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 JUNE 30, 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.
-------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 22-2849508
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
30 Penhallow Street, Portsmouth, New Hampshire 03801
- ---------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(603) 433-6131
--------------
(Registrant's telephone number, including area code)
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 August 2, 2002, there were 106,948,259 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 June 30, 2002 and September 30, 2001 1
Consolidated Statements of Income for the three and nine months ended
June 30, 2002 and 2001 2
Consolidated Statement of Shareholders' Equity for the nine months
ended June 30, 2002 3
Consolidated Statements of Cash Flows for the nine months ended June
30, 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 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk 40
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 40
Signatures 40
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
June 30, September 30,
2002 2001
-------------- --------------
Assets
Current assets:
Cash and cash equivalnts $ 34,609 $ 9,192
Accounts receivable (less allowance for doubtful accounts of
$4,787 and $3,975, respectively) 194,818 183,278
Inventories 195,177 167,436
Deferred income taxes 13,046 13,046
Prepaid expenses and other current assets 23,749 20,985
Assets of Vacuum Process Technology, Inc.("VPT") avail. for sale 6,270 -
---------- ----------
Total current assets 467,669 393,937
Available for sale security 54,698 55,072
Property, plant and equipment, net 255,393 223,687
Intangible assets 1,237,514 1,140,334
Deferred income taxes 6,147 6,147
Other assets 17,916 15,961
---------- ----------
Total assets $2,039,337 $1,835,138
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 48,454 $ 53,822
Current portion of long-term debt 62,192 73,642
Income taxes payable 61,588 38,747
Accrued payroll and employee benefits 32,622 33,236
Accrued interest expense 8,432 15,292
Restructuring reserve 4,852 1,552
Deferred income taxes 911 911
Other current liabilities 28,044 26,364
Liabilities of Vacuum Process Technology, Inc. 202 -
---------- ----------
Total current liabilities 247,297 243,566
Long-term debt 663,439 583,788
Securities lending agreement 54,698 55,072
Deferred income taxes 119,700 107,220
Other liabilities 7,821 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 106,906,029 and 105,875,768 shares respectively;
outstanding 106,905,809 and 105,875,548 shares
respectively 1,069 1,059
Equity rights, 50 rights at $1.09 per right - -
Additional paid-in capital 269,557 254,637
Retained earnings 712,634 627,642
Accumulated other comprehensive income (loss) (36,878) (44,848)
Treasury common stock, 220 shares at cost - -
---------- ----------
Total shareholders' equity 946,382 838,490
---------- ----------
Total liabilities and shareholders' equity $2,039,337 $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 Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Net sales $276,847 $255,261 $779,683 $712,723
Cost of sales:
Cost of products sold 141,152 130,654 398,488 363,265
Restructuring charge 1,440 - 5,113 -
Depreciation of purchase accounting adjustments 1,170 180 2,779 448
-------- -------- -------- --------
Total cost of sales 143,762 130,834 406,380 363,713
-------- -------- -------- --------
Gross profit 133,085 124,427 373,303 349,010
Selling, general and administrative expenses 61,153 55,060 172,669 152,200
Restructuring charge - - 1,614 583
Depreciation and amortization of purchase accounting
adjustments 4,644 11,313 12,808 32,729
-------- -------- -------- --------
Total selling, general and administrative expenses 65,797 66,373 187,091 185,512
-------- -------- -------- --------
Operating income 67,288 58,054 186,212 163,498
Other income (expense):
Interest expense (10,273) (12,717) (30,804) (37,109)
Amortization of deferred financing fees (938) (133) (2,680) (382)
Other, net 943 240 3,217 5,506
-------- -------- -------- --------
Income from continuing operations before income
taxes and extraordinary item 57,020 45,444 155,945 131,513
Income taxes 20,846 17,738 57,076 52,177
-------- -------- -------- --------
Income from continuing operations before extraordinary item 36,174 27,706 98,869 79,336
Discontinued operations:
(Loss) income from operations of VPT including estimated loss on
sale of $13,200 (net of income tax benefit (expense) of $58,
($230), $8,316, and ($709), respectively) (101) 397 (13,877) 1,144
Loss from distribution of SDS (net of income tax expense of $435) - - - (11,824)
-------- -------- -------- --------
Income before extraordinary item 36,073 28,103 84,992 68,656
Extraordinary item (net of income tax of $863 and $1,359, respectively) - (1,361) - (2,106)
-------- -------- -------- --------
Net income $ 36,073 $ 26,742 $ 84,992 $ 66,550
======== ======== ======== ========
Basic earnings per common share from continuing operations $ 0.34 $ 0.26 $ 0.93 $ 0.75
Discontinued operations (0.00) 0.00 (0.13) (0.10)
Extraordinary item - (0.01) - (0.02)
-------- -------- -------- --------
Basic earnings per common share $ 0.34 $ 0.25 $ 0.80 $ 0.63
======== ======== ======== ========
Diluted earning per common share from continuing operations $ 0.33 $ 0.26 $ 0.91 $ 0.73
Discontinued operations (0.00) 0.00 (0.13) (0.10)
Extraordinary item - (0.01) - (0.02)
-------- -------- -------- --------
Diluted earnings per common share $ 0.33 $ 0.25 $ 0.78 $ 0.62
======== ======== ======== ========
Weighted average basic shares outstanding 106,816 105,563 106,452 105,421
Weighted average diluted shares outstanding 109,010 108,333 108,996 108,193
See accompanying notes to the unaudited consolidated financial statements.
2
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
For the nine months ended June 30, 2002
(In thousands)
(Unaudited)
Accumulated
Additional Other Treasury Total
Common Equity Paid-In Retained Comprehensive Common Shareholders'
Stock Rights Capital Earnings Income Stock Equity
----- ------ ------- -------- ------ ----- ------
Balance at September 30, 2001 $1,059 $ - $254,637 $627,642 $(44,848) $ - $838,490
Comprehensive income:
Net income - - - 84,992 - - 84,992
Translation adjustment - - - - 8,861 - 8,861
Amortization of gain on sale of interest
rate swaps, net of tax benefit of $445 - - - - (667) - (667)
Unrealized loss on security available
for sale, net of tax of $149 - - - - (224) - (224)
------ ------- -------- -------- -------- -------- --------
Total comprehensive income - - - 84,992 7,970 - 92,962
Shares issued in connection with
stock options 10 - 8,397 - - - 8,407
Tax benefit related to stock options - - 6,523 - - - 6,523
------ ------- -------- -------- -------- -------- --------
Balance at June 30, 2002 $1,069 $ - $269,557 $712,634 $(36,878) $ - $946,382
====== ======= ======== ======== ======== ======== ========
See accompanying notes to the unaudited consolidated financial statements.
3
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended June 30,
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 84,992 $ 66,550
Adjustments to reconcile net income to net cash provided by operating activities
Discontinued operations 13,877 10,680
Depreciation 27,682 25,121
Amortization 15,488 31,802
Gain on sale of property, plant and equipment 81 (4,988)
Provision for losses on doubtful accounts (107) (188)
Inventory provisions 2,324 1,667
Deferred income taxes - 632
Extraordinary item - 2,106
Changes in assets and liabilities, net of effects of businesses acquired:
(Increase) decrease in accounts receivable (1,584) 1,013
Increase in inventories (17,880) (21,842)
Increase in prepaid expenses and other current assets (4,877) (6,116)
Decrease in accounts payable (9,221) (6,334)
Increase in income taxes payable 16,955 13,745
(Decrease) increase in accrued payroll and employee benefits (1,598) 3,057
(Decrease) increase in accrued interest expense (6,861) 4,209
Increase (decrease) in restructuring reserve 3,188 (2,643)
Decrease in other current liabilities (6,044) (5,157)
Net change in other assets and liabilities 3,300 (1,456)
--------- ---------
Net cash provided by operating activities 119,715 111,858
--------- ---------
Cash flows from investing activities:
Capital expenditures (32,421) (35,502)
Proceeds from sales of property, plant and equipment 1,257 11,446
Net cash flow from SDS - 46,394
Net payment for businesses acquired (142,117) (139,020)
--------- ---------
Net cash used in investing activities (173,281) (116,682)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 300,000 703,448
Principal payments on long-term debt (45,372) (680,291)
Proceeds from the exercise of stock options 8,407 4,382
Financing fees paid (8,081) (6,721)
Proceeds from revolving credit facility 285,200 407,060
Principal payments on revolving credit facility (465,300) (410,960)
Other financing activities (374) 489
--------- ---------
Net cash provided by financing activities 74,480 17,407
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 4,503 1,826
--------- ---------
Net increase in cash and cash equivalents 25,417 14,409
Cash and cash equivalents at beginning of period 9,192 12,411
--------- ---------
Cash and cash equivalents at end of period $ 34,609 $ 26,820
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 37,701 $ 25,665
========= =========
Income taxes $ 27,783 $ 21,147
========= =========
Capital lease obligations incurred $ 209 $ -
========= =========
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, and are of a normal recurring nature. The results for the
three-month and nine-month periods ended June 30, 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.
2. Adoption of New Accounting Pronouncements
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. The following table reconciles reported
amounts to that which would have been reported if the current method of
accounting was used for the three and nine months ended June 30, 2001 and
the fiscal years ended September 30, 2001, 2000, and 1999:
Three Months Nine Months
Ended Ended Year Ended September 30,
June 30 2001 June 30, 2001 2001 2000 1999
------------ ------------- ---- ---- ----
Income before extraordinary items:
Reported income before extraordinary items $ 28,103 $ 68,656 $ 98,047 $ 128,321 $ 125,376
Add back: goodwill amortization, net of tax 5,800 15,655 22,363 19,605 12,813
--------- --------- --------- --------- ---------
Adjusted income before extraordinary items $ 33,903 $ 84,311 $ 120,410 $ 147,926 $ 138,189
========= ========= ========= ========= =========
Net income:
Reported net income $ 26,742 $ 66,550 $ 95,941 $ 128,321 $ 142,547
Add back: goodwill amortization, net of tax 5,800 15,655 22,363 19,605 12,813
--------- --------- --------- --------- ---------
Adjusted net income $ 32,542 $ 82,205 $ 118,304 $ 147,926 $ 155,360
========= ========= ========= ========= =========
Basic earnings per common share:
Reported earnings per share $ 0.25 $ 0.63 $ 0.91 $ 1.23 $ 1.38
Add back: goodwill amortization, net of tax 0.05 0.15 0.21 0.19 0.12
--------- --------- --------- --------- ---------
Adjusted basic earnings per common share $ 0.30 $ 0.78 $ 1.12 $ 1.42 $ 1.50
========= ========= ========= ========= =========
Diluted earnings per common share:
Reported fully diluted earnings per share $ 0.25 $ 0.62 $ 0.89 $ 1.20 $ 1.34
Add back: goodwill amortization, net of tax 0.05 0.14 0.21 0.18 0.12
--------- --------- --------- --------- ---------
Adjusted Diluted earnings per common share $ 0.30 $ 0.76 $ 1.10 $ 1.38 $ 1.46
========= ========= ========= ========= =========
5
3. Inventories
Inventories at June 30, 2002 and September 30, 2001 consist of the
following:
June 30, September 30,
2002 2001
---- ----
Raw materials and supplies 74,178 56,660
Work in process 21,210 25,974
Finished goods 99,789 84,802
---------- ---------
$ 195,177 $ 167,436
========== =========
4. Intangible Assets
As a result of SFAS 142, the Company is no longer amortizing
approximately $994 million of goodwill as of June 30, 2002. As a result of
current year acquisitions and subsequent payments made in relation to prior
year acquisitions, the Company added approximately $113 million to
intangibles and goodwill since September 30, 2001 (approximately $43
million to goodwill and $70 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. Deferred financing fees paid in connection with the October
2001 convertible debt offering increased other intangible assets by $8.1
million. In addition, the Company wrote off approximately $21 million in
goodwill and intangibles in connection with the estimated loss on sale of
VPT, and reduced goodwill by $6 million as a result of a reduction in the
purchase price premium for a prior year acquisition.
Intangible assets are as follows:
June 30, September 30,
2002 2001
---- ----
Amortizable intangible assets
Proprietary technology $ 131,407 $ 109,376
Trademarks 76,388 58,894
Patents 38,276 28,547
Licenses 17,910 10,703
Drawings 11,736 11,486
Non-compete agreements 16,009 13,240
Other 20,742 10,611
Less: Accumulated amortization (69,054) (53,389)
------------ ------------
Net amortizable intangible assets 243,414 189,468
Unamortizable intangible assets (goodwill) 994,100 950,866
------------ ------------
$ 1,237,514 $ 1,140,334
============ ============
6
Intangible assets at June 30, 2002 by business segment are as follows:
Clinical Labware & Laboratory
Diagnostics LifeScience Equipment Consolidated
----------- ----------- ---------- ------------
Proprietary technology $ 109,560 $ 12,687 $ 9,160 $ 131,407
Less: Accumulated amortization (19,181) (3,905) (1,527) (24,613)
--------- -------- ------- ---------
Net proprietary technology 90,379 8,782 7,633 106,794
--------- -------- ------- ---------
Trademarks 15,087 50,132 11,169 76,388
Less: Accumulated amortization (1,182) (9,852) (3,893) (14,927)
--------- -------- ------- ---------
Net trademarks 13,905 40,280 7,276 61,461
--------- -------- ------- ---------
Patents 23,439 13,253 1,584 38,276
Less: Accumulated amortization (3,351) (2,192) (533) (6,076)
--------- -------- ------- ---------
Net patents 20,088 11,061 1,051 32,200
--------- -------- ------- ---------
Licenses 15,578 2,332 - 17,910
Less: Accumulated amortization (3,602) (133) - (3,735)
--------- -------- ------- ---------
Net licenses 11,976 2,199 - 14,175
--------- -------- ------- ---------
Drawings - 436 11,300 11,736
Less: Accumulated amortization - (145) (5,556) (5,701)
--------- -------- ------- ---------
Net drawings - 291 5,744 6,035
--------- -------- ------- ---------
Non-compete agreements 8,703 7,104 202 16,009
Less: Accumulated amortization (3,805) (3,917) (143) (7,865)
--------- -------- ------- ---------
Net non-compete agreements 4,898 3,187 59 8,144
--------- -------- ------- ---------
Other identifiable intangible assets (a) 670 3,645 - 4,315
Less: Accumulated amortization (100) (2,251) - (2,351)
--------- -------- ------- ---------
Net other identifiable intangibles (a) 570 1,394 - 1,964
--------- -------- ------- ---------
Net amortizable intangible assets (a) $ 141,816 $ 67,194 $21,763 $ 230,773
========= ======= ======= =========
Excess cost over net asset values acquired (goodwill) $ 510,239 $399,836 $84,025 $ 994,100
--------- -------- ------- ---------
Unamortizable intangible assets 510,239 399,836 84,025 994,100
========= ======== ======= =========
Note (a): At June 30, 2002, Apogent Corporate Office had $16,427 of
amortizable other identifiable intangible assets and $3,786 of related
accumulated amortization that was not allocated to any of the business
segments.
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.
5. Acquisitions
During the nine months ended June 30, 2002, the Company completed nine
acquisitions for cash. The aggregate purchase price for these acquisitions,
net of cash acquired, was approximately $141 million. None of the
acquisitions were considered individually significant. The total goodwill
and identifiable intangibles assets for the acquired companies was
approximately $111 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.
7
Business Segment: Operating Total Type of
Company Acquired Acquisition Date Sales Income Assets Acquisition
----------------- ---------------- ----- ------ ------ -----------
Clinical Diagnostics:
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
Mirror Product Line of SMC May 2002 600 200 10 Asset
Manufacturing
Labware and Life Sciences:
Cosmotee Co. Ltd. October 2001 10,500 2,500 2,600 Stock
Barden Engineering October 2001 570 130 540 Asset
Chromacol Limited, Epsom Glass
Industries Limited, and Amchro Inc. October 2001 $9,900 $350 $5,080 Stock
TFO Incorporated May 2002 1,700 160 850 Asset
Marsh BioProducts, Inc. April 2002 17,000 1,800 4,700 Asset
6. Discontinued Operations
During March 2002, we made the decision to dispose of our vacuum
deposition chamber business, Vacuum Process Technology, Inc. ("VPT"). 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 their estimated 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. In the event the Company ultimately disposes of
VPT for an amount less than the carrying value of the business, an
additional charge will be recognized upon disposal. For business reporting
purposes, VPT was previously classified in the Clinical Diagnostics
business segment. Operating results from VPT for the three months and nine
months ended June 30, 2002 and 2001 were as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales $1,280 $5,135 $ 3,180 $13,535
Gross profit 166 1,074 466 2,957
Pretax income (loss) (159) 627 (1,103) 1,853
Income tax benefit (expense) 58 (230) 426 (709)
Net income (loss) (101) 397 (677) 1,144
8
Assets and liabilities of VPT were as follows:
June 30, September 30,
2002 2001
---- ----
Current Assets $ 4,567 $ 6,296
Property, plant and equipment, net 850 912
Intangible assets - 21,023
Total assets 6,270 29,083
Current liabilities 202 2,392
Total liabilities 202 3,954
Net sales and net income from VPT for the year ended September 30, 2001
were $15,372 and $990, respectively.
7. Restructuring
During fiscal 2002, the Company recorded restructuring charges of
approximately $6,727 (approximately $4,265 net of tax) for the
consolidation of certain facilities and discontinuance of certain product
lines due to product rationalizations. The restructuring charges were
classified as components of cost of sales and selling, general and
administrative expenses. The cost of sales component of approximately
$5,113 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 $1,614 related to severance associated with non-production
employees as well as certain lease terminations and other shutdown costs.
Restructuring activity is as follows:
Fixed Facility
Severance Inventory Assets Closure Costs
(a) (b) (b) (c) Other Total
--------- --------- ------ ------------- ----- -------
2002 Restructuring
charge $ 1,500 $ 3,400 $ 400 $ 1,400 $ - $ 6,700
2002 Cash payments 900 - - 500 - 1,400
2002 Non-cash charges - 900 200 - - 1,100
------- ------- ------ ------- ----- -------
June 30, 2002 balance $ 600 $ 2,500 $ 200 $ 900 $ - $ 4,200
======= ======= ====== ======= ===== =======
(a) Amount represents severance and termination costs for 126 terminated
employees (primarily sales marketing and manufacturing personnel). As
of June 30, 2002, 35 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.
The Company expects to make future cash payments of approximately $700
during the remainder of fiscal 2002 and $200 in fiscal 2003 and beyond.
8. Earnings Per Common Share
Basic earnings per common share is calculated by dividing net income
by the weighted average number of common shares outstanding in the period
presented. Diluted earnings per common share is calculated by dividing net
income by the weighted average number of common shares outstanding plus the
dilutive effects of potential common shares outstanding during the period.
A reconciliation of shares used in calculating basic and diluted earnings
per share follows:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2002 2001 2002 2001
---- ---- ---- ----
Basic 106,816 105,563 106,452 105,421
Effect of assumed conversion
of employee stock options 2,194 2,770 2,544 2,772
------- ------- ------- -------
Diluted 109,010 108,333 108,996 108,193
======= ======= ======= =======
9
9. 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. 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. No contingent interest is
payable during the six-month period from April 15, 2002 to October 14,
2002. 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 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.
10. 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 businesssegments 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
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 year, 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
10
financial information for the three and nine months ended June 30, 2001
has been restated to reflect this change.
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 Elimination(a) Other (a) Total
----------- ------------- --------- -------------- --------- -----
Three Months Ended June 30, 2002
Revenues:
External customer $ 132,578 $ 113,907 $ 30,362 $ - $ - $ 276,847
Intersegment 1,651 218 60 (1,929) - -
Total revenues 134,229 114,125 30,422 (1,929) - 276,847
Gross profit 62,056 57,624 13,405 - - 133,085
Selling general and administrative 26,563 31,374 7,744 - 116 65,797
Operating income 35,493 26,250 5,661 - (116) 67,288
Three Months Ended June 30, 2001
Revenues:
External customer 119,866 103,707 31,688 - - 255,261
Intersegment 1,666 345 103 (2,114) - -
Total revenues 121,532 104,052 31,791 (2,114) - 255,261
Gross profit 57,784 52,768 13,875 - 124,427
Selling general and administrative 27,991 30,228 8,019 - 135 66,373
Operating income 29,793 22,540 5,856 - (135) 58,054
LabWare
Clinical and Laboratory
Diagnostics Life Sciences Equipment Elimination(a) Other (a) Total
----------- ------------- --------- -------------- --------- -----
Nine Months Ended June 30, 2002
Revenues:
External customer $ 374,412 $ 318,040 $ 87,231 $ - $ - $ 779,683
Intersegment 4,597 714 281 (5,592) - -
Total revenues 379,009 318,754 87,512 (5,592) - 779,683
Gross profit 175,754 159,840 37,709 - - 373,303
Selling general and administrative 77,579 87,855 21,175 - 482 187,091
Operating income 98,175 71,958 16,534 - (482) 186,212
Segment assets 970,408 764,189 166,640 - 138,100 2,039,337
Nine Months Ended June 30, 2001
Revenues:
External customer 341,482 277,371 93,870 - - 712,723
Intersegment 5,070 982 378 (6,430) - -
Total revenues 346,552 278,353 94,248 (6,430) - 712,723
Gross profit 164,700 143,250 41,000 - 349,010
Selling general and administrative 82,585 79,862 23,562 - (497) 185,512
Operating income 82,115 63,388 17,498 - 497 163,498
(a) Includes the elimination of intercompany and unallocated corporate
office activity.
11
11. Condensed Consolidating Financial Statements
The Company's material U.S. subsidiaries are guarantors to its Revolving
Credit Facility and 8% 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 June 30, 2002
and September 30, 2001, statements of operations for the three and nine months
ended June 30, 2002 and 2001, and statements of cash flows for the nine months
ended June 30, 2002 and 2001, of Apogent Technologies Inc. and its subsidiaries,
reflecting the subsidiary guarantors for the Revolving Credit Facility and 8%
Senior Notes. For guarantors acquired during the period, the results of
operations are included from the date of acquisition.
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.
12
Condensed Consolidating Balance Sheets
As of June 30, 2002
-------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Assets
------
Current assets:
Cash and cash equivalents $ 29,359 $ - $ 10,109 $ (4,859) $ 34,609
Accounts receivable, net - 156,378 38,440 - 194,818
Inventories, net 1,263 159,362 39,884 (5,332) 195,177
Other current assets 25,889 12,451 10,118 (5,393) 43,065
----------- ------------ ----------- ------------ ------------
Total current assets 56,511 328,191 98,551 (15,584) 467,669
Property, plant and equipment, net 10,706 189,365 55,322 - 255,393
Intangible assets 12,639 997,433 227,442 - 1,237,514
Deferred income taxes 5,057 121 969 - 6,147
Investment in subsidiaries 2,092,584 66,631 - (2,159,215) -
Other assets 58,095 13,502 1,017 - 72,614
----------- ------------ ----------- ------------ ------------
Total assets $ 2,235,592 $ 1,595,243 $ 383,301 $ (2,174,799) $ 2,039,337
=========== ============ =========== ============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 123 $ 42,809 $ 10,381 $ (4,859) $ 48,454
Current portion of long-term debt - 62,173 19 - 62,192
Income taxes payable - 61,070 7,392 (6,874) 61,588
Accrued expenses and other current liabilities 13,788 32,176 29,099 - 75,063
----------- ------------ ----------- ------------ ------------
Total current liabilities 13,911 198,228 46,891 (11,733) 247,297
----------- ------------ ----------- ------------ ------------
Long-term debt - 663,414 25 - 663,439
Securities lending agreement 54,698 - - - 54,698
Deferred income taxes 79,499 26,622 13,579 - 119,700
Other liabilities 2,739 3,528 1,554 - 7,821
Net intercompany payable/(receivable) 843,591 (1,056,487) 222,071 (9,175) -
Commitments and contingent liabilities -
Shareholders' equity
Preferred stock - - - - -
Common stock 1,069 - - - 1,069
Equity rights - - - - -
Additional paid-in-capital 249,085 2,073,347 78,516 (2,131,391) 269,557
Retained earnings (deficit) 988,689 (313,409) 59,854 (22,500) 712,634
Other comprehensive income 2,311 - (39,189) - (36,878)
Treasury stock (at cost) - - - - -
----------- ------------ ----------- ------------ ------------
Total shareholders' equity 1,241,154 1,759,938 99,181 (2,153,891) 946,382
----------- ------------ ----------- ------------ ------------
Total liabilities and
shareholders' equity $ 2,235,592 $ 1,595,243 $ 383,301 $ (2,174,799) $ 2,039,337
=========== ============ =========== ============ ============
13
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
=========== =========== ========= ============ ============
14
Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2002
----------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $237,526 $ 57,487 $(18,166) $276,847
Cost of sales - 127,572 34,353 (18,163) 143,762
-------- -------- -------- --------- --------
Gross profit - 109,954 23,134 (3) 133,085
Selling, general and administrative expenses 6,580 44,071 15,146 - 65,797
-------- -------- -------- --------- --------
Operating income (6,580) 65,883 7,988 (3) 67,288
Other income (expense):
Interest expense - (10,223) (50) - (10,273)
Other, net (2) 83 (76) - 5
-------- -------- -------- --------- --------
Income before income taxes and discontinued
operation (6,582) 55,743 7,862 (3) 57,020
Income taxes (2,688) 20,625 2,909 - 20,846
-------- -------- -------- --------- --------
Income from continuing operations (3,894) 35,118 4,953 (3) 36,174
Loss from discontinued operation - (101) - - (101)
-------- -------- -------- --------- --------
Net income $ (3,894) $ 35,017 $ 4,953 $ (3) $ 36,073
======== ======== ======== ========= ========
For the Three Months Ended June 30, 2001
----------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $221,411 $ 49,457 $(15,607) $255,261
Cost of sales - 117,404 28,653 (15,223) 130,834
-------- -------- -------- --------- --------
Gross profit - 104,007 20,804 (384) 124,427
Selling, general and administrative expenses 7,154 47,360 11,859 - 66,373
-------- -------- -------- --------- --------
Operating income (7,154) 56,647 8,945 (384) 58,054
Other income (expense):
Interest expense - (12,757) 40 - (12,717)
Other, net (163) 114 156 - 107
-------- -------- -------- --------- --------
Income before income taxes, discontinued
operations and extraordinary item (7,317) 44,004 9,141 (384) 45,444
Income taxes (3,540) 17,622 3,656 - 17,738
-------- -------- -------- --------- --------
Income from continuing operations before
extraordinary item (3,777) 26,382 5,485 (384) 27,706
Discontinued operations - 397 - - 397
-------- -------- -------- --------- --------
Income before extraordinary item (3,777) 26,779 5,485 (384) 28,103
Extraordinary item - (1,361) - - (1,361)
-------- -------- -------- --------- --------
Net income $ (3,777) $ 25,418 $ 5,485 $ (384) $ 26,742
======== ======== ======== ========= ========
15
Condensed Consolidating Statements of Operations - Continued
For the Nine Months Ended June 30, 2002
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $666,510 $166,623 $(53,450) $779,683
Cost of sales - 359,043 99,523 (52,186) 406,380
--------- -------- -------- -------- --------
Gross profit - 307,467 67,100 (1,264) 373,303
Selling, general and administrative expenses 21,521 124,166 41,404 - 187,091
--------- -------- -------- -------- --------
Operating income (21,521) 183,301 25,696 (1,264) 186,212
Other income (expense):
Interest expense - (30,770) (34) - (30,804)
Other, net (33) 625 (55) - 537
--------- -------- -------- -------- --------
Income before income taxes and discontinued
operation (21,554) 153,156 25,607 (1,264) 155,945
Income taxes (9,066) 56,668 9,475 57,076
--------- -------- -------- -------- --------
Income from continuing operations (12,488) 96,488 16,132 (1,264) 98,869
Loss from discontinued operation - (13,877) - - (13,877)
--------- -------- -------- -------- --------
Net income $ (12,488) $ 82,611 $ 16,132 $ (1,264) $ 84,992
========= ======== ======== ======== ========
For the Nine Months Ended June 30, 2001
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $623,450 $128,974 $(39,701) $712,723
Cost of sales - 326,896 75,257 (38,440) 363,713
--------- -------- -------- -------- --------
Gross profit - 296,554 53,717 (1,261) 349,010
Selling, general and administrative expenses 23,189 131,892 30,431 - 185,512
--------- -------- -------- -------- --------
Operating income (23,189) 164,662 23,286 (1,261) 163,498
Other income (expense):
Interest expense - (37,134) 25 - (37,109)
Other, net 3,622 1,744 (242) - 5,124
--------- -------- -------- -------- --------
Income before income taxes, discontinued
operations and extraordinary item (19,567) 129,272 23,069 (1,261) 131,513
Income taxes (8,792) 51,741 9,228 - 52,177
--------- -------- -------- -------- --------
Income from continuing operations before
extraordinary item (10,775) 77,531 13,841 (1,261) 79,336
Discontinued operations (11,824) 1,144 - - (10,680)
--------- -------- -------- -------- --------
Income before extraordinary item (22,599) 78,675 13,841 (1,261) 68,656
Extraordinary item - (2,106) - - (2,106)
--------- -------- -------- -------- --------
Net income $ (22,599) $ 76,569 $ 13,841 $ (1,261) $ 66,550
========= ======== ======== ======== ========
16
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended June 30, 2002
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows provided by operating activities: $18,758 $ 96,840 $ 4,117 $ - $ 119,715
------- -------- ------- --- ---------
Cash flows from investing activities:
Capital expenditures (1,910) (20,985) (9,526) - (32,421)
Proceeds from sales of property, plant and
equipment 333 591 333 - 1,257
Net payments for businesses acquired - (142,117) - - (142,117)
------- -------- ------- --- ---------
Net cash used in investing activities (1,577) (162,511) (9,193) - (173,281)
------- -------- ------- --- ---------
Cash flows from financing activities:
Proceeds from long-term debt - 585,200 - - 585,200
Principal payments on long-term debt - (510,655) (17) - (510,672)
Proceeds from the exercise of stock options 8,407 - - - 8,407
Other (374) (8,081) - - (8,455)
------- -------- ------- --- ---------
Net cash provided by (used in) financing
activities 8,033 66,464 (17) - 74,480
Effect of exchange rate on cash and cash equivalents - - 4,503 - 4,503
------- -------- ------- --- ---------
Net increase (decrease) in cash and cash equivalents 25,214 793 (590) - 25,417
Cash and cash equivalents at beginning of year 4,145 (5,652) 10,699 - 9,192
------- -------- ------- --- ---------
Cash and cash equivalents at end of year $29,359 $ (4,859) $ 10,109 $ - $ 34,609
======= ======== ======= === =========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 37,441 $ 260 $ - $ 37,701
======= ======== ======= === =========
Income taxes $21,012 $ - $ 6,771 $ - $ 27,783
======= ======== ======= === =========
Capital lease obligations incurred $ - $ 209 $ - $ - $ 209
======= ======== ======= === =========
17
Condensed Consolidating Statements of Cash Flows - Continued
For the Nine Months Ended June 30, 2001
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows (used in) provided by operating activities: $(47,066) $ 144,410 $ 14,514 $ - $ 111,858
-------- ----------- -------- ------ -----------
Cash flows from investing activities:
Capital expenditures (7,254) (22,360) (5,888) - (35,502)
Proceeds from sales of property, plant and equipment 10,167 1,136 143 - 11,446
Net cash inflow from SDS 46,394 - - - 46,394
Net payments for businesses acquired - (136,709) (2,311) - (139,020)
-------- ----------- -------- ------ ----------
Net cash provided by (used in) investing activities 49,307 (157,933) (8,056) - (116,682)
-------- ----------- -------- ------ ----------
Cash flows from financing activities:
Proceeds from long-term debt - 1,110,508 - - 1,110,508
Principal payments on long-term debt - (1,091,219) (32) - (1,091,251)
Proceeds from the exercise of stock options 4,382 - - - 4,382
Other 489 (6,721) - - (6,232)
-------- ----------- -------- ------ ----------
Net cash provided by (used in) financing activities 4,871 12,568 (32) - 17,407
Effect of exchange rate on cash and cash equivalents - - 1,826 - 1,826
-------- ----------- -------- ------ ----------
Net increase (decrease) in cash and cash equivalents 7,112 (955) 8,252 - 14,409
Cash and cash equivalents at beginning of year 7,086 (2,577) 7,902 - 12,411
-------- ----------- -------- ------ ----------
Cash and cash equivalents at end of year $ 14,198 $ (3,532) $ 16,154 $ - $ 26,820
======== =========== ======== ====== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 25,323 $ 342 $ - $ 25,665
======== =========== ======== ====== ===========
Income taxes $ 19,106 $ 131 $ 1,910 $ - $ 21,147
======== =========== ======== ====== ===========
Capital lease obligations incurred $ - $ - $ - $ - $ -
======== =========== ======== ====== ===========
18
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 8% 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 June 30, 2002
and September 30, 2001, statements of operations for the three and nine months
ended June 30, 2002 and 2001, and statements of cash flows for the nine months
ended June 30, 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.
19
Condensed Consolidating Balance Sheets
As of June 30, 2002
-------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Assets
------
Current assets:
Cash and cash equivalents $ 29,359 $ - $ 10,238 $ (4,988) $ 34,609
Accounts receivable, net - 150,066 44,752 - 194,818
Inventories, net 1,263 152,702 46,544 (5,332) 195,177
Other current assets 25,889 12,107 10,462 (5,393) 43,065
---------- ----------- -------- ----------- ----------
Total current assets 56,511 314,875 111,996 (15,713) 467,669
Property, plant and equipment, net 10,706 172,586 72,101 - 255,393
Intangible assets 12,639 925,047 299,828 - 1,237,514
Deferred income taxes 5,057 121 969 - 6,147
Investment in subsidiaries 2,092,584 66,631 - (2,159,215) -
Other assets 58,095 13,502 1,017 - 72,614
---------- ----------- -------- ----------- ----------
Total assets $2,235,592 $ 1,492,762 $485,911 $(2,174,928) $2,039,337
========== =========== ======== =========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 123 $ 41,025 $ 12,294 $ (4,988) $ 48,454
Current portion of long-term debt - 62,173 19 - 62,192
Income taxes payable - 60,908 7,554 (6,874) 61,588
Accrued expenses and other current
liabilities 13,788 31,295 29,980 - 75,063
---------- ----------- -------- ----------- ----------
Total current liabilities 13,911 195,401 49,847 (11,862) 247,297
---------- ----------- -------- ----------- ----------
Long-term debt - 663,414 25 - 663,439
Securities lending agreement 54,698 - - - 54,698
Deferred income taxes 79,499 21,102 19,099 - 119,700
Other liabilities 2,739 3,528 1,554 - 7,821
Net intercompany payable/(receivable) 843,591 (1,124,374) 289,958 (9,175) -
Commitments and contingent liabilities -
Shareholders' equity
Preferred stock - - - - -
Common stock 1,069 - - - 1,069
Equity rights - - - - -
Additional paid-in-capital 249,085 2,047,342 104,521 (2,131,391) 269,557
Retained earnings (deficit) 988,689 (313,651) 60,096 (22,500) 712,634
Other comprehensive income 2,311 - (39,189) - (36,878)
Treasury stock (at cost) - - - - -
---------- ----------- -------- ----------- ----------
Total shareholders' equity 1,241,154 1,733,691 125,428 (2,153,891) 946,382
---------- ----------- -------- ----------- ----------
Total liabilities and shareholders'
equity $2,235,592 $ 1,492,762 $485,911 $(2,174,928) $2,039,337
========== =========== ======== =========== ==========
20
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
========== ========== ======== =========== ==========
21
Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2002
----------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $227,126 $67,887 $(18,166) $276,847
Cost of sales - 120,643 41,282 (18,163) 143,762
-------- -------- ------- -------- --------
Gross profit - 106,483 26,605 (3) 133,085
Selling, general and administrative expenses 6,580 42,162 17,055 - 65,797
-------- -------- ------- -------- --------
Operating income (6,580) 64,321 9,550 (3) 67,288
Other income (expense):
Interest expense - (10,223) (50) - (10,273)
Other, net (2) 83 (76) - 5
-------- -------- ------- -------- --------
Income before income taxes and discontinued
operation (6,582) 54,181 9,424 (3) 57,020
Income taxes (2,688) 20,047 3,487 - 20,846
-------- -------- ------- -------- --------
Income from continuing operations (3,894) 34,134 5,937 (3) 36,174
Loss from discontinued operation - (101) - - (101)
-------- -------- ------- -------- --------
Net income $ (3,894) $ 34,033 $ 5,937 $ (3) $ 36,073
======== ======== ======= ======== ========
For the Three Months Ended June 30, 2001
----------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $221,411 $49,457 $(15,607) $255,261
Cost of sales - 117,404 28,653 (15,223) 130,834
-------- -------- ------- -------- --------
Gross profit - 104,007 20,804 (384) 124,427
Selling, general and administrative expenses 7,154 47,360 11,859 - 66,373
-------- -------- ------- -------- --------
Operating income (7,154) 56,647 8,945 (384) 58,054
Other income (expense):
Interest expense - (12,757) 40 - (12,717)
Other, net (163) 114 156 - 107
-------- -------- ------- -------- --------
Income before income taxes, discontinued
operations and extraordinary item (7,317) 44,004 9,141 (384) 45,444
Income taxes (3,540) 17,622 3,656 - 17,738
-------- -------- ------- -------- --------
Income from continuing operations before
extraordinary item (3,777) 26,382 5,485 (384) 27,706
Discontinued operations - 397 - - 397
-------- -------- ------- -------- --------
Income before extraordinary item (3,777) 26,779 5,485 (384) 28,103
Extraordinary item - (1,361) - - (1,361)
-------- -------- ------- -------- --------
Net income $ (3,777) $ 25,418 $ 5,485 $ (384) $ 26,742
======== ======== ======= ======== ========
22
Condensed Consolidating Statements of Operations - Continued
For the Nine Months Ended June 30, 2002
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $653,286 $179,847 $(53,450) $779,683
Cost of sales - 350,373 108,193 (52,186) 406,380
--------- -------- -------- -------- --------
Gross profit - 302,913 71,654 (1,264) 373,303
Selling, general and administrative expenses 21,521 121,978 43,592 - 187,091
--------- -------- -------- -------- --------
Operating income (21,521) 180,935 28,062 (1,264) 186,212
Other income (expense):
Interest expense - (30,770) (34) - (30,804)
Other, net (33) 625 (55) - 537
--------- -------- -------- -------- --------
Income before income taxes and discontinued
operation (21,554) 150,790 27,973 (1,264) 155,945
Income taxes (9,066) 55,792 10,350 57,076
--------- -------- -------- -------- --------
Income from continuing operations (12,488) 94,998 17,623 (1,264) 98,869
Loss from discontinued operation - (13,877) - - (13,877)
--------- -------- -------- -------- --------
Net income $(12,488) $ 81,121 $ 17,623 $ (1,264) $ 84,992
========= ======== ======== ======== ========
For the Nine Months Ended June 30, 2001
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $623,450 $128,974 $(39,701) $712,723
Cost of sales - 326,896 75,257 (38,440) 363,713
--------- -------- -------- -------- --------
Gross profit - 296,554 53,717 (1,261) 349,010
Selling, general and administrative expenses 23,189 131,892 30,431 - 185,512
--------- -------- -------- -------- --------
Operating income (23,189) 164,662 23,286 (1,261) 163,498
Other income (expense):
Interest expense - (37,134) 25 - (37,109)
Other, net 3,622 1,744 (242) - 5,124
--------- -------- -------- -------- --------
Income before income taxes, discontinued
operations and extraordinary item (19,567) 129,272 23,069 (1,261) 131,513
Income taxes (8,792) 51,741 9,228 - 52,177
--------- -------- -------- -------- --------
Income from continuing operations before
extraordinary item (10,775) 77,531 13,841 (1,261) 79,336
Discontinued operations (11,824) 1,144 - - (10,680)
--------- -------- -------- -------- --------
Income before extraordinary item (22,599) 78,675 13,841 (1,261) 68,656
Extraordinary item - (2,106) - - (2,106)
--------- -------- -------- -------- --------
Net income $(22,599) $ 76,569 $ 13,841 $ (1,261) $ 66,550
========= ========= ======== ======== ========
23
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended June 30, 2002
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows provided by operating activities: $18,758 $ 96,678 $ 4,279 $ - $119,715
------- --------- ------- ----- --------
Cash flows from investing activities:
Capital expenditures (1,910) (20,953) (9,558) - (32,421)
Proceeds from sales of property, plant and
equipment 333 591 333 - 1,257
Net payments for businesses acquired - (142,117) - - (142,117)
------- --------- ------- ----- --------
Net cash used in investing activities (1,577) (162,479) (9,225) - (173,281)
------- --------- ------- ----- --------
Cash flows from financing activities:
Proceeds from long-term debt - 585,200 - - 585,200
Principal payments on long-term debt - (510,655) (17) - (510,672)
Proceeds from the exercise of stock options 8,407 - - - 8,407
Other (374) (8,081) - - (8,455)
------- --------- ------- ----- --------
Net cash provided by (used in) financing
activities 8,033 66,464 (17) - 74,480
Effect of exchange rate on cash and cash equivalents - - 4,503 - 4,503
------- --------- ------- ----- --------
Net increase (decrease) in cash and cash equivalents 25,214 663 (460) - 25,417
Cash and cash equivalents at beginning of year 4,145 (5,652) 10,699 - 9,192
------- --------- ------- ----- --------
Cash and cash equivalents at end of year $29,359 $ (4,989) $10,239 $ - $ 34,609
======= ========= ======= ===== ========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 37,441 $ 260 $ - $ 37,701
======= ========= ======= ===== ========
Income taxes $21,012 $ - $ 6,771 $ - $ 27,783
======= ========= ======= ===== ========
Capital lease obligations incurred $ - $ 209 $ - $ - $ 209
======= ========= ======= ===== ========
24
Condensed Consolidating Statements of Cash Flows - Continued
For the Nine Months Ended June 30, 2001
---------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows (used in) provided by operating activities: $(47,066) $ 144,410 $14,514 $ - $ 111,858
Cash flows from investing activities:
Capital expenditures (7,254) (22,360) (5,888) - (35,502)
Proceeds from sales of property, plant and equipment 10,167 1,136 143 - 11,446
Net cash inflow from SDS 46,394 - - - 46,394
Net payments for businesses acquired - (136,709) (2,311) - (139,020)
-------- ----------- ------- ----- -----------
Net cash provided by (used in) investing activities 49,307 (157,933) (8,056) - (116,682)
-------- ----------- ------- ----- -----------
Cash flows from financing activities:
Proceeds from long-term debt - 1,110,508 - - 1,110,508
Principal payments on long-term debt - (1,091,219) (32) - (1,091,251)
Proceeds from the exercise of stock options 4,382 - - - 4,382
Other 489 (6,721) - - (6,232)
-------- ----------- ------- ----- -----------
Net cash provided by (used in) financing activities 4,871 12,568 (32) - 17,407
Effect of exchange rate on cash and cash equivalents - - 1,826 - 1,826
-------- ----------- ------- ----- -----------
Net increase (decrease) in cash and cash equivalents 7,112 (955) 8,252 - 14,409
Cash and cash equivalents at beginning of year 7,086 (2,577) 7,902 - 12,411
-------- ----------- ------- ----- -----------
Cash and cash equivalents at end of year $ 14,198 $ (3,532) $16,154 $ - $ 26,820
======== ============ ======= ===== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 25,323 $ 342 $ - $ 25,665
======== ============ ======= ===== ===========
Income taxes $ 19,106 $ 131 $ 1,910 $ - $ 21,147
======== ============ ======= ===== ===========
Capital lease obligations incurred $ - $ - $ - $ - $ -
======== ============ ======= ===== ===========
25
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. Marsh BioProducts
Erie Scientific Company Molecular BioProducts, Inc.
Forefront Diagnostics, Inc. Nalge Nunc International Corporation
Gerhard Menzel Glasbearbeitungswerk Nalge Nunc International K.K.
GmbH & Co. K.G. National Scientific Company
Microgenics Corporation Nunc A/S
Microm International GmbH
NERL Diagnostics Laboratory Equipment
The Naugatuck Glass Company --------------------
Richard-Allan Scientific Company
Remel Inc. Barnstead Thermolyne Corporation
Samco Scientific Corporation Electrothermal Engineering, Ltd.
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 June 30, 2002 and 2001 are the Company's third quarters of fiscal
2002 and 2001, respectively. This "Management's Discussion and Analysis of
Financial Condition and Results of Operations" should be read in conjunction
with the Company's annual report on Form 10-K for the fiscal year ended
September 30, 2001.
During the year 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 nine months ended June 30, 2001 has been
restated to reflect this change.
26
Results of Operations
Summary
Net Sales for the quarter ended June 30, 2002 were $276.8 million, an
increase of $21.6 million or 8% over the corresponding fiscal 2001 quarter. Net
sales for the nine months ended June 30, 2002 were $779.7 million, an increase
of $67.0 million or 9% over the corresponding fiscal 2001 period. The Company
continues to see a decline in existing product sales within its Laboratory
Equipment business, which in turn contributes to a decline in gross profit and
operating income for that business segment. Also, the Company's Life Sciences
Instruments business, included in Labware and Life Sciences, continues to
experience weakness in sales, and the Company expects this weakness to continue.
Gross Profit for the three and nine months ended June 30, 2002 was $133.1
million and $373.3 million, respectively, representing increases of $8.7 million
and $24.3 million over the corresponding fiscal 2001 periods.
Selling, general and administrative expenses for the three and nine months
ended June 30, 2002 were $65.8 million and $187.1 million, respectively, as
compared to $59.0 million and $163.9 million in the corresponding fiscal 2001
periods (had the Company adopted SFAS 142 as of October 1, 2000).
Operating income and net income for the three months ended June 30, 2002
were $67.3 million and $36.1 million, respectively, and for the nine months
ended June 30, 2002 were $186.2 million and $85.0 million, respectively. Had the
Company adopted SFAS 142 as of October 1, 2000, operating income and net income
for the three months ended June 30, 2001 would have been $65.4 million and $32.5
million, respectively, and for the nine months ended June 30, 2001 would have
been $185.1 million and $82.2 million, respectively.
During March 2002, management made the decision to dispose of its vacuum
deposition chamber business, Vacuum Process Technology, Inc. ("VPT"). The
decision was made following the slow-down in the telecommunications industry, in
which VPT targets a majority of its products, and as a result, the business no
longer met the Company's strategic requirements. In connection with the
discontinuance of this business, the Company incurred a one-time charge of $13.2
million, net of income tax benefit of $7.6 million related to the write down of
net assets to their estimated 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. In
the event the Company ultimately disposes of VPT for an amount less than the
carrying value of the business, an additional charge will be recognized upon
disposal. For the three and nine months ended June 30, 2002, losses from the
operations of VPT, net of tax, were $0.1 million and $0.7 million, respectively.
Quarter Ended June 30, 2002 Compared to the Quarter Ended June 30, 2001
Net Sales (in thousands)
Fiscal Fiscal Dollar Percent
2002 2001 Change Change
--------- --------- -------- --------
Clinical Diagnostics $ 132,578 $ 119,866 $ 12,712 11%
Labware and Life Sciences 113,907 103,707 10,200 10%
Laboratory Equipment 30,362 31,688 (1,326) -4%
--------- --------- --------
$ 276,847 $ 255,261 $ 21,586 8%
========= ========= ========
Overall Company. Net sales for the quarter ended June 30, 2002 increased by
$21.6 million or 8% over the corresponding fiscal 2001 quarter.
27
Clinical Diagnostics. Increased net sales in the clinical diagnostics
segment resulted primarily from: (a) net sales of products of acquired companies
(approximately $12.1 million), (b) price increases (approximately $4.9 million),
(c) increased net sales of new products developed by us (approximately $1.3
million), and (d) foreign currency fluctuations (approximately $0.5 million).
Net sales were partially reduced by a decrease in net sales of existing products
(approximately $6.1 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 $8.8 million), (b) increased net sales of new products
developed by us (approximately $3.3 million), and (c) foreign currency
fluctuations (approximately $0.8 million). Net sales were partially reduced by:
(a) a decrease in net sales of existing products (approximately $2.0 million)
and (b) price decreases (approximately $0.7 million).
Laboratory Equipment. Reduced net sales in the laboratory equipment segment
resulted primarily from a decrease in net sales of existing products
(approximately $3.3 million). Net sales were partially increased by: (a) an
increase in net sales of new products developed by us (approximately $1.1
million), (b) price increases (approximately $0.8 million), and (c) foreign
currency fluctuations (approximately $0.1 million).
Gross Profit (in thousands)
Fiscal Percent Fiscal Percent Dollar Percent
2002 of Sales 2001 of Sales Change Change
---------- ---------- ---------- ---------- -------- ---------
Clinical Diagnostics $ 62,056 47% $ 57,784 48% $ 4,272 7%
Labware and Life Sciences 57,624 51% 52,768 51% 4,856 9%
Laboratory Equipment 13,405 44% 13,875 44% (470) -3%
---------- ---------- --------
$ 133,085 48% $ 124,427 49% $ 8,658 7%
========== ========== ========
Overall Company. Gross profit for the quarter ended June 30, 2002 increased
by $8.7 million or 7% over the corresponding fiscal 2001 quarter.
Clinical Diagnostics. Increased gross profit in the clinical diagnostics
segment resulted primarily from: (a) price increases (approximately $4.9
million), (b) product mix (approximately $4.8 million), (c) the effects of
acquired companies (approximately $4.4 million), (d) the effects of new products
(approximately $0.8 million), (e) lower inventory write-downs (approximately
$0.4 million), and (f) foreign currency fluctuations (approximately $0.2
million). Gross profit was partially reduced by: (a) decreased volume
(approximately $5.7 million), (b) increased manufacturing overhead
(approximately $5.3 million), and (c) restructuring charges (approximately $0.3
million).
Labware and Life Sciences. Increased gross profit in the labware and life
sciences segment resulted primarily from: (a) product mix (approximately $5.4
million), (b) the effects of acquired companies (approximately $2.9 million),
(c) the effects of new products (approximately $2.0 million), (d) foreign
currency fluctuations (approximately $0.7 million), and (e) lower inventory
write-downs (approximately $0.5 million). Gross profit was partially reduced by:
(a) decreased volume (approximately $4.3 million), (b) restructuring charges
(approximately $1.1 million), (c) increased manufacturing overhead
(approximately $0.7 million), and (d) price decreases (approximately $0.7
million).
Laboratory Equipment. Decreased gross profit in the laboratory equipment
segment resulted primarily from: (a) decreased volume (approximately $1.0
million) and (b) increased manufacturing overhead (approximately $0.7 million).
Gross profit was partially increased by: (a) price increases (approximately $0.8
million), (b) the effects of new products (approximately $0.3 million), and (c)
foreign currency fluctuations (approximately $0.1 million).
28
Selling, General, and Administrative Expenses
(in thousands)
Fiscal Fiscal Dollar Percent
2002 2001 Change Change
-------- --------- --------- --------
Clinical Diagnostics $ 26,563 $ 27,991 $ (1,428) -5%
Labware and Life Sciences 31,374 30,228 1,146 4%
Laboratory Equipment 7,744 8,019 (275) -3%
-------- --------- ---------
Subtotal 65,681 66,238 (557) -1%
Other 116 135 (19)
-------- --------- ---------
Total $ 65,797 $ 66,373 $ (576) -1%
======== ========= =========
Overall Company. Selling, general and administrative expenses for the
quarter ended June 30, 2002 decreased by $0.6 million over the corresponding
fiscal 2001 quarter. Adoption of SFAS 142 would have decreased selling, general
and administrative expenses by $7.4 million for the three months ended June 30,
2001 had it been effective at the time.
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 $3.5 million) and (b)
marketing expenses (approximately $0.4 million). Selling, general and
administrative expenses were partially increased by: (a) acquired businesses
(approximately $1.7 million), (b) research and development expenses
(approximately $0.5 million), (c) foreign currency fluctuations (approximately
$0.2 million), and (d) general and administrative expenses (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)
marketing expenses (approximately $2.3 million), (b) acquired businesses
(approximately $2.0 million), (c) foreign currency fluctuations (approximately
$0.8 million), and (d) research and development expense (approximately $0.1
million). Selling, general and administrative expenses were partially reduced
by: (a) decreased amortization expense as a result of SFAS142 (approximately
$2.4 million), and (b) general and administrative expenses (approximately $1.6
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 $0.7
million) and (b) general and administrative expenses (approximately $0.3
million). Selling, general and administrative expenses were partially increased
by: (a) marketing expenses (approximately $0.5 million) and (b) foreign currency
fluctuations (approximately $0.3 million).
Operating Income
(in thousands)
Fiscal Fiscal Dollar Percent
2002 2001 Change Change
-------- --------- --------- --------
Clinical Diagnostics $ 35,493 $ 29,793 $ 5,700 19%
Labware and Life Sciences 26,250 22,540 3,710 16%
Laboratory Equipment 5,661 5,856 (195) -3%
-------- --------- ---------
Subtotal 67,404 58,189 9,215 16%
Other (116) (135) 19
-------- --------- ---------
Total $ 67,288 $ 58,054 $ 9,234 16%
======== ========= =========
Operating income for the quarter ended June 30, 2002 increased by $9.2
million over the corresponding fiscal 2001 quarter. Adoption of SFAS 142 would
have increased operating income to $65.4 million for the fiscal 2001 quarter,
had it been effective at the time.
29
Restructuring
In June 2002, the Company recorded a restructuring charge of approximately
$1.4 million (approximately $0.9 million net of tax) relating to the charge
incurred in the second quarter of fiscal 2002 for the consolidation of certain
facilities, and discontinuance of certain product lines due to product
rationalizations. The restructuring charge was classified as a component of cost
of sales and related to the write-off of inventory, write-offs of fixed assets,
and severance associated with employees in production activities. Restructuring
activity is as follows:
(in thousands)
Fixed Facility
Severance Inventory Assets Closure Costs
(a) (b) (b) (c) Other Total
---------- ------------ ----------- --------------- ------- -------
2002 Second quarter restructuring
charge $ 1,200 $ 2,400 $ 300 $ 1,400 $ - $ 5,300
2002 Third quarter charge 300 1,000 100 - - 1,400
2002 Cash payments 900 - - 500 - 1,400
2002 Non-cash charges - 900 200 - - 1,100
------- ------- ------ ------- ---- -------
June 30, 2002 balance $ 600 $ 2,500 $ 200 $ 900 - $ 4,200
======= ======= ====== ======= ==== =======
(a) Amount represents severance and termination costs for 126 terminated
employees (primarily sales, marketing and manufacturing personnel). As of
June 30, 2002, 35 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 June 30, 2002, as
compared to $12.7 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.
Other Income
Other income was $0.9 million for the quarter ended June 30, 2002, as
compared to other income of $0.2 million in the corresponding fiscal 2001
quarter. This increase is primarily due to income of $0.8 million from a joint
venture.
Income Taxes
Taxes on income from continuing operations for the quarter ended June 30,
2002 were $20.8 million, an increase of $3.1 million from the corresponding
fiscal 2001 quarter. This increase resulted primarilyfrom an increase in taxable
income offset in part by a decrease in the effective tax rate due to the
implementation of SFAS 142.
Income from Continuing Operations
Income from continuing operations for the quarter ended June 30, 2002 was
$36.2 million, an increase of $8.5 million from the corresponding fiscal 2001
quarter. Adoption of SFAS 142 would have increased income from continuing
operations to $33.5 million for the fiscal 2001 quarter, had it been effective
at the time.
Discontinued Operations
The loss from the discontinued operations for the quarter ended June 30,
2002 was a result of an operating loss from VPT of $0.1 million, net of tax.
30
Net Income
Net income was $36.1 million for the quarter ended June 30, 2002 as
compared to $26.7 million for the corresponding fiscal 2001 quarter. Adoption of
SFAS 142 would have increased net income to $32.5 million for the fiscal 2001
quarter, had it been effective at the time.
Nine Months Ended June 30, 2002 Compared to the Nine Months Ended June 30, 2001
Net Sales (in thousands)
Fiscal Fiscal Dollar Percent
2002 2001 Change Change
--------- --------- -------- --------
Clinical Diagnostics $ 374,412 $ 341,482 $ 32,930 10%
Labware and Life Sciences 318,040 277,371 40,669 15%
Laboratory Equipment 87,231 93,870 (6,639) -7%
--------- --------- --------
$ 779,683 $ 712,723 $ 66,960 9%
========= ========= ========
Overall Company. Net sales for the nine months ended June 30, 2002
increased by $67.0 million or 9% 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 $25.3 million), (b) price increases (approximately $13.1
million), (c) increased net sales of new products developed by us (approximately
$4.9 million), and (d) foreign currency fluctuations (approximately $0.3
million). Net sales were partially reduced by a decrease in net sales of
existing products (approximately $10.7 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 $33.4 million), (b) increased net sales of new products
developed by us (approximately $8.2 million), and (c) price increases
(approximately $2.4 million). Net sales were partially reduced by: (a) a
decrease in net sales of existing products (approximately $2.5 million) and (b)
foreign currency fluctuations (approximately $0.9 million).
Laboratory Equipment. Reduced net sales in the laboratory equipment segment
resulted primarily from a decrease in net sales of existing products
(approximately $9.9 million). Net sales were partially increased by: (a) price
increases (approximately $1.7 million) and (b) increased net sales of new
products developed by us (approximately $1.6 million).
Gross Profit
(in thousands)
Fiscal Percent Fiscal Percent Dollar Percent
2002 of Sales 2001 of Sales Change Change
---------- ---------- ---------- ---------- --------- ---------
Clinical Diagnostics $ 175,754 47% $ 164,700 48% $ 11,054 7%
Labware and Life Sciences 159,840 50% 143,250 52% 16,590 12%
Laboratory Equipment 37,709 43% 41,060 44% (3,351) -8%
---------- ----------
$ 373,303 48% $ 349,010 49% $ 24,293 7%
========== ==========
Overall Company. Gross profit for the nine months ended June 31, 2002
increased by $24.3 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 $13.1
million), (b) the effects of acquired companies (approximately $10.2 million),
(c) product mix (approximately $ 3.2 million), (d) lower inventory write-downs
(approximately $3.1 million), (e) the effects of new products (approximately
$2.8 million), and (f) foreign currency fluctuations (approximately $0.2
million). Gross profit was partially reduced by: (a)
31
decreased volume (approximately $10.7 million), (b) increased manufacturing
overhead (approximately $9.3 million), and (d) restructuring charges
(approximately $1.6 million).
Labware and Life Sciences. Increased gross profit in the labware and life
sciences segment resulted primarily from: (a) product mix (approximately $11.3
million), (b) the effects of acquired companies (approximately $10.2 million),
(c) the effects of new products (approximately $4.1 million), and (d) price
increases (approximately $2.4 million). Gross profit was partially reduced by:
(a) restructuring charges (approximately $3.8 million), (b) decreased volume
(approximately $3.7 million), (c) increased manufacturing overhead
(approximately $2.8 million), (d) foreign currency fluctuations (approximately
$0.8 million), and (e) inventory write-downs (approximately $0.3 million).
Laboratory Equipment. Decreased gross profit in the laboratory equipment
segment resulted primarily from: (a) decreased volume (approximately $4.4
million) and (b) increased manufacturing overhead (approximately $2.1 million).
Gross profit was partially increased by: (a) price increases (approximately $1.8
million), (b) the effects of new products (approximately $0.6 million), (c)
product mix (approximately $0.4 million), and (d) lower inventory write-downs
(approximately $0.2 million).
Selling, General, and Administrative Expenses
(in thousands)
Fiscal Fiscal Dollar Percent
2002 2001 Change Change
--------- --------- --------- --------
Clinical Diagnostics $ 77,579 $ 82,585 $ (5,006) -6%
Labware and Life Sciences 87,855 79,862 7,993 10%
Laboratory Equipment 21,175 23,562 (2,387) -10%
--------- --------- ---------
Subtotal 186,609 186,009 600 0%
Other 482 (497) 979
--------- --------- ---------
Total $ 187,091 $ 185,512 $ 1,579 1%
========= ========= =========
Overall Company. Selling, general and administrative expenses for the nine
months ended June 30, 2002 increased by $1.6 million over the corresponding
fiscal 2001 period. Adoption of SFAS 142 would have decreased selling, general
and administrative expenses by $21.6 million for the nine months ended June 30,
2001 had it been effective at the time.
Clinical Diagnostics. Decreased selling, general and administrative
expenses in the clinical diagnostics segment resulted primarily from a decrease
in amortization expense as a result of the implementation of SFAS 142
(approximately $11.4 million). Selling, general and administrative expenses were
partially increased by: (a) acquired businesses (approximately $2.0 million),
(b) marketing expenses (approximately $1.3 million), (c) research and
development expenses (approximately $1.3 million), (d) general and
administrative expenses (approximately $1.1 million), (e) restructuring charges
(approximately $0.6 million), and (f) foreign currency fluctuations
(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 $7.9 million), (b) marketing expenses
(approximately $5.0 million), (c) research and development expense
(approximately $1.0 million), (d) restructuring charges (approximately $0.4
million), and (e) foreign currency fluctuations (approximately $0.3 million).
Selling, general and administrative expenses were partially reduced by: (a)
decreased amortization expense as a result of SFAS 142 (approximately $6.3
million) and (b) general and administrative expenses (approximately $0.3
million).
Laboratory Equipment. Decreased selling, general and administrative
expenses in the laboratory equipment segment resulted primarily from: (a)
decreased amortization expense as a result of SFAS 142 (approximately $1.8
million) and (b) general and administrative expenses (approximately $1.1
million).
32
Selling, general and administrative expenses were partially increased by: (a)
marketing expenses (approximately $0.3 million), (b) research and development
expense (approximately $0.2 million), and (c) foreign currency fluctuations
(approximately $0.2 million).
Operating Income
(in thousands)
Fiscal Fiscal Dollar Percent
2002 2001 Change Change
--------- --------- --------- --------
Clinical Diagnostics $ 98,175 $ 82,115 $ 16,060 20%
Labware and Life Sciences 71,985 63,388 8,597 14%
Laboratory Equipment 16,534 17,498 (964) -6%
--------- --------- ---------
Subtotal 186,694 163,001 23,693 15%
Other (482) 497 (979)
--------- --------- ---------
Total $ 186,212 $ 163,498 $ 22,714 14%
========= ========= =========
Operating income for the nine months ended June 31, 2002 increased by $22.7
million over the corresponding fiscal 2001 period. Adoption of SFAS 142 would
have increased operating income to $185.1 million for the nine months ended June
30, 2001, had it been effective at the time.
Interest Expense
Interest expense was $ 30.8 million for the nine months ended June 30,
2002, as compared to $37.1 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 $3.2 million for the nine months ended June 30, 2002, as
compared to other income of $5.5 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 nine months ended
June 30, 2001,offset in part by income of approximately $2.9 million from a
joint venture included in other income for the nine months ended June 30, 2002.
Income Taxes
Taxes on income from continuing operations for the nine months ended June
30, 2002 were $57.1 million, an increase of $4.9 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
Income from continuing operations before extraordinary items for the nine
months ended June 30, 2002 was $98.9 million, as compared to $79.3 million for
the corresponding fiscal 2002 period. Adoption of SFAS 142 would have increased
income from continuing operations to $95.0 million for the fiscal 2001 period,
had it been effective at the time.
Discontinued Operations
The loss from the discontinued operations for the nine months ended June
30, 2002 was a result of an operating loss from VPT of $0.7 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 Sybron Dental Specialties of $11.8 million, offset by
operating income from VPT of $1.1 million.
Net Income
Net income was $85.0 million for the nine months ended June 30, 2002 as
compared to $66.6 million for the corresponding fiscal 2001 period. Adoption of
SFAS 142 would have increased net income to $82.2 million for the fiscal 2001
period, had it been effective at the time.
33
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. Goodwill and intangible
assets, net of amortization, increased by approximately $97 million during the
first nine 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, 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 and/or
acquisition of physical facilities.
Approximately $119.7 million of cash was generated from operating
activities in the first nine months of fiscal 2002, an increase of $7.8 million
or 7.0% from the corresponding fiscal 2001 period. Non-cash depreciation and
amortization charged against net income decreased approximately $13.8 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 $27.9 million for the first nine months of fiscal 2002. These
changes are set forth in detail in the Consolidated Statements of Cash Flows.
Investing activities in the first nine months of fiscal 2002 used
approximately $173.3 million of cash. This outflow was due primarily to cash
used for acquisitions of $142.1 million. Capital expenditures were$32.4 million
for the first nine months of fiscal 2002, compared to $35.5 million in the
corresponding fiscal 2001 period.
Financing activities provided approximately $74.5 million of cash in the
first nine months of fiscal 2002. Proceeds from our CODES offering (discussed
below) were used to pay off approximately $208 million outstanding on the
Revolving Credit Facility. Financing fees of $8.1 million were paid in
connection with the CODES offering.
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 repay the outstanding balance on our Revolving Credit Facility, and for
general corporate purposes. As of June 30, 2002 there was $28.4 million and
$430.3 million outstanding and available on the Revolving Credit Facility,
respectively.
The CODES, 8% Senior Notes, and Revolving Credit Facility 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;
34
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 anticipate any
such violations in light of current business conditions.
The Company has announced the authorization of a stock repurchase program
of up to two million shares of Apogent common stock within the next two years.
Shares will be repurchased at times and prices deemed appropriate to the
Company. The Company will use cash generated from operations as well as
available credit facilities in order to repurchase these shares.
The Company believes that it will continue to be able to meet its present
and foreseeable capital and liquidity needs from its existing resources.
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 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.
The Company has three defined benefit pension plans covering a significant
number of domestic employees. Accounting for these plans requires the use of
actuarial assumptions including estimates on the expected long-term rate of
return on assets and discount rates. In order to make informed assumptions
management relies on outside actuarial experts as well as public market data and
general economic information. If changes in any of these assumptions occur, they
may materially affect certain amounts reported on the Company's balance sheet.
In particular, a decrease in the expected long-term rate of return on plan
assets could result in an increase in the Company's pension liability and a
charge to equity.
Off-Balance Sheet Arrangements
The Company holds a minority interest in an unconsolidated joint venture
that is accounted for as an equity investment. The Company owns less than 50% of
the underlying joint venture. As of June 30, 2002 the equity investment in this
entity, included in "Other Assets", was approximately $9.0 million. Net income
from the joint venture for the first nine months of fiscal 2002 was
approximately $2.9 million and is included in "Other Income". The joint venture
is limited to the extent it can incur any debt other than trade payables arising
out of its business activities and does not hold any assets other than inventory
and trade receivables. As of June 30, 2002, the joint venture did not have any
debt other than trade payables arising out of its business activities.
35
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 After 5
Contractual Obligations Total 1 Year 1 - 3 Years 4 - 5 Years Years
----------------------- ----- ---------- ----------- ----------- -------
Long-Term Debt $ 725.6 $ 62.2 $ 28.3 $ 1.2 $ 633.9
Capital Lease Obligations 0.6 0.3 0.3 - -
Operating Leases 51.6 9.6 21.9 8.5 11.6
Unconditional Purchase Obligations 15.0 2.5 6.5 3.0 3.0
Other Long-Term Obligations None
------- ------ ------ ------ -------
Total Contractual Cash Obligations $ 817.7 $ 86.0 $ 70.5 $ 12.7 $ 648.5
------- ------ ------ ------ -------
Amount of Commitment Expiration Per Period
Total ------------------------------------------
Amounts Less Than Over 5
Other Commercial Commitments Committed 1 Year 1 - 3 Years 4 - 5 Years Years
---------------------------- --------- ----------- ----------- ----------- ------------
Lines of Credit $ 28.4 $28.4 $ - $ - $ -
Standby Letters of Credit 41.3 30.8 10.5
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 Credit Facility, 8% Senior Notes, and CODES.
36
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 materially adversely affect our
business financial condition, results of operations and 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:
o accurately anticipate customer needs;
o innovate and develop new technologies and applications;
o successfully commercialize new products in a timely manner;
o price our products competitively and manufacture and deliver our products
in sufficient volumes and on time; and
o differentiate our offerings from those of our competitors.
If we do not introduce new products in a timely manner and make
enhancements to meet the changing needs of our customers, some of our products
could become obsolete over time, in which case our customer relationships,
revenue, and operating results would suffer.
Our operating results may suffer if the industries into which we sell our
products are in downward cycles.
Some of the industries and markets into which we sell our products are
cyclical. Any significant downturn in our customers' markets or in general
economic conditions could result in reduced demand for our products and could
harm our business. When a downturn occurs, it is difficult to predict if and
when a turnaround will occur.
37
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
successfully transition and absorb acquired businesses, 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
the movement of operations from one facility to another, strikes, labor disputes
or other labor unrest, power interruptions, fire, war, or other force majuere,
could adversely affect our sales, ability to manufacture product, and customer
relationships and therefore adversely affect our business. For example, 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
38
property or the applicability of confidentiality agreements. If we fail to
adequately protect our intellectual property, competitors may manufacture and
market products similar to ours.
We could be hurt by product liability claims or other litigation.
Our business is subject to the risks of claims involving our products and
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, delay or inability to validate
production facilities or processes, 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.
39
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 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.
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: August 13, 2002 /s/ JEFFREY C. LEATHE
- --------------------------- ------------------------------------------
Jeffrey C. Leathe
Executive Vice President - Finance,
Chief Financial Officer and Treasurer*
* Executing as both the principal financial
officer and a duly authorized officer of
the Company
40
APOGENT TECHNOLOGIES INC.
(the "Registrant")
(Commission File No. 1-11091)
EXHIBIT INDEX
to
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
Filed or
Exhibit Submitted
Number Description Incorporated Herein By Reference To Herewith
- -------- --------------------------------- ----------------------------------- --------
10.1 Employment Agreement between X
Apogent Technologies Inc. and
Robert V. Ahlgren, dated April 1,
2002.
10.2 Indemnification Agreement between X
Apogent Technologies Inc. and
Robert V. Ahlgren, dated April 1,
2002.
12 Computation of ratio of earnings X
to fixed charges
99.1 Certification Pursuant to 18 X
U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (CEO)
99.2 Certification Pursuant to 18 X
U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (CFO)
41