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, 2002
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.
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(Exact name of registrant as specified in its charter)
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Wisconsin 22-2849508
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
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30 Penhallow Street, Portsmouth, New Hampshire 03801
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(Address of principal executive offices) (Zip Code)
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(603) 433-6131
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(Registrant's telephone number, including area code)
48 Congress Street, Portsmouth, NH. 03801
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(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 9, 2002, there were 106,776,102 shares of the Registrant's Common Stock,
par value $0.01 per share, outstanding.
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Index Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Balance Sheets as of March 31, 2002 and September 30,
2001 1
Consolidated Statements of Income for the three and six months ended
March 31, 2002 and 2001 2
Consolidated Statement of Shareholders' Equity for the six months
ended March 31, 2002 3
Consolidated Statements of Cash Flows for the six months ended March
31, 2002 and 2001 4
Notes to unaudited consolidated financial statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 38
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 38
Item 6. Exhibits and Reports on Form 8-K 38
Signaturesc 39
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,
2002 2001
---- ----
Assets
Current assets:
Cash and cash equivalents $ 42,415 $ 9,192
Accounts receivable (less allowance for doubtful accounts of
$4,804 and $3975, respectively) 188,685 183,278
Inventories 185,517 167,436
Deferred income taxes 13,070 13,046
Prepaid expenses and other current assets 22,694 20,985
Assets of Vacuum Process Technology, Inc.("VPT") avail. for sale 6,157 -
---------------- ---------------
Total current assets 458,538 393,937
Available for sale security 51,730 55,072
Property, plant and equipment, net 244,659 223,687
Intangible assets 1,202,658 1,140,334
Deferred income taxes 6,740 6,147
Other assets 17,337 15,961
---------------- ---------------
Total assets $1,981,662 $1,835,138
================ ===============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 46,901 $ 53,822
Current portion of long-term debt 87,091 73,642
Income taxes payable 52,877 38,747
Accrued payroll and employee benefits 28,270 33,236
Accrued interest expense 17,429 15,292
Restructuring reserve 4,839 1,552
Deferred income taxes 791 911
Other current liabilities 28,351 26,364
Liabilities of Vacuum Process Technology, Inc. 70 -
---------------- ---------------
Total current liabilities 266,619 243,566
Long-term debt 658,172 583,788
Securities lending agreement 51,730 55,072
Deferred income taxes 114,815 107,220
Other liabilities 8,219 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 106,478,598 and 105,875,768 shares respectively;
outstanding 106,478,378 and 105,875,548 shares respectively 1,065 1,059
Equity rights, 50 rights at $1.09 per right - -
Additional paid-in capital 263,310 254,637
Retained earnings 676,562 627,642
Accumulated other comprehensive income (58,830) (44,848)
Treasury common stock, 220 shares at cost - -
---------------- ---------------
Total shareholders' equity 882,107 838,490
---------------- ---------------
Total liabilities and shareholders' equity $1,981,662 $1,835,138
================ ===============
See the accompanying notes to the unaudited consolidated financial statements
1
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,
2002 2001 2002 2001
---- ---- ---- ----
Net sales $263,120 $239,979 $502,836 $457,464
Cost of sales:
Cost of products sold 132,884 120,519 257,335 232,606
Restructuring charge 3,673 - 3,673 -
Depreciation of purchase accounting adjustments 486 144 1,609 269
------------ ------------- ------------- -------------
Total cost of sales 137,043 120,663 262,617 232,875
------------ ------------- ------------- -------------
Gross profit 126,077 119,316 240,219 224,589
Selling, general and administrative expenses 58,430 52,081 111,516 97,497
Restructuring charge 1,614 583 1,614 583
Depreciation and amortization of purchase accounting
adjustments 4,161 10,618 8,164 21,057
------------ ------------- ------------- -------------
Total selling, general and administrative expenses 64,205 63,282 121,294 119,137
------------ ------------- ------------- -------------
Operating income 61,872 56,034 118,925 105,452
Other income (expense):
Interest expense (10,300) (11,864) (20,531) (24,392)
Amortization of deferred financing fees (914) (140) (1,741) (158)
Other, net 801 5,488 2,273 5,175
------------ ------------- ------------- -------------
Income from continuing operations before income
taxes and extraordinary item 51,459 49,518 98,926 86,077
Income taxes 18,852 19,815 36,230 34,447
------------ ------------- ------------- -------------
Income from continuing operations before extraordinary item 32,607 29,703 62,696 51,630
Discontinued operations:
(Loss) income from operations of VPT including estimated
loss on sale of $13,200 (net of income tax benefit (expense)
of $7,890, $(312), $368, and $(479), respectively) (13,654) 487 (13,776) 747
Loss from distribution of SDS (net of income tax expense
of $0 and $435, respectively) - (838) - (11,824)
------------ ------------- ------------- -------------
Income before extraordinary item 18,953 29,352 48,920 40,553
Extraordinary item (net of income tax of $497) - - - (745)
------------ ------------- ------------- -------------
Net income $ 18,953 $ 29,352 $ 48,920 $ 39,808
=========== ============= ============= =============
Basic earnings per common share from continuing operations $ 0.31 $ 0.28 $ 0.59 $ 0.49
Discontinued operations
(0.13) (0.00) (0.13) (0.11)
Extraordinary item - - - (0.01)
------------ ------------- ------------- -------------
Basic earnings per common share $ 0.18 $ 0.28 $ 0.46 $ 0.38
=========== ============= ============= =============
Diluted earning per common share from continuing operations $ 0.30 $ 0.28 $ 0.58 $ 0.48
Discontinued operations (0.13) (0.00) (0.13) (0.10)
Extraordinary item - - - (0.01)
------------ ------------- ------------- -------------
Diluted earnings per common share $ 0.17 $ 0.27 $ 0.45 $ 0.37
=========== ============= ============= =============
Weighted average basic shares outstanding 106,412 105,371 106,270 105,332
Weighted average diluted shares outstanding 109,043 107,480 108,996 107,558
See accompanying notes to the unaudited consolidated financial statements.
2
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
For the six months ended March 31, 2002
(In thousands)
(Unaudited)
Accumulated
Additional Other
Common Equity Paid - In Retained Comprehensive
Stock Rights Capital Earnings Income
----- ------ ------- -------- ------
Balance at September 30, 2001 $ 1,059 $ - $ 254,637 $ 627,642 $ (44,848)
Comprehensive income:
Net income - - - 48,920 -
Translation adjustment
- - - - (11,521)
Amortization of gain on sale of interest
rate swaps, net of tax benefit of $268 - - - - (456)
Unrealized loss on security available
for sale, net of tax benefit of $1,177 - - - - (2,005)
--------------- ---------------- ---------------- ---------------- ---------------
Total comprehensive income - - - 48,920 (13,982)
Shares issued in connection with
stock options 6 - 4,784 - -
Tax benefit related to stock options - - 3,889 - -
--------------- ---------------- ---------------- ---------------- ---------------
Balance at March 31, 2002 $ 1,065 $ - $ 263,310 $ 676,562 $ (58,830)
=============== ================ ================ ================ ===============
Treasury Total
Common Shareholders'
Stock Equity
----- ------
Balance at September 30, 2001 $ - $ 838,490
Comprehensive income:
Net income - 48,920
Translation adjustment
- (11,521)
Amortization of gain on sale of interest
rate swaps, net of tax benefit of $268 - (456)
Unrealized loss on security available
for sale, net of tax benefit of $1,177 - (2,005)
---------------- ----------------
Total comprehensive income - 34,938
Shares issued in connection with
stock options - 4,790
Tax benefit related to stock options - 3,889
---------------- ----------------
Balance at March 31, 2002 $ - $ 882,107
================ ================
See accompanying notes to the unaudited consolidated financial statements.
3
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended March 31,
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 48,920 $ 39,808
Adjustments to reconcile net income to net cash provided by operating activities
Discontinued operations 13,776 11,077
Depreciation 18,374 16,536
Amortization 9,108 20,610
Gain on sale of property, plant and equipment 70 (4,962)
Provision for losses on doubtful accounts 404 (290)
Inventory provisions 2,636 1,161
Deferred income taxes 7,300 632
Extraordinary item - 745
Changes in assets and liabilities, net of effects of businesses acquired:
Increase in accounts receivable (1,314) (3,445)
Increase in inventories (14,233) (15,629)
Decrease (increase) in prepaid expenses and other current assets 2,609 (2,647)
Decrease in accounts payable (7,875) (8,871)
Increase in income taxes payable 12,708 17,136
(Decrease) increase in accrued payroll and employee benefits (5,103) 4,670
Increase in accrued interest expense 2,138 -
Increase (decrease) in restructuring reserve 3,183 (4,081)
Increase (decrease) in other current liabilities 1,074 (7,184)
Net change in other assets and liabilities (9,684) 3
------------- -------------
Net cash provided by operating activities 84,091 65,269
------------- -------------
Cash flows from investing activities:
Capital expenditures (17,770) (24,171)
Proceeds from sales of property, plant and equipment 325 10,731
Net cash flow from SDS - 46,394
Net payment for businesses acquired (113,780) (51,206)
------------- -------------
Net cash used in investing activities (131,225) (18,252)
------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt 300,000 333,619
Principal payments on long-term debt - (381,012)
Proceeds from the exercise of stock options 4,790 2,304
Financing fees paid (8,017) (3,900)
Proceeds from revolving credit facility 179,500 359,540
Principal payments on revolving credit facility (388,000) (358,640)
Other financing activities (560) (1,042)
------------- -------------
Net cash provided by (used in) financing activities 87,713 (49,131)
------------- -------------
Effect of exchange rate changes on cash and cash equivalents (7,499) 1,816
------------- -------------
Net increase (decrease) in cash and cash equivalents 33,080 (298)
Cash and cash equivalents at beginning of period 9,335 12,411
------------- -------------
Cash and cash equivalents at end of period $ 42,415 $ 12,113
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 17,819 $ 25,665
============= =============
Income taxes $ 19,105 $ 21,147
============= =============
Capital lease obligations incurred $ 117 $ -
============= =============
See accompanying notes to unaudited consolidated financial statements.
4
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(dollars in thousands except per share data, or when specified in millions)
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 and six-month periods ended March
31, 2002 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 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. The Company
has performed its initial impairment tests and the results indicate no
circumstances of impaired goodwill. Had the Company adopted SFAS 142
effective October 1, 2000 (the start of the fiscal year 2001), selling,
general and administrative expenses would have been reduced by $7,167 and
$14,210, for the three and six months ended March 31, 2001 due to the
non-amortization of goodwill. As a result, income before extraordinary
items would have been $34,324 and $50,408 for the three and six months
ending March 31, 2001, respectively, and net income would have been $34,324
and $49,663, respectively. Basic earnings per share would have been $0.33
and $0.47 for the three and six months ended March 31, 2001, respectively,
and diluted earnings per share would have been $0.32 and $0.46,
respectively.
2. Inventories
Inventories at March 31, 2002 and September 30, 2001 consist of the
following:
March 31, September 30,
2002 2001
---- ----
Raw materials and supplies 69,330 56,660
Work in process 22,987 25,974
Finished goods 93,200 84,802
----------- -----------
$ 185,517 $ 167,436
=========== ===========
3. Intangible Assets
As a result of SFAS 142, the Company is no longer amortizing
approximately $957.5 million of goodwill as of March 31, 2002. The Company
added approximately $99 million to intangibles and goodwill since
September 31, 2001 (approximately $32 million to goodwill and $67 million
to amortizable intangible assets). The Company is currently assessing the
final allocation of purchase price premium to the various tangible and
intangible assets for these acquisitions. In addition, the Company wrote
off approximately $21 million in goodwill and intangibles in connection
with the estimated loss on sale of VPT.
5
Intangible assets are as follows:
March 31, September 30,
2002 2001
---- ----
Proprietary technology 130,529 109,376
Trademarks 73,500 58,894
Patents 45,874 28,547
Licenses 12,841 10,703
Drawings 11,707 11,486
Non-compete agreements 14,294 13,240
Other 19,667 10,611
Less: Accumulated amortization (63,285) (53,389)
---------------- ----------------
Net amortizable intangible assets 245,127 189,468
Unamortizable intangible assets (goodwill) 957,531 950,866
---------------- ----------------
$ 1,202,658 $ 1,140,334
================ ================
Intangible assets at March 31, 2002 by business segment are as follows:
Clinical Labware & Laboratory
Diagnostics LifeScience Equipment Consolidated
----------- ----------- --------- ------------
Proprietary technology 109,561 12,222 8,746 130,529
Less: Accumulated amortization (18,026) (3,217) (1,145) (22,388)
---------------- ---------------- ---------------- -----------------
Net proprietary technology 91,535 9,005 7,601 108,141
---------------- ---------------- ---------------- -----------------
Trademarks 14,270 48,127 11,103 73,500
Less: Accumulated amortization (1,096) (9,470) (3,808) (14,374)
---------------- ---------------- ---------------- -----------------
Net trademarks 13,174 38,657 7,295 59,126
---------------- ---------------- ---------------- -----------------
Patents 31,749 12,633 1,492 45,874
Less: Accumulated amortization (2,937) (1,915) (459) (5,311)
---------------- ---------------- ---------------- -----------------
Net patents 28,812 10,718 1,033 40,563
---------------- ---------------- ---------------- -----------------
Licenses 10,514 2,327 - 12,841
Less: Accumulated amortization (3,214) (99) - (3,313)
---------------- ---------------- ---------------- -----------------
Net licenses 7,300 2,228 - 9,528
---------------- ---------------- ---------------- -----------------
Drawings - 407 11,300 11,707
Less: Accumulated amortization - (125) (5,462) (5,587)
---------------- ---------------- ---------------- -----------------
Net drawings - 282 5,838 6,120
---------------- ---------------- ---------------- -----------------
Non-compete agreements 7,613 6,482 199 14,294
Less: Accumulated amortization (3,345) (3,709) (127) (7,181)
---------------- ---------------- ---------------- -----------------
Net non-compete agreements 4,268 2,773 72 7,113
---------------- ---------------- ---------------- -----------------
Other identifiable intangible assets (a) 282 3,073 - 3,355
Less: Accumulated amortization (92) (2,199) - (2,291)
---------------- ---------------- ---------------- -----------------
Net other identifiable intangibles (a) 190 874 - 1,064
---------------- ---------------- ---------------- -----------------
Net amortizable intangible assets (a) $ 145,279 $ 64,537 $ 21,839 $ 231,655
================ ================ ================ =================
Excess cost over net asset values acquired (goodwill) $ 505,184 $ 369,863 $ 82,484 $ 957,531
---------------- ---------------- ---------------- -----------------
Unamortizable intangible assets 505,184 369,863 82,484 957,531
================ ================ ================ =================
Note (a): At March 31, 2002, Apogent Corporate Office had $16,312 of
amortizable other identifiable intangible assets and $2,840 of related
accumulated amortization that was not allocated to any of the business
segments.
6
Amortization expense relating to the existing identifiable intangible
assets for each of the next five years is expected to be $19,519, $18,325,
$16,974, $12,657, and $11,008, respectively.
4. Acquisitions
During the six months ended March 31, 2002, the Company completed six
acquisitions for cash. The aggregate purchase price for these acquiitions,
net of cash acquired, was approximately $112 million. None of the
acquisitions were considered individually significant. The total goodwill
and identifiable intangibles assets for the acquired companies were
approximately $87 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: Operating Total Type of
Company Acquired Acquisition Date Sales Income Assets Acquisition
---------------- ---------------- ----- ------ ------ -----------
Clinical Diagnostics:
Chromacol Limited, Epsom Glass
Industries Limited, and Amchro Inc. October 2001 $9,900 $350 $5,079 Stock
Forefront Diagnostics, Inc. November 2001 6,300 1,700 9,900 Stock
Separation Technology, Inc. January 2002 3,200 1,000 3,000 Stock
Capitol Vial, Inc. February 2002 27,000 9,600 26,200 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
5. Discontinued Operations
During March 2002, we made the decision to sell our vacuum deposition
chamber business, Vacuum Process Technology, Inc. ("VPT"), sometime within
the next twelve months. The decision was made following a recent slow-down
in the telecommunications industry, in which VPT targets a majority of its
products, and as a result, the business no longer meets the Company's
strategic requirements. In connection with the discontinuance of this
business we incurred a one-time charge of $13,200, net of income tax
benefit of $7,600 related to the write down of net assets to realizable
value. The decision to sell VPT represents a disposal of long-lived assets
and disposal group under Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Accordingly, results of this business have been classified as discontinued
operations, and prior periods have been restated. For business reporting
purposes, VPT was previously classified in the Clinical Diagnostics
business segment. Operating results from VPT for the three months and six
months ended March 31, 2002 and 2001 were as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2002 2001 2002 2001
---- ---- ---- ----
Net Sales $ 492 $ 5,125 $ 1,972 $ 8,400
Gross Profit (18) 1,197 300 1,883
Pretax income (loss) (744) 799 (944) 1,226
Income tax benefit (expense) 290 (312) 368 (479)
Net income (loss) (454) 487 (576) 747
7
Assets and liabilities of VPT were as follows:
March 31, September 30,
2002 2001
---- ----
Current assets $ 4,424 $ 6,296
Property, plant and equipment, net 881 912
Intangible assets - 21,023
Total assets 6,157 29,083
Current liabilities 70 2,392
Total liabilities 70 3,954
Net sales from VPT for the quarters ended June 30 and September 30, 2001
were $5,135 and $1,837 respectively. Net sales from VPT for the year ended
September 30, 2001 were $15,372. Net income (loss) from VPT for the
quarters ended June 30 and September 30, 2001 were $397 and ($154),
respectively. Net income from VPT for the year ended September 30, 2001 was
$990.
6. Restructuring
In March 2002, the Company recorded a restructuring charge of approximately
$5,300 (approximately $3,350 net of tax) for the consolidation of certain
facilities and discontinuance of certain product lines due to product
rationalizations. The restructuring charge was classified as components of
cost of sales and selling, general and administrative expenses. The cost of
sales component of approximately $3,700 related to the write-off of
inventory, write-offs of fixed assets, certain lease terminations, and
severance associated with employees in production activities. The selling,
general and administrative component of approximately $1,600 related to
severance associated with non-production employees as well as certain lease
terminations and other shut-down costs. Restructuring activity is as
follows:
Fixed
Severance Inventory Assets Facility
(a) (b) (b) Closure Costs Other Total
------------ ------------- ------------- ------------- ------------- -------------
2002 Restructuring
charge $ 1,200 $ 2,400 $ 300 $1,400 $ - $ 5,300
2002 Cash payments
600 - - 100 - 700
2002 Non-cash charges - 500 100 - - 600
------------ ------------- ------------- ------------ ------------- -------------
March 31, 2002 balance $ 600 $ 1,900 $ 200 $1,300 $ - $ 4,000
============ ============= ============= ============ ============= =============
(a) Amount represents severance and termination costs for 104 terminated
employees (primarily sales, marketing and manufacturing personnel). As of
March 31, 2002, 20 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 other facility closure costs costs on
exited operations.
7. 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
(based upon specified factors 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
8
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. 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.
During the quarter ended March 31, 2002, the Company changed its
reporting business segments by moving its Genevac subsidiary from the
labware and life sciences segment to the laboratory equipment segment. This
change aligns the Company's financial reporting with the management of its
operational activity. All historical financial information for the three
and six months ended March 31, 2001 has been restated to reflect this
change.
9
The costs 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 March 31, 2002
Revenues:
External customer $126,374 $ 108,681 $ 28,065 $ - $ - $ 263,120
Intersegment 1,606 252 57 (1,915) - -
Total revenues 127,980 108,933 28,122 (1,915) - 263,120
Gross profit 59,352 54,311 12,414 - - 126,077
Selling general and administrative 27,047 30,121 6,872 - 165 64,205
Operating income 32,305 24,190 5,542 - (165) 61,872
Three Months Ended March 31, 2001
Revenues:
External customer 115,024 92,431 32,524 - - 239,979
Intersegment 1,831 319 100 (2,250) - -
Total revenues 116,855 92,750 32,624 (2,250) - 239,979
Gross profit 55,956 48,958 14,402 - - 119,316
Selling general and administrative 28,700 26,260 8,253 - 69 63,282
Operating income 27,256 22,698 6,149 - (69) 56,034
(a) Includes the elimination of intercompany and unallocated corporate office
activity.
Labware
Clinical and Laboratory
Diagnostics Life Sciences Equipment Eliminations (a) Other (a) Total
----------- ------------- --------- --------------- --------- -----
Six Months Ended March 31, 2002
Revenues:
External customer $ 241,834 $ 204,132 $ 56,870 $ - $ - $ 502,836
Intersegment - - - - - -
Total revenues 241,834 204,132 56,870 - - 502,836
Gross profit 113,697 102,224 24,298 - - 240,219
Selling general and administrative 51,018 56,474 13,435 - 367 121,294
Operating income 62,679 45,750 10,863 - (367) 118,925
Segment assets 965,567 706,477 167,442 - 142,176 1,981,662
Six Months Ended March 31, 2001
Revenues:
External customer 221,617 173,664 62,183 - - 457,464
Intersegment 3,403 637 207 (4,247) - -
Total revenues 225,020 174,301 62,390 (4,247) - 457,464
Gross profit 106,927 90,471 27,191 - - 224,589
Selling general and administrative 54,602 49,619 15,549 - (633) 119,137
Operating income 52,325 40,852 11,642 - 633 105,452
(a) Includes the elimination of intercompany and unallocated corporate office
activity.
10
9. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The Company's material U.S. subsidiaries are guarantors to its
Revolving Credit Facility and Senior Notes. 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 March 31,
2002 and September 30, 2001, statements of operations for the three and six
months ended March 31, 2002 and 2001, and statements of cash flows for the
six months ended March 31, 2002 and 2001, of Apogent Technologies Inc and
its subsidiaries, reflecting the subsidiary guarantors for the Revolving
Credit Facility and Senior Notes.
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 or with Apogent Technologies Inc.
11
Condensed Consolidating Balance Sheets
As of March 31, 2002
---------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Assets
------
Current assets:
Cash and cash equivalents $ 18,113 $ 14,441 $ 9,861 $ - $ 42,415
Accounts receivable, net - 149,746 38,939 - 188,685
Inventories, 1,262 153,917 35,667 (5,329) 185,517
Other current assets 21,950 11,325 8,646 - 41,921
------------ -------------- ---------- ------------- ------------
Total current assets 41,325 329,429 93,113 (5,329) 458,538
Property, plant and equipment, net 10,308 187,402 46,949 - 244,659
Intangible assets 13,474 972,975 216,209 - 1,202,658
Deferred income taxes 5,762 121 857 - 6,740
Investment in subsidiaries 2,065,405 43,492 - (2,108,897) -
Other assets 55,193 12,947 927 - 69,067
------------ -------------- ---------- ------------- ------------
Total assets $ 2,191,467 $ 1,546,366 $ 358,055 $ (2,114,226) $ 1,981,662
============ ============== ========== ============= ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 593 $ 35,327 $ 10,981 $ - $ 46,901
Current portion of long-term debt - 87,068 23 - 87,091
Income taxes payable 12,108 36,313 5,934 (1,478) 52,877
Accrued expenses and other current liabilities 23,323 33,330 23,097 - 79,750
------------ -------------- ---------- ------------- ------------
Total current liabilities 36,024 192,038 40,035 (1,478) 266,619
------------ -------------- ---------- ------------- ------------
Long-term debt - 658,150 22 - 658,172
Securities lending agreement 51,730 - - - 51,730
Deferred income taxes 77,477 24,758 12,580 - 114,815
Other liabilities 2,963 3,833 1,423 - 8,219
Net intercompany payable/(receivable) 782,658 (1,013,376) 230,718 - -
Commitments and contingent liabilities -
Shareholders' equity
Preferred stock - - - - -
Common stock 1,065 - - - 1,065
Equity rights - - - - -
Additional paid-in-capital 242,715 2,033,549 77,296 (2,090,250) 263,310
Retained earnings (deficit) 996,094 (352,586) 55,552 (22,498) 676,562
Other comprehensive income 741 - (59,571) - (58,830)
Treasury stock (at cost) - - - - -
------------ -------------- ---------- ------------- ------------
Total shareholders' equity 1,240,615 1,680,963 73,277 (2,112,748) 882,107
------------ -------------- ---------- ------------- ------------
Total liabilities and shareholders'
equity $ 2,191,467 $ 1,546,366 $ 358,055 $ (2,114,226) $ 1,981,662
============ ============== ========== ============= ============
12
Condensed Consolidating Balance Sheets - Continued
As of September 30, 2001
------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Assts
-----
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 73,228 36 - 73,642
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 68,381 148,633 33,527 (6,975) 243,566
-------------- ------------- ---------- ------------ ------------
Long-term debt - 583,765 23 - 583,788
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
============== ============= ========== ============ ============
13
Condensed Consolidating Statements of Operations
For the Three Months Ended March 31, 2002
-----------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ -------------
Net sales $ - $ 224,765 $ 56,761 $ (18,406) $ 263,120
Cost of sales - 121,322 33,533 (17,812) 137,043
---------- ------------ ----------- ----------- ------------
Gross profit - 103,443 23,228 (594) 126,077
Selling, general and administrative
expenses 9,159 41,950 13,096 - 64,205
---------- ------------ ----------- ----------- ------------
Operating income (9,159) 61,493 10,132 (594) 61,872
Other income (expense):
Interest expense - (10,344) 45 - (10,299)
Other, net - (127) 13 - (114)
Income before income taxes,
discontinued operations ---------- ------------ ----------- ----------- ------------
and extraordinary items (9,159) 51,022 10,190 (594) 51,459
Income taxes (3,565) 18,878 3,770 (231) 18,852
---------- ------------ ----------- ----------- ------------
Income from continuing operations
before extraordinary items (5,594) 32,144 6,420 (363) 32,607
Loss from discontinued operations - (13,654) - - (13,654)
---------- ------------ ----------- ----------- ------------
Income before extraordinary items (5,594) 18,490 6,420 (363) 18,953
Extraordinary item - - - - -
---------- ------------ ----------- ----------- ------------
Net income $ (5,594) $ 18,490 $ 6,420 $ (363) $ 18,953
========== ============ =========== =========== ============
For the Three Months Ended March 31, 2001
-----------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $ 208,564 $ 44,594 $ (13,179) $ 239,979
Cost of sales - 107,458 26,204 (12,999) 120,663
------------ ----------- ---------- ------------ -----------
Gross profit - 101,106 18,390 (180) 119,316
Selling, general and administrative
expenses 11,417 41,956 9,909 - 63,282
------------ ----------- ---------- ------------ -----------
Operating income
(11,417) 59,150 8,481 (180) 56,034
Other income (expense):
Interest expense - (11,864) - - (11,864)
Other, net 4,373 1,489 (514) - 5,348
------------ ----------- ---------- ------------ -----------
Income before income taxes, discontinued
operations and extraordinary items (7,044) 48,775 7,967 (180) 49,518
Income taxes (2,889) 19,517 3,187 - 19,815
------------ ----------- ---------- ------------ -----------
Income from continuing operations before
extraordinary items
(4,155) 29,258 4,780 (180) 29,703
Loss from discontinued operations
(838) 487 - - (351)
------------ ----------- ---------- ------------ -----------
Income before extraordinary items
(4,993) 29,745 4,780 (180) 29,352
Extraordinary item
- - - - -
------------ ----------- ---------- ------------ -----------
Net income $ (4,993) $ 29,745 $ 4,780 $ (180) $ 29,352
============ =========== ========== ============ ===========
14
Condensed Consolidating Statements of Operations - Continued
For the Six Months Ended March 31, 2002
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $ 428,984 $ 109,136 $ (35,284) $ 502,836
Cost of sales - 231,471 65,169 (34,023) 262,617
----------- ------------ ----------- ------------ ------------
Gross profit - 197,513 43,967 (1,261) 240,219
Selling, general and administrative
expenses 14,942 80,095 26,257 - 121,294
----------- ------------ ----------- ------------ ------------
Operating income (14,942) 117,418 17,710 (1,261) 118,925
Other income (expense):
Interest expense - (20,548) 17 - (20,531)
Other, net (31) 542 21 - 532
----------- ------------ ----------- ------------ ------------
Income before income taxes, discontinued
operations and extraordinary items (14,973) 97,412 17,748 (1,261) 98,926
Income taxes (5,815) 36,042 6,567 (564) 36,230
----------- ------------ ----------- ------------ ------------
Income from continuing operations before
extraordinary items (9,158) 61,370 11,181 (697) 62,696
Loss from discontinued operations - (13,776) - - (13,776)
----------- ------------ ----------- ------------ ------------
Income before extraordinary items (9,158) 47,594 11,181 (697) 48,920
Extraordinary item - - - - -
----------- ------------ ----------- ------------ ------------
Net income $ (9,158) $ 47,594 $ 11,181 $ (697) $ 48,920
=========== ============ =========== ============ ============
For the Six Months Ended March 31, 2001
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $ 402,041 $ 79,517 $ (24,094) $ 457,464
Cost of
sales - 209,488 46,604 (23,217) 232,875
----------- ----------- ----------- ------------ ------------
Gross profit - 192,553 32,913 (877) 224,589
Selling, general and administrative
expenses 16,035 84,530 18,572 119,137
----------- ----------- ----------- ------------ ------------
Operating income (16,035) 108,023 14,341 (877) 105,452
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 items (12,250) 85,276 13,928 (877) 86,077
Income taxes (5,251) 34,127 5,571 - 34,447
---------- ----------- ----------- ------------ ------------
Income from continuing operations before
extraordinary items (6,999) 51,149 8,357 (877) 51,630
Loss from discontinued operations (11,824) 747 - - (11,077)
---------- ----------- ----------- ------------ ------------
Income before extraordinary items (18,823) 51,896 8,357 (877) 40,553
Extraordinary item - (745) - - (745)
---------- ----------- ----------- ------------ ------------
Net income $ (18,823) $ 51,151 $ 8,357 $ (877) $ 39,808
========== =========== =========== ============ ============
15
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended March 31, 2002
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries
------------ ------------ ------------
Cash flows (used by) provided by operating activities: $ 13,563 $ 58,915 $ 11,613
--------------- ---------------- ---------------
Cash flows from investing activities:
Capital expenditures (1,040) (11,578) (5,152)
Proceeds from sales of property, plant and equipment - 113 212
Net payments for businesses acquired - (113,780) -
--------------- ---------------- ---------------
Net cash provided by (used in) investing activities (1,040) (125,245) (4,940)
--------------- ---------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt - 479,500 -
Principal payments on long-term debt - (396,298) (12)
Proceeds from the exercise of stock options 4,787 - -
Other (3,342) 3,078 -
--------------- ---------------- ---------------
Net cash provided by (used in) financing activities 1,445 86,280 (12)
Effect of exchange rate on cash and cash equivalents - - (7,499)
--------------- ---------------- ---------------
Net (decrease) increase in cash and cash equivalents 13,968 19,950 (838)
Cash and cash equivalents at beginning of year 4,145 (5,509) 10,699
--------------- ---------------- ---------------
Cash and cash equivalents at end of year $ 18,113 $ 14,441 $ 9,861
=============== ================ ===============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ $ 17,654 $ 165
=============== ================ ================
Income taxes $ 12,961 $ 390 $ 5,754
=============== ================ ================
Capital lease obligations incurred $ $ 117 $ -
=============== ================ ================
(In thousands) Eliminations Consolidated
------------ ------------
Cash flows (used by) provided by operating activities: $ - $ 84,091
---------------- -------------
Cash flows from investing activities:
Capital expenditures - (17,770)
Proceeds from sales of property, plant and equipment - 325
Net payments for businesses acquired - (113,780)
---------------- -------------
Net cash provided by (used in) investing activities - (131,225)
---------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt - 479,500
Principal payments on long-term debt - (396,310)
Proceeds from the exercise of stock options - 4,787
Other - (264)
---------------- -------------
Net cash provided by (used in) financing activities - 87,713
Effect of exchange rate on cash and cash equivalents - (7,499)
---------------- -------------
Net (decrease) increase in cash and cash equivalents - 33,080
Cash and cash equivalents at beginning of year - 9,335
---------------- -------------
Cash and cash equivalents at end of year $ - $ 42,415
================ =============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 17,819
================ =============
Income taxes $ - $ 19,105
================ =============
Capital lease obligations incurred $ - $ 117
================ =============
16
Condensed Consolidating Statements of Cash Flows - Continued
For the Six Months Ended March 31, 2001
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries
------------ ------------ ------------
Cash flows provided by operating activities: $ (52,215) $ 111,617 $ 5,867
--------------- ---------------- ----------------
Cash flows from investing activities:
Capital expenditures (6,738) (13,712) (3,721)
Proceeds from sales of property, plant and equipment 9,679 1,017 35
Net cash inflow from SDS 46,394 - -
Net payments for businesses acquired - (51,206) -
--------------- ---------------- ----------------
Net cash used in investing activities 49,335 (63,901) (3,686)
--------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from long-term debt - 693,159 -
Principal payments on long-term debt - (739,629) (23)
Proceeds from the exercise of stock options 2,304 - -
Other (1,042) (3,900) -
--------------- ---------------- ----------------
Net cash provided by financing activities 1,262 (50,370) (23)
Effect of exchange rate on cash and cash equivalents - - 1,816
--------------- ---------------- ----------------
Net (decrease) increase in cash and cash equivalents (1,618) (2,654) 3,974
Cash and cash equivalents at beginning of year 7,086 (2,577) 7,902
--------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 5,468 $ (5,231) $ 11,876
=============== ================ ================
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 25,410 $ 255
=============== ================ ================
Income taxes $ 21,147 $ - $ -
=============== ================ ================
Capital lease obligations incurred $ - $ - $ -
=============== ================ ================
(In thousands) Eliminations Consolidated
------------ ------------
Cash flows provided by operating activities: $ - $ 65,269
---------------- -------------
Cash flows from investing activities:
Capital expenditures - (24,171)
Proceeds from sales of property, plant and equipment - 10,731
Net cash inflow from SDS - 46,394
Net payments for businesses acquired - (51,206)
---------------- -------------
Net cash used in investing activities - (18,252)
---------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt - 693,159
Principal payments on long-term debt - (739,652)
Proceeds from the exercise of stock options - 2,304
Other - (4,942)
---------------- -------------
Net cash provided by financing activities - (49,131)
Effect of exchange rate on cash and cash equivalents - 1,816
---------------- -------------
Net (decrease) increase in cash and cash equivalents - (298)
Cash and cash equivalents at beginning of year - 12,411
---------------- -------------
Cash and cash equivalents at end of year $ - $ 12,113
================ =============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 25,665
================ =============
Income taxes $ - $ 21,147
================ =============
Capital lease obligations incurred $ - $ -
================ =============
17
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS - CONTINUED
A majority of the Company's material U.S. subsidiaries are guarantors
to its CODES. However, certain recently acquired subsidiaries are
guarantors under the Senior Notes and Revolving Credit Facility but are
currently non-guarantors under the CODES. This variation in guarantors may
continue intermittently while our resale registration statement for the
CODES remains effective with the Securities and Exchange Commission. 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 March 31,
2002 and September 30, 2001, statements of operations for the three and six
months ended March 31, 2002 and 2001, and statements of cash flows for the
six months ended March 31, 2002 and 2001, of Apogent Technologies Inc and
its subsidiaries, reflecting the subsidiary guarantors for the CODES.
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 or with Apogent Technologies Inc.
18
Condensed Consolidating Balance Sheets
As of March 31, 2002
--------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Assets
------
Current assets:
Cash and cash equivalents $ 18,113 $ 12,737 $ 11,565 $ - $ 42,415
Accounts receivable, net - 146,432 42,253 - 188,685
Inventories, net 1,262 149,851 39,733 (5,329) 185,517
Other current assets 21,950 11,325 8,646 - 41,921
--------------- --------------- --------------- --------------- ---------------
Total current assets 41,325 320,345 102,197 (5,329) 458,538
Property, plant and equipment, net 10,308 170,329 64,022 - 244,659
Intangible assets 13,474 923,291 265,893 - 1,202,658
Deferred income taxes 5,762 121 857 - 6,740
Investment in subsidiaries 2,065,405 43,492 - (2,108,897) -
Other assets 55,193 12,947 927 - 69,067
--------------- --------------- --------------- --------------- ---------------
Total assets $ 2,191,467 $ 1,470,525 $ 433,896 $ (2,114,226) $ 1,981,662
=============== =============== =============== =============== ===============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 593 $ 34,443 $ 11,865 $ - $ 46,901
Current portion of long-term debt - 84,120 2,971 - 87,091
Income taxes payable 12,108 36,205 6,042 (1,478) 52,877
Accrued expenses and other current liabilities 23,323 32,992 23,435 - 79,750
--------------- --------------- --------------- --------------- ---------------
Total current liabilities 36,024 187,760 44,313 (1,478) 266,619
--------------- --------------- --------------- --------------- ---------------
Long-term debt - 658,150 22 - 658,172
Securities lending agreement 51,730 - - - 51,730
Deferred income taxes 77,477 24,758 12,580 - 114,815
Other liabilities 2,963 3,833 1,423 - 8,219
Net intercompany payable/(receivable) 782,658 (1,084,939) 302,281 - -
Commitments and contingent liabilities -
Shareholders' equity
Preferred stock - - - - -
Common stock 1,065 - - - 1,065
Equity rights - - - - -
Additional paid-in-capital 242,715 2,033,549 77,296 (2,090,250) 263,310
Retained earnings (deficit) 996,094 (352,586) 55,552 (22,498) 676,562
Other comprehensive income 741 - (59,571) - (58,830)
Treasury stock (at cost) - - - - -
--------------- --------------- --------------- --------------- ---------------
Total shareholders' equity 1,240,615 1,680,963 73,277 (2,112,748) 882,107
--------------- --------------- --------------- --------------- ---------------
Total liabilities and shareholders' equity $ 2,191,467 $ 1,470,525 $ 433,896 $ (2,114,226) $ 1,981,662
=============== =============== =============== =============== ===============
19
Condensed Consolidating Balance Sheets - Continued
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 73,228 36 - 73,642
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 68,381 148,633 33,527 (6,975) 243,566
--------------- --------------- --------------- --------------- ---------------
Long-term debt - 583,765 23 - 583,788
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
=============== =============== =============== =============== ===============
20
Condensed Consolidating Statements of Operations
For the Three Months Ended March 31, 2002
-----------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------- -------------- ------------- --------------
Net sales $ - $ 221,941 $ 59,585 $ (18,406) $ 263,120
Cost of sales - 119,580 35,275 (17,812) 137,043
------------ -------------- -------------- ------------- --------------
Gross profit - 102,361 24,310 (594) 126,077
Selling, general and administrative expenses 9,159 41,671 13,375 - 64,205
------------ -------------- -------------- ------------- --------------
Operating income (9,159) 60,690 10,935 (594) 61,872
Other income (expense):
Interest expense - (10,344) 45 - (10,299)
Other, net - (127) 13 - (114)
------------ -------------- -------------- ------------- --------------
Income before income taxes, discontinued operations
and extraordinary items (9,159) 50,219 10,993 (594) 51,459
Income taxes (3,565) 18,581 4,067 (231) 18,852
------------ -------------- -------------- ------------- --------------
Income from continuing operations before
extraordinary items (5,594) 31,638 6,926 (363) 32,607
Loss from discontinued operations - (13,654) - - (13,654)
------------ -------------- -------------- ------------- --------------
Income before extraordinary items (5,594) 17,984 6,926 (363) 18,953
Extraordinary item - - - - -
------------ -------------- -------------- ------------- --------------
Net income $ (5,594) $ 17,984 $ 6,926 $ (363) $ 18,953
============ ============== ============== ============= ==============
For the Three Months Ended March 31, 2001
-----------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ --------------
Net sales $ - $ 208,564 $ 44,594 $ (13,179) $ 239,979
Cost of sales - 107,458 26,204 (12,999) 120,663
------------ -------------- -------------- ------------- --------------
Gross profit - 101,106 18,390 (180) 119,316
Selling, general and administrative expenses 11,417 41,956 9,909 - 63,282
------------ -------------- -------------- ------------- --------------
Operating income (11,417) 59,150 8,481 (180) 56,034
Other income (expense):
Interest expense - (11,864) - - (11,864)
Other, net 4,373 1,489 (514) - 5,348
------------ -------------- -------------- ------------- --------------
Income before income taxes, discontinued operations
and extraordinary items (7,044) 48,775 7,967 (180) 49,518
Income taxes (2,889) 19,517 3,187 - 19,815
------------ -------------- -------------- ------------- --------------
Income from continuing operations before
extraordinary items (4,155) 29,258 4,780 (180) 29,703
Loss from discontinued operations (838) 487 - - (351)
------------ -------------- -------------- ------------- --------------
Income before extraordinary items (4,993) 29,745 4,780 (180) 29,352
Extraordinary item - - - - -
------------ -------------- -------------- ------------- --------------
Net income $ (4,993) $ 29,745 $ 4,780 $ (180) $ 29,352
============ ============== ============== ============== ==============
21
Condensed Consolidating Statements of Operations - Continued
For the Six Months Ended March 31, 2002
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ -------------- -------------- ------------- --------------
Net sales $ - $ 426,160 $ 111,960 $ (35,284) $ 502,836
Cost of sales - 229,729 66,911 (34,023) 262,617
------------ -------------- -------------- ------------- --------------
Gross profit - 196,431 45,049 (1,261) 240,219
Selling, general and administrative expenses 14,942 79,816 26,536 - 121,294
------------ -------------- -------------- ------------- --------------
Operating income (14,942) 116,615 18,513 (1,261) 118,925
Other income (expense):
Interest expense - (20,548) 17 - (20,531)
Other, net (31) 542 21 - 532
------------ -------------- -------------- ------------- --------------
Income before income taxes, discontinued operations
and extraordinary items (14,973) 96,609 18,551 (1,261) 98,926
Income taxes (5,815) 35,745 6,864 (564) 36,230
------------ -------------- -------------- ------------- --------------
Income from continuing operations before
extraordinary items (9,158) 60,864 11,687 (697) 62,696
Loss from discontinued operations - (13,776) - - (13,776)
------------ -------------- -------------- ------------- --------------
Income before extraordinary items (9,158) 47,088 11,687 (697) 48,920
Extraordinary item - - - - -
------------ -------------- -------------- ------------- --------------
Net income $ (9,158) $ 47,088 $ 11,687 $ (697) $ 48,920
============ ============== ============== ============= ==============
For the Six Months Ended March 31, 2001
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ -------------- -------------- ------------- --------------
Net sales $ - $ 402,041 $ 79,517 $ (24,094) $ 457,464
Cost of sales - 209,488 46,604 (23,217) 232,875
------------ -------------- -------------- ------------- --------------
Gross profit - 192,553 32,913 (877) 224,589
Selling, general and administrative expenses 16,035 84,530 18,572 119,137
------------ -------------- -------------- ------------- --------------
Operating income (16,035) 108,023 14,341 (877) 105,452
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 items (12,250) 85,276 13,928 (877) 86,077
Income taxes (5,251) 34,127 5,571 - 34,447
------------ -------------- -------------- ------------- --------------
Income from continuing operations before
extraordinary items (6,999) 51,149 8,357 (877) 51,630
Loss from discontinued operations (11,824) 747 - - (11,077)
------------ -------------- -------------- ------------- --------------
Income before extraordinary items (18,823) 51,896 8,357 (877) 40,553
Extraordinary item - (745) - - (745)
------------ -------------- -------------- ------------- --------------
Net income $ (18,823) $ 51,151 $ 8,357 $ (877) $ 39,808
============ ============== ============== ============= ==============
22
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended March 31, 2002
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows (used by) provided by operating
activities: $ 13,563 $ 57,221 $ 13,357 $ - $ 84,091
--------------- --------------- --------------- --------------- ---------------
Cash flows from investing activities:
Capital expenditures (1,040) (11,588) (5,142) - (17,770)
Proceeds from sales of property, plant
and equipment - 113 212 - 325
Net payments for businesses acquired - (113,780) - - (113,780)
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in)
investing activities (1,040) (125,245) (4,930) - (131,225)
--------------- --------------- --------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt - 479,500 - - 479,500
Principal payments on long-term debt - (396,298) (12) - (396,310)
Proceeds from the exercise of stock
options 4,787 - - - 4,787
Other (3,342) 3,078 - - (264)
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in)
financing activities 1,445 86,280 (12) - 87,713
Effect of exchange rate on cash and cash
equivalents - - (7,499) - (7,499)
--------------- --------------- --------------- --------------- ---------------
Net (decrease) increase in cash and cash
equivalents 13,968 19,950 (838) - 33,080
Cash and cash equivalents at beginning
of year 4,145 (5,509) 10,699 - 9,335
--------------- --------------- --------------- --------------- ---------------
Cash and cash equivalents at end of year $ 18,113 $ 12,737 $ 11,565 $ - $ 42,415
=============== =============== =============== =============== ===============
Supplemental disclosures of cash flow
information
Cash paid during the year for:
Interest $ - $ 17,654 $ 165 $ - $ 17,819
=============== =============== =============== =============== ===============
Income taxes $ 12,961 $ 390 $ 5,754 $ - $ 19,105
=============== =============== =============== =============== ===============
Capital lease obligations incurred $ - $ 117 $ - $ - $ 117
=============== =============== =============== =============== ===============
23
Condensed Consolidating Statements of Cash Flows - Continued
For the Six Months Ended March 31, 2001
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows 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 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 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 year $ 5,468 $ (5,231) $ 11,876 $ - $ 12,113
============== ============== ============== ============== ==============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 25,410 $ 255 $ - $ 25,665
============== =============== ============== ============= ==============
Income taxes $ 21,147 $ - $ - $ - $ 21,147
============== =============== ============== ============= ==============
Capital lease obligations incurred $ - $ - $ - $ - $ -
============== =============== ============== ============= ==============
24
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.
Capitol Vial, Inc. BioRobotics Group Limited
Chase Scientific Glass, Inc. Matrix Technologies Corporation
Erie Electroverre S.A. Molecular BioProducts, Inc.
Erie Scientific Company Nalge Nunc International Corporation
Forefront Diagnostics, Inc. Nalge Nunc International K.K.
Gerhard Menzel Glasbearbeitungswerk National Scientific Company
GmbH & Co. K.G. Nunc A/S
Microgenics Corporation
Microm International GmbH Laboratory Equipment
--------------------
The Naugatuck Glass Company
Richard-Allan Scientific Company Barnstead Thermolyne Corporation
Remel Inc. Electrothermal Engineering, Ltd.
Samco Scientific Corporation Lab-Line Instruments, Inc.
Genevac Limited
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, 2002 and 2001 are the Company's second quarters of
fiscal 2002 and 2001, respectively.
During the quarter ended March 31, 2002, the Company changed its reporting
business segments by moving its Genevac subsidiary from the labware and life
sciences segment to the laboratory equipment segment. This change aligns the
Company's financial reporting with the management of its operational activity.
All historical financial information for the three and six months ended March
31, 2001 has been restated to reflect this change.
25
RESULTS OF OPERATIONS
Quarter Ended March 31, 2002 Compared to the Quarter Ended March 31, 2001
Net Sales
Fiscal Fiscal Dollar Percent
(in thousands) 2002 2001 Change Change
---- ---- ------ ------
Clinical Diagnostics $ 126,374 $ 115,024 $ 11,350 10%
Labware and Life Sciences 108,681 92,431 16,250 18%
Laboratory Equipment 28,065 32,524 (4,459) -14%
------------ ----------- -----------
$ 263,120 $ 239,979 $ 23,141 10%
============ =========== ===========
Overall Company. Net sales for the quarter ended March 31, 2002 increased
by $23.1 million or 10% 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 $8.8 million), (b) price increases (approximately $4.6 million),
and (c) increased net sales of new products developed by us (approximately $2.1
million). Net sales were partially reduced by: (a) a decrease in net sales of
existing products (approximately $3.5 million) and (b) foreign currency
fluctuations (approximately $0.6 million).
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 $12.5 million), (b) increased net sales of new products
developed by us (approximately $3.2 million), and (c) price increases
(approximately $2.8 million). Net sales were partially reduced by: (a) foreign
currency fluctuations (approximately $1.4 million) and (b) a decrease in net
sales of existing products (approximately $0.8 million).
Laboratory Equipment. Reduced net sales in the laboratory equipment
segment resulted primarily from: (a) a decrease in net sales of existing
products (approximately $4.9 million) and (b) foreign currency fluctuations
(approximately $0.1 million). Net sales were partially increased by: (a) price
increases (approximately $0.5 million) and (b) increased net sales of new
products developed by us (approximately $0.1 million).
Gross Profit
Fiscal Percent Fiscal Percent Dollar Percent
(in thousands) 2002 of Sales 2001 of Sales Change Change
---- -------- ---- -------- ------ ------
Clinical Diagnostics $ 59,352 47% $ 55,956 49% $ 3,396 6%
Labware and Life Sciences 54,311 50% 48,958 53% 5,353 11%
Laboratory Equipment 12,414 44% 14,402 44% (1,988) -14%
------------ ------------ -----------
$ 126,077 48% $ 119,316 50% $ 6,761 6%
============ ============ ===========
Overall Company. Gross profit for the quarter ended March 31, 2002
increased by $6.8 million or 6% over the corresponding fiscal 2001 quarter.
Clinical Diagnostics. Increased gross profit in the clinical diagnostics
segment resulted primarily from: (a) price increases (approximately $4.6
million), (b) the effects of acquired companies (approximately $4.1 million),
(c) inventory adjustments (approximately $1.5 million), (d) the effects of new
products (approximately $1.3 million), and (e) product mix (approximately $1.0
million). Gross profit was
26
partially reduced by: (a) increased manufacturing overhead (approximately $6.5
million), (b) restructuring charges (approximately $1.3 million), (c) decreased
volume (approximately $1.2 million), and (d) foreign currency fluctuations
(approximately $0.1 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 $3.3 million), (b) product mix (approximately $3.1 million), (c)
price increases (approximately $2.8 million), (d) the effects of new products
(approximately $1.5 million), and (e) increased volume (approximately $0.2
million). Gross profit was partially reduced by: (a) restructuring charges
(approximately $2.4 million), (b) increased manufacturing overhead
(approximately $1.5 million), (c) foreign currency fluctuations (approximately
$1.1 million), and (d) inventory adjustments (approximately $0.5 million).
Laboratory Equipment. Decreased gross profit in the laboratory equipment
segment resulted primarily from: (a) decreased volume (approximately
$2.3million), (b) increased manufacturing overhead (approximately $1.2 million),
and (c) foreign currency fluctuations (approximately $0.1 million). Gross profit
was partially increased by: (a) product mix (approximately $0.6 million), (b)
inventory adjustments (approximately $0.5 million), and (c) price increases
(approximately $0.5 million).
Selling General and Administrative Expenses
Fiscal Fiscal Dollar Percent
(in thousands) 2002 2001 Change Change
---- ---- ------ ------
Clinical Diagnostics $ 27,047 $ 28,700 $ (1,653) -6%
Labware and Life Sciences 30,121 26,260 3,861 15%
Laboratory Equipment 6,872 8,253 (1,381) -17%
----------- ----------- -----------
Subtotal 64,040 63,213 827 1%
Other 165 69 96
----------- ----------- -----------
Total $ 64,205 $ 63,282 $ 923 1%
=========== ========== ===========
Overall Company. Selling, general and administrative expenses for the
quarter ended March 31, 2002 increased by $0.1 million or 1% over the
corresponding fiscal 2001 quarter.
Clinical Diagnostics. Decreased selling, general and administrative
expenses in the clinical diagnostics segment resulted primarily from: (a) 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 $3.9 million) and (b)
foreign currency fluctuations (approximately $0.1 million). Selling, general and
administrative expenses were partially increased by: (a) general and
administrative expenses (approximately $0.6 million), (b) restructuring expenses
(approximately $0.6 million), (c) research and development expenses
(approximately $0.6 million), (d) marketing expenses (approximately $0.5
million), and (e) acquired businesses (approximately $0.1 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 $3.1 million), (b) marketing expenses
(approximately $1.1 million), (c) general and administrative expenses
(approximately $0.9 million), (d) research and development expense
(approximately $0.5 million), and (e) restructuring charges (approximately $0.4
million). Selling, general and administrative expenses were partially reduced
by: (a) decreased amortization expense as a result of SFAS 142 (approximately
$2.0 million), and (b) foreign currency fluctuations (approximately $0.2
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 $0.6
million), (b) general and administrative expenses (approximately $0.7 million),
and (c)
27
foreign currency fluctuations (approximately $0.1 million). Selling, general
and administrative expenses were partially increased by research and
development expense (approximately $0.1 million).
Operating Income
Fiscal Fiscal Dollar Percent
(in thousands) 2002 2001 Change Change
---- ---- ------ ------
Clinical Diagnostics $ 32,305 $ 27,256 $ 5,049 19%
Labware and Life Sciences 24,190 22,698 1,492 7%
Laboratory Equipment 5,542 6,149 (607) -10%
----------- ----------- ----------
Subtotal 62,037 56,103 5,934 11%
Other (165) (69) (96)
----------- ----------- ----------
Total $ 61,872 $ 56,034 $ 5,838 10%
=========== =========== ==========
As a result of the foregoing, operating income for the quarter ended March
31, 2002 increased by $5.8 million or 10% over the corresponding fiscal 2001
quarter. SFAS 142 would have increased operating income to $63.2 million for the
fiscal 2001 quarter, had it been effective at the time.
Restructuring
In March 2002, the Company recorded a restructuring charge of approximately
$5.3 million (approximately $3.4 million net of tax) for the consolidation of
certain facilities, and discontinuance of certain product lines due to product
rationalizations. The restructuring charge was classified as components of cost
of sales and selling, general and administrative expenses. The cost of sales
component of approximately $3.7 million related to the write-off of inventory,
write-offs of fixed assets, certain lease terminations, and severance associated
with employees in production activities. The selling, general and administrative
component of approximately $1.6 million related to severance associated with
non-production employees as well certain lease terminations and other shut down
costs. Restructuring activity is as follows (dollars in thousands):
Fixed
Severance Inventory Assets Facility
(a) (b) (b) Closure Costs Other Total
----------- ---------- ---------- ------------- ---------- -----
2002 Restructuring
charge $ 1,200 $ 2,400 $ 300 $ 1,400 $ - $ 5,300
2002 Cash payments 600 - - 100 - 700
2002 Non-cash charges - 500 100 - - 600
---------- ----------- --------- ------------ ---------- ----------
March 31, 2002 balance $ 600 $ 1,900 $ 200 $ 1,300 $ - $ 4,000
========== =========== ========= ============ ========== ==========
(a) Amount represents severance and termination costs for 104 terminated
employees (primarily sales, marketing and manufacturing personnel).
As of March 31, 2002, 20 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 other facility closure costs on exited
operations.
Interest Expense
Interest expense was $10.3 million for the quarter ended March 31, 2002, as
compared to $11.9 million for the corresponding fiscal 2001 quarter. The
decrease is the result of lower average interest rates, offset in part by an
increase in average debt levels.
28
Other Income
Other income was $0.8 million for the quarter ended March 31, 2002, as
compared to other income of $5.5 million in the corresponding fiscal 2001
quarter. This decrease is primarily due to gains on sales of fixed assets of
approximately $4.4 million in the corresponding fiscal 2001 quarter.
Income Taxes
Taxes on income from continuing operations for the quarter ended March 31,
2002 were $18.9 million, a decrease of $1.0 million from the corresponding
fiscal 2001 quarter. This decrease resulted primarily from a decrease in the
effective tax rate due to the implementation of SFAS 142.
Income from Continuing Operations
As a result of the foregoing, income from continuing operations for the
quarter ended March 31, 2002 was $32.6 million, an increase of $2.9 million from
the corresponding fiscal 2002 quarter.
Discontinued Operations
The loss from the discontinued operations for the quarter ended March 31,
2002 was a result of an operating loss from VPT of $0.5 million and an estimated
loss on sale of VPT of $13.2 million. For the corresponding fiscal 2001 quarter,
the loss from discontinued operations was a result of expenses relating to the
distribution of Sybron Dental Specialties ("SDS") of $0.8 million, offset by
operating income from VPT of $0.5 million.
Net Income
As a result of the foregoing, net income was $19.0 million for the quarter
ended March 31, 2002 as compared to $29.4 million for the corresponding fiscal
2001 quarter. SFAS 142 would have increased net income to $34.3 million for the
fiscal 2001 quarter, had it been effective at the time.
Six Months Ended March 31, 2002 Compared to the Six Months Ended March 31, 2001
Net Sales
Fiscal Fiscal Dollar Percent
(in thousands) 2002 2001 Change Change
---- ---- ------ ------
Clinical Diagnostics $ 241,834 $ 221,617 $ 20,217 9%
Labware and Life Sciences 204,132 173,664 30,468 18%
Laboratory Equipment 56,870 62,183 (5,313) -9%
------------ ------------ ----------
$ 502,836 $ 457,464 $ 45,372 10%
============ ============ ==========
Overall Company. Net sales for the six months ended March 31, 2002
increased by $45.4 million or 10% over the corresponding fiscal 2001 period.
Clinical Diagnostics. Increased net sales in the clinical diagnostics
segment resulted primarily from: (a) net sales of products of acquired companies
(approximately $13.2 million), (b) price increases (approximately $8.2 million),
and (c) increased net sales of new products developed by us (approximately $3.6
million). Net sales were partially reduced by: (a) a decrease in net sales of
existing products (approximately $4.6 million) and (b) foreign currency
fluctuations (approximately $0.2 million).
29
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 $24.6 million), (b) increased net sales of new products
developed by us (approximately $4.9 million), and (c) price increases
(approximately $3.1 million). Net sales were partially reduced by: (a) foreign
currency fluctuations (approximately $1.7 million) and (b) a decrease in net
sales of existing products (approximately $0.5 million).
Laboratory Equipment. Reduced net sales in the laboratory equipment
segment resulted primarily from: (a) a decrease in net sales of existing
products (approximately $6.6 million) and (b) foreign currency fluctuations
(approximately $0.1 million). Net sales were partially increased by: (a) price
increases (approximately $0.9 million) and (b) increased net sales of new
products developed by us (approximately $0.5 million).
Gross Profit
Fiscal Percent Fiscal Percent Dollar Percent
(in thousands) 2002 of Sales 2001 of Sales Change Change
---- -------- ---- -------- ------ ------
Clinical Diagnostics $ 113,697 47% $ 106,927 48% $ 6,770 6%
Labware and Life Sciences 102,224 50% 90,471 52% 11,753 13%
Laboratory Equipment 24,298 43% 27,191 44% (2,893) -11%
----------- ------------
$ 240,219 48% $ 224,589 49% 15,630 7%
=========== ============
Overall Company. Gross profit for the six months ended March 31, 2002
increased by $15.6 million or 7% over the corresponding fiscal 2001 period.
Clinical Diagnostics. Increased gross profit in the clinical diagnostics
segment resulted primarily from: (a) price increases (approximately $8.2
million), (b) the effects of acquired companies (approximately $5.8 million),
(c) inventory adjustments (approximately $2.7 million), and (d) the effects of
new products (approximately $2.0 million). Gross profit was partially reduced
by: (a) decreased volume (approximately $5.0 million), (b) increased
manufacturing overhead (approximately $4.0 million), (c) product mix
(approximately $1.7 million), and (d) restructuring charges (approximately $1.3
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 $6.9 million), (b) product mix (approximately $5.9 million), (c)
price increases (approximately $3.1 million), (d) the effects of new products
(approximately $2.1 million), and (e) increased volume (approximately $0.6
million). Gross profit was partially reduced by: (a) restructuring charges
(approximately $2.4 million), (b) increased manufacturing overhead
(approximately $2.1 million), (c) foreign currency fluctuations (approximately
$1.5 million), and (d) inventory adjustments (approximately $0.8 million).
Laboratory Equipment. Decreased gross profit in the laboratory equipment
segment resulted primarily from: (a) decreased volume (approximately $3.2
million), (b) increased manufacturing overhead (approximately $1.5 million), and
(c) foreign currency fluctuations (approximately $0.1 million). Gross profit was
partially increased by: (a) price increases (approximately $0.9 million), (b)
product mix (approximately $0.4 million), (c) the effects of new products
(approximately $0.3 million), and (d) inventory adjustments (approximately $0.2
million).
30
Selling General and Administrative Expenses
Fiscal Fiscal Dollar Percent
(in thousands) 2002 2001 Change Change
---- ---- ------ ------
Clinical Diagnostics $ 51,018 $ 54,602 $ (3,584) -7%
Labware and Life Sciences 56,474 49,619 6,855 14%
Laboratory Equipment 13,435 15,549 (2,114) -14%
----------- ------------ ------------
Subtotal 120,927 119,770 1,157 1%
Other 367 (633) 1,000
----------- ------------ ------------
Total $ 121,294 $119,137 $ 2,157 2%
=========== ============ ============
Overall Company. Selling, general and administrative expenses for the six
months ended March 31, 2002 increased by $2.2 million or 2% over the
corresponding fiscal 2001 period.
Clinical Diagnostics. Decreased selling, general and administrative
expenses in the clinical diagnostics segment resulted primarily from: (a) a
decrease in amortization expense as a result of the implementation of SFAS 142
(approximately $7.9 million) and (b) foreign currency fluctuations
(approximately $0.1 million). Selling, general and administrative expenses were
partially increased by: (a) marketing expenses (approximately $1.7 million), (b)
general and administrative expenses (approximately $1.0 million), (c) research
and development expenses (approximately $0.8 million), (d) restructuring charges
(approximately $0.6 million), and (e) acquired businesses (approximately $0.4
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 $5.9 million), (b) marketing expenses
(approximately $2.7 million), (c) general and administrative expenses
(approximately $1.3 million), (d) research and development expense
(approximately $0.9 million), and (e) restructuring charges (approximately $0.4
million). Selling, general and administrative expenses were partially reduced
by: (a) decreased amortization expense as a result of SFAS 142 (approximately
$3.9 million), and (b) foreign currency fluctuations (approximately $0.5
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 $1.1
million), (b) general and administrative expenses (approximately $0.8 million),
(c) marketing expenses (approximately $0.2 million), and (d) foreign currency
fluctuations (approximately $0.1 million). Selling, general and administrative
expenses were partially increased by research and development expense
(approximately $0.2 million).
Operating Income
Fiscal Fiscal Dollar Percent
(in thousands) 2002 2001 Change Change
---- ---- ------ ------
Clinical Diagnostics $ 62,679 $ 52,325 $ 10,354 20%
Labware and Life Sciences 45,750 40,852 4,898 12%
Laboratory Equipment 10,863 11,642 (779) -7%
----------- ----------- ------------
Subtotal 119,292 104,819 14,473 14%
Other (367) 633 (1,000)
----------- ----------- ------------
Total $ 118,925 $105,452 $ 13,473 13%
=========== =========== ============
As a result of the foregoing, operating income for the six months ended
March 31, 2002 increased by $13.5 million or 13% over the corresponding fiscal
2001 period. SFAS 142 would have increased operating income to $119.7 million
for the six months ended March 31, 2001, had it been effective at the time.
31
Interest Expense
Interest expense was $20.5 million for the six months ended March 31, 2002,
as compared to $24.4 million for the corresponding fiscal 2001 period. The
decrease is the result of lower average interest rates offset in part by an
increase in average debt levels.
Other Income
Other income was $2.3 million for the six months ended March 31, 2002, as
compared to other income of $5.2 million in the corresponding fiscal 2001
period. This decrease is primarily due to gains on the sales of assets of
approximately $4.4 million included in other income for the six months ended
March 31, 2001.
Income Taxes
Taxes on income from continuing operations for the six months ended March
31, 2002 were $36.2 million, an increase of $1.8 million from the corresponding
fiscal 2001 period. This increase resulted primarily from increased taxable
earnings offset in part by lower effective tax rates resulting from the
implementation of SFAS 142.
Income from Continuing Operations Before Extraordinary Items
As a result of the foregoing, income from continuing operations before
extraordinary items for the six months ended March 31, 2002 was $62.7 million,
and increase of $11.1 million from the corresponding fiscal 2002 period.
Discontinued Operations
The loss from the discontinued operations for the six months ended March
31, 2002 was a result of an operating loss from VPT of $0.6 million and an
estimated loss on sale of VPT of $13.2 million. For the corresponding fiscal
2001 period, the loss from discontinued operations was a result of a loss from
the distribution of SDS of $11.8 million, offset by operating income from VPT of
$0.7 million.
Net Income
As a result of the foregoing, net income was $48.9 million for the six
months ended March 31, 2002 as compared to $39.8 million for the corresponding
fiscal 2001 period. SFAS 142 would have increased net income to $49.7 million
for the fiscal 2001 period, had it been effective at the time.
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
$87 million during the first six months of 2002, primarily as a result of
continued acquisition activity. However, the non-cash amortization expense
relating to intangible assets and goodwill has 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,
32
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 $84.1 million of cash was generated from operating activities
in the first six months of fiscal 2002, an increase of $18.8 million or 29% from
the corresponding fiscal 2001 period. Non-cash depreciation and amortization
charged against net income decreased approximately $9.7 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 $6.8 million for the first six months of fiscal 2002. These changes are set
forth in detail in the Consolidated Statements of Cash Flows.
Investing activities in the first six months of fiscal 2002 used
approximately $131.2 million of cash. This outflow was due primarily to cash
used for acquisitions of $113.8 million. Capital expenditures were $17.8 million
for the first six months of fiscal 2002, compared to $24.2 million in the
corresponding fiscal 2001 period.
Financing activities provided approximately $87.7 million of cash in the
first six months 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 million were paid in
connection with the CODES offering. As a result of the cash flow from operations
and excess of proceeds from the CODES offering over the payments on the
Revolving Credit Facilities and financing fees paid, the Company had $42.4
million of cash at March 31, 2002.
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 (based on specified factors)
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.
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.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
In connection with the Company's transitional impairment test for SFAS 142,
fair market valuations were performed for each of the reporting units. These
valuations required certain assumptions from management regarding future
operating performance as well as various industry trends. Fluctuations in these
assumptions could have a material impact on the values ascribed to the reporting
units and could
33
result in an indication of impairment. These assumptions include, but are not
limited to, estimated future cash flows, estimated sales growth, and weighted
average cost of capital for each of the reporting units. In order to make
informed assumptions, management relied on certain public information and
statistical and industry information as well as internal forecasts to determine
the various assumptions. In the event that industry, general economic and
company trends change, these assumptions will change and impact the calculated
fair market values.
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 March 31, 2002 equity
investments in these entities, included in "Other Assets", totaled approximately
$8.3 million. Net income from joint ventures and minority interests for the
first six months of fiscal 2002 was approximately $2.2 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 March 31,
2002, the joint ventures did not have any debt other than trade payables arising
out of their business activities.
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
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Total Amount of Commitment Expiration Per Period
-------------------------------------------------------
Amounts Less Than Over 5
Other Commercial Commitments Committed 1 Year 1 - 3 Years 4 - 5 Years 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 Company's Revolving Line of Credit, 8% Senior Notes, and CODES.
34
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.
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:
. accurately anticipate customer needs;
. innovate and develop new technologies and applications;
. successfully commercialize new products in a timely manner;
. price our products competitively and manufacture and deliver our
products in sufficient volumes and on time; and
. 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.
35
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 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. The
Company has performed its initial impairment tests and the results indicate no
circumstances of impaired goodwill, but future impairment may occur at any time.
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.
36
Our business is subject to the risks of claims involving our products and
facilities (past and present) 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.
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.
37
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 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.
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.
38
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: May 15, 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
39
APOGENT TECHNOLOGIES INC.
(the "Registrant")
(Commission File No. 1-11091)
EXHIBIT INDEX
to
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
Exhibit Filed
Number Description Incorporated Herein By Reference To Herewith
- -------- ----------------------------------- ------------------------------------- ----------
Apogent Technologies Inc. 2001 Appendix A to the Registrant's
10.1 Equity Incentive Plan Proxy Statement dated December 26,
2001.
10.2 Apogent Technologies Inc. Employee Appendix B to the Registrant's
Stock Purchase Plan Proxy Statement dated December 26,
2001.
10.3 Form of Revised Nonstatutory Stock X
Option Agreement under the 1993
Long-Term Incentive Plan
10.4 Form of Nonstatutory Stock Option X
Agreement under the 2001 Equity
Incentive Plan
12 Computation of ratio of earnings X
to fixed charges
40