SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 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
(Exact name of registrant as specified in its charter)
Delaware 06-0676652
- ------------------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Research Parkway, Meriden, Connecticut 06450
- ------------------------------------------ --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-238-2351
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
Shares of Common Stock Outstanding at May 12, 2000: 61,835,085
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 2
Condensed Consolidated Statements of Income (Loss) for the
Three Months Ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 and DECEMBER 31, 1999
(In thousands)
ASSETS March 31, 2000 December 31, 1999
- ------ -------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents $ 22,755 $ 7,576
Accounts receivable, net 52,532 63,350
Inventories, net 33,129 34,191
Deferred income taxes 5,024 4,795
Other current assets 6,317 6,271
-------- --------
Total current assets 119,757 116,183
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 53,252 51,329
Less - accumulated depreciation (22,228) (21,215)
-------- --------
31,024 30,114
-------- --------
OTHER ASSETS:
Goodwill, net 41,677 41,919
Deferred financing costs, net 6,414 6,801
Other 11,080 10,978
-------- --------
59,171 59,698
-------- --------
TOTAL ASSETS $209,952 $205,995
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES:
Notes payable $ 2,952 $ 3,197
Current portion of long-term obligations 1,951 2,113
Accounts payable and accrued liabilities 33,700 58,004
Deferred income 15,470 14,304
-------- --------
Total current liabilities 54,073 77,618
-------- --------
LONG-TERM OBLIGATIONS, net of current portion 247,090 225,731
-------- --------
DEFERRED INCOME TAXES 4,836 4,807
-------- --------
OTHER NONCURRENT LIABILITIES 3,437 3,428
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
MINORITY INTEREST IN EQUITY OF SUBSIDIARIES 2,382 2,301
-------- --------
STOCKHOLDERS' DEFICIT (Note 3):
Common stock 137 137
Paid in capital 8,273 1,827
Accumulated deficit (21,878) (12,895)
Accumulated other comprehensive income
(cumulative translation adjustment) 995 527
-------- --------
(12,473) (10,404)
Less: Treasury stock, at cost (88,857) (96,920)
Deferred compensation (536) (566)
-------- --------
Total stockholders' deficit (101,866) (107,890)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $209,952 $205,995
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands, except per share amounts)
Three Months Ended
March 31,
2000 1999
------- -------
NET SALES $62,485 $58,705
COST OF SALES 30,342 29,385
------- -------
GROSS PROFIT 32,143 29,320
RESEARCH AND DEVELOPMENT EXPENSES 8,435 7,275
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 7) 24,481 14,535
RESTRUCTURING CHARGE (Note 8) 2,372 --
------- -------
INCOME (LOSS) FROM OPERATIONS (3,145) 7,510
INTEREST EXPENSE, NET (5,956) (5,266)
FOREIGN EXCHANGE TRANSACTION GAINS
(LOSSES), NET 282 (257)
------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST (8,819) 1,987
PROVISION FOR (BENEFIT FROM) INCOME TAXES (2,710) 1,063
MINORITY INTEREST IN (INCOME) LOSS OF
SUBSIDIARIES (81) 250
------- -------
NET INCOME (LOSS) ($6,190) $ 1,174
======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, EXCLUDING COMMON SHARE
EQUIVALENTS (Note 5) 46,815 45,754
BASIC EARNINGS (LOSS) PER SHARE ($ 0.13) $ 0.03
DILUTED EARNINGS (LOSS) PER SHARE ($ 0.13) $ 0.02
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands)
For the Three Months Ended
March 31,
2000 1999
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 6,190) $ 1,174
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
Non-cash stock compensation charges (Note 7) 8,273 --
Depreciation and amortization of intangibles 2,469 2,450
Amortization of deferred financing costs 386 386
Minority interest in net income (loss) of subsidiares 81 (250)
Other non-cash credits, net (221) (53)
Changes in operating assets and liabilities (5,260) (6,725)
------- -------
Net cash used for operating activities (462) (3,018)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired (6,656) (17,310)
Capital expenditures, net (2,412) (2,458)
Product lines, patent rights and licenses acquired (500) (54)
------- -------
Net cash used for investing activities (9,568) (19,822)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term obligations 25,500 33,250
Repayments of long-term obligations (3,062) (2,097)
Purchase of treasury stock (124) --
Proceeds from exercise of stock options 3,302 13
Proceeds from sale of common stock 264 --
------- -------
Net cash from investing activities 25,880 31,166
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (671) (959)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 15,179 7,367
CASH AND CASH EQUIVALENTS, beginning of period 7,576 7,929
------- -------
CASH AND CASH EQUIVALENTS, end of period $22,755 $15,296
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements and related notes included
herein have been prepared by Packard BioScience Company (the "Company") without
audit, except for the December 31, 1999, condensed consolidated balance sheet
which was derived from the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 (the "Company's 1999 Form 10-K"), pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures which normally accompany financial statements prepared
in accordance with generally accepted accounting principles have been omitted
from the accompanying condensed consolidated financial statements, as permitted
by the Securities and Exchange Commission's rules and regulations. The Company
believes that the accompanying disclosures and notes are adequate to make the
financial statements not misleading. Such financial statements reflect all
adjustments which are normal and recurring and, in the opinion of management,
necessary for a fair presentation of the results of operations and financial
position of the Company for the periods reported herein. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1999 Form 10-K.
Note 1. Basis of Presentation and Significant Accounting Policies:
General -
The accompanying financial statements have been prepared in accordance with the
accounting policies described in Note 1 to the consolidated financial statements
included in the Company's 1999 Form 10-K. The Company's practices of recognizing
assets, liabilities, revenues, expenses and other transactions which impact the
accompanying financial information are consistent with such note.
New Accounting Standards -
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which establishes the accounting and
reporting standards for derivative instruments and for hedging activities. The
Company purchases forward contracts to cover foreign exchange fluctuation risks
on intercompany sales to certain of its foreign operations. Such contracts
qualify as foreign currency cash flow hedges under SFAS No. 133 and, as such,
require that gains and losses on such contracts be presented as a component of
comprehensive income. The effective date of SFAS No. 133 (which was deferred
through the issuance of SFAS No. 137) is the Company's calendar year commencing
January 1, 2001. This statement is not expected to have a material effect on the
Company's consolidated operating results or financial position upon adoption.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). SAB No. 101, among other things, provides guidance on revenue
recognition when customer acceptance and installation provisions exist. The
Company is required to adopt SAB No. 101, effective January 1, 2000, by June 30,
2000. The Company has not yet quantified the cumulative effect of adopting SAB
No. 101, as of January 1, 2000, which may or may not be material to the
Company's consolidated operating results or financial position.
Stock Split -
On March 20, 2000, the Company's Board of Directors approved a 5-for-1 split of
the Company's common stock. All share and per share information included in the
accompanying condensed consolidated financial statements and notes thereto have
been restated to reflect the effect of the split.
Reclassifications -
Certain reclassifications have been made to prior period information in order to
make it consistent with the current period presentation.
Note 2. Inventories:
Inventories consisted of the following at March 31, 2000, and December 31, 1999
(in thousands):
March 31, 2000 December 31, 1999
-------------- -----------------
Raw materials and parts $19,050 $19,028
Work in process 3,357 3,031
Finished goods 15,865 17,394
------- -------
38,272 39,453
Excess and obsolete reserves (5,143) (5,262)
------- -------
$33,129 $34,191
======= =======
Note 3. Stockholders' Deficit:
Below is a summary of the changes in selected components of stockholders'
deficit for the three-month period ended March 31, 2000 (dollars in thousands):
Paid-In Accumulated Treasury
Capital Deficit Stock
------- ----------- --------
Balance, December 31, 1999 $1,827 ($12,895) ($96,920)
Net loss -- (6,190) --
Sale of stock, net (1,827) (2,793) 8,063
Non-cash stock compensation
charges 8,273 -- --
------ ------- -------
Balance, March 31, 2000 $8,273 ($21,878) ($88,857)
====== ======= =======
Sale of stock, net includes proceeds from the exercise of stock options as well
as sales and purchases of treasury stock.
Note 4. Acquisitions:
On April 1, 1999, the Company acquired the net operating assets of
Tennelec/Nucleus, Inc. and formed a new subsidiary, Tennelec, Inc. ("Tennelec")
to effect the purchase. Tennelec manufactures and distributes nuclear
instrumentation and high-purity germanium crystals. The Company paid
approximately $10.7 million, including acquisition costs, for the net operating
assets received. The acquisition resulted in a $1.0 million charge during the
three months ended June 30, 1999, to writeoff the step-up in inventory acquired
which was recorded at fair value at the date of acquisition.
In March 2000, the Company acquired a 51% equity interest in Carl Consumable
Products, LLC ("CCP") for an initial cash payment of $510,000, with an option to
acquire the remaining 49% equity interest for (a) a cash payment of $490,000,
plus (b) earn-out payments equal to 25% of the operating profit (as defined in
the purchase agreement) of CCP in excess of $530,000 which is generated in each
calendar year occurring during the four-year period following exercise of the
option (unless the option is exercised prior to March 6, 2001, in which case the
applicable earn-out percentage will be increased from 25% to 35%). CCP is a new
company formed to design and manufacture sophisticated pipettes used in the
liquid dispensing process of drug discovery and genomic research.
The above acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the purchase prices have been allocated to the
assets purchased and the liabilities assumed based upon the estimated fair
values at the dates of acquisition. The excess of the purchase prices, in the
aggregate, over the fair values of the net assets acquired has been reflected as
goodwill in the accompanying condensed consolidated balance sheets. Net goodwill
totals approximately $41.7 million as of March 31, 2000. The goodwill amount
includes contingent payments earned through March 31, 2000, and will increase to
the extent future contingent payments are earned. The goodwill is being
amortized on a straight-line basis over 20 to 40 years from the initial
acquisition dates.
The operating results of Tennelec and CCP have been reflected in the
accompanying condensed consolidated statements of income (loss) since their
respective dates of acquisition. The following unaudited consolidated
information is presented on a pro forma basis, as if the acquisitions had
occurred as of the beginning of the periods presented. In the opinion of
management, the pro forma information reflects all adjustments necessary for a
fair presentation. The pro forma adjustments primarily consist of: addback of
nonrecurring charges taken in connection with the acquisitions associated with
acquired inventory step-up writeoff, amortization of goodwill associated with
the acquisitions, adjustments to certain historical compensation and personnel
levels to be more indicative of post-acquisition levels, adjustments to reflect
additional interest expense relating to the financing of the acquisitions, and
adjustments to reflect the related income tax effects, if any, of the above. The
1999 results do not remove those products that the Company has removed from the
market. There are no pro forma adjustments related to CCP as it is a start-up
operation.
(Dollars in thousands, except per share amounts)
For the Three Months
Ended March 31,
2000 1999
------- -------
Net sales $62,485 $62,009
Income (loss) from operations ($ 3,145) $ 8,154
Net income (loss) ($ 6,190) $ 1,455
Basic earnings (loss) per share ($ 0.13) $ 0.03
Note 5. Earnings Per Share:
Basic earnings per share is computed based upon the weighted average shares
outstanding during each of the periods presented. Diluted earnings per share is
computed based upon the weighted average shares outstanding during each of the
periods presented, including the impact of outstanding options, determined under
the treasury stock method, to the extent their inclusion is dilutive. Basic and
diluted weighted average shares outstanding during the three months ended March
31, 2000 and 1999 are as follows:
Three Months Ended
March 31,
2000 1999
---------- ----------
Basic weighted average shares outstanding 46,814,649 45,753,975
Dilutive effect of outstanding stock options -- 2,138,780
---------- ----------
Diluted weighted average shares outstanding 46,814,649 47,892,755
========== ==========
For the 2000 period, 3,829,152 common stock equivalents were excluded from
diluted weighted average shares outstanding as their effect was anti-dilutive.
Note 6. Segment Information:
Refer to Management's Discussion and Analysis of Financial Condition and Results
of Operations included in Item 2. of this Form 10-Q for a discussion of segment
operating performance for the three months ended March 31, 2000. The Company's
total assets, by industry segment, as of March 31, 2000 and December 31, 1999,
are as follows:
March 31, 2000 December 31, 1999
-------------- -----------------
Packard $119,507 $118,532
Canberra 90,445 87,463
-------- --------
Total $209,952 $205,995
======== ========
Note 7. Stock Compensation Charges:
In December 1999, the Company granted certain options to employees which, in
accordance with financial reporting guidelines, requires the Company to
recognize compensation expense over the vesting period of such options. On March
20, 2000, the Company's Board of Directors approved the acceleration of the
vesting of all outstanding unvested stock options, making them 100% vested,
effective March 17, 2000. This resulted in the recognition of a non-cash
compensation charge of $7.3 million during the three months ended March 31,
2000, associated with the options granted in December 1999.
In March 2000, certain members of the Company's management gifted 107,400 shares
of their own Company common stock to substantially all of the Company's
employees who did not own shares or options to purchase shares of the Company's
common stock on the date of the gifting. This resulted in a non-cash
compensation charge of $1.0 million in the three months ended March 31, 2000.
Both of the charges discussed above are included in selling, general and
administrative expenses in the accompanying condensed consolidated statements of
income (loss).
Note 8. Restructuring Charge:
The Company will terminate certain product lines associated with its Harwell
acquisition. Harwell will eliminate certain positions and facilities. The
estimated costs associated with this restructuring, approximately $2.4 million,
have been accrued for as of March 31, 2000. Included in this amount is $1.8
million of severance related costs and $0.6 million of facility closing and
relocation related costs. Approximately seven (7) employees, consisting of
manufacturing, sales, service and administrative positions will be terminated.
No severance payments had been made as of March 31, 2000.
Note 9. Subsequent Events:
On April 19, 2000, the Company completed the registration of the Company's
common stock for public sale (the "Offering"). The Offering raised approximately
$110 million, including the over-allotment option, after consideration of
expenses of $12 million associated with the Offering. The Company plans to
utilize some of the proceeds to increase spending associated with research and
development, new product development, enhancement of existing products,
strategic collaborations and acquisitions, and potentially repurchase some of
its 9 3/8% senior subordinated notes in the open market. In addition, in April
2000, the Company utilized $68.2 million of the proceeds to pay off the
remaining term facility ($37.3 million) and the U.S. dollar denominated balance
of the revolving credit facility ($30.9 million).
In April 2000, the Company acquired certain net operating assets, primarily
intangibles, of Cambridge Imaging Limited ("CIL"), effective March 31, 2000. The
Company paid $1.25 million initially with additional contingent payments, up to
$4.0 million, that may be made through April 2005, subject to the operations
achieving certain post-acquisition performance levels through calendar year
2004. The assets acquired will be used to develop and manufacture biomedical
imaging technology and devices.
In May 2000, the Company settled a Demand for Arbitration (the "Demand") filed
by Instrumentation Development, Inc. ("IDI") with the American Arbitration
Association in Hartford, Connecticut, on July 28, 1999. The Demand alleged
breach of contract and requested damages in the range of $1 million to $3
million. The settlement calls for the Company to make a payment to IDI totaling
$1.325 million for an assignment of the technology that was the subject of the
contract and to settle the dispute.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and accompanying notes included
elsewhere in this Form 10-Q.
This report contains statements which, to the extent they are not recitations of
historical facts, constitute "forward-looking" statements. Many factors could
cause actual results to differ materially from these estimates. These factors
include, but are not limited to, the following:
- - intense competition in the markets we target;
- - our ability to successfully introduce new products and expand the range of
applications for our current products;
- - our ability to effectively protect our intellectual property from
infringement;
- - potential infringement of intellectual property rights of others;
- - customers may face risks in the industries they serve, such as pharmaceutical
and biotechnology industries;
- - decline in the use of processes and instruments that represent a significant
portion of our revenues;
- - our ability to maintain and enhance collaborative and academic arrangements
and to establish additional relationships;
- - our dependence on capital spending policies of our customers and governmental
funding;
- - availability of nuclear waste repositories;
- - changes in environmental regulations;
- - economic, political and other risks associated with international sales and
operations;
- - limited source supply of key raw materials;
- - our ability to attract and retain key employees; and
- - our ability to meet financial expectations of securities analysts and
investors.
OVERVIEW
Packard BioScience Company (the "Company") is a leading global developer,
manufacturer and marketer of instruments and related consumables and services
for use in the life sciences research and nuclear industries. Packard Instrument
is a leader in laboratory automation and has developed scalable platforms built
on our worldwide leadership in the manufacturing and marketing of bioanalytical
instruments for use in the life sciences research industry. Canberra Industries
is the worldwide leader in analytical instruments used to detect, identify,
quantify and monitor radioactive materials for the nuclear industry and related
markets.
Packard's revenues are derived primarily from sales of instruments with
additional sales from services. While outsourcing and support services continue
to be an important part of Packard's revenue stream, the Company is moving
towards marketing Packard's instruments as parts of integrated platforms, which
the Company expects will generate increasing instrument sales at higher gross
margins than our services business.
Canberra has experienced significant growth in its base service business
resulting from the Company's strategic focus on this area. Like Packard,
Canberra is moving towards marketing its instruments as parts of integrated
systems. In addition, Canberra is focusing on increasing revenues from emerging
applications such as environmental restoration and waste management,
environmental monitoring and nuclear weapons stewardship.
RESULTS OF OPERATIONS (dollars in millions)
Three Months Ended
March 31,
% Inc.
2000 1999 (Dec.)
------ ------ ------
Total revenues:
Packard $ 39.9 $ 38.2 4.5%
Canberra 22.6 20.5 10.2%
------ ------ -----
62.5 58.7 6.5%
------ ------ -----
Gross profit:
Packard 22.4 21.0 6.7%
Canberra 9.7 8.3 16.9%
------ ------ -----
32.1 29.3 9.6%
------ ------ -----
Operating expenses:
Research and development 8.4 7.3 15.1%
Selling, general and administrative 24.4 14.5 68.3%
Restructuring charge 2.4 -- N/A
------ ------ -----
Income (loss) from operations (3.1) 7.5 N/A
Interest expense, net (6.0) (5.3) 13.2%
Foreign exchange transaction
gains (losses), net 0.3 (0.3) N/A
------ ------ -----
Income (loss) before income taxes
and minority interest (8.8) 1.9 N/A
Provision for (benefit from)
income taxes (2.7) 1.0 N/A
Minority interest in (income) loss
of subsidiaries (0.1) 0.3 N/A
------ ------ -----
Net income (loss) ($ 6.2) $ 1.2 N/A
====== ====== =====
INITIAL PUBLIC OFFERING
On April 19, 2000, the Company completed the registration of the Company's
common stock for public sale (the "Offering"). The Offering raised approximately
$110 million, including the underwriters' over-allotment, after consideration of
expenses of $12 million associated with the Offering. The following management's
discussion and analysis of the Company's results of operations and financial
condition includes an historical discussion covering the reporting periods
included within this Form 10-Q, as well as a discussion of the use of the
proceeds of the Offering and how this is expected to affect the Company's future
operating results and financial condition.
RESULTS OF OPERATIONS
Revenues
- --------
Overall -
Consolidated revenues increased 6.5% during the three months ended March 31,
2000, as compared to the prior year period, from $58.7 million to $62.5 million.
The 1999 amount includes approximately $3.1 million of revenues associated with
certain Packard product lines that were either sold or terminated and,
therefore, did not contribute to revenues in the 2000 period. Excluding these
revenues from the first quarter of 1999, revenues increased 12.4% in the first
quarter of 2000 as compared with the prior year period.
Fluctuations in foreign currency exchange rates between reporting periods
impacts the Company's operating results, including reported revenues, as a
significant amount of the Company's operations are conducted in countries other
than the United States, in currencies other than the U.S. dollar. Excluding the
impact of foreign currency exchange rate fluctuations, consolidated revenues
would have been approximately $1.5 million higher in the first quarter of 2000.
The U.S. dollar strengthened against the currencies of most countries in which
the Company operates, including Euro participating countries, with the main
exception being Japan where the U.S. dollar weakened against the Japanese yen
during the 2000 period as compared to the 1999 period.
The growth in revenues, quarter to quarter, is attributable to volume growth
experienced by CCS Packard, Inc. ("CCS Packard"), Canberra's U.S. Detectors
operation, Packard Japan KK ("PJKK") and several other overseas distribution
operations. Service revenues increased in the first quarter of 2000 as compared
to the 1999 period, from $12.3 million to $15.7 million, or 27.6%. This was due
primarily to growth in Canberra's services operations within the Department of
Energy complex and certain service revenues related to Y2K issues.
Packard -
Packard's revenues increased from $38.2 million to $39.9 million representing a
4.5% increase. Excluding the sold and terminated product lines discussed above,
the 2000 first quarter revenues would represent a 13.7% increase over the prior
year period. Packard's service revenues increased from $7.2 million in the first
quarter of 1999 to $8.4 million in the first quarter of 2000, a 16.7% increase.
As mentioned above, this increase consists principally of Y2K services which
will not continue at the same level over the remainder of 2000. The increased
revenues is also attributable to increased sales of CCS Packard products. Such
sales were $6.3 million in the first quarter of 2000 compared to $4.0 million in
the comparable 1999 period. In addition, PJKK's revenues increased by $1.9
million, from $3.9 million to $5.8 million, between the reporting periods
presented, representing a 49.6% increase.
A portion of the Offering proceeds will be used to increase Packard's spending
associated with research and development, new product development, enhancement
of existing products and strategic collaborations and acquisitions. The Company
has identified several key strategic products lines and other areas in which it
has begun to increase spending in order to accelerate development and market
introduction. Assuming that Packard is successful in these areas, it is expected
that incremental revenues will be generated as a result; however, there can be
no guarantee that such efforts will be successful or result in increased
revenues.
Canberra -
Canberra's revenues increased from $20.5 million to $22.6 million during the
first quarter of 2000 as compared to the 1999 period, a 10.2% increase. The
majority of this increase was attributable to Canberra's U.S. Detectors
operation as well as increased service revenue. Canberra's U.S. Detectors
operation's third-party revenues increased from $1.6 million in the 1999 period
to $3.2 million in the 2000 period, doubling over the periods. In addition,
Canberra's service business increased significantly, generating $7.3 million in
revenues in the first quarter of 2000 as compared to $5.2 million in the first
quarter of 1999, representing a 40.4% increase. A portion of this increased
service revenues is attributable to Canberra's Mobile Characterization Services,
LLC ("MCS") operation as well as the recently started Canberra Oak Ridge, LLC
operation. In addition, the Company's acquisition of Tennelec effective April 1,
1999, contributed approximately $0.8 million of revenues to the first quarter of
2000. These increases were partially offset by lower product sales by Canberra's
U.S. instrumentation business as well as at Aquila Technologies Group, Inc.
("Aquila").
Gross Profit
- ------------
Overall -
Consolidated gross profit was $32.1 million for the three months ended March 31,
2000, compared to $29.3 million in the 1999 period, an increase of 9.6%. The
1999 amount included approximately $1.0 million of gross profit associated with
sales of sold or terminated product lines discussed above. Excluding this gross
profit, the amount for the 2000 period increased by 13.4%. As a percentage of
revenues, the first quarter 2000 gross profit was 51.4% versus 49.9% in the 1999
period. The improvement is primarily attributable to increased higher margin
sales by certain overseas distribution operations as well as the discontinuance
of lower margin sales on the product lines that were sold or terminated. Gross
profit on service revenues increased from $2.9 million during the 1999 period to
$4.4 million during the first quarter of 2000. As a percentage of service
revenues, the margin increased from 23.7% to 27.9%.
Packard -
Packard's gross profit increased from $21.0 million during the 1999 period to
$22.4 million during the first quarter of 2000, a 6.7% increase. Excluding the
gross profit included in the 1999 margin associated with sold or terminated
products discussed above, the 2000 amount increased 12.0% over 1999. As a
percentage of revenues, the 2000 gross margin is 56.3% versus 55.0% in 1999.
This improvement is attributable to the items described above.
Canberra -
Canberra's gross profit increased from $8.3 million during the 1999 period to
$9.7 million during the 2000 period, a 16.9% increase. Canberra's service gross
profit more than doubled over the periods, from $1.0 million in 1999 to $2.1
million in 2000. As a percentage of revenues, Canberra's gross margin was 42.7%
during the 1999 period versus 40.5% in the 2000 period. This improvement in
margin percentage is primarily a result of increased margin percentages on
service revenues, particularly those of Aquila and MCS.
OPERATING EXPENSES
Research and Development
- ------------------------
Overall -
Consolidated research and development expenses were $8.4 million in the first
quarter of 2000 versus $7.3 million in the comparable 1999 period, representing
a 15.1% increase in spending. The majority of research and development spending,
as well as the current year increase, is by Packard in the areas of new product
development and enhancement. In connection with the Offering, the Company plans
to utilize a portion of the Offering proceeds to increase funding of Packard's
research and development in order to accelerate the development and market
introduction of key strategic products and drug research platforms. In addition,
a portion of the proceeds are planned to be utilized to aggressively pursue
strategic collaborations and potential acquisition targets. The increased
spending in the first quarter of 2000 is a reflection of this strategic
initiative in the area of research and development.
Packard -
Packard's first quarter 2000 research and development spending was $6.1 million
compared to $5.3 million in the first quarter of 1999, representing a 15.1%
increase. The increase in spending is a direct result of the strategic focus
described above. Packard intends to continue to spend at an increased level,
when compared to the prior year, in the area of research and development through
the remainder of 2000.
Canberra -
Canberra's first quarter 2000 research and development expenses were $2.2
million, up 10.0% from its 1999 first quarter amount of $2.0 million.
Selling, General and Administrative
- -----------------------------------
Overall -
Consolidated selling, general and administrative expenses totaled $24.4 million
in the first quarter of 2000 as compared to $14.5 million in the comparable 1999
period. Included in the 2000 amount is a $7.3 million compensation charge
associated with certain stock options granted to employees in December 1999, and
a $1.0 million compensation charge associated with stock that certain members of
Company management gifted to employees in March 2000. Both of these charges
represent non-cash, non-recurring charges to the Company. Excluding these 2000
charges, selling, general and administrative expenses increased 11.0% on a
period to period basis; however, as a percentage of revenues, such costs are
relatively flat at approximately 26%.
Packard -
Packard's first quarter selling, general and administrative expenses, excluding
Packard's portion of the non-cash compensation charges discussed above,
increased from $9.4 million in 1999 to $10.8 million in 2000. This represents a
15.3% increase; however, as a percentage of revenues, the spending is relatively
constant at approximately 26%. The percentage increase in 2000 as compared to
the 1999 period also reflects additional marketing spending associated with the
Company's enhanced growth efforts discussed above.
Canberra -
Canberra's first quarter selling, general and administrative expenses, excluding
Canberra's portion of the non-cash compensation charges discussed above,
increased from $5.2 million in 1999 to $5.4 million in 2000, a 3.8% increase. As
a percentage of revenues, the 2000 spending level, excluding the non-cash
compensation charges, represents a decrease of 1% to approximately 24%.
Restructuring Charge
- --------------------
The Company will terminate certain product lines associated with its Harwell
acquisition. Harwell will eliminate certain positions and facilities in
connection with this plan. The estimated costs associated with this
restructuring is approximately $2.4 million including severance and other costs.
Interest Expense, Net
- ---------------------
Interest expense, net was $6.0 million during the three months ended March 31,
2000, as compared to $5.3 million during the comparable 1999 period. The
increase is due to higher interest rates charged on the Company's outstanding
borrowings under its revolving credit and term loan facilities during the first
quarter of 2000 as compared to the first quarter of 1999 (approximately 100 to
150 basis points higher), and increased borrowings under the Company's revolving
credit facility during the first quarter of 2000 versus 1999. The increased
borrowings are a result of the funding of earnout payments made in March 2000
associated with certain acquisitions, as well as to fund the scheduled March
2000 semi-annual interest payment due under the Company's outstanding
subordinated indebtedness.
In connection with the Offering, the Company is utilizing a portion of the
Offering proceeds to paydown the outstanding term loan balance as well as a
portion of the revolving credit facility. In connection with the repayment of
the term facility in April 2000, the Company will recognize a pre-tax
extraordinary charge of $0.8 million to write-off unamortized deferred financing
fees associated with the term facility.
Foreign Currency Transaction Gains (Losses), Net
- ------------------------------------------------
Foreign currency transaction gains (losses), net was a net gain of $0.3 million
in the first quarter of 2000 versus a net loss of $0.3 million in the prior year
quarter. Such gains or losses are partially a result of foreign currency forward
contracts that the Company periodically purchases to hedge firm intercompany
purchase commitments. In addition, to the extent the Company has loans
outstanding at certain of its foreign subsidiaries which are denominated in
currencies other than such subsidiaries' functional currencies, resulting gains
and losses attributable to foreign currency fluctuations are reflected in the
Company's operating results while such loans are outstanding.
Effective Tax Rates
- -------------------
During the first quarter of 2000, the Company's effective tax rate was a benefit
of 30.4% compared to a provision of 47.5% in the comparable 1999 period. The
effective tax rate of both periods reflect the effect of nondeductible goodwill
amortization and taxable income generated in higher tax rate countries,
particularly Japan. In addition, the 2000 period reflects nondeductible stock
compensation associated with the March 2000 stock gift.
Minority Interest in (Income) Loss of Subsidiaries
- --------------------------------------------------
Minority interest in (income) loss of subsidiaries represents the minority
shareholders' interest in subsidiaries which the Company does not own 100%. The
first quarter of 2000 includes the minority interests of 45% and 49% in the
Company's subsidiaries, MCS and Carl Consumable Products, LLC ("CCP"),
respectively. CCP is a start-up company acquired by the Company in March 2000.
CCP was formed to design and manufacture sophisticated pipettes used in the
liquid dispensing process of drug discovery and genomic research.
The 1999 amount represents the minority shareholders' portion of MCS' net losses
incurred during such period.
Net Income (Loss)
- -----------------
A net loss of $6.2 million was incurred during the first quarter of 2000 as
compared to net income of $1.2 million in the comparable 1999 quarter. The 2000
net loss is due to the non-recurring charges for compensation associated with
stock options granted in December 1999 and stock gifted to certain employees in
March 2000 (totaling $8.3 million before income taxes), and the restructuring
charge recorded at Harwell ($2.4 million before income taxes). Excluding these
charges, and their related tax effects, net income would have been $1.1 million
during the first quarter of 2000, or $0.02 per share on both a basic and diluted
earnings per share basis.
LIQUIDITY AND FINANCIAL RESOURCES
The Company's liquidity requirements arise from cash used in operations,
including research and development expenditures, principal and interest payments
on outstanding indebtedness and funding of acquisitions and other
collaborations. The Company's 2000 and 1999 first quarter cash requirements have
been met primarily through cash generated from operations and borrowings through
the Company's revolving credit facility and overseas bank facilities.
As mentioned above, the Company completed its Offering in April 2000, resulting
in net proceeds to the Company of approximately $110 million, after the exercise
of the underwriters' over-allotment option and expenses. As indicated in the
Form S-1 Registration Statement and prospectus filed with the Securities and
Exchange Commission ("SEC") in connection with the Offering, the Company plans
to use a portion of the Offering proceeds to increase spending in Packard's
research and development initiatives as well as to pay down certain indebtedness
outstanding prior to the closing of the Offering. On April 27, 2000, the Company
paid off the remaining term facility balance ($37.3 million) and the U.S. dollar
denominated balance of the revolving credit facility ($30.9 million).
Approximately half of the Company's revenues are generated from foreign sources,
most of which are denominated in currencies other than the U.S. dollar. As such,
the Company's reported earnings and financial position are affected by changes
in foreign currency exchange rates. A strengthening U.S. dollar against the
currencies through which the Company conducts its business may have a negative
impact on U.S. dollar denominated operating results. To manage the exposure of
foreign currency exchange rates, the Company employs hedging strategies. The
Company purchases various foreign currency forward contracts, at specified
levels of coverage, generally for the purpose of hedging firm inventory purchase
commitments.
Net cash used by operating activities was $0.5 million during the first quarter
of 2000 as compared to $3.0 million in the comparable 1999 period. Cash
generated by current operations ($4.9 million), combined with first quarter
accounts receivable collections ($10.8 million) and borrowings on the Company's
revolving credit facility, provided the necessary cash to fund current operating
costs and related obligations. Included in the uses of the Company's operating
cash in the first quarter of 2000 was the final $3.0 million payment made to
PerkinElmer, Inc. in connection with the 1998 settlement of litigation. The 1999
first quarter net cash used by operating activities reflected a similar $3.0
million use of cash. The increase in operating cash flow between the two periods
is primarily due to stronger accounts receivable collection in 2000 as well as a
greater reduction in inventories in such period, as compared to the prior year
period.
Net cash used for investing purposes during the three months ended March 31,
2000, consisted primarily of amounts paid to acquire a 51% interest in CCP
($0.51 million) and the payment of contingent earnouts, earned for the period
ended December 31, 1999, associated with the Aquila and CCS Packard acquisitions
($6.2 million). In addition, approximately $2.4 million was expended on capital
equipment and improvements. During the three months ended March 31, 1999,
investing activities consisted of the acquisition of Harwell ($10.0 million) and
the payment of earnouts associated with the Aquila and CCS Packard acquisitions
($7.3 million). In addition, during that period, there were capital expenditures
of $2.5 million.
Financing activities during the first quarter of 2000 consisted primarily of
additional borrowings under the Company's revolving credit facility used
primarily to fund the payment of the contingent earnout payments referred to
above, as well as to fund the March 2000 semi-annual interest payment ($7.0
million) associated with the Company's outstanding Senior Subordinated Notes
("Notes"). The borrowings were also utilized to fund operating requirements, as
needed. In addition, proceeds from the exercise of stock options totaled $3.3
million during the first quarter of 2000. During the comparable prior year
period, financing activities consisted primarily of borrowings under the
revolving credit facility to fund the acquisition of Harwell, as well as to fund
contingent earnout payments associated with the Aquila and CCS Packard
acquisitions. In addition, borrowings during that period were utilized to make
the semi-annual interest payment on the Notes and to fund operating
requirements, as needed.
As indicated in the Company's Form S-1 Registration Statement filed in March
2000, as amended, and associated prospectus, the Company may use a portion of
the Offering proceeds to make open-market purchases from time to time of the
Company's outstanding subordinated notes. There is currently $150 million of
such Notes outstanding. As of May 12, 2000, the Company has not made any
purchases of the Notes.
BACKLOG
As of March 31, 2000 and 1999, the Company's gross third-party order backlog was
approximately $49.3 million and $46.7 million, respectively. The Company
includes in backlog only those orders for which it has received purchase orders
and does not include in backlog orders for service or its services business. The
Company's backlog as of any particular date may not be representative of actual
sales for any succeeding period.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which establishes the accounting and
reporting standards for derivative instruments and for hedging activities. The
Company purchases forward contracts to cover foreign exchange fluctuation risks
on intercompany sales to certain of its foreign operations. Such contracts
qualify as foreign currency cash flow hedges under SFAS No. 133 and, as such,
require that gains and losses on such contracts be presented as a component of
comprehensive income. The effective date of SFAS No. 133 (which was deferred
through the issuance of SFAS No. 137) is the Company's calendar year commencing
January 1, 2001. This statement is not expected to have a material effect on the
Company's consolidated operating results or financial position upon adoption.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101, among other
things, provides guidance on revenue recognition when customer acceptance and
installation provisions exist. The Company is required to adopt SAB No. 101,
effective January 1, 2000, by June 30, 2000. The Company has not yet quantified
the cumulative effect of adopting SAB No. 101, as of January 1, 2000, which may
or may not be material to the Company's consolidated operating results or
financial position.
SUBSEQUENT EVENTS
In April 2000, the Company acquired certain net operating assets, primarily
consisting of intangibles, of Cambridge Imaging Limited, effective March 31,
2000. The Company paid $1.25 million initially with additional contingent
payments, up to $4.0 million, that may be made through April 2005, subject to
the division ("CIL") achieving certain post-acquisition performance levels
through calendar year 2004. CIL develops, manufactures and distributes
biomedical imaging technology and devices.
In May 2000, the Company settled a Demand for Arbitration (the "Demand") filed
by Instrumentation Development, Inc. ("IDI") with the American Arbitration
Association in Hartford, Connecticut, on July 28, 1999. The Demand alleged
breach of contract and requested damages in the range of $1 million to $3
million. The settlement calls for the Company to make a payment to IDI totaling
$1.325 million for an assignment of the technology that was the subject of the
contract and to settle the dispute.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in this area since the filing of the
Company's 1999 Form 10-K.
PART II. OTHER INFORMATION
PACKARD BIOSCIENCE COMPANY
Item 1. Legal Proceedings
In May 2000, the Company settled a Demand for Arbitration (the "Demand") filed
by Instrumentation Development, Inc. ("IDI") with the American Arbitration
Association in Hartford, Connecticut, on July 28, 1999. The Demand alleged
breach of contract and requested damages in the range of $1 million to $3
million. The settlement calls for the Company to make a payment to IDI totaling
$1.325 million for an assignment of the technology that was the subject of the
contract and to settle the dispute.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
27 Financial data schedule pursuant to Article 5
of Regulation S-X
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Meriden, State of
Connecticut, on May 12, 2000.
PACKARD BIOSCIENCE COMPANY
By: /s/ Emery G. Olcott
-------------------------------------------
Emery G. Olcott
Chairman of the Board, Chief
Executive Officer and President
By: /s/ Ben D. Kaplan
-------------------------------------------
Ben D. Kaplan
Vice President and Chief
Financial Officer
By: /s/ David M. Dean
-------------------------------------------
David M. Dean
Corporate Controller