10-Q 1 june10q-2001.txt FORM 10-Q 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 June 30, 2001 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 August 9, 2001: 68,694,155 PACKARD BIOSCIENCE COMPANY AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 2 Condensed Consolidated Statements of Income (Loss) for the Three and Six Months Ended June 30, 2001 and 2000 3 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings 19 Item 6. Exhibits and Reports on Form 8-K 19

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, 2000, condensed consolidated balance sheet which was derived from the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2000 (the "Company's 2000 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 accounting principles generally accepted in the United States 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 2000 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 2000 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. On July 16, 2001, the Company entered into an agreement and plan of merger with PerkinElmer, Inc. (see Note 10). The accompanying condensed consolidated financial statements do not reflect any effects of this agreement. On February 27, 2001, the Company sold its Canberra division (see Note 7). The accompanying condensed consolidated financial statements have been reclassified to reflect the net assets and operating results of the Canberra operating segment as a discontinued operation. The gain on the sale, net of related expenses and income taxes, was $47.9 million and is reflected in the accompanying financial statements. The amounts below relate only to the Company's continuing operations unless otherwise noted. New Accounting Standards -- In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("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 which are not designated as hedging instruments under SFAS No. 133, as amended. Effective January 1, 2001, the Company reflects 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. Resulting gains and losses are reflected in the Company's condensed consolidated statements of income (loss). The effect of adopting this statement of $0.2 million as of January 1, 2001, is included in cost of sales. The cumulative effect of adopting SFAS No. 133 has not been classified separately since the amount is not material. In July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS No. 141") which will eliminate the pooling of interest method of accounting for acquisitions. SFAS No. 141 is effective for all acquisitions initiated after June 30, 2001. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." Upon the adoption of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Instead, SFAS No. 142 requires that goodwill be evaluated at least annually for impairment by applying a fair-value-based test and, if impairment occurs, the amount of impaired goodwill must be written off immediately. SFAS No. 142 will become effective January 1, 2002 for the Company. Upon the adoption of SFAS No. 142, the Company will no longer record amortization of goodwill. During the three and six months ended June 30, 2001, the Company recorded $0.5 million and $2.9 million, respectively, of amortization related to goodwill. The Company is required to apply the initial fair value test by June 30, 2002. The Company currently believes that the initial fair value test of the goodwill reflected in the accompanying condensed consolidated balance sheet will not result in any impairment charges. In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires the Company to recognize material asset retirement obligations. The Company has not yet determined the impact of this statement on the Company's results of operations or financial condition. Note 2. Inventories: Inventories consisted of the following at June 30, 2001, and December 31, 2000 (in thousands): June 30, 2001 December 31, 2000 ------------- ----------------- Raw materials and parts $14,588 $11,330 Work in process 897 1,022 Finished goods 14,741 12,427 ------- ------- 30,226 24,779 Excess and obsolete reserves (2,626) (2,650) ------- ------- $27,600 $22,129 ======= ======= Note 3. Stockholders' Equity: Below is a summary of the changes in selected components of stockholders' equity for the six months ended June 30, 2001 (in thousands): Paid-In Treasury Capital Stock --------- -------- Balance, December 31, 2000 $168,562 ($ 62,718) Compensation expense recognized in connection with stock option modifications 10,091 -- Purchases of treasury stock -- (12,373) Exercises of stock options (4,037) 10,083 Restricted stock grants, net of forfeitures and amortization (152) 487 -------- -------- Balance, June 30, 2001 $174,464 ($ 64,521) ======== ======== 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 generated a new measurement date and a compensation charge for all outstanding options for Canberra employees when the employees separated from the Company on February 27, 2001. The charge is based on the difference between the closing price of the Company's common stock on the date that the board of directors approved the modification and the exercise prices of the outstanding Canberra employee options as of February 27, 2001, and is reduced by compensation expense previously recognized on such options. In connection with this modification, Canberra optionholders elected to exercise their options resulting in the Company issuing 1,271,650 shares of common stock out of treasury stock at an average price of $4.37 per share. In lieu of a cash payment of the exercise price and related taxes, the optionholders elected to sell back 630,660 shares of common stock to the Company at a fair value of $10.75 per share, which was recorded as an increase in treasury stock. Lastly, on the same date, an additional 520,018 shares of common stock were sold back to the Company and accounted for as an increase in treasury stock at a fair value of $10.75 per share. Note 4. Acquisitions: In March 2000, the Company acquired a 51% equity interest in Carl Consumable Products, LLC ("CCP") for an initial cash payment of $510,000, with an option to acquire the remaining 49% equity interest for (a) a cash payment of $490,000, plus (b) earn-out payments equal to 25% of the operating profit (as defined in the purchase agreement) of CCP in excess of $530,000 which is generated in each calendar year occurring during the four-year period following exercise of the option (unless the option is exercised prior to March 6, 2001, in which case the applicable earn-out percentage will be increased from 25% to 35%). As of June 30, 2001, the option had not been exercised. CCP designs and manufactures sophisticated pipettes used in the liquid dispensing process of drug discovery and genomics research. In April 2000, the Company acquired certain net operating assets, primarily intangibles, of Cambridge Imaging Limited ("CIL"), effective March 31, 2000. The Company paid $1.25 million initially with additional contingent payments, up to $4.0 million, that may be made through April 2005, subject to the operations achieving certain post-acquisition performance levels through calendar year 2004. As of June 30, 2001, no contingent earn-out payments had been earned or accrued. The assets and technology acquired are 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 Effective May 1, 2001, the Company purchased 100% of the outstanding common stock of Canberra-Packard Canada Ltd. ("C-P Canada"). C-P Canada, located in Ontario, Canada, has operated as a distributor of the Company's products. The Company paid approximately $2.5 million, including related fees, and assumed approximately $0.9 million of indebtedness in connection with the acquisition. The acquisition resulted in a charge of $0.4 million in the second quarter of 2001 to expense the step-up of inventory to fair value recorded at the acquisition date. 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 over the fair values of the net assets acquired has been reflected as goodwill in the accompanying condensed 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 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 and C-P Canada acquisitions had occurred as of January 1, 2000. In the opinion of management, the pro forma information reflects all adjustments necessary for a fair presentation. The pro forma adjustments include: (1) amortization of goodwill associated with the acquisitions; (2) adjustments to reflect additional interest expense relating to the financing of the GSLI acquisition; (3) removal of the nonrecurring charge taken in connection with the C-P Canada acquisition to expense the step-up of inventory to fair value recorded at the acquisition date; 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.

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 and six months ended June 30, 2001 and 2000, are as follows (in thousands):

For the three and six months ended June 30, 2000, 4,049,000 and 4,432,000, respectively, common stock equivalents were excluded from diluted weighted average shares outstanding as their effect was antidilutive. Note 6. Stock Compensation Charges: In December 1999, the Company granted options to employees which, in accordance with financial reporting guidelines, required the Company to recognize compensation expense over the vesting period of such options. On March 20, 2000, the Company's Board of Directors approved the acceleration of the vesting of all outstanding unvested stock options, making them 100% vested, effective March 17, 2000. This resulted in the recognition of a non-cash compensation charge of $4.1 million during the three months ended March 31, 2000, associated with the options granted in December 1999. In March 2000, certain members of the Company's management transferred by gift shares of their own Company common stock to substantially all of the Company's employees who did not own shares or options to purchase shares of the Company's common stock on the date of the gifting. This resulted in a non-cash compensation charge of $0.6 million during the three months ended March 31, 2000. Both of the charges discussed above are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income (loss). Note 7. Discontinued Operations: On February 27, 2001, the Company sold its Canberra operating segment for $180.5 million, including the final net asset adjustment of approximately $10.5 million received by the Company in June 2001. The amount received exceeded the amount estimated by approximately $500,000. Such amount, along with other miscellaneous sale related adjustments, was included in the $730,000 net gain on the sale of discontinued operations during the three months ended June 30, 2001. Amounts previously reported for Canberra have been reclassified and presented as discontinued operations in the accompanying condensed consolidated financial statements. Summary information of the discontinued operations is as follows (in thousands):

For purposes of presenting operating results of the Company's continuing operations, all corporate interest expense and interest income has been charged or credited to continuing operations. Corporate interest expense consists of all interest associated with the subordinated notes, term loan facility and revolving credit facility. Corporate interest income represents income earned on corporate invested funds. None of this interest expense or income has been allocated to discontinued operations. Discontinued operations includes interest expense on local borrowings related to the applicable foreign subsidiaries. Note 8. Extraordinary Items: In April 2000, the Company utilized $68.2 million of the proceeds received from its initial public offering to pay off the outstanding balance on its term loan facility and the U.S. dollar denominated balance on its revolving credit facility. In May 2000, the Company repurchased approximately $22.5 million of its senior subordinated notes in the open market. The repurchase resulted in a gain as the senior subordinated notes were repurchased at a discount. The Company also wrote-off the remaining unamortized balance of deferred financing costs associated with the term loan as well as that portion applicable to the senior subordinated notes that were repurchased. The gain on the note repurchases ($2.3 million) is reflected as an extraordinary item in the accompanying condensed consolidated statements of income (loss), net of the extraordinary expense associated with the deferred financing costs write-off ($1.4 million) and income taxes ($0.3 million). Note 9. Registration Statement: In February 2001, the Company filed a registration statement on Form S-1 for the sale by certain selling stockholders and the Company of 10,000,000 shares of the Company's common stock. In April 2001, the Company withdrew the registration statement due to unfavorable market conditions. As a result, the Company wrote-off costs previously deferred related to the registration statement totaling approximately $0.7 million. These costs are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income (loss). Note 10. Merger Agreement: On July 16, 2001, the Company and PerkinElmer, Inc. announced that they had entered into an agreement and plan of merger, dated as of July 13, 2001. The transaction is valued at approximately $650 million, including net indebtedness, and is structured to be a tax-free, all-stock merger. If the merger is completed, the Company will become a wholly-owned subsidiary of PerkinElmer, Inc., and holders of the Company's common stock will be entitled to receive 0.311 of a share of PerkinElmer, Inc. common stock for each of their shares of the Company's common stock. The merger, which is subject to customary closing conditions and regulatory approvals, as well as the approval of both companies' shareholders, is expected to close during the fourth quarter of 2001. In connection with the merger, some of the Company's stockholders that represent, in the aggregate, a majority of the Company's outstanding shares have entered into a stockholder's and voting agreements with PerkinElmer, Inc. generally agreeing to vote their shares in favor of such merger. 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 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 "can," "continue," "could," "estimate," "expect," "intend," "may," "plan," "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: - intense competition in the markets we target; - our inability to successfully introduce new products and platforms or to expand the application range for our current products; - our inability to effectively protect our intellectual property; - the possibility that our products may infringe on the intellectual property rights of others; - a decline in the use of radioisotopic processes and instruments; - our failure to maintain, enhance or establish technology partnerships and academic arrangements; - our inability to pursue strategic acquisitions; - costs associated with strategic acquisitions we may effect; - a decrease in capital spending by our customers or in government funding; - exchange rate and other risks affecting our foreign operations; - competition in the technology labor market; - fluctuations in our operating results; - conflict with the interests of our controlling stockholder; - our declared intention not to pay cash dividends; and - the large number of shares eligible for future sale. Overview -------- Packard BioScience Company ("Packard" or the "Company") and its subsidiaries are global developers, manufacturers and marketers of instruments and related consumables and services for use in drug discovery and other life sciences research. Packard's revenues are derived primarily from sales of instruments and consumables with additional sales from services. Packard is marketing its instruments as parts of integrated platforms, which it expects will generate increasing instrument and consumable sales at higher gross margins than its services business. The Company's profitability varies among the sources of revenues, consisting of sales of instruments, services and consumables. The major reasons for such variances are: - technological differences between Packard's products and those of its competitors; - maturity of product life cycles; - competitive environment and supply of services and consumables; and - Packard's market position and differences in the markets within the geographic areas it operates. Packard's operating results also vary among geographic territories. Major reasons for such variances are: - effects of foreign exchange rate fluctuations in countries where it conducts business in currencies other than the U.S. dollar, primarily England (British Pound), Euro-based countries and Japan (Japanese Yen); - Packard's market position and mix of products sold affect the margins in each geographic area; and - to the extent that Packard's operating results reflect special charges or credits, and such can be designated to specific geographic operations, operating results will vary. On February 27, 2001, the Company sold its Canberra division to COGEMA, S.A. for $180.5 million, including the final net asset adjustment of approximately $10.5 million received by the Company in June 2001. The Company used $71 million of the proceeds to repay the outstanding balance on its credit facility on February 28, 2001. In addition, the Company used approximately $9.3 million of the proceeds to repurchase options held by Canberra employees. As of June 30, 2001, the Company has paid sale-related expenses of approximately $6.8 million and made estimated income tax payments of approximately $9.2 million. The Company intends to use the remainder of the net proceeds to pay other fees, expenses and taxes associated with the sale, totaling approximately $12.9 million at June 30, 2001, as well as 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. The condensed 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 continuing operations unless otherwise noted.

Revenues -------- During the three months ended June 30, 2001, revenues increased $10.4 million, or 26.9%, to $49.0 million as compared to $38.6 million in the comparable 2000 period. During the six months ended June 30, 2001, revenues increased $22.1 million, or 28.2%, to $100.5 million as compared to $78.4 million in the comparable 2000 period. The following items need to be considered when comparing the changes between the periods presented; - Both of the 2001 periods include revenues generated by the life sciences division of GSI Lumonics, Inc. (now operating as a division of Packard BioChip Technologies, LLC) ("Packard BioChip") which the Company acquired effective October 1, 2000. During the three and six month periods ended June 30, 2001, Packard BioChip generated revenues totaling $2.2 million and $7.0 million, respectively. During the three and six months ended June 30, 2000, this business generated revenues totaling $4.6 million and $8.0 million, respectively. The 2000 amounts are not reflected in the accompanying condensed consolidated statements of income (loss) as the periods are prior to the Company's acquisition of the business. - Effective May 1, 2001, the Company purchased 100% of the outstanding common stock of Canberra-Packard Canada Ltd. ("C-P Canada"). C-P Canada, located in Ontario, Canada, has operated as a distributor of the Company's products. As a result of the acquisition, the Company will benefit from the additional sales margin that C-P Canada realizes upon the sale of the Company's products to end-user customers ("incremental sales margin"). During the two months ended June 30, 2001, since its acquisition, C-P Canada has contributed approximately $0.6 million in incremental sales margin to the Company's operating results. During the one and four month periods ended April 30, 2001, the incremental sales margin generated by C-P Canada totaled $0.4 million and $1.4 million, respectively. During the three and six months ended June 30, 2000, the incremental sales margin generated by C-P Canada was $1.0 million and $2.0 million, respectively. Amounts prior to the acquisition date are not reflected in the accompanying condensed consolidated statements of income (loss). - Foreign currency exchange rates continued to have an unfavorable effect on the Company during the 2001 periods presented. Had exchange rates remained the same during the three and six months ended June 30, 2001, as in the comparable 2000 periods, revenues would have been $1.8 million and $3.4 million higher, respectively. The Japanese Yen, British Pound and Euro were 13%, 7% and 9% weaker, respectively, than the U.S. dollar during the six months ended June 30, 2001, as compared to the six months ended June 30, 2000. On a pro forma basis, including the revenues generated by Packard BioChip and incremental sales margin generated by C-P Canada during pre-acquisition periods, and excluding the effect of foreign currency fluctuations, revenues during the three and six months ended June 30, 2001, would have been $51.1 million and $105.3 million, respectively, or 15.6% and 19.1% higher, respectively, than the $44.2 million and $88.4 million generated in the pro forma three and six month periods ended June 30, 2000, respectively. The current year increases are primarily due to growth in our instrumentation sales within our major product lines, particularly our automated liquid handling and sample preparation instruments where revenues increased $8.7 million, or 41.2%, to $29.8 million during the six months ended June 30, 2001, from $21.1 million during the comparable 2000 period, excluding the effect of foreign currency fluctuations. Service revenues increased $0.5 million during the three months ended June 30, 2001, and decreased $0.2 million during the six months ended June 30, 2001, when compared to the prior year periods. The year-to-date decrease is primarily the result of the 2000 period benefiting from software upgrade services performed to make our products Y2K compliant, which continued subsequent to January 1, 2000. Gross Profit ------------ Gross profit increased $4.8 million, or 21.7%, to $26.9 million during the three months ended June 30, 2001, from $22.1 million in the comparable 2000 period. During the six months ended June 30, 2001, gross profit increased $11.2 million, or 25.1%, to $55.8 million from $44.6 million during the comparable 2000 period. The increase in gross margins is partially due to the inclusion of C-P Canada during a portion of the 2001 periods, since its effective date of acquisition, May 1, 2001. In addition, the acquisition of C-P Canada resulted in a charge to cost of sales of $0.4 million during the three months ended June 30, 2001, representing the write-off of the step-up of acquired inventory to fair market value at the date of acquisition. The growth in gross profit dollars is a direct result of the increased revenues discussed above. Operating Expenses ------------------ Research and Development. Research and development spending decreased $0.1 million and increased $2.2 million during the three and six months ended June 30, 2001, respectively, representing a 1.4% decrease and a 16.5% increase over the respective prior year periods. As a percentage of revenue, research and development spending is 15.4% during the six months ended June 30, 2001, as compared to 17.0% in the prior year period. The overall increase in spending dollars is attributable primarily to the Company's acquisition of Packard BioChip in October 2000. During the six months ended June 30, 2001, research and development spending by this business was $4.0 million. Excluding Packard BioChip's spending, research and development spending decreased approximately $1.8 million during the six months ended June 30, 2001, as compared to the prior year period. This decrease is attributable to several specific development projects which were in process during the 2000 period that are no longer in development or that have been placed in production. Selling, General and Administrative (including Goodwill Amortization). Selling, general and administrative expenses increased $5.4 million and $4.4 million during the three and six months ended June 30, 2001, respectively, representing 47.0% and 16.1% increases over the corresponding prior year periods. The three and six months ended June 30, 2001, include a $0.7 million charge to write-off costs incurred in connection with the preparation of a Form S-1 registration statement which the Company withdrew in April 2001 and therefore, wrote-off the costs incurred. The six months ended June 30, 2000, includes non-cash stock compensation charges totaling $4.7 million associated with the Company's April 2000 initial public offering of its common stock. Excluding these charges from both years, selling, general and administrative expenses increased $8.4 million, or 37.0%, in the first half of 2001 compared to the first half of 2000. This increase is due to the inclusion of the Packard BioChip and C-P Canada businesses in 2001, as well as a $2.4 million increase in goodwill amortization due primarily to the goodwill resulting from the Packard BioChip acquisition. The stronger U.S. dollar helped to partially offset the above-mentioned increases in selling, general and administrative costs. Interest Expense, Net --------------------- Interest expense, net, decreased from $4.0 million during the three months ended June 30, 2000, to $2.3 million during the comparable 2001 period. For the six months ended June 30, 2001, interest expense, net, is $3.9 million lower than the comparable prior year period. These decreases are a direct result of the net proceeds received by the Company in connection with the April 2000 initial public offering as well as the net proceeds received in connection with the February 2001 sale of Canberra. The Company used a portion of the proceeds from these transactions to reduce indebtedness, thereby reducing interest expense. In addition, the average invested cash balance was higher during the first half of 2001 as compared to the first half of 2000, resulting in increased interest income earned on invested funds. Based upon the invested cash balance on hand at June 30, 2001, and known significant net cash requirements throughout the remainder of 2001, the Company expects that quarterly net interest expense will average approximately $2.0 million through the remainder of 2001. However, events or market conditions could arise during this period that could cause actual net interest expense to differ materially from this estimate. The majority of the Company's interest expense is incurred on fixed rate subordinated notes whereas the interest earned on short-term investment instruments fluctuates with market conditions which, during the first half of 2001, experienced declining interest earning rates. Effective Tax Rate ------------------ The Company's effective tax rate was 31% during the first half of 2001 compared to 35% in the comparable 2000 period. The 2000 rate represents a benefit on a pre-tax loss. The reduction in the effective rate between the periods presented is due primarily to an increase in the estimated research and development tax credit the Company will generate and utilize in 2001 as a result of the planned increase in research and development spending. Discontinued Operations ----------------------- Income (loss) from discontinued operations, net of income taxes, consists of the following (in thousands):

For purposes of presenting operating results of continuing operations, all corporate interest expense has been charged, and all corporate interest income has been credited, to continuing operations. Discontinued operations for six months ended June 30, 2000, included non-cash stock compensation charges totaling $3.5 million and a restructuring charge at Canberra's manufacturing operation in England totaling $2.4 million. The gain recognized in connection with the sale of Canberra totaled $47.9 million, net of related expenses, costs and income taxes. Extraordinary Items, Net ------------------------ In April 2000, the Company utilized $68.2 million of the proceeds received from its initial public offering to pay off the outstanding balance on its term loan facility and the U.S. dollar denominated balance on its revolving credit facility. In May 2000, the Company repurchased approximately $22.5 million of its senior subordinated notes in the open market. The repurchase resulted in a gain as the senior subordinated notes were repurchased at a discount. The Company also wrote-off the remaining unamortized balance of deferred financing fees associated with the term loan as well as that portion applicable to the senior subordinated notes that were repurchased. The gain on the note repurchases ($2.3 million) is reflected as an extraordinary item in the accompanying condensed consolidated statements of income (loss), net of the extraordinary expense associated with the deferred financing fees write-off ($1.4 million) and income taxes ($0.3 million). Liquidity and Financial Resources --------------------------------- The Company's liquidity requirements arise from operational needs, including research and development expenditures, interest payments on outstanding indebtedness, capital expenditures and funding of acquisitions and other collaborations. Our 2001 cash requirements have been met through available invested cash, proceeds from the Canberra sale, borrowings under our revolving credit facility and overseas bank facilities, and proceeds from the exercise of stock options. Our 2000 cash requirements were met primarily through net proceeds received in connection with the Company's April 2000 initial public offering, borrowings on our credit facilities and proceeds received from the exercise of stock options. 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 the 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 $2.8 million in the first half of 2001 compared to $2.4 million of net cash generated in the first half of 2000. The increased use of cash for operating activities was due primarily to an increase in customer accounts receivable during 2001 associated with the significant increase in revenues as compared to the 2000 period. This increased use of cash was partially offset by a reduction in cash interest payments made in the first half of 2001, as compared to the prior year period, resulting from the Company's repurchase of approximately $32 million of senior subordinated notes in May, August and December of 2000, as well as a lower average outstanding balance on the Company's revolving credit facility during the 2001 period as compared to 2000. Net cash provided by investing activities was $135.9 million during the first half of 2001 compared to a use of $10.0 million of cash in the comparable 2000 period. The sale of Canberra generated net cash proceeds of approximately $155.2 million in the first half of 2001, consisting of the sale proceeds of $180.5 million, less $6.8 million of related fees, $9.3 million to repurchase options held by Canberra employees and cash income taxes of $9.2 million paid through June 30, 2001. There will be additional fees of approximately $2.4 million, as well as income taxes of approximately $10.5 million, net of the utilization of certain tax credit carryforwards from prior years, paid from the proceeds in future periods. Other investing cash use during the first half of 2001 included $8.6 million of acquisition related activity, primarily payment of contingent earn-outs accrued as of December 31, 2000, the acquisition of CP Canada effective May 1, 2001, and capital expenditures and technology purchases totaling $10.7 million. During the first half of 2000, the Company's investing use of cash consisted of $6.9 million of acquisition related activity, including payment of contingent earn-outs, and $3.1 million of capital expenditures and technology purchases. The increase in the first half of 2001 capital expenditures, as compared to the 2000 period, is due primarily to the Company's purchase of a new facility for Packard BioChip and the purchase of services related to a significant information systems initiative the Company has currently under development. Net cash used for financing activities during the first half of 2001 consisted of a net reduction in outstanding indebtedness of $52.2 million through the use of a portion of the proceeds received in connection with the Canberra sale. In addition, the 2001 period includes $6.6 million of net cash used to repurchase options. The first half of 2000 financing activities consisted primarily of the receipt of net proceeds of $110.3 million from the initial public offering, a portion of which was used to reduce net indebtedness by $69.8 million. In addition, the Company received $4.2 million in net cash upon the exercise of stock options. Backlog ------- As of June 30, 2001 and 2000, the Company's instrument and consumables order backlog was approximately $20.6 million and $22.9 million, respectively. The Company expects that substantially all of the June 30, 2001, backlog will be filled by December 31, 2001. The Company includes in backlog only those orders for which it has received purchase orders and does not include in backlog orders for service. The Company's backlog as of any particular date may not be representative of actual sales for any succeeding period. New Accounting Standards ------------------------ In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") 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 which are not designated as hedging instruments under SFAS No. 133, as amended. Effective January 1, 2001, the Company reflects 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. Resulting gains and losses are reflected in the Company's condensed consolidated statements of income (loss). The effect of adopting this statement of $0.2 million as of January 1, 2001, is included in cost of sales. The cumulative effect of adopting SFAS No. 133 has not been classified separately since the amount is not material. In July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS No. 141") which will eliminate the pooling of interest method of accounting for acquisitions. SFAS No. 141 is effective for all acquisitions initiated after June 30, 2001. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." Upon the adoption of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Instead, SFAS No. 142 requires that goodwill be evaluated at least annually for impairment by applying a fair-value-based test and, if impairment occurs, the amount of impaired goodwill must be written off immediately. SFAS No. 142 will become effective January 1, 2002 for the Company. Upon the adoption of SFAS No. 142, the Company will no longer record amortization of goodwill. During the three and six months ended June 30, 2001, the Company recorded $0.5 million and $2.9 million, respectively, of amortization related to goodwill. The Company is required to apply the initial fair value test by June 30, 2002. The Company currently believes that the initial fair value test of the goodwill reflected in the accompanying condensed consolidated balance sheet will not result in any impairment charges. In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires the Company to recognize material asset retirement obligations. The Company has not yet determined the impact of this statement on the Company's results of operations or financial condition. Merger Agreement -- Subsequent Event ------------------------------------ On July 16, 2001, the Company and PerkinElmer, Inc. announced that they had entered into an agreement and plan of merger, dated as of July 13, 2001. The transaction is valued at approximately $650 million, including net indebtedness, and is structured as a tax-free, all-stock merger. If the merger is completed, the Company will become a wholly-owned subsidiary of PerkinElmer, Inc., and holders of the Company's common stock will be entitled to receive 0.311 of a share of PerkinElmer, Inc. common stock for each of their shares of the Company's common stock. The merger, which is subject to customary closing conditions and regulatory approvals, as well as the approval of both companies' shareholders, is expected to close during the fourth quarter of 2001. In connection with the merger, some of the Company's stockholders that represent, in the aggregate, a majority of the Company's outstanding shares have entered into a stockholder's and voting agreements with PerkinElmer, Inc. generally agreeing to vote in favor of such merger. 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 2000 Form 10-K. PART II. OTHER INFORMATION PACKARD BIOSCIENCE COMPANY Item 1. Legal Proceedings There has been no significant change in this area since the filing of the Company's 2000 Form 10-K. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K: A report on Form 8-K dated July 13, 2001, was filed on July 16, 2001. 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 August 9, 2001. PACKARD BIOSCIENCE COMPANY By: /s/ Emery G. Olcott ----------------------------------------------------- Emery G. Olcott Chairman of the Board and Chief Executive Officer By: /s/ Ben D. Kaplan ------------------------------------------------- Ben D. Kaplan Vice President and Chief Financial Officer By: /s/ David M. Dean ----------------------------------------------------- David M. Dean Vice President and Corporate Controller

PACKARD BIOSCIENCE CO 10-Q