SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 (I.R.S. Employer Identification No.)
Incorporation or Organization)
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
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:
Common Stock, par value $.002 per share
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. |X|.
Aggregate market value of voting and non-voting stock held by non-affiliates of
the registrant as of March 16, 2001: $196,596,701.
As of March 16, 2001, there were 67,928,179 shares of the registrant's common
stock outstanding.
Documents incorporated by reference in this report: None.
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On March 30, 2001, the Registrant's filing agent accidentally and without
the Registrant's consent, filed the Registrant's 2000 Form 10-K. This amended
and restated Form 10-K contains minor corrections to pagination and page
references contained in the Form 10-K as filed on March 30, 2001
PART I
ITEM 1: BUSINESS
Packard BioScience Company (the "Company" or "Packard") is a leading
global developer, manufacturer and marketer of instruments and related
consumables and services for use in drug discovery and other life sciences
research. We are primarily focused on the rapidly growing areas of drug
screening, functional genomics and proteomics. 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, including bioanalytical instrumentation,
liquid handling and sample preparation robotics and integrated screening systems
for drug discovery. In addition, we have developed advanced technologies for
biochips and microarrays, which are chips containing dense grids of genes or
proteins for simultaneous analysis, through substantial investments in research
and development and intellectual property, as well as through acquisitions and
strategic alliances. Our products are intended to meet the rapidly growing
experimentation needs of a diverse customer base, including pharmaceutical,
biotechnology, agricultural and diagnostics companies, as well as academic
institutions and government agencies. For the year ended December 31, 2000, we
generated revenues of $165.4 million.
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 recent independent market 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;
o microwell plate readers and plate imaging systems;
o drug screening and detection reagents;
o biochip systems and related microarray analysis software; and
o bioanalytical scintillation instruments, our "legacy products".
Unless the context otherwise indicates, all references herein to "we,"
"us" and "our" are to the Company.
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.
Packard BioChip Technologies is 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.
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
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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 certain assets and technologies from Cambridge Imaging Limited.
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 efficiency
of the drug discovery process. It is generally accepted that industrialization
and automation of repetitive activities will be required to streamline the drug
discovery process.
The following discussion describes the process of drug discovery:
Genomics
Structural Genomics
Interest in understanding the relationships between genes and diseases has
generated a worldwide effort to identify the structure and sequence of the genes
of many organisms, including the approximately 3 billion DNA base pairs, 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.
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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 people and correlated with
clinical data describing the health of those individuals. These studies will
require hundreds of millions of measurements. As more and more SNPs are
identified, a new market is quickly emerging for high throughput detection of
SNP genotypes. A portion of the need for this high throughput will be created in
the clinical trials and commercialization stages through pharmacogenomics, which
is an approach to drug development that utilizes genotypic information to
develop highly specific drugs.
Gene Expression Analysis. Gene expression is the process by which a gene's
coded information is ultimately translated into the production of proteins
within a cell. While all cells contain the full set of genomic DNA, different
cells express different sets of genes depending on cell type and environmental
conditions. Certain diseases also arise from the over or under expression of
genes. Gene expression levels are measured by detecting differences in 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 certain genes when researchers add drug
candidates to cells.
As researchers identify more genes from the genome sequencing projects, we
expect the market for expression analysis technologies to grow significantly.
For example, faster and more efficient instrumentation will enable researchers
to screen a compound library more effectively and look for those compounds that
affect expression of certain genes in a beneficial way, or develop a screening
system to assess the toxicological effect of a set of new drug leads.
Proteomics
Protein Function
Instead of analyzing a gene or its mRNA, proteomic research studies the
function of genes by direct analysis of the gene product, or protein. A
"proteome" is defined as 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 certain 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
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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 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 certain manner.
The type of assay utilized for drug screening depends on the target under
investigation and the type of information being sought. Researchers design some
assays to measure whether and how tightly a compound binds to a target, such as
the binding of a drug to a protein. Other assays are designed to measure whether
and to what degree a compound reduces the biological activity of a target, such
as the activity of an enzyme. In other cases, researchers test compound
collections against living cells and measure a particular cellular response,
such as a change in expression level of one or more genes. Targets can be
incorporated into either biochemical or cell-based assays. A biochemical assay
involves a target that is isolated from its natural cellular environment.
Cell-based assays test compounds on targets functioning in the environment of
living human or other mammalian cells. For lead optimization, described below,
cell-based assays provide a number of advantages, including greater predictive
value of therapeutic effect and potential toxicity. However, cell-based assays
have typically been more difficult and time consuming to develop and to perform
due to difficulties in detecting the function of a target in a living cell and
the inherent technical complexities of using human or other mammalian cells in
drug screens.
Screening
Screening is the process of methodically testing libraries of compounds
for potential therapeutic value by using assays to determine if any of the
tested compounds affect a selected target. Primary screening involves performing
an identical test on each compound in a large library to identify hits.
Re-testing confirms initial hits and secondary screening refines the initial
evaluation of hits. For example, secondary screening may measure a hit's
"potency," which is the amount of the hit compound required to exert its effect,
and "specificity," which is the degree to which the hit exerts its effect on the
defined target rather than unintended targets. With the rapidly growing list of
targets identified by genomics programs, the major pharmaceutical companies are
moving towards screening up to 100 targets annually against libraries of up to
one million compounds using semi-automated or high throughput screening systems.
Lead Optimization
Lead optimization refers to the process of sorting through compounds that
emerge from the screening process, and involves conducting successive rounds of
chemical alterations and biological tests to find compounds likely to have
appropriate drug properties. Like target validation, lead optimization involves
a variety of methods, including protein and
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cellular analysis, chemical synthesis and high throughput experimentation.
Drug Development
Early ADME/Tox and Pre-clinical Testing
ADME/Tox stands for the following properties of a lead compound:
absorption by the intestinal systems, distribution within the body, metabolism
by the liver and other systems, excretion and toxicity. The ADME/Tox phase is
typically conducted during pre-clinical studies. However, to avoid costly and
time-consuming pre-clinical experiments, simplified molecular and cellular model
systems that mimic mammalian physiology are often used to gain information about
the lead's solubility in blood plasma, its cell penetration capabilities or its
toxicity. These studies in these surrogate molecular and cellular systems,
referred to as "Early ADME/Tox," are bridging the gap between a need for high
throughput and true physiological information about lead compounds.
Clinical Trials and Commercialization
Clinical trials test pharmaceutical product candidates in humans to
demonstrate their safety and efficacy. Because clinical trials are the most
expensive part of drug development, pharmaceutical companies are attempting to
improve the outcomes of clinical trials by using genomic approaches to drug
development. In order to use genomics in a clinical trial, each patient's
genetic make-up must be analyzed. This could entail analysis of thousands of
different SNPs in a patient's DNA which, for a 1,000 patient trial, would
require generating millions of data points. The successful outcome of clinical
trials may result in regulatory approval to commercialize the new drug product.
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(TM). 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(TM). 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
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unknown receptor molecules on the surface of a cell that may
interact with certain 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 certain 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 activiy 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;
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.
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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:
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
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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.
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 was 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 is 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.
9
Our Industrialized Platforms and Solutions
According to a recent independent market research study, we provide the
broadest range of products and services to the pharmaceutical drug screening
industry. Whereas many technology companies offer a solution for one 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.
10
The advantages of our current industrial-strength platforms and those
under development are listed in the following table:
Feature Enabling Technologies Benefits
------- --------------------- --------
Automation PlateTrak robotic system High throughput drug screening and DNA preparation
MultiPROBE/Talon liquid handling Flexible automation of most sample preparation
procedures
Inkjet printing of biochips/microarrays High quality production of gene and protein chips
Miniaturization AlphaScreen assays Compound and target savings in drug screening
Low-volume dispensing in 384- and Reduction of assay volumes
1536-well microwell plates
AlphaGenomics assay Cost effective and accurate SNP detection
Ultra-high throughput Fusion multi-mode plate reader High throughput analysis of biochemical and SNP
assays
ImageTrak plate imager Cell-based drug discovery
ScanArray biochip imager 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 BRET^2
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 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.
11
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.
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. in October 2000, according to independent
research reports, 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
12
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 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 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
13
production tools based on our patented inkjet printing technology,
and through the acquisition of the life sciences division of GSI
Lumonics, Inc., according to independent research reports, 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 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
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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 as market 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. 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
15
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, 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.
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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.
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 for 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 an
independent third party research study, the ScanArray technology, which is
protected by four patents, is the established 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
17
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.
Bioanalytical Scintillation Instruments - Our "Legacy Products"
Bioanalytical scintillation instruments are essential tools for biomedical
research applications. We are the established worldwide leader in this mature
business, with instruments that we believe are installed in every major life
science research and pharmaceutical laboratory in the world. 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 accounted for approximately $41 million, or
25%, of our consolidated revenues for the year ended December 31, 2000, $48
million, or 30%, for the year ended December 31, 1999, and $45 million, or 31%,
for the year ended December 31, 1998.
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
Gen-Probe Incorporated
Genentech, Inc.
18
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.
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
19
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 competitors in each of our key product lines. A number of established
companies such as Agilent Technologies, Inc., Applied Biosystems (formerly PE
Biosystems), Amersham Pharmacia Biotech AB, Tecan AG, PerkinElmer, Inc.
(formerly EG&G, Inc.), QIAGEN NV, Thermo Instruments Corporation and Beckman
Coulter, Inc. compete with us across a broad range of product lines, while
several other companies compete with us in a specific product line.
We compete principally on the basis of technology innovation, the quality,
features, price and performance of our products, and our service and
applications support. Through our acquisitions of CCS Packard, BioSignal,
Packard and the life sciences division of GSI Lumonics, Inc., we have
significantly strengthened our competitive position as a platform provider and
we are well positioned to compete with these companies by offering automation,
analytical instrumentation, reagents, assays, microwell plates and biochips as a
total package. We believe that few of our competitors can offer such a wide
variety of instruments and platform approaches. We believe customers will be
more likely to buy products from vendors who are able to offer a number of
products as integrated platforms rather than buying instruments from multiple
vendors and trying to fit them into a combined system.
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 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 and Molecular Devices Corporation
(including the recently acquired LJL BioSystems, Inc.);
o for functional genomics systems: Affymetrix, Inc., Agilent
Technologies, Inc., Illumina Inc., Incyte Genomics, Inc., Orchid
Biosciences, Inc., QIAGEN NV and Sequenom, Inc.; and
20
o for proteomics: Biacore, Inc., Ciphergen Biosystems, Inc., Genomic
Solutions, Inc., Luminex Corporation and Zyomyx, Inc.
Most of these competitors have a limited installed base and must rely on
partners for global distribution, service and support. We have a large installed
base of over 27,000 instruments and more than 400 sales and support people
worldwide, giving us a more complete coverage of the many segments of the life
sciences research industry. Our established service and application organization
provides on-site support and is designed to handle the needs of a diverse
customer base including both large pharmaceutical companies and small academic
laboratories.
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.
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 certain 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 gain
freedom to market for certain applications. 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. 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
21
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., 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 if we fail to meet specified minimum sales volumes
of licensed products. The license will terminate upon the expiration of the last
to expire of the licensed patents.
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 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. In any event, the license will
terminate upon the expiration of the last to expire of the licensed patents.
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 life sciences research and
clinical diagnostics. Microdrop may convert the license to non-exclusive in the
event we fail to make specified minimum royalty payments. In any event, the
license will expire in 2012, unless extended by mutual agreement.
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, other than in-vivo diagnostics applications.
The license shall remain in effect until the date that is one year after we
discontinue selling licensed products, or for the life of the patents, whichever
is earlier.
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. 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 covering such technology,
whichever is earlier.
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.
22
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, certain 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.
Geographic Information
For financial information about geographic areas in which the Company
conducts its business, including financial information regarding domestic and
foreign operations, see Note 9 of "Notes to Consolidated Financial Statements"
included herein. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included herein.
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.
23
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:
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 certain actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. We accrue for these items as they become known and can be reasonably
estimated. It is the opinion of management that the various asserted 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.
24
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
On March 16, 2001, the reported last sale price of the common stock on the
Nasdaq National Market was $7.0938 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.
The following is a summary of the transactions by the Company during the
past three years involving sales of the Company's securities that were not
registered under the Securities Act. Except as otherwise indicated, all share
data reflect a 5-for-1 split of the common stock, par value $.002 per share (the
"Common Stock"), of the Company, effective as of March 21, 2000.
(A) Pursuant to its Management Stock Incentive Plan, dated as of March 4,
1997, the Company granted during the past three years an aggregate amount of:
(a) 3,550,000 options entitling their holders to purchase one share of Common
Stock at an exercise price of $2.225 per share (subject to adjustments); (b)
1,325,000 options at an exercise price of $2.725 per share (subject to
adjustments); (c) 1,150,000 options at an exercise price of $2.792 per share
(subject to adjustments); and (d) 2,126,250 options at an exercise price of
$3.352 (subject to adjustments). In addition, on September 4, 1997 and January
29, May 14 and December 28, 1998, the Company issued 3,735 shares (at $2.225 per
share), 50,000 shares (at $2.225 per share), 125,355 shares (at $2.792 per
share) and 7,160 shares (at $2.792 per share), respectively, to Messrs. Michael
Gut, William Ettinger, Edward Fischer and Ms. Patricia Lobb, under its Employee
Stock Ownership Plan. These transactions were all made in reliance on Rule 701
under the 1933 Act. On August 18, 2000, in connection with the Company's initial
public offering, the securities issuable under the Management Stock Incentive
Plan were registered under the 1933 Act pursuant to a Registration Statement on
Form S-8 (File No. 333-44082).
(B) In connection with the acquisition of Carl Creative Systems, Inc. on
March 31, 1998, pursuant to a Stock Purchase Agreement, dated as of March 31,
1998, between the Company and Mr. Richard A. Carl, the founder of Carl Creative
Systems, Inc. and current President of CCS Packard, Inc., the Company: (a)
issued 408,310 shares of Common Stock to Mr. Carl, at a price of $2.792 per
share; and (b) issued 136,105 shares of Common Stock to Mr. Daniel Roark, at a
price of $2.792 per share.
(C) In connection with the acquisition of BioSignal, Inc. on July 1, 1998,
the Company issued 35,815 shares of Common Stock, valued at $2.792 per share, to
Mr. Michael Dennis, the former CEO of BioSignal, Inc.
(D) Effective October 1, 2000, the Company acquired certain assets and
assumed certain liabilities of the life sciences division of GSI Lumonics, Inc.,
a New Brunswick corporation ("GSI"), for aggregate consideration of
approximately $131 million, consisting of approximately $40 million in cash and
the issuance of approximately 4.5 million shares of the Company's common stock,
pursuant to the terms and conditions of an Asset Purchase Agreement dated August
19, 2000 among the Company and two subsidiaries of GSI, GSI Lumonics Life
Science Trust (the "Trust") and GSI Lumonics Trust, Inc. as trustee for the
Trust.
None of the transactions described in this Item 5 involved any
underwriters, underwriting discounts or commissions, or any public offering, and
the Company believes that each transaction, if deemed to be a sale of a
security, was exempt from the registration requirements of the 1933 Act by
virtue of Section 4(2) thereof or, in the case of clause (A), Rule 701
thereunder pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients of securities in
each such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and acknowledging that the securities were issued in a
transaction nor registered under the 1933 Act, such securities were restricted
as to transfers and appropriate legends were affixed to the share certificates
and instruments issued in such transactions.
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.
25
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
- ----------
26
(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
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.
27
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our consolidated financial statements and accompanying notes included elsewhere
in this Form 10-K.
This report contains 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 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 maintain, enhance or establish technology
partnerships and academic arrangements;
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;
o fluctuations in our operating results;
o conflict with the interests of our controlling stockholder;
o our declared intention not to pay cash dividends; and
o the large number of shares eligible for future sale.
Overview
We are a leading global developer, manufacturer and marketer of
instruments and related consumables and services for use in drug discovery and
other life sciences research. We are a leader in laboratory automation and have
developed scalable platforms built on our worldwide leadership in the
manufacturing and marketing of bioanalytical instruments for use in the life
sciences research industry.
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."
28
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.
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, resulting in
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
30.0%, 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
29
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.
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, and to convert a license
agreement covering our HTRF product line from exclusive to non-exclusive.
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 certain previously allocated expenses.
Purchased In-Process Research and Development Charges
In connection with the acquisition of the life sciences division of GSI
Lumonics, Inc., we incurred a charge of $12.1 million to expense the value of
in-process research and development projects at the date of the acquisition.
This charge was calculated using the percentage-of-completion method applied to
the discounted cash flows expected to be generated by the projects under
development. Two of the primary products under development at the time of the
acquisition were the SpotArray and ArrayInformatics.
30
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 certain of our operating requirements, contingent earnouts
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
carryforwards and research and development credits. Due to the gain generated in
connection with the sale of Canberra, such credit carryforwards are expected to
be realized in 2001.
The 1999 effective tax rate reflects the provision of additional valuation
allowances on foreign tax credit carryforwards 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
subsidiaries of $0.6 million and $0.1 million for the years ended December 31,
1999 and 2000, respectively.
31
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 repurchase
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 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, and converted a license agreement
covering our HTRF product line from exclusive to non-exclusive. 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.
32
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 some of 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 acquisitions of CCS Packard and BioSignal Packard,
we incurred charges to expense the value of in-process research and development
projects at the date of the acquisition. These charges were calculated using the
percentage-of-completion method applied to the discounted cash flows expected to
be generated by the projects under development. The charge related to the
acquisition of CCS Packard was $2.7 million and primarily related to the
PlateStak product that is now being sold and several software products embedded
in various product offerings. The charge related to BioSignal Packard was $3.4
million and was primarily related to the in-process development of our
AlphaScreen reagent and assay technology.
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.
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 carryforwards 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;
33
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.
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.
34
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 certain net operating assets 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. In addition, 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.
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.
35
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
o 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 certain
restrictions and provisions. 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 certain customary
financial covenants. 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.
36
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
------------- -------------- ------------- --------------
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"
37
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.
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 certain of 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.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign currency risk and interest rate risk are the primary sources of
market risk to our operations. We manage exposure on certain foreign currency
risks through the use of foreign currency forward contracts primarily for the
purpose of hedging firm inventory purchase commitments. We do not enter into
contracts for trading purposes. Outstanding foreign currency forward contracts
as of December 31, 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.
38
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 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.
39
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Packard Bioscience Company
Audited Consolidated Financial Statements:
Report of Independent Public Accountants................................................................................ 41
Consolidated Balance Sheets as of December 31, 1999 and 2000............................................................ 42
Consolidated Statements of Income (Loss) for the Years Ended December 31, 1998, 1999 and 2000........................... 43
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 1998, 1999 and 2000............. 44
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1998, 1999 and 2000.......... 45
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1999 and 2000.............................. 46
Notes to Consolidated Financial Statements.............................................................................. 47
40
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
41
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 2000
(In thousands, except per share amounts)
1999 2000
---- ----
ASSETS
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
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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.
42
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.
43
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.
44
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)
Common Stock
------------
Cumulative Unrealized
Paid-in Translation Investment Accumulated
Shares Amount Capital Adjustment Gains, Net Deficit
------ ------ ------- ---------- ---------- -------
BALANCE,
December 31, 1997..................... 68,609,115 $137 $ -- $ (344) $ 2,885 $(10,220)
Net shares forfeited in connection
with restricted stock plan
including deferred compensation
and amortization.................... (40,500) (36)
Shares issued in connection with
exercise of stock options,
including related tax benefits...... 2,000 (406)
Purchase of treasury stock............
Sale of treasury stock................ (108)
Issuance of shares in connection
with acquisitions................... (1,147)
Change during year.................... 1,792
Unrealized investment gains, net of
income taxes........................ (2,885)
Net income............................ 1,905
---------- ---- -------- ------ -------- --------
BALANCE,
December 31, 1998..................... 68,570,615 $137 $ -- $1,448 $ -- $(10,012)
Net shares forfeited in connection
with restricted stock plan
including deferred compensation
and amortization.................... (55,100) (57)
Net shares issued in connection
with exercise of stock options,
including related tax benefits...... (2,628)
Compensation expense recognized in
connection with grant of stock
options............................. 1,827
Purchase of treasury stock............
Change during year.................... (921)
Net loss.............................. (198)
---------- ---- -------- ------ -------- --------
BALANCE,
December 31, 1999..................... 68,515,515 $137 $ 1,827 $ 527 $ -- $(12,895)
Treasury Stock
--------------
Deferred
Shares Amount Compensation
------ ------ ------------
BALANCE,
December 31, 1997..................... 23,583,245 $(103,448) $(1,024)
Net shares forfeited in connection
with restricted stock plan
including deferred compensation
and amortization.................... 229
Shares issued in connection with
exercise of stock options,
including related tax benefits...... (215,515) 932
Purchase of treasury stock............ 82,140 (227)
Sale of treasury stock................ (50,000) 219
Issuance of shares in connection
with acquisitions................... (580,230) 3,183
Change during year....................
Unrealized investment gains, net of
income taxes........................
Net income............................
---------- --------- -------
BALANCE,
December 31, 1998..................... 22,819,640 $ (99,341) $ (795)
Net shares forfeited in connection
with restricted stock plan
including deferred compensation
and amortization.................... 229
Net shares issued in connection
with exercise of stock options,
including related tax benefits...... (1,101,215) 4,821
Compensation expense recognized in
connection with grant of stock
options.............................
Purchase of treasury stock............ 528,265 (2,400)
Change during year....................
Net loss..............................
---------- --------- -------
BALANCE,
December 31, 1999..................... 22,246,690 $ (96,920) $ (566)
The accompanying notes are an integral part of these
consolidated financial statements.
45
Common Stock
------------
Cumulative
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.
46
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)
--------- --------- ---------
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 .................................................. 481 299 263
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.
47
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 inventory purchase commitments. The Company
recognizes gains and losses from the settlement of forward contracts in the
consolidated statements of income (loss). 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
German Deutschmark ........................... -- 1,609
French Franc ................................. -- 600
All other .................................... 300 250
------ ------
$2,300 $5,359
====== ======
48
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. 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.
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
49
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. Since installation for the product sales is deemed
inconsequential and perfunctory, as defined in Staff Accounting Bulletin 101,
and when customer acceptance provisions exist, the Company can demonstrate 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.
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
50
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.
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
51
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.
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):
52
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 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
53
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.
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
========
54
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.
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
========== =======
55
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 $1.287-$3.352 $2.5200 4.9 years 5,960,600 $2.5200
896,500 $9.000 $9.0000 9.3 years -- --
420,500 $10.250-$26.750 $5.4022 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 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
56
$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)
======== ======== ========
57
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000
6. Income Taxes
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
State .................. 338 32 52
-------- -------- --------
2,778 5,783 4,219
-------- -------- --------
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):
58
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.
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
59
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.
The following tables summarize the Company's operations by geographic area
for 1998, 1999 and 2000 (in thousands):
60
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.
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
61
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. 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
62
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 is a leading provider of imaging equipment for biochip
and microarray applications. The GSLI acquisition has been accounted for using
the purchase method. 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.
Goodwill related to this acquisition is approximately $90.5 million.
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 aquisition 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.
1999 2000
---- ----
(In thousands, except per
share amounts)
(Unaudited)
Revenues .................................................................................. $ 172,680 $ 178,461
Income from operations .................................................................... 12,944 2,814
Loss from continuing operations before extraordinary items, net ........................... (10,840) (7,579)
Basic and diluted loss per share from continuing operations before extraordinary items, net ($0.22) ($0.12)
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
63
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 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
========= ========= =========
64
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)
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
65
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):
1998 1999 2000
---- ---- ----
For the Year Ending December 31,
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)
======== ======== ========
16. Registration Statement
In February 2001, the Company filed a registration statement on Form S-1
for the sale of 10,000,000 shares of the Company's common stock. The offering
will include 7,000,000 shares to be sold by GSLI, Stonington and certain other
stockholders, and 3,000,000 shares to be sold by the Company. The net proceeds
from the sale of the Company's shares will be used by the Company to make
open-market purchases of the Company's senior subordinated notes, to increase
spending associated with research and development, new product development,
enhancements of existing products, strategic partnerships and acquisitions, and
general corporate purposes. The Company will not receive any proceeds from the
sale of shares by the stockholders. Expenses related to the shares to be sold by
GSLI will be recorded as additional goodwill and expenses related to the shares
sold by the other stockholders will be charged to equity. The offering will not
result in a change in control, as defined, in the Senior Subordinated Notes (see
Note 4).
17. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1999 and 2000 are as follows (in
thousands, except per share information):
66
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.
67
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................. 59 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 nomination or removal of our
directors, as more fully described under "Related Party Transactions -
Stockholders' Agreement." All executive officers are elected by the Board and
serve at the discretion of the Board.
Emery G. Olcott is our Chief Executive Officer, 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.
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
68
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 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 technology company, positions he has held since
December 1993. He is also a Director of Avant Immunotherapeutics, Inc. and
Genaissance Pharmaceuticals, Inc. Mr. Penner is also the Co-Chairman of CURE,
Connecticut's Bioscience Cluster, and a member of the Board of Directors of the
Connecticut Business and Industry Association and the Connecticut Technology
Council. 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 acted in various capacities, first as Vice President, then
as Senior Vice President and then as Executive Vice President for Finance and
Chief Financial Officer of The Upjohn Company. Mr. Salisbury is also a Director
of Viragen Inc. and a member of the National Association of Corporate Directors
and the Financial Executives Institute. Mr. Salisbury graduated from Florida
State University in 1972 with a Master's degree in Business Administration.
69
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 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 Stock and Options 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:
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.
70
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
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 $8,000 for each individual listed.
(4) Dr. Witney was hired as Senior Vice President in April 2000 and promoted
to President and Chief Operating Officer in October 2000.
(5) Mr. McKernan was our Senior Vice President. Effective January 1, 2001, Mr.
McKernan became a part-time employee of Packard in anticipation of his
retirement by year-end 2001. On March 15, 2001, Mr. McKernan resigned from
our Board of Directors and as our Senior Vice President, and continues to
serve as our Director of Strategic Initiatives.
71
Options/SAR Grants
The following table provides information on grants of stock options and
stock appreciation rights in 2000 to the executive officers listed in the
Executive Compensation table.
Number of % of Total
Securities Options/SARS
Underlying Granted to
Options/SARS Employees in Exercise or Base Grant Date
Name Granted (#)(1) Fiscal Year Price ($/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
- ----------
72
(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 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 on the first day of
each calendar month following the anniversary of the date of the employment
agreements, beginning on the second anniversary of the date of the employment
agreements (the first anniversary in the case of Messrs. Witney and van Cauter),
unless we affirmatively terminate it after giving 60 days notice. 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 defined as the "accrued
obligations"; annual base salary and annual bonus amounts for the remainder of
the employment period (or the greater of 180 days in the case of Mr. Witney);
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.
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 voluntarily terminates employment other than
for good reason, we will pay to the executive in a lump sum the accrued
obligations other than any accrued bonus amount.
Excluding Mr. Kaplan, each of the employment agreements provides that,
during employment and, unless employment terminates by reason of death or
disability (or good reason or without cause in the case of Dr. Witney), for one
year (two years in the case of Messrs. Witney and van Cauter) after employment
ends or, if later, for one year (two years in the case of Messrs. Witney and van
Cauter, and October 1, 2002 in the case of Mr. McKernan) after employment would
have ended had it not been terminated prior to the end of the employment term,
each executive will not solicit any of our
73
employees or compete with us. In consideration for such noncompetition covenant,
we will pay to each executive one-half of the sum of his annual base salary and
his target annual bonus (100% in the case of Messrs. Olcott and McKernan), such
amount payable in equal monthly installments during the portion of the
noncompetition period following the date of termination.
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 500,500 outstanding and vested options
as of March 16, 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 March 16, 2001, 3,906,850 options
were outstanding and vested under this plan, with an average exercise price of
$2.65. Certain of these options are granted at an exercise price equal to fair
market value on the date of grant. Twenty percent of these options vest
immediately upon grant, with the remainder becoming vested in equal annual
installments over a four-year period, provided that the eligible participant
continues to be employed by us or one of our subsidiaries. Effective March 17,
2000, our Board of Directors vested all options outstanding under the 1997 plan.
The remaining options, to be granted at a premium of fair market value, 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.
74
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
March 16, 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.
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
each three-year term. The exercise price for all options will be 100% of the
fair market value of a share of common stock on the date of the grant of such
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.
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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.
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 March 16,
2001, we had 1,091,500 options outstanding under this plan, with an average
exercise price of $10.99.
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.
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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:
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 March 16, 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
77
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 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 with respect to beneficial
ownership of our common stock, including the percentage of total voting power,
as of March 16, 2001, on an actual basis and as adjusted to reflect completion
of the offering, 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.
78
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 to acquire beneficial ownership within 60 days
of December 31, 2000. Under these rules, more than one person may be
deemed a beneficial owner of the same security and a person may be
deemed to be a beneficial owner of securities as to which that
person has no economic interest.
o The percentage of our common stock outstanding is based on
67,928,179 shares of our common stock outstanding as of March 16,
2001, including shares of common stock deemed outstanding pursuant
to the definition of beneficial ownership in the preceding
paragraph. These shares are deemed to be outstanding when computing
the percentage of ownership of each person or group of persons named
above, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person or group.
Beneficial Ownership
of Common Stock
Name and Address of Beneficial Owner* Shares (1) % (2)
- ------------------------------------- ---------- -----
Directors and executive officers
Emery G. Olcott (4).............................. 2,233,855 3.3
Franklin R. Witney (5)........................... 18,750 **
Ben D. Kaplan (6)................................ 520,000 **
Timothy O. White, Jr. (7)........................ 194,125 **
Staf C. van Cauter (8)........................... 249,800 **
Nicholas G. Bacopoulos........................... -- --
Robert F. End (9)................................ 40,214,302 59.2
Bradley J. Hoecker (9)........................... 40,214,302 59.2
Alexis P. Michas (9)............................. 40,214,302 59.2
Harry H. Penner, Jr.............................. -- --
Robert C. Salisbury (10)......................... 6,000 **
Peter P. Tong (9)(11)............................ 162,350 **
All directors and executive officers as a group
(12 persons) (9)(12)............................. 3,384,880 4.8
5% Stockholders
Stonington Capital Appreciation 1994
Fund, L.P. (3)................................. 40,214,302 59.2
GSLI Investments, Inc............................ 4,495,711 6.6
Essex Investment Management Company,
LLC (14)....................................... 3,605,785 5.0
Franklin Resources, Inc. and related
entities (13).................................. 4,401,329 6.6
- ----------
* 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 Franklin Resources, Inc. and related entities is 777
Mariners Island Boulevard, San Mateo, California 94404. The address of
Essex Investment Management Company, LLC is 125 High Street, Boston,
Massachusetts 02110. Refer to (3) and (15) below for additional address
information.
79
** Less than 1%.
(1) The figures assume exercise by only the stockholder or group named in each
row of all options for the purchase of common stock held by such
stockholder or group which were exercisable by May 15, 2001.
(2) Amounts are based upon 67,928,179 shares of our common stock outstanding
before the offering and 70,928,179 shares of our common stock outstanding
after the offering.
(3) Stonington Capital Appreciation 1994 Fund, L.P. is the record holder of
30,898,890 shares of common stock. The Stonington fund also has the right
to direct the voting with respect to, but disclaims beneficial ownership
of, an additional 1,123,590 shares purchased by two institutional
investors pursuant to the Stockholders' Agreement. Additional rights of
the Stonington fund with respect to 8,191,822 shares of our common stock
are described under "Related Party Transactions". The Stonington fund
disclaims beneficial ownership of any of those 9,315,412 shares. The
Stonington fund is a Delaware limited partnership whose limited partners
consist of certain institutional investors, formed to invest in corporate
acquisitions organized by Stonington Partners, L.P. Stonington Partners,
L.P., a Delaware limited partnership, is the general partner in the
Stonington fund with a 1% economic interest. Except for such economic
interest, Stonington Partners, L.P. disclaims beneficial ownership of the
shares set forth above. Stonington Partners, Inc. II is the general
partner of, with a 1% economic interest in, Stonington Partners, L.P.
Except for such economic interests, Stonington Partners, Inc. II disclaims
beneficial ownership of the shares set forth above. Pursuant to a
management agreement with the Stonington fund, Stonington Partners, Inc.
has full discretionary authority with respect to the investments of the
Stonington fund, including the authority to make and dispose of such
investments. Furthermore, Stonington Partners, Inc. has a 1% economic
interest in Stonington Partners, L.P. Stonington Partners, Inc. disclaims
beneficial ownership of the shares set forth above. If the underwriters
exercise their over-allotment options, the Stonington fund will sell
additional shares as described in footnote 14. The address for each of the
entities listed in this footnote, as well as Stonington management
included in the table above, is c/o Stonington Partners, Inc., 767 Fifth
Avenue, New York, NY 10153.
(4) Includes shares held by Mr. Olcott's spouse and by and in trust for one of
his children. Includes 565,000 shares subject to options which were
exercisable as of May 15, 2001.
(5) Includes 18,750 shares subject to options which were exercisable as of May
15, 2001.
(6) Includes 500,000 shares subject to options which were exercisable as of
May 15, 2001.
(7) Includes shares held by Mr. White's spouse, children and trust to which
Mr. White is beneficiary.
(8) Includes 124,500 shares subject to options which were exercisable as of
May 15, 2001.
(9) Messrs. End and Michas are two of four equal stockholders, and Mr. Hoecker
is a director, of Stonington Partners, Inc. and 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.
(10) Includes 5,000 shares subject to options which were exercisable as of May
15, 2001.
(11) Includes 50,000 shares subject to options which were exercisable as of May
15, 2001.
(12) Includes shares held by certain family members, trusts and similar
entities. Includes 1,263,250 shares subject to options which were
exercisable as of May 15, 2001.
(13) Amount is based upon the stockholder's most recent 13G filing, dated
February 9, 2001.
(14) Amount is based upon the stockholder's most recent 13G filing, dated
February 12, 2001.
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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. Franklin A. Witney, our President and Chief
Operating Officer, and other members of our management, have subsequently become
parties to the Stockholders' Agreement.
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 nomination or removal of directors. 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, as described below under "Registration
Rights." 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 certain rights to indemnification granted in connection with the
registration of common stock subject to such agreement.
The Stockholders' Agreement contains provisions relating to tag-along,
drag-along, put and call rights of the stockholders, all of which 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
Under the Stockholders' Agreement, because Stonington is a selling
stockholder in this offering, the other parties to the agreement owning shares
of our common stock generally have the right to include those shares in the
offering, except to the extent that they are able to sell their shares of our
common stock pursuant to Rule 144 under the Securities Act. This exception,
however, does not apply to the KECALP and Baird entities. All parties having
registration rights under the Stockholders' Agreement are either participating
in the offering or have waived such 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 under which GSI Lumonics Life Science Trust
has the right to have any of our common stock owned by it included in any
registered offering of our common stock, such as this offering. Under the
agreement, if the managing underwriter for the 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:
81
o of the first 5 million shares to be included in the offering, 40%,
or up to 2 million shares, will be allocated to GSI Lumonics Life
Science Trust, 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 the
GSI Lumonics Life Science Trust, and the remaining amount will be
allocated to Stonington and the other selling stockholders under the
Stockholders' Agreement.
As of March 16, 2001, GSI Lumonics Life Science Trust held in the
aggregate 4,495,711 shares of our common stock.
Subject to specified minimum amounts and other limitations, GSI Lumonics
Life Science Trust also has the right under the registration rights agreement
to, on one occasion, require us to take such steps as are necessary to register
the remaining shares of our common stock owned by it. Like the Stockholders'
Agreement, the registration rights agreement with GSI Lumonics Life Science
Trust contains customary terms and provisions with respect to, among other
things, registration procedures and certain rights to indemnification granted in
connection with the registration of common stock subject to that agreement. As
part of this offering, GSI Lumonics Science Trust will be selling all shares of
our common stock held by them. As a result, upon completion of the offering,
this agreement will no longer have any force or effect.
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, McKernan
and Serrano and Messrs. 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. As part of the marketing arrangement, we made a $1.25
million equity investment representing approximately 8% of the outstanding
equity of Agencourt. Agencourt is controlled by three sons of Richard T.
McKernan, our Senior Vice President and a 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 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.
82
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.
Unless otherwise indicated, all exhibits are hereby incorporated by
reference to the Company's Registration Statement on Form S-4, Commission File
No. 333-24001 (or documents filed previously by the Company under the Securities
Exchange Act of 1934). Following a description of each exhibit that is
incorporated by reference to such registration statement is a number in
parenthesis indicating the exhibit number by which such exhibit is identified in
such registration statement.
Exhibit
Number Exhibit Title
- ------ -------------
1.1 Form of U.S. Purchase Agreement*
1.2 Form of International Purchase Agreement*
3.1 Amended and Restated Certificate of Incorporation of the Registrant(1)
3.2 Amended and Restated By-Laws of the Registrant(1)
4.1 Specimen of Common Stock Certificate(1)
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")(2)
4.3 Amendment No. 1, dated as of June 2, 1997, to the Stockholders'
Agreement(3)
4.4 Amendment No. 2, dated as of January 23, 1998, to the Stockholders'
Agreement(4)
4.5 Amendment No. 3, dated as of March 31, 1998, to the Stockholders'
Agreement(4)
5.1 Opinion of Wachtell, Lipton, Rosen & Katz (including consent)*
10.1 Indenture, dated as of March 4, 1997, between the Registrant and The
Bank of New York, as Trustee(2)
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(2)
10.4 Canberra Industries, Inc. Stock Option Plan of 1971, as amended(2)
10.5 Packard BioScience Company 2000 Stock Incentive Plan(1)
10.6 Packard BioScience Company Non-Employee Director Option Compensation
Plan(1)
10.7 Packard BioScience Company 2000 Employee Stock Purchase Plan(1)
10.8 Employment Agreement by and between the Company and Emery G. Olcott(2)
10.9 Employment Agreement by and between the Company and Richard T.
McKernan(2)
83
10.10 Employment Agreement by and between the Company and George Serrano(2)
10.11 Employment Agreement by and between the Company and Staf van Cauter(2)
10.12 Employment Agreement by and between the Company and Orren K. Tench,
Jr.(2)
10.13 Employment Agreement by and between the Company and Ben D. Kaplan(5)
10.14 First Amendment to Employment Agreement by and between the Company and
Ben D. Kaplan(4)
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 Form of Irrevocable Power of Attorney and Custody Agreement*
10.18 Asset Purchase Agreement, dated August 19, 2000 between GSI Lumonics
Life Science Trust, GSI Lumonics Trust, Inc. and the Company(6)
10.19 Asset Purchase Agreement between the Company and Compagnie Generale Des
Matieres Nucleaires, dated as of November 28, 2000(7)
21.1 Subsidiaries of the Registrant*
23.1 Consent of Arthur Andersen LLP**
23.3 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit No. 5.1)
24.1 Powers of Attorney (included on signature page)
- ----------
* To be filed by amendment.
** Filed herewith.
(1) 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
84
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 30, 2001.
PACKARD BIOSCIENCE COMPANY
Date: March 30, 2001 By: /s/ Emery G. Olcott
---------------------------------
Emery G. Olcott
Chairman of the Board and
Chief Executive Officer
Date: March 30, 2001 By: /s/ Franklin R. Witney
---------------------------------
Franklin R. Witney
President and
Chief Operating Officer
Date: March 30, 2001 By: /s/ Ben D. Kaplan
---------------------------------
Ben D. Kaplan
Vice President and
Chief Financial Officer
Date: March 30, 2001 By: /s/ David M. Dean
---------------------------------
David M. Dean
Corporate Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 30, 2001 By: /s/ Robert F. End
---------------------------------
Robert F. End
Director
Date: March 30, 2001 By: /s/ Bradley J. Hoecker
---------------------------------
Bradley J. Hoecker
Director
Date: March 30, 2001 By: /s/ Alexis P. Michas
---------------------------------
Alexis P. Michas
Director
85
Date: March 30, 2001 By: /s/ Peter P. Tong
---------------------------------
Peter P. Tong
Director
Date: March 30, 2001 By: /s/ Robert C. Salisbury
---------------------------------
Robert C. Salisbury
Director
Date: March 30, 2001 By: /s/ Harry H. Penner, Jr.
---------------------------------
Harry H. Penner, Jr.
Director
Date: March 30, 2001 By: /s/ Nicholas G. Bacopoulos
---------------------------------
Nicholas G. Bacopoulos
Director
No annual report or proxy material has been sent to the Company's security
holders.
86
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. 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 88 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
87
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 $113,204 -- $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.
88