1
UNITED STATES
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, 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: 1-11091
APOGENT TECHNOLOGIES INC.
-------------------------
(Exact name of registrant as specified in its charter)
WISCONSIN 22-2849508
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
48 CONGRESS STREET, PORTSMOUTH, NEW HAMPSHIRE 03801
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(Address of principal executive offices) (Zip Code)
(603) 433-6131
--------------
(Registrant's telephone number, including area code)
(Former name, former address, former fiscal year, if changed since last report)
Indicate by checkmark, 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 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 .
--- ---
At May 11, 2001, there were 105,596,023 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
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APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Index Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2001 and
September 30, 2000 3
Consolidated Statements of Income for the three and six months ended
March 31, 2001 and 2000 4
Consolidated Statement of Shareholders' Equity for the six months
ended March 31, 2001 5
Consolidated Statements of Cash Flows for the six months ended March
31, 2001 6
Notes to unaudited consolidated financial statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 37
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 38
Signatures 39
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, SEPTEMBER 30,
2001 2000
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 12,113 $ 12,411
Accounts receivable (less allowance for doubtful accounts of
$3,749 and $4,041 at March 31, 2001 and Sept. 30, 2000, respectively) 177,830 173,585
Inventories 156,075 141,779
Deferred income taxes 13,055 13,226
Net assets held for discontinued operations - 152,970
Prepaid expenses and other current assets 19,951 16,564
-------------- --------------
Total current assets 379,024 510,535
Available for sale security 53,540 54,444
Property, plant and equipment, net 212,394 208,094
Intangible assets 1,056,094 1,008,153
Deferred income taxes 7,888 7,870
Other assets 6,761 3,268
-------------- --------------
Total assets $ 1,715,701 $ 1,792,364
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,049 $ 51,899
Advances and loans from SDS - 77,762
Current portion of long-term debt 41,542 34,327
Income taxes payable 34,089 16,604
Accrued payroll and employee benefits 28,619 30,509
Restructuring reserve 4,256 5,609
Deferred income taxes 905 807
Other current liabilities 31,143 23,622
-------------- --------------
Total current liabilities 184,603 241,139
Long-term debt 594,250 649,409
Securities lending agreement 53,540 54,444
Deferred income taxes 93,649 93,048
Other liabilities 6,410 4,808
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, $0.01 par value; authorized 20,000,000 shares - -
Common stock, $0.01 par value; authorized 250,000,000 shares
issued 105,406,437 and 105,191,692 shares respectively,
outstanding 105,406,437 and 105,191,692 shares
respectively 1,054 1,052
Equity rights, 50 rights at $1.09 per right in and - -
Additional paid-in capital 248,097 271,739
Retained earnings 571,509 531,701
Accumulated other comprehensive income (37,411) (54,976)
Treasury commons to are stock, 220 shares at cost in and - -
-------------- --------------
Total shareholders' equity 783,249 749,516
-------------- --------------
Total liabilities and shareholders' equity $ 1,715,701 $ 1,792,364
============== ==============
See accompanying notes to unaudited consolidated financial statements.
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APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
Net sales $ 245,104 $ 218,074 $ 465,862 $ 422,957
Cost of sales:
Cost of products sold 124,447 110,775 239,128 215,433
Depreciation of purchase accounting adjustments 144 134 268 268
--------------- ------------- ------------- -------------
Total cost of sales 124,591 110,909 239,396 215,701
--------------- ------------- ------------- -------------
Gross profit 120,513 107,165 226,466 207,256
Selling, general and administrative expenses 52,346 45,541 97,932 91,035
Restructuring charge 583 583 -
Depreciation and amortization of purchase accounting - -
adjustments 10,751 8,663 21,281 17,169
--------------- ------------- ------------- -------------
Total selling, general and administrative adjustments 63,680 54,204 119,796 108,204
--------------- ------------- ------------- -------------
Operating income 56,833 52,961 106,670 99,052
Other income (expense):
Interest expense (11,864) (11,983) (24,392) (23,895)
Amortization of deferred financing fees (140) (151) (249) (261)
Other, net 5,488 411 5,266 167
--------------- ------------- ------------- -------------
Income from continuing operations before income
taxes and extraordinary item 50,317 41,238 87,295 75,063
Income taxes 20,127 15,898 34,918 29,262
--------------- ------------- ------------- -------------
Income from continuing operations before extraordinary
item 30,190 25,340 52,377 45,801
Discontinued operations (net of income tax expense of $0,
$9,241 $435, and $15,993) (838) 13,635 (11,824) 23,598
--------------- ------------- ------------- -------------
Income before extraordinary item 29,352 38,975 40,553 69,399
Extraordinary item (745) -
--------------- ------------- ------------- -------------
Net income $ 29,352 $ 38,975 $ 39,808 $ 69,399
=============== ============= ============= =============
Basic earnings per common share from continuing operations $ 0.29 $ 0.24 $ 0.50 $ 0.44
Discontinued operations (0.01) 0.13 (0.11) 0.23
Extraordinary item - - (0.01) -
--------------- ------------- ------------- -------------
Basic earnings per common share $ 0.28 $ 0.37 $ 0.38 $ 0.67
=============== ============= ============= =============
Diluted earning per common share from continuing operations $ 0.28 $ 0.24 $ 0.49 $ 0.43
Discontinued operations (0.01) 0.13 (0.11) 0.22
Extraordinary item - - (0.01) -
--------------- ------------- ------------- -------------
Diluted earnings per common share $ 0.27 $ 0.37 $ 0.37 $ 0.65
=============== ============= ============= =============
Weighted average basic shares outstanding 105,371 104,234 105,332 104,130
Weighted average diluted shares outstanding 107,480 106,646 107,558 106,488
See accompanying notes to unaudited consolidated financial statements.
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APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER TREASURY TOTAL
COMMON EQUITY PAID-IN RETAINED COMPREHENSIVE COMMON SHAREHOLDERS'
STOCK RIGHTS CAPITAL EARNINGS INCOME STOCK EQUITY
----- ------ ------- -------- ------ ----- ------
Balance at September 30, 2000 $1,052 $ - $ 271,739 $ 531,701 $ (54,976) $ - $ 749,516
Cumulative effect of accounting change
for cash flow hedge, net of tax effect
of $1,687 2,530 2,530
Comprehensive income:
Net income 39,808 39,808
Translation adjustment 4,381 4,381
Adjustment to interest rate swap
agreement upon sale, net of tax
benefit of $984 (1,475) (1,475)
Amortization of gain on sale of interest -
rate swaps, net of tax benefit of $169 (255) (255)
Unrealized loss on security available -
for sale, net of tax benefit of $362 (542) (542)
------- ------- ---------- ----------- ------------ -------- -----------
Total comprehensive income - - - 39,808 4,639 - 44,447
Shares issued in connection with
stock options 2 2,302 2,304
Tax benefit related to stock options 1,083 1,083
Distribution of the equity of Sybron Dental
Specialties, Inc. on December 11, 2000,
net of dividends of $142,880 (27,027) 12,926 (14,101)
------- ------- ---------- ----------- ------------ -------- -----------
Balance at March 31, 2001 $1,054 $ - $ 248,097 $ 571,509 $ (37,411) $ - $ 783,249
======= ======= ========== =========== ============ ======== ===========
See accompanying notes to unaudited consolidated financial statements.
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APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 39,808 $ 69,399
Adjustments to reconcile net income to net cash provided by operating activities
Discontinued operations 11,824 (23,598)
Depreciation 16,536 14,127
Amortization 20,610 17,159
Gain on sale of property, plant and equipment (4,962) 68
Provision for losses on doubtful accounts (290) 242
Inventory provisions 1,161 (485)
Deferred income taxes 632 4,006
Extraordinary items 745 -
Net changes in assets and liabilities, net of effects of spun-off business
and businesses acquired (20,795) (44,321)
------------- -----------
Net cash provided by operating activities 65,269 36,597
------------- -----------
Cash flows from investing activities:
Capital expenditures (24,171) (18,768)
Proceeds from sales of property, plant and equipment 10,731 289
Proceeds from sale of NPT - (2,600)
Dividends received from SDS 67,900 -
Capital contributions paid to SDS (4,623) (20,398)
Distribution of the net equity of SDS (14,101) -
Net change in advances and loans to SDS (2,782) 61,275
Net payment for businesses acquired (51,206) (121,664)
------------- -----------
Net cash used in investing activities (18,252) (101,866)
------------- -----------
Cash flows from financing activities
Proceeds from long-term debt 333,619 -
Principal payments on long-term debt (381,012) (583)
Proceeds from the exercise of stock options 2,304 4,645
Refinancing fees paid (3,900) (197)
Proceeds from revolving credit facility 359,540 192,000
Principal payments on revolving credit facility (358,640) (133,500)
Other financing activities (1,042) (2,676)
------------- -----------
Net cash (used in) provided by financing activities (49,131) 59,689
------------- -----------
Effect of exchange rate changes on cash and cash equivalents 1,816 (433)
------------- -----------
Net decrease in cash and cash equivalents (298) (6,013)
Cash and cash equivalents at beginning of period 12,411 12,401
------------- -----------
Cash and cash equivalents at end of period $ 12,113 $ 6,388
============= ===========
See accompanying notes to unaudited consolidated financial statements.
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APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
2001 2000
---- ----
Net changes in assets and liabilities, net of effects of spun-off business and
businesses acquired:
Increase in accounts receivable $ (3,445) $ (15,392)
Increase in inventories (15,629) (7,033)
Increase in prepaid expenses and other current assets (2,647) (2,945)
Decrease in accounts payable (8,871) (4,032)
Increase (decrease) in income taxes payable 17,136 (1,636)
Decrease in other current liabilities (7,184) (10,204)
Increase (decrease) in accrued payroll and employee benefits 4,670 (4,607)
Decrease in restructuring reserve (4,081) (367)
Net change in other assets and liabilities (744) 1,895
-------------- -------------
Net changes in asset and liabilities, net of effect of spun-off
business and businesses acquired $ (20,795) $ (44,321)
============== =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 25,665 $ 33,639
============== =============
Income taxes $ 21,147 $ 32,829
============== =============
Capital lease obligations incurred $ - $ 43
============== =============
See accompanying notes to unaudited consolidated financial statements.
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APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
In the opinion of management, all adjustments that are necessary for a fair
statement of the results for the interim periods presented have been
included. The results for the three and six month periods ended March 31,
2001 are not necessarily indicative of the results to be expected for the
full year. The financial statements have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information and
note disclosures required by generally accepted accounting principles in
the United States. These statements should only be read in conjunction with
the Company's annual report on Form 10-K for the fiscal year ended
September 30, 2000. Certain prior period amounts have been reclassified to
conform to the current period presentation.
On January 30, 2001, the Company's shareholders voted to change the name of
the Company from Sybron International Corporation to Apogent Technologies
Inc. As used in these Notes to the Unaudited Consolidated Financial
Statements, the term "Company" means Sybron International Corporation for
the period prior to January 30, 2001 and Apogent Technologies Inc.
thereafter.
2. INVENTORIES
Inventories at March 31, 2001 and September 30, 2000 consist of the
following:
MARCH 31, SEPTEMBER 30,
2001 2000
---- ----
Raw materials and supplies $ 64,705 $ 59,178
Work in process 26,802 29,848
Finished goods 71,587 57,015
LIFO reserve (7,019) (4,262)
---------- ----------
$156,075 $141,779
========== ==========
3. ACQUISITIONS
During the six-month period ended March 31, 2001, the Company completed two
acquisitions for cash. The aggregate purchase price (which was not
significant individually or in the aggregate), net of cash acquired, was
approximately $62 million. Both of these acquisitions were accounted for as
purchase transactions. Accordingly, the results of these acquisitions were
included as of the date they were acquired. Total goodwill and intangibles
for the acquired companies was approximately $62 million, and will be
amortized over 3 to 40 years. Descriptions of the acquired companies are as
follows:
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a) On November 9, 2000, the Company acquired Vacuum Process
Technology, Inc. ("VPT") located in Plymouth, MA., a leading
manufacturer of state-of-the-art thin film deposition equipment,
which is sold to a wide variety of companies in the internet
infrastructure, optical and semiconductor industries. VPT's sales
revenue for the fiscal year is expected to be approximately $18.4
million. VPT is included in the Clinical and Industrial business
segment.
b) On March 1, 2001, the Company acquired BioRobotics Group Limited
("BioRobotics") located in Haslingfield, England. BioRobotics is a
leading provider of automated instrumentation solutions used in
functional genomics. Sales revenues are expected to be
approximately $19 million for the twelve months ending
February 28, 2002. BioRobotics is included in the Labware and Life
Sciences business segment.
Two acquisitions were completed for cash after the second fiscal quarter
2001 and will be accounted for as purchase transactions. The aggregate
purchase price (which was not significant individually or in the aggregate)
was approximately $75 million. The results of these acquisitions will be
included as of the date they were acquired. The allocations of the purchase
prices for these acquisitions are being assessed currently. Descriptions of
these acquisitions are as follows:
a) On April 10, 2001, the Company acquired Advanced Biotechnologies
Limited ("ABgene"), located in Epsom, England. ABgene is a leading
manufacturer of a comprehensive range of molecular biology
reagents and special plastic consumables for the life sciences
market. ABgene's sales revenues for the year ended March 31, 2001
were approximately $21 million. ABgene will be included in the
Labware and Life Sciences business segment.
b) On April 10, 2001, the Company acquired the disposable glass
culture tube business ("DCT Business") of Kimble Glass, Inc.
located in Vineland, New Jersey. The DCT Business will be owned by
and consolidated into the Company's subsidiary, Chase Scientific
Glass, Inc., which currently manufactures disposable glass culture
tubes ("DCTs"). Sales revenue from this business is expected to be
approximately $5.8 million for the year ending December 31, 2001.
DCTs are used in a variety of general laboratory applications,
particularly in blood collection, blood banking, urinalysis, and
certain cell culture procedures. Chase Scientific Glass, Inc. is
currently included in the Clinical and Industrial business
segment.
4. RESTRUCTURING
In June 1998, the Company recorded a restructuring charge of approximately
$8,500 (approximately $5,400 after tax or $.05 per share on a diluted
basis) for the rationalization of certain acquired companies, combination
of certain duplicate production facilities, movement of certain customer
service and marketing functions, and the exiting of several product lines.
The restructuring charge was classified as components of cost of sales
(approximately $1,800 relating to the write-off of inventory discussed
below), and selling, general and administrative expenses (approximately
$6,700).
Restructuring activity since June 30, 1998 and its components are as
follows:
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LEASE INVENTORY FIXED
SEVERANCE PAYMENTS WRITE-OFF ASSETS GOODWILL
(a) (b) (c) (c) (d) TOTAL
--------- --------- --------- -------- -------- -------
1998 Restructuring Charge.... $3,400 $ 200 $ 1,800 $1,000 $ 2,100 $8,500
1998 Cash Payments........... 900 100 -- -- -- 1,000
1998 Non-Cash Charges........ -- -- 1,800 1,000 2,100 4,900
------ ----- ------- ------ ------- ------
September 30, 1998 balance... $2,500 $ 100 $ -- $ -- $ -- $2,600
1999 Cash Payments........... 1,900 100 -- -- -- 2,000
Adjustments(a)............... 300 -- -- -- -- 300
------ ----- ------- ------ ------- ------
September 30, 1999 balance... $ 900 $ -- $ -- $ -- $ -- $ 900
2000 Cash Payments........... 700 -- -- -- -- 700
------ ----- ------- ------ ------- ------
September 30, 2000 balance... $ 200 $ -- $ -- $ -- $ -- $ 200
2001 Cash payments........... 100 -- -- -- -- 100
------ ----- ------- ------ ------- ------
March 31, 2001 balance....... $ 100 $ -- $ -- $ -- $ -- $ 100
====== ===== ======= ====== ======= ======
(a) Amount represents severance and termination costs for
approximately 65 terminated employees (primarily sales and
marketing personnel). As of March 31, 2001, all employees have
been terminated as a result of the restructuring plan. Payments
will continue to certain employees previously terminated under
this restructuring plan. An adjustment of approximately $300 was
made in the third quarter of fiscal 1999 to adjust the accrual
primarily representing under accruals for anticipated costs
associated with outplacement services, accrued fringe benefits,
and severance associated with employees who were previously
notified of termination. No additional employees will be
terminated under this restructuring plan.
(b) Amount represents lease payments on exited facilities.
(c) Amount represents write-offs of inventory and fixed assets
associated with discontinued product lines.
(d) Amount represents goodwill associated with exited product lines.
The Company expects to make future cash payments of approximately $100
during the remainder of fiscal 2001.
In September 2000, the Company recorded a restructuring charge of
approximately $11,300 (approximately $7,500 after tax or $.07 per share on
a diluted basis) for the consolidation of certain businesses, product
rationalizations, changes in management structure and taxes associated with
restructuring U.K. operations. The restructuring charge was classified as
components of cost of sales (approximately $4,400 relating to the write-off
of inventory, write-offs of fixed assets, certain lease terminations and
severance associated with employees in production activities), selling,
general and administrative expense of $5,800 and income tax expense of
$1,000, related to the Company's restructuring of its U.K. operations.
Restructuring activity since its inception in September 2000 and its
components are as follows:
FIXED LEASE SHUT-DOWN
SEVERANCE INVENTORY ASSETS COMMITMENTS COSTS TAX
(a) (b) (b) (c) (c) (d) OTHER TOTAL
--------- --------- ------- ------------- ---------- ------- ------ ----------
2000 Restructuring charge... $5,500 $ 2,100 $ 1,000 $ 500 $ 300 $ 1,000 $ 900 $11,300
2000 Cash payments.......... 1,100 -- -- -- -- -- -- 1,100
2000 Non-cash charges....... -- 2,100 1,000 -- -- -- 800 3,900
------ ------- ------- ----- ----- ------- ------ -------
September 30, 2000 balance.. $4,400 $ -- $ -- $ 500 $ 300 $ 1,000 $ 100 $ 6,300
Adjustments (e)............. 600 600
2001 Cash payments.......... 1,600 -- -- 100 100 -- -- 1,800
------ ------- ------- ----- ------ ------- ------ -------
March 31, 2001 balance $ 3,400 $ -- $ -- $ 400 $ 200 $ 1,000 $ 100 $ 5,100
======= ======== ======= ===== ===== ======= ====== =======
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(a) Amount represents severance and termination costs for 151
terminated employees (primarily sales, marketing and corporate
personnel). As of March 31, 2000, 115 employees have been
terminated as a result of the restructuring plan.
(b) Amount represents write-offs of inventory and fixed assets
associated with discontinued product lines.
(c) Amount represents lease payments and shut down costs on exited
facilities.
(d) Amount represents income tax expense associated with the
restructuring of our U.K. facilities.
(e) Amount represents an increase in the severance costs for 16
employees (primarily corporate personnel). These employees are
included in the total 151 terminated employees referenced above.
The Company expects to make future cash payments of approximately $3,500,
and $800 in each of the remaining two quarters of fiscal 2001 and $1,200 in
fiscal 2002 and beyond.
5. DISCONTINUED OPERATIONS
On November 8, 2000, the Company announced that it had declared a pro rata
distribution (or spin-off) to its shareholders of the common stock and
related preferred stock purchase rights of Sybron Dental Specialties, Inc.
(the "Distribution"). Shareholders of record as of November 30, 2000
received one share of Sybron Dental Specialties, Inc. ("SDS") common stock
for every three shares of Sybron International common stock they owned.
These consolidated financial statements have reclassified SDS and its
affiliates to discontinued operations. On December 11, 2000, the
Distribution was completed. The Company received no proceeds in connection
with the Distribution.
Immediately prior to the Distribution, Sybron Dental Management, Inc.
("SDM") then a subsidiary of Sybron, paid a dividend of $142,880 to Sybron,
of which $67,900 was paid in cash and $74,980 was a settlement of
intercompany loans and advances and to reflect an allocation of additional
bank debt to SDS. Immediately after payment of this dividend, SDM became a
subsidiary of SDS. The total allocation of bank debt to SDS was $375,000.
For the six months ended March 31, 2001 and 2000, the Company has included
a net loss of $11,800 and net income of $23,600 from discontinued
operations, respectively. The net loss in 2001 included transaction
expenses of $12,500 relating to the Distribution of SDS. Revenues and net
income from SDS through the date of the spin-off (through December 11,
2000) were $67,400 and $638, respectively and offset the transaction
expenses. Revenues and net income from SDS for the six months ended March
31, 1999 were $201,600, and $23,600, respectively.
As a result, these consolidated financial statements have reclassified SDS
and its affiliates to discontinued operations. SDS now owns and operates
what were formerly the Company's Professional Dental, Orthodontics and
Infection Control Products business segments. The components of net assets
held for sale of discontinued operations included in the consolidated
balance sheet September 30, 2000 are as follows:
SEPTEMBER 30,
2000
-------------
Cash.................................. $ 5,783
Net account receivables............... 85,767
Net inventories....................... 74,383
Other current assets.................. 6,497
Advances and loans to Sybron 77,762
International.........................
Property plant and equipment-- net.... 55,326
Intangible assets..................... 220,705
Other assets.......................... 6,967
Current portion of long term debt..... (21,761)
Accounts payable...................... (11,351)
Income taxes payable.................. (5,680)
Accrued liabilities................... (27,859)
Deferred income taxes-- net........... (6,252)
Long term debt........................ (298,482)
Other liabilities..................... (8,835)
---------
$ 152,970
=========
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6. CREDIT AGREEMENTS
Until December 11, 2000, Sybron and its principal domestic subsidiaries
(including certain subsidiaries of SDS) were parties to a credit agreement
(as amended, the "Previous Credit Agreement") with The Chase Manhattan Bank
("Chase") and certain other lenders providing for a term A loan facility of
$300,000 (the "Tranche A Term Loan Facility"), a term B loan facility of
$300,000 (the "Tranche B Term Loan Facility") and a revolving credit
facility of up to $600,000 (the "Previous Revolving Credit Facility").
In connection with the Distribution, on December 1, 2000, the Company
entered into a new credit agreement (the "Credit Agreement") with Chase and
certain other lenders providing for a term loan of $300,000. On April 4,
2001 the Company repaid the Term Loan Facility in full (see Note 11 to the
unaudited consolidated financial statements).
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For the six months ending March 31, 2001 the Company recorded an
extraordinary loss of $745 after taxes as a result of entering into the new
credit agreement. This loss related to the write-off of deferred financing
costs associated with the Previous Credit Agreement.
7. DERIVATIVE INSTRUMENTS
On October 1, 2000, the Company adopted Financial Accounting Standard Board
Opinions No. 133 ("SFAS 133") as modified by FASB Opinion No. 138. These
standards establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. They require the recognition of all
derivative instruments as assets or liabilities in the balance sheet at
fair value. The accounting treatment of changes in fair value is dependent
upon whether or not a derivative instrument is designated as a hedge and if
so, the type of hedge. For derivatives designated as a cash flow hedge,
changes in fair value are recognized in other comprehensive income until
the hedged item is recognized in earnings. At October 1, 2000 the Company
had no freestanding derivatives in place other than interest rate swaps
used to hedge variable rate long-term debt The interest rate swaps meet
the criteria for cash flow hedge accounting. As a result, the swaps are
recorded on the balance sheet as an asset at fair value with the
corresponding gain or loss recorded in other comprehensive income beginning
October 1, 2000. The impact on other comprehensive income upon adoption of
the standard was an unrealized gain, net of tax, of approximately $2,530.
In the normal course of business, we manage risks associated with foreign
exchange and interest rates through a variety of strategies, including the
use of hedging transactions, executed in accordance with our policies.
Our hedging transactions include, but are not limited to, the use of
various derivative financial instruments. As a matter of policy, we do
not use derivative instruments unless there is an underlying exposure.
Any change in the value of our derivative instruments would be
substantially offset by an opposite change in the value of the underlying
hedged items. We do not use derivative instruments for trading or
speculative purposes.
On December 11, 2000, the Company extinguished the variable rate long-term
debt to which the swaps were designated and as a result the interest rate
swaps ceased to be accounted for as hedges. On December 12, 2000, the
Company sold the interest rate swaps for an aggregate gain of $1,055, net
of tax. Upon sale of the interest rate swaps, the Company reduced the
unrealized gain recorded at October 1, 2000 in other comprehensive income
to reflect the fair market value net of tax on the date of sale. Because
these interest rate swaps were designated as a hedge against future
variable rate interest payments and the extinguished debt, the gain will
continue to be carried in other comprehensive income and recognized as an
adjustment of yield interest expense of the New Credit Facilities (see
note 6) over the remaining term of the interest rate contract. For the
period December 12, 2000 through March 31, 2001, the Company recognized a
gain of $255, net of tax.
In March 2001, we entered into two foreign currency options to hedge
against the effect of fluctuations in foreign exchange rates on two notes
issued in British Pounds. The options of $11,500 GPB and $11,750 GPB have
maturity dates approximating those of the notes, of July 31, 2002 and July
2003, respectively. Both options were priced at $0.69 GBP.
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8. STOCK OPTIONS
On December 11, 2000, in connection with the spin-off of SDS, certain
employees of SDS exchanged 1,320,515 outstanding options to purchase Sybron
International Corporation common stock for 2,331,214 options to purchase
Sybron Dental Specialties, Inc. common stock. All remaining stock options
(owned by remaining employees and directors of the Company) were adjusted
by adjusting the exercise price and the number of shares subject to each
such option to reflect the change in market value of the Company's common
stock resulting from the spin-off, so that the intrinsic value of the
options (the spread between the market value and the exercise price of the
option shares) after the spin-off was equal to their intrinsic value
immediately prior to the spin-off. The spread on options for fractional
shares resulting from the exchange or adjustment was paid in cash. As a
result of these exchanges and adjustments, the number of outstanding
employee and director stock options increased by 391,458 shares and the
average exercise price decreased by approximately $3.80.
9. SEGMENT INFORMATION
The Company's operating subsidiaries are engaged in the manufacture and
sale of laboratory products in the United States and other countries. The
Company's products are categorized in the business segments of a) Labware
and Life Sciences, b) Clinical and Industrial, c) Diagnostics and
Microbiology, and d) Laboratory Equipment.
Information on these business segments is summarized below:
Labware Clinical Diagnostics
and Life and and Laboratory Total
Sciences Industrial Microbiology Equipment Eliminations (a) Other (a) Company
-------- ---------- ------------ --------- ---------------- --------- -------
THREE MONTHS ENDED MARCH 31, 2000
Revenues:
External customer $ 85,584 $ 54,666 $ 53,179 $ 24,645 $ 218,074
Intersegment 285 1,768 91 229 (2,216) 157
Total revenues 85,869 56,434 53,270 24,874 (2,216) 218,231
Gross profit 45,166 23,264 28,434 10,301 107,165
Selling, general and administrative 23,773 9,248 14,022 5,292 1,869 54,204
Operating income 21,393 14,016 14,412 5,009 (1,869) 52,961
THREE MONTHS ENDED MARCH 31, 2001
Revenues:
External customer 97,665 61,762 59,801 25,876 245,104
Intersegment 319 2,281 147 97 (2,844) -
Total revenues 97,984 64,043 59,948 25,973 (2,844) 245,104
Gross profit 51,848 25,552 31,985 11,128 120,513
Selling, general and administrative 27,113 11,626 16,635 5,758 2,548 63,680
Operating income 24,734 13,926 15,350 5,371 (2,548) 56,833
Segment assets 639,155 329,942 523,810 124,987 97,807 1,715,701
14
15
Labware Clinical Diagnostics
and Life and and Laboratory Total
Sciences Industrial Microbiology Equipment Eliminations (a) Other (a) Company
-------- ---------- ------------ --------- ---------------- --------- -------
SIX MONTHS ENDED MARCH 31, 2000
Revenues:
External customer $ 165,482 $ 106,577 $ 103,795 $ 47,103 $ - $ - $ 422,957
Intersegment 638 3,326 193 443 (4,315) - 285
Total revenues 166,120 109,903 103,988 47,546 (4,315) - 423,242
Gross profit 86,023 44,910 56,433 19,890 - - 207,256
Selling, general and administrative 46,978 18,195 28,862 10,362 - 3,807 108,204
Operating income 39,045 26,715 27,571 9,528 - (3,807) 99,052
SIX MONTHS ENDED MARCH 31, 2001
Revenues:
External customer 182,528 118,270 114,313 50,751 - - 465,862
Intersegment 637 4,144 299 264 (5,276) - 68
Total revenues 183,165 122,413 114,612 51,016 (5,276) - 465,930
Gross profit 95,097 48,786 60,820 21,763 - - 226,466
Selling, general and administrative 51,106 21,597 31,742 10,715 - 4,636 119,796
Operating income 43,990 27,189 29,078 11,049 - (4,636) 106,670
Segment assets 639,155 329,942 523,810 124,987 97,807 1,715,701
--------------
(a) Includes the elimination of intercompany and corporate office activity.
10. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Below are the condensed consolidating balance sheets, statements of
operations and statements of cash flows for Apogent Technologies Inc., as
of March 31, 2001 and September 30, 2000 and for the six months ended March
31, 2001 and fiscal year ended September 30, 2000.
Certain general corporate expenses have not been allocated to the
subsidiaries, and are all included under the Apogent Technologies Inc.
heading. As a matter of course, the Company retains certain assets and
liabilities at the corporate level that are not allocated to the
subsidiaries including, but not limited to, certain employee benefit,
insurance and tax liabilities. Income tax provisions for subsidiaries are
typically recorded using an estimate and finalized in total with an
adjustment recorded at the corporate level. Certain debt under which
Apogent Technologies Inc. is listed as the debtor has been allocated to the
Guarantor subsidiaries. Intercompany balances include receivables/payables
incurred in the normal course of business in addition to investments and
loans transacted between subsidiaries of the Company or with Apogent
Technologies Inc.
15
16
CONDENSED CONSOLIDATING BALANCE SHEETS
As of March 31, 2001
-------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,468 $ - $ 11,876 $ (5,231) $ 12,113
Accounts receivable, net - 146,734 31,096 - 177,830
Inventories, net 1,263 131,426 28,081 (4,695) 156,075
Other current assets 14,731 13,140 5,135 - 33,006
------------ ------------ ------------ ------------ ------------
Total current assets 21,462 291,300 76,188 (9,926) 379,024
Property, plant and equipment, net 9,207 163,499 39,688 - 212,394
Intangible assets 6,427 898,681 150,986 - 1,056,094
Deferred income taxes 7,888 - - - 7,888
Investment in subsidiaries 1,508,388 51,496 (1,559,884) -
Other assets 53,540 5,079 1,682 - 60,301
------------ ------------ ------------ ------------ ------------
Total assets $ 1,606,912 $ 1,410,055 $ 268,544 $ (1,569,810) $ 1,715,701
============ ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 273 $ 40,384 $ 8,623 $ (5,231) $ 44,049
Current portion of long-term debt - 41,491 51 - 41,542
Income taxes payable 19,999 11,574 2,516 - 34,089
Accrued expenses and other current liabilities 10,297 30,484 24,142 - 64,923
------------ ------------ ------------ ------------ ------------
Total current liabilities 30,569 123,933 35,332 (5,231) 184,603
------------ ------------ ------------ ------------ ------------
Long-term debt - 594,223 27 - 594,250
Securities lending agreement 53,540 - - - 53,540
Deferred income taxes 68,114 17,777 7,758 - 93,649
Other liabilities 3,959 1,304 1,147 - 6,410
Net intercompany payable/(receivable) 104,478 (195,909) 93,297 (1,866) -
Commitments and contingent liabilities
Shareholders' equity
Preferred stock - - - - -
Common stock 1,054 - - - 1,054
Equity rights - - - - -
Additional paid-in-capital 248,097 1,436,394 123,490 (1,559,884) 248,097
Retained earnings (deficit) 1,094,451 (567,667) 47,554 (2,829) 571,509
Other comprehensive income 2,650 - (40,061) - (37,411)
Treasury stock (at cost) - - - - -
------------ ------------ ------------ ------------ ------------
Total shareholders' equity 1,346,252 868,727 130,983 (1,562,713) 783,249
------------ ------------ ------------ ------------ ------------
Total liabilities and shareholders'
equity $ 1,606,912 $ 1,410,055 $ 268,544 $ (1,569,810) $ 1,715,701
============ ============ ============ ============ ============
16
17
CONDENSED CONSOLIDATING BALANCE SHEETS
As of September 30, 2000
------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,086 $ - $ 7,902 $ (2,577) $ 12,411
Accounts receivable, net - 146,564 27,021 - 173,585
Inventories, net 1,187 120,399 24,020 (3,827) 141,779
Net assets held for discontinued operations 152,970 - - - 152,970
Other current assets 16,467 28,387 4,112 (19,176) 29,790
----------- ------------ ----------- ----------- -----------
Total current assets 177,710 295,350 63,055 (25,580) 510,535
Property, plant and equipment, net 8,840 162,431 36,823 - 208,094
Intangible assets 2,922 895,583 109,648 - 1,008,153
Deferred income taxes 12,563 (4,693) - - 7,870
Investment in subsidiaries 813,152 51,069 - (864,221) -
Other assets 52,154 3,914 1,644 - 57,712
----------- ------------ ----------- ----------- -----------
Total assets $1,067,341 $ 1,403,654 $ 211,170 $ (889,801) $1,792,364
=========== ============ =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 594 $ 37,361 $ 16,521 $ (2,577) $ 51,899
Advances and loans from SDS 77,762 - - - 77,762
Current portion of long-term debt - 34,252 75 - 34,327
Income taxes payable 34,117 - 2,523 (20,036) 16,604
Accrued expenses and other current liabilities 17,331 29,782 13,434 - 60,547
----------- ------------ ----------- ----------- -----------
Total current liabilities 129,804 101,395 32,553 (22,613) 241,139
----------- ------------ ----------- ----------- -----------
Long-term debt - 649,383 26 - 649,409
Securities lending agreement 54,444 - - - 54,444
Deferred income taxes 70,388 14,793 7,867 93,048
Other liabilities 1,164 3,772 1,060 (1,188) 4,808
Net intercompany payable/(receivable) (519,063) 463,622 55,232 209 -
Commitments and contingent liabilities - - - -
Shareholders' equity
Preferred stock - - - - -
Common stock 1,052 - - 1,052
Equity rights - - - - -
Additional paid-in-capital 271,739 786,251 77,970 (864,221) 271,739
Retained earnings (deficit) 1,055,421 (615,562) 93,830 (1,988) 531,701
Other comprehensive income 2,392 - (57,368) - (54,976)
Treasury stock (at cost) - - - - -
----------- ------------ ----------- ----------- -----------
Total shareholders' equity 1,330,604 170,689 114,432 (866,209) 749,516
----------- ------------ ----------- ----------- -----------
Total liabilities and shareholders' equity $1,067,341 $ 1,403,654 $ 211,170 $ (889,801) $1,792,364
=========== ============ =========== =========== ===========
17
18
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2001
-------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ 213,689 $ 44,594 $ (13,179) $ 245,104
Cost of sales 111,386 26,204 (12,999) 124,591
------------ ------------ ------------ ----------- ------------
Gross profit - 102,303 18,390 (180) 120,513
Selling, general and administrative expenses 11,417 42,354 9,909 63,680
------------ ------------ ------------ ----------- ------------
Operating income (11,417) 59,949 8,481 (180) 56,833
Other income (expense):
Interest expense (11,864) - (11,864)
Other, net 4,373 1,489 (514) 5,348
------------ ------------ ------------ ----------- ------------
Income before income taxes and discontinued operations (7,044) 49,574 7,967 (180) 50,317
Income taxes (2,889) 19,830 3,187 20,127
------------ ------------ ------------ ----------- ------------
Income from continuing operations (4,155) 29,744 4,780 (180) 30,190
Discontinued operations (838) - - - (838)
------------ ------------ ------------ ----------- ------------
Net income $ (4,993) $ 29,744 $ 4,780 $ (180) $ 29,352
============ ============ ============ =========== ============
For the Three Months Ended March 31, 2000
-------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $ 191,338 $ 37,758 $ (11,022) $ 218,074
Cost of sales - 99,391 22,374 (10,856) 110,909
------------ ------------ ------------ ----------- ------------
Gross profit - 91,947 15,384 (166) 107,165
Selling, general and administrative expenses 2,535 43,383 8,286 54,204
------------ ------------ ------------ ----------- ------------
Operating income (2,535) 48,564 7,098 (166) 52,961
Other income (expense):
Interest expense - (11,948) (35) (11,983)
Other, net 487 319 (546) 260
------------ ------------ ------------ ----------- ------------
Income before income taxes and discontinued operations (2,048) 36,935 6,517 (166) 41,238
Income taxes (1,483) 14,774 2,607 15,898
------------ ------------ ------------ ----------- ------------
Income from continuing operations (565) 22,161 3,910 (166) 25,340
Discontinued operations 13,635 - - - 13,635
------------ ------------ ------------ ----------- ------------
Net income $ 13,070 $ 22,161 $ 3,910 $ (166) $ 38,975
============ ============ ============ =========== ============
18
19
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - (CONTINUED)
For the Six Months Ended March 31, 2001
-------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $ 410,439 $ 79,517 $ (24,094) $ 465,862
Cost of sales - 216,009 46,604 (23,217) 239,396
------------ ---------- ---------- ------------ ----------
Gross profit - 194,430 32,913 (877) 226,466
Selling, general and administrative expenses 16,035 85,189 18,572 119,796
------------ ---------- ---------- ------------ ----------
Operating income (16,035) 109,241 14,341 (877) 106,670
Other income (expense):
Interest expense - (24,377) (15) (24,392)
Other, net 3,785 1,630 (398) 5,017
------------ ---------- ---------- ------------ ----------
Income before income taxes, discontinued operations
and extraordinary item (12,250) 86,494 13,928 (877) 87,295
Income taxes (5,251) 34,598 5,571 34,918
------------ ---------- ---------- ------------ ----------
Income from continuing operations before
extraordinary item (6,999) 51,896 8,357 (877) 52,377
Discontinued operations (11,824) - - - (11,824)
------------ ---------- ---------- ------------ ----------
Income before extraordinary item (18,823) 51,896 8,357 (877) 40,553
Extraordinary item (745) (745)
------------ ---------- ---------- ------------ ----------
Net income $ (18,823) $ 51,151 $ 8,357 $ (877) $ 39,808
============ ========== ========== ============ ==========
For the Six Months Ended March 31, 2000
-------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $ 371,656 $ 71,982 $ (20,681) $ 422,957
Cost of sales 193,390 42,541 (20,230) 215,701
------------ ---------- ---------- ------------ ----------
Gross profit - 178,266 29,441 (451) 207,256
Selling, general and administrative expenses 3,890 87,732 16,582 108,204
------------ ---------- ---------- ------------ ----------
Operating income (3,890) 90,534 12,859 (451) 99,052
Other income (expense):
Interest expense - (23,835) (60) (23,895)
Other, net 459 173 (726) (94)
------------ ---------- ---------- ------------ ----------
Income before income taxes and discontinued
operations (3,431) 66,872 12,073 (451) 75,063
Income taxes (2,316) 26,749 4,829 29,262
------------ ---------- ---------- ------------ ----------
Income from continuing operations (1,115) 40,123 7,244 (451) 45,801
Discontinued operations 23,598 - - - 23,598
------------ ---------- ---------- ------------ ----------
Net income $ 22,483 $ 40,123 $ 7,244 $ (451) $ 69,399
============ ========== ========== ============ ==========
20
20
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2001
--------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows (used in) provided by operating activities: $ (52,215) $ 111,617 $ 5,867 $ - $ 65,269
----------- ----------- ----------- ------------ ------------
Cash flows from investing activities:
Capital expenditures (6,738) (13,712) (3,721) - (24,171)
Proceeds from sales of property, plant and
equipment 9,679 1,017 35 - 10,731
Net cash inflow from SDS 46,394 - - - 46,394
Net payments for businesses acquired - (51,206) - - (51,206)
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in) investing
activities 49,335 (63,901) (3,686) - (18,252)
----------- ----------- ----------- ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt - 693,159 - - 693,159
Principal payments on long-term debt - (739,629) (23) - (739,652)
Proceeds from the exercise of stock options 2,304 - - - 2,304
Other (1,042) (3,900) - - (4,942)
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in) financing
activities 1,262 (50,370) (23) - (49,131)
Effect of exchange rate on cash and cash equivalents - - 1,816 - 1,816
----------- ----------- ----------- ------------ ------------
Net (decrease) increase in cash and cash equivalents (1,618) (2,654) 3,974 - (298)
Cash and cash equivalents at beginning of year 7,086 (2,577) 7,902 - 12,411
----------- ----------- ----------- ------------ ------------
Cash and cash equivalents at end of period $ 5,468 $ (5,231) $ 11,876 $ - $ 12,113
=========== =========== =========== ============ ============
Supplemental disclosures of cash flow
information Cash paid during the period for:
Interest $ - $ 25,410 $ 255 $ 25,665
=========== =========== =========== ============ ============
Income taxes $ 21,147 $ - $ - $ 21,147
=========== =========== =========== ============ ============
Capital lease obligations incurred $ - $ - $ - $ -
=========== =========== =========== ============ ============
20
21
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS - (CONTINUED)
For the Six Months Ended March 31, 2000
------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows provided by (used in) operating activities: $ 38,316 $ (367) $ (1,352) $ - $ 36,597
------------ ----------- ----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures (418) (16,257) (2,093) - (18,768)
Proceeds from sales of property, plant and
equipment - 280 9 - 289
Proceeds from sale of NPT (2,600) - - - (2,600)
Net cash inflow from SDS 40,877 - - - 40,877
Net payments for businesses acquired (82,348) (43,422) 4,106 - (121,664)
------------ ----------- ----------- ----------- ------------
Net cash (used in) provided by investing
activities (44,489) (59,399) 2,022 - (101,866)
------------ ----------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from long-term debt - 192,000 - - 192,000
Principal payments on long-term debt - (134,055) (28) - (134,083)
Proceeds from the exercise of stock options 4,645 - - - 4,645
Other (1,033) (2,063) 223 - (2,873)
------------ ----------- ----------- ----------- ------------
Net cash provided by financing activities 3,612 55,882 195 - 59,689
Effect of exchange rate on cash and cash equivalents - - (433) - (433)
------------ ----------- ----------- ----------- ------------
Net (decrease) increase in cash and cash equivalents (2,561) (3,884) 432 - (6,013)
Cash and cash equivalents at beginning of year 6,708 (2,433) 8,126 - 12,401
------------ ----------- ----------- ----------- ------------
Cash and cash equivalents at end of period $ 4,147 $ (6,317) $ 8,558 $ - $ 6,388
============ =========== =========== =========== ============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 33,477 $ 162 $ 33,639
============ =========== =========== =========== ============
Income taxes $ 32,775 $ - $ 54 $ 32,829
============ =========== =========== =========== ============
Capital lease obligations incurred $ 43 $ 43
============ =========== =========== =========== ============
11. SUBSEQUENT EVENTS
On April 4, 2001 the Company issued $325,000 unsecured senior notes in
a private placement with registration rights. The notes were offered at a
discount of approximately $1,469. They will mature on April 1, 2011.
Interest is fixed at an annual rate of 8% and is payable on April 1 and
October 1 of each year, beginning on October 1, 2001. Interest will accrue
from April 4, 2001. The notes are redeemable by the Company at any time in
whole, or from time to time in part, at a price equal to the greater of (i)
100% of the principal amount of the notes to be redeemed or (ii) the sum of
the present values of the remaining scheduled payments of principal and
interest thereon (exclusive of interest accrued to the date of redemption)
discounted to the date of redemption on a semiannual basis at the
applicable
21
22
Treasury Yield (as defined in the bond agreement) plus 35 basis points,
plus accrued interest to the date of redemption.
Under the private placement the notes have not been registered under the
Securities Act of 1933 and were only offered to qualified institutional
buyers under Rule 144A and outside the United States under Regulation S.
However, the Company has agreed to file a registration statement with the
Securities Exchange Commission relating to an exchange offer for the notes
or, under certain circumstances, to file a shelf registration statement for
the notes.
The Company used the proceeds from the issuance to repay all of its Term
Loan Facility ($300 million) and a portion of its Revolving Credit
Facility. (See Note 6 to the unaudited consolidated financial statements.)
Debt issuance costs incurred of approximately $2,500 will be capitalized
and amortized over 10 years.
22
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The subsidiaries of Apogent are leading manufacturers of value-added products
for the labware and life sciences, clinical and industrial, diagnostics and
microbiology, and laboratory equipment markets in the United States and abroad.
Apogent provides products under four business segments - Labware and Life
Sciences, Clinical and Industrial, Diagnostics and Microbiology, and Laboratory
Equipment. The primary subsidiaries in each of our business segments are as
follows:
LABWARE AND LIFE SCIENCES CLINICAL AND INDUSTRIAL
------------------------- -----------------------
Advance Biotechnologies Ltd. Chase Scientific Glass, Inc.
BioRobotics Group Limited Erie Electroverre S.A.
Genevac Limited Erie Scientific Company
Matrix Technologies Corporation Gerhard Menzel Glasbearbeitungswerk
Molecular BioProducts, Inc. GmbH & Co. K.G.
Nalge Nunc International Corporation Microm Laborgerate GmbH
Nalge Nunc International K.K. The Naugatuck Glass Company
National Scientific Company Richard-Allan Scientific Company
Nunc A/S Samco Scientific Corporation
Robbins Scientific Corporation
DIAGNOSTICS AND MICROBIOLOGY LABORATORY EQUIPMENT
---------------------------- --------------------
Alexon-Trend, Inc. Barnstead Thermolyne Corporation
Applied Biotech, Inc. Electrothermal Engineering, Ltd.
Microgenics Corporation Lab-Line Instruments, Inc.
Remel Inc.
Over the past several years, Apogent has been pursuing a growth strategy
designed to increase sales and enhance operating margins. Elements of that
strategy include emphasis on acquisitions, product development, product line
extensions, new product introductions, internal growth, and rationalization of
existing businesses and product lines.
When we use the terms "we" or "our" in this report, we are referring to Apogent
Technologies Inc. and its subsidiaries. Our fiscal year ends on September 30,
and accordingly, all references to quarters refer to our fiscal quarters. The
quarters ended March 31, 2001 and 2000 are the Company's second quarters of
fiscal 2001 and 2000, respectively.
As used in this report, the term "Company" means Sybron International
Corporation for the period prior to January 30, 2001 and Apogent Technologies
Inc. thereafter.
SPIN-OFF OF SYBRON DENTAL SPECIALTIES
On December 11, 2000, Apogent Technologies Inc. ("Apogent" or the "Company"),
then known as Sybron International Corporation ("Sybron"), completed the
spin-off of its dental business as a separate publicly traded company. The
spin-off was effected by way of a pro rata distribution of
23
24
all the outstanding common stock and related preferred stock purchase rights of
Sybron Dental Specialties, Inc. ("SDS") to the Company's shareholders (the
"Distribution" or "Spin-Off"). SDS is now an independent public company
operating what was Sybron's dental business.
Immediately prior to the Distribution, Sybron Dental Management, Inc. ("SDM"),
then a subsidiary of Sybron, paid a dividend of $142,880 to Sybron, of which
$67,900 was paid in cash and $74,980 was a settlement of intercompany loans and
advances and to reflect an allocation of additional bank debt to SDS, (the
"Dividend"). Immediately after payment of the dividend, SDM became a subsidiary
of SDS. The total allocation of bank debt to SDS was $375,000.
As a result of the Spin-Off, all historical financial data relating to the
operations of SDS and its affiliates has been reclassified to discontinued
operations.
RESULTS OF OPERATIONS
OVERVIEW
Both our sales and our operating income for the quarter and year to date period
ended March 31, 2001 grew over the corresponding prior year periods. Net sales
increased 12.4% during the quarter ended March 31, 2001 to $245.1 million from
$218.1 million in the quarter ended March 31, 2000. Operating income and income
from continuing operations for the quarter ended March 31, 2001 was $56.8
million and $30.2 million, respectively, as compared to $53.0 million and $25.3
million for the quarter ended March 31, 2000, representing increases of 7.3% and
19.1%. Income from continuing operations for the quarter ended March 31, 2001
included a restructuring charge of $0.6 million relating to additional severance
costs from the closure of the Company's corporate office in Milwaukee,
Wisconsin, as well as a gain on the sale of an asset of $4.1 million.
Net sales increased 10.1% during the six months ended March 31, 2001 to $465.9
million from $423.0 million in the six months ended March 31, 2000. Operating
income was $106.7 million for the six months ended March 31, 2001 as compared to
$99.1 million for the six months ended March 31, 2000. Income from continuing
operations increased 14.4% to $52.4 million for the six months ended March 31,
2001, from $45.8 million for the six months ended March 31, 2000. Income from
continuing operations for the six months ended March 31, 2001 included the $0.6
million charge relating to revisions in restructuring reserves and the $4.1
million gain on the sale of an asset discussed above.
Sales growth in the quarter was strong both domestically and internationally.
Domestic and international net sales increased by 11.0% and 16.6%, respectively,
for the quarter ended March 31, 2001 as compared to the corresponding fiscal
2000 period. The strengthening of the U.S. dollar negatively impacted
international sales growth. Without the negative currency effects, international
sales growth would have been 20.9% over the corresponding fiscal 2000 quarter.
We continue to maintain an active program of developing and marketing new
products and product line extensions, as well as pursuing growth through
acquisitions. We completed two acquisitions during the first six months of
fiscal 2001. (See Note 3 to the Unaudited Consolidated Financial Statements.)
QUARTER ENDED MARCH 31, 2001 COMPARED TO THE QUARTER ENDED MARCH 31, 2000
24
25
NET SALES
FISCAL FISCAL DOLLAR PERCENT
2001 2000 CHANGE CHANGE
---- ---- ------ ------
NET SALES (IN THOUSANDS)
Labware and Life Sciences $ 97,665 $ 85,584 $ 12,081 14.1%
Clinical and Industrial 61,762 54,666 7,096 13.0%
Diagnostics and Microbiology 59,801 53,179 6,622 12.5%
Laboratory Equipment 25,876 24,645 1,231 5.0%
------------ ------------ -----------
Total Net Sales $ 245,104 $ 218,074 $ 27,030 12.4%
============ ============ ===========
Overall Company. Net sales for the second quarter of fiscal 2001 increased by
$27.0 million or 12.4% from the corresponding fiscal 2000 quarter.
Labware and Life Sciences. Increased net sales in the Labware and Life Sciences
segment resulted primarily from: (a) net sales of products of acquired companies
(approximately $5.5 million), (b) increased net sales of new products
(approximately $4.5 million), (c) price increases (approximately $3.5 million),
and (d) increased net sales of existing products (approximately $0.4 million).
Net sales were partially reduced by foreign currency fluctuations (approximately
$1.6 million).
Clinical and Industrial. Increased net sales in the Clinical and Industrial
segment resulted primarily from: (a) net sales of products of acquired companies
(approximately $7.4 million), (b) increased net sales of new products
(approximately $0.5 million), and (c) price increases (approximately $0.3
million). Net sales were partially reduced by foreign currency fluctuations
(approximately $0.5 million) and a decrease in net sales of existing products
(approximately $0.5 million).
Diagnostics and Microbiology. Increased net sales in the Diagnostics and
Microbiology segment resulted primarily from: (a) net sales of products of
acquired companies (approximately $5.1 million), (b) increased net sales of new
products (approximately $0.9 million), (c) price increases (approximately $0.4
million), and (d) increased net sales of existing products (approximately $0.4
million). Net sales were partially reduced by foreign currency fluctuations
(approximately $0.2 million).
Laboratory Equipment. Increased net sales in the Laboratory Equipment segment
resulted primarily from an increase in net sales of new products (approximately
$1.7 million) and by price increases (approximately $0.6 million). Net sales
were partially reduced by a decrease in net sales of existing products
(approximately $0.9 million) and by foreign currency fluctuations (approximately
$0.1 million).
GROSS PROFIT
FISCAL PERCENT FISCAL PERCENT DOLLAR PERCENT
2001 OF SALES 2000 OF SALES CHANGE CHANGE
---- -------- ---- -------- ------ ------
Gross Profit (in thousands)
Labware and Life Sciences $ 51,848 21.2% $ 45,166 20.7% $ 6,682 14.8%
Clinical and Industrial 25,552 10.4% 23,264 10.7% 2,288 9.8%
Diagnostics and Microbiology 31,985 13.0% 28,434 13.0% 3,551 12.5%
Laboratory Equipment 11,128 4.5% 10,301 4.7% 827 8.0%
----------- ---------- ---------
Total Gross Profit $ 120,513 49.2% $ 107,165 49.1% $ 13,348 12.5%
=========== ========== =========
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26
Overall Company. Gross profit from the quarter ended March 31, 2001 increased by
$13.3 million or 12.5% from the corresponding fiscal 2000 period.
Labware and Life Sciences. Increased gross profit in the Labware and Life
Sciences segment resulted primarily from: (a) price increases (approximately
$3.5 million), (b) the effects of acquired companies (approximately $3.3
million), (c) the effects of new products (approximately $1.9 million), and (d)
increased volume (approximately $0.9 million). Gross profit was partially
reduced by: (a) product mix (approximately $1.6 million), (b) foreign currency
fluctuations (approximately $0.8 million), and (c) inventory adjustments
(approximately $0.4 million).
Clinical and Industrial. Increased gross profit in the Clinical and Industrial
segment resulted primarily from: (a) the effects of acquired companies
(approximately $2.2 million), (b) decreased manufacturing overhead
(approximately $1.5 million), (c) price increases (approximately $0.3 million),
(d) product mix (approximately $0.2 million), and (e) the effects of new
products (approximately $0.1 million). Gross profit was partially reduced by
reduced volume (approximately $1.6 million) and foreign currency fluctuations
(approximately $0.4 million).
Diagnostics and Microbiology. Increased gross profit in the Diagnostics and
Microbiology segment resulted primarily from: (a) the effects of acquired
companies (approximately $3.7 million), (b) product mix (approximately $1.8
million), (c) increased volume (approximately $1.0 million), (d) price increases
(approximately $0.4 million), and (e) the effects of new products (approximately
$0.4 million). Gross profit was partially reduced by: (a) increased factory
overhead (approximately $2.8 million) and (b) inventory adjustments
(approximately $0.8 million).
Laboratory Equipment. Increased gross profit in the Laboratory Equipment segment
resulted primarily from: (a) the effects of new products (approximately $0.8
million) and (b) price increases (approximately $0.6 million). Gross profit was
partially reduced by: (a) decreased volume (approximately $0.5 million) and (b)
foreign currency fluctuations (approximately $0.1 million).
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FISCAL FISCAL DOLLAR PERCENT
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2001 2000 CHANGE CHANGE
---- ---- ------ ------
(in thousands)
Labware and Life Sciences $ 27,113 $ 23,773 $ 3,340 14.0%
Clinical and Industrial 11,626 9,248 2,378 25.7%
Diagnostics and Microbiology 16,635 14,022 2,613 18.6%
Laboratory Equipment 5,758 5,292 466 8.8%
---------- --------- ---------
Subtotal 61,132 52,335 8,797 16.8%
Corporate Office 2,548 1,869 679 36.3%
---------- --------- ---------
Total Selling, General and Administrative Expenses $ 63,680 $ 54,204 $ 9,476 17.5%
========== ========= =========
Overall Company. Selling, general and administrative expenses for the quarter
ended March 31, 2001 increased by $9.5 million or 17.5% from the corresponding
fiscal 2000 quarter. Selling, general and administrative expenses at the
corporate offices increased by $0.7 million over the second fiscal quarter of
2001 as compared to the corresponding fiscal 2000 quarter. Corporate office
expenses increased primarily due to non-recurring special charges relating to
the transition of the corporate headquarters from Milwaukee, Wisconsin to
Portsmouth, New Hampshire.
Labware and Life Sciences. Increased selling, general and administrative
expenses in the Labware and Life Sciences segment resulted primarily from: (a)
acquired businesses (approximately $1.9 million), (b) general and administrative
expenses (approximately $0.7 million), (c) marketing expenses (approximately
$0.5 million), and (e) research and development expense (approximately $0.2
million). Selling, general and administrative expenses were partially reduced by
foreign currency fluctuations (approximately $0.4 million).
Clinical and Industrial. Increased selling, general and administrative expenses
in the Clinical and Industrial segment resulted primarily from: (a) acquired
businesses (approximately $1.1 million), (b) marketing expenses (approximately
$0.9 million), (c) increased amortization of intangibles primarily as a result
of acquisitions (approximately $0.3 million), and (d) research and development
expense (approximately $0.1 million).
Diagnostics and Microbiology. Increased selling, general and administrative
expenses in the Diagnostic and Microbiology segment resulted primarily from:
(a) marketing expenses (approximately $1.3 million), (b) increased amortization
of intangibles primarily as a result of acquisitions (approximately $1.2
million), and (c) general and administrative expenses (approximately $0.6
million). Selling, general and administrative expenses were partially reduced
by: (a) research and development expense (approximately $0.2 million) and (b)
foreign currency fluctuations (approximately $0.1 million).
Laboratory Equipment. Increased selling, general and administrative expenses in
the Laboratory Equipment segment resulted primarily from: (a) general and
administrative expenses (approximately $0.3 million) and (b) research and
development expenses (approximately $0.2 million). Selling, general and
administrative expenses were partially reduced by foreign currency fluctuations
(approximately $0.1 million).
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SPECIAL CHARGES
As noted above our results for the quarter ended March 31, 2001 include a
charge of approximately $0.6 million ($0.4 million after tax) relating to
adjustments made to the 2000 restructuring reserve, consisting of additional
severance. This charge is included in the corporate selling, general and
administrative expenses.
OPERATING INCOME
FISCAL FISCAL DOLLAR PERCENT
2001 2000 CHANGE CHANGE
---- ---- ------ ------
OPERATING INCOME (IN THOUSANDS)
Labware and Life Sciences $ 24,734 $ 21,393 $ 3,341 15.6%
Clinical and Industrial 13,926 14,016 (90) -0.6%
Diagnostics and Microbiology 15,350 14,412 938 6.5%
Laboratory Equipment 5,371 5,009 362 7.2%
------------- ---------- ---------
Subtotal 59,381 54,830 4,551 8.3%
Corporate Office (2,548) (1,869) (679) 36.3%
------------- ---------- ---------
Total Operating Income $ 56,833 $ 52,961 $ 3,872 7.3%
============= ========== =========
As a result of the foregoing, operating income in the second quarter of fiscal
2001 increased by 7.3% or $3.9 million over operating income in the
corresponding quarter of fiscal 2000.
INTEREST EXPENSE
Interest expense for the second quarter of fiscal 2001 decreased by $0.1 million
to $11.9 million from the corresponding quarter of fiscal 2000. Although
interest rates increased as compared to the corresponding period in fiscal 2000,
the related expense decreased as a result of lower debt levels for the fiscal
2001 quarter.
OTHER INCOME
Other income in the second quarter of fiscal 2001 was $5.3 million, an increase
of $5.1 million over the corresponding 2000 quarter. The increase resulted
primarily from the gain on the sale of an asset of $4.1 million during the
second quarter of fiscal 2001.
INCOME TAXES
Taxes on income from continuing operations in the second quarter of fiscal 2001
were $20.1 million, an increase of $4.2 million from the corresponding 2000
quarter. The increase resulted primarily from increased taxable earnings.
INCOME FROM CONTINUING OPERATIONS
As a result of the foregoing, the Company had net income from continuing
operations of $30.2 million for the second quarter of fiscal 2001, as compared
to $25.3 million in the corresponding 2000 period, representing an increase of
19.1%.
DISCONTINUED OPERATIONS
Losses from discontinued operations were $0.8 million in the second quarter of
fiscal 2001 as compared to income of $13.6 million (net of income tax of $9.2
million) in the second fiscal quarter of 2000. The 2001 loss from discontinued
operations resulted from additional transaction expenses related to the spin-off
of SDS which occurred on December 11, 2000.
NET INCOME
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As a result of the foregoing, we had net income of $29.4 million in the second
quarter of fiscal 2001, as compared to net income of $39.0 million in the
corresponding 2000 period.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense is allocated among cost of sales, selling,
general and administrative expenses and other expense. Depreciation expense and
amortization expense increased $3.2 million in the second quarter of fiscal 2001
due to additional depreciation and amortization from goodwill and intangibles
recorded from the various acquisitions as well as routine operating capital
expenditures.
SIX MONTHS ENDED MARCH 31, 2001 COMPARED TO SIX MONTHS ENDED MARCH 31, 2000
NET SALES
FISCAL FISCAL DOLLAR PERCENT
2001 2000 CHANGE CHANGE
---- ---- ------ ------
NET SALES (IN THOUSANDS)
Labware and Life Sciences $ 182,528 $ 165,482 $ 17,046 10.3%
Clinical and Industrial 118,270 106,577 11,693 11.0%
Diagnostics and Microbiology 114,313 103,795 10,518 10.1%
Laboratory Equipment 50,751 47,103 3,648 7.7%
------------ ------------ -----------
Total Net Sales $ 465,862 $ 422,957 $ 42,905 10.1%
============ ============ ===========
Overall Company. Net sales for the six months ended March 31, 2001 increased by
$42.9 million or 10.1% over the corresponding period in fiscal 2000.
Labware and Life Sciences. Increased net sales in the Labware and Life Sciences
segment resulted primarily from: (a) increased net sales of new products
(approximately $8.1 million), (b) net sales of products of acquired companies
(approximately $7.8 million), (c) price increases (approximately $4.2 million),
and (d) increased net sales of existing products (approximately $0.8 million).
Net sales were partially reduced by foreign currency fluctuations (approximately
$3.7 million).
Clinical and Industrial. Increased net sales in the Clinical and Industrial
segment resulted primarily from: (a) net sales of products of acquired companies
(approximately $13.2 million), (b) increased net sales of new products
(approximately $1.1 million), and (c) price increases (approximately $0.7
million). Net sales were partially reduced by: (a) foreign currency fluctuations
(approximately $1.9 million), and (b) decreased net sales of existing products
(approximately $1.3 million).
Diagnostics and Microbiology. Increased net sales in the Diagnostics and
Microbiology segment resulted primarily from: (a) net sales of products of
acquired companies (approximately $11.1 million), (b) increased net sales of new
products (approximately $1.4 million), and (c) price increases (approximately
$0.8 million). Net sales were partially reduced by: (a) decreased net sales of
existing products (approximately $2.3 million) and (b) foreign currency
fluctuations (approximately $0.5 million).
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30
Laboratory Equipment. Increased net sales in the Laboratory Equipment segment
resulted primarily from: (a) increase in net sales of new products
(approximately $2.4 million), (b) price increases (approximately $1.2 million),
and (c) increased net sales of existing products (approximately $0.4 million).
Net sales were partially reduced by foreign currency fluctuations (approximately
$0.3 million).
GROSS PROFIT
FISCAL PERCENT FISCAL PERCENT DOLLAR PERCENT
2001 OF SALES 2000 OF SALES CHANGE CHANGE
---- -------- ---- -------- ------ ------
GROSS PROFIT (IN THOUSANDS)
Labware and Life Sciences $ 95,097 20.4% $ 86,023 20.3% $ 9,074 10.5%
Clinical and Industrial 48,786 10.5% 44,910 10.6% 3,876 8.6%
Diagnostics and Microbiology 60,820 13.1% 56,433 13.3% 4,387 7.8%
Laboratory Equipment 21,763 4.7% 19,890 4.7% 1,873 9.4%
---------- ---------- ---------
Total Gross Profit $ 226,466 48.6% $ 207,256 49.0% $ 19,210 9.3%
========== ========== =========
Overall Company. Gross profit for the six months ended March 31, 2001 increased
by $19.2 million or 9.3% over the corresponding fiscal 2000 period.
Labware and Life Sciences. Increased gross profit in the Labware and Life
Sciences segment resulted primarily from: (a) the effects of acquired companies
(approximately $5.3 million), (b) price increases (approximately $4.3 million),
(c) the effects of new products (approximately $3.8 million), and (d) increased
volume (approximately $2.2 million). Gross profit was partially reduced by: (a)
product mix (approximately $4.1 million), (b) unfavorable foreign currency
fluctuations (approximately $1.6 million), (c) increased manufacturing overhead
(approximately $0.6 million), and (d) inventory adjustments (approximately $0.1
million).
Clinical and Industrial. Increased gross profit in the Clinical and Industrial
segment resulted primarily from: (a) the effects of acquired companies
(approximately $3.9 million), (b) decreased manufacturing overhead
(approximately $1.5 million), (c) price increases (approximately $0.7 million,
and (d) the effects of new products (approximately $0.4 million). Gross profit
was partially reduced by: (a) reduced volume (approximately $1.8 million) and
(b) unfavorable foreign currency fluctuations (approximately $0.9 million).
Diagnostics and Microbiology. Increased gross profit in the Diagnostics and
Microbiology segment resulted primarily from: (a) the effects of acquired
companies (approximately $7.9 million), (b) product mix (approximately $3.2
million), (c) price increases (approximately $0.8 million), and (d) the effects
of new products (approximately $0.4 million). Gross profit was partially reduced
by: (a) increased manufacturing overhead (approximately $4.3 million), (b)
inventory adjustments (approximately $2.6 million), (c) decreased volume
(approximately $1.0 million), and (d) foreign currency fluctuations
(approximately $0.1 million).
Laboratory Equipment. Increased gross profit in the Laboratory Equipment segment
resulted primarily from: (a) price increases (approximately $1.2 million), (b)
the effects of new products (approximately $1.0 million), and (c) increased
volume (approximately $0.2 million). Gross profit was partially reduced by: (a)
foreign currency fluctuations (approximately $0.2 million), (b) an increase in
manufacturing overhead (approximately $0.2 million), and (c) inventory
adjustments (approximately $0.1 million).
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Fiscal Fiscal Dollar Percent
Selling, General and Administrative Expenses 2001 2000 Change Change
(in thousands) ---------- --------- --------- -------
Labware and Life Sciences $ 51,106 $ 46,978 $ 4,128 8.8%
Clinical and Industrial 21,597 18,195 3,402 18.7%
Diagnostics and Microbiology 31,742 28,862 2,880 10.0%
Laboratory Equipment 10,715 10,362 353 3.4%
----------- ---------- ---------
Subtotal 115,160 104,397 10,763 10.3%
Corporate Office 4,636 3,876 760 19.6%
----------- ---------- ---------
Total Selling, General and Administrative Expenses $ 119,796 $ 108,273 $ 11,523 10.6%
=========== ========== =========
Overall Company. Selling, general and administrative expenses for the six months
ended March 31, 2001 increased by $11.5 million or 10.6% from the corresponding
fiscal 2000 period. Selling, general and administrative expenses at the
corporate offices increased by $0.8 over the six months ended March 31, 2001 as
compared to the corresponding fiscal 2000 period. Corporate office expenses
increased primarily due to non-recurring special charges relating to the
transition of the corporate headquarters from Milwaukee, Wisconsin to
Portsmouth, New Hampshire.
Labware and Life Sciences. Increased selling, general and administrative
expenses in the Labware and Life Sciences segment resulted primarily from: (a)
acquired businesses (approximately $3.3 million), (b) general and administrative
expenses (approximately $0.1 million), (c) increased amortization of intangibles
primarily as a result of acquisitions (approximately $0.9 million), and (e)
research and development expense (approximately $0.2 million). Selling, general
and administrative expenses were partially reduced by: (a) foreign currency
fluctuations (approximately $0.3 million) and (b) marketing expenses
(approximately $0.1 million).
Clinical and Industrial. Increased selling, general and administrative expenses
in the Clinical and Industrial segment resulted primarily from: (a) acquired
businesses (approximately $1.7 million), (b) marketing expenses (approximately
$1.2 million), (c) increased amortization of intangibles primarily as a result
of acquisitions (approximately $0.6 million), and (d) research and development
expenses (approximately $0.1 million). Selling, general and administrative
expenses were partially reduced by foreign currency fluctuations (approximately
$0.3 million).
Diagnostics and Microbiology. Increased selling, general and administrative
expenses in the Diagnostic and Microbiology segment resulted primarily from:
(a) increased amortization of intangibles primarily as a result of acquisitions
(approximately $2.1 million), (b) marketing expenses (approximately $1.1
million), (c) general and administrative expenses (approximately $0.5 million),
and (d acquired businesses (approximately $0.1 million). Selling, general and
administrative expenses were partially reduced by: (a) research and development
expense (approximately $0.7 million) and (b) foreign currency fluctuations
(approximately $0.2 million).
Laboratory Equipment. Increased selling, general and administrative expenses in
the Laboratory Equipment segment resulted primarily from: (a) research and
development expenses (approximately $0.4 million) and (b) general and
administrative expenses (approximately $0.1 million). Selling, general and
administrative expenses were partially reduced by foreign currency fluctuations
(approximately $0.1 million).
SPECIAL CHARGES
As noted above our results for the six-months ended March 31, 2001 include a
charge of approximately $0.6 million ($0.4 million after tax) relating to
adjustments made to the 2000 restructuring reserve, consisting of additional
severance. This charge is included in the corporate office selling, general and
administrative expenses.
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OPERATING INCOME
Fiscal Fiscal Dollar Percent
2001 2000 Change Change
----------- ----------- ----------- -------
OPERATING INCOME (IN THOUSANDS)
Labware and Life Sciences $ 43,990 $ 39,045 $ 4,945 12.7%
Clinical and Industrial 27,189 26,715 474 1.8%
Diagnostics and Microbiology 29,078 27,571 1,507 5.5%
Laboratory Equipment 11,049 9,528 1,521 16.0%
----------- ----------- -----------
Subtotal 111,306 102,859 8,447 8.2%
Corporate Office (4,636) (3,807) (829) 21.8%
----------- ----------- -----------
Total Operating Income $ 106,670 $ 99,052 $ 7,618 7.7%
=========== =========== ===========
As a result of the foregoing, operating income in the first six months of fiscal
2001 increased by $7.6 million or 7.7% over the corresponding period in fiscal
2000.
INTEREST EXPENSE
Interest expense was $24.4 million in the first six months of fiscal 2001, an
increase of $0.5 from the corresponding fiscal 2000 period. The increase
resulted primarily from an increase in interest rates partially offset by lower
debt levels for the six months ended 2001 as compared to the corresponding
fiscal 2000 period.
OTHER INCOME
Other income in the first six months of fiscal 2001 was $5.5 million, an
increase of $5.1 million over the corresponding 2000 period. The increase
resulted primarily from the gain on the sale of an asset of $4.1 million during
the second quarter of fiscal 2001.
INCOME TAXES
Taxes on income from continuing operations in the first six months of fiscal
2001 were $34.9 million, an increase of $5.7 million from the corresponding
fiscal 2000 period. The increase resulted primarily from increased taxable
earnings.
INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM
As a result of the foregoing, we had income from continuing operations of $52.4
million in the first six months of fiscal 2001 as compared to $45.8 million in
the corresponding fiscal 2000 period.
DISCONTINUED OPERATIONS
Losses from discontinued operations were $11.8 million (net of income taxes
of $0.4 million) in the first six months of fiscal 2001, as compared to income
of $23.6 million (net of income tax of $16.0 million) in the first six months of
fiscal 2000. The 2001 loss from discontinued operations resulted from
transaction expenses relating to the spin-off of approximately $12.4 offset by
the operating results of SDS (through December 11, 2000) of $0.6 million. On
December 11, 2000 we completed the spin-off of SDS.
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33
EXTRAORDINARY ITEM
As a result of the December 2000 refinancing, Apogent wrote-off deferred
financing costs of approximately $1.2 million that related to prior debt
agreements and recorded an extraordinary item of $0.7 million, net of income
taxes.
NET INCOME
As a result of the foregoing, the Company had net income of $39.8 million for
the first six months of fiscal 2001, as compared to net income of $69.4 for the
corresponding fiscal 2000 period.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense is allocated among cost of sales, selling,
general and administrative expenses and other expense. Depreciation expense and
amortization expense increased $5.9 million in the first six months of fiscal
2001 due to additional depreciation and amortization from goodwill and
intangibles recorded from the various acquisitions as well as routine operating
capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the acquisition of the Company's predecessor in 1987 and the
acquisitions we completed since 1987, we have increased the carrying value of
certain tangible and intangible assets consistent with generally accepted
accounting principles. Accordingly, our results of operations include a
significant level of non-cash expenses related to the depreciation of fixed
assets and the amortization of intangible assets, including goodwill. Goodwill
and intangible assets, net of amortization, increased by approximately $47.9
million in the first six months of fiscal 2001, primarily as a result of
continued acquisition activity.
Our capital requirements arise principally from indebtedness incurred in
connection with the permanent financing for the 1987 acquisition and our
subsequent refinancings, our obligation to pay rent under the Sale/ Leaseback
facility (as defined herein), our working capital needs, primarily related to
inventory and accounts receivable, our capital expenditures, primarily related
to purchases of machinery and molds, the purchase of various businesses and
product lines in execution of our acquisition strategy, payments to be made in
connection with our restructuring in 2000, and the periodic expansion of
physical facilities. It is currently our intent to continue to pursue our
current acquisition strategy. If acquisitions continue at our historical pace,
of which there can be no assurance, we may require financing beyond the capacity
of our Credit Facilities (as defined below).
The statement contained in the immediately preceding paragraph concerning our
intent to continue to pursue our acquisition strategy is a forward-looking
statement. Our ability to continue our acquisition strategy is subject to a
number of uncertainties, including, but not limited to, our ability to raise
capital beyond the capacity of our Credit Facilities and the availability of
suitable acquisition candidates at reasonable prices. See "Cautionary Factors"
below.
Approximately $65.3 million of cash was generated from operating activities in
the first six months of fiscal 2001, an increase of $28.7 million or 78% from
the corresponding period in 2000. Non-cash depreciation and amortization charged
against net income increased
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34
approximately $5.9 million for the first six months of fiscal 2001 as compared
to the corresponding period in fiscal 2000. The cash flow resulting from the net
change in working capital, net of the effects of acquisitions and divestitures,
was an increase of $20.8 million in the six months ended March 31, 2001. This
represents a decrease of $23.5 million or 53.1% from the corresponding period in
fiscal 2000. These changes are set forth in detail in the Consolidated Statement
of Cash Flows. The increase in working capital accounts over the first six
months of fiscal 2001 is attributable to the higher level of business activity
as reflected in our increased sales. The Company is focused on maximizing the
cash flow from its operating businesses. From our efforts we were able to
achieve increased cash flows of approximately $11.9 million through improvements
in accounts receivable, as compared to the corresponding fiscal 2000 period.
Investing activities in the first six months of fiscal 2001 used approximately
$18.2 million of cash. Increased cash flow from investing activities as compared
to fiscal 2000 resulted primarily from a decrease in net payments for businesses
acquired of approximately $70.5 million, and an increase in proceeds from sales
of property, plant and equipment of $10.4 million.
Approximately $49.1 million of cash was used in financing activities, primarily
due to payments made on the revolving Credit Facilities in excess of proceeds,
of approximately $80.1 million offset by proceeds from long-term debt of $33.6
million relating to acquisitions.
Prior to the Spin-Off, the Company was party to a credit agreement (the "Old
Credit Agreement") with The Chase Manhattan Bank ("Chase") and certain other
lenders providing for a tranche A term loan facility of $300 million (the "Old
Tranche A Term Loan Facility"), a tranche B term loan facility of $300 million
(the "Old Tranche B Term Loan Facility") and a revolving credit facility of up
to $600 million (the "Old Revolving Credit Facility"), and together with the Old
Tranche A Term Loan Facility and the Old Tranche B Term Loan Facility, the "Old
Credit Facilities"). Both the Company and SDM were obligors under the Old Credit
Facilities and as such, certain outstanding amounts under the Old Credit
Facilities were historically recorded on the books of SDM. Outstanding amounts
under the Old Tranche A Term Loan Facility, the Old Tranche B Term Loan Facility
and the Old Revolving Credit Facility at September 30, 2000 (including amounts
recorded on the books of SDM) were $270.8 million, $299.3 million, and $379.0
million, respectively. Outstanding amounts under the Old Tranche A Term Loan
Facility, the Old Tranche B Term Loan Facility, and the Old Revolving Credit
Facility at September 30, 2000 recorded on the books of the Company were $201.0
million, $179.9 million, and $256.4 million, respectively.
On December 1, 2000, the Company entered into a new credit agreement (the
"Credit Agreement") with Chase and certain other lenders providing for a term
loan facility of $300 million (the "Term Loan Facility") due in a single payment
on December 1, 2005, and a revolving credit facility of up to $500 million for a
period of up to five years (the "Revolving Credit Facility") and together with
the Term Loan Facility, the "Credit Facilities"). On December 11, 2000, the
Company borrowed approximately $563.0 million under the Credit Facilities and
together with funds aggregating $375.0 million ($307.1 million, the amount equal
to the outstanding amounts under the Old Credit Facilities attributable to SDS
on December 11, 2000 including accrued interest plus a cash dividend of $67.9
million from SDM to the Company), used such funds to repay all of the
outstanding amounts under the Old Credit Facilities, aggregating $938.0 million
(including accrued interest).
On April 4, 2001, the Company issued $325 million of unsecured senior notes in a
private placement with registration rights. The Company used the proceeds from
the issuance to repay all of its "Term Loan Facility" ($300 million) and a
portion of its Revolving Credit Facility. The notes were offered at a discount
of approximately $1,469. They will mature on April 1, 2011. Interest is fixed at
an annual rate of 8% and is payable on April 1 and October 1 of each year,
beginning on October 1, 2001. Interest will accrue from April 4, 2001. The notes
are redeemable by the Company at any time in whole, or from time to time in
part, at a price equal to the greater of (i) 100% of the principal amount of the
notes to be redeemed or (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon (exclusive of interest
accrued to the date of redemption) discounted to the date of redemption on a
semiannual basis at the applicable Treasury Yield (as defined in the bond
agreement) plus 35 basis points, plus accrued interest to the date of
redemption.
EUROPEAN ECONOMIC MONETARY UNIT
On January 1, 1999, eleven of the European Union countries (including one
country in which we have operations) adopted the Euro as their single currency.
At that time, a fixed exchange rate was
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35
established between the Euro and the individual countries' existing currencies
(the "legacy currencies"). The Euro trades on currency exchanges and is
available for non-cash transactions. Following the introduction of the Euro, the
legacy currencies will remain legal tender in the participating countries during
a transition period from January 1, 1999 through January 1, 2002. Beginning on
January 1, 2002, the European Central Bank will issue Euro-denominated bills and
coins for use in cash transactions. On or before July 1, 2002, the participating
countries will withdraw all legacy bills and coins and use the Euro as their
legal currency.
Our German operating units affected by the Euro conversion intend to keep their
books in their respective legacy currencies through a portion of the transition
period. At this time, we do not expect Euro conversions to have a material
adverse effect on our business operations or financial condition.
CAUTIONARY FACTORS
This report contains various forward-looking statements concerning our prospects
that are based on the current expectations and beliefs of management. We may
also make forward-looking statements from time to time in other reports and
documents as well as oral presentations. When used in written documents or oral
statements, the words "anticipate", "believe", "continue", "estimate", "expect",
"goal", "objective", "outlook", and similar expressions are intended to identify
forward-looking statements. The statements contained herein and such future
statements involve or may involve certain assumptions, risks and uncertainties,
many of which are beyond our control, that could cause our actual results and
performance to differ materially from what is expected. In addition to the
assumptions and other factors referenced specifically in connection with such
statements, the following factors could impact our business and financial
prospects:
- We have operations outside the United States. We are therefore subject to
factors affecting our international operations, including relevant foreign
currency exchange rates, which can affect the cost to produce our products
or the ability to sell our products in foreign markets, and the value in
U.S. dollars of sales made in foreign currencies. Other factors include our
ability to obtain effective hedges against fluctuations in currency exchange
rates; foreign trade, monetary and fiscal policies; laws, regulations and
other activities of foreign governments, agencies and similar organizations;
risks associated with having major manufacturing facilities located in
countries, such as Mexico and Hungary, which have historically been less
stable than the United States in several respects, including fiscal and
political stability; and risks associated with economic downturn in other
countries.
- A significant portion of our growth over the past several years has been
achieved through our acquisition program, which has generated over 70
acquisitions since 1993. Our rate of continued growth is therefore subject
to factors affecting our ability to continue pursuing our current
acquisition strategy and to be successful with that strategy. These factors
include our ability to raise capital beyond the capacity of our existing
credit facilities or to use our stock for acquisitions, the cost of the
capital required to effect our acquisition strategy, the availability of
suitable acquisition candidates at reasonable prices, competition for
appropriate candidates, our ability to realize the synergies expected to
result from acquisitions, and the ability of our existing personnel to
efficiently handle increased transitional responsibilities resulting from
acquisitions.
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- We are organized as a holding company. As a result all of our revenues are
generated through our subsidiaries, including foreign subsidiaries.
Consequently, our operating cash flow and ability to service indebtedness
and other obligations depend upon the operating cash flow of our U.S. and
foreign subsidiaries and the payment of funds by them to us in the form of
loans, dividends or otherwise. Their ability to pay dividends and make
loans, advances and other payments to us depends upon statutory restrictions
(including insolvency and fraudulent conveyance laws) and contractual
restrictions (which may include requirements to maintain minimum levels of
working capital and other assets).
- Our reliance on major independent distributors for a substantial portion of
our sales subjects our sales performance to volatility in demand from
distributors. We can experience volatility when distributors merge or
consolidate, when inventories are not managed to end-user demand, or when
distributors experience softness in their sales. This volatility in demand
can also arise with large OEM customers to whom we sell direct. Sales to our
distributors and OEM customers are sometimes unpredictable and wide
variances sometimes occur quarter to quarter.
- Our ability to increase revenues and to profitably distribute and sell our
products is subject to a number of risks, such as any changes in our
business relationships with our principal distributors or OEM customers,
competitive factors such as the entrance of additional competitors into our
markets, pricing and technological competition, risks associated with the
development and marketing of new products in order to remain competitive by
keeping pace with advancing laboratory and life science technologies,
particularly in the genomics and other rapidly developing technologies,
factors affecting certain high growth industries we serve, such as
consolidation in the drug discovery and diagnostics industries, and risks of
unanticipated technological developments that result in competitive
disadvantages and create the potential for impairment of our existing
assets.
- Our business is subject to quarterly variations in operating results caused
by a number of factors, including business and industry conditions, timing
of acquisitions, distribution and OEM customer issues, and other factors
listed here. All these factors make it difficult to predict operating
results for any particular period.
- With respect to the Clinical and Industrial segment, factors affecting our
Erie Electroverre S.A. subsidiary's ability to manufacture the glass used by
the Clinical and Industrial segment's worldwide manufacturing operations,
including delays encountered in connection with the periodic rebuild of the
sheet glass furnace and furnace malfunctions at a time when inventory levels
are not sufficient to sustain this segment's flat glass operations.
- Factors affecting our ability to obtain raw materials at reasonable prices,
especially white glass, which comes from a single source, our Electroverre,
SA facility in Switzerland.
- Our ability to hire and retain competent employees is subject to a number of
risks, including unionization of our non-union employees and changes in
relationships with our unionized employees. There is a risk of strikes or
other labor disputes at those locations that are unionized which could
affect our operations.
- Our business currently has a significant amount of floating rate debt and
can be adversely affected by a rise in interest rates.
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- Our ability to continue manufacturing and selling those of our products that
are subject to regulation by the FDA or other domestic or foreign
governments or agencies is subject to a number of risks, including the
promulgation of stricter laws or regulations, reclassification of our
products into categories subject to more stringent requirements, or the
withdrawal of the approval needed to sell one or more of our products.
- The impact of changing public and private health care budgets, including
reimbursement by private or governmental insurance programs, may affect
demand for or pricing of our products.
- Our business is subject to the risks of claims involving our products and
other legal and administrative proceedings, including the expense of
investigating, litigating and settling any claims.
- SDS has agreed to indemnify Apogent from and after the spin-off with respect
to certain liabilities and obligations. Our ability to collect on such
indemnities, if applicable, from SDS will depend upon SDS's financial
strength at the time of any such indemnity claim.
- Our financial performance or condition may be affected by changes in tax
legislation, applicable accounting principles, or environmental laws and
regulations.
- We may be subject to risks arising from other business and investment
considerations that may be disclosed from time to time in our Securities
and Exchange Commission filings or in other publicly available written
documents.
WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK MANAGEMENT
We are exposed to market risk from changes in foreign currency exchange rates
and interest rates. To achieve our objectives, we identify these risks and
manage them through our regular operations and financing activities and when
deemed appropriate, we occasionally enter into various hedging transactions. We
do not anticipate material changes to our primary market risks other than
fluctuations in magnitude from increased or decreased foreign currency
denominated business activity or floating rate debt levels. We do not use
financial instruments for trading purposes and are not a party to any leveraged
derivatives.
Foreign Exchange
We have, from time to time, used foreign currency options to hedge our exposure
from adverse changes in foreign currency rates. Hedging is accomplished by the
use of foreign currency options, and the gain or loss on these options is used
to offset gains or losses in the foreign currencies to which they pertain.
Hedges of anticipated transactions are accomplished with options that expire on
or near the maturity date of the anticipated transaction.
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In March 2001, we entered into two foreign currency options to hedge against the
effect of fluctuations in foreign exchange rates on two notes issued in British
Pounds. The options of $11,500 GPB and $11,750 GPB have maturity dates
approximating those of the notes, of July 31, 2002 and July 2003, respectively.
Both options were priced at $0.69 GBP.
In part due to the aforementioned options, the Company's exposure to market risk
from changes in interest rates and foreign currency exchange rates has not
changed materially from its exposure as of the most recent year ended September
30, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS:
See Exhibit Index following the Signature page in this report, which is
incorporated herein by reference.
B) REPORTS ON FORM 8-K:
A Form 8-K was filed on March 21, 2001 to provide under items 5 and 7 an
additional footnote to the Company's financial statements as of September 30,
2000, originally filed in its Form 10-K on December 19, 2000, in order to comply
with recent rule changes by the SEC, specifically Rule 3-10 of Regulation S-X as
amended by Financial Reporting Release No. 55 (the "Release"), Financial
Statements and Periodic Reports for Related Issuers and Guarantors.
A Form 8-K was filed on April 9, 2001 to report under items 5 and 7 the
announcement of a private placement of senior notes pursuant to the Company's
press release of April 4, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
APOGENT TECHNOLOGIES INC.
-------------------------------------------
(Registrant)
Date:
------------------------- -------------------------------------------
Jeffrey C. Leathe
Executive Vice President - Finance,
Chief Financial Officer and Treasurer*
* Executing as both the financial officer and
the duly authorized officer of the Company
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APOGENT TECHNOLOGIES INC.
-------------------------
(THE "REGISTRANT")
(COMMISSION FILE NO. 1-11091)
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
EXHIBIT FILED
MBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO HEREWITH
------- ----------------------------------- ------------------------------------- --------
2.1 Contribution Agreement, Plan and Exhibit 2.1 to the Registrant's Form 10-K
Agreement of Reorganization and for the fiscal year ended
September 30, 2000 (the "2000 10-K)
Distribution, dated as of November
28, 2000, between the Registrant and
Sybron Dental Specialties, Inc.
("SDS") and Sybron Dental
Management, Inc. (excluding the forms
of the ancillary agreements attached
thereto as exhibits, definitive copies of
which are filed as Exhibits 2.2
through 2.8 below)
2.2 General Assignment, Assumption and Exhibit 2.2 to the 2000 10-K
Agreement Regarding Litigation,
Claims and Other Liabilities, dated as
of December 11, 2000,
between the Registrant and SDS
2.3 Trade Name Assignment and Exhibit 2.3 to the 2000 10-K
Transitional Trade Name Use and
License Agreement, dated as of
December 11, 2000, between the
Registrant and SDS
2.4 Insurance Matters Agreement, dated Exhibit 2.4 to the 2000 10-K
as of December 11, 2000, between the
Registrant and SDS
2.5 Employee Benefits Agreement, dated Exhibit 2.5 to the 2000 10-K
as of December 11, 2000, between the
Registrant and SDS
2.6 Tax Sharing and Indemnification Exhibit 2.6 to the 2000 10-K
Agreement, dated as of December 11,
2000, between the Registrant and
SDS
2.7 Interim Administrative Services Exhibit 2.7 to the 2000 10-K
Agreement, dated as of December 11,
2000, between the Registrant and SDS
2.8 Confidentiality and Nondisclosure Exhibit 2.8 to the 2000 10-K
Agreement, dated as of December 11,
2000, between the Registrant and SDS
3.1 (a) Composite Restated Articles of The amendments approved by the
Incorporation of the Registrant, Shareholders on January 30, 2001
as amended through February 5, are incorporated by reference to
2001 to change the name of the the Registrant's Proxy Statement
Registrant to Apogent Technologies dated December 29, 2000 for its
Inc. and increase the size of the Annual Meeting of Shareholders
Board of Directors from between
six and nine to between six and
twelve directors
3.2 (b) Articles of Amendment Exhibit 3.1(b) to the 2000 10-K
containing Certificate of
Designation, Preferences and
Rights of Series A Preferred Stock
3.2 Bylaws of the Registrant, as Exhibit 3.2 to the 12/31/00 10-Q
amended as of January 30, 2001 to
amend Section 3.01 to reflect the
increase in the maximum number of
directors to twelve
4.1 Indenture, dated April 4, 2001 X
among the Registrant, Subsidiary
Guarantor parties thereto, and The
Bank of New York, as Trustee
4.2 Exchange and Registration Rights X
Agreement, dated April 4, 2001,
among the Registrant, Subsidiary
Guarantors and Chase Securities
Inc., Bank of America Securities
LLC, Banc One Capital Markets
Inc., Credit Suisse First Boston
Corporation and First Union
Securities Inc. (collectively, as
Initial Purchasers)
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