mid-2001, features eight piezo-tips,
upgradable to 48 tips, and is capable of in-motion microarraying for
industrial-scale production of ten to hundreds of thousands of
biochips per year. Rather than dispensing and immobilizing probes on
a single surface, as is the case with the conventional biochips,
HydroGels can capture probes in thousands of multiple layers, which
will significantly increase probe concentration. We believe that
non-contact inkjet printing of proteins on HydroGel chips will
enable the production of protein chips with functionally active
proteins at high throughput. These features make HydroGel chips well
suited for both genomics and proteomics applications.
We can produce chips in two formats. The biochip slide format makes
the chip compatible with incubation and washing equipment commonly
available in the lab. This format is very well suited for medium to
high density microarrays, and for low to medium throughput
applications, such as target identification and validation,
molecular toxicology studies, assay development or academic
research, and may also be very suitable for diagnostics
applications. For applications that require screening of a large
number of samples, we plan to develop and produce microarray plates
by depositing microarrays on the bottom of the wells of a 96-well
microwell plate. We intend to develop low density arrays of
antibodies for use as drug discovery tools, for example in ADME/TOX
applications. In addition, we plan to transfer our BioChip Arrayer
production tools and best production practices to customers in
exchange for technology transfer and licensing fees. We believe this
will give us a competitive advantage because it will enable our
customers to use their own substrates as well as our proprietary
HydroGels, while giving them the flexibility to quickly adapt their
arrays to a broad range of applications. We currently have an
agreement to provide HydroGel chips to Oxford GlycoSciences plc for
pharmaceutical discovery applications, and plan to work with more
partners who possess content or assay reagents, enabling us to make
value-added biochips available to the market.
For protein chip imaging and analysis, we offer our ScanArray laser
scanner and QuantArray software which, according to a 2000
independent research report, are leading microarray imaging and
analysis tools. The flexibility provided by the ScanArray to analyze
microarrays with up to five laser wavelengths and the high detection
sensitivity of our proprietary optics are particularly beneficial
for protein chip analysis.
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Antibody and protein arrays require high detection sensitivities,
and the wavelength flexibility enables the optimization of assays
using a broad range of fluorescent labels. Our ScanArray product
line covers broad application needs with products ranging from low
cost, low throughput scanners to fully automated systems with
barcode reading and automatic microarray loading. Due to the
quantity and complexity of the experimental results, microarray data
handling and management is expected to become the next hurdle in
biochip processing. The integration of our QuantArray software with
our scanners constitutes the foundation for further development of
ArrayInformatics, an integrated data management and bioinformatics
software package, which we believe will enable us to offer our
customers a complete microarray production, sample preparation and
analysis solution.
o PEPTIDE MASS FINGERPRINTING. Peptide mass fingerprinting is a widely
used technique to identify proteins based upon their mass using mass
spectrometry. Proteins are separated by one- or two-dimensional
electrophoresis, stained, excised from the gel and spotted onto a
matrix which facilitates identification by MALDI-TOF. Currently,
protein processing for peptide mass fingerprinting after the removal
from the gel is the bottleneck for accelerating MALDI-TOF analysis
of proteins separated by gel electrophoresis. All liquid handling
steps are done manually with associated time constraints and errors
due to repetitious manual manipulation of reagents and buffers. To
solve this critical bottleneck, we have customized our MultiPROBE
robotic liquid handling system for use by suppliers of mass
spectrometry systems. The MultiPROBE MassPrep handles all liquid
handling and temperature controlled steps post gel separation to
enable automated, unattended operation, including the addition of
the MALDI matrix and spotting prior to mass spectrometry analysis.
The MultiPROBE MassPrep enables 300 proteins per day to be
processed, thus matching the throughput of the mass spectrometry
system.
PRODUCTS AND SERVICES
Increasingly, we are combining several of our products to create reliable,
high volume automation platforms to support more efficient drug screening,
functional genomics and proteomics analysis. We continue to offer our products
in separate modules and components and also provide drug screening and detection
reagents, supplies used with our instruments and platforms, as well as related
service and support. More recently, we have also been providing outsourcing
services to the pharmaceutical and genomics industries. Our products and
services consist of the following categories:
AUTOMATED LIQUID HANDLING AND SAMPLE PREPARATION SYSTEMS
Our automated liquid handling and sample preparation systems can be
classified in two product categories: MultiPROBE systems for low to medium
throughput applications, using flexible format pipetting robotics that handle a
wide variety of labware formats and sample containers, and PlateTrak systems for
high to ultra-high throughput liquid and sample handling applications of
microwell plates.
The MultiPROBE II is our second generation of flexible liquid handling
robots. Because MultiPROBE can computer control a large variety of liquid
handling processes, using a simple "drag and drop" Windows NT software
application, most liquid handling routines for drug screening, functional
genomics and proteomics can be automated with this product. In August 2000, we
introduced the MultiPROBE II HT, the high throughput version of MultiPROBE,
which has the ability to pipette liquids with eight tips simultaneously. This
product offers the same functionality and flexibility of its lower throughput
predecessor. Among its distinctive features are the capability to automatically
adapt tip spacing to the format of the various laboratory containers and sample
vessels that may be used in an assay, and to automatically interchange
disposable and fixed pipetting tips at any point in the sample preparation
process. The functionality of this product was further enhanced with a robotic
gripper arm, designed to move a variety of common labware on the workspace of
the MultiPROBE. This product,
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called the Talon Integration Platform, was introduced in January 2001 and
enables unattended automation for popular applications such as DNA purification
and solid-phase extraction. In addition, Talon can be used to integrate the
automatic liquid handling capabilities of MultiPROBE with approved off-the-shelf
equipment such as microwell plate readers, labware mixers and microwell plate
washers to provide total application solutions.
Our PlateTrak laboratory automation systems feature high throughput
automatic microwell plate processing robotic technology combined with
proprietary 96-tip and 384-tip liquid dispensing modules, and a variety of other
sample processing and liquid handling modules. PlateTrak is a scalable modular
system, using a conveyor belt approach to move sample plates from one process
module to the next. It can be customized to meet the various high throughput and
sample throughput needs of our customers in the high throughput screening and
genetic analysis markets. The liquid handling and plate processing capabilities
of these industrial-strength robotic systems are compatible with 96-, 384- and
1536-well microwell plates. Through the addition in 1999 of a robotic arm, the
automation capabilities of our PlateTrak system have been further extended to
include a wide variety of peripheral laboratory equipment and instrumentation.
This capability enables full industrial-scale automation of complex drug
screening and genomic sample preparation procedures. For instance, the DNATrak
and GenomeTrak systems provide high to ultra-high throughput solutions for DNA
preparation, while the ImageTrak enables total assay automation of proximity,
luminescence and fluorescence assays.
Sales of this product group accounted for approximately $47 million, or
28%, of our consolidated revenues for the year ended December 31, 2000, $36
million, or 23%, for the year ended December 31, 1999, and $26 million, or 18%,
for the year ended December 31, 1998.
MICROWELL PLATE READERS AND IMAGING SYSTEMS
Our TopCount microwell plate reader was the first high throughput
scintillation and luminescence instrument used to screen compounds in drug
discovery. Its lower throughput configurations also found widespread use in
molecular and cellular biology applications and in immunology and biomedical
research. We entered the microwell plate reader market in the early 1990's
through the introduction of several new products for absorbance, luminescence
and fluorescence detection. Building on the increasing success of luminescence
applications for TopCount, we became one of the largest suppliers of microwell
plate readers. In 1997, we introduced our Discovery microwell plate reader, a
proprietary instrument that uses time-resolved fluorescence for detection, and
is compatible with homogeneous fluorescent high throughput screening assays, and
at the end of 1999, we introduced our AlphaQuest reader, which is designed for
ultra-high throughput drug candidate screening using AlphaScreen assays. In June
2000, we introduced our Fusion universal microwell plate reader. This product is
suited for both low and high throughput applications, and can measure samples in
any microwell plate format, ranging from 6-well to 1536-well microwell plates.
Most significantly, Fusion is able to measure samples using all established
non-isotopic labeling techniques such as absorbance, luminescence, fluorescence,
time-resolved fluorescence, as well as our new AlphaScreen and BRET2 screening
technologies. This unique capability makes Fusion well suited both for the
development of new drug discovery assays and for the screening of drug
candidates using these assays.
In January 2001, we introduced our ImageTrak imaging microwell plate
readers. These fiber-optic based imagers can be integrated with our PlateTrak
robotic systems to form an autonomous ultra-high throughput drug screening
platform, with sample throughputs in excess of 250,000 samples per day. The
ImageTrak can be configured for established fluorescence and luminescence
applications and we believe it is well suited for scintillation proximity
assays. In addition, by combining the multi-tip injection capabilities of
PlateTrak with the multi-well detection of our fiber-optic imaging system,
ImageTrak can be used to study the response of live cells to drug candidates.
This expands the application of our drug screening platform to primary screening
of live cells as well as secondary screening and follow-up of drug leads. The
latter application is made possible by real-time monitoring of the response of
live cells to the addition of drug candidates and leads.
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DRUG SCREENING AND DETECTION REAGENTS AND SUPPLIES
Our detection reagents and supplies are laboratory consumables used for
the operation of bioanalytical instruments sold by our competitors and us.
Detection reagents principally include light-emitting scintillation cocktails,
or reagents that convert radioisotopic sample activity to light, used in
conjunction with our bioanalytical scintillation instruments. Today, we are a
leading manufacturer of scintillation cocktails and supplies, such as vials and
microwell plates.
In addition, we have developed an extensive portfolio of non-isotopic drug
screening and detection reagents. In early 1996, we introduced our first drug
screening reagent, the LucLite luminescence reagent for high throughput reporter
gene analysis. Also in 1996, we introduced HTRF reagents for the high throughput
detection of biochemical interaction assays. As part of our strategic focus on
non-isotopic drug screening technologies, in 1998 we acquired BioSignal, Inc.,
now BioSignal Packard, Inc. The core competencies in the field of gene cloning,
genetic engineering of live cells and expression and production of proteins that
we acquired through BioSignal Packard allowed us to expand our product offerings
to include SignalScreen protein targets and assays, and to support our drug
screening customers with assay development services. These capabilities enabled
us to successfully introduce in 2000 new generation drug screening technologies
including AlphaScreen for ultra-high throughput drug screening and
miniaturization of biochemical assays, and BRET2 for high throughput analysis of
protein-to-protein interaction and orphan receptor assays in live cells.
BIOCHIP SYSTEMS AND RELATED ANALYSIS SOFTWARE
In 1999, we introduced the first version of our inkjet printing robotic
system for the manufacturing of biochips and microarrays. This system, called
the BioChip Arrayer I, was designed for low throughput, low density research
applications. Our primary objective was to evaluate and validate our inkjet
printing technology for various microarray applications at customer sites and
with potential partners. With the feedback from many of these sites, we have
developed the BioChip Arrayer II, which we expect to start delivering in
mid-2001. This product features eight piezo-tips, upgradable to 48 tips, and is
capable of in-motion inkjet printing of microarrays, enabling industrial-scale
production of ten to hundreds of thousands of biochips per year. We plan to
offer this system to end-users for the production of biochips for internal
research use only, and to third party producers of biochips in exchange for
technology transfers and licensing fees, as well as royalties on the resale
price of the chips and arrays.
In October 2000, through the acquisition of the life sciences division of
GSI Lumonics, Inc., we acquired the ScanArray biochip imaging products. The
ScanArray is the market leading three- and four-color microarray laser scanner
that enables researchers to conduct multiple and more complex microarray
experiments simultaneously. In addition, the ScanArray product features unique
automation capabilities, including a proprietary bar code reader and automated
slide loaders that allow users to run up to 20 microarrays unattended. The
ScanArray enjoys strong brand name recognition with installations at over 350
academic, biotechnology and pharmaceutical customers worldwide. According to a
2000 independent third party research study, the ScanArray technology, is a
leader in the fast growing area of laser scanning for biochip and microarray
analysis.
QUANTARRAY ANALYSIS SOFTWARE
QuantArray is a powerful microarray analysis software that enables
researchers to easily and accurately visualize and analyze gene expression data.
Developed for Windows NT, QuantArray provides automated analysis of up to
five-color microarray images without the need for manually drawn grids.
Furthermore, when used in conjunction with our ScanArray systems, QuantArray
provides one-step, automatic scanning and analysis before exporting data to
bioinformatics software packages. QuantArray's real-time image display allows
users to view microarray experimental results within seconds.
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BIOANALYTICAL SCINTILLATION INSTRUMENTS - OUR "LEGACY PRODUCTS"
Bioanalytical scintillation instruments are essential tools for biomedical
research applications. The detection technology of these instruments is based on
the conversion of the activity of radioisotopic labeled compounds into light,
which is then measured with ultra-sensitive detectors. Over the years, we have
successfully applied our expertise in this area to develop non-isotopic products
such as our microwell plate readers and imagers for luminescence and
fluorescence measurements.
The widespread use of these instruments in the life sciences research
industry has created strong brand name recognition for us in this field. Our
Tri-Carb liquid scintillation and Auto-Gamma solid scintillation counters are
used by researchers to gain a better understanding of biochemistry, immunology,
cell biology and disease processes. Our Radiomatic flow scintillation analyzers
are used for ADME and toxicology studies of new drug candidates. Our Cyclone
imager is often used for drug distribution and pharmacokinetic studies. Also,
its rapid and quantitative imaging capabilities are used to replace slow and
labor-intensive X-ray film processes in the molecular biology field. Its major
applications are for the detection of nucleic acids and proteins in various
sample formats.
Sales of this product group, inclusive of consumables, accounted for
approximately $47million, or 28%, of our consolidated revenues for the year
ended December 31, 2000, $55 million, or 35%, for the year ended December 31,
1999, and $51 million, or 35%, for the year ended December 31, 1998. We believe
that customers will continue to shift from radioisotopic methods to alternative
labeling techniques, and therefore that our revenues from these product lines
will continue to decline.
SERVICE AND SUPPORT
Our service and support offerings include field service, customer support,
applications assistance and training through an organization of over 200
factory-trained and educated service and application support personnel around
the world. We provide purchasers of our instruments with service and support
primarily on a fixed fee, annual contract basis. We believe that our installed
base of over 27,000 instruments provides us with stable, recurring after-market
service and support revenue, as well as product upgrade and replacement
opportunities.
OUTSOURCING
We believe that our technologies in gene cloning and expression, and our
broad portfolio of proprietary assay development tools, provide opportunities
for high margin services and outsourcing arrangements. In the drug discovery
market, we seek to collaborate with genomics and combinatorial chemistry
companies that we believe have access to considerable numbers of new drug
targets and compound libraries, and for which our technologies could
substantially accelerate the identification of candidate compounds for drug
development.
CUSTOMERS
Our customers include pharmaceutical, biotechnology and agrochemical
companies as well as academic institutions, government laboratories and private
foundations. A representative list of our domestic and international customers
follows:
Abbott Laboratories
Amgen, Inc.
AstraZeneca plc
Aventis S.A.
Bristol-Myers Squibb Company
Cambridge University
deCode Genetics, Inc.
E.I. DuPont de Nemours and Company
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Gen-Probe Incorporated
Genentech, Inc.
GlaxoSmithKline plc
Harvard Medical School
Hoffmann-LaRoche AG
Howard Hughes Medical Institute
Max-Planck-Institut
Merck & Co., Inc.
Millennium Pharmaceuticals, Inc.
Monsanto Company
National Institutes of Health
Novo Nordisk A/S
Pasteur Institute
Sankyo Pharmaceutical Company
Schering-Plough
Takeda Pharmaceutical Company
University of California
Whitehead Institute for Biomedical Research/MIT Center for Genome Research
None of our customers accounted for more than 5% of our total 2000
revenues.
BUSINESS - OTHER
SALES AND MARKETING AND SERVICE
As of December 31, 2000, our worldwide sales, marketing and service
organization employed approximately 400 personnel consisting of approximately
200 sales and marketing employees and approximately 200 service employees.
Our marketing and sales organization is organized to support our major
product lines and identify new market opportunities. Product and new market
development managers have responsibility for cultivating new markets,
identifying new technologies and creating new products in our principal growth
areas of drug screening, functional genomics and proteomics. Our marketing
strategy relies heavily on extensive training of direct sales and distributor
organizations, consultative selling approaches, responsive on-site customer
support, applications education and the use of electronic communication.
We have direct sales and service organizations in the United States,
Australia, Austria, Belgium, Denmark, France, Germany, Hong Kong, Italy, Japan,
The Netherlands, Switzerland and the United Kingdom. Products are also sold
through exclusive, independent distributors in Canada, Mexico, South Korea,
Spain, Taiwan and over 40 other countries active in bioanalytical research. Our
sales representatives are compensated with a combination of base salary and, to
the extent sales and service goals are achieved or exceeded, incentive
compensation. Through our global organization of direct sales representatives
and distributors, who are supported by a network of experienced application and
service support personnel, we have access to life sciences researchers in
academic, government, hospital and industrial laboratories worldwide. We believe
our sales marketing and service organization is one of the largest in the drug
discovery and life sciences research industry and provides us a significant
competitive advantage because it allows us to provide on-site support and a more
complete coverage of the many segments of the life sciences research industry
than many of our competitors. See "Competition."
RESEARCH AND DEVELOPMENT
Our principal research and development mission is to develop a broad
portfolio of technologies, products and core competencies in drug screening,
functional genomics and proteomics, which we have identified as the most
attractive areas of the life sciences research industry.
25
Our research and development expenditures from continuing operations were
$19.4 million (excluding $3.8 million associated with terminating two research
and development agreements that did not result in the development of
commercially usable products) in 1998, $22.8 million in 1999 and $28.4 million
for 2000. Our increased expenditures on research and development during these
periods reflect our investments to maintain our competitive position, but are
primarily a result of our strong research and development efforts to develop the
technologies and products for our integrated drug screening, genomics and
biochip platforms. Our internal technology and product development programs were
complemented by external collaborative efforts and alliances, and we
aggressively pursued both licensing and acquisitions of technology and
intellectual property.
We anticipate that we will continue to have significant research and
development expenditures on these programs. We plan to continue to pursue a
balanced research and development portfolio strategy of originating new products
from internal research and development programs, external partnerships and
alliances, and business and technology acquisitions.
MANUFACTURING
We have created a well-disciplined, low-cost manufacturing culture. Our
manufacturing facilities have established a "focused cell system" in which
employees are divided into distinct manufacturing cells, each of which is wholly
responsible for a specific product line. Employees are also cross-trained to
work on multiple cells. To further reduce our average production cycle time and
cost of raw materials, we use outsourced standard components and sub-assemblies
as well as standard, "off-the-shelf" products, such as printed circuit boards
and power supplies.
We manufacture all of our instruments at our Downers Grove, Illinois,
Billerica, Massachusetts and Torrance, California facilities. Chemical
production of scintillation and luminescence products occurs at our facility in
Groningen, The Netherlands. Drug screening assays and drug targets obtained by
gene expression are developed at our Montreal, Canada location. Our Downers
Grove and Groningen manufacturing operations are certified to ISO 9001 quality
standards, and all of our products sold in the United States, Canada and Mexico
are certified by the Canadian Standards Association, which monitors safety
standards throughout North America. All of our instruments sold in Europe
conform with current European Community directives regarding safety, quality and
electromagnetic compatibility and are qualified under the European Community's
CE mark.
COMPETITION
We compete with several manufacturers in both domestic and foreign markets
within all areas of the life sciences research industry. We also encounter
different specialized competitors in each of our key product lines and target
markets. We believe that the principal competitive factors in our industry are
product performance and functionality, price, marketing expertise, distribution
capability and on-site service support, technological applications expertise and
the ability to offer integrated system solutions.
A number of larger established companies such as Agilent Technologies,
Inc., Applied Biosystems (formerly PE Biosystems), Amersham Pharmacia Biotech
AB, Beckman Coulter, Inc., PerkinElmer, Inc. (formerly EG&G, Inc.), QIAGEN NV,
Tecan AG and Thermo Instruments Corporation compete with us across a broad range
of product lines and market segments. We compete primarily with these companies
on the basis of product performance and functionality, technological
applications expertise, the ability to provide integrated platform solutions
and, to a lesser extent, price.
Many of these competitors have substantially greater financial, technical,
marketing and sales resources than we do. As a result, these competitors may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements or devote greater resources to the development, promotion
and sale of their products. Each of these competitors produces products based on
similar technologies that we utilize; however, none of them produces product
platforms utilizing all of our major technologies. Some of them have a greater
market share than us in particular product areas,
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and offer, or may in the future offer, products with performance capabilities
generally similar to those offered by our products. Not all of these larger
competing companies are solely focused on the life sciences research industry;
some have diversified into other industries. We believe that the customers in
our industry are placing increasing importance on technological applications
expertise and the ability to provide integrated application solutions, and we
believe that we are one of few companies that can offer integrated platform
solutions across three major application areas: drug screening, functional
genomics and proteomics.
We do, however, also have various competitors that are focusing on the
areas that are being addressed by our integrated platforms. The principal
competitors in these three areas are, in alphabetical order:
o for drug screening: Aurora Biosciences Corporation, Caliper
Technologies Corporation, Carl Zeiss Jena GmbH, Cellomics, Inc.,
CyBio AG, Evotec BioSystems AG, Molecular Devices Corporation
(including the recently acquired LJL BioSystems, Inc.);
o for functional genomics systems: Affymetrix, Inc., Illumina Inc.,
Incyte Genomics, Inc., Orchid Biosciences, Inc., and Sequenom, Inc.;
and
o for proteomics: Biacore, Inc., Ciphergen Biosystems, Inc., Genomic
Solutions, Inc., Luminex Corporation and Zyomyx, Inc.
Because of their strong focus on particular market segments, we face
intense competition in these areas from most of these focused or specialized
companies. These companies typically provide innovative products and strong
technological applications expertise, and several have a greater market share in
their respective market segments than we do. Some offer integrated platform
solutions; however, we believe that we are one of few suppliers that
manufactures all the components of such integrated system solutions. We compete
with these companies on the basis of price and cost effectiveness of our
integrated solutions, global marketing expertise, and worldwide distribution and
on-site service support. Many of these competitors have a limited installed base
and must rely on partners for global distribution, service and support. Our
large installed base and extensive sales and support organization worldwide,
give us a more complete coverage of the diverse customer base including both
large pharmaceutical companies and small academic laboratories.
We believe that we compete effectively by offering the best combination of
price, quality, service and support. Customers, however, may determine that some
competitive products are available at a cheaper price, or that more expensive
competitive offerings provide technological or other performance advantages.
RAW MATERIALS
We use many standard parts and components in our products and believe
there are a number of competent vendors for most parts and components. However,
a number of important components are developed by and purchased from single
sources due to price, quality, technology (including patent protection) or other
considerations. We do not believe that the loss of any single vendor or supplier
would materially adversely affect our competitive position and do not anticipate
experiencing any difficulties in procuring an adequate supply of components.
INTELLECTUAL PROPERTY
Our intellectual property strategy is designed to protect technology that
is important to the development, commercialization, and improvement of our
current and future products. We own approximately 65 U.S. and foreign patents
and have over 40 patent applications pending in the United States and abroad.
Further, we hold various exclusive and non-exclusive licenses to patents from
third parties.
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PATENTS
Our patents and patent applications relate to various areas of technology
which we believe are valuable to our business, including
o automatic liquid handling and sample preparation instrumentation and
methods,
o fiber-optic imaging systems and techniques,
o inkjet printing, biochip manufacturing processes and related
microarray analysis software,
o liquid sample dispensing technology using piezoelectric dispensers,
o high throughput assay chemistries, methods and systems, and
o liquid scintillation detection devices.
Issued and pending patents we own, or hold licenses to, distinguish us
from our competitors by preventing them from copying product attributes or
imitating performance characteristics. In addition, some of our patents add
barriers to market entry by forcing other companies to design around our
patented technologies and products, thus slowing down the development process of
competing products. In some cases, we believe that we may be able to leverage
our patent portfolio by facilitating cross license negotiations in order to
further expand the applications of our platforms. Generally, United States
patents have a term of 17 years from the date of issue for patents issued from
applications filed with the U.S. Patent Office prior to June 8, 1995, and 20
years from the application filing date or earlier claimed priority date in the
case of patents issued from applications filed on or after June 8, 1995. Patents
in most other countries have a term of 20 years from the date of filing the
patent application. Our issued United States patents will expire between 2002
and 2021. None of our material patents will expire before 2012. We do not
believe that the expiration of any one patent will materially impact our
revenues or product sales. Our success depends to a significant degree upon our
ability to develop proprietary products and technologies. We intend to continue
to file patent applications as we develop new products, technologies and
patentable enhancements.
In addition to our patent portfolio, we rely on a wide array of unpatented
proprietary technology and know-how to develop and maintain our competitive
position. Our success will depend in part on our ability to obtain patent
protection for our products and processes, to preserve our trade secrets,
trademarks and copyrights, to operate without infringing the proprietary rights
of others, to acquire licenses related to enabling technology or products and to
enforce our intellectual property portfolio.
LICENSE AGREEMENTS
We license technology from a number of third parties including, among
others, HydroGel chip technology from Argonne National Laboratory, AlphaScreen
chemistry from Dade Behring, Inc., BRET2 array chemistry from Vanderbilt
University, liquid dispensing technology from Microdrop GmbH, and microwell
plate technology from Massachusetts General Hospital. These licenses are
generally long-term and require us to pay royalties to the licensor in
connection with sales of the product utilizing the licensed technology. The
terms of our material license agreements are described below.
We have entered into a license agreement with Dade Behring, Inc. under
which Dade Behring granted to us a worldwide, exclusive license to some of its
patents related to our AlphaScreen assay technology, and we agreed to make
royalty payments to Dade Behring in connection with the sale of such chemistry.
Our rights under the license agreement are limited to the fields of life
sciences research and pharmacogenomics applications. Dade Behring may convert
the license to non-exclusive or terminate it if we fail to make specified
minimum royalty payments. Unless earlier terminated, the license will
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terminate upon the expiration of the last to expire of the licensed patents,
which we expect to occur not earlier than 2018, at which time the license will
convert to a ten-year, royalty-bearing non-exclusive license. Because the
license covers a number of pending patent applications, we cannot determine a
specific termination date.
We have entered into a license agreement with Argonne National Laboratory
under which Argonne granted to us, together with Motorola, Inc., a co-exclusive
license to patents, limited to use in the field of life sciences research,
related to our HydroGel technology. Argonne may convert our rights under the
license to non-exclusive in 2005 if we fail to generate sufficient royalties for
four consecutive years. Additionally, we may, in our sole discretion and subject
to penalties, convert our rights under the license to non-exclusive. The license
may be terminated by us, in our sole discretion and subject to penalties, upon
thirty days' prior written notice to Argonne. Unless earlier terminated, the
license will terminate upon the expiration of the last to expire of the licensed
patents, which we expect to occur not earlier than 2017. Because the license
covers a number of pending patent applications, we cannot determine a specific
termination date.
We have entered into a worldwide, exclusive license with Microdrop GmbH
under which Microdrop licensed to us know-how related to piezoelectric liquid
dispensing technology for use in the fields of liquid handling applications in
life sciences research and clinical diagnostics. The license will be converted
automatically to non-exclusive in the event that we fail to make specified
minimum royalty payments. In any event, the license, which would otherwise
expire in 2012, will be extended automatically annually until either party
notifies the other of its desire not to extend.
We have entered into a license agreement with Massachusetts General
Hospital under which the hospital granted to us an exclusive, worldwide license
to the hospital's patents related to microwell plate technology, and we agreed
to make royalty payments to the hospital based on the sale of products
incorporating such technology. The license is limited to the fields of life
sciences research and diagnostics, and expressly excludes in-vivo diagnostics
applications. The license shall remain in effect until the date that is the
earlier of (1) one year after we discontinue selling licensed products and (2)
the expiration of the last to expire of the licensed patents, which we estimate
to be 2003.
We have entered into a license agreement with Vanderbilt University under
which the University granted to us an exclusive, worldwide license to the
fundamental technology related to our BRET2 array chemistry, and we agreed to
make royalty payments to Vanderbilt in connection with the sale of such
chemistry. The license is limited to the field of life sciences research, other
than clinical, diagnostics or therapeutic applications. Vanderbilt may convert
this license to non-exclusive if we fail to make licensed products and services
commercially available. We may terminate this license at any time upon sixty
days' prior written notice. Unless earlier terminated, the license remains in
effect until we discontinue selling licensed products and services or upon the
expiration of the last to expire of any patents that may be issued in the future
covering such technology, whichever is earlier. Because the license covers a
number of pending patent applications, we cannot determine a specific
termination date.
Although we are not currently involved in any patent infringement
litigation, and do not believe we are currently infringing on any third-party
patents, in some cases, litigation or other proceedings may be necessary to
defend against or assert claims of infringement, to enforce patents issued to us
or our licensors, to protect trade secrets, know-how or other intellectual
property rights owned by us, or to determine the scope and validity of our
proprietary rights or proprietary rights of third parties. Such litigation could
result in substantial costs to us and diversion of our resources. An adverse
outcome in any such litigation or proceeding could subject us to significant
liabilities and expenses, such as reasonable royalties, lost profits, attorney's
fees, and trebling of damages for willfulness, require us to cease using the
disputed intellectual property or cease the sale of a commercial product, or
require us to license the disputed rights from third parties, any of which could
have a material adverse effect on our business, financial condition and results
of operations.
29
EMPLOYEES
As of December 31, 2000, we had approximately 1,050 employees.
Approximately 71% of our employees as of that date were located in the United
States. Our workforce is not unionized, and we believe that our relations with
employees are good.
ENVIRONMENTAL MATTERS
Our operations are subject to U.S. federal, state and local and foreign
environmental laws and regulations that impose limitations on the discharge of,
and establish standards for the possession, distribution, handling, generation,
emission, release, discharge, export, import, treatment, storage and disposal,
and cleanup of, hazardous materials, substances and wastes. We believe our
operations are in material compliance with all applicable environmental laws and
regulations as currently interpreted. We do not believe that our compliance with
environmental regulations will have a material effect on our or our
subsidiaries' capital expenditures, earnings and competitive position.
REGULATION
We are not subject to governmental regulation other than the laws and
regulations generally applicable to businesses in the domestic and foreign
jurisdictions in which we operate, affecting such matters as taxes, employees,
environmental matters, business organization and the like.
DESCRIPTION OF INDEBTEDNESS
SENIOR SUBORDINATED NOTES
During 1997, we issued $150,000,000 principal amount of 9.375% senior
subordinated notes due March 1, 2007. We used the net proceeds from the sale of
the notes, in connection with the 1997 recapitalization, to repay outstanding
indebtedness under previous obligations and to repurchase shares of our
outstanding common stock.
We issued and sold our notes in March 1997 in a transaction not registered
under the Securities Act, and subsequently registered them with the SEC in an
exchange offer that we completed in June 1997. In 2000, we repurchased $31.9
million of our notes in the open market, using proceeds from our initial public
offering. As of April 30, 2001, there were $118,145,000 in aggregate principal
amount of notes outstanding.
We have the right to redeem our notes in cash, at any time on or after
March 1, 2002, at redemption prices ranging from 104.688% to 100.000% depending
on the timing of redemption.
In the event of a "change in control" of Packard BioScience Company, a
holder of notes generally has the right to require us to purchase all or a
portion of its notes at a purchase price equal to 101% of the notes' principal
amount. Change of control is defined under the indenture governing the notes as
the occurrence of any of the following events:
o any person or group, other than Stonington and their affiliates, is
or becomes the beneficial owner of more than a majority of our
outstanding voting stock,
o during any period of two consecutive years, the directors who at the
beginning of the two years (together with any new directors whose
election was approved by either Stonington or their affiliates or 66
2 /3 % of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved), cease to
constitute a majority of the board of directors,
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o we consolidate, merge or transfer substantially all of our assets,
excluding some transactions that would not result in a payment
restricted by the terms of the notes and where only Stonington and
its affiliates would own a majority of the total outstanding voting
stock of the surviving corporation, or
o we are liquidated or dissolved, other than in a transaction subject
to the above exclusion.
In addition, under the terms of the notes, if we sell assets for net
proceeds exceeding $10 million and within the following 360 days we do not use
these proceeds to replace the assets sold or permanently repay our senior
indebtedness as provided in our credit agreement, as amended and restated, we
must use proceeds that are not so reinvested to repurchase notes. We currently
estimate that, if we are unable to use the net proceeds from the sale of
Canberra to replace the assets sold within 360 days of the completion of the
sale, we would be required to use up to approximately $82 million of the net
proceeds to repurchase notes.
The notes are unsecured senior subordinated obligations of Packard
BioScience Company and any payment of or on the notes is subordinated to the
payment to all of our existing and future senior indebtedness, including
indebtedness under our senior credit facility.
Under the terms of the notes, we are subject to the following covenants:
o we and our subsidiaries cannot incur indebtedness if our
consolidated fixed charge ratio, as defined in the indenture, for
the preceding four fiscal quarters is less than 2.0;
o we cannot generally pay or declare dividends, redeem our stock,
retire subordinated debt or make investments, unless we meet the
financial test specified in the indenture;
o we and our subsidiaries generally cannot enter into transactions
with any of our affiliates unless the transactions are on terms not
less favorable than would result from a third-party transaction;
o we and our subsidiaries generally cannot create or incur any liens
that would have priority over the notes, except as otherwise
permitted under other terms of the indenture;
o we and our subsidiaries cannot sell assets at less than fair market
value, and at least 75% of the consideration we receive from any
such sale must be in cash or cash equivalents;
o we are limited in incurring additional subordinated debt;
o we and our subsidiaries generally are prohibited from issuing
preferred stock; and
o we may not engage in mergers, consolidations or the sale of all or
substantially all of our assets unless we are the surviving company
or the surviving company assumes our obligations under the notes,
the indenture and the guarantees of the notes, the transaction would
not result in a default under our note and no liens restricted under
the indenture are incurred.
We do not believe that these covenants will prevent us from implementing
our business plan or executing our strategy. As of December 31, 2000 we are in
compliance with all covenants under our notes.
The notes are not listed, and we do not intend to apply for listing, on
any securities exchange or automated quotation system.
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SENIOR CREDIT AGREEMENT
During 1997, in connection with the 1997 recapitalization, we entered
into a senior credit agreement with a group of banks which provided for a term
loan facility and a revolving credit facility. In August 2000, we amended and
restated the credit agreement to eliminate the term loan and increase the
revolving credit borrowing capacity from $75 million to $100 million. Under the
terms of the amended and restated credit agreement, the outstanding revolving
credit facility balance, if any, is due and payable on August 17, 2005.
Revolving credit borrowings bear interest at rates within a range, subject to
the consolidated leverage ratio we achieve. U.S. dollar denominated borrowings
bear interest, at our option, at the customary base rate plus 0.25% to 1.75% or
the Eurodollar rate plus 1.25% to 2.75%. Borrowings in currencies other than the
U.S. dollar bear interest at the cost of funds rate plus a margin. The amended
and restated credit agreement requires a 0.5% commitment fee, adjusted downward
if we achieve a consolidated leverage ratio of 2:00 to 1:00 or less.
We are required under the credit agreement to reduce the commitments
under the revolving credit facility generally if we sell assets or issue debt or
equity securities. Mandatory prepayments or commitment reductions are applied to
the permanent reduction of the revolving credit facility.
The credit agreement contains financial covenants that limit our
ability to incur indebtedness if our ratio of debt to earnings before income
tax, depreciation and amortization, or EBITDA, ratio of EBITDA to interest
expense, and ratio of EBITDA to our fixed charges (which are comprised of
interest, taxes, scheduled debt payments and capital expenditures) do not equal
or exceed specified levels, which vary by year. We are also subject to
covenants, including the following:
o except for amounts drawn under the revolving credit facility,
intra-company debt, guarantees and our senior subordinated notes,
we cannot incur or have an aggregate principal amount of debt
exceeding $20 million;
o generally we cannot create, incur or assume any lien on our
property or revenues;
o generally, we cannot merge, consolidate, liquidate, transfer or
sell all or substantially all of our assets or materially change
our present method of conducting business;
o except for limited sales of obsolete property, sales of inventory
in the ordinary course of business and intra-company sales of
capital stock, generally we cannot sell assets that have a fair
market value of more than $5 million in any fiscal year and $15
million during the term of the credit agreement;
o except for stock dividends, limited stock repurchases from
employees and intra-company payments, generally we cannot pay
dividends or repurchase our stock;
o we cannot make capital expenditures in excess of the amounts
specified in the credit agreement;
o we are limited in the amount of cash that we can spend on any
single acquisition;
o except for open market purchases of our subordinated notes at a
maximum redemption price of 105% of the original face amount, and
as long as $50 million in aggregate principal amount of notes
remains outstanding and the sum of our cash balances available on
hand and amount of available revolving credit commitment exceeds
$15 million, we cannot repay, repurchase or generally amend our
subordinated notes; and
o we cannot enter into any new, unrelated lines of business.
As of December 31, 2000, we are in compliance with all covenants under
our credit agreement.
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The credit agreement also provides for customary events of default,
including failure to make payments when due, failure to make interest payments
or payments of fees after a grace period, cross-defaults, violations of
covenants, material inaccuracies of representations and warranties, bankruptcy,
material judgments, invalidity of guaranties or any security document or the
occurrence of a change of control. In connection with the credit agreement, we
pledged as collateral substantially all of our and most of our domestic
subsidiaries' tangible and intangible assets, and 65% of the capital stock of
our foreign subsidiaries.
In April 2000, we used $68.2 million of the proceeds from our initial
public offering to repay the remaining term facility (amounting to $37.3
million) and the U.S. dollar denominated balance (amounting to $30.9 million) of
the revolving credit facility under our credit agreement. In February 2001, we
used $71 million of the proceeds from the sale of Canberra to repay the balance
outstanding on the revolving credit facility.
In February 2001, the credit facility was reduced to $65 million as a
result of the sale of Canberra.
RISK FACTORS AFFECTING OUR BUSINESS
The following important factors affect our business and operations
generally or affect multiple segments of our business and operations:
AS COMPETITION IN THE MARKETS WE TARGET INTENSIFIES, WE MAY NOT BE ABLE
TO COMPETE EFFECTIVELY IN THESE MARKETS. The life sciences research industry is
highly competitive, and we encounter competition from a large number of
manufacturers in both domestic and foreign markets. Some of our competitors
compete with us in only one of our product lines. Others compete with us in a
number of our product lines. In addition, we have various competitors that are
focusing on the areas that are being addressed by our integrated platforms. Our
principal competitors and the areas in which they compete with us are described
more fully in "Business-- Other --Competition."
Some of our competitors, such as Applied Biosystems (formerly PE
Biosystems), Amersham Pharmacia Biotech, PerkinElmer, Inc. (formerly EG&G, Inc.)
and Beckman Coulter, Inc., are only marginally involved in our business relative
to their respective core businesses, yet are significantly larger and have
greater resources than we do. These competitors could at any time decide to use
a more substantial amount of their resources in our business and, as a result,
compete more broadly and more directly with us.
Companies that, like us, design, manufacture and market analytical
instruments for use in the life sciences research industry, face competition in
these areas from genomic, pharmaceutical, biotechnology and diagnostics
companies, and also from academic and research institutions and government or
other publicly-funded agencies, both in the United States and abroad. We may not
be able to compete effectively with all of these competitors.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO SUCCESSFULLY INTRODUCE
NEW PRODUCTS AND PLATFORMS AND EXPAND THE RANGE OF APPLICATIONS FOR OUR CURRENT
PRODUCTS. In a market primarily driven by the need for innovative products, our
revenue growth will depend on overcoming various technological challenges to
successfully introduce new products and platforms into the marketplace in a
timely manner. Our new technology platforms require state-of-the-art or even
pioneering know-how in the areas of biochemistry, fluidics and physics. In
addition, we must continue to develop new applications for our existing
products, such as integrated platforms. Market acceptance of these new products
and platforms will depend on many factors, including demonstrating to existing
and potential customers that our technologies are superior to other technologies
and products that are available now or may become available in the future.
33
If we are not able to overcome these technological challenges, or even if
we experience difficulties or delays, we may lose our current customers and may
not be able to attract new customers, which could seriously harm our business
and our future growth prospects. In addition, some of our licensed technology is
subject to contractual restrictions, which may limit our ability to develop or
commercialize products for some of our applications. For example, many of our
license agreements are limited to the field of life sciences research and
exclude clinical diagnostics applications. We also may be unable to obtain
licenses to new or existing technologies needed to introduce new products.
IF WE ARE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WE MAY
BE UNABLE TO PREVENT THIRD PARTIES FROM USING OUR TECHNOLOGY, WHICH COULD IMPAIR
OUR ABILITY TO COMPETE EFFECTIVELY IN THE MARKET. Our success will depend in
part on our ability, and the ability of our business partners and licensors, to
obtain and maintain meaningful patent protection for the technology underlying
our products, both in the United States and in other countries. We cannot assure
you that any of the presently pending or future patent applications will result
in issued patents, or that any patents issued to us or licensed by us will not
be challenged, invalidated or held unenforceable. Further, we cannot guarantee
that any patents issued to us will provide a basis for commercially viable
products or provide us with a significant competitive advantage.
In addition to our patents, we possess a wide array of unpatented
proprietary technology and know-how and license intellectual property rights to
and from third parties. Such measures may not be adequate to safeguard the
technology underlying our products. Moreover, some of our licenses can be
terminated or converted to non-exclusive by the licensor if we fail to meet
specified performance targets, as described under "Business - Other
- --Intellectual Property."
If we fail to successfully enforce our proprietary technology or
otherwise maintain the proprietary nature of our intellectual property with
respect to our significant current or proposed products, our competitive
position and, as a result, our sales could suffer.
Notwithstanding our efforts to protect our intellectual property, our
competitors may independently develop similar or alternative technologies or
products that are equal or superior to our technology and products without
infringing on any of our intellectual property rights or design around our
proprietary technologies. If customers prefer these alternative technologies to
ours, our sales could be adversely affected.
OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS, CAUSING COSTLY LITIGATION AND SERIOUSLY HARMING OUR BUSINESS. Due to the
very significant number of U.S. and foreign patents issued to, and other
intellectual property rights owned by, entities operating in the industry in
which we operate, we believe that there is a significant risk of litigation
arising from infringement of these patents and other rights. Third parties may
assert infringement or other intellectual property claims against us or our
business partners or licensors. We may have to pay substantial damages,
including treble damages, for past infringement if it is ultimately determined
that our products infringe a third party's proprietary rights. In addition, even
if such claims are without merit, defending a lawsuit may result in substantial
expense to us and divert the efforts of our technical and management personnel.
We also may be subject to significant damages or injunctions against
development and sale of some of our products, which could have a material
adverse effect on our future revenues. Furthermore, claims of intellectual
property infringement may require us to enter into royalty or license agreements
with third parties, and we may not be able to obtain royalty or license
agreements on commercially acceptable terms, if at all.
A DECLINE IN THE USE OF RADIOISOTOPIC PROCESSES AND INSTRUMENTS, WHICH
CONTINUE TO REPRESENT A SIGNIFICANT PORTION OF OUR BUSINESS, COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR REVENUES. Our traditional or "legacy" product
lines, which are used in connection with radioisotopic methods, have
historically been a significant portion of our total revenues, and in 2000 they
continued to account for approximately 28% of our total instrument and related
consumables revenues. Because of their
34
radioactivity, isotopic labels are environmentally unfriendly and difficult and
potentially harmful to handle. Their by-products create waste disposal problems
for our customers that are becoming increasingly more expensive. We believe that
the trend in the life sciences research industry is toward the use of
nonisotopic instrumentation. Accordingly, we have shifted our focus to
nonisotopic methodologies, including fluorescent and chemiluminescent
instruments. However, we cannot assure you that any decline in traditional
radioisotopic methods will not have a material adverse impact on our sales and
operating profit.
BECAUSE A SUBSTANTIAL PORTION OF OUR ASSETS IS REPRESENTED BY
INTANGIBLES, SUCH AS GOODWILL ASSOCIATED WITH ACQUISITIONS AND COSTS ASSOCIATED
WITH SECURING PATENT RIGHTS AND TECHNOLOGY LICENSES, THE FAILURE TO REALIZE THE
FULL VALUE OF THOSE ASSETS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS. At
December 31, 2000, our total assets included $119.7 million of net intangible
assets, representing approximately 39% of our total assets and approximately
144% of our total stockholders' equity. Net intangible assets consist of
goodwill associated with acquisitions and costs associated with securing patent
rights and technology licenses, net of accumulated amortization. These assets
are amortized on a straight-line basis over their estimated useful lives. We
periodically evaluate whether events or circumstances have occurred that would
indicate that the carrying values of those assets may no longer be recoverable
and any resulting write-down is recognized as a charge to our earnings. We
cannot assure you that we will ultimately be able to realize the full value
assigned to those assets. Any realization assessment that results in the
write-off of a significant portion our net intangible assets could adversely
affect our results of operations.
IF WE ARE UNABLE TO PURSUE STRATEGIC ACQUISITIONS THAT ADD VALUE TO OUR
PLATFORMS, AN IMPORTANT COMPONENT OF OUR GROWTH STRATEGY MAY BE LOST. The life
sciences research industry has been consolidating, and this may adversely affect
our ability to find suitable acquisition candidates to add value to our
platforms. We are also likely to face increased competition from other life
sciences research companies for the companies or assets we wish to purchase.
This consolidation and increased competition may each lead to higher prices for
life sciences research companies or assets and therefore reduce the number of
potential acquisitions available at price ranges that would be attractive to us.
We do not know if we will have sufficient capital resources to make
purchases, obtain any required consents from our lenders, or find acquisition
opportunities with acceptable terms.
We continuously evaluate acquisition opportunities and, at any given
time, may be engaged in discussions with respect to possible acquisitions or
other business combinations. In addition, from time to time, we may enter into
letters of intent with potential acquisition targets. Although we have
discussions with various companies to assess opportunities on an ongoing basis,
we currently are not a party to any letter of intent or agreement with respect
to any material acquisition.
THE COSTS ASSOCIATED WITH ANY STRATEGIC ACQUISITIONS WE EFFECT MAY
OUTWEIGH THE BENEFITS WE EXPECT TO RECEIVE FROM THE ACQUIRED BUSINESS OR ASSETS.
In 2000, we completed three acquisitions for aggregate consideration of
approximately $131 million. During the same period, we looked at other
acquisition opportunities and we expect to continue doing so in the future. As
we complete these acquisitions, we must then integrate the acquired assets or
businesses into our existing operations. This process of integration may result
in unforeseen difficulties and could require significant time and attention from
our management that would otherwise be directed at developing our existing
business. Further, we cannot be certain that the benefits that we anticipate
from these acquisitions will develop.
BECAUSE PURCHASES OF OUR PRODUCTS ARE SIGNIFICANTLY AFFECTED BY CAPITAL
SPENDING POLICIES OF OUR CUSTOMERS AND GOVERNMENT FUNDING, ANY DECREASE IN
CUSTOMER CAPITAL SPENDING OR GOVERNMENT FUNDING COULD ADVERSELY AFFECT OUR SALES
AND GROWTH PROSPECTS. The capital spending policies of our primary customers,
pharmaceutical, biotechnology and agrochemical companies and clinical
diagnostics laboratories, have a significant effect on the demand for our
products and platforms. Those policies are based on a wide variety of factors,
including resources available to make these purchases, spending
35
priorities among various types of equipment and policies regarding capital
expenditures during industry downturns or recessionary periods. These companies
represented in total approximately 45% of our 2000 revenue. Any decrease in
capital spending by our customers resulting from any of these factors could
adversely affect our sales and growth prospects.
Similarly, many of our customers, including universities, government
research laboratories, private foundations and other institutions, obtain
funding for the purchase of our products from grants by governments or
government agencies. If government funding necessary to purchase our products
were to decrease, our sales could be adversely affected.
OUR REVENUES AND OPERATING RESULTS COULD BE ADVERSELY IMPACTED IF RISKS
ASSOCIATED WITH OUR INTERNATIONAL SALES AND OPERATIONS MATERIALIZE. Since we
sell our products worldwide, our business is subject to risks associated with
doing business internationally. Revenues originating outside the United States
represented 45% of our total revenues from continuing operations in 2000. We
anticipate that revenue from international operations will continue to represent
a substantial portion of our total revenue. In addition, a number of our
manufacturing facilities and suppliers are located outside the United States.
Accordingly, if the value of the U.S. dollar increases relative to the value of
currencies we use to do business in foreign countries, our revenues and
operating results, which are stated in U.S. dollars, could be adversely
effected. In addition, because most of our products are manufactured in the
United States for export to foreign countries, trade protection measures and
import or export licensing requirements or other restrictive actions by foreign
governments could have an adverse effect on our revenues and operating results.
THE CURRENT TECHNOLOGY LABOR MARKET IS VERY COMPETITIVE, AND OUR BUSINESS
MAY SUFFER IF WE ARE NOTABLE TO HIRE AND RETAIN SUFFICIENT PERSONNEL. Our future
success depends on the continued service of our key technical, sales, marketing,
manufacturing, executive and administrative personnel. The loss of the services
of any of these individuals could have a material adverse effect on our product
development and commercialization efforts. In addition, research, product
development and commercialization will require additional skilled personnel.
Competition for qualified personnel in the technology area is intense, and we
operate in several geographic locations where labor markets are particularly
competitive, including New Haven, Connecticut, Chicago, Illinois, Boston,
Massachusetts and Los Angeles, California, where key product development
laboratories are located. If we are unable to attract and retain a sufficient
number of qualified employees on acceptable terms, our business, financial
condition and results of operations could be seriously harmed. The inability to
retain and hire qualified personnel could also hinder the future expansion of
our business.
YOUR INTERESTS AS HOLDERS OF OUR COMMON STOCK MAY CONFLICT WITH THOSE OF
OUR CONTROLLING STOCKHOLDER. Stonington Capital Appreciation 1994 Fund, L.P.
beneficially owns greater than 50% of the outstanding shares of our voting
capital stock. Stonington benefits from an agreement with the other parties to
the Stockholders' Agreement described under "Certain Relationships and Related
Transactions," pursuant to which these parties will vote with Stonington in
favor of nominations and removals of directors by Stonington. In addition, under
that agreement Stonington has the right to direct the voting with respect to
shares of our common stock owned by other institutional holders, as described
under "Certain Relationships and Related Transactions --Stockholders'
Agreement." As a result, Stonington has and will continue to have control over
the outcome of matters requiring stockholder approval, including the power to:
o elect all of our directors;
o amend our charter or by-laws; and
o adopt or prevent mergers, consolidations or the sale of all or
substantially all of our assets or our subsidiaries' assets or
other purchases of our common stock that could give holders of
our common stock the opportunity to realize a premium over the
then-prevailing market price of their shares of common stock.
36
Stonington will therefore be able to prevent or cause a change of control
relating to us. Stonington's control over us and our subsidiaries, and its
ability to prevent or cause a change in control relating to us, may delay or
prevent a change in control of us, which could adversely affect the market price
of our common stock.
ITEM 2: PROPERTIES
As part of our continuing operations we currently have, either through
direct ownership or through the ownership by one of our subsidiaries, four
domestic and 12 foreign active subsidiaries, all of which are wholly-owned, with
the exception of Carl Consumable Products, LLC, which is 51% owned.
All of our operations are conducted through the following subsidiaries:
o Packard Instrument Company, Inc., which is located at Downers
Grove, Illinois, is our main manufacturing facility and develops,
manufactures and distributes a broad line of our bioanalytical
and liquid handling instrumentation;
o CCS Packard, Inc., which is located at Torrance, California,
develops, manufactures and distributes systems for liquid
handling and laboratory automation;
o Packard BioChip Technologies, LLC, which is located at Billerica,
Massachusetts, designs, develops and manufactures imaging and
arraying systems and software for biochip and microarray
applications;
o BioSignal Packard, Inc., which is located at Montreal, Canada,
provides assay technologies and reagents for drug discovery
applications, as well as services for assay development and
contract screening;
o Carl Consumable Products, LLC, which is co-located with CCS
Packard, is a designer and manufacturer of disposable pipette
tips for liquid dispensing robots used to automate drug discovery
and genomics research; and
o Packard BioScience, B.V., located in The Netherlands, also
produces reagents.
Our other foreign subsidiaries serve as direct sales and service
organizations as well as distribution facilities to support our worldwide
operations.
As of February 28, 2001, we owned the manufacturing facilities set
forth below:
LOCATION FUNCTION SQUARE FEET
- -------- -------- -----------
Downers Grove, Illinois.............. Manufacturing, service, engineering and research and 109,000
development
Groningen, The Netherlands........... Manufacturing and research and development (chemicals 69,000
and supplies)
Billerica, Massachusetts............. Administration, marketing, research and development and 40,000
manufacturing for Packard BioChip Technologies, LLC
In addition, we lease the following manufacturing facilities:
37
SQUARE
LOCATION FUNCTION FEET LEASE EXPIRATION
- -------- -------- ---- ----------------
Meriden, Connecticut............ Headquarters, training, service, customer 50,000 February 2003
support, engineering, sales and marketing,
software development and manufacturing
Torrance, California............ Administration, marketing, manufacturing, 70,000 December 2003
research and development and warehousing
Montreal, Canada................ Administration, marketing, research and 15,700 July 31, 2002
development and manufacturing
Billerica, Massachusetts........ Administration, marketing, research and 20,000 June 30, 2001
development and manufacturing
With the exception of two sales and distribution facilities occupied by
our foreign subsidiaries, which we own, we lease all the sales and distribution
facilities of our foreign subsidiaries. We own an additional property in
Groningen, The Netherlands, which is currently being offered for sale.
CCS Packard continues to lease an approximately 17,000-square-foot
facility in Harbor City, California that it used previously for administration,
manufacturing and warehousing. CCS Packard subleases this facility and the lease
expires in May 2002.
We believe that our facilities are suitable for their present and
intended purposes and are adequate for our current level of operations.
ITEM 3: LEGAL PROCEEDINGS
We are currently, and may become from time to time, subject to claims
and suits arising in the ordinary course of our business. In such actions,
plaintiffs may request punitive or other damages that may not be covered by
insurance. We accrue for these items as they become known and can be reasonably
estimated. It is the opinion of management that the various asserted claims and
litigation in which we are currently involved will not have a material adverse
effect on our financial position or results of operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year ending December 31, 2000.
38
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been quoted on the Nasdaq National Market under
the symbol "PBSC" since our initial public offering on April 19, 2000. Prior to
that time, there was no public market for the common stock. The following table
sets forth, for the periods indicated, the high and low prices per share of the
common stock as reported on the Nasdaq National Market.
2000 HIGH LOW
---- ---- ---
Second Quarter (since April 19, 2000)............... $19.25 $ 8.75
Third Quarter....................................... $28.00 $12.63
Fourth Quarter...................................... $19.50 $ 8.91
2001
First Quarter (through March 31, 2001).............. $16.00 $ 3.94
Second Quarter (through April 25, 2001)............. $ 7.50 $ 4.75
On April 25 , 2001, the reported last sale price of the common stock on
the Nasdaq National Market was $6.50 per share.
Since we became a public company in April 2000, we have never declared
or paid any cash dividends on our capital stock. We intend to retain all of our
earnings in the foreseeable future to finance the expansion of our business and
do not anticipate paying any cash dividends in the foreseeable future. Our
future dividend policy will depend on our earnings, capital requirements and
financial condition and the requirements of the financing agreements to which we
may be a party, and on other factors considered relevant by our board of
directors. In addition, covenants in our senior credit facility and the
indenture governing our senior subordinated notes limit our ability to declare
and pay cash dividends on our common stock.
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data
for the periods ended and as of the dates indicated. The selected historical
consolidated financial data as of December 31, 1999 and 2000 and for the years
ended December 31, 1998, 1999 and 2000 are derived from our audited consolidated
financial statements included elsewhere in this Form 10-K. The selected
historical consolidated financial data as of December 31, 1996, 1997 and 1998
and for the years ended December 31, 1996 and 1997 are derived from our audited
consolidated financial statements that are not included in this Form 10-K. The
summary consolidated financial data have been reclassified to give effect to the
accounting for Canberra as a discontinued operation for the periods presented.
This information should be read in conjunction with our consolidated financial
statements and accompanying notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this Form
10-K.
39
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
OPERATING STATEMENT DATA:
Revenues...................................................... $122,676 $120,286 $146,235 $158,890 $165,375
Cost of revenues (1).......................................... 54,518 54,368 69,090 78,310 73,639
--------------------------------------------------------------------
Gross profit.................................................. 68,158 65,918 77,145 80,580 91,736
Research and development expenses............................. 12,801 17,667 23,160 22,796 28,358
Selling, general and administrative expenses (2).............. 31,809 32,839 37,844 42,020 53,229
Purchased in-process research and development charges......... -- -- 6,120 -- 12,100
Other operating expense (income), net (3)..................... 837 18,429 (10,753) -- 1,881
--------------------------------------------------------------------
Income (loss) from operations................................. 22,711 (3,017) 20,774 15,764 (3,832)
Interest expense.............................................. (192) (18,079) (21,097) (22,425) (19,098)
Other income, net (4)......................................... 1,149 790 3,615 331 1,296
--------------------------------------------------------------------
Income (loss) from continuing operations before
provision for income taxes, minority interest and
extraordinary items, net ................................... 23,668 (20,306) 3,292 (6,330) (21,634)
(Provision for) benefit from income taxes..................... (8,394) (1,096) (2,437) (1,620) 10,791
Minority interest in income of subsidiaries................... (1,346) (218) -- -- --
--------------------------------------------------------------------
Income (loss) from continuing operations before extraordinary
items, net.................................................. 13,928 (21,620) 855 (7,950) (10,843)
Income from discontinued operations, net of taxes............. 5,308 2,865 1,050 7,752 4,106
--------------------------------------------------------------------
Income (loss) before extraordinary items, net................. 19,236 (18,755) 1,905 (198) (6,737)
Extraordinary items, net of income taxes...................... -- -- -- -- 369
--------------------------------------------------------------------
Net income (loss)............................................. $19,236 $(18,755) $1,905 $(198) $(6,368)
====================================================================
Weighted average diluted shares outstanding (5)............... 125,697 62,318 47,683 45,803 58,443
Diluted per share information:
Income (loss) from continuing operations...................... $0.11 $(0.35) $0.02 $(0.17) $(0.19)
Income from discontinued operations, net...................... 0.04 0.05 0.02 0.17 0.07
Extraordinary items, net...................................... -- -- -- -- 0.01
--------------------------------------------------------------------
Net income (loss) (5)......................................... $0.15 $(0.30) $0.04 $0.00 $(0.11)
====================================================================
Dividends declared and paid per share......................... $0.04 $-- $-- $-- $--
====================================================================
AS OF DECEMBER 31,
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 36,243 $ 9,129 $ 6,607 $ 4,432 $ 13,294
Working capital............................................... 59,216 32,265 24,734 38,566 71,359
Total assets.................................................. 126,966 124,954 141,435 182,558 306,092
Long-term debt, less current portion.......................... 1,877 192,194 190,093 225,710 169,344
Stockholders' equity (deficit)................................ 80,593 (112,014) (108,563) (107,890) 83,273
- -----------
(1) Includes the following pre-tax items:
o the expensing of fair market value adjustments associated with
acquired inventories totaling $1.5 million in 1998; and
40
o a $2.7 million charge in 1999 in connection with modifying an
existing license agreement and terminating the production of an
OEM clinical product.
(2) Includes non-cash stock compensation charges of $1.0 million in 1999
and $4.7 million in 2000.
(3) Other operating expense (income), net in 1996 and 1997 represents
expenses incurred in connection with our 1997 recapitalization. 1998 represents
a $10.8 million gain we recognized in connection with the sale of our gas
generation product line. The 2000 amount consists of a $1.9 million charge
primarily to write-off long-lived assets which had become impaired.
(4) Consists of interest income and, in 1998, a gain of $3.2 million
recognized on the sale of equity securities.
(5) Based upon the average shares outstanding during each period presented,
including the impact of outstanding options, except when such options are
anti-dilutive.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES INCLUDED
ELSEWHERE IN THIS FORM 10-K.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. These statements relate to future events or our future business and
financial performance. We have attempted to identify forward-looking statements
by terminology including "anticipate," "believe," "can," "continue," "could,"
"estimate," "expect," "intend," "may," "plan," "potential," "predict," "should"
or "will" or the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the following:
o intense competition in the markets we target;
o our inability to successfully introduce new products and
platforms or to expand the application range for our current
products;
o our inability to effectively protect our intellectual property;
o the possibility that our products may infringe on the
intellectual property rights of others;
o a decline in the use of radioisotopic processes and instruments;
o our failure to realize the full value of our intangible assets;
o our inability to pursue strategic acquisitions;
o costs associated with strategic acquisitions we may effect;
o a decrease in capital spending by our customers or in government
funding;
o exchange rate and other risks affecting our foreign operations;
o competition in the technology labor market; and
o conflict with the interests of our controlling stockholder.
These factors are described in more detail under "Business -- Other?
Risk Factors Affecting Our Business." Any of these factors may cause our or
our industries' actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity,
41
performance or achievements expressed or implied by these forward-looking
statements. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. We are not under
any duty to update any of the forward-looking statements after the date of
this report to conform these statements to actual results, unless required by
law.
We use market data and industry forecasts and projections throughout
this report, which we have obtained from internal and independent surveys and
market research, publicly available information and industry publications.
Industry publications generally state that the information they provide has been
obtained from sources believed to be reliable, but we have not independently
verified that information and there is no assurance that any of the projected
amounts will be achieved. Similarly, we believe that the surveys and market
research we or others have performed are reliable, but we have not independently
verified the information derived from surveys and market research performed by
others and there is no assurance that any of the projected amounts will be
achieved.
OVERVIEW
We are a global developer, manufacturer and marketer of instruments and
related consumables and services for use in drug discovery and other life
sciences research, such as basic human disease research, genetic analysis and
biotechnology. We believe our broad technology portfolio and our experience
working in more than 60 countries with market-leading customers have allowed us
to establish a worldwide leadership position in many of our primary product
categories. Building on this leadership, we are primarily focused on integrating
our products to develop scalable platforms in the rapidly growing areas of drug
screening, functional genomics and proteomics.
Our revenues are derived primarily from sales of instruments and
consumables with additional sales from services. We are marketing our
instruments as parts of integrated platforms, which we expect will generate
increasing instrument and consumable sales at higher gross margins than our
service business. All of our operations are conducted through subsidiaries, as
described under "Business--Properties."
Our profitability varies among the sources of revenues, consisting of
sales of instruments, services and consumables. The major reasons for such
variances are:
o technological differences between our products and those of our
competitors;
o maturity of product life cycles;
o competitive environment and supply of services and consumables;
and
o our market position and differences in the markets within the
geographic areas we operate.
Our operating results also vary among geographic territories. Major
reasons for such variances are:
o effects of foreign exchange rate fluctuations in countries where
we conduct business in currencies other than the U.S. dollar,
primarily England (British Pound), Euro-based countries and Japan
(Japanese Yen);
o our market position and mix of products sold affect the margins
in each geographic area; and
o to the extent that our operating results reflect special charges
or credits, and such can be designated to specific geographic
operations, operating results will vary.
42
On February 27, 2001, we sold our Canberra division to COGEMA, S.A. for
$170 million. The net proceeds, after estimated income taxes payable and cash
expenses directly related to the sale and after repurchases of options held by
Canberra employees, were approximately $130 million. We used $71 million of net
proceeds to repay the outstanding balance on our credit facility on February 28,
2001. We intend to use the remainder of the net proceeds to increase spending
associated with research and development, new product development, enhancement
of existing products and strategic partnerships and acquisitions, and for
general corporate purposes.
Our consolidated financial statements have been reclassified to reflect
the net assets and operating results of the Canberra operating segment as a
discontinued operation. The amounts below relate only to our continuing
operations unless otherwise noted.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUES
Revenues increased $6.5 million, or 4.1%, to $165.4 million in 2000 from
$158.9 million in 1999. Foreign currency exchange rates had an unfavorable
effect on 2000 revenues in comparison with 1999. Had exchange rates remained the
same during 2000, as in 1999, revenues would have been $5.8 million higher. The
Japanese yen was approximately 5% stronger than the U.S. dollar in 2000 when
compared to 1999, resulting in 2000 translated revenues being approximately $0.9
million higher than they would have been if translated at the 1999 average
exchange rate. The Euro and British Pound were approximately 16% and 7% weaker,
respectively, than the U.S. dollar during 2000 as compared to 1999, reducing
translated revenues by approximately $5.5 million and $1.2 million,
respectively. The 2000 revenues included approximately $2.8 million of
instrument sales from the life sciences division of GSI Lumonics, Inc. (now
known as Packard BioChip Technologies, LLC) which we acquired effective October
1, 2000. In addition, 1999 includes approximately $3.9 million of revenues
associated primarily with an OEM clinical instrument which we terminated
production of at the end of 1999 since our primary customer, CIS bio
international, stopped selling this instrument. Excluding the effect of exchange
rates, sales of Packard BioChip Technologies products and the product line
termination, 2000 revenues would have been 8.7% higher in 2000 when compared to
1999. The increase is primarily attributable to strong instrumentation revenue
growth in some of our major product lines, particularly automated liquid
handling and sample preparation where revenues increased $10.9 million, or
29.9%, to $47.3 million in 2000 from $36.4 million in 1999. This increase was
partially offset by decreases in revenues generated from bioanalytical
scintillation instruments and other radioisotopic instruments and consumables,
which are our legacy products, where revenues decreased $6.9 million, or 14.4%,
to $41.0 million in 2000 from $47.9 million in 1999.
Service revenues declined $1.6 million, or 4.8%, to $31.4 million in 2000
from $33.0 million in 1999. The decrease is primarily due to software upgrade
services performed to make some of our products Y2K compliant in 1999, which did
not occur at the same level in 2000. Chemicals and supplies, or consumables,
sales increased $1.3 million, or 4.2%, to $32.2 million in 2000 from $30.9
million in 1999 reflecting an increase in revenues from our AlphaScreen
reagents.
We believe that our transition to a company focused solely on life
sciences with a substantially strengthened balance sheet, as well as our new
product introductions for the previous and current years in the rapidly-growing
areas of automated liquid handling and sample preparation, and in our microwell
plate reader product group, should mitigate the negative impact of legacy
products on our sales growth and help us achieve an overall revenue growth rate
for fiscal year 2001 of approximately 15%. Our belief is based on these and
other assumptions regarding our business and our current expectations with
respect to factors, including those described under "--Forward-Looking
Statements," that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of
activity, performance or achievements we project. While we believe our
assumptions
43
and expectations to be reasonable, we cannot assure you that any or all of those
assumptions will not change and/or that factors will not come into play that
will cause our actual 2001 revenues to be materially different from those we
currently expect to achieve.
GROSS PROFIT
Gross profit increased $11.1 million, or 13.8%, to $91.7 million in 2000
from $80.6 million in 1999. The 1999 gross profit amount includes a charge of
approximately $2.7 million to terminate an agreement we had with CIS bio
international covering the manufacturing of an OEM clinical instrument since CIS
bio international stopped selling this instrument, due, we believe, to a change
in strategic direction by CIS bio international. In connection with terminating
the OEM arrangement, we converted a license agreement covering our HTRF product
line from exclusive to non-exclusive to increase our flexibility in pursuing
competitive technologies. Excluding this charge as well as the effect of foreign
exchange rate fluctuations, new product sales of Packard BioChip Technologies in
2000 and the product line terminated in 1999, gross profit dollars would have
increased approximately 16.2% in 2000 when compared to 1999. As a percentage of
sales, excluding the items described above, total gross profit increased from
52.0% in 1999 to 55.6% in 2000. Product gross profit, as a percentage of net
product sales, increased from 59.7% in 1999 to 61.6% in 2000 and chemicals and
supplies gross profit, as a percentage of chemicals and supplies sales,
increased from 62.0% in 1999 to 66.8% in 2000. These increases, in both dollars
and as a percentage of revenues, are primarily due to increased sales of our
automated liquid handling and sample preparation instruments and our AlphaScreen
reagents. In addition, service gross profit, as a percentage of service
revenues, increased from 22.4% in 1999 to 24.0% in 2000. The increase is due to
software upgrade services, which had lower margins, performed in 1999 to make
some of our products Y2K compliant.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$5.6 million, or 24.6% to $28.4 million in 2000 from $22.8 million in 1999.
Packard BioChip Technologies contributed $1.5 million to the increase in
spending. The remaining increase is attributable to new product development as
well as efforts to accelerate the market introduction of our key new products.
In line with our strategic initiatives, we expect research and development
spending to increase significantly in the future; however, we expect it to
decline as a percent of revenues.
SELLING GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs increased $11.2 million, or 26.7%, to $53.2 million in 2000 from $42.0
million in 1999. The 2000 and 1999 amounts include non-cash stock compensation
charges totaling $4.7 million and $1.0 million, respectively. These charges
resulted from stock options granted to employees in December 1999 and from the
March 2000 gifting of common stock by our Chairman and Chief Executive Officer,
our former President and other members of our management to our employees who
did not then own, or have options to acquire, any of our common stock. An
expense was recorded related to the gifting since it represented additional
compensation to these employees for financial reporting purposes. Excluding
these charges, selling, general and administrative costs would have increased
18.3% in 2000 when compared to 1999. The increase is due primarily to additional
corporate expenses incurred as a result of our initial public offering in April
2000 as well as higher goodwill amortization resulting from contingent earnout
payments related to our 1998 acquisition of Carl Creative Systems, Inc. (which
now operates as CCS Packard, Inc.) and the goodwill resulting from the
acquisition of the life sciences division of GSI Lumonics, Inc. effective
October 1, 2000. Additional payments up to a maximum of $3.9 million are due
contingent upon CCS Packard achieving specified operating levels in 2001. In
addition, we have increased spending to broaden our field of product application
specialists and enhance our sales and marketing organization. Continuing
operations for all years presented includes the costs we will incur as a result
of Canberra no longer absorbing previously allocated expenses, primarily
corporate overhead.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES
44
In October 2000, we acquired the life sciences business of GSI Lumonics,
Inc. for approximately $40 million in cash and approximately 4.5 million shares
of our common stock. Prior to the acquisition, GSI operated its life sciences
business as a separate division which, according to a 2000 independent research
report, was a leading provider of imaging equipment and software for biochip and
microarray applications. We acquired the business in order to enhance our
product offerings and to position Packard as a leading supplier of
instrumentation to the biochip industry. We intend to continue operating the
acquired business as a separate division of our company.
At the time of the acquisition, GSI was conducting design, development,
engineering and testing activities in connection with the completion of a
spotter for producing microarrays and software for data analysis. These projects
represent technologies that are expected to address market demands in the field
of microarray production and analysis. In connection with the acquisition, we
allocated approximately $12.1 million of the purchase price to in-process
research and development projects. This allocation represented the estimated
fair value based on risk-adjusted cash flows related to the incomplete research
and development projects, as more fully described below. At the acquisition
date, the development of these projects had not yet reached technological
feasibility, and the research and development in progress had no alternative
future uses. Accordingly, these costs were expensed as of that date.
The technologies under development were approximately 40 to 50 percent
complete at the acquisition date, based on engineering man-month data and
technological progress. GSI had spent approximately $1.4 million on the
in-process projects as of that date, and we expected to spend approximately $3.0
million to complete all phases of research and development. Anticipated
completion dates are within one year of the acquisition date, at which times we
expect to begin benefiting from the developed technologies.
In determining the purchase price allocation, we considered present value
calculations of income, an analysis of project accomplishments and remaining
outstanding items, an assessment of overall contributions, as well as project
risks. The value assigned to purchased in-process technology was determined by
estimating the costs to develop the acquired technology into commercially viable
products, estimating the resulting net cash flows from the projects, and
discounting the net cash flows to their present value. The revenue projection
used to value the in-process research and development was based on estimates of
relevant market sizes and growth factors, expected trends in technology, and the
nature and expected timing of new product introductions by us and our
competitors. The resulting net cash flows from the projects are based on
management's estimates of cost of sales, operating expenses, and income taxes
from such projects.
We estimated aggregate revenues for the developmental products to grow at
a compounded annual growth rate of approximately 25 to 50 percent for the five
years following introduction, assuming the successful completion and market
acceptance of these research and development programs. The estimated revenues
for the in-process projects are expected to peak within four to five years of
the acquisition and then decline sharply as other new products and technologies
are expected to enter the market.
The rates utilized to discount the net cash flows to their present value
were based on estimated cost of capital calculations. Due to the nature of the
forecast and the risks associated with the successful development of the
projects, we used a discount rate of 20% to value the in-process research and
development. The discount rate utilized was higher than our weighted average
cost of capital due to the inherent uncertainties surrounding the successful
development of the purchased in-process technology, the useful life of such
technology, the profitability levels of the technology, and the uncertainty of
technological advances.
If these projects are not successfully developed, our sales and
profitability may be adversely affected in future periods, and the value of our
acquired intangible assets may become impaired.
45
OTHER OPERATING EXPENSE (INCOME), NET
In December 2000, we recorded a charge of $1.9 million to write-off
assets and accrue severance and lease termination costs relating to technologies
that we no longer intend to pursue.
INTEREST EXPENSE
Interest expense decreased $3.3 million, or 14.7%, from $22.4 million in
1999 to $19.1 million in 2000. The lower interest expense is directly
attributable to lower average borrowings during 2000 as a result of our
repayment of outstanding indebtedness using proceeds from our April 2000 initial
public offering. The repayments were partially offset through additional
borrowings to fund a portion of our operating requirements, contingent earn outs
paid in March 2000, scheduled interest payments on our senior subordinated notes
and portions of our 2000 acquisition program, in particular the cash portion of
the acquisition of the life sciences division of GSI Lumonics, Inc. Interest
rates were also higher during 2000, 1% to 1.5% higher on average, on our
variable rate indebtedness as compared to 1999.
For purposes of presenting operating results of our continuing
operations, all corporate interest expense has been charged to continuing
operations. Corporate interest expense consists of all interest associated with
our senior subordinated notes, term loan facility and revolving credit facility.
OTHER INCOME
Other income consists of interest income earned on invested funds. The
increase in interest income, from $0.3 million in 1999 to $1.3 million in 2000,
is due to the higher average invested funds balance during the 2000 period as a
result of the proceeds received from our initial public offering.
EFFECTIVE TAX RATE
Our effective tax rate was 49.9% during 2000 as compared to 25.6% in 1999
(representing a provision on a pre-tax loss). The 2000 effective tax rate
represents a benefit provided on a pre-tax loss. Both periods reflect the effect
of nondeductible goodwill. The 2000 period reflects the benefit associated with
the reversal of valuation allowances associated with state net operating loss
carry forwards and research and development credits. Due to the gain to be
generated in connection with the sale of Canberra, such credit carry forwards
are expected to be realized in 2001.
The 1999 effective tax rate reflects the provision of additional
valuation allowances on foreign tax credit carry forwards due to the uncertainty
of realization.
DISCONTINUED OPERATIONS, NET OF INCOME TAXES
Income from discontinued operations consists of the following (in
thousands):
YEAR ENDED DECEMBER 31,
2000 1999
---- ----
Revenues........................................ $94,530 $106,003
Total costs and expense......................... (87,957) (92,435)
Provision for income taxes...................... (2,467) (5,816)
----------------------
Income from discontinued operations, net........ $ 4,106 $ 7,752
======================
For purposes of presenting operating results of our continuing
operations, all corporate interest expense has been charged, and all corporate
interest income has been credited, to continuing operations. Discontinued
operations include interest expense on local borrowings related to the
applicable foreign
46
subsidiaries of $0.6 million and $0.1 million for the years ended December 31,
1999 and 2000, respectively.
Discontinued operations for 2000 included charges associated with
accelerated option vesting and gifted shares of common stock totaling $3.5
million as well as a restructuring reserve totaling $1.4 million associated with
Canberra's Harwell Instruments operations. The 1999 results include a $1.0
million charge to write-off the step-up in inventory acquired in connection with
Canberra's Tennelec, Inc. acquisition and a $0.8 million stock compensation
charge.
EXTRAORDINARY ITEMS, NET OF INCOME TAXES
During 2000, we repaid the outstanding balance on our term loan and our
revolving credit facility. We then entered into an amended and restated credit
agreement in August 2000. In addition, we repurchased $31.9 million of our
senior subordinated notes, at a discount from par, during 2000. The purchase of
the notes generated a pre-tax gain of approximately $3.2 million. The gain was
partially offset by the write-off of unamortized deferred financing costs
associated with the repayment of the term and original revolving credit
facilities and the repurchase of senior subordinated notes. The gain, net of the
write-off of deferred financing costs and income taxes, is reflected as
extraordinary items, net of income taxes, in our consolidated statements of
income (loss).
NET INCOME (LOSS)
We incurred a net loss of $6.4 million during 2000 compared to a net loss
of $0.2 million in 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES
Revenues increased $12.7 million, or 8.7%, to $158.9 million in 1999 from
$146.2 million in 1998. The effect of foreign exchange rate fluctuations had an
immaterial effect on revenues. The 1999 period reflects a full year of
operations of CCS Packard, Inc. and BioSignal, Inc. (which now operates as
BioSignal Packard, Inc.), subsidiaries that we acquired effective March 31, 1998
and July 1, 1998. Had CCS Packard and BioSignal Packard been included for all of
the prior year, 1998 revenues would have been $3.5 million higher. The 1999
increase in revenues was also attributable in part to strong growth in our
bioanalytical spectrometer business, particularly the liquid scintillation
counter product line where sales increased by approximately $2.9 million, or
28.7%, to $13.0 million in 1999 from $10.1 million in 1998. In addition, the
1999 revenue increase was due in large part to service revenue, which increased
$7.5 million, or 29.4%, to $33.0 million in 1999 from $25.5 million in 1998.
This increase was due primarily to the sale of software upgrade services
performed to make some of our products Y2K compliant. These revenue increases
were partially offset by the loss of revenues from the sale of our gas
generation product line at the end of 1998 and a reduction of $4.8 million in
revenues of our OEM clinical instruments due to our customer exiting the
marketplace.
GROSS PROFIT
Gross profit increased $3.5 million, or 4.5%, to $80.6 million in 1999
from $77.1 million in 1998. Excluding the effects of other costs of product
sales and expensing the fair market value adjustment associated with acquired
inventories included in our cost of sales, gross profit would have been $83.3
million in 1999 and $78.6 million in 1998. As a percentage of revenues, and
excluding these charges, total gross profit was 52.4% for 1999 and 53.8% for
1998. Product gross profit, as a percentage of net product sales, decreased from
60.0% in 1998 to 59.7% in 1999. Service gross profit, as a percentage of service
revenues, increased from 22.3% in 1998 to 22.4% in 1999. Chemicals and supplies
gross profit, as a percentage of chemicals and supplies sales, was the same in
both 1998 and 1999, at 62.0%. The reduced total margin percentage is due
primarily to the increase in service revenues which generate lower
47
margins than product sales. The increase in gross profit dollars over the last
two years is due primarily to the CCS Packard and BioSignal Packard
acquisitions.
During 1999, we terminated an agreement we had with CIS bio international
covering the manufacturing of an OEM clinical instrument since CIS bio
international stopped selling this instrument, due, we believe, to a change in
strategic direction by CIS bio international. In connection with terminating the
OEM arrangement, we converted a license agreement covering our HTRF product line
from exclusive to non-exclusive to increase our flexibility in pursuing
competitive technologies. This termination and modification resulted in a $2.7
million charge. During 1998, in connection with the acquisitions of CCS Packard
and BioSignal Packard, we expensed $1.5 million, representing the fair market
value adjustment associated with acquired inventories.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT EXPENSES. Research and development spending
decreased $0.4 million, or 1.7%, to $22.8 million in 1999 from $23.2 million in
1998. The 1998 amount includes charges totaling $3.8 million associated with
terminating two agreements for the development of specific instrumentation.
Based on novel technologies, the projects did not result in the development of
commercially viable products and, accordingly, the agreements were terminated.
Excluding these charges, the 1999 spending represents a 17.5% increase over the
1998 level. The increased spending represents investments in the areas of new
product development and other collaborative arrangements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses increased $4.2 million, or 11.1%, to $42.0 million in
1999 from $37.8 million in 1998. The 1999 amount includes a compensation charge
of $1.0 million associated with options granted to our employees in December
1999. Excluding this charge, selling, general and administrative costs increased
8.5% in 1999. As a percentage of revenues, and excluding the compensation charge
from 1999, selling general and administrative expenses were flat at
approximately 25.8% each year.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES
In connection with the acquisition of the life sciences division of CCS
Packard and BioSignal Packard, we incurred charges of $2.7 million and $3.4
million, respectively, to expense the value of in-process research and
developmental projects at the dates of the acquisitions. The charge for CCS
Packard primarily related to the Plate Stak product that is now being sold and
several other software products embedded in various product offerings. The
charge for BioSignal Packard primarily related to the AlphaScreen reagent and
assay technology. These charges were calculated by using the income approach to
determine the cash flows from each individual project in-process at the date of
the acquisition and applying discount rates of 25% for CCS Packard and 37% for
BioSignal Packard, reflecting our belief as to the risk commensurate with the
stage of development of the underlying projects. The percentage-of-completion
method was then applied to the discounted cash flows.
OTHER OPERATING EXPENSE (INCOME), NET
In 1998, other operating income represented a $10.8 million gain from the
sale of our gas generation product line. There were no comparable charges in
1999.
INTEREST EXPENSE
Interest expense increased $1.3 million, or 6.2%, to $22.4 million in
1999 from $21.1 million in 1998. Interest expense had increased due to
borrowings on our revolving credit facility to effect the CCS Packard and
BioSignal Packard acquisitions. The majority of this debt was originally
incurred in connection with our 1997 recapitalization.
48
For purposes of presenting operating results of our continuing
operations, all corporate interest expense has been charged to continuing
operations. Corporate interest expense consists of all interest associated with
our senior subordinated notes, term loan facility and revolving credit facility.
OTHER INCOME
Other income in 1999 consisted of interest income earned on invested
funds. In 1998, other income consisted of $0.4 million of interest income and a
$3.2 million gain recognized on the sale of equity securities.
EFFECTIVE TAX RATES
Our consolidated effective tax rate was 25.6% in 1999, representing a tax
provision on a pre-tax loss, and 74.0% in 1998. These effective tax rates are a
result of the following:
o the 1999 effective tax rate reflects an increase in the valuation
allowance for foreign tax credit carry forwards resulting from
the reduced likelihood of their utilization primarily as a result
of estimated future deductions associated with anticipated stock
option exercises. As the stock options are exercised, we will
benefit through reduced cash income tax payments;
o the 1998 effective tax rate reflects the non-deductibility for
tax purposes of purchased in-process research and development
charges and goodwill amortization associated with the
acquisitions of CCS Packard and BioSignal Packard; and
o the income tax provision for 1998 and 1999 reflects taxes on
income generated in foreign countries where the statutory rates
are higher than the statutory rate in the United States,
particularly Japan.
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES
Income from discontinued operations consists of the following (in
thousands):
1998 1999
---- ----
Revenues........................................ $81,929 $106,003
Total costs and expenses........................ (79,526) (92,435)
Provision for income taxes...................... (1,353) (5,816)
-----------------------
Income from discontinued operations, net........ $ 1,050 $ 7,752
=======================
For purposes of presenting operating results of our continuing
operations, all corporate interest expense has been charged, and all corporate
interest income has been credited, to continuing operations. Discontinued
operations includes interest expense on local borrowings related to the
applicable foreign subsidiaries of $0.1 million and $0.6 million for the years
ended December 31, 1998 and 1999, respectively.
The 1999 results include a $1.0 million charge to write-off the step-up
in inventory acquired in connection with Canberra's Tennelec, Inc. acquisition
as well as a $0.8 million stock compensation charge.
NET INCOME (LOSS)
We incurred a net loss of $0.2 million in 1999 compared to net income of
$1.9 million in 1998.
49
LIQUIDITY AND FINANCIAL RESOURCES
Our liquidity requirements arise from operational needs, including
research and development expenditures, interest payments on outstanding
indebtedness, capital expenditures and funding of acquisitions and other
partnerships. We met our 2000 and 1999 cash requirements through cash generated
from operations (including discontinued operations), net proceeds received in
connection with our April 2000 initial public offering, proceeds from the
exercise of stock options, and borrowings under our revolving credit facility
and overseas bank facilities.
Approximately half of our revenues are generated from foreign sources,
most of which are denominated in currencies other than the U.S. dollar. As a
result, our reported earnings and financial position are affected by changes in
foreign currency exchange rates. A strengthening U.S. dollar against the foreign
currencies through which we conduct our business has had, and may continue to
have, a negative impact on our U.S. dollar denominated operating results. To
manage the exposure of foreign currency exchange rates, we engage in hedging
strategies. We purchase 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 $2.3 million
during 2000 as compared to net cash provided by continuing operating activities
of $0.9 million during 1999. The increase in cash used by operating activities
is primarily due to increased research and development spending, as well as
higher administrative costs during the 2000 period due primarily to additional
corporate expenses incurred as a result of our initial public offering in April
2000. In addition, our use of operating cash was due to a reduction in vendor
accounts payable and accrued expenses in 2000, due to available cash. Operating
cash benefited in 2000 from improved accounts receivable collections.
Net cash used for investing activities of continuing operations during
2000 consisted primarily of approximately $40 million, plus related fees and
expenses, to acquire the life sciences division of GSI Lumonics, Inc., $0.5
million to acquire a 51% interest in Carl Consumable Products, LLC, $1.3 million
to acquire the optical imaging assets, primarily intangibles, of Cambridge
Imaging Limited and $5.0 million of contingent earnout payments associated with
the CCS Packard acquisition. In addition, we spent approximately $6.4 million on
capital equipment and improvements. In 1999, investing activities consisted
primarily of earnout payments associated with the CCS Packard acquisition.
During 1999, capital expenditures totaled $5.9 million.
The acquisition of the life sciences division of GSI Lumonics, Inc. had
a significant effect on our consolidated financial position through the creation
of approximately $90.5 million of goodwill. Such goodwill, which we are
currently amortizing over 20 years for financial statement purposes, is
deductible for income tax purposes over a 15 year period. Goodwill for income
tax purposes is greater than that for financial reporting purposes, due to a
different valuation assigned to the common stock portion of the total
acquisition consideration, resulting in a further reduction in future income tax
cash requirements.
50
We established a 20 year life for goodwill related to this acquisition given the
nature of the technologies acquired and the market share established prior to
acquisition.
The net proceeds from the sale of our Canberra operating segment, after
income taxes payable and cash expenses directly related to the sale and after
the repurchase of options held by Canberra employees, was approximately $130
million. We used $71 million of the net proceeds to repay the outstanding
balance on our credit facility on February 28, 2001. We intend to use the
remainder of the net proceeds to increase spending associated with research and
development, new product development, enhancement of existing products and
strategic partnerships and acquisitions, and for general corporate purposes.
Under the terms of our senior subordinated notes, if we do not use the net
proceeds, as defined in the indenture governing the notes, from the sale of
Canberra to replace the assets sold or permanently repay our senior indebtedness
prior to February 22, 2002, we must use up to approximately $82 million of the
net proceeds to repurchase our senior subordinated notes.
Financing activities during 2000 consisted primarily of our receipt of
the net proceeds from our initial public offering and our use of a substantial
portion of such proceeds, combined with available invested cash, to pay down
indebtedness. We used additional borrowings under our revolving credit facility
to fund $5.0 million of contingent earnout payments related to the year ended
December 31, 1999 and a portion of our cash acquisition requirements during 2000
as well as the semi-annual interest payments due in March and September 2000 on
our outstanding subordinated notes. We also used the borrowings to fund
operating requirements, as needed. In addition, proceeds from the exercise of
stock options totaled $7.1 million during 2000. During 1999, financing
activities consisted primarily of borrowings under the revolving credit facility
to fund $4.5 million of contingent earnout payments associated with the CCS
Packard acquisition. In addition, borrowings during 1999 were used to make the
semi-annual subordinated notes interest payments and to fund operating
requirements, as needed.
In connection with amending and restating our credit agreement in
August 2000, we terminated our term loan and increased our revolving credit
facility from $75 million to $100 million. Based upon a stipulated formula in
the credit agreement, the revolving credit facility was decreased by $35 million
upon completion of the sale of Canberra. The revolving credit facility prohibits
us from paying cash dividends on our common stock. In addition, pursuant to the
guarantee and collateral agreement supporting the revolving credit facility, we
have pledged substantially all of our assets as collateral.
Net cash provided by (used for) continuing operations was $0.9 million
for 1999, and $5.8 million for 1998. The 1999 operating cash flow is primarily a
result of that year's operating results prior to non-cash charges, including the
favorable effect of a full year of operations of the CCS Packard and BioSignal
Packard acquisitions. These increases were partially offset by an increase in
working capital, primarily accounts receivable and inventories. The 1998
operating cash flow is also a result of that year's operating performance prior
to non-cash charges, as well as the addition of CCS Packard and BioSignal
Packard during that year. The 1998 operating cash flow also includes $10.8
million from the sale of our gas generation product line. Continuing operations
utilized cash in both 1999 and 1998 to reduce vendor accounts payable and
accrued expenses. In addition, operating cash flows reflected increases in
accounts receivable in both 1999 and 1998, primarily as a result of fourth
quarter sales that were not collected from customers until the first quarter of
the respective following year.
Net cash used for investing activities of continuing operations was
$11.8 million in 1999 and $14.9 million in 1998. During 1998 and 1999, our use
of cash for investing purposes increased in accordance with our strategic plan
and direction. During 1999 and 1998, cash used to acquire businesses consisted
of the following transactions:
o the acquisition of CCS Packard, which we initially purchased in
1998 for approximately $1.5 million of our common stock and $6.3
million in cash, plus contingent earnout payments; and
51
the acquisition of BioSignal Packard, which we invested in initially in
1997 and purchased the remaining interest of 81% in 1998 for
approximately $100,000 of our common stock and $8.6 million in cash.
We have also invested significant amounts of cash in our infrastructure
to provide for the needs of our growing business. We acquired a new building for
our operations in The Netherlands and CCS Packard leased a facility requiring
leasehold and other improvements. Related to our growth strategy is our
investment of available cash in partnerships and other ventures that we believe
will bring future financial benefits.
Net cash provided by financing activities was $34.9 million in 1999 and
$0.2 million in 1998. During 1998 and 1999, financing cash flow proceeds
consisted primarily of borrowings under our revolving credit facility to fund
strategic acquisitions as well as to fund working capital requirements, as
needed. We repaid such borrowings to the extent possible, from operating cash
flows and other sources.
As of December 31, 2000, we had approximately $48.9 million of funds
available under our $100 million revolving credit facility, as amended and
restated. Monies available under this credit facility are subject to
restrictions and provisions, as described under "Business--Other--Description of
Indebtedness--Senior Credit Agreement." In February 2001, the credit facility
was reduced to $65 million as a result of the sale of Canberra. The revolving
credit facility matures in 2005 and bears interest at the Eurodollar rate plus
1.25% to 2.75% or the cost of funds rate, as defined in the revolving credit
facility, plus 0.25% to 1.75%. The revolving credit facility contains customary
financial covenants, as described under "Business - Other-Description of
Indebtedness--Senior Credit Agreement." We were in compliance with all covenants
as of December 31, 2000.
Our senior subordinated notes are redeemable after March 1, 2002,
starting at 104.688%, reducing over time to March 1, 2004, at which time they
are redeemable at 100%. Upon a change of control, as defined in the notes, the
holders have the right to require us to repurchase all or part of the notes at a
purchase price equal to 101% of the notes' principal amount. As of December 31,
2000, we have repurchased an aggregate of $31.9 million of the $150 million
original outstanding amount of our notes.
SEASONALITY
The following table summarizes the seasonality of our revenues and
income from operations by quarter for the last three years:
2000
----
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Revenues...................................... 24% 23% 23% 30%
Income from operations........................ (19%) (104%) (50%) 273%
Income from operations, as adjusted........... 36% 27% 13% 24%
1999
----
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
Revenues...................................... 24% 23% 23% 30%
Income from operations........................ 37% 27% 15% 21%
Income from operations, as adjusted........... 30% 22% 12% 36%
1998
----
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
52
Revenues...................................... 20% 24% 25% 31%
Income from operations........................ 4% 25% 5% 66%
Income from operations, as adjusted........... 20% 35% 28% 17%
The "as adjusted" percentages above exclude the effect of:
o charges of $6.1 million related to purchased in-process research
and development in 1998;
o a charge of $1.5 million in 1998 to expense the fair market value
adjustment associated with acquired inventories;
o a gain of $10.8 million recognized in 1998 in connection with the
sale of our gas generation product line;
o charges of $2.7 million associated with the termination of a
product line and the modification of a license in 1999;
o a stock compensation charge of $1.0 million in December 1999;
o charges of $12.1 million related to the write-off of purchased
in-process research and development in 2000;
o a stock compensation charge of $4.7 million in the first quarter
of 2000; and
o a $1.9 million charge in December 2000 primarily to write-off
long-lived assets which had become impaired.
We believe that the presentation of the "as adjusted" information, and
the exclusion of the above charges or income from income from operations, is
relevant and useful information as such items represent specific, isolated
situations in our operating history. Additional disclosure of such items is
provided in the notes to the consolidated financial statements included
elsewhere in this Form 10-K. The presentation of the "as adjusted" information
is intended to provide a more normalized indication as to the seasonality of our
business. It is not intended to, and should not be considered, more meaningful
than the information presented on an "as reported" basis. In addition, our
presentation of the "as adjusted" information as an indication of the
seasonality of our business may not be comparable to similarly titled measures
reported by other companies.
Our revenues are traditionally the highest in the fourth quarter of the
year due primarily to the spending patterns of many of our customers. The
seasonality of our income from operations does not necessarily correlate to that
of our revenues due to the following:
o variances in the mix of the instruments which we sell throughout
the year and the related gross margins earned on such sales;
o the impact of foreign currency exchange rate fluctuations,
particularly to the extent that such exposures are not covered by
forward exchange contracts; and
o variances in the mix of our revenues, between instruments,
consumables and services, throughout the year and the effect that
the different margins of such types of revenues have on our
overall operating results.
53
BACKLOG
As of January 31, 2001 and 2000, our order backlog was approximately
$24.5 million and $17.9 million, respectively. We expect that substantially all
of the backlog as of January 31, 2001 will be filled by December 31, 2001. We
typically do not experience any seasonality in our backlog.
We include in backlog only those orders for which we have received
purchase orders, and do not include orders for service. Our 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, or FASB, issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes the accounting
and reporting standards for derivative instruments and for hedging activities.
SFAS No. 133 was amended by SFAS No. 138. We purchase forward contracts to cover
foreign exchange fluctuation risks on intercompany sales to our foreign
operations which are not designated as hedging instruments under SFAS No. 133,
as amended. Effective January 1, 2001, we will reflect such forward contracts in
our financial statement at their current market values based upon the actual
exchange rates in effect as compared to the forward contract rates. Any
resulting gains and losses will be reflected in our consolidated statements of
income. We do not anticipate that the adoption of this statement will have a
material effect on our consolidated operating results or financial position upon
adoption. As of December 31, 2000, there were unrealized losses totaling $0.2
million on outstanding foreign currency forward contracts.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition in Financial Statements". SAB No. 101, among other
things, provides guidance on revenue recognition when customer acceptance and
installation provisions exist. We have quantified the impact of adopting SAB No.
101 and the effect on our consolidated financial position and results of
operations is immaterial. Accordingly, we did not record any cumulative catch-up
adjustment as of January 1, 2000.
SUBSEQUENT EVENT
On July 16, 2001, we and PerkinElmer, Inc. announced that we had
entered into an agreement and plan of merger, dated as of July 13, 2001,
providing for the merger of us and PerkinElmer. The transaction is valued at
approximately $650 million, including net indebtedness, and is structured as
a tax-free, all-stock merger. If the merger is completed, we will become a
wholly-owned subsidiary of PerkinElmer, and holders of our common stock will
be entitled to receive 0.311 of a PerkinElmer share for each of their shares
of our common stock. The merger, which is subject to customary closing
conditions and regulatory approvals, as well as the approval of both our and
PerkinElmer's shareholders is expected to close during the fourth quarter of
2001. In connection with the merger, some of our stockholders that represent
in the aggregate a majority of our outstanding shares have also entered into
a stockholder's and voting agreements with PerkinElmer.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign currency risk and interest rate risk are the primary sources of
market risk to our operations. We manage exposure on foreign currency risks
through the use of foreign currency forward contracts primarily for the purpose
of hedging firm inventory purchase commitments. We do not enter into contracts
for trading purposes. Outstanding foreign currency forward contracts as of
December 31, 2000 totaled $5.4 million in U.S. dollar equivalents. As of
December 31, 2000, unrealized gains (losses) on foreign currency contracts were
not significant.
As of December 31, 2000, the carrying value and fair value, based on
the quoted terms, of the senior subordinated notes was $118,145,000 and
$105,149,000, respectively. As of December 31, 1999 the carrying value and fair
value of the senior subordinated notes was $150,000,000 and $137,175,000,
respectively.
As of December 31, 2000 and 1999, we had aggregate variable rate
long-term debt of approximately $54.3 million and $79.9 million, respectively.
The 2000 balance consisted primarily of outstanding borrowings on our revolving
credit facility. The 1999 balance included borrowings outstanding on our term
loan of $37.4 million and on our revolving credit facility of $36.9 million. A
10% change in interest rates would have changed the annual interest expense on
such long-term debt as of December 31, 2000 and 1999 by approximately $282,000
and $580,000, respectively. As of December 31, 2000 and 1999, $25.1 million and
$28.5 million, respectively, of the outstanding borrowings on our revolving
credit facility were denominated in currencies other than the U.S. dollar,
primarily the Eurodollar. To the extent such borrowings remain outstanding, we
will be subject to risks associated with
54
future foreign exchange fluctuations. On February 28, 2001, the amounts
outstanding on the revolving credit facility were repaid from a portion of the
proceeds from the sale of Canberra.
55
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants.............................................................................. 57
Consolidated Balance Sheets as of December 31, 1999 and 2000.......................................................... 58-59
Consolidated Statements of Income (Loss) for the Years Ended December 31, 1998, 1999 and 2000......................... 60
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 1998,
1999 and 2000...................................................................................................... 61
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1998,
1999 and 2000...................................................................................................... 62-63
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1999 and 2000............................ 64-65
Notes to Consolidated Financial Statements............................................................................ 66
56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Packard BioScience Company:
We have audited the accompanying consolidated balance sheets of Packard
BioScience Company (a Delaware corporation) and subsidiaries as of December 31,
1999 and 2000, and the related consolidated statements of income (loss),
comprehensive income (loss), stockholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Packard BioScience
Company and subsidiaries as of December 31, 1999 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 8, 2001, except
for the second paragraph of Note 1
and all of Note 15 as to which the
date is February 28, 2001, Note 16
as to which the date is April 27, 2001
and Note 18 as to which the date is
July 18, 2001
57
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 2000
(DOLLARS IN THOUSANDS)
ASSETS 1999 2000
---- ----
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 4,432 $ 13,294
Accounts receivable, net...................................................... 34,163 32,578
Inventories, net.............................................................. 18,791 22,129
Deferred income taxes......................................................... 3,695 15,089
Net current assets of discontinued operations (Note 15)....................... 31,382 31,868
Other......................................................................... 3,558 6,700
---------------------------
Total current assets.......................................................... 96,021 121,658
---------------------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and improvements......................................................... 1,175 1,329
Buildings and improvements.................................................... 10,271 10,438
Machinery, equipment and furniture............................................ 13,358 15,793
---------------------------
24,804 27,560
Less: Accumulated depreciation................................................ (11,560) (13,208)
---------------------------
13,244 14,352
---------------------------
OTHER ASSETS:
Goodwill, net of accumulated amortization..................................... 19,855 115,010
Deferred financing costs, net of accumulated amortization..................... 6,801 4,196
Investments................................................................... 797 2,116
Net noncurrent assets of discontinued operations (Note 15).................... 36,428 36,709
Deferred income taxes......................................................... -- 3,828
Other......................................................................... 9,412 8,223
---------------------------
73,293 170,082
---------------------------
$182,558 $306,092
===========================
(cont'd on next page)
58
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1999 2000
---- ----
CURRENT LIABILITIES:
Notes payable................................................................. $ 2,429 $ 1,884
Current portion of long-term debt............................................. 1,787 1,183
Accounts payable.............................................................. 12,759 11,697
Accrued liabilities........................................................... 20,893 19,019
Accrued acquisition payments.................................................. 4,930 5,409
Income taxes payable.......................................................... 3,997 1,622
Deferred income............................................................... 10,660 9,485
---------------------------
Total current liabilities..................................................... 57,455 50,299
---------------------------
LONG-TERM DEBT, less current portion............................................ 225,710 169,344
---------------------------
DEFERRED INCOME TAXES........................................................... 4,471 --
---------------------------
OTHER NONCURRENT LIABILITIES.................................................... 2,812 3,176
---------------------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 15)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock (68,515,515 and 81,997,215 shares issued and 46,268,825 and
67,631,019 shares outstanding as of December 31, 1999 and 2000, respectively). 137 164
Paid-in capital............................................................... 1,827 168,562
Accumulated deficit........................................................... (12,895) (22,469)
Accumulated other comprehensive income (cumulative translation adjustment).... 527 65
---------------------------
(10,404) 146,322
Treasury stock, at cost....................................................... (96,920) (62,718)
Deferred compensation......................................................... (566) (331)
---------------------------
(97,486) (63,049)
---------------------------
Total stockholders' equity (deficit).......................................... (107,890) 83,273
---------------------------
$182,558 $306,092
===========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
59
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1998 1999 2000
---- ---- ----
Net product sales............................................................... $ 93,796 $ 94,989 $101,811
Service revenue................................................................. 25,457 33,026 31,365
Chemicals and supplies sales.................................................... 26,982 30,875 32,199
-----------------------------------------
146,235 158,890 165,375
-----------------------------------------
Cost of product sales........................................................... 37,550 38,260 39,120
Other costs of product sales (Note 12).......................................... -- 2,703 --
Service expense................................................................. 19,787 25,614 23,840
Cost of chemicals and supplies sales............................................ 10,253 11,733 10,679
Amortization of acquired inventory step-up (Note 11)............................ 1,500 -- --
-----------------------------------------
69,090 78,310 73,639
-----------------------------------------
Gross profit.................................................................. 77,145 80,580 91,736
Research and development expenses............................................... 23,160 22,796 28,358
Selling, general and administrative expenses (Note 5)........................... 37,844 42,020 53,229
Purchased in-process research and development charges (Note 11)................. 6,120 -- 12,100
Other operating expense (income), net (Note 13)................................. (10,753) -- 1,881
-----------------------------------------
Income (loss) from operations................................................. 20,774 15,764 (3,832)
-----------------------------------------
Interest expense (Note 15)...................................................... (21,097) (22,425) (19,098)
Interest income................................................................. 460 331 1,296
Gain on sale of equity securities (Note 1)...................................... 3,155 -- --
-----------------------------------------
Income (loss) from continuing operations before provision for income taxes and
extraordinary items, net...................................................... 3,292 (6,330) (21,634)
(Provision for) benefit from income taxes....................................... (2,437) (1,620) 10,791
-----------------------------------------
Income (loss) from continuing operations before extraordinary items, net...... 855 (7,950) (10,843)
Income from discontinued operations, net of income taxes........................ 1,050 7,752 4,106
-----------------------------------------
Income (loss) before extraordinary items, net................................. 1,905 (198) (6,737)
Extraordinary items, net of income taxes........................................ -- -- 369
-----------------------------------------
Net income (loss)............................................................. $ 1,905 $ (198) $ (6,368)
=========================================
Basic and Diluted Per Share Information:
Income (loss) from continuing operations...................................... $ 0.02 $ (0.17) $ (0.19)
Income from discontinued operations, net...................................... 0.02 0.17 0.07
Extraordinary items, net...................................................... -- -- 0.01
-----------------------------------------
Net income (loss)............................................................. $ 0.04 $ (0.00) $ (0.11)
=========================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
60
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
1998 1999 2000
---- ---- ----
Net income (loss)............................................................... $ 1,905 $ (198) $ (6,368)
Other comprehensive income (loss):
Foreign currency translation adjustments...................................... 1,792 (921) 462
Unrealized investment income (loss), net of income taxes...................... (990) -- --
Reclassification adjustments, net............................................. (1,895) -- --
---------------------------------------
Other comprehensive income (loss)............................................... (1,093) (921) 462
---------------------------------------
Comprehensive income (loss)..................................................... $812 $ (1,119) $ (5,906)
=======================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
61
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CUMULATIVE UNREALIZED
COMMON STOCK PAID-IN TRANSLATION INVESTMENT
SHARES AMOUNT CAPITAL ADJUSTMENT GAINS, NET
------ ------ ------- ---------- ----------
BALANCE,
December 31, 1997............ 68,609,115 $ 137 $ -- $ (344) $ 2,885
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation and
amortization............... (40,500)
Shares issued in connection
with exercise of stock
options, including related
tax benefits............... 2,000
Purchase of treasury stock...
Sale of treasury stock.......
Issuance of shares in
connection with
acquisitions...............
Change during year........... 1,792
Unrealized investment gains,
net of income taxes........ (2,885)
Net income...................
-----------------------------------------------------------
BALANCE,
December 31, 1998............ 68,570,615 $ 137 $ -- $ 1,448 $ --
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation and
amortization............... (55,100)
Net shares issued in
connection with exercise
of stock options,
including related tax
benefits...................
Compensation expense
recognized in connection
with grant of stock options 1,827
Purchase of treasury stock...
Change during year........... (921)
Net loss.....................
-----------------------------------------------------------
BALANCE,
December 31, 1999............ 68,515,515 $ 137 $ 1,827 $ 527 $ --
ACCUMULATED TREASURY STOCK DEFERRED
DEFICIT SHARES AMOUNT COMPENSATION
------- ------ ------ ------------
BALANCE,
December 31, 1997............ $ (10,220) 23,583,245 $(103,448) $(1,024)
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation and
amortization............... (36) 229
Shares issued in connection
with exercise of stock
options, including related
tax benefits............... (406) (215,515) 932
Purchase of treasury stock... 82,140 (227)
Sale of treasury stock....... (108) (50,000) 219
Issuance of shares in
connection with
acquisitions............... (1,147) (580,230) 3,183
Change during year...........
Unrealized investment gains,
net of income taxes........
Net income................... 1,905
----------------------------------------------------
BALANCE,
December 31, 1998............ $ (10,012) 22,819,640 $ (99,341) $ (795)
Net shares forfeited in
connection with restricted
stock plan including
deferred compensation and
amortization............... (57) 229
Net shares issued in
connection with exercise
of stock options,
including related tax (2,628) (1,101,215) 4,821
benefits...................
Compensation expense
recognized in connection
with grant of stock options
Purchase of treasury stock...
528,265 (2,400)
Change during year...........
Net loss..................... (198)
----------------------------------------------------
BALANCE,
December 31, 1999............ $ (12,895) 22,246,690 $ (96,920) $ (566)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
(cont'd on next page)
62
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CUMULATIVE
COMMON STOCK PAID-IN TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT
------ ------ ------- ---------- -----------
BALANCE,
December 31, 1999........ 68,515,515 $ 137 $ 1,827 $ 527 $(12,895)
Net shares forfeited in
connection with
restricted stock plan
including deferred
compensation and
amortization........... (40,500) (68)
Net shares issued in
connection with
exercise of stock
options, including
related tax benefits... 2,271 (3,206)
Sale of common
stock, net of expenses... 13,522,200 27 110,415
Issuance of shares in
connection with
acquisition............ 45,628
Compensation expense
recognized in
connection with grant
of stock options,
gifted common stock
and accelerated stock
option vesting......... 8,489
Purchase of treasury
stock..................
Change during year....... (462)
Net loss................. (6,368)
---------------------------------------------------------------
BALANCE, December
31, 2000............... 81,997,215 $ 164 $168,562 $ 65 $(22,469)
===============================================================
TREASURY STOCK DEFERRED
SHARES AMOUNT COMPENSATION
------ ------ ------------
BALANCE,
December 31, 1999........ 22,246,690 $ (96,920) $ (566)
Net shares forfeited in
connection with
restricted stock plan
including deferred
compensation and
amortization........... 235
Net shares issued in
connection with
exercise of stock
options, including
related tax benefits... (3,331,645) 14,378
Sale of common
stock, net of expenses... (90,138) 391
Issuance of shares in
connection with
acquisition............ (4,495,711) 19,558
Compensation expense
recognized in
connection with grant
of stock options,
gifted common stock
and accelerated stock
option vesting.........
Purchase of treasury
stock.................. 37,000 (125)
Change during year.......
Net loss.................
-----------------------------------------
BALANCE, December
31, 2000............... 14,366,196 $ (62,718) $ (331)
=========================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
63
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
1998 1999 2000
---- ---- ----
OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Net income (loss) ..................................................................... $ 1,905 $ (198) $ (6,368)
Adjustments to reconcile net income (loss) to income (loss) from continuing
operations:
Income from discontinued operations, net of income taxes ............................ (1,050) (7,752) (4,106)
----------------------------------
Income (loss) from continuing operations, including extraordinary items ............. 855 (7,950) (10,474)
Adjustments to reconcile income (loss) from continuing operations to net cash
provided by operating activities:
Depreciation and amortization of intangibles ........................................ 5,822 6,811 8,515
Amortization of deferred financing costs ............................................ 1,545 1,545 1,202
Other costs of product sales (Note 12) .............................................. -- 2,703 --
Purchased in-process research and development charges (Note 11) ..................... 6,120 -- 12,100
Amortization of acquired inventory step-up (Note 11) ................................ 1,500 -- --
Non-cash stock compensation charges (Note 5) ........................................ -- 1,037 4,724
Non-cash deferred financing fees write-off (Note 14) ................................ -- -- 2,593
Write-off of impaired assets and other charges (Note 13) ............................ -- -- 1,881
Gain on sale of equity securities ................................................... (3,155) -- --
Deferred income taxes, net .......................................................... (731) 25 (15,010)
Other, net .......................................................................... 253 (202) 676
Changes in assets and liabilities excluding effects of acquisitions:
Decrease (increase) in accounts receivable .......................................... (212) (2,526) 5,728
Increase in inventories ............................................................. (1,254) (3,431) (1,304)
Decrease (increase) in other current assets ......................................... 160 (89) (2,921)
Increase in other noncurrent operating assets ....................................... (3,006) (460) (1,382)
Increase (decrease) in accounts payable and other accrued expenses .................. (4,692) (2,051) (7,514)
(Decrease) increase in deferred income .............................................. 1,940 3,271 (1,832)
(Decrease) increase in other noncurrent liabilities ................................. 658 2,172 725
----------------------------------
Net cash provided by (used for) continuing operations ............................... 5,803 855 (2,293)
Net cash provided by discontinued operations ........................................ 7,156 5,630 12,762
----------------------------------
Net cash provided by operating activities ........................................... 12,959 6,485 10,469
----------------------------------
INVESTING ACTIVITIES OF CONTINUING OPERATIONS:
Acquisition of businesses, net of acquired cash ....................................... (11,123) (4,546) (49,199)
Investments in equity securities ...................................................... (68) -- (1,255)
Capital expenditures .................................................................. (4,992) (5,946) (6,384)
Product lines, patent rights and licenses acquired .................................... (2,889) (1,292) (1,794)
Proceeds from sale of investments ..................................................... 4,181 -- --
Proceeds from sale of fixed assets .................................................... -- -- 302
----------------------------------
Net cash used for continuing operations ............................................... (14,891) (11,784) (58,330)
Net cash used for discontinued operations ............................................. (2,124) (28,017) (3,638)
----------------------------------
Net cash used for investing activities ................................................ (17,015) (39,801) (61,968)
----------------------------------
(cont'd on next page)
64
1998 1999 2000
---- ---- ----
FINANCING ACTIVITIES:
Borrowings of long-term debt ...................................... 41,500 57,388 79,820
Repayments of long-term debt ...................................... (43,058) (22,700) (135,218)
Purchase of treasury stock ........................................ (121) (281) (125)
Proceeds from sale of treasury stock .............................. 481 299 265
Proceeds from sale of common stock ................................ -- -- 110,028
(Decrease) increase in notes payable to banks ..................... 1,291 174 (301)
Proceeds from exercise of stock options, including tax benefits ... 57 -- 7,132
-------------------------------------
Net cash provided by (used for) financing activities .............. 150 34,880 61,601
-------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ........................... 1,260 (1,917) (1,528)
-------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ......................... (2,646) (353) 8,574
CASH AND CASH EQUIVALENTS, beginning of year ...................... 10,575 7,929 7,576
-------------------------------------
7,929 7,576 16,150
Cash of discontinued operations ................................... (1,322) (3,144) (2,856)
-------------------------------------
CASH AND CASH EQUIVALENTS, end of year ............................ $ 6,607 $ 4,432 $ 13,294
====================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ........................................................ $ 20,718 $ 20,986 $ 17,492
====================================
Income taxes .................................................... $ 4,616 $ 5,050 $ 5,175
====================================
NON-CASH TRANSACTIONS:
Stock received in connection with cashless option exercise (Note 5) $ -- $ 1,411 $ --
====================================
Stock issued in connection with acquisitions (Note 11) ............ $ 1,620 $ -- $ 65,184
====================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
65
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Packard BioScience Company, a Delaware corporation, and subsidiaries
(the "Company") is a leading global developer, manufacturer and marketer of
instruments and related consumables and services for use in drug discovery and
life sciences research.
On February 27, 2001, the Company sold its Canberra division to COGEMA,
S.A. for $170 million. The net proceeds, after estimated income taxes payable
and cash expenses directly related to the sale and after repurchases of options
held by Canberra employees, were approximately $130 million. On February 28,
2001, the Company used $71 million of the proceeds to repay the outstanding
balance on its credit facility. The accompanying consolidated financial
statements have been reclassified to reflect the net assets and operating
results of the Canberra operating segment as a discontinued operation. The
amounts below relate only to the Company's continuing operations unless
otherwise noted.
As a result of the sale of Canberra, the Company now operates and is
managed as a single segment for financial reporting purposes.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Packard BioScience Company and its majority-owned subsidiaries prepared in
accordance with accounting principles generally accepted in the United States.
All significant intercompany accounts and transactions have been eliminated.
FOREIGN OPERATIONS
The Company translates foreign currency financial statements using the
current rate method. Translation gains and losses are recorded as a separate
component of stockholders' equity (deficit), cumulative translation adjustment.
Gains and losses result from transactions which are denominated in other than
functional currencies. Such gains and losses are included in cost of product
sales in the accompanying consolidated statements of income (loss).
The Company purchases various foreign currency forward contracts
primarily for the purpose of hedging firm intercompany inventory purchase
commitments. Such transactions qualify for hedge accounting prior to SFAS No.
133. Accordingly, gains are recorded when contracts are settled and losses are
recorded immediately. The Company recognizes gains (losses) from the settlement
of forward contracts in the consolidated statements of income (loss) in cost of
product sales. Gains (losses) totaled $0.3 million, ($0.6) million and ($0.3)
million in 1998, 1999 and 2000, respectively. As of December 31, 1999 and 2000,
the Company had total forward contracts outstanding of approximately $2,300,000
and $5,359,000, respectively, whose settlement prices approximated year end
exchange rates. The following table summarizes by currency the outstanding
forward contracts as of December 31, 1999 and 2000 (in thousands):
1999 2000
---- ----
Japanese Yen................................ $2,000 $ 900
British Pound Sterling...................... -- 2,000
66
German Mark................................. -- 1,609
French Franc................................ -- 600
All other................................... 300 250
----------------------
$2,300 $5,359
======================
The forward contracts outstanding at December 31, 2000 mature at
various times through July 2001. Transaction gains (losses), inclusive of
forward contracts settled, were $264,000, ($589,000) and ($266,000) in 1998,
1999 and 2000, respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market using the
first-in, first-out (FIFO) method. A reserve for potential nonsaleable inventory
due to excess stocks or obsolescence is provided based upon a detailed review of
inventory components, past history and expected future usage.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Machinery,
equipment, furniture and leasehold improvements are depreciated using the
straight-line method over their estimated useful lives or term of the lease, if
shorter, ranging from 2 to 20 years. Buildings and improvements are depreciated
over 5 to 40 years using the straight-line method.
GOODWILL, NET OF AMORTIZATION
The Company estimates the life of goodwill for each individual
acquisition based upon the nature of the operations and the core technologies
acquired. Goodwill included in the accompanying consolidated balance sheets is
being amortized over 20 to 40 years, representing the estimated period to be
benefited. The only goodwill which has a 40 year life relates to a sales
subsidiary in Japan. The Company has used a 20 year life for the goodwill
related to all other acquisitions. A 20 year life was deemed appropriate
primarily given the nature of the technologies acquired and the status of
products in the marketplace. As of December 31, 1999 and 2000, accumulated
amortization was approximately $1,167,000 and $3,253,000, respectively.
DEFERRED FINANCING COSTS, NET OF AMORTIZATION
Deferred financing costs includes the portion of fees incurred by the
Company for issuance of debt instruments in connection with its 1997
Recapitalization, including the initial purchasers' discount (see Note 10). Such
costs are being amortized over the average life of the debt to which they
relate, ranging from 5 to 10 years (see Note 14). Accumulated amortization of
deferred financing costs was $4,378,000 and $5,580,000 as of December 31, 1999
and 2000, respectively.
INVESTMENTS
During 1998, the Company held investment securities of a publicly
traded company. Such investments were available for sale and, as such, all
unrealized gains and losses were reflected in a separate component of
stockholders' equity (deficit), net of income taxes. Such investments were sold
during 1998 for a gain of $3,155,000.
67
PATENT RIGHTS AND LICENSE ACQUISITIONS
The Company capitalizes amounts paid for patent rights and licenses
acquired to manufacture and sell certain products. These amounts are amortized
over the lives of the respective agreements or the estimated lives of the
related products, if shorter. The amortization periods range from 3 to 10 years.
As of December 31, 1999 and 2000, the Company had an unamortized balance of
$5,489,000 and $4,738,000, respectively, associated with patent rights and
license acquisitions, which amounts were reflected in other assets in the
accompanying consolidated balance sheets.
LONG-LIVED ASSETS
The Company reviews long-lived assets, including identifiable
intangible assets, to be held and used (including capitalized costs related to
licenses) for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. If the expected
future cash flows (undiscounted and without interest) are less than the carrying
value of the asset, an impairment loss is recognized. Impairment losses are
measured as the difference between the carrying value of the asset, including
goodwill if applicable, and the fair value of the asset. If goodwill was
identified with assets subject to an impairment loss, the loss would first be
applied to reduce any goodwill. As of December 31, 1999 and 2000, the Company
believes there was no impairment of the long-lived assets as reported in the
accompanying consolidated balance sheets. Refer to Notes 12 and 13 for a
description of the Company's write-off of certain long-lived assets during 1999
and 2000. None of the assets written-off were acquired in a business
combination.
REVENUE RECOGNITION AND DEFERRED INCOME
The Company generates revenues from the sale of products and related
consumables and service revenue. The Company provides installation for certain
product sales. This installation is deemed to be inconsequential and
perfunctory, as defined by Staff Accounting Bulletin 101, since installations
are not complex, do not require a significant level of effort, and no portion of
the contract fee is withheld or refundable until installation is complete.
Additionally, when customer acceptance provisions exist and the Company can
demonstrate through factory testing that the product meets such specifications
prior to shipment, product revenue is recognized when delivery has occurred and
title has transferred. Estimated costs of installation are accrued when product
revenue is recognized. When the Company is unable to demonstrate that the
product meets customer specifications before shipment, no revenue is recorded
until customer acceptance has occurred.
When the Company's instruments contain embedded software which is not
deemed to be incidental to the product, the sale falls within the scope of SOP
97-2 "Software Revenue Recognition." In these cases, since the product and the
embedded software are delivered at the same time, there are no extended payment
terms and no significant obligations remain, revenue on the product and software
are recognized when the related product is delivered and title has transferred.
Revenues from service contracts are recognized on a straight-line basis
over the contract period. Deferred income results from the advance billing of
certain field service maintenance contracts and other customer advances.
SHIPPING AND HANDLING REVENUES AND EXPENSES
Shipping and handling revenues are included in net product sales and
shipping and handling expenses are included in selling, general and
administrative expenses in the accompanying consolidated statements of income
(loss). Shipping and handling expenses were $2,100,000, $2,400,000 and
$2,500,000, for the years ended December 31, 1998, 1999 and 2000, respectively.
68
WARRANTY
The Company generally provides a warranty for one year subsequent to
installation of its product. The Company accrues for the estimated cost of the
warranty at the time of sale of the related product.
INCOME TAXES
The Company uses an asset and liability approach for financial
accounting and reporting of income taxes. The provision for income taxes
includes Federal, foreign and state income taxes currently payable and those
deferred because of temporary differences between income reported for tax and
financial statement purposes.
The Company has not provided for possible U.S. taxes on undistributed
earnings of foreign subsidiaries that are considered to be reinvested
indefinitely. Undistributed earnings of foreign subsidiaries considered to be
reinvested indefinitely amounted to $11,043,000 and $18,980,000 at December 31,
1999 and 2000, respectively. If and when earnings are repatriated, credit for
foreign taxes already paid on subsidiary earnings and withholdings may offset a
portion of applicable U.S. income taxes.
EARNINGS PER SHARE
Basic earnings per share is computed based upon the weighted average
shares outstanding during each of the periods presented. Diluted earnings per
share is computed based upon the weighted average shares outstanding during each
of the periods presented, including the impact of outstanding options,
determined under the treasury stock method, to the extent their inclusion is
dilutive. Basic and diluted weighted average shares outstanding during the years
ending December 31, 1998, 1999 and 2000 are as follows:
1998 1999 2000
---- ---- ----
Basic weighted average shares outstanding............. 45,574,160 45,803,495 58,442,738
Dilutive effect of outstanding stock options.......... 2,109,225 -- --
-------------------------------------------------
Diluted weighted average shares outstanding........... 47,683,385 45,803,495 58,442,738
=================================================
For 1999 and 2000, 4,651,965 and 3,901,931 of common stock equivalents,
respectively, were excluded from diluted weighted average shares outstanding as
their effect was antidilutive.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of income and expenses
during the reporting periods. Operating results in the future could vary from
the amounts derived from management's estimates and assumptions.
DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value as of December 31, 1999 and 2000:
CASH AND CASH EQUIVALENTS - The carrying amount approximates
fair value because of the short maturity of those instruments.
69
NOTES PAYABLE - The fair value of the Company's notes payable
are estimated to approximate recorded amounts due to the
relative short maturity.
LONG-TERM DEBT - The fair value of the Company's long-term
debt is estimated based on the quoted market prices for
similar issues or on the current rates offered to the Company
for obligations with the same remaining maturities. The
estimated fair value of the Senior Subordinated Notes (see
Note 4) was $137,175,000 and $105,149,000 at December 31, 1999
and 2000, respectively, based upon quoted terms at those
dates. The estimated fair value of all other long-term debt
approximated their carrying amount.
FOREIGN CURRENCY CONTRACTS - The fair value of foreign
currency contracts (primarily used for hedging firm
commitments) is estimated by obtaining closing rates and
comparing them to the actual contract rates. The total value
of the open contracts approximated the estimated fair value.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes the accounting
and reporting standards for derivative instruments and for hedging activities.
SFAS No. 133 was amended by SFAS No. 138. The Company purchases forward
contracts to cover foreign exchange fluctuation risks on intercompany sales to
certain of its foreign operations which are not designated as hedging
instruments under SFAS No. 133, as amended. Effective January 1, 2001, the
Company will reflect such forward contracts in its consolidated financial
statements at their current market values based upon the actual exchange rates
in effect as compared to the forward contracted rates. Any resulting gains and
losses will be reflected in the Company's consolidated statements of income.
This statement is not expected to have a material effect on the Company's
consolidated operating results or financial position upon adoption. As of
December 31, 2000, there were unrealized losses totaling $0.2 million on
outstanding foreign currency forward contracts.
In December 1999, the Securities and Exchange Commission 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 has quantified the impact of adopting SAB No. 101 and the effect on the
Company's consolidated financial position and results of operations is de
minimis since the Company's previous revenue recognition policies substantially
complied with SAB No. 101. Accordingly, no cumulative catch-up adjustment was
recorded as of January 1, 2000. As of December 31, 2000, revenue has been
recorded in accordance with SAB No. 101 and remaining installation costs of
$63,000 have been accrued.
In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44),
"Accounting for Certain Transactions Involving Stock Compensation (an
Interpretation of APB Opinion No. 25)." This interpretation clarifies the
definition of employee for purposes of applying Opinion 25, the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. The stock compensation charges included in the
accompanying consolidated statements of income (loss) were recorded in
accordance with the provisions of this interpretation after the effective dates
of the interpretation and with Opinion 25 prior to the effective dates of FIN
44.
2. ACCOUNTS RECEIVABLE, NET
Accounts receivable are net of allowances for doubtful accounts
totaling $421,000 and $505,000 as of December 31, 1999 and 2000, respectively.
70
3. INVENTORIES
Inventories consisted of the following at December 31, 1999 and 2000
(in thousands):
1999 2000
---- ----
Raw materials and parts................... $12,094 $11,330
Work in progress.......................... 644 1,022
Finished goods............................ 9,315 12,427
-------------------------
22,053 24,779
Excess and obsolete reserves.............. (3,262) (2,650)
-------------------------
$18,791 $22,129
=========================
4. LONG-TERM DEBT
The Company had the following long-term debt at December 31, 1999 and
2000, as described below (in thousands):
As of December 31, 1999:
INTEREST RATE MATURITY CURRENT LONG-TERM TOTAL
------------- -------- ------- --------- -----
Senior subordinated notes.................. 9.375% 2007 $ -- $150,000 $150,000
Term loan.................................. Eurodollar+2.75% 2003 400 36,965 37,365
Revolving credit facility:
Borrowings denominated in U.S. dollars... Eurodollar+2.375% 2002 -- 8,425 8,425
Borrowings denominated in other currencies Cost of funds+2.375% 2002 -- 28,513 28,513
Notes payable.............................. 3.9%-4.0% 2000 2,429 -- 2,429
Other obligations.......................... 1.875%-10.0% 2000-2004 1,387 1,807 3,194
----------------------------------
$ 4,216 $225,710 $229,926
==================================
As of December 31, 2000:
INTEREST RATE MATURITY CURRENT LONG-TERM TOTAL
------------- -------- ------- --------- -----
Senior subordinated notes.................... 9.375% 2007 $ -- $118,145 $118,145
Revolving credit facility:
Borrowings denominated in U.S. dollars..... Eurodollar+2.75% 2005 -- 26,000 26,000
Borrowings denominated in other currencies. Cost of funds+1.75% 2005 -- 25,116 25,116
Notes payable................................ 5.90% 2001 1,884 -- 1,884
Other obligations............................ 7.25%-8.30% 2001-2005 1,183 83 1,266
----------------------------------
$ 3,067 $169,344 $172,411
==================================
During 1997, the Company issued $150,000,000 principal amount of 9.375%
senior subordinated notes (the "Senior Subordinated Notes") due March 1, 2007.
The proceeds received from the sale of the
71
Senior Subordinated Notes, net of initial purchasers' discount of $4,500,000,
were used to repay certain of the outstanding indebtedness under previous
obligations and to repurchase certain of the Company's outstanding common stock
(see Note 10). The initial purchasers' discount is reflected as deferred
financing costs in the accompanying consolidated balance sheets and is being
amortized over the term of the Senior Subordinated Notes (10 years).
The Senior Subordinated Notes are redeemable, at the option of the
Company, after March 1, 2002, at rates starting at 104.688% of the principal
amount reduced annually through March 1, 2004, at which time they become
redeemable at 100% of the principal amount. According to the terms of the Senior
Subordinated Notes, if a change of control occurs, as defined, each holder of
Senior Subordinated Notes will have the right to require the Company to
repurchase such holder's Senior Subordinated Notes at 101% of the principal
amount thereof. Other circumstances exist under the terms of the Senior
Subordinated Notes which would permit or require the Company to partially redeem
the Senior Subordinated Notes earlier than their stated maturity date (see Note
15).
During 1997, the Company also entered into a senior credit agreement
(the "Credit Agreement" and together with the Senior Subordinated Notes, the
"Financings") with a group of banks which provided for a $40,000,000 term loan
and availability of up to $75,000,000 in a revolving credit facility with a
sub-limit for letters of credit up to $11,000,000 in the aggregate. The term
loan was to mature in 2003 and bore interest, at the Company's option, at the
customary base rate (defined as a certain bank's reference rate, or the federal
funds rate plus 0.5%, whichever is higher), plus 1.75% (adjusted downward if the
Company achieved certain financial ratio levels), or at the customary reserve
adjusted Eurodollar rate plus 2.75%. On U.S. dollar denominated borrowings, the
revolving credit facility bore interest, at the Company's option, at the
customary base rate plus 1.375%, or at the customary reserve adjusted Eurodollar
rate plus 2.375% (adjusted downward if the Company achieved certain financial
ratio levels). Outstanding borrowings on the revolving credit facility which are
denominated in currencies other than the U.S. dollar bore interest at the cost
of funds rate plus 2.375% (adjusted downward if the Company achieved certain
financial ratio levels). Cost of funds on non-U.S. dollar borrowings represents
the rate at which deposits in the applicable currency would be offered by banks
participating in the revolving credit facility. A maximum of $50 million could
be borrowed in currencies other than the U.S. dollar. The credit agreement also
provided for a commitment fee of 0.5% (adjusted downward if the Company achieves
certain financial ratio levels) on any unused portion of the revolving credit
facility. At December 31, 2000, the Eurodollar rate and cost of funds rate were
6.62% and 4.90%-6.00%, respectively.
In August 2000, the Company amended and restated the Credit Agreement
(the "Amended Credit Agreement"). The Amended Credit Agreement eliminated the
term loan and increased the revolving credit borrowing capacity from $75 million
to $100 million. However, upon completion of the sale of Canberra (see Note 15),
the facility was reduced to $65 million. Under the terms of the Amended Credit
Agreement, the outstanding revolving credit facility balance, if any, is due and
payable on August 17, 2005. The Amended Credit Agreement modified certain of the
financial covenants, including the calculation of the Company's consolidated
leverage ratio. The maximum allowable consolidated leverage ratio, as defined,
was 4-to-1 at December 31, 2000 and declines to 3-to-1 on December 31, 2004. As
of December 31, 2000, the Company was in compliance with all covenants.
Revolving credit borrowings bear interest at rates within a range, subject to
the consolidated leverage ratio which the Company achieves. U.S. dollar
denominated borrowings bear interest, at the Company's option, at the customary
base rate plus 0.25% to 1.75% or the Eurodollar rate plus 1.25% to 2.75%.
Borrowings in currencies other than the U.S. dollar bear interest at the cost of
funds rate plus 1.75%. The Amended Credit Agreement requires a 0.5% commitment
fee, adjusted downward if the Company achieves a consolidated leverage ratio of
2-to-1 or less. In connection with the Amended Credit Agreement, the Company
pledged as collateral substantially all of the tangible and intangible assets of
the Company and its active domestic subsidiaries and 65% of the capital stock of
the Company's foreign subsidiaries.
72
The Financings contain certain financial covenants including, but not
limited to, a minimum fixed charge ratio test, a minimum interest ratio test and
a maximum leverage ratio and limitations on capital expenditures and technology
acquisitions. The Company is prohibited by the Financings from paying any cash
dividends and is limited in the amount of capital stock that it may repurchase,
the incurrence of additional indebtedness and liens or dispositions of assets by
the Company.
Notes payable existing at December 31, 1999 and 2000, consisted of
amounts outstanding under overseas lines of credit which permitted maximum
borrowings of approximately $5,800,000 and $3,500,000, respectively. Borrowings
are due on demand. At December 31, 1999 and 2000, $2,429,000 and $1,884,000,
respectively, were outstanding under these arrangements with interest rates
ranging from 3.9% to 4.0% at December 31, 1999 and 5.9% at December 31, 2000.
The weighted average interest rates on these borrowings were 4.3% and 5.9% in
1999 and 2000, respectively. The maximum amount outstanding on overseas lines of
credit during 1999 and 2000 was $2,429,000 and $3,471,000, respectively.
As of December 31, 2000, aggregate principal payments of long-term debt
during the next five years ending December 31 and thereafter are as follows (in
thousands):
2001........................................... $ 3,067
2002........................................... 49
2003........................................... 24
2004........................................... 2
2005........................................... 51,124
Thereafter..................................... 118,145
-------------
Total.......................................... $172,411
=============
5. COMMON STOCK AND STOCK OPTIONS
At December 31, 2000, the Company had 200,000,000 shares of authorized
common stock with a par value of $.002 per share and 1,000,000 shares of
authorized preferred stock. 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 has been restated to reflect the effect of the split.
On April 19, 2000, the Company completed a public sale of 13.5 million
shares of the Company's common stock (the "Offering"). The Offering raised
approximately $110 million after consideration of the underwriters'
over-allotment and expenses associated with the Offering. The Company utilized a
portion of the proceeds from the Offering to repay the balance outstanding on
the term loan and to reduce the amount outstanding on the U.S. dollar
denominated portion of its revolving credit facility. Additionally, the Company
used a portion of the proceeds for open market purchases of its Senior
Subordinated Notes (see Note 14). The Offering did not result in a change in
control, as defined in the Senior Subordinated Notes. Accordingly, the Company
was not required to repurchase any Senior Subordinated Notes as a result of the
Offering. Upon consummation of the Offering, the Management Stockholders' right
to require the Company to purchase common stock and options held by such
Management Stockholders terminated.
In March 2000, certain members of the Company's management transferred
by gift 113,700 shares of their own Company common stock to substantially all of
the Company's employees who on the date of the gifting did not own shares or
options to purchase shares of the Company's stock. This resulted in non-cash
compensation charges to the Company of $0.6 million and $0.4 million for
continuing and discontinued operations, respectively, in the quarter ending
March 31, 2000.
73
The Company has granted non-qualified stock options to selected
employees under the Canberra Industries, Inc. Stock Option Plan of 1971, as
amended (the "1971 Plan") and the Management Stock Incentive Plan (the "1997
Plan") of 1997. In connection with the 1997 recapitalization, the 1971 Plan was
frozen and no additional options can be granted from this plan. There were
5,319,100 options outstanding under the 1997 Plan as of December 31, 2000. The
1997 Plan was frozen at the time of the Company's initial public offering. The
exercise price of all of these options at the date of grant is the fair value.
During 1997, the Company granted 1,325,000 performance options to various
employees with an exercise price of $2.726, which exceeded the $2.225 fair value
of the Company's stock on the date of grant, and in December 1999, the Company
granted certain options with an exercise price less than fair value. The options
expire at various dates through the year 2009. A summary of stock option
activity is as follows:
NUMBER WEIGHTED AVG. PRICE
OF SHARES PER SHARE
--------- ---------
Outstanding at December 31, 1997 7,806,500 $ 1.856
Granted ........................ 1,117,500 2.780
Cancelled ...................... (164,000) 2.074
Exercised ...................... (85,000) 1.604
----------------------------------
Outstanding at December 31, 1998 8,675,000 1.970
Granted ........................ 2,226,250 3.326
Cancelled ...................... (308,740) 2.266
Exercised ...................... (1,131,215) 0.788
----------------------------------
Outstanding at December 31, 1999 9,461,295 $ 2.420
Granted ........................ 1,347,200 10.970
Cancelled ...................... (182,450) 3.430
Exercised ...................... (3,348,445) 2.190
----------------------------------
Outstanding at December 31, 2000 7,277,600 $ 4.072
==================================
As of December 31, 2000, the outstanding options had the following
characteristics:
WEIGHTED NUMBER WEIGHTED AVERAGE
WEIGHTED AVERAGE EXERCISABLE EXERCISE PRICE
NUMBER RANGE OF AVERAGE REMAINING AS OF AS OF
OUTSTANDING EXERCISE PRICES EXERCISE PRICE CONTRACTUAL LIFE DECEMBER 31, 2000 DECEMBER 31, 2000
----------- --------------- -------------- ---------------- ----------------- -----------------
5,960,600 $1.2870-$ 3.3520 $2.5200 4.9 years 5,960,600 $2.5200
896,500 $9.0000 $9.0000 9.3 years -- --
420,500 $10.2500-$26.7500 $15.4022 9.6 years -- --
- -------------- ----------------
7,277,600 5,960,600
============== ================
During 1999, 870,955 options were exercised through a process whereby
employees tendered mature common shares owned by them with an aggregate value
equivalent to the aggregate option exercise price of those options being
exercised. Common shares with a value equivalent to the required income tax and
other withholdings due by the employees associated with the exercise of the
options were also tendered. A total of 421,080 common shares were tendered by
the employees who participated in this option exercise.
In December 1999, the Company granted options to acquire 1,672,500
shares of the Company's common stock to employees with an exercise price of
$3.352 per share. In accordance with financial reporting guidelines,
compensation expense of $1.0 million and $0.8 million was recorded in 1999
74
related to the 20% which vested in 1999 for continuing and discontinued
operations, respectively. Such charge was based on an estimated fair value of
$8.808 per share. 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 compensation
expense of $4.1 million and $3.1 million for continuing and discontinued
operations, respectively, in the quarter ending March 31, 2000. The charges
relate to the remaining 80% vesting which occurred in 2000. The compensation
expenses for continuing operations are included in selling, general and
administrative expenses in the accompanying consolidated statement of income
(loss) for the years ended December 31, 1999 and 2000.
If compensation cost for stock options granted under these plans had
been determined under the fair-value based methodology of SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income (loss) would
have been $366,000, ($2,249,000) and ($13,044,000) on a pro forma basis for the
years ended December 31, 1998, 1999 and 2000, respectively. For purposes of this
calculation, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model (minimum value method) with
the following assumptions:
1998 1999 2000
---- ---- ----
Expected dividend yield................ -- -- --
Expected stock price volatility........ -- -- 100.74%
Risk-free interest rate................ 4.91%-5.89% 5.14%-6.88% 5.29%-6.50%
Expected life.......................... 10 years 10 years 7 years
Weighted average fair value............ $1.134 $5.714 $9.1981
In connection with the 1997 Recapitalization, the Company terminated a
restricted stock plan which provided for the issuance of common stock for no
consideration to officers and key employees, with vesting over an eight-year
period. No new shares can be granted but shares previously issued are still
vesting over the original vesting period. Compensation expense, determined as of
the date of grant, is being recognized ratably in accordance with the vesting
schedule. Compensation expense recognized was $191,000, $178,000 and $166,000 in
1998, 1999 and 2000, respectively. At December 31, 1999 and 2000, $566,000 and
$331,000, respectively, of future compensation expense associated with unvested
shares has been deferred and is included in deferred compensation in the
accompanying consolidated balance sheets.
6. INCOME TAXES
The sources of the Company's income (loss) from continuing operations
before provision for income taxes and extraordinary items, net were as follows
(in thousands):
1998 1999 2000
---- ---- ----
United States................................ $ (4,407) $(17,517) $(33,214)
Foreign ..................................... 7,699 11,187 11,580
----------------------------------
$ 3,292 $ (6,330) $(21,634)
==================================
The provision for (benefit from) income taxes is as follows (in thousands):
1998 1999 2000
---- ---- ----
Current:
Federal.................................... $ (387) $ 325 $ --
Foreign.................................... 2,827 5,426 4,167
75
State...................................... 338 32 52
----------------------------------
2,778 5,783 4,219
==================================
1998 1999 2000
---- ---- ----
Deferred:
Federal.................................... 19 (4,367) (12,480)
Foreign.................................... (339) 161 (2,328)
State...................................... (21) 43 (202)
(341) (4,163) (15,010)
----------------------------------
Total...................................... $2,437 $1,620 $(10,791)
==================================
A reconciliation between the income tax expense recognized in the
Company's consolidated statements of income (loss) and comprehensive income
(loss) and the income tax expense computed by applying the statutory Federal
income tax rate to the income (loss) from continuing operations before provision
for income taxes and extraordinary items, net follows (in thousands):
1998 1999 2000
---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
Income (loss) from continuing operations before
income taxes and extraordinary items ........ $ 3,292 $ (6,330) $(21,634)
============ =========== ============
Income tax (benefit) computed at statutory rate $ 1,152 35% $ (2,216) 35% $ (7,572) 35%
Change in valuation allowance ................. (2,291) (69%) 6,453 (102%) (2,411) 11%
Net tax effect relating to foreign operations . 401 12% (1,559) 25% (420) 2%
Research credits .............................. (654) (20%) (590) 9% (600) 3%
State income taxes ............................ 275 8% 180 (3%) -- --
Acquisition-related deductible charges ........ (394) (12%) (571) 9% (778) 4%
Acquisition-related nondeductible charges ..... 4,260 130% 193 (3%) 466 (2%)
Restricted stock vesting ...................... (187) (6%) (84) 1% 341 (2%)
Other ......................................... (125) (4%) (186) 3% 183 (1%)
-------------------------------------------------------------------------------
$ 2,437 74% $ 1,620 (26%) $(10,791) 50%
===============================================================================
At December 31, 1999 and 2000, deferred tax assets and liabilities were
comprised of the following (in thousands):
76
1999 2000
---- ----
Deferred tax assets:
Net operating loss carryforwards ...................... $ 2,321 $ 4,346
Inventory related items ............................... 2,191 1,974
Accruals not currently deductible ..................... 2,088 1,957
Stock compensation .................................... 750 8,999
Foreign and other tax credit carryforwards ............ 11,946 13,462
Deductible purchase accounting temporary differences .. -- 4,715
Other ................................................. 165 528
-----------------------
Gross deferred tax assets ........................... 19,461 35,981
Less: valuation allowance ............................. (13,355) (10,944)
-----------------------
Total deferred tax assets, net of valuation allowance 6,106 25,037
-----------------------
Deferred tax liabilities:
International transactions ............................ 3,507 3,613
Accelerated depreciation .............................. 201 258
Transaction related tax liabilities ................... 2,815 2,233
Other ................................................. 359 16
-----------------------
Total deferred tax liabilities ...................... 6,882 6,120
-----------------------
Net deferred tax assets (liabilities) ............... $ (776) $ 18,917
=======================
At December 31, 1999, the Company had foreign tax credit carryforwards
totaling $10.4 million, which were fully offset by a valuation reserve due to
the uncertainty of the Company's ability to utilize such carryforwards prior to
their expiration. In addition, total state net operating loss carryforwards were
$2.4 million (tax effected) at December 31, 1999, which were fully reserved for,
also due to the uncertainty as to their utilization.
At December 31, 2000, the Company had foreign tax credit carryforwards
totaling $10.9 million which were fully offset by a valuation reserve due to the
uncertainty of the Company's ability to utilize such carryforwards prior to
their expiration. The valuation reserves associated with state net operating
loss carryforwards and other credit carryforwards were eliminated as of December
31, 2000 since they are now likely to be realized as a result of the gain
generated on the Canberra sale (see Note 15). The foreign tax credit
carryforwards expire commencing in 2002 to 2005. The state net operating loss
carryforwards expire in 2002 to 2005.
7. BENEFIT PLANS
Packard BioScience Company and certain domestic subsidiaries offer a
contributory defined contribution plan (the "Profit Sharing Plan") covering
substantially all domestic employees who have completed at least one year of
service, as defined. Commencing in 1997, the Profit Sharing Plan provided that
eligible participants may make a basic contribution from 1% to 4% of their
annual pay, with additional contributions allowed up to an additional 11% of
annual pay. The Company makes matching contributions equal to 125% of a
participant's basic contribution, which amounted to approximately $1,047,000,
$1,209,000 and $1,400,000 for the years ended December 31, 1998, 1999 and 2000,
respectively.
In connection with the sale of Canberra (see Note 15), a new plan was
created for all Canberra employees. The plan assets attributable to Canberra
employees, amounting to approximately $50 million, were transferred to this new
plan.
The Company also had a noncontributory employee stock ownership plan
("ESOP") and related trust, which was merged into the Profit Sharing Plan in
March 1997. Each year the Company made a contribution from profits, as defined,
of an amount determined by its Board of Directors, but not to exceed 15% of the
aggregate compensation of all participants in the ESOP in any plan year.
77
Contributions under the ESOP for any individual participant in any year were
limited to the lower of $30,000 or 25% of the participant's compensation. The
trust had used the contributions to first service debt incurred, if any, and
then to purchase outstanding shares of the Company's stock. When employees
terminate their employment with the Company, they may choose to take the ESOP
portion of the Profit Sharing Plan distribution in the form of either cash or
shares of the Company's common stock, based upon the value of the common stock
on the date of distribution.
8. COMMITMENTS AND CONTINGENCIES
The Company conducts certain of its operations from leased facilities
and leases automobiles and various types of machinery and equipment under
operating leases. The following is a schedule of future minimum rental payments
under operating leases that have initial or remaining non-cancelable lease terms
extending beyond December 31, 2001 (in thousands):
2001.............................................................. $822
2002.............................................................. 731
2003.............................................................. 706
2004.............................................................. 191
2005.............................................................. 159
Thereafter........................................................ 690
------
$3,299
======
Rental expense for the years ended December 31, 1998, 1999 and 2000,
was approximately $3,352,000, $3,556,000 and $3,438,000, respectively.
The Company is currently, and is from time to time, subject to claims
and suits arising in the ordinary course of its business, including those
relating to intellectual property matters, product liability, safety and health
and employment matters. In certain of such actions, plaintiffs request punitive
or other damages that may not be covered by insurance. The Company accrues for
these items as they become known and can be reasonably estimated. It is the
opinion of management that the various asserted claims and litigation in which
the Company is currently involved will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
The Company and provincial authorities in Groningen, The Netherlands,
are in the process of negotiating a remediation plan involving groundwater
contamination at the Company's Duinkerkenstraat facility. Asserting that the
causes of this contamination entirely predate the Company's acquisition of this
location in 1986, the Company had sought indemnification under the purchase
agreement from the prior owner of the property. The Company accepted a payment
in 1998 of $1.25 million from the prior owner and fully released them from their
indemnification obligations. Such amount primarily represented reimbursement for
remediation costs previously paid for by the Company and estimated remaining
remediation costs. The Company has accrued for the estimated remaining
obligation to remediate the site; however, there can be no assurance that the
Company will not incur any additional costs. As of February 2001, the site where
the facility is located is being tested by independent engineers to determine
the extent of the soil contamination and to develop a remediation plan.
9. GEOGRAPHIC INFORMATION
The Company operates predominately in three major geographic areas.
Transfers between geographic areas are made at the estimated market value of the
merchandise transferred. The eliminations result from intercompany sales,
receivables and profit in inventory.
78
The following tables summarize the Company's operations by geographic
area for 1998, 1999 and 2000 (in thousands):
GEOGRAPHIC AREA 1998 1999 2000
--------------- ---- ---- ----
Revenues*:
United States, including third party export sales** $ 84,647 $ 85,841 $ 91,727
Europe ............................................ 50,193 56,346 55,821
Japan ............................................. 11,395 16,703 17,827
--------------------------------------
Total consolidated ................................ $ 146,235 $ 158,890 $ 165,375
======================================
Income (loss) from operations:
United States, including export sales*** .......... $ 13,547 $ 3,193 $ (15,090)
Europe**** ........................................ 7,684 6,556 6,468
Japan ............................................. 2,456 5,292 6,243
Eliminations, net ................................. (2,913) 723 (1,453)
--------------------------------------
Total consolidated ................................ $ 20,774 $ 15,764 $ (3,832)
======================================
Total assets:
United States ..................................... $ 86,266 $ 95,959 $ 204,987
Europe ............................................ 27,835 29,179 36,168
Japan ............................................. 9,802 11,288 12,501
Discontinued operations ........................... 34,712 67,810 68,577
Eliminations, net ................................. (17,180) (21,678) (16,141)
--------------------------------------
Total consolidated ................................ $ 141,435 $ 182,558 $ 306,092
======================================
-----------
* Includes only revenues from unaffiliated customers. Revenues
in Europe are denominated primarily in the Euro, or Euro
equivalent currencies, and the British Pound. Revenues in
Japan are denominated primarily in the Japanese Yen.
** Includes $17.9 million, $13.9 million and $10.0 million of
third-party export sales for 1998, 1999 and 2000,
respectively.
*** Income from operations for 1998 includes a $1.5 million charge
to expense the fair market value adjustment associated with
acquired inventories, a $6.1 million charge for purchased
in-process research and development and a gain on the sale of
the gas generation product line of $10.8 million. Income from
operations for 1999 includes a $2.7 million charge associated
with terminating the production of a product and modifying a
license arrangement and a $1.0 million compensation charge
associated with the 1999 vesting of stock options granted to
certain employees in December 1999. Loss from operations for
2000 includes a $4.7 million charge associated with employee
stock compensation costs, and a $12.1 million charge for
purchased in-process research and development. For purposes of
presenting operating results of the Company's continuing
operations, all corporate interest expense has been charged,
and all corporate interest income has been credited, to
continuing operations.
**** Loss from operations for 2000 includes a $1.9 million charge
primarily to write-off long-lived assets which had become
impaired.
79
10. RECAPITALIZATION AND STOCK PURCHASE AGREEMENT
On March 4, 1997, Stonington Capital Appreciation 1994 Fund, L.P.
("Stonington") acquired approximately 69% of the common stock of the Company on
a fully-diluted basis as a result of the transactions described below. The
transactions included (a) the acquisition by Stonington and certain other
investors of $54.0 million of common stock from certain continuing stockholders,
(b) the acquisition by Stonington of $17.5 million of common stock from the
Company, (c) a tender offer by the Company to all non-continuing stockholders
for $208.6 million and (d) the cancellation of all stock options held by the
non-continuing stockholders for $3.3 million. The Company used the proceeds of
the stock offering, $8.3 million from the exercise of certain options, cash on
hand and $190.0 million in proceeds from the Financings to redeem the shares in
the tender offer, purchase certain outstanding options (approximately $12.9
million) and pay transaction fees and expenses (approximately $21.5 million), of
which $2.6 million was paid to Stonington Partners, Inc.
11. ACQUISITIONS
In May 1997, a subsidiary of the Company, Packard Japan KK ("PJKK"),
entered into an agreement, for a fixed amount denominated in Japanese yen, to
acquire the 40% interest held by its minority stockholder for approximately $7.5
million. The agreement obligated PJKK to acquire approximately 60% of the
minority interest in 1997, 20% in 1998 and the remainder in 1999. Under the
agreement, the minority stockholder surrendered the rights to any dividends from
PJKK subsequent to December 31, 1996. The Company reflected the acquisition in
full as of the effective date of the agreement which was April 1, 1997, and, as
a result, the minority interest was eliminated and the related acquisition
obligations as well as resulting goodwill were recorded as of such date.
On March 31, 1998, the Company acquired all of the outstanding common
stock of Carl Creative Systems, Inc. (now known as CCS Packard, Inc.) ("CCS"), a
developer, manufacturer and distributor of ultra-high throughput liquid handling
systems used in the life science, in-vitro diagnostics and pharmaceutical drug
discovery markets. The Company issued 544,415 common shares of the Company
(valued at $2.792 per share) and paid $6.3 million in cash, including costs
incurred in connection with the acquisition. Allocation of the purchase price to
the net assets acquired resulted in a charge of $2.68 million for purchased
in-process research and development which had not reached technological
feasibility and had no probable alternative future uses. The acquisition also
resulted in a charge of $1.0 million in 1998 to expense the step-up of inventory
to fair value recorded at the date of acquisition. Additional contingent
payments, up to a maximum of $18.7 million, may be made through 2002, contingent
upon CCS achieving certain post acquisition operating performance levels through
December 31, 2001. During the period April 1, 1998 to December 31, 2000,
contingent payments totaling $14.8 million have been earned and accrued.
On July 1, 1998, the Company acquired 100% of the outstanding common
stock of BioSignal, Inc. ("BioSignal"), a biotechnology company located in
Canada. Prior to the acquisition, the Company owned a 19% interest in BioSignal.
The Company acquired the remaining 81% ownership interest for approximately $8.6
million in cash and 35,815 shares of the Company's common stock valued at $2.792
per share. In connection with the acquisition, the Company recognized a charge
of $3.44 million associated with purchased in-process research and development
which had not reached technological feasibility and had no probable future uses.
The acquisition also resulted in a charge of $0.5 million in 1998 to expense the
step-up of inventory to fair value recorded at the date of acquisition.
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. The option is exercisable through March 6, 2002. As of
December 31, 2000, the option had not been exercised. The financial results of
CCP have been consolidated in the accompanying financial statements due to the
80
Company's majority equity position as well as the minority holder having no
substantive protective or participating rights. CCP is a new company formed to
design and manufacture sophisticated pipette tips used in the liquid dispensing
process of drug discovery and genomic research.
Effective March 31, 2000, the Company acquired certain net operating
assets, primarily intangibles, of Cambridge Imaging Limited ("CIL"). 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 2004. As of
December 31, 2000, no earnouts were accrued or paid. The assets and technology
acquired will be used to develop and manufacture biomedical imaging technology
and devices.
Effective October 1, 2000, the Company acquired the net operating
assets of a division of GSI Lumonics, Inc. ("GSLI") (now operating as a division
of Packard BioChip Technologies, LLC, a wholly-owned subsidiary of the Company).
The total amount paid consisted of approximately $40 million in cash and 4.5
million shares of Company common stock valued for financial reporting purposes
at $65.2 million. GSLI was a leading provider of imaging equipment for biochip
and microarray applications. The GSLI acquisition has been accounted for using
the purchase method. The goodwill generated by this acquisition was
approximately $90.5 million. The acquisition resulted 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. The value assigned to GSLI's in-process research and development
was determined using the percentage-of-completion method applied to revenues and
cash flows expected to be generated through 2008 discounted at 20% reflecting
the risks inherent in the projects in development. The Company generally expects
to introduce these products in 2001 and operating margins contributed by these
products are expected to be comparable to current margins for similar products.
All of the above acquisitions have been accounted for using the
purchase method of accounting and, accordingly, the purchase prices have been
allocated to the assets purchased and the liabilities assumed based upon the
estimated fair values at the dates of acquisition. The excess of the purchase
prices, in the aggregate, over the fair values of the net assets acquired was
approximately $118.2 million (including the earned contingent payments referred
to above) and has been reflected as goodwill in the accompanying consolidated
balance sheets. As contingent payments are earned, the related goodwill will
increase. The goodwill associated with these acquisitions is being amortized on
a straight-line basis over 20 years, except for the PJKK acquisition for which
the life is 40 years, from the initial acquisition dates. The operating results
of all acquisitions have been reflected in the accompanying condensed
consolidated statements of income (loss) since their dates of acquisition.
The following unaudited consolidated information is presented on a pro
forma basis, as if the GSLI acquisition had occurred as of the beginning of the
year presented. In the opinion of management, the pro forma information reflects
all adjustments necessary for a fair presentation. The pro forma adjustments
include: (1) the removal of the nonrecurring charge taken in connection with the
acquisition associated with in-process research and development costs; (2)
amortization of goodwill associated with the acquisition; (3) adjustments to
reflect additional interest expense relating to the financing of the
acquisition; and (4) adjustments to reflect the related income tax effects of
the above. The pro forma impact of the CCP and CIL acquisitions is immaterial to
the Company's historical actual results of operations and therefore, no pro
forma adjustments have been made for such acquisitions.
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
(UNAUDITED)
1999 2000
---- ----
Revenues .................................................................................. $ 172,680 $ 178,461
Income from operations .................................................................... 12,944 2,814
Loss from continuing operations before extraordinary items, net ........................... (10,840) (7,579)
81
Net loss .................................................................................. (3,088) (3,104)
Basic and diluted loss per share from continuing operations before extraordinary items, net ($0.22) ($0.12)
Basic and diluted net loss per share ...................................................... ($0.06) ($0.05)
In October 2000, the Company acquired an 8% equity interest in
Agencourt Bioscience Corporation, a biotechnology 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. The
investment is accounted for using the cost method. Three sons of the Company's
Senior Vice President are officers of Agencourt.
12. OTHER COSTS OF PRODUCT SALES
During 1999, the Company modified an existing license agreement and
terminated the production of an OEM clinical product. The modification and
termination resulted in a $2.7 million charge to cost of sales to expense the
remaining deferred licensing fees associated with the modified license ($0.9
million), reserve the value of the estimated excess inventory of the terminated
product ($1.6 million) and write-off the net book value of the equipment used to
manufacture the terminated product ($0.2 million). The charge associated with
the license fee was based upon the estimated future cash flows associated with
the underlying products.
13. OTHER OPERATING EXPENSE (INCOME), NET
Other operating expense (income), net in the accompanying consolidated
statements of income (loss) consists of the following (in thousands):
1998 1999 2000
---- ---- ----
Gain on sale of product line ................. $(10,753) $ -- $ --
Write-off of impaired assets and other charges -- -- 1,881
--------------------------------
$(10,753) $ -- $ 1,881
================================
In December 1998, the Company sold Packard's gas generation product
line, realizing a pre-tax gain of approximately $10.8 million. In December 2000,
the Company recorded a $1.9 million charge to reflect the impact of certain
strategic changes. This charge consists of $0.8 million to write-off fixed
assets which had become impaired, $0.2 million of severance and lease
termination costs and $0.9 million to write-off licenses for technology for
which the Company will no longer receive any future benefit. The carrying value
of the fixed assets and licenses was written-off since the estimated fair value
was zero.
14. EXTRAORDINARY ITEMS, NET OF INCOME TAXES
In April 2000, the Company utilized $68.2 million of the proceeds from
the initial public offering to pay off its remaining term facility and the U.S.
dollar denominated balance of its revolving credit facility. In May 2000 and
December 2000, the Company repurchased an aggregate of approximately $31.9
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 facility.
The May and December 2000 repurchases of the Senior Subordinated
Notes resulted in an aggregate gain of $3.2 million. The Company expensed the
remaining unamortized balance of the deferred financing fees associated with
the term loan and original revolving credit facility, as well as that portion
applicable to the Senior Subordinated Notes that were repurchased. The gain,
net of the deferred
82
fees write-off of $2.6 million, are shown as extraordinary items, net of
income taxes of $0.2 million, in the consolidated statement of income (loss)
for the year ended December 31, 2000.
15. DISCONTINUED OPERATIONS
On February 27, 2001, the Company sold its Canberra division to COGEMA, S.A. for
$170 million. The net proceeds, after estimated income taxes payable and cash
expenses directly related to the sale and after repurchases of options held by
Canberra employees, were approximately $130 million. The Company used $71
million of the net proceeds to repay the outstanding balance on the Company's
credit facility on February 28, 2001. The remainder of the proceeds will be used
to fund research and development and for general corporate purposes.
Summary information of the discontinued operations for the years ended
December 31, 1998, 1999 and 2000 is as follows (in thousands):
1998 1999 2000
---- ---- ----
Revenues ................................................. $ 81,929 $ 106,003 $ 94,530
Total costs and expenses ................................. (79,526) (92,435) (87,957)
Provision for income taxes ............................... (1,353) (5,816) (2,467)
--------------------------------------
Income from discontinued operations, net of income taxes $ 1,050 $ 7,752 $ 4,106
======================================
For purposes of presenting operating results of the Company's
continuing operations, all corporate interest expense has been charged, and all
corporate interest income has been credited, to continuing operations. Corporate
interest expense consists of all interest associated with the Senior
Subordinated Notes, the term loan facility and the 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 include interest expense on local borrowings
related to the applicable foreign subsidiaries of $0.1 million, $0.6 million and
$0.1 million for the years ended December 31, 1998, 1999 and 2000, respectively.
The benefit from (provision for) income taxes was calculated for the
Company, including continuing and discontinued operations. The benefit from
(provision for) income taxes related to continuing operations was determined as
if it were a stand-alone entity and the difference between such amount and the
total benefit from (provision for) income taxes was allocated to discontinued
operations.
Results of discontinued operations for 2000 include charges associated
with accelerated option vesting and gifted shares of common stock totaling $3.5
million (see Note 5) as well as a restructuring reserve totaling $1.4 million
associated with Canberra's Harwell Instruments operations. Results of
discontinued operations for 1999 include a charge associated with accelerated
option vesting totaling $0.8 million (see Note 5) for Canberra employees and 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):
DECEMBER 31, DECEMBER 31,
1999 2000
---- ----
Cash ............................. $ 3,144 $ 2,858
Accounts receivable, net ......... 29,188 23,206
Inventories, net ................. 15,400 17,915
Accounts payable ................. (6,646) (3,462)
83
DECEMBER 31, DECEMBER 31,
1999 2000
---- ----
Accrued liabilities .............. (9,163) (8,205)
Other, net ....................... (541) (444)
-----------------------------
Net current assets ............. 31,382 31,868
-----------------------------
Property, plant and equipment, net 16,870 19,157
Goodwill, net .................... 22,064 21,260
Noncurrent liabilities ........... (616) (1,385)
Minority interest ................ (2,301) (2,492)
Other, net ....................... 411 169
-----------------------------
Net noncurrent assets .......... $ 36,428 $ 36,709
=============================
In December 2000, the Company's board of directors approved a
modification to the Company's existing employee stock option plans extending the
period Canberra employees have to exercise their outstanding stock options from
30 to 90 days immediately following the closing of the sale. This modification
generates a new measurement date and a compensation charge for all outstanding
options for Canberra employees when the employees separated from the Company on
February 27, 2001. The charge is based on the difference between the closing
price of the Company's common stock on the date that the board of directors
approved the modification and the exercise prices of the outstanding Canberra
employee options as of February 27, 2001 and is reduced by compensation expense
previously recognized on such options. The non-cash charge of $9.9 million will
be reflected as a component of the net gain on disposal of discontinued
operations in the first quarter of 2001.
In February 2001, the Company's board of directors approved the
repurchase of the outstanding Canberra employee options. Subsequently, the
Canberra options were repurchased for an aggregate value of approximately $9.5
million. As such, in accordance with the cash settlement provisions of APB 25,
additional compensation expense of approximately $300,000 will be recorded in
the first quarter of 2001. This amount is based on the cash paid to the
employees to settle the options and the number of options settled, less the
intrinsic value previously recognized as compensation expense related to these
employee's options.
Cash flow information associated with discontinued operations in the
accompanying consolidated statements of cash flows is as follows (in thousands):
FOR THE YEAR ENDING DECEMBER 31,
1998 1999 2000
---- ---- ----
Operating Activities:
Income from discontinued operations, net .............................. $ 1,050 $ 7,752 $ 4,106
Depreciation and amortization ......................................... 2,576 2,733 3,100
Amortization of acquired inventory step-up ............................ -- 1,000 --
Non-cash stock compensation ........................................... -- 790 3,549
Minority interest in income (loss) of subsidiary ...................... (164) (254) 326
Deferred income taxes, net ............................................ (675) 534 2,958
Gain on sale of property .............................................. (639) -- --
Changes in assets and liabilities, excluding the effect of acquisitions 5,008 (6,925) (1,277)
-----------------------------------
Net Cash Provided by Operating Activities ............................. $ 7,156 $ 5,630 $ 12,762
===================================
Investing Activities:
Acquisition of business, net of acquired cash ......................... $ (900) $(23,993) $ (1,163)
Capital expenditures .................................................. (1,224) (4,024) (2,475)
-----------------------------------
Net Cash Used by Investing Activities ................................. $ (2,124) $(28,017) $ (3,638)
===================================
84
16. REGISTRATION STATEMENT
In February 2001, the Company filed a registration statement on Form
S-1 for the sale by certain selling stockholders and the Company of 10,000,000
shares of the Company's common stock. In April 2001, the Company and the selling
stockholders withdrew the registration statement due to unfavorable market
conditions.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 2000 are as follows
(in thousands, except per share information):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1999
----
Revenues ............................................................... $ 38,162 $ 37,327 $ 36,871 $ 46,530
Gross profit ........................................................... $ 20,747 $ 19,631 $ 18,061 $ 22,141
Income (loss) from continuing operations before extraordinary items, net $ 810 ($1,207) ($3,744) ($3,809)
Basic and diluted loss per share from continuing operations ............ $ 0.02 ($0.03) ($0.08) ($0.08)
2000
----
Revenues ............................................................... $ 39,845 $ 38,571 $ 37,030 $ 49,929
Gross profit ........................................................... $ 22,474 $ 22,094 $ 19,690 $ 27,478
Loss from continuing operations before extraordinary items, net ........ ($3,838) ($467) ($1,531) ($5,007)
Basic and diluted loss per share from continuing operations ............ ($0.08) ($0.01) ($0.02) ($0.08)
The fourth quarter of 1999 includes:
o charges of $2.7 million associated with the termination of a
product line and the modification of a license (see Note 12), and
o a stock compensation charge of $1.0 million (see Note 5).
The first quarter of 2000 includes a stock compensation charge of $4.7
million (see Note 5). The fourth quarter of 2000 includes:
o a charge of $12.1 million to write-off purchased in-process
research and development (see Note 11),
o a $1.9 million charge primarily to write-off long-lived assets
which had become impaired (see Note 13), and
o the operating results of GSLI.
18. MERGER AGREEMENT
On July 16, 2001, the Company and PerkinElmer, Inc. announced that
they had entered into an agreement and plan of merger, dated as of July 13,
2001. The transaction is valued at approximately $650 million, including net
indebtedness, and is structured as a tax-free, all-stock merger. If the
merger is completed, the Company will become a wholly-owned subsidiary of
PerkinElmer, and holders of the Company's common stock will be entitled to
85
receive 0.311 of a PerkinElmer share for each of their shares of the Company's
common stock. The merger, which is subject to customary closing conditions and
regulatory approvals, as well as the approval of both companies' shareholders is
expected to close during the fourth quarter of 2001. In connection with the
merger, some of the Company's stockholders that represent in the aggregate a
majority of the Company's outstanding shares have also entered into a
stockholder's and voting agreements with PerkinElmer.
ITEM 9: CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable. There was no change in or disagreements with the
Company's independent public accountants.
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning our directors and
executive officers.
NAME AGE POSITION
- ---- --- --------
Emery G. Olcott.............................................. 62 Chairman of the Board and Chief Executive Officer
Franklin R. Witney, Ph.D..................................... 47 President and Chief Operating Officer
Ben D. Kaplan................................................ 43 Vice President and Chief Financial Officer
Timothy O. White, Jr......................................... 33 Vice President, General Counsel and Secretary
Staf C. van Cauter........................................... 52 Vice President, Business Development
Nicholas G. Bacopoulos, Ph.D................................. 52 Director
Robert F. End................................................ 45 Director
Bradley J. Hoecker........................................... 39 Director
Alexis P. Michas............................................. 43 Director
Harry H. Penner, Jr.......................................... 55 Director
Robert C. Salisbury.......................................... 57 Director
Peter P. Tong................................................ 60 Director
Each of our directors holds office until his successor is duly elected
and qualified or until his resignation or removal if earlier. Except as set
forth below, no family relationship exists among any of the directors or
executive officers. Pursuant to a Stockholders' Agreement entered into in
connection with the 1997 recapitalization, the parties to the agreement have
agreed, subject to applicable law, to vote in favor of Stonington's removal of
our directors, as more fully described under "Certain Relationships and Related
Transactions - Stockholders' Agreement." All executive officers are elected by
the Board and serve at the discretion of the Board.
EMERY G. OLCOTT is our Chief Executive Officer, a position he has held
since 1971. From 1971 through October 2000, Mr. Olcott also held the position of
President. He also became Chairman of the Board effective as of the closing of
the 1997 recapitalization. Mr. Olcott co-founded Packard BioScience Company in
1965. Mr. Olcott was the Chairman of the Board of Directors of Yankee Energy
System, Inc., a gas distribution company that was acquired by Northeast
Utilities, and has been elected to the Board of Directors of Northeast
Utilities. In addition, he is a Vice Chairman and Trustee of The Loomis Chaffee
School, and is a member of the Dean's Advisory Council for the Sloan School of
Management at the Massachusetts Institute of Technology. Mr. Olcott graduated
from Yale University in 1960 with a Bachelor of Science degree and from MIT in
1963 with a Master of Science degree.
86
FRANKLIN R. WITNEY, PH.D. is our President and Chief Operating Officer,
and President of our wholly-owned subsidiary Packard Instrument Company, Inc.,
positions he has held since October 2000. Dr. Witney joined us as Senior Vice
President of Packard Instrument Company in April 2000. Prior to that, Dr. Witney
was employed at Bio-Rad Laboratories for 17 years, ultimately becoming its Group
Operations Manager, Life Sciences. Dr. Witney is responsible for the development
and execution of the strategic plan and the performance of Packard Instrument
Company, CCS Packard, Inc., Packard BioScience B.V., BioSignal Packard, Inc. and
our international sales subsidiaries. Dr. Witney holds a Master of Science
degree in Microbiology and a Ph.D. in Molecular and Cellular Biology from
Indiana University.
BEN D. KAPLAN is our Vice President and Chief Financial Officer,
positions he has held since February 1997. From September 1992 to January 1997,
he was a partner at Arthur Andersen LLP, a public accounting firm. Mr. Kaplan is
currently on the Board of Regents of the University of Hartford. Mr. Kaplan
graduated from the University of Hartford in 1979 with a Bachelor's degree in
Accounting and in 1980 with a Master's degree in Accounting.
TIMOTHY O. WHITE, JR. is our Vice President, General Counsel and
Secretary. Mr. White has been our General Counsel and Secretary since May 1998
and became a Vice President of Packard BioScience Company on March 20, 2000.
From September 1995 to May 1998, Mr. White was an attorney at the law firm of
Jacobs Chase Frick Kleinkopf & Kelley LLC. Prior to that time, Mr. White was an
attorney at the law firm of Ballard Spahr Andrews & Ingersoll, LLP. Mr. White
graduated from Hamilton College in 1990 with a Bachelor of Arts degree and from
the University of Michigan Law School in 1994 with a Juris Doctor degree. Mr.
White is a nephew of Mr. Olcott, our Chairman and Chief Executive Officer.
STAF C. VAN CAUTER is our Vice President, Business Development, a
position he has held since April 1998. From 1988 to 1998, Mr. van Cauter was
also Vice President, Marketing. Mr. van Cauter is currently responsible for
identifying emerging technologies for the development of new products. Mr. van
Cauter graduated from the Higher Institute of Technology in Mechelen, Belgium in
1972 with a Master of Science degree in Industrial Engineering.
NICHOLAS G. BACOPOULOS, PH.D. became one of our Directors in August
2000. Dr. Bacopoulos is President and Head of Research and Development of OSI
Pharmaceuticals, Inc., a drug discovery company, positions he has held since
September 2000. From 1983 to September 2000, he was employed at Pfizer Inc.,
holding senior management positions in discovery research and pharmaceutical
planning and ultimately becoming the President and Chief Executive Officer of
Anaderm Research Corporation, which was founded by Pfizer, OSI Pharmaceuticals
and New York University. Dr. Bacopoulos received a Bachelor of Arts degree from
Cornell College and a Ph.D. from the University of Iowa.
ROBERT F. END became one of our Directors as of the closing of the
recapitalization in 1997. Mr. End is a Partner and a Director of Stonington
Partners, Inc., positions that he has held since 1993, and is also a Partner and
a Director of Stonington Partners, Inc. II, positions that he has held since
1994. He has also been a Director of Merrill Lynch Capital Partners, Inc., a
private investment firm associated with Merrill Lynch & Co., since 1993 and was
a consultant to Merrill Lynch Capital Partners from 1994 through 2000. Mr. End
is also a Director of Goss Graphic Systems, Inc. and several privately held
corporations. Mr. End graduated from Dartmouth College in 1977 with a Bachelor
of Arts degree and from the Amos Tuck School of Business in 1982 with a Master's
degree in Business Administration.
BRADLEY J. HOECKER became one of our Directors as of the closing of the
recapitalization in 1997. Mr. Hoecker is a Partner and a Director of Stonington
Partners, Inc. and Stonington Partners, Inc. II, positions that he has held
since 1997. Prior to his election as a Partner, Mr. Hoecker served as a
Principal of Stonington Partners, Inc. since its formation in 1993. He was a
consultant to Merrill Lynch Capital Partners from 1994 through 2000. Mr. Hoecker
is also a Director of Merisel, Inc. and several privately held corporations. Mr.
Hoecker graduated from Southern Methodist University in 1984 with a
87
Bachelor of Arts degree and from the Kellogg Graduate School of Management in
1989 with a Master's degree in Management.
ALEXIS P. MICHAS became one of our Directors as of the closing of the
recapitalization in 1997. Mr. Michas is Managing Partner and a Director of
Stonington Partners, Inc., positions that he has held since 1993, and is also
Managing Partner and Director of Stonington Partners, Inc. II, positions that he
has held since 1994. Mr. Michas has also been a Director of Merrill Lynch
Capital Partners since 1989, and was a consultant to Merrill Lynch Capital
Partners from 1994 through 2000. Mr. Michas is also a Director of Borg Warner,
Inc., Goss Graphic Systems, Inc. and several privately held corporations. Mr.
Michas graduated from Harvard College in 1980 with a Bachelor of Arts degree and
from Harvard Business School in 1984 with a Master's degree in Business
Administration.
HARRY H. PENNER, JR. became one of our Directors in July 2000. Mr.
Penner is the President, Chief Executive Officer and Vice Chairman of Neurogen
Corporation, a drug discovery and technologies company, positions he has held
since December 1993. He is also a Director of Avant Immunotherapeutics, Inc.,
BioStratum, Incorporated, Genaissance Pharmaceuticals, Inc. and PRA
International, Inc. Mr. Penner is also the Co-Chairman of CURE, Connecticut's
Bioscience Cluster, and Vice Chairman of Connecticut's Board of Governors for
Higher Education. Mr. Penner graduated from the University of Virginia in 1967
with a Bachelor of Arts degree, from Fordham University in 1970 with a Juris
Doctor degree, and from New York University in 1975 with a Master's degree in
Law.
ROBERT C. SALISBURY became one of our Directors in April 2000. Mr.
Salisbury is a private investor and advisor in the healthcare and technology
industries. Mr. Salisbury retired in 1998 from Pharmacia & Upjohn, Inc. where he
served as the Executive Vice President and Chief Financial Officer since 1995.
From 1974 to 1995, he was employed at The Upjohn Company, holding various senior
management positions and ultimately becoming Executive Vice President for
Finance and Chief Financial Officer. Mr. Salisbury is also a Director of Viragen
Inc. and a member of the National Association of Corporate Directors and the
Financial Executives International. Mr. Salisbury graduated from Florida State
University in 1972 with a Master's degree in Business Administration.
PETER P. TONG became one of our Directors as of the closing of the
recapitalization in 1997. Mr. Tong became a Management Partner of Stonington
Partners, Inc. in December 1999 and is also the President of Mandarin Partners
Management, LLC, an investment partnership he established in 1997. Mr. Tong
served as the Co-President of Marquette Medical Systems, Inc., a manufacturer of
medical equipment, from January 1996 to May 1996. From 1991 to 1996, he served
as President, Chairman and Chief Executive Officer of E for M Corporation, also
a manufacturer of medical equipment. Mr. Tong is also a director of several
privately held corporations. Mr. Tong graduated from Kansas State University in
1963 with a Bachelor's degree in Electrical Engineering and from the University
of Wisconsin in 1965 with a Master's degree in Electrical Engineering.
COMPENSATION OF DIRECTORS
Directors who are our employees or otherwise affiliated with management
or Stonington receive no compensation for their service as members of our Board
or its committees. Directors who are not our employees or related to Stonington
receive $15,000 annually, a $1,000 fee for each meeting of the Board or Board
committee they attend, and stock options under plans we describe below. See "The
Non-Employee Director Option Compensation Plan." We also reimburse all directors
for expenses incurred in connection with attendance at meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
We currently have an Audit Committee that consists of Messrs.
Bacopoulos, Hoecker, Penner and Salisbury. Mr. Salisbury acts as Chairman. The
primary functions of the Audit Committee are to:
88
o recommend annually to our Board of Directors the appointment of
our independent auditors;
o discuss and review in advance the scope and the fees of our
annual audit and review the results thereof with our independent
auditors;
o review and approve non-audit services of our independent
auditors;
o review compliance with our existing major accounting and
financial reporting policies;
o review the adequacy of major accounting and financial reporting
policies; and
o review our management's procedures and policies relating to the
adequacy of our internal accounting controls and compliance with
applicable laws relating to accounting practices.
Our Compensation Committee currently consists of Messrs. End, Olcott
and Michas. The primary functions of the Compensation Committee are to:
o review and approve annual salaries, bonuses, and grants of stock
options under (and otherwise administer) our 2000 Stock Incentive
Plan for all executive officers and key members of our management
team; and
o review and approve the terms and conditions of all employee
benefit plans.
In addition, our Board of Directors may form an Executive Committee,
which will have the authority to exercise the powers of our Board of Directors,
other than those reserved to the Audit Committee, the Compensation Committee or
to our full Board of Directors, between meetings of our full Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2000, the Compensation Committee consisted of Messrs. Olcott,
End and Michas. Mr. Michas resigned from the Board in June 1999 and was
re-elected in March 2000. Executive compensation is determined in accordance
with existing employment agreements and related amendments thereto. Mr. End is a
member of the Compensation Committee of United States Manufacturing Company and
OMP, Inc. Mr. Tong is a director of both these companies.
ITEM 11: EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation we paid to our Chief
Executive Officer and each of our four most highly-compensated executive
officers (other than the Chief Executive Officer) whose total compensation
exceeded $100,000 during the last fiscal year, for the year ended December 31,
2000.
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) (1)(2)(3) ($)
- --------------------------- ---- --------- -------- ---------- -------------
Emery G. Olcott........................ 2000 $399,615 $122,000 35,000 $134,470
Chairman of the Board and Chief 1999 $367,308 $170,000 -- $55,850
Executive Officer 1998 $355,385 $375,000 -- $18,000
Franklin R. Witney..................... 2000 $162,846 $50,000 150,000 $96,144
89
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) (1)(2)(3) ($)
- --------------------------- ---- --------- -------- ---------- -------------
President and Chief Operating
Officer (4)
Richard T. McKernan.................... 2000 $294,231 $101,000 32,000 $109,450
Senior Vice President (5) 1999 $272,308 $131,500 -- $15,400
1998 $266,058 $200,000 -- $8,000
Ben D. Kaplan.......................... 2000 $229,039 $60,000 28,000 $55,300
Vice President and Chief 1999 $207,308 $83,000 -- $8,975
Financial Officer 1998 $197,308 $140,000 -- $8,000
Staf C. van Cauter..................... 2000 $201,539 $39,000 18,000 $48,500
Vice President, Business 1999 $188,846 $42,000 -- $8,000
Development 1998 $185,866 $52,000 -- $8,000
-----------
(1) The 2000 amounts consist of bonuses awarded to the officers in
connection with the April 2000 initial public offering
($75,000 for Mr. Olcott, $80,000 for Mr. McKernan, $45,000 for
Mr. Kaplan and $40,000 for Mr. van Cauter), payments made for
personal tax consultation services provided by our income tax
advisors ($50,970 for Mr. Olcott, $20,950 for Mr. McKernan and
$1,800 for Mr. Kaplan), and contributions made by us pursuant
to our defined contribution plan in the amount of $8,500 for
each individual listed with the exception of Dr. Witney. The
2000 amount listed for Dr. Witney includes a $20,000 signing
bonus and $76,144 for reimbursement of relocation costs.
(2) The 1999 amounts consist of contributions made by us pursuant
to our defined contribution plan in the amount of $8,000 for
each individual listed and payments made for personal tax
consultation services provided by our income tax advisors
($47,850 for Mr. Olcott, $7,400 for Mr. McKernan and $975 for
Mr. Kaplan).
(3) The 1998 amounts consist of payments made for personal tax
services rendered by our income tax advisors ($10,000 for Mr.
Olcott) and contributions we made pursuant to our defined
contribution plan in the amount of $8,000 for each individual
listed.
(4) Dr. Witney was hired as Senior Vice President in April 2000
and promoted to President and Chief Operating Officer in
October 2000.
(5) Mr. McKernan was our Senior Vice President. Effective January
1, 2001, Mr. McKernan became a part-time employee of Packard
in anticipation of his retirement by year-end 2001. On March
15, 2001, Mr. McKernan resigned from our Board of Directors
and as our Senior Vice President, and continues to serve as
our Director of Strategic Initiatives.
OPTIONS/SAR GRANTS
The following table provides information on grants of stock options and
stock appreciation rights in 2000 to the executive officers listed in the
Executive Compensation table.
90
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE GRANT DATE
NAME GRANTED (#)(1) FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE PRESENT VALUE ($)(2)
---- -------------- ----------- --------------- --------------- --------------------
Emery G. Olcott.............. 35,000 2.6% $13.92 7/3/10 $496,298
Franklin R. Witney........... 75,000 5.6% $9.00 4/19/10 $577,031
75,000 5.6% $15.00 10/30/10 $958,745
Richard T. McKernan.......... 32,000 2.4% $13.92 7/3/10 $453,758
Ben D. Kaplan................ 28,000 2.1% $13.92 7/3/10 $397,038
Staf C. van Cauter........... 18,000 1.3% $9.00 4/19/10 $138,487
- -----------
(1) The terms of the stock options granted in fiscal 2000 provided that the
options become exercisable in 25% annual installments commencing one
year from the date of grant.
(2) The grant date present value was determined using the Black-Scholes
model of options pricing. The assumptions used in calculating the grant
date present value were as follows:
Expected volatility.............................. 100%
Risk-free rate of return......................... 5.84% to 6.32%
Dividend yield................................... 0
Expected life.................................... 7 years
Minimum option value............................. $7.69 to $14.18
OPTIONS/SAR EXERCISES AND YEAR-END VALUES
The following table provides information for the listed executive
officers, regarding the number and value of all their unexercised stock options
and stock appreciation rights, or SARs, at December 31, 2000.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/ IN-THE-MONEY OPTIONS/
SARS AT FISCAL YEAR END SARS AT FISCAL YEAR END
(#) ($)(1)
--- ------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ----------- ------------- ----------- -------------
Emery G. Olcott.............. 185,000 $ 466,185 565,000 35,000 $ 5,073,500 $--
Franklin R. Witney........... -- $-- -- 150,000 $-- $ 196,875
Richard T. McKernan.......... 300,000 $ 1,124,784 700,000 32,000 $ 6,342,500 $--
Ben D. Kaplan................ -- $-- 500,000 28,000 $ 4,700,000 $--
Staf C. van Cauter........... 94,045 $ 686,170 130,000 18,000 $ 1,249,240 $ 47,250
- -----------
(1) The value of unexercised in-the-money options at year end was
determined based on the December 29, 2000 closing price of our common
stock as quoted on the Nasdaq National Market.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Messrs. Olcott, Witney,
McKernan, Kaplan and van Cauter. Set forth below is a summary of the material
provisions of the employment agreements
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with these individuals. These descriptions are qualified in their entirety by
reference to the provisions of those employment agreements.
The employment agreements with Messrs. Olcott, Witney, McKernan, Kaplan
and van Cauter, each of whom is referred to in this description as the
"executive," supersede any other agreement between any of them and Packard
BioScience Company concerning their employment. Mr. Olcott serves as Chairman of
the Board and Chief Executive Officer of Packard BioScience Company; Dr. Witney
serves as President and Chief Operating Officer of Packard BioScience Company
and President of Packard Instrument Company; Mr. McKernan serves as Director of
Strategic Initiatives Packard BioScience Company; Mr. Kaplan serves as Vice
President and Chief Financial Officer of Packard BioScience Company; and Mr. van
Cauter serves as Vice President of Packard Instrument Company, or in such other
capacity as may be assigned to him by the Chief Executive Officer of Packard
BioScience Company or the President of Packard Instrument Company. Each of the
employment agreements provides for an initial employment term of three years,
except for an initial employment term of two years in the case of Messrs. Witney
and van Cauter. Under each employment agreement, the initial employment term
will be automatically extended for additional 13-month terms (25-month terms for
Messrs. Olcott and Kaplan) on a specified initial renewal date and on the first
day of each calendar month that follows the initial renewal date, unless we
affirmatively give 60 days notice that we will not be renewing the agreement on
a renewal date. The initial renewal date has already occurred for each of the
executives other than Dr. Witney, whose initial employment term continues until
December 18, 2002, and whose initial renewal date is December 18, 2001. There is
an agreed-upon annual base salary for each executive, with annual increases no
less than the increase in the U.S. Consumer Price Index-All Urban Consumers.
Each executive is also eligible to receive an annual cash bonus determined in
accordance with the terms of our annual bonus incentive plans then in effect.
Mr. McKernan's employment agreement has been amended to provide for part-time
employment through October 2001, following which his employment will terminate
and he will become a consultant of Packard BioScience Company.
Upon termination of employment by us other than for "cause" or
"disability," or upon termination by the executive for "good reason," as such
terms are defined in the employment agreements, we will pay to the executive an
amount in cash equal to the sum of: the accrued annual base salary as of the
date of termination; a pro rata portion of the target annual bonus accrued to
the date of termination and any other accrued but unpaid annual bonuses,
vacation pay or deferred compensation not yet paid (the above items are defined
as the "accrued obligations"); annual base salary and annual bonus amounts for
the remainder of the employment period; and additional contributions to the
thrift savings plan, if any, to which the executive would have been entitled had
his employment continued for a period of three years (two years in the case of
Messrs. Witney and van Cauter) after the date of termination. In addition, the
executive will be entitled to participate in all welfare benefit plans for a
period of three years (two years in the case of Messrs. Witney and van Cauter)
after the date of termination on terms at least as favorable as those that would
have been applicable had his employment not been terminated (or, if such benefit
plans are not available, a comparable cash payment) and, to the extent that any
form of compensation will not be fully vested or require additional service, the
executive will be credited with additional service of three years (two years in
the case of Mr. van Cauter) after the date of termination. In the case of Mr.
McKernan, all forms of compensation will fully vest if he was not terminated for
cause or good reason. In addition, the executive is entitled to a "gross up"
payment reimbursing the executive on an after-tax basis for any excise tax
liability incurred by the executive with respect to payments made in connection
with a change of control under the agreement or otherwise, unless a reduction of
less than $30,000 in the payments due to the executive would result in avoidance
of the excise tax, in which case the payments are so reduced. Upon termination
of employment due to death or disability, we will pay to the executive or to his
respective beneficiaries, all amounts that would have been due had such
executive remained in our employ until the end of his employment period (until
the date of termination for death and disability in the case of Messrs. Witney,
Kaplan and van Cauter). If employment is terminated for cause, Packard
BioScience Company will pay to the executive annual base salary through the date
of termination and any deferred compensation not yet paid, accrued vacation pay
and if the executive
92
voluntarily terminates employment other than for good reason, we will pay to the
executive in a lump sum the accrued obligations other than any accrued bonus
amount.
Each of the employment agreements (other than Mr. Kaplan's agreement)
provides that, during the employment of the executives and for a stated period
after the termination of employment, each executive will not solicit any of our
employees or compete with us. In consideration for such noncompetition and
nonsolicitation covenants, we will pay to each executive one-half of the sum of
his annual base salary and his target annual bonus (100% in the case of Messrs.
Olcott and McKernan), such amount payable in equal monthly installments during
the portion of the relevant restricted period following the date of termination.
In connection with our proposed merger with PerkinElmer, we plan to pay
retention bonuses to our employees as an inducement for them to remain with us
during the transition period after the consummation of the proposed merger. We
have allocated up to $6.3 million for these retention bonuses. It is currently
anticipated that Dr. Witney will receive a retention bonus of approximately
$900,000.
CANBERRA INDUSTRIES, INC. STOCK OPTION PLAN OF 1971
We adopted this plan in 1971 for the purpose of retaining and
attracting personnel for positions of responsibility with us or any of our
subsidiaries. Under the 1971 plan, as amended, we have 437,500 outstanding and
vested options as of April 30, 2001, with an average exercise price of $1.35.
The options granted under the 1971 plan expire on the tenth anniversary of the
date of grant.
In the event of a change in our capital structure, including as a
result of reorganization, merger, consolidation or recapitalization, our
Compensation Committee is required to adjust the number and kind of shares for
which options may be granted.
Our Board of Directors may at any time amend or terminate the 1971
plan, except that no termination or amendment may impair the rights of the
participants as they relate to outstanding options. In connection with the
recapitalization of our company in 1997, the 1971 plan was frozen and no
additional options may be granted under the plan.
In connection with the sale of Canberra and the transfer of that
division's employees to the purchaser, we offered those employees the ability to
cash settle all or part of their options under this plan for an amount per
option equal to the average price of our common stock over the 10-day period
beginning five days before, and ending five days after, the closing of the
Canberra sale, minus the option's exercise price, and after deduction for any
required tax withholding.
MANAGEMENT STOCK INCENTIVE PLAN
At the closing of the 1997 recapitalization, we adopted the Management
Stock Incentive Plan, pursuant to which our and our subsidiaries' directors,
officers and key employees will, as "eligible participants," be granted
nonstatutory stock options exercisable into shares of our common stock. This
plan is not related to our 1971 plan. The 1997 plan is administered by either
our Compensation Committee or our Board of Directors. The Compensation Committee
or the Board has the discretion to select those to whom options under the plan
will be granted from among those eligible. The Board or the Compensation
Committee has the authority to interpret and construe the plan, and any such
interpretation or construction of the provisions of the plan or of any options
granted under the plan is final and conclusive.
Options to purchase up to 11,125,460 shares of our common stock are
permitted to be granted under the plan. As of April 30, 2001, 3,825,850 options
were outstanding and vested under this plan, with an average exercise price of
$2.65. These options were granted at an exercise price equal to fair market
value on the date of grant. Twenty percent of these options vest immediately
upon grant, with the remainder becoming vested in equal annual installments over
a four-year period, provided that the
93
eligible participant continues to be employed by us or one of our subsidiaries.
Effective March 17, 2000, our Board of Directors vested all options outstanding
under the 1997 plan. The remaining options, to be granted at a premium of fair
market value, were vested and fully exercisable upon the date of grant. In the
event of an "extraordinary transaction," such as a merger or consolidation, of
Packard BioScience Company or a reduction in Stonington's equity ownership in
our company to below 50%, all outstanding options will become fully vested upon
consummation of the extraordinary transaction.
The terms and conditions of a new option grant under the plan are set
forth in a related option agreement. Options granted under the plan will
terminate upon the earliest to occur of (1) the tenth anniversary of the date of
the option agreement; (2) the 180-day anniversary of the date of death or
"disability," or nine months after "retirement," as such terms are defined in
the Stockholders' Agreement, of the eligible participant; (3) the 30-day
anniversary of the date that the eligible participant ceases to be a full-time
employee of us or one of our subsidiaries for any reason other than as set forth
in (2) above or in (4) below; and (4) immediately upon an eligible participant's
voluntary termination of employment other than due to death, retirement or
disability, or termination for "cause," as defined in the Stockholders'
Agreement. Payment of the exercise price of options granted under the 1997 plan
must be made in cash.
In the event of a declaration of a stock dividend, or a reorganization,
merger, consolidation, acquisition, disposition, separation, recapitalization,
stock split, split-up, spin-off, combination or exchange of any shares of our
common stock or like event, the number or character of the shares subject to the
options or the exercise price of any such options may be appropriately adjusted
as deemed appropriate by our Compensation Committee or our Board.
The plan terminates upon, and no options may be granted under the plan
after, March 4, 2007, which is the tenth anniversary of the closing of the 1997
recapitalization, unless the plan has sooner terminated due to grant and full
exercise of options covering all the shares of common stock available for grant
under the plan. Our Board may at any time amend, suspend or discontinue the
plan, except that it may not alter, amend, discontinue or revoke or otherwise
impair any outstanding options granted under the plan and which remain
unexercised in a manner adverse to the holders of those options except if the
written consent of the holder is obtained.
Upon adoption of the new plans in connection with our initial public
offering, the 1997 plan was frozen and no additional options will be granted
under the plan.
In connection with the sale of Canberra and the transfer of that
division's employees to the purchaser, we offered those employees the ability to
cash settle all or part of their options under this plan for an amount per
option equal to the average price of our common stock over the 10-day period
beginning five days before, and ending five days after, the closing of the
Canberra sale, minus the option's exercise price, and after deduction for any
required tax withholding.
THE NON-EMPLOYEE DIRECTOR OPTION COMPENSATION PLAN
In connection with our initial public offering, we adopted a
Non-Employee Director Option Compensation Plan. The purpose of this plan is to
promote a greater identity of interests between our non-employee directors and
our stockholders and to attract and retain individuals to serve as directors. As
of April 30, 2001, 45,000 options were outstanding under this plan, none of
which were vested, with an average exercise price of $18.00. The main material
terms of this plan are summarized below.
GENERAL
The plan is administered by our Board of Directors or a committee of
our Board of Directors designated for this purpose.
94
Our directors, who are neither our employees nor affiliates of
Stonington, are eligible to participate in the plan.
Our Board of Directors or its designated committee may adjust the
awards under the plan if there is any change in corporate capitalization, such
as a stock split, or a corporate transaction, such as a merger, consolidation,
separation, including a spin-off, or other distribution of our stock or
property, any reorganization or any partial or complete liquidation. Any option
that expires, is forfeited or is repurchased by us will again be available for
grant under the plan.
A total of 200,000 shares of our common stock have been reserved for
issuance under the plan.
OPTIONS
Each new non-employee director, other than directors affiliated with
Stonington, will be granted options for 15,000 shares of common stock upon being
elected or appointed to our Board of Directors and upon being re-elected after
serving for three consecutive one-year terms. The exercise price for all options
will be 100% of the fair market value of a share of common stock on the date of
the grant of such options, except that options granted before or upon
consummation of our initial public offering were granted at the initial public
offering price. Each option vests and becomes exercisable in equal installments
on each of the first three anniversaries of the date of grant of such option, if
the director remains a member of our Board of Directors at that time. Each
vested option terminates one year after the director's service on our Board of
Directors ceases for any reason, other than for cause. If a director is removed
for cause, all vested and unvested options will be forfeited. However, options
expire no later than the tenth anniversary of the date of grant. Any unvested
options will terminate and be canceled as of the date a director's service on
our Board of Directors ceases for any reason. All directors' options become
fully vested and exercisable upon a change in control.
TRANSFERABILITY
Options granted under the plan are nontransferable other than by will
or the laws of descent and distribution, or at the discretion of our Board of
Directors or the designated committee, by a written beneficiary designation or
by a gift to the director's immediate family. This gift may be made directly to
an immediate family member, or by means of a trust or partnership or limited
liability company. During the director's lifetime, a director's options may be
exercised only by the director, any such permitted transferee or a guardian,
legal representative or beneficiary.
AMENDMENTS
Our Board of Directors may at any time terminate or amend the plan,
except that no termination or amendment may impair the rights of directors
relating to outstanding options. To the extent required by law or automated
quotation system rule, no amendment will be made without the approval of our
stockholders.
THE 2000 STOCK INCENTIVE PLAN
In connection with our initial public offering, we adopted a new stock
incentive plan. This plan is designed to promote our success and enhance our
value by linking the interests of our officers, employees and consultants to
those of our stockholders and by providing participants with an incentive for
outstanding performance. This plan is further intended to provide flexibility in
its ability to motivate, attract and retain employees upon whose judgment,
interest and special efforts our business is largely dependent. Our officers,
employees and consultants, including employees who are members of our Board of
Directors, and officers, employees and consultants of our subsidiaries and
affiliates are eligible to participate in this plan. Non-employee directors are
not eligible to participate in the 2000 plan. This plan is intended to remain in
effect until 2010. The description below summarizes the material terms of this
plan.
95
GENERAL
The 2000 plan is administered by the Compensation Committee of our
Board of Directors and provides for the grant of stock options, both
non-qualified and incentive stock options and other types of equity-based
awards. As of April 30, 2001, we had 2,409,000 options outstanding under this
plan, with an average exercise price of $7.70.
The maximum number of shares of common stock available for grant under
the 2000 plan is 15% of the aggregate number of shares outstanding, plus 5% of
the number of shares outstanding for each year, not to exceed 6.3 million shares
in the aggregate. In addition, the number of shares that may be granted to each
individual participant under the 2000 plan is limited to 200,000 shares for each
calendar year.
The term of options granted under the 2000 plan may not exceed 10
years. Unless otherwise determined by our Compensation Committee, options vest
ratably on each of the first four anniversaries after the grant date and have an
exercise price equal to the fair market value of the common stock on the date of
grant. Options granted under the 2000 plan may be incentive stock options and
qualified stock options.
A participant exercising an option may pay the exercise price in cash
or, if approved by our Compensation Committee, with previously acquired shares
of common stock or in a combination of cash and stock. Our Compensation
Committee, in its discretion, may allow the cashless exercise of options.
Options are nontransferable other than by will or the laws of descent
and distribution or, at the discretion of our Compensation Committee, by a
written beneficiary designation or by a gift to members of the holder's
immediate family. The gift may be made directly or indirectly or by means of a
trust or partnership or limited liability company and, during the participant's
lifetime, may be exercised only by the participant, any such permitted
transferee or a guardian, legal representative or beneficiary.
Any option that expires, is forfeited or repurchased by us will again
be available for grant under the plan.
OTHER AWARDS
The 2000 plan allows for the grant of stock appreciation rights, or
SARs, alone or in tandem with options. An SAR permits a participant to receive,
upon exercise, cash or shares of common stock, or a combination thereof, as
determined by our Board of Directors or our Compensation Committee. The amount
of cash or the value of the shares is equal to the excess of the fair market
value of a share of common stock on the date of exercise over the SAR exercise
price, multiplied by the number of shares with respect to which the SAR is
exercised. The 2000 plan also allows for the grant of restricted stock, the
vesting of which is subject to the achievement of performance goals or continued
service. Performance awards may be granted subject to performance goals and/or
service-based restrictions, and will be denominated and payable in cash or
shares of common stock or a combination as determined by our Board of Directors
or our Compensation Committee. Dividend and interest equivalents with respect to
awards and other awards based on the value of common stock may also be granted.
CHANGE IN CONTROL
In the event of a change in control, or in the event of involuntary
termination of the optionee's employment within two years after a change of
control, any options or SAR that is not then exercisable and vested will become
fully exercisable and vested and remain exercisable for the option term,
restrictions on restricted stock will lapse and performance units will be deemed
earned. Change in control generally means:
96
o the acquisition of an amount of common stock greater than the
amount held, directly or indirectly, by Stonington and
representing at least 30% of the outstanding common stock or
voting securities;
o a change in the majority of the members of the Board of
Directors, unless approved by the incumbent directors or
Stonington;
o the completion of a merger involving our company in which, among
other things, our stockholders do not retain more than 50% of the
common stock and voting power; or
o approval by our stockholders of a liquidation, dissolution or
sale of substantially all of our assets.
DEFERRALS
The 2000 plan allows our Board of Directors or Compensation Committee
to establish procedures for the deferral of the delivery of shares or cash
pursuant to awards made under the plan.
AMENDMENTS
Our Board of Directors may at any time amend or terminate the 2000 plan
and may amend the terms of any outstanding options or other award, except that
no termination or amendment may impair the rights of the participants as they
relate to outstanding options. However, no such amendment to the 2000 plan will
be made without the approval of our stockholders to the extent such approval is
required by law or stock exchange rules.
THE EMPLOYEE STOCK PURCHASE PLAN
In connection with our initial public offering, we adopted an employee
stock purchase plan. The purpose of this plan is to further our long-term
stability and financial success by providing a method for employees to increase
their ownership of common stock. Under the purchase plan, 500,000 shares of
common stock is available for issuance and sale. As of April 30, 2001, 31,573
shares had been purchased under this plan at a price of $9.88 per share. Unless
terminated sooner at the discretion of our Board of Directors, the purchase plan
will terminate on December 31, 2010.
ELIGIBILITY
All of our employees and all of the employees of designated
subsidiaries generally are eligible to participate in the purchase plan, other
than employees whose customary employment is 20 hours or less per week or is for
not more than five months in a calendar year, or who are ineligible to
participate due to restrictions under the Internal Revenue Code, and subject to
compliance with applicable U.S. and foreign securities laws.
GENERAL DESCRIPTION
A participant in the purchase plan may authorize regular salary
deductions of a maximum of 15% and a minimum of 1% of base compensation. The
fair market value of shares that may be purchased by any employee during any
calendar year may not exceed $25,000. The amounts so deducted and contributed
are applied to the purchase of full shares of common stock under options to
purchase shares at 85% of the lesser of the fair market value of such shares on
the date of purchase or on the offering date for such offering period. The
offering dates are January 1 and July 1 of each purchase plan year, and each
offering period shall consist of one six-month purchase period. The offering
period beginning in 2000 commenced after July 1, and is for less than a
six-month period. Shares are purchased for participating employees on the last
business days of June and December for each purchase plan year and each such
97
participant has the rights of a stockholder with respect to such shares.
Participants may decrease their payroll deductions at any time but not more than
once during any offering period.
Participants may increase or decrease their payroll deductions for any
subsequent offering period by notifying the purchase plan administrator no later
than 15 days prior to such offering period. Participants may also withdraw from
participation in the purchase plan at any time on or prior to the 15th day of
the last month of the offering period. If a participant withdraws from the
purchase plan, any contributions that have not been used to purchase shares will
be refunded. A participant who has withdrawn may not participate in the purchase
plan again until the next offering period.
In the event of retirement or other termination of employment before
the 15th day of the last month in the offering period, any contributions that
have not yet been used to purchase shares will be refunded and a certificate
issued for the full shares in the participant's account. In the event of a
participant's death, any contributions that have not yet been used to purchase
shares and all shares in such participant's account will be delivered to the
participant's beneficiary designated in writing and filed with us, or, if no
beneficiary has been designated or survives the participant, to the
participant's estate. Any payroll deductions that have not been used to purchase
shares will be returned to the participant after the end of the applicable
offering period.
AMENDMENTS OR TERMINATION OF THE PURCHASE PLAN
Our Board of Directors may amend the purchase plan in any respect,
although our stockholders must approve any amendment that would increase the
number of securities that may be issued under the purchase plan or would cause
the plan to fail to qualify for beneficial tax treatment under Section 423 of
the Internal Revenue Code. Our Board of Directors may suspend or terminate the
purchase plan at any time. However, in the event of a termination while an
offering period is in progress, our Compensation Committee may return
accumulated payroll deductions or shorten the offering period by setting a new
date of purchase.
ITEM 12: SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth information as of April 30, 2001 with
respect to beneficial ownership of our common stock, including the percentage of
total voting power, by:
o each of our executive officers;
o each director;
o all current directors and executive officers as a group; and
o each holder known to us to hold beneficially more than 5% of our
common stock.
Except as otherwise indicated in the footnotes below, each beneficial
owner has the sole power to vote and to dispose of all shares held by that
holder. You should keep the following points in mind as you read the information
in the table.
o The amounts and percentage of our common stock beneficially owned
by a holder are reported on the basis of the regulations of the
SEC that govern the determination of beneficial ownership of
securities. Under these regulations, a person or group of persons
is deemed to be a "beneficial owner" of a security if that person
or group has or shares "voting power," which includes the power
to vote or to direct the voting of the security, or "investment
power," which includes the power to dispose of or to direct the
disposition of the security. A person or group of persons is also
deemed to be a beneficial owner of any securities with respect to
which that person or group has a right
98
to acquire beneficial ownership within 60 days of April 30,
2001 (or June 29, 2001). Under these rules, more than one
person may be deemed a beneficial owner of the same security
and a person may be deemed to be a beneficial owner of
securities as to which that person has no economic interest.
o The percentage of our common stock outstanding is based on
68,124,753 shares of our common stock outstanding as of April 30,
2001, plus shares of our common stock deemed outstanding pursuant
to the definition of beneficial ownership in the preceding
paragraph. These shares are deemed to be outstanding when
computing the percentage of ownership of each person or group of
persons named above, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person
or group.
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BENEFICIAL OWNERSHIP
OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER* SHARES* %
- ------------------------------------ ------ -
DIRECTORS AND EXECUTIVE OFFICERS
Emery G. Olcott (1).................................... 2,233,855 3.3
Franklin R. Witney (2)................................. 18,750 **
Ben D. Kaplan (3)...................................... 520,000 **
Richard T. McKernan (4)................................ 1,554,095 2.3
Timothy O. White, Jr. (5).............................. 194,125 **
Staf C. van Cauter (6)................................. 249,800 **
Nicholas G. Bacopoulos................................. -- --
Robert F. End (7)...................................... 42,779,052 60.5
Bradley J. Hoecker (7)................................. 42,779,052 60.5
Alexis P. Michas (7)................................... 42,779,052 60.5
Harry H. Penner, Jr.................................... -- --
Robert C. Salisbury (8)................................ 6,000 **
Peter P. Tong (9)...................................... 162,350 **
All directors and executive officers as a group
(12 persons) (7)(10)................................... 42,803,802 60.5
5% STOCKHOLDERS
Stonington Capital Appreciation 1994
Fund, L.P. (7)(11)................................... 42,779,052 60.5
GSLI Investments, Inc.................................. 4,495,711 6.6
Essex Investment Management Company,
LLC (12)............................................. 3,605,785 5.3
Franklin Resources, Inc. and related
entities (13)........................................ 4,401,329 6.5
- -----------
* The figures assume exercise by only the stockholder or group
named in each row of all options for the purchase of common
stock held by such stockholder or group which were exercisable
as of June 29, 2001. The address for all of the members of our
management and for Nicholas G. Bacopoulos, Harry H. Penner,
Jr., Robert C. Salisbury and Peter P. Tong is: 800 Research
Parkway, Meriden, Connecticut 06450. The address of GSI
Lumonics Life Science Trust is 39 Manning Road, Billerica,
Massachusetts 01821. The address of Essex Investment
Management Company, LLC is 125 High Street, Boston,
Massachusetts 02110. The address of Franklin Resources, Inc.
and related entities is 777 Mariners Island Boulevard, San
Mateo, California 94404. Refer to note (11) below for
additional address information.
** Less than 1%.
(1) Includes shares held by Mr. Olcott's spouse and by and in
trust for one of his children. Includes 515,000 shares subject
to options which were exercisable as of June 29, 2001.
(2) Includes 18,750 shares subject to options which were
exercisable as of June 29, 2001.
(3) Includes 500,000 shares subject to options which were
exercisable as of June 29, 2001.
(4) Includes shares held by Mr. McKernan's spouse and the McKernan
Family Limited Partnership. Includes 700,000 shares subject to
options exercisable as of June 29, 2001. On March 15, 2001,
Mr. McKernan resigned from our Board of Directors and as our
Senior Vice President, and continues to serve, on a part-time
basis, as our Director of Strategic Initiatives.
100
(5) Includes shares held by Mr. White's spouse, children and trust
to which Mr. White is beneficiary.
(6) Includes 94,500 shares subject to options which were
exercisable as of June 29, 2001.
(7) Messrs. End and Michas are two of four equal stockholders and
directors, and Mr. Hoecker is a director, of Stonington
Partners, Inc. and Stonington Partners, Inc. II. Stonington
Partners, Inc. as the management company for, and Stonington
Partners, Inc. II, as the general partner of, the Stonington
fund, have the right to make voting and investment decisions
with respect to shares of stock of the fund's portfolio
companies, including Packard. Both of those entities act
through the majority vote (or unanimous written consent) of
their six-member Board of Directors. All of the directors of
Stonington Partners, Inc. are also all of the directors of
Stonington Partners, Inc. II. Although none of Messrs. End,
Hoecker and Michas owns any of our shares of common stock
individually they may be deemed to be beneficial owners of
shares held by the Stonington fund as a result of their
ownership of stock in, and/or membership on the Boards of
Directors of, Stonington Partners, Inc. and Stonington
Partners, Inc. II, but they disclaim such beneficial
ownership.
(8) Includes 5,000 shares subject to options which were
exercisable as of June 29, 2001. Includes 1,000 shares held by
the Robert C. Salisbury Revocable Trust, of which Mr.
Salisbury is sole trustee.
(9) Includes 50,000 shares subject to options which were
exercisable as of June 29, 2001.
(10) Includes shares held by family members, trusts and similar
entities. Includes 1,883,250 shares subject to options which
were exercisable as of June 29, 2001.
(11) Stonington Capital Appreciation 1994 Fund, L.P. is the record
and beneficial owner of 30,898,890 shares of common stock.
Pursuant to the Stockholders' Agreement described under
"Certain Relationships and Related Transactions --
Stockholders' Agreement," the Stonington fund (a) has the
right to direct the voting and generally must consent to the
disposition of an additional 1,123,590 shares owned by two
institutional investors and (b) generally must consent to the
disposition of an additional 1,373,030 shares of common stock
owned by other institutional investors. Because the
Stockholders' Agreement gives the Stonington fund the right to
nominate and remove directors, and reduce or expand the size
of our Board of Directors, the Stonington fund may be deemed
to own beneficially all 6,818,792 shares owned by the
remaining parties to the Stockholders' Agreement, and the
2,564,750 shares subject to options exercisable by such
parties as of June 29, 2001. The Stonington fund is a Delaware
limited partnership whose limited partners consist of certain
institutional investors, formed to invest in corporate
acquisitions organized by Stonington Partners, L.P. Stonington
Partners, L.P., a Delaware limited partnership, is the general
partner in the Stonington fund and has a 1% economic interest
in the Stonington fund. Stonington Partners, Inc. II is the
general partner of, with a 1% economic interest in, Stonington
Partners, L.P. Stonington Partners, L.P. and Stonington
Partners, Inc. II disclaim beneficial ownership of the shares
set forth except to the extent of their respective economic
interests. Pursuant to a management agreement with the
Stonington fund, Stonington Partners, Inc. has full
discretionary authority with respect to the investments of the
Stonington fund, including the authority to make and dispose
of such investments. Furthermore, Stonington Partners, Inc.
has a 1% economic interest in Stonington Partners, L.P.
Stonington Partners, Inc. disclaims beneficial ownership of
the shares set forth above. The address for each of the
entities listed in this footnote, as well as Stonington
management included in the table above, is c/o Stonington
Partners, Inc., 767 Fifth Avenue, New York, NY 10153.
(12) Amount is based upon the stockholder's most recent 13G filing,
dated February 12, 2001.
(13) Amount is based upon the stockholder's most recent 13G filing,
dated February 9, 2001.
101
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
In 1997, Packard BioScience Company, Stonington, KECALP Inc., Merrill
Lynch KECALP L.P. 1994, BCP II Affiliates Fund Limited Partnership and Baird
Capital Partners II Limited Partnership, members of our management (including
Emery G. Olcott, our Chairman and Chief Executive Officer, Ben D. Kaplan, our
Chief Financial Officer, and Staf C. van Cauter, our Vice President for Business
Development) and over 150 of our other stockholders who did not sell all of
their shares in the recapitalization entered into a Stockholders' Agreement,
which contains, among other terms and conditions, provisions relating to
corporate governance, restrictions with respect to the transfer of common stock,
rights related to puts and calls, and registration rights granted by us with
respect to our common stock.
Pursuant to the terms of the Stockholders' Agreement, each party agreed
to elect an initial slate of directors of Packard BioScience Company who had
been nominated by Stonington, on condition that the initial slate consists of
three management stockholders, four designees of Stonington and two independent
directors mutually agreed upon by Stonington and our chief executive officer.
Now that the initial slate of directors has been elected, Stonington has the
right to nominate at any time and from time to time all of our directors,
including the right to reduce, expand, and fill vacancies on our Board, and,
subject to applicable law, has the right to remove such directors at any time
and from time to time, and the other parties have agreed to vote in favor of
such removal. In addition, Stonington has the right to direct the voting and,
generally, must consent to the disposition of the shares of our common stock
owned by the KECALP entities, and must generally consent to the disposition of
the shares of our common stock owned by the Baird entities.
Under the Stockholders' Agreement, each party is, subject to the
limitations described below, entitled to register shares of common stock in
connection with a registration statement prepared by us to register common
equity beneficially owned by Stonington. Also, under the Stockholders'
Agreement, Stonington has the right to require us to take such steps as
necessary to register all or part of the common stock held by Stonington under
the Securities Act, and each other party (other than Stonington) that holds at
least 20% of the unregistered shares governed by the Stockholders' Agreement has
the right on one occasion to require us to register at least 10% of these
shares. The Stockholders' Agreement contains customary terms and provisions with
respect to, among other things, registration procedures and rights to
indemnification granted in connection with the registration of common stock
subject to such agreement.
The Stockholders' Agreement contains provisions relating to tag-along,
drag-along, put and call rights of the stockholders, all of which terminated
upon completion of our initial public offering. Pursuant to the Stockholders'
Agreement, the management stockholders and the stockholders who did not sell
their shares in the recapitalization will be able to transfer their shares
subject to applicable restrictions under the Securities Act and other federal
and state securities laws.
REGISTRATION RIGHTS
In connection with our acquisition of the life sciences division of GSI
Lumonics, Inc., in October 2000, we entered into a registration rights agreement
with GSI Lumonics Life Science Trust, which then assigned its rights and
obligations under the agreement to GSLI Investments, Inc. Under the registration
rights agreement, GSLI Investments Inc. has the right to have any of our common
stock owned by it included in any registered offering of our common stock. Under
the agreement, if the managing underwriter for any such offering determines, in
writing, that the total amount of shares to be included in the offering exceeds
the amount which can be marketed at a price reasonably related to the current
market price or without materially and adversely affecting the entire offering,
then:
102
o of the first 5 million shares to be included in the offering,
40%, or up to 2 million shares, will be allocated to GSLI
Investments, Inc., and the remaining amount will be allocated to
Stonington and the other selling stockholders under the
Stockholders' Agreement; and
o of any shares in excess of 5 million, 25% will be allocated to
GSLI Investments, Inc., and the remaining amount will be
allocated to Stonington and the other selling stockholders under
the Stockholders' Agreement.
As of April 30, 2001, GSLI Investments, Inc. held in the aggregate
4,495,711 shares of our common stock.
GSLI Investments, Inc. also has the right under the registration rights
agreement to, on one occasion, require us to take such steps as are necessary to
register all of the remaining shares of our common stock owned by it or, if less
than all of its remaining shares, a number of shares that have an anticipated
aggregate price of at least $40 million. GSLI Investments, Inc.'s registration
rights are subject to timing limitations and also allocation limitations if, as
described above, the offering includes stock registered on the behalf of us or
other stockholders. The registration rights terminate on October 1, 2005 or when
the shares held by GSLI Investments, Inc. have a public market value of less
than $2 million and can be sold pursuant to Rule 144(k) under the Securities Act
of 1933. Like the Stockholders' Agreement, the registration rights agreement
with GSLI Investments, Inc. contains customary terms and provisions with respect
to, among other things, registration procedures and rights to indemnification
granted in connection with the registration of common stock subject to that
agreement.
OTHER RELATED PARTY TRANSACTIONS
In connection with the 1997 recapitalization, Stonington Partners,
Inc., the management company of our controlling stockholder, received a
structuring fee and reimbursement for out-of-pocket expenses totaling $2.6
million in the aggregate.
In connection with our initial public offering, Messrs. Olcott and
McKernan and Messrs. George Serrano, Orren Tench and Daniel Meert transferred by
gift an aggregate of 107,400 shares of their own common stock, or 100 shares per
employee, to substantially all of our employees who on the date of the gift did
not own shares or options to purchase shares of our common stock.
In October 2000, we entered into a joint marketing agreement with
Agencourt Bioscience Corporation related to the marketing of Agencourt's DNA
purification reagents. Under the agreement, Agencourt agreed to promote our
instrumentation for use with Agencourt's chemistries, and we agreed to promote
the use of Agencourt's chemistries with our compatible products, and to pay a
finder's fee for incremental sales of our instruments generated by Agencourt.
Concurrently with the marketing arrangement, we made a $1.25 million equity
investment representing approximately 8% of the outstanding equity of Agencourt.
The investment was made as part of a larger round of private equity financing
being conducted by Agencourt, and was made on terms offered to other investors
purchasing Agencourt's common stock at that time. The decision to make an equity
investment in Agencourt was based primarily on our belief that Agencourt has a
unique, and potentially successful, product to offer, and that the long-term
prospects for us were attractive. Agencourt is controlled by three sons of
Richard T. McKernan, our former Senior Vice President and a former member of our
Board. The transaction was approved by all of our disinterested directors.
In November 2000 we loaned Mr. Kaplan $300,000 in connection with his
purchase of his primary residence. The loan bears interest at the prime rate
less 0.25% and is due in November 2005. Mr. Kaplan is prohibited from exercising
the last 100,000 of his stock options prior to repaying this loan.
We paid Robert W. Baird & Co. Incorporated fees and expenses of
$3,069,000 in 1997 in connection with the 1997 recapitalization. In 1998, we
paid Robert W. Baird & Co. Incorporated a fee of $50,000 for financial advisory
services. In 2001, we expect to pay Robert W. Baird & Co. Incorporated
103
fees and expenses of approximately $2.6 million in connection with our sale of
Canberra. In addition, Baird Capital Partners II Limited Partnership and BCP II
Affiliates Fund Limited Partnership, affiliates of Robert W. Baird & Co.
Incorporated, own an aggregate of 1,373,030 shares of our common stock that they
acquired from us in June 1997 for a total price of approximately $3.1 million.
We paid Chase Securities Inc., an affiliate of J.P. Morgan Securities
Inc., fees of approximately $1.2 million in 2000 in connection with our
acquisition of the life sciences business of GSI Lumonics, Inc. George
Montgomery, an employee of Chase Securities Inc., which is an affiliate of J.P.
Morgan Securities Inc., owns 50,000 shares of our common stock.
We believe all of the above related party transactions were on terms no
less favorable than we could have obtained from unrelated parties.
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS FORM 10-K:
1. Financial Statements.
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 2000
Consolidated Statements of Income (Loss) for the Years Ended December
31, 1998, 1999 and 2000
Consolidated Statements of Comprehensive Income (loss) for the Years
Ended December 31, 1998, 1999 and 2000
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1999 and 2000
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
Report of Independent Public Accountants on Financial Statement
Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves for the
3-Year Period Ended December 31, 2000
All other schedules have been omitted because they are not applicable
or required.
3. Exhibits.
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
2.1 Agreement and Plan of Merger, by and among PerkinElmer, Inc., Pablo
Acquisition Corp. and Packard BioScience Company, dated as of
July 13, 2001 (1)
3.1 Amended and Restated Certificate of Incorporation (2)
3.2 Amended and Restated By-Laws (2)
3.3 Amendment to Amended and Restated By-Laws**
4.1 Specimen of Common Stock Certificate (2)
4.2 Stockholders' Agreement, dated as of March 4, 1997, by and among the
Company, Merrill Lynch KECALP L.P. 1994, KECALP Inc., the Management
Investors listed in Schedule 1 thereto, the Non-Management Investors
listed in Schedule 2 thereto and Stonington Capital Appreciation
1994 Fund, L.P. (the "Stockholders' Agreement") (3)
4.3 Amendment No. 1, dated as of June 2, 1997, to the Stockholders'
Agreement (4)
104
4.4 Amendment No. 2, dated as of January 23, 1998, to the Stockholders'
Agreement (5)
4.5 Amendment No. 3, dated as of March 31, 1998, to the Stockholders'
Agreement (5)
10.1 Indenture, dated as of March 4, 1997, between the Registrant and The
Bank of New York, as Trustee (3)
10.2 Amended and Restated Credit Agreement, dated as of March 4, 1997,
and amended and restated as of August 17, 2000, by and among the
Company, the Subsidiary Borrowers from time to time parties thereto,
Banc of America Securities LLC, as sole lead arranger and book
manager, Fleet National Bank, as syndication agent, General Electric
Capital Corporation, as documentation agent and Bank of America,
N.A. as administrative agent**
10.3 Packard BioScience Company 1997 Management Stock Incentive Plan (3)
10.4 Canberra Industries, Inc. Stock Option Plan of 1971, as amended (3)
10.5 Packard BioScience Company 2000 Stock Incentive Plan (2)
10.6 Packard BioScience Company Non-Employee Director Option Compensation
Plan (2)
10.7 Packard BioScience Company 2000 Employee Stock Purchase Plan (2)
10.8 Employment Agreement by and between the Company and Emery G. Olcott
(3)
10.9 Employment Agreement by and between the Company and Richard T.
McKernan (3)
10.10 Employment Agreement by and between the Company and George Serrano
(3)
10.11 Employment Agreement by and between the Company and Staf van Cauter
(3)
10.12 Employment Agreement by and between the Company and Orren K. Tench,
Jr. (3)
10.13 Employment Agreement by and between the Company and Ben D. Kaplan
(6)
10.14 First Amendment to Employment Agreement by and between the Company
and Ben D. Kaplan (5)
10.15 Employment Agreement by and between the Company and Franklin R.
Witney**
10.16 First Amendment to Employment Agreement by and between the Company
and Richard T. McKernan**
10.17 Asset Purchase Agreement, dated August 19, 2000 between GSI Lumonics
Life Science Trust, GSI Lumonics Trust, Inc. and the Company (7)
10.18 Asset Purchase Agreement between the Company and Compagnie Generale
Des Matieres Nucleaires, dated as of November 28, 2000 (8)
10.19 License Agreement, dated as of September 11, 1998, between
Vanderbilt University and Biosignal Inc., relating to Optical Assay
Of Protein Interactions (the "Vanderbilt Agreement").**
10.20 Amendment Agreement, dated as of May 25, 2000, amending the
Vanderbilt Agreement.**
10.21 License Agreement, effective as of September 1, 1994, between The
General Hospital Corporation (d/b/a Massachusetts General Hospital)
and Packard Instrument Company, Inc.**
10.22 License Agreement, effective as of April 9, 1996, by and between
Microdrop GmbH and Packard Instrument Company, Inc. (the "Microdrop
Agreement").**
10.23 First Amendment to the Microdrop Agreement, effective as of October
23, 1997.**
10.24 Second Amendment to the Microdrop Agreement, effective as of March
31, 1999.**
10.25 Third Amendment to Microdrop Agreement, effective as of December 1,
2000.**
10.26 License Agreement, effective as of September 30, 1998, made by and
between Dade Behring Inc. and Packard Instrument Company, Inc.**
10.27 Patent License Agreement, effected on the 19th of March, 1998, by
and between The University of Chicago (Operator of Argonne National
Laboratory under its U.S. Department of Energy Contract No.
W-31-109-ENG-38) and Packard Instrument Company, Inc.**
10.28 Strategic Marketing Agreement, dated as of October 11, 2000, by and
between Agencourt Bioscience Corporation and Packard BioScience
Company.**
10.29 Employment Agreement by and between the Company and Timothy O.
White, Jr.**
10.30 First Amendment to Employment Agreement by and between the Company
and Emery G. Olcott**
10.31 First Amendment to Employment Agreement by and between the Company
and Franklin R. Witney**
10.32 Second Amendment to Employment Agreement by and between the Company
and Ben D. Kaplan**
10.33 Stockholder's Agreement, dated as of July 13, 2001, between
PerkinElmer, Inc. and Stonington Capital Appreciation 1994 Fund,
L.P. (1)
10.34 Voting Agreement, dated as of July 13, 2001, between PerkinElmer,
Inc. and Richard T. McKernan (1)
10.35 Voting Agreement, dated as of July 13, 2001, between PerkinElmer,
Inc. and Virginia J. McKernan (1)
10.36 Voting Agreement, dated as of July 13, 2001, between PerkinElmer,
Inc. and Barbara P. Olcott (1)
10.37 Voting Agreement, dated as of July 13, 2001, between PerkinElmer,
Inc. and Emery G. Olcott (1)
105
10.38 Voting Agreement, dated as of July 13, 2001, between PerkinElmer,
Inc. and the Timothy S. Olcott Trust (1)
10.39 Voting Agreement, dated as of July 13, 2001, between PerkinElmer,
Inc. and Timothy O. White, Jr. (1)
10.40 Voting Agreement, dated as of July 13, 2001, between PerkinElmer,
Inc. and Franklin R. Witney (1)
21.1 Subsidiaries of the Registrant**
23.1 Consent of Arthur Andersen LLP**
99.1 Press Release dated February 27, 2001 (1)
-----------
** Filed herewith.
(1) Filed as an exhibit to the Registrant's Form 8-K dated July
13, 2001, filed on July 16, 2001.
(2) Filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (file No. 333-31996).
(2) Filed as an exhibit to the Registrant's Registration Statement
on Form S-4 (file No. 333-24001).
(3) Filed as an exhibit to the Registrant's Form 10-K for the year
ended December 31, 1997.
(4) Filed as an exhibit to the Registrant's Form 10-K for the year
ended December 31, 1999.
(5) Filed as an exhibit to the Registrant's Form 10-Q for the
quarter ending June 30, 1997.
(6) Filed as an exhibit to the Registrant's Form 8-K dated October
2, 2000, filed on October 13, 2000.
(7) Filed as an exhibit to the Registrant's Form 8-K dated
February 27, 2001, filed on March 14, 2001.
(b) REPORTS ON FORM 8-K:
The following reports were filed during the quarter ended December 31,
2000:
1. Form 8-K dated October 13, 2000
2. Form 8-K/A dated November 13, 2000
106
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on July 19, 2001.
PACKARD BIOSCIENCE COMPANY
Date: July 19, 2001 By: /s/ Emery G. Olcott
------------------------------------
Emery G. Olcott
Chairman of the Board and
Chief Executive Officer
Date: July 19, 2001 By: /s/ Franklin R. Witney
-------------------------------------
Franklin R. Witney
President and
Chief Operating Officer
Date: July 19, 2001 By: /s/ Ben D. Kaplan
-----------------------------------
Ben D. Kaplan
Vice President and
Chief Financial Officer
Date: July 19, 2001 By: /s/ David M. Dean
-----------------------------------
David M. Dean
Vice President and
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: July 19, 2001 By: /s/ Nicholas G. Bacopoulos
--------------------------------------
Nicholas G. Bacopoulos
Director
Date: July 19, 2001 By: /s/ Robert F. End
---------------------------------
Robert F. End
Director
Date: July 19, 2001 By: /s/ Bradley J. Hoecker
------------------------------------
Bradley J. Hoecker
Director
Date: July 19, 2001 By: /s/ Alexis P. Michas
-----------------------------------
Alexis P. Michas
Director
107
Date: July 19, 2001 By: /s/ Harry H. Penner, Jr.
-------------------------------------
Harry H. Penner, Jr.
Director
Date: July 19, 2001 By: /s/ Robert C. Salisbury
-------------------------------------
Robert C. Salisbury
Director
Date: July 19, 2001 By: /s/ PETER P. TONG
----------------------------------
Peter P. Tong
Director
No annual report or proxy material has been sent to the Company's
security holders.
108
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Packard BioScience Company:
We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheets of Packard
BioScience Company and subsidiaries as of December 31, 1999 and 2000, and the
related consolidated statements of income (loss), comprehensive income (loss),
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2000, included in this Form 10-K, and have issued our
report thereon dated February 8, 2001, except for the second paragraph of Note 1
and all of Note 15 as to which the date is February 28, 2001, Note 16 as to
which the date is April 27, 2001 and Note 18 as to which the date is July 18,
2001. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule on page 110
is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 8, 2001
109
SCHEDULE II
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEAR PERIOD ENDED DECEMBER 31, 2000
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
DESCRIPTION COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------- -------- -------- -------- -------- --------
For the year ended December 31, 1998:
Reserves which are deducted in the balance
sheet from assets to which they apply
Reserves for uncollectible amounts............ $427,784 $70,448 $20,315(a) $114,818 $403,729
For the year ended December 31, 1999:
Reserves which are deducted in the balance
sheet from assets to which they apply
Reserves for uncollectible amounts............ $403,729 $91,161 -- $95,612 $421,321
For the year ended December 31, 2000:
Reserves which are deducted in the balance
sheet from assets to which they apply
Reserves for uncollectible amounts............ $421,321 $135,019 $14,588(a) $66,182 $504,746
-----------
(a) Represents reserves recorded at dates of acquisition.
110