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 DECEMBER 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 ____________ to _____________
COMMISSION FILE NUMBER: 1-11091
APOGENT TECHNOLOGIES INC.
-------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 22-2849508
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
48 Congress Street, Portsmouth, New Hampshire 03801
(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 February 8, 2002, there were 106,459,508 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
1
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Index Page
Part I - FINANCIAL INFORMATION ...............................................3
Item 1. Financial Statements .................................................3
Consolidated Balance Sheets as of Decemeber 31, 2001 and September
30, 2001 .....................................................................3
Consolidated Statements of Income for the three months ended December
31, 2001 and 2000 ............................................................4
Consolidated Statement of Shareholders' Equity for the three months
ended December 31, 2001 ......................................................5
Consolidated Statements of Cash Flows for the three months ended
December 31, 2001 and 2000 ...................................................6
Notes to unaudited consolidated financial statements .........................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation ....................................................16
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..........24
Part II - OTHER INFORMATION .................................................24
Item 2. Changes in Securities and Use of Proceeds ...........................24
Item 4. Submission of Matters to a Vote of Security Holders .................24
Item 6. Exhibits and Reports on Form 8-K ....................................25
Signatures ..................................................................26
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31, September 30,
2001 2001
------------ -------------
Assets
Current assets:
Cash and cash equivalents $ 71,059 $ 9,192
Accounts receivable (less allowance for doubtful accounts of
$4,451 and $3,975, respectively) 171,644 183,278
Inventories 180,289 167,436
Deferred income taxes 13,075 13,046
Prepaid expenses and other current assets 24,077 20,985
----------- -----------
Total current assets 460,144 393,937
Available for sale security 54,607 55,072
Property, plant and equipment, net 227,369 223,687
Intangible assets 1,175,627 1,140,334
Deferred income taxes 7,114 6,147
Other assets 18,470 15,961
----------- -----------
Total assets $ 1,943,331 $ 1,835,138
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 43,480 $ 53,822
Current portion of long-term debt 75,068 73,642
Income taxes payable 41,423 38,747
Accrued payroll and employee benefits 26,547 33,236
Accrued interest expense 8,411 15,292
Restructuring reserve 892 1,552
Deferred income taxes 930 911
Other current liabilities 26,045 26,364
----------- -----------
Total current liabilities 222,796 243,566
Long-term debt 675,385 583,788
Securities lending agreement 54,607 55,072
Deferred income taxes 118,733 107,220
Other liabilities 6,642 7,002
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 106,144,242 and 105,875,768 shares respectively;
outstanding 106,144,022 and 105,875,548 shares
respectively 1,061 1,059
Equity rights, 50 rights at $1.09 per right -- --
Additional paid-in capital 258,273 254,637
Retained earnings 657,609 627,642
Accumulated other comprehensive income (51,775) (44,848)
Treasury common stock, 220 shares at cost -- --
----------- -----------
Total shareholders' equity 865,168 838,490
----------- -----------
Total liabilities and shareholders' equity $ 1,943,331 $ 1,835,138
=========== ===========
See accompanying notes to the unaudited consolidated financial statements
3
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended
December 31,
------------------------
2001 2000
--------- ---------
Net sales $ 241,196 $ 220,758
Cost of sales;
Cost of products sold 126,560 114,681
Depreciation of purchase accounting adjustments 176 124
--------- ---------
Total cost of sales 126,736 114,805
--------- ---------
Gross profit 114,460 105,953
Selling, general and administrative expenses 53,331 45,586
Depreciation and amortization of purchase accounting
adjustments 4,277 10,530
--------- ---------
Total selling, general and administrative expenses 57,608 56,116
--------- ---------
Operating income 56,852 49,837
Other income (expense):
Interest expense (10,232) (12,528)
Amortization of deferred financing fees (827) (109)
Other, net 1,473 (222)
--------- ---------
Income from continuing operations before income
taxes and extraordinary item 47,266 36,978
Income taxes 17,299 14,791
--------- ---------
Income from continuing operations before extraordinary
item 29,967 22,187
Discontinued operations (net of income tax expense of $435) -- (10,986)
--------- ---------
Income before extraordinary item 29,967 11,201
Extraordinary item (net of income tax of $496) -- (745)
--------- ---------
Net income $ 29,967 $ 10,456
========= =========
Basic earnings per common share from continuing operations $ 0.28 $ 0.21
Discontinued operations -- (0.10)
Extraordinary item -- (0.01)
--------- ---------
Basic earnings per common share $ 0.28 $ 0.10
========= =========
Diluted earning per common share from continuing operations $ 0.28 $ 0.21
Discontinued operations -- (0.10)
Extraordinary item -- (0.01)
--------- ---------
Diluted earnings per common share $ 0.28 $ 0.10
========= =========
Weighted average basic shares outstanding 106,128 105,246
Weighted average diluted shares outstanding 108,949 107,628
See accompanying notes to the unaudited consolidated financial statements.
4
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
For the three months ended December 31, 2001
(In thousands)
(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, 2001 $ 1,059 $-- $ 254,637 $ 627,642 $ (44,848) $-- $ 838,490
Comprehensive income:
Net income -- -- -- 29,967 -- -- 29,967
Translation adjustment -- -- -- -- (6,417) -- (6,417)
Amortization of gain on sale of interest
rate swaps, net of tax benefit of $154 -- -- -- -- (231) -- (231)
Unrealized loss on security available
for sale, net of tax benefit of $186 -- -- -- -- (279) -- (279)
--------- --- --------- --------- --------- --- ---------
Total comprehensive income -- -- -- 29,967 (6,927) -- 23,040
Shares issued in connection with
stock options 2 -- 1,744 -- -- -- 1,746
Tax benefit related to stock options -- -- 1,892 -- -- -- 1,892
--------- --- --------- --------- --------- --- ---------
Balance at December 31, 2001 $ 1,061 $-- $ 258,273 $ 657,609 $ (51,775) $-- $ 865,168
========= === ========= ========= ========= === =========
See accompanying notes to the unaudited consolidated financial statements.
5
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
December 31,
------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net income $ 29,967 $ 10,456
Adjustments to reconcile net income to net cash provided by operating activities
Discontinued operations -- 10,986
Depreciation 8,869 8,512
Amortization 5,104 10,009
Gain on sale of property, plant and equipment 43 27
Provision for losses on doubtful accounts 289 (453)
Inventory provisions 696 1,848
Deferred income taxes -- 632
Extraordinary item -- 745
Changes in assets and liabilities, net of effects of businesses acquired:
Decrease (increase) in accounts receivable 15,646 (698)
Increase in inventories (10,395) (8,499)
Increase in prepaid expenses and other current assets (2,728) (7,595)
Decrease in accounts payable (12,123) (11,370)
Increase in income taxes payable 5,797 18,338
(Decrease) increase in accrued payroll and employee benefits (7,019) 6,141
Decrease in accrued interest expense (6,881) (2,281)
Decrease in restructuring reserve (763) (3,894)
Decrease in other current liabilities (1,398) (8,962)
Net change in other assets and liabilities (433) (1,522)
--------- ---------
Net cash provided by operating activities 24,671 22,420
--------- ---------
Cash flows from investing activities:
Capital expenditures (6,345) (7,379)
Proceeds from sales of property, plant and equipment 50 258
Net cash flow from SDS -- 46,394
Net payment for businesses acquired (38,328) (18,856)
--------- ---------
Net cash used in invensting activities (44,623) 20,417
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 300,000 300,000
Principal payments on long-term debt -- (380,920)
Proceeds from the exercise of stock options 1,746 1,491
Financing fees paid (8,290) (3,900)
Proceeds from revolving credit facility 151,900 326,640
Principal payments on revolving credit facility (360,474) (307,840)
Other financing activities 920 14,583
--------- ---------
Net cash provided by financing activities 85,802 (49,946)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (3,983) (529)
--------- ---------
Net increase (decrease) in cash and cash equivalents 61,867 (7,638)
Cash and cash equivalents at beginning of year 9,192 12,411
--------- ---------
Cash and cash equivalents at end of period $ 71,059 $ 4,773
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 17,036 $ 13,642
========= =========
Income taxes $ 14,200 $ --
========= =========
Capital lease obligations incurred $ 30 $ --
========= =========
See accompanying notes to unaudited consolidated financial statements.
6
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(dollars 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 month period ended December 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, 2001.
The Company adopted Statement No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142) on October 1, 2001. SFAS 142 requires that all goodwill
and intangible assets with indefinite useful lives will no longer be
amortized, but instead tested for impairment at least annually. As a result
the Company is no longer amortizing approximately $947 million of goodwill
as of December 31, 2001. The remaining net intangible assets subject to
amortization, and related accumulated amortization, at December 31, 2001
were $229 million and $57 million, respectively. The Company added
approximately $27 million to intangibles and goodwill since September 30,
2001. The Company is currently performing initial impairment tests and it
is not practical to estimate the impact of such tests. However, any
transitional impairment loss will be recognized as the cumulative effect of
a change in accounting principle in our statement of earnings. In addition,
the Company is currently allocating existing goodwill to the three business
segments.
The following table details the impact of SFAS 142 on the three months
ended December 31, 2000, had the Company adopted the statement on October
1, 2000:
Three Months Ended December 31, 2000
---------------------------------------
As FAS 142
Reported Impact Adjusted
-------- --------- ---------
Net sales $ 220,758 $ -- $ 220,758
Gross profit 105,953 -- 105,953
Selling, general & administrative 56,116 (7,052) 49,064
Operating income 49,837 7,052 56,889
Income before income taxes, discontinued
operations and extraordinary items 36,978 7,052 44,030
Income taxes 14,791 2,169 16,960
Income from continuing operations before
extraordinary items 22,187 4,883 27,070
Discontinued operations (10,986) -- (10,986)
Income before extraordinary item 11,201 4,883 16,084
Extraordinary item (745) -- (745)
Net income 10,456 4,883 15,339
Basic earnings per common share from
continuing operations $ 0.21 $ 0.05 $ 0.26
Discontinued operations (0.10) -- (0.10)
Extraordinary items (0.01) -- (0.01)
Basic earnings per common share 0.10 0.04 0.14
Diluted earnings per common share from
continuing operations 0.21 0.04 0.25
Discontinued operations (0.10) -- (0.10)
Extraordinary items (0.01) -- (0.01)
Diluted earnings per common share 0.10 0.04 0.14
7
2. Inventories
Inventories at December 31, 2001 and September 30, 2001 consist of the
following:
December 31, September 30,
2001 2001
------------ -------------
Raw materials and supplies 65,898 84,802
Work in process 25,184 25,974
Finished goods 89,207 56,660
-------- --------
$180,289 $167,436
======== ========
3. Acquisitions
During the three months ended December 31, 2001, the Company completed
four acquisitions for cash. The aggregate purchase price, net of cash
acquired, was approximately $38 million. None of the acquisitions were
considered individually significant. The total goodwill and intangibles for
the acquired companies were approximately $27 million. The intangible
assets will be amortized over their expected lives ranging from 3 to 20
years. The following table outlines the sales, operating income and total
assets for the most recent available twelve-month period prior to each cash
acquisition.
Business Segment: Acquisition Operating Total Type of
Company Acquired Date Sales Income Assets Acquisition
---------------- ---- ----- --------- ------ -----------
Clinical Diagnostics:
Chromacol Limited, Epsom Glass Industries October 2001 $ 9,900 $ 350 $5,079 Stock
Limited, and Amchro Inc.
Forefront Diagnostics, Inc. November 2001 6,300 1,700 9,900 Stock
Labware and Life Sciences:
Cosmotec Co. Ltd. October 2001 10,500 2,500 2,600 Stock
Barden Engineering October 2001 570 130 540 Asset
4. Long -Term Debt
On October 10, 2001, the Company issued $300 million of senior
convertible contingent debt securities (CODES). The CODES have a fixed
interest rate of 2.25% per annum. Interest is payable on April 15 and
October 15 of each year, beginning April 15, 2002. The Company will also
pay contingent interest during any six-month period if the average trading
price of the CODES during a specified period of five trading days preceding
the relevant six-month period is above specified levels. The CODES will
mature on October 15, 2021. The CODES are convertible, subject to certain
conditions (including but not limited to the sale price of the Company's
common stock, trading prices of the CODES, maintenance of the Company's
credit ratings, and the occurrence of specified corporate transactions),
into Apogent Common Stock at a price of approximately $30.49 per share. The
Company may redeem some or all of the CODES on or after October 20, 2004.
The holders may require the Company to purchase all or a portion of their
CODES on October 20, 2004 and on October 15, 2006, 2011 and 2016, or
subject to specified exceptions, upon a change of control event. Certain of
the Company's U.S. subsidiaries guarantee the Company's obligations under
the CODES. The proceeds from the issuance were used to pay down the
outstanding balance on our Revolving Credit Facility, and for general
corporate purposes.
8
5. 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:
clinical diagnostics; labware and life sciences; and laboratory equipment.
A description of each business segment follows.
Products in the clinical diagnostic business segment include
microscope slides, cover glass, glass tubes and vials, stains and reagents
and histology and immunochemistry instrumentation for clinical testing,
thin glass for watch crystals, cosmetic mirrors, precision and coated glass
used in various optic applications, and precision thin film optical coating
equipment. Certain products in this segment are used in drug testing,
therapeutic drug monitoring, infectious disease detection, pregnancy
testing, and glucose tolerance testing. Products include diagnostic test
kits, culture media, diagnostic reagents, and other products used in
detecting causes of various infections or diseases.
Products in the labware and life sciences business segment include
approximately 4,900 items, including reusable plastic products (bottles,
carboys, graduated ware, beakers and flasks) and disposable plastic
products (microfiltration and cryogenic storage products). Other labware
products include products for critical packaging applications (bottles for
packaging diagnostic and other reagents, media, pharmaceuticals and
specialty chemicals), safety products (hazard labeled containers and
biohazard disposal products), environmental containers, autosampler vials
and seals used in chromatography analysis and glass products for research
and industrial applications, manufactured and sold through our joint
venture with Kimble Glass. Life sciences products include applications of
cell culture, filtration, molecular biology, cryopreservation, immunology,
electrophoresis, liquid handling and high throughput screening for
pharmaceutical drug discovery.
Products in the laboratory equipment business segment include heating,
stirring and temperature control apparatus such as hot plates, stirrers,
shakers, heating tapes, muffle furnaces, incubators, dri-baths, bench top
sterilizers and cryogenic storage apparatus, which are fundamental to basic
procedures performed in the laboratory; systems for producing ultra pure
water; bottle top dispensers, positive displacement micropipettors, and
small mixers used in biomolecular research; constant temperature equipment
including refrigerators/freezers, ovens, water baths, environmental
chambers; and furnaces and fluorometers, spectrophotometers, and strip
chart recorders.
9
The cost of some corporate functions are allocated to the business
segments at predetermined rates which approximate cost. Information on
these business segments is summarized as follows:
Labware
Clinical and Laboratory
Diagnostics Life Sciences Equipment Eliminations (a) Other (a) Total
----------- ------------- ---------- ---------------- --------- ----------
Three Months Ended December 31, 2001
Revenues:
External customer $116,940 $ 99,524 $ 24,732 $ -- $ -- $ 241,196
Intersegment 1,341 244 165 (1,750) -- --
Total revenues 118,281 99,768 24,897 (1,750) -- 241,196
Gross profit 54,565 49,612 10,283 -- -- 114,460
Selling general and administrative 24,507 28,044 4,854 -- 203 57,608
Operating income 30,058 21,568 5,429 -- (203) 56,852
Segment assets 904,330 120,664 752,203 -- 166,134 1,943,331
Three Months Ended December 31, 2000
Revenues:
External customer 109,865 84,863 26,030 -- -- 220,758
Intersegment 1,573 318 107 (1,998) -- --
Total revenues 111,438 85,181 26,137 (1,998) -- 220,758
Gross profit 51,654 43,257 11,042 -- -- 105,953
Selling general and administrative 26,196 25,004 5,616 -- (700) 56,116
Operating income 25,453 18,253 5,431 -- 700 49,837
(a) Includes the elimination of intercompany and unallocated corporate office
activity
6. Condensed Consolidating Financial Statements
The Company's material U.S. subsidiaries are guarantors to its
Revolving Credit Facility, Senior Notes, and CODES. Each of the subsidiary
guarantors is 100% owned by the Company. The guarantees are full and
unconditional as well as joint and several.
Below are the condensed consolidating balance sheets as of December
31, 2001 and September 30, 2001, and statements of operations and
statements of cash flows for the three months ended December 31, 2001 and
2000, of Apogent Technologies Inc. and its subsidiaries.
Certain general corporate expenses have not been allocated to the
subsidiaries, and are 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 the 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.
10
Condensed Consolidating Balance Sheets
As of December 31, 2001
--------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Assets
------
Current assets:
Cash and cash equivalents $ 59,871 $ -- $ 13,587 $ (2,399) $ 71,059
Accounts receivable, net -- 135,283 36,361 -- 171,644
Inventories, net 1,263 146,906 36,853 (4,733) 180,289
Other current assets 15,710 14,897 6,545 -- 37,152
---------- ---------- -------- ----------- ----------
Total current assets 76,844 297,086 93,346 (7,132) 460,144
Property, plant and equipment, net 9,836 171,538 45,995 -- 227,369
Intangible assets 14,363 935,304 225,960 -- 1,175,627
Deferred income taxes 5,762 151 1,201 -- 7,114
Investment in subsidiaries 1,629,049 49,939 -- (1,678,988) --
Other assets 58,988 13,069 1,020 -- 73,077
---------- ---------- -------- ----------- ----------
Total assets $1,794,842 $1,467,087 $367,522 $(1,686,120) $1,943,331
========== ========== ======== =========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 336 $ 35,490 $ 10,053 $ (2,399) $ 43,480
Current portion of long-term debt -- 75,038 30 -- 75,068
Income taxes payable 17,113 19,142 6,417 (1,249) 41,423
Accrued expenses and other current liabilities 9,662 26,800 26,363 -- 62,825
---------- ---------- -------- ----------- ----------
Total current liabilities 27,111 156,470 42,863 (3,648) 222,796
---------- ---------- -------- ----------- ----------
Long-term debt -- 675,362 23 -- 675,385
Securities lending agreement 54,607 -- -- -- 54,607
Deferred income taxes 85,838 20,524 12,371 -- 118,733
Other liabilities 2,973 2,261 1,408 -- 6,642
Net intercompany payable/(receivable) 509,957 (740,191) 230,198 36 --
Commitments and contingent liabilities --
Shareholders' equity
Preferred stock -- -- -- -- --
Common stock 1,061 -- -- -- 1,061
Equity rights -- -- -- -- --
Additional paid-in-capital 237,801 1,597,103 83,744 (1,660,375) 258,273
Retained earnings (deficit) 872,802 (244,442) 51,382 (22,133) 657,609
Other comprehensive income 2,692 -- (54,467) -- (51,775)
Treasury stock (at cost) -- -- -- -- --
---------- ---------- -------- ----------- ----------
Total shareholders' equity 1,114,356 1,352,661 80,659 (1,682,508) 865,168
---------- ---------- -------- ----------- ----------
Total liabilities and shareholders' equity $1,794,842 $1,467,087 $367,522 $(1,686,120) $1,943,331
========== ========== ======== =========== ==========
11
Condensed Consolidating Balance Sheets
As of September 30, 2001
--------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Assets
------
Current assets:
Cash and cash equivalents $ 4,145 $ -- $ 10,699 $ (5,652) $ 9,192
Accounts receivable, net -- 146,981 36,297 -- 183,278
Inventories, net 1,263 136,906 33,335 (4,068) 167,436
Other current assets 15,010 13,458 5,969 (406) 34,031
---------- ---------- -------- ----------- ----------
Total current assets 20,418 297,345 86,300 (10,126) 393,937
Property, plant and equipment, net 9,553 169,032 45,102 -- 223,687
Intangible assets 7,003 913,651 219,680 -- 1,140,334
Deferred income taxes 6,147 -- -- -- 6,147
Investment in subsidiaries 1,593,800 46,461 -- (1,640,261) --
Other assets 58,605 11,543 885 -- 71,033
---------- ---------- -------- ----------- ----------
Total assets $1,695,526 $1,438,032 $351,967 $(1,650,387) $1,835,138
========== ========== ======== =========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 787 $ 46,802 $ 11,885 $ (5,652) $ 53,822
Current portion of long-term debt 378 33,450 36 -- 33,864
Income taxes payable 33,432 -- 6,638 (1,323) 38,747
Accrued expenses and other current liabilities 33,784 28,603 14,968 -- 77,355
---------- ---------- -------- ----------- ----------
Total current liabilities 68,381 108,855 33,527 (6,975) 203,788
---------- ---------- -------- ----------- ----------
Long-term debt -- 623,543 23 -- 623,566
Securities lending agreement 55,072 -- -- -- 55,072
Deferred income taxes 74,411 20,778 12,031 -- 107,220
Other liabilities 3,231 2,453 1,318 -- 7,002
Net intercompany payable/(receivable) 375,705 (599,911) 224,169 37 --
Commitments and contingent liabilities --
Shareholders' equity
Preferred stock -- -- -- -- --
Common stock 1,059 -- -- -- 1,059
Equity rights -- -- -- -- --
Additional paid-in-capital 234,166 1,561,854 80,265 (1,621,648) 254,637
Retained earnings (deficit) 880,299 (279,540) 48,684 (21,801) 627,642
Other comprehensive income 3,202 -- (48,050) -- (44,848)
Treasury stock (at cost) -- -- -- -- --
---------- ---------- -------- ----------- ----------
Total shareholders' equity 1,118,726 1,282,314 80,899 (1,643,449) 838,490
---------- ---------- -------- ----------- ----------
Total liabilities and shareholders' equity $1,695,526 $1,438,032 $351,967 $(1,650,387) $1,835,138
========== ========== ======== =========== ==========
12
Condensed Consolidating Statements of Operations
For the Three Months Ended December 31, 2001
-------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ -- $ 205,698 $ 52,375 $ (16,877) $ 241,196
Cost of sales -- 111,311 31,636 (16,211) 126,736
--------- --------- --------- --------- ---------
Gross profit -- 94,387 20,739 (666) 114,460
Selling, general and administrative expenses 5,784 38,663 13,161 -- 57,608
--------- --------- --------- --------- ---------
Operating income (5,784) 55,724 7,578 (666) 56,852
Other income (expense):
Interest expense -- (10,204) (28) -- (10,232)
Other, net (858) 1,497 7 -- 646
--------- --------- --------- --------- ---------
Income before income taxes (6,642) 47,017 7,557 (666) 47,266
Income taxes (2,647) 17,396 2,796 (246) 17,299
--------- --------- --------- --------- ---------
Net income $ (3,995) $ 29,621 $ 4,761 $ (420) $ 29,967
========= ========= ========= ========= =========
For the Three Months Ended December 31, 2000
-------------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ 196,681 $ 34,923 $ (10,846) $ 220,758
Cost of sales -- 104,555 20,400 (10,150) 114,805
--------- --------- --------- --------- ---------
Gross profit -- 92,126 14,523 (696) 105,953
Selling, general and administrative expenses 5,235 42,224 8,657 -- 56,116
--------- --------- --------- --------- ---------
Operating income (5,235) 49,902 5,866 (696) 49,837
Other income (expense):
Interest expense -- (12,512) (16) -- (12,528)
Other, net (585) 143 111 -- (331)
--------- --------- --------- --------- ---------
Income before income taxes, discontinued operations
and extraordinary items (5,820) 37,533 5,961 (696) 36,978
Income taxes (2,328) 15,013 2,384 (278) 14,791
--------- --------- --------- --------- ---------
Income from continuing operations before
extraordinary items (3,492) 22,520 3,577 (418) 22,187
Loss from discontinued operations (10,986) -- -- -- (10,986)
--------- --------- --------- --------- ---------
Income before extraordinary items (14,478) 22,520 3,577 (418) 11,201
Extraordinary item -- (745) -- -- (745)
--------- --------- --------- --------- ---------
Net income $ (14,478) $ 21,775 $ 3,577 $ (418) $ 10,456
========= ========= ========= ========= =========
13
Condensed Consolidating Statements of Cash Flows
For the Three Months Ended December 31, 2001
---------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows (used by) provided by operating activities: $ (14,570) $ 27,904 $ 11,337 $-- $ 24,671
--------- --------- --------- --- ---------
Cash flows from investing activities:
Capital expenditures (150) (4,526) (1,669) -- (6,345)
Proceeds from sales of property, plant and equipment -- 24 26 -- 50
Net payments for businesses acquired -- (34,591) (3,737) -- (38,328)
--------- --------- --------- --- ---------
Net cash provided by (used in) investing activities (150) (39,093) (5,380) -- (44,623)
--------- --------- --------- --- ---------
Cash flows from financing activities:
Proceeds from long-term debt 68,700 383,200 -- -- 451,900
Principal payments on long-term debt -- (360,468) (6) -- (360,474)
Proceeds from the exercise of stock options 1,746 -- -- -- 1,746
Other -- (8,290) 920 -- (7,370)
--------- --------- --------- --- ---------
Net cash provided by (used in) financing activities 70,446 14,442 914 -- 85,802
Effect of exchange rate on cash and cash equivalents -- -- (3,983) (3,983)
--------- --------- --------- --- ---------
Net (decrease) increase in cash and cash equivalents 55,726 3,253 2,888 -- 61,867
Cash and cash equivalents at beginning of year 4,145 (5,652) 10,699 -- 9,192
--------- --------- --------- --- ---------
Cash and cash equivalents at end of year $ 59,871 $ (2,399) $ 13,587 $-- $ 71,059
========= ========= ========= === =========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ -- $ 13,562 $ 80 $-- $ 13,642
========= ========= ========= === =========
Income taxes $ 14,200 $ -- $ -- $-- $ 14,200
========= ========= ========= === =========
Capital lease obligations incurred $ -- $ 30 $ -- $-- $ 30
========= ========= ========= === =========
14
Condensed Consolidating Statements of Cash Flows
For the Three Months Ended December 31, 2000
-----------------------------------------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows provided by operating activities: $ (68,099) $ 87,107 $ 3,412 $ 22,420
--------- --------- --------- --- ---------
Cash flows from investing activities:
Capital expenditures (249) (5,761) (1,369) -- (13,389)
Proceeds from sales of property, plant and equipment -- 232 26 -- 258
Net cash inflow from SDS 46,394 -- -- -- 46,394
Net payments for businesses acquired -- (18,856) -- -- (18,856)
--------- --------- --------- --- ---------
Net cash used in investing activities 46,145 (24,385) (1,343) -- 20,417
--------- --------- --------- --- ---------
Cash flows from financing activities:
Proceeds from long-term debt -- 626,640 -- -- 626,640
Principal payments on long-term debt -- (688,748) (12) -- (688,760)
Proceeds from the exercise of stock options 1,491 -- -- -- 1,491
Other 14,583 (3,900) -- -- 10,683
--------- --------- --------- --- ---------
Net cash provided by financing activities 16,074 (66,020) -- -- (49,946)
Effect of exchange rate on cash and cash equivalents -- -- (529) -- (529)
--------- --------- --------- --- ---------
Net (decrease) increase in cash and cash equivalents (5,880) (3,298) 1,540 -- (7,638)
Cash and cash equivalents at beginning of year 7,086 (2,577) 7,902 -- 12,411
--------- --------- --------- --- ---------
Cash and cash equivalents at end of year $ 1,206 $ (5,875) $ 9,442 $-- $ 4,773
========= ========= ========= === =========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ -- $ 13,642 $ -- $-- $ 13,642
========= ========= ========= === =========
Income taxes $ -- $ -- $ -- $-- $ --
========= ========= ========= === =========
Capital lease obligations incurred $ -- $ -- $ -- $-- $ --
========= ========= ========= === =========
15
Item 2. Management's Discussion and Analysis of Financial Condition and Result
----------------------------------------------------------------------
of Operations
-------------
General
The subsidiaries of Apogent are leading manufacturers of value-added
products for the clinical diagnostics, labware and life sciences, and laboratory
equipment markets in the United States and abroad. Apogent provides products
under three business segments - Clinical Diagnostics, Labware and Life Sciences,
and Laboratory Equipment. The primary subsidiaries in each of our business
segments are as follows:
Clinical Diagnostics Labware and Life Sciences
-------------------- -------------------------
Applied Biotech, Inc. 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
Microgenics Corporation Nalge Nunc International K.K.
Microm International GmbH National Scientific Company
The Naugatuck Glass Company Nunc A/S
Richard-Allan Scientific Company
Remel Inc. Laboratory Equipment
Samco Scientific Corporation --------------------
Barnstead Thermolyne Corporation
Electrothermal Engineering, Ltd.
Lab-Line Instruments, Inc.
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 December 31, 2001 and 2000 are the Company's first quarters of
fiscal 2002 and 2001, respectively.
Results of Operations
Quarter Ended December 31, 2001 Compared to the Quarter Ended December 31, 2000
Net Sales
Fiscal Fiscal Dollar Percent
2002 2001 Change Change
-------- -------- -------- -------
(in thousands)
Clinical Diagnostics $116,940 $109,865 $ 7,075 6%
Labware and Life Sciences 99,524 84,863 14,661 17%
Laboratory Equipment 24,732 26,030 (1,298) -5%
-------- -------- ------
$241,196 $220,758 $ 20,438 9%
======== ======== ======
Overall Company. Net sales for the quarter ended December 31, 2001
increased by $20.4 million or 9% over the corresponding fiscal 2001 quarter.
Clinical Diagnostics. Increased net sales in the clinical diagnostics
segment resulted primarily from: (a) net sales of products of acquired companies
(approximately $4.9 million), (b) price increases (approximately $3.6 million),
(c) increased net sales of new products developed by us (approximately $1.5
million), and (d) foreign currency fluctuations (approximately $0.4 million).
Net sales were partially reduced by a decrease in net sales of existing products
(approximately $3.4 million).
16
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 $12.1 million), (b) increased net sales of new products
developed by us (approximately $1.7 million), (c) increased net sales of
existing products (approximately $0.8 million), and (d) price increases
(approximately $0.3 million). Net sales were partially reduced by foreign
currency fluctuations (approximately $0.2 million).
Laboratory Equipment. Reduced net sales in the laboratory equipment segment
resulted primarily from a decrease in net sales of existing products
(approximately $2.2 million). Net sales were partially increased by: (a)
increased net sales of new products developed by us (approximately $0.4 million)
and (b) price increases (approximately $0.4 million).
Gross Profit
Fiscal Percent Fiscal Percent Dollar Percent
2002 of Sales 2001 of Sales Change Change
-------- -------- -------- -------- -------- -------
Clinical Diagnostics $ 54,565 47% $ 51,654 47% $ 2,911 6%
Labware and Life Sciences 49,612 50% 43,257 51% 6,355 15%
Laboratory Equipment 10,283 42% 11,042 42% (759) -7%
-------- -------- --------
$114,460 47% $105,953 48% $ 8,507 8%
======== ======== ========
Overall Company. Gross profit for the quarter ended December 31, 2001
increased by $8.5 million or 8% over the corresponding fiscal 2001 quarter.
Clinical Diagnostics. Increased gross profit in the clinical diagnostics
segment resulted primarily from: (a) price increases (approximately $3.6
million), (b) decreased manufacturing overhead (approximately $2.8 million), (c)
the effects of acquired companies (approximately $1.9 million), (d) inventory
adjustments (approximately $0.9 million), (e) the effects of new products
(approximately $0.7 million), and (f) foreign currency fluctuations
(approximately $0.1 million). Gross profit was partially reduced by: (a)
decreased volume (approximately $4.3 million) and (b) product mix
(approximately $2.7 million).
Labware and Life Sciences. Increased gross profit in the labware and life
sciences segment resulted primarily from: (a) the effects of acquired companies
(approximately $3.7 million), (b) product mix (approximately $2.6 million), (c)
the effects of new products (approximately $0.6 million), (d) increased volume
(approximately $0.6 million), and (e) price increases (approximately $0.3
million). Gross profit was partially reduced by: (a) increased manufacturing
overhead (approximately $0.8 million), (b) foreign currency fluctuations
(approximately $0.4 million), and (c) inventory adjustments (approximately $0.3
million).
Laboratory Equipment. Decreased gross profit in the laboratory equipment
segment resulted primarily from: (a) decreased volume (approximately $1.0
million), (b) inventory adjustments (approximately $0.3 million), and (c)
increased manufacturing overhead (approximately $0.2 million). Gross profit was
partially increased by: (a) price increases (approximately $0.4 million) and (b)
the effects of new products (approximately $0.2 million).
17
Selling General and Administrative Expenses
Fiscal Fiscal Dollar Percent
2002 2001 Change Change
-------- -------- -------- -------
Clinical Diagnostics $ 24,507 $ 26,196 $ (1,689) -6%
Labware and Life Sciences 28,044 25,004 3,040 12%
Laboratory Equipment 4,854 5,616 (762) -14%
-------- -------- --------
Subtotal 57,405 56,816 589 1%
Other 203 (700) 2,867
-------- -------- --------
Total $ 57,608 $ 56,116 $ 3,456 6%
======== ======== ========
Overall Company. Selling, general and administrative expenses for the
quarter ended December 31, 2001 increased by $3.4 million or 6% over the
corresponding fiscal 2001 quarter.
Clinical Diagnostics. Decreased selling, general and administrative
expenses in the clinical diagnostics segment resulted primarily from a decrease
in amortization expense as a result of the implementation of Statement No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142) - see Note 1 to the Unaudited
Consolidated Financial Statements (approximately $3.8 million). Selling, general
and administrative expenses were partially increased by: (a) marketing expenses
(approximately $1.1 million), (b) general and administrative expenses
(approximately $0.9 million), (c) research and development expenses
(approximately $0.2 million), (d) acquired businesses (approximately $0.2
million), and (e) foreign currency fluctuations (approximately $0.2 million).
Labware and Life Sciences. Increased selling, general and administrative
expenses in the labware and life sciences segment resulted primarily from: (a)
acquired businesses (approximately $2.9 million), (b) marketing expenses
(approximately $1.6 million), (c) general and administrative expenses
(approximately $0.5 million), and (d) research and development expense
(approximately $0.5 million). Selling, general and administrative expenses were
partially reduced by: (a) decreased amortization expense as a result of SFAS 142
(approximately $1.9 million), and (b) foreign currency fluctuations
(approximately $0.3 million).
Laboratory Equipment. Decreased selling, general and administrative
expenses in the laboratory equipment segment resulted primarily from: (a)
decreased amortization expense as a result of SFAS 142 (approximately $0.5
million) and (b) general and administrative expenses (approximately $0.1
million).
Operating Income
Fiscal Fiscal Dollar Percent
2002 2001 Change Change
-------- -------- -------- -------
Clinical Diagnostics $ 30,058 $ 25,453 $ 4,605 18%
Labware and Life Sciences 21,568 18,253 3,315 18%
Laboratory Equipment 5,429 5,431 (2) 0%
-------- -------- --------
Subtotal 57,055 49,137 7,918 16%
Other (203) 700 (903)
-------- -------- --------
Total $ 56,852 $ 49,837 $ 7,015 14%
======== ======== ========
As a result of the foregoing, operating income for the quarter ended
December 31, 2001 increased by $7.0 million or 14% over the corresponding fiscal
2001 quarter. Excluding the impact of SFAS 142 on this fiscal 2002 quarter,
operating income would have been $569 million, consistent with the corresponding
fiscal 2001 quarter.
Interest Expense
Interest expense was $10.2 million for the quarter ended December 31,
2001, as compared to $12.5 million for the corresponding fiscal 2001 quarter.
The decrease is the result of lower average interest rates.
18
Other Income
Other income was $1.5 million for the quarter ended December 31, 2001, as
compared to other expense of $0.2 million in the corresponding fiscal 2001
quarter. This increase is primarily due to investment income from minority
interest in joint ventures of $1.4 million.
Income Taxes
Taxes on income from continuing operations for the quarter ended December
31, 2001 were $17.3 million, an increase of $2.5 million from the corresponding
fiscal 2001 quarter. This increase resulted primarily from increased taxable
earnings.
Net Income
As a result of the foregoing, net income was $30 million for the quarter
ended December 31, 2001 as compared to $10.5 million for the corresponding
fiscal 2001 quarter. SFAS 142 would have increased net income to $15.3 million
for the fiscal 2001 quarter, had it been effective at the time.
Impact of Recently Issued Accounting Standards
The Company adopted Statement No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142) on October 1, 2001. SFAS 142 requires that all goodwill and
intangible assets with indefinite useful lives will no longer be amortized, but
instead tested for impairment at least annually. As a result the Company is no
longer amortizing approximately $947 million of goodwill as of December 31,
2001. If SFAS 142 had been effective for the quarter ending December 31, 2000,
income before extraordinary item and net income would have been $16.1 million
and $15.3 million, respectively. The Company is required to perform initial
impairment tests and it is not practical to estimate the impact of such tests.
However, any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in our statement of earnings.
Liquidity and Capital Resources
As a result of the acquisition of our predecessor in 1987 and the
acquisitions we completed since 1987, we have increased the carrying value of
certain tangible and intangible assets consistent with accounting principles
generally accepted in the United States. 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
$35 million during the first fiscal quarter of 2002, primarily as a result of
continued acquisition activity. However, the non-cash amortization expense
relating to intangible assets and goodwill have been reduced substantially
following the adoption of SFAS 142 on October 1, 2001.
Our capital requirements arise principally from indebtedness incurred in
connection with 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, and the periodic expansion of physical
facilities. It is currently our intent to continue to pursue our acquisition
strategy.
Approximately $24.7 million of cash was generated from operating activities
in the first quarter of fiscal 2002, an increase of $2.3 million or 10% from the
corresponding fiscal 2001 quarter. Non-cash depreciation and amortization
charged against net income decreased approximately $4.5 million, primarily as a
result of the adoption of SFAS 142. The cash outflow resulting from the net
change in working capital, net of the effects of acquisitions and divestitures,
was $20.3 million for the first quarter of fiscal 2002, consistent with the
corresponding fiscal 2001 quarter. These changes are set forth in detail in the
Consolidated Statements of Cash Flows.
19
Investing activities in the first quarter of fiscal 2002 used approximately
$44.6 million of cash. This outflow was due primarily to cash used for
acquisitions of $38.3 million. Capital expenditures were $6.3 million for the
first quarter of fiscal 2002, compared to $7.4 million in the corresponding
fiscal 2001 quarter.
Financing activities provided approximately $85.8 million of cash in the
first quarter of fiscal 2002. Proceeds from our CODES offering (discussed below)
were used to pay off approximately $208 million outstanding on the Revolving
Credit facilities. Financing fees of $8.3 million were paid in connection with
the CODES offering. As a result of the excess of proceeds from the CODES
offering over the payments on the Revolving Credit Facilities and financing fees
paid, the Company had $71 million of cash at December 31, 2001.
On October 10, 2001, the Company issued $300 million of senior convertible
contingent debt securities (CODES). The CODES have a fixed interest rate of
2.25% per annum. Interest is payable on April 15 and October 15 of each year,
beginning April 15, 2002. The Company will also pay contingent interest during
any six-month period if the average trading price of the CODES during a
specified period of five trading days preceding the relevant six-month period is
above specified levels. The CODES will mature on October 15, 2021. The CODES are
convertible, subject to certain conditions (including but not limited to the
sale price of the Company's common stock, trading prices of the CODES,
maintenance of the Company's credit ratings, and the occurrence of specified
corporate transactions), into Apogent Common Stock at a price of approximately
$30.49 per share. The Company may redeem some or all of the CODES on or after
October 20, 2004. The holders may require the Company to purchase all or a
portion of their CODES on October 20, 2004 and on October 15, 2006, 2011 and
2016, or subject to specified exemptions, upon a change of control event.
Certain of the Company's U.S. subsidiaries guarantee the Company's obligations
under the CODES. The proceeds from the issuance were used to pay down the
outstanding balance on our Revolving Credit Facility, and for general corporate
purposes.
The CODES, 8% Senior Notes, and Revolving Credit Facilities all contain
certain cross default provisions. Some of these provisions include financial and
operating covenants which, if not met, could cause acceleration of payments on
outstanding balances. The covenants include, among other things; restrictions on
investments, requirements that the Company maintain certain financial ratios,
requirements that the Company maintain certain credit ratings, restrictions on
the ability of the Company and its subsidiaries to create or permit liens, or to
pay dividends or make other restricted payments (as defined), and limitations on
incurrence of additional indebtedness. The Company is not aware of any
violations of these covenants and does not foresee any such violations in light
of current business conditions.
Off-Balance Sheet Arrangements
The Company holds a minority interest in two unconsolidated joint ventures
that are accounted for as equity investments. In both instances the Company owns
less than 50% of the underlying joint venture. As of December 31, 2001 equity
investments in these entities, included in "Other Assets", totaled $7.6 million.
Income from the joint ventures for the first quarter of fiscal 2002 was $1.4
million and is included in Other Income. The joint ventures are limited to the
extent they can incur any debt other than trade payables arising out of their
business activities and do not hold any assets other than inventory and trade
receivables. As of December 31, 2001, the joint ventures did not have any debt
other than trade payables arising out of their business activities.
20
Disclosures About Contractual Obligations and Commercial Commitments
In its day-to-day business activities, the Company incurs certain
obligations and commitments to make future payments under contracts such as debt
and lease agreements. Maturities of these obligations are set forth in the
following table (in millions):
- ---------------------------------------- ---------------------------------------------------------------------
Payments Due by Period
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Less than 1 After 5
Contractual Obligations Total Year 1 - 3 Years 4 - 5 Years Years
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Long-Term Debt $ 750.5 $ 73.6 $ 41.8 $ 1.2 $ 633.9
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Capital Lease Obligations 0.6 0.3 0.3 --- ---
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Operating Leases 51.6 9.6 21.9 8.5 11.6
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Unconditional Purchase Obligations 15.0 2.5 6.5 3.0 3.0
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Other Long-Term Obligations None
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Total Contractual Cash Obligations 817.7 86.0 70.5 12.7 648.5
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Amount of Commitment Expiration Per Period
Total -------------------------------------------------------
Amounts Less Than 1
Other Commercial Commitments Committed Year 1 - 3 Years 4 - 5 Years Over 5 Years
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Lines of Credit $ 10.7 $10.7 $ --- $--- $---
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Standby Letters of Credit 107.9 34.8 73.1
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Guarantees None (1)
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Standby Repurchase Obligations None
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Other Commercial Commitments None
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
Total Commercial Commitments $118.6 $45.5 73.1 $--- $---
- ---------------------------------------- ------------- ------------- ------------- ------------- -------------
(1) Certain of the Company's domestic subsidiaries are guarantors under the
Revolving Line of Credit, 8% Senior Notes, and CODES.
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,"
"goal," "expect," "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:
Our holding company structure increases financial risks.
We are organized as a holding company, with all of our net sales generated
through our subsidiaries. Consequently, our operating cash flow and ability to
service indebtedness depend in part upon the operating cash flow of our 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 or other contractual
restrictions that apply, which may include requirements to maintain minimum
levels of working capital and other assets.
21
Our international operations pose currency and other risks.
We have significant operations outside the United States, where a
significant portion of our revenue is generated. We are therefore subject to
risk factors affecting our international operations, including relevant foreign
currency exchange rates, which can affect the cost of 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 that have historically been
less stable than the United States in several respects, including fiscal and
political stability; and risks associated with an economic downturn in other
countries. In addition, world events can increase the volatility of the currency
markets, and such volatility could affect our financial results.
Our failure to keep pace with the technological demands of our customers or with
the products and services offered by our competitors could significantly harm
our business.
Some of the industries served by our products are characterized by rapid
technological changes and new product introductions. Some of our competitors may
invest more heavily in research or product development than we do. Successful
new product offerings depend upon a number of factors, including our ability to:
o accurately anticipate customer needs;
o innovate and develop new technologies and applications;
o successfully commercialize new products in a timely manner;
o price our products competitively and manufacture and deliver our
products in sufficient volumes and on time; and
o differentiate our offerings from those of our competitors.
If we do not introduce new products in a timely manner and make
enhancements to meet the changing needs of our customers, some of our products
could become obsolete over time, in which case our customer relationships,
revenue, and operating results would suffer.
Our operating results may suffer if the industries into which we sell our
products are in downward cycles.
Some of the industries and markets into which we sell our products are
cyclical. Any significant downturn in our customers' markets or in general
economic conditions could result in reduced demand for our products and could
harm our business.
Future acquisitions may not be available or may create transitional challenges.
A significant portion of our growth over the past several years has been
achieved through our acquisition program. 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 the cost of the capital required to effect our acquisition
strategy, the availability of suitable acquisition candidates at reasonable
prices, competition for appropriate acquisition candidates, our ability to
realize the synergies expected to result from acquisitions, our ability to
retain key personnel in connection with acquisitions and the ability of our
existing personnel to efficiently handle increased transitional responsibilities
resulting from acquisitions.
We may incur restructuring or impairment charges that would reduce our earnings.
We have in the past and may in the future restructure some of our
operations. In such circumstances, we may take actions that would result in a
charge and reduce our earnings. These restructurings have or may be undertaken
to realign our subsidiaries, eliminate duplicative functions, rationalize our
operating facilities and products and reduce our staff. These restructurings may
be implemented to improve the operations of recently acquired subsidiaries as
well as subsidiaries that have been part of our operations for many years.
Additionally, on October 1, 2001 we adopted
22
SFAS 142, "Goodwill and Other Intangible Assets," which requires that goodwill
and intangible assets that have an indefinite useful life be tested at least
annually for impairment. This requires us to perform a transitional assessment
for possible impairment as of October 1, 2001. We have not quantified the impact
of adopting this standard.
We rely heavily upon sales to key distributors and original equipment
manufacturers, and could lose sales if any of them stop doing business with us.
Our three most significant distributors represent a significant portion of
our revenues. 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 or make alternate sourcing
decisions. We rely primarily upon the long-standing and mutually beneficial
nature of our relationships with our key distributors, rather than on
contractual rights, to protect these relationships. Volatility in end-user
demand can also arise with large OEM customers to whom we sell directly. The
loss of a substantial contract could adversely affect our business. Sales to our
OEM customers are sometimes unpredictable and wide variances sometimes occur
quarter to quarter.
We could be injured by disruptions of our manufacturing operations.
We rely upon our manufacturing operations to produce most of the products
we sell. Any significant disruption of those operations for any reason, such as
strikes, labor disputes or other labor unrest, power interruptions, fire, war,
or other force majuere, could adversely affect our sales and customer
relationships and therefore adversely affect our business. In particular, the
supply of white glass, which is used in our clinical diagnostics segment's
worldwide manufacturing operations, comes solely from our glass manufacturing
facility in Switzerland. Risks include delays encountered in connection with the
periodic rebuilding of the sheet glass furnace or furnace malfunctions. Although
most of our raw materials are available from a number of potential suppliers,
our operations also depend upon our ability to obtain raw materials at
reasonable prices.
The success of many of our products depends on the effectiveness of our patents,
trademarks, and licenses to defend our intellectual property rights.
Our success with many of our products depends, in part, on our ability to
protect our current and future innovative products and to defend our
intellectual property rights. Our subsidiaries' products are sold under a
variety of trademarks and trade names. They own or license all of the trademarks
and trade names we believe to be material to the operation of their businesses.
We also rely upon a combination of non-disclosure and other contractual
agreements and trade secret, copyright, patent, and trademark laws to protect
our intellectual property rights. Disputes may arise concerning the ownership of
intellectual property or the applicability of confidentiality agreements. If we
fail to adequately protect our intellectual property, competitors may
manufacture and market products similar to ours.
We could be hurt by product liability claims or other litigation.
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. Although we currently
maintain insurance against some of these risks, uninsured losses could occur.
Our business is subject to regulatory risks.
Our ability to continue manufacturing and selling those of our products
that are subject to regulation by the United States Food and Drug Administration
or other domestic or foreign governments or agencies is subject to a number of
risks. In the future, some of our products may be affected by the passage of
stricter laws or regulations, reclassification of our products into categories
subject to more stringent requirements, or the withdrawal of approvals needed to
sell one or more of our products.
Some of our products are affected by general levels of insurance and
reimbursement.
The demand for and pricing of some of our products can be affected by
changing levels of public and private health care budgets, including
reimbursement by private or governmental insurance programs.
We could be harmed by the loss of key management.
23
The success of our operations depends in significant part upon the
experience and expertise of our management team, both within Apogent and in our
operating subsidiaries. Any loss of these key personnel could harm our business.
We sometimes experience quarterly variations in our operating results.
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.
Other risks may arise.
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
----------------------------------------------------------
There has been no substantial change in market risk to the Company since
September 30, 2001, the end of our prior fiscal year.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
On October 10, 2001, the Company issued and sold, in a private placement,
$300 million aggregate principal amount of 2.25% Senior Contingent Convertible
Debt Securities ("CODES") due 2021. The CODES are convertible, subject to
certain conditions, into common stock at a conversion rate of 32.7955 shares of
common stock per $1,000 principal amount of CODES, which is equivalent to an
initial conversion price of approximately $30.49 per share. In addition to fixed
interest at the rate of 2.25% per year, the CODES also pay contingent interest
under certain circumstances.
The CODES were sold to Lehman Brothers Inc., Credit Suisse First Boston
Corporation, Banc of America Securities LLC, ABN AMRO Rothschild LLC and UBS
Warburg LLC, as "accredited investors" within the meaning of Rule 501 under the
Securities Act of 1933, in reliance upon the private placement exemption
afforded by Section 4(2) of that Act, and were offered and sold to "qualified
institutional buyers" under Rule 144A of the Securities Act. Pursuant to a
registration rights agreement entered into in connection with the private
offering, the Company has filed a registration statement under the Securities
Act to permit registered resales of the CODES and the common stock issuable upon
conversion of the CODES.
The aggregate offering price of the CODES was $300 million, 100% of the
principal amount thereof. The purchase price paid to the Company by the initial
purchasers was the initial offering price less a discount of $7,500,000, 2.5% of
the principal amount of the CODES. A portion of the net proceeds from the sale
of the CODES was used to repay borrowings under the Company's revolving credit
facility.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company, a Wisconsin corporation, held its Annual Meeting of Shareholders on
January 28, 2002. A quorum was present at the Annual Meeting, with 100,135,313
shares out of a total of 106,129,455 shares entitled to cast votes represented
in person or by proxy at the meeting.
Proposal Number 1: To elect four directors to serve as Class I Directors until
the 2005 Annual Meeting of Shareholders and until their respective successors
are duly elected and qualified.
The shareholders voted to elect William H. Binnie, Don H. Davis, Jr.,
Christopher L. Doerr and Richard W. Vieser to serve as Class I directors until
the 2005 Annual Meeting of Shareholders and until their respective successors
are duly elected and qualified. The results of the vote are as follows:
Mr. Binnie Mr. Davis Mr. Doerr Mr. Vieser
---------- --------- --------- ----------
For 99,858,639 99,803,189 98,615,795 99,914,697
Withheld From 276,674 332,124 1,519,518 220,616
The terms of office as directors of Stephen R. Hardis, R. Jeffrey Harris, Frank
H. Jellinek, Jr., William U. Parfet, Joe L. Roby and Kenneth F. Yontz continued
after the meeting.
Proposal Number 2: To approve the Company's 2001 Equity Incentive Plan.
24
The shareholders voted to approve the Company's 2001 Equity Incentive Plan. The
results of the vote are as follows:
For: 89,267,980
Against: 3,806,454
Abstentions: 81,136
Broker Non-Votes: 6,979,743
Proposal Number 3: To approve the Company's Employee Stock Purchase Plan.
The shareholders voted to approve the Company's Employee Stock Purchase Plan.
The results of the vote are as follows:
For: 92,754,974
Against: 310,191
Abstentions: 90,405
Broker Non-Votes: 6,979,743
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 dated October 3, 2001, was filed on October 3, 2001 to
report under items 5 and 7, the Company's intention to commence a private
placement of senior convertible contingent debt securities (CODES). An
exhibit to the Form 8-K also consisted of a press release dated October 3,
2001, announcing the intended private placement.
A Form 8-K dated October 4, 2001, was filed on October 5, 2001 to
report under items 5 and 7, the pricing of senior convertible contingent
debt securities (CODES) to be issued in a private placement. An exhibit to
the Form 8-K also consisted of a press release dated October 4, 2001,
announcing the pricing.
A Form 8-K dated October 11, 2001, was filed on October 11, 2001 to
report under items 5 and 7, the sale of the Company's 2.25% Senior
Convertible Contingent Debt Securities (CODES) due 2021. Exhibits to the
Form 8-K also included a press release dated October 11, 2001, announcing
the completion of the related private placement and the indenture for the
CODES.
A Form 8-K dated November 15, 2001, was filed on November 15, 2001 to
report under item 5 an updated description of the Company's Common Stock.
25
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: February 14, 2002 /s/ JEFFREY C. LEATHE
- ----------------------- -----------------------------------------
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
26
APOGENT TECHNOLOGIES INC.
(the "Registrant")
(Commission File No. 1-11091)
EXHIBIT INDEX
to
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001
Exhibit Incorporated Herein By Filed
Number Description Reference To Herewith
- ------- ----------- ---------------------- --------
4.1 Purchase Agreement dated October Exhibit 4.8 to Registrant's Form
3, 2001 among the Registrant, the 10-K for fiscal year ended
Subsidiary Guarantors named September 30, 2001 (the "2001
therein and the Initial Purchasers 10-K").
named therein
4.2 Indenture dated October 10, 2001 Exhibit 99.2 to the Registrant's
among the Registrant, the Form 8-K dated October 11, 2001
Subsidiary Guarantors named
therein and The Bank of New York
4.3 Resale Registration Agreement Exhibit 4.10 to the Registrant's
dated as of October 10, 2001 among 2001 10-K
the Registrant, the Subsidiary
Guarantors named therein and the
Initial Purchasers named therein.
10.1 Form of Employment Agreement with X
President and Chief Executive
Officer
10.2 Form of Employment Agreement with X
certain executive officers
10.3 Schedule of executive officers who X
are party to Employment Agreement
filed as Exhibit 10.2
10.4 Apogent Technologies Inc. 2001 Appendix A to the Registrant's
Equity Incentive Plan Proxy Statement dated December 26,
2001.
10.5 Apogent Technologies Inc. Employee Appendix B to the Registrant's
Stock Purchase Plan Proxy Statement dated December 26,
2001.
10.6 Form of Indemnification Agreement Exhibit 10 to the Registrant's
with each of the executive Form 8-K filed November 15, 2001.
officers and directors identified
on the schedule thereto
EI-1