1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended December 31, 1999
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
SYBRON INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 22-2849508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
(Address of principal executive offices) (Zip Code)
(414) 274-6600
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
At February 9, 2000, there were 104,098,999 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
Index Page
- -------------------------------------------- ----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets, December 31, 1999 (unaudited)
and September 30, 1999 2
Consolidated Statements of Income for the three months
ended December 31, 1999 (unaudited) and 1998 (unaudited) 3
Consolidated Statements of Shareholders' Equity for the year
ended September 30, 1999 and the three months ended
December 31, 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended December 31, 1999 (unaudited) and 1998 (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 28
Part II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 31
Signatures 32
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
December 31, September 30,
1999 1999
------------ -------------
Current assets:
Cash and cash equivalents....................................... $ 22,003 $ 18,491
Accounts receivable (less allowance for doubtful
receivables of $5,202 and $5,676, respectively)............... 230,480 231,506
Inventories (note 2)............................................ 218,809 203,202
Deferred income taxes........................................... 22,265 23,339
Prepaid expenses and other current assets....................... 20,809 15,419
---------- ----------
Total current assets....................................... 514,366 491,957
Available for sale security....................................... 47,620 50,900
Property, plant and equipment, net of accumulated depreciation
of $225,583 and $212,995, respectively........................ 248,872 245,247
Intangible assets................................................. 1,101,332 1,028,081
Deferred income taxes............................................. 13,012 13,623
Other assets...................................................... 10,036 13,109
---------- ----------
Total assets............................................... $1,935,238 $1,842,917
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 57,211 $ 62,418
Current portion of long-term debt............................... 7,724 8,962
Income taxes payable............................................ 31,957 23,490
Accrued payroll and employee benefits........................... 37,010 49,006
Restructuring reserve (note 4).................................. 1,800 2,332
Reserve for discontinued operations (note 6).................... 3,480 6,141
Deferred income taxes........................................... 3,326 3,251
Other current liabilities....................................... 33,675 36,349
---------- ----------
Total current liabilities................................... 176,183 191,949
---------- ----------
Long-term debt.................................................... 963,471 875,254
Securities lending agreement...................................... 47,620 50,461
Deferred income taxes............................................. 86,862 84,527
Other liabilities................................................. 13,882 15,382
Commitments and contingent liabilities:
Shareholders' equity:
Preferred Stock, $.01 par value; authorized 20,000,000 shares - -
Common Stock, $.01 par value; authorized 250,000,000 shares,
issued 104,026,205 and 104,023,697 shares, respectively....... 1,040 1,040
Equity Rights, 50 rights at $1.09 per right..................... - -
Additional paid-in capital...................................... 251,282 251,251
Retained earnings............................................... 433,804 403,380
Accumulated other comprehensive income.......................... (38,906) (30,327)
Treasury common stock, 220 shares at cost ...................... - -
---------- ----------
Total shareholders' equity................................. 647,220 625,344
---------- ----------
Total liabilities and shareholders' equity................. $1,935,238 $1,842,917
========== ==========
See accompanying notes to unaudited consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
December 31,
1999 1998
-------- --------
Net sales.............................................. $298,247 $248,330
Cost of sales:
Cost of product sold................................ 143,896 122,562
Depreciation of purchase accounting adjustments..... 161 167
-------- --------
Total cost of sales.................................... 144,057 122,729
-------- --------
Gross profit........................................... 154,190 125,601
Selling, general and administrative expenses........... 74,962 62,771
Merger, transaction and integration expenses (note 5).. - 2,691
Depreciation and amortization of purchase
accounting adjustments................................ 10,543 7,260
-------- --------
Total selling, general and administrative expenses..... 85,505 72,722
-------- --------
Operating income....................................... 68,685 52,879
Other income (expense):
Interest expense.................................... (17,923) (14,116)
Amortization of deferred financing fees............. (178) (80)
Other, net.......................................... (44) 242
--------- ---------
Income before income taxes and discontinued
operations............................................ 50,540 38,925
Income taxes........................................... 20,116 15,604
--------- ---------
Income from continuing operations...................... 30,424 23,321
Discontinued operations: Income from discontinued
operations (net of income taxes of $385) (note 6)... - 539
--------- ---------
Net income............................................. $ 30,424 $ 23,860
========= =========
Basic earnings per common share from continuing
operations............................................ $ .29 $ .23
Discontinued operations................................ - -
--------- ---------
Basic earnings per common share........................ $ .29 $ .23
========= =========
Diluted earnings per common share from continuing
operations............................................ $ .29 $ .22
Discontinued operations................................ - .01
--------- ---------
Diluted earnings per common share...................... $ .29 $ .23
========= =========
See accompanying notes to unaudited consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1999
AND THE THREE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK CAPITAL EARNINGS INCOME EQUITY
------ ---------- -------- -------------- ------------
Balance at September 30, 1998........... $1,029 $234,070 $260,833 $(20,688) $475,244
Comprehensive income:
Net income............................ - - 142,547 - 142,547
Translation adjustment................ - - - (9,905) (9,905)
Unrealized gain on security available
for sale............................ - - - 266 266
------ -------- -------- -------- --------
Total comprehensive income.............. - - 142,547 (9,639) 132,908
Shares issued in connection with the
exercise of 1,121,421 stock options... 11 10,680 - - 10,691
Tax benefits related to stock options... - 6,501 - - 6,501
------ -------- -------- -------- --------
Balance at September 30, 1999........... 1,040 251,251 403,380 (30,327) 625,344
Comprehensive income:
Net income............................ - - 30,424 - 30,424
Translation adjustment................ - - - (6,608) (6,608)
Unrealized loss on security available
for sale............................. - - - (1,971) (1,971)
------ -------- -------- -------- --------
Total comprehensive income.............. - - 30,424 (8,579) 21,845
Shares issued in connection with the
exercise of 2,508 stock options........ - 31 - - 31
------ -------- -------- -------- --------
Balance at December 31, 1999 ........... $1,040 $251,282 $433,804 $(38,906) $647,220
====== ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
December 31,
1999 1998
----------- ----------
Cash flows from operating activities:
Net income............................................................... $ 30,424 $ 23,860
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................................. 10,187 8,542
Amortization............................................................. 10,611 7,292
Provision for losses on doubtful accounts................................ (310) 294
Inventory provisions..................................................... 831 313
Deferred income taxes.................................................... 4,095 (5,413)
Changes in assets and liabilities, net of effects of businesses
acquired:
Decrease in accounts receivable.......................................... 6,100 14,484
Increase in inventories.................................................. (9,086) (7,413)
(Increase) decrease in prepaid expenses and other current assets......... (4,946) 3,306
Decrease in accounts payable............................................. (6,258) (6,156)
Increase (decrease) in income taxes payable.............................. 9,591 (4,628)
Decrease in accrued payroll and employee benefits........................ (11,652) (9,580)
Decrease in restructuring reserve........................................ (532) (1,236)
Decrease in reserve for discontinued operations.......................... (2,661) (8,627)
Increase (decrease) in other current liabilities........................ (7,986) 2,802
Net change in other assets and liabilities............................... (6,943) 644
---------- ----------
Net cash provided by operating activities................................ 21,465 18,484
Cash flows from investing activities:
Capital expenditures..................................................... (7,970) (6,007)
Proceeds from sales of property, plant, and equipment.................... 443 115
Payments for businesses acquired......................................... (92,709) (54,059)
---------- ----------
Net cash used in investing activities.................................... (100,236) (59,951)
Cash flows from financing activities:
Proceeds - revolving credit facility..................................... 206,800 127,700
Principal payments - revolving credit facility........................... (116,200) (79,700)
Principal payments on long-term debt..................................... (1,139) (10,602)
Refund of collateral under securities lending agreement.................. (2,841) -
Proceeds from the exercise of common stock options....................... 31 2,236
Deferred financing fees.................................................. (169) (5)
Other.................................................................... (2,525) 1,634
---------- ----------
Net cash provided from financing activities.............................. 83,957 41,263
Effect of exchange rate changes on cash and cash equivalents............... (1,674) (1,937)
Net increase (decrease) in cash and cash equivalents....................... 3,512 (2,141)
Cash and cash equivalents at beginning of year............................. 18,491 23,891
---------- ----------
Cash and cash equivalents at end of period................................. $ 22,003 $ 21,750
========== ==========
See accompanying notes to unaudited consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
December 31,
1999 1998
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.................................. $ 17,557 $ 15,019
========== ==========
Cash paid during the period for income taxes.............................. $ 8,396 $ 14,446
========== ==========
Capital lease obligations incurred........................................ $ 43 $ 145
========== ==========
See accompanying notes to unaudited consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, all adjustments which are necessary for a fair
statement of the results for the interim periods presented have been
included. Except as described in note 5 below, all such adjustments were of
a normal recurring nature. The results for the three month period ended
December 31, 1999 are not necessarily indicative of the results to be
expected for the full year.
2. Inventories at December 31, 1999 and September 30, 1999 consist of the
following:
December 31, September 30,
1999 1999
-------- --------
Raw materials $ 81,226 $ 67,541
Work-in-process 39,864 39,439
Finished goods 108,337 106,010
Excess and obsolescence reserves (7,819) (7,091)
LIFO reserve (2,799) (2,697)
-------- --------
$218,809 $203,202
======== ========
3. In the first quarter of fiscal 2000, the Company completed three
acquisitions for cash. The aggregate purchase price of the acquisitions, net
of cash acquired, (none of which individually or aggregated was significant)
was approximately $91.9 million. There are no future purchase price
adjustments due to earnout provisions from any of these three transactions.
All three of these acquisitions have been accounted for as purchases. The
results of these acquisitions were included as of the date they were
acquired. The total goodwill and intangibles for the acquired companies was
approximately $82.0 million and will be amortized over 20 to 30 years.
Descriptions of the acquired companies are as follows:
(a) On October 7, 1999, the Company acquired Robbins Scientific Corporation
("Robbins"), a manufacturer of biomedical products used in certain
types of high throughput screening, molecular biology, chemical
synthesis and tissue typing. Robbins' line of products include
microdispensers and automated dispensing machines with specialty
pipette tips for robotic workstations, plastic plates, tubes, storage
tools and hybridization incubators, gel loaders and water baths,
organic synthesis systems, filtration blocks and covers, trays, and
syringe dispensers. Robbins' revenues in 1999 were approximately $19.6
million. Robbins is included in the Company's Labware and Life Sciences
business segment.
(b) On October 13, 1999, the Company acquired Microm Laborgerate GmbH
("Microm"), a leading manufacturer of histology laboratory
instrumentation headquartered in Walldorf, Germany. Microm's products
include microtome and cryostat machines used in tissue sectioning, as
well as automatic slide stainers, tissue processors, cover slippers and
cassettes used in routine histology and cytology applications. Microm's
sales in 1999 were approximately $20.7 million. Microm is included in
the Company's Clinical and Industrial business segment.
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(c) On December 13, 1999 the Company acquired Professional Positioners,
Inc. ("Pro"), a manufacturer of orthodontic retainers and positioners.
Pro's products range from functional orthopedic devices used at the
beginning of orthodontic treatment to retainers and positioners which
are used to hold teeth in the final occlusion after treatment. Pro's
sales revenues in 1999 were approximately $5.4 million. Pro is included
in the Company's Orthodontics business segment.
Two acquisitions were completed for cash after the first fiscal quarter of
2000 and will be accounted for as purchases. The aggregate purchase price
was not significant either individually or aggregated. There are no future
purchase price adjustments due to earnout provisions from either of these
transactions. The results of these acquisitions will be included as of the
date they were acquired. The total goodwill for the acquired companies is
currently being assessed. Descriptions of the acquired companies are as
follows:
(a) On February 1, 2000, the Company acquired the Versi-Dry(R) product line
from National Packaging Services Corporation ("NPS") located in Green
Bay, Wisconsin. The Versi-Dry(R) product is an absorbent pad used in
research and industrial laboratories and is designed to absorb and
contain chemicals and other spillage occurring in the laboratory. Sales
revenues in 1999 were approximately $2.5 million. The Versi-Dry(R)
product line will be included in the Labware and Life Sciences business
segment.
(b) On February 4, 2000, the Company acquired Sun International ("Sun"), a
leading supplier of consumables for high-pressure liquid chromatography
(HPLC), gas chromatography (GC) and high throughput screening (HTS)
applications. In addition to autosampler vials, inserts and closures,
Sun recently introduced their PLATE+(TM) and MICROMAT(TM) product line
for high throughput screening in the biotechnology and pharmaceutical
markets. Sales revenues in 1999 were approximately $5.8 million. Sun
will be included in the Labware and Life Sciences business segment.
4. In June 1998, the Company recorded a restructuring charge of approximately
$24 million (approximately $16.7 million after tax or $.16 per share on a
diluted basis) for the rationalization of certain acquired companies,
combination of certain duplicate production facilities, movement of certain
customer service and marketing functions, and the exiting of several product
lines. The restructuring charge was originally classified as components of
cost of sales (approximately $6.4 million relating to the write-off of
inventory discussed below), selling, general and administrative expenses
(approximately $16.9 million) and income tax expense (approximately $0.7
million). Upon reclassifying Nalge Process Technologies Group, Inc. ("NPT")
to a discontinued operation in December 1998, approximately $0.3 million and
$0.6 million were reclassified from cost of sales and selling, general and
administrative expenses to discontinued operations.
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Restructuring activity since June 30, 1998 and its components are as
follows:
SEVERANCE LEASE SHUT-DOWN INVENTORY FIXED CONTRACTUAL
--------- ----- --------- --------- ----- -----------
(A) PAYMENTS COSTS(B) WRITE-OFF ASSETS TAX(D) GOODWILL(E) OBLIGATIONS
--- -------- --------- --------- ------ ------ ----------- ----------- OTHER TOTAL
(B) (C) (C) (F) ----- -----
--- --- --- ---
(IN THOUSANDS)
1998
Restructuring
charge $ 8,500 $ 400 $ 500 $ 6,400 $ 2,300 $ 700 $ 2,100 $ 1,000 $ 2,100 $24,000
1998 cash
payments 3,300 100 100 -- -- -- -- 400 700 4,600
1998 non-cash
charges -- -- -- 6,400 2,300 -- 2,100 -- 600 11,400
------- ----- ----- ------- ------- ----- ------- ------- ------- -------
September 30,
1998 balance $ 5,200 $ 300 $ 400 $ -- $ -- $ 700 $ -- $ 600 $ 800 $ 8,000
1999 cash
payments 3,400 300 400 -- -- -- -- 300 400 4,800
Adjustments (a) 900 -- -- -- -- -- -- -- -- 900
------- ----- ----- ------- ------- ----- ------- ------- ------- -------
September 30,
1999 balance $ 900 $ -- $ -- $ -- $ -- $ 700 $ -- $ 300 $ 400 $ 2,300
2000 cash
payments 300 -- -- -- -- -- -- 100 100 500
------- ----- ----- ------ ------- ----- ------- ------- ------- -------
December 31,
1999 balance $ 600 $ -- $ -- $ -- $ -- $ 700 $ -- $ 200 $ 300 $ 1,800
======= ===== ===== ====== ======= ===== ======= ======= ======= =======
- -----------------
(a) Amount represents severance and termination costs for approximately 165
terminated employees (primarily sales and marketing personnel). As of
December 31, 1999, 154 employees have been terminated as a result of the
restructuring plan. Payments will continue to certain employees previously
terminated under this restructuring plan. An adjustment of approximately
$900 was made in the third quarter of fiscal 1999 to adjust the accrual
primarily representing over accruals for anticipated costs associated with
outplacement services, accrued fringe benefits, and severance associated
with employees who were previously notified of termination and subsequently
filled other Company positions. No additional employees will be terminated
under this restructuring plan.
(b) Amount represents lease payments and shutdown costs on exited facilities.
(c) Amount represents write-offs of inventory and fixed assets associated with
discontinued product lines.
(d) Amount represents a statutory tax relating to assets transferred from an
exited sales facility in Switzerland.
(e) Amount represents goodwill associated with exited product lines at Sybron
Laboratory Products Corporation ("SLP").
(f) Amount represents certain terminated contractual obligations primarily
associated with Sybron Dental Specialties, Inc.
The Company expects to make future cash payments of approximately $700 in
the remainder of fiscal 2000 and approximately $1,100 in fiscal 2001 and
beyond.
5. For the three months ended December 31, 1998, the Company incurred
approximately $2.7 million ($1.7 million after tax or $.02 per share on a
diluted basis) of costs associated with the October 29, 1998 merger with
Pinnacle Products of Wisconsin, Inc. ("Pinnacle") (the "Pinnacle Merger")
and the integration of "A" Company Orthodontics (`"A" Company'), a
subsidiary of LRS Acquisition Corp. ("LRS"), with SDS. LRS was merged with a
subsidiary of the Company on April 9, 1998 (the "LRS Merger"). Both
transactions were accounted for as poolings of interests. The costs
associated with the Pinnacle Merger and the integration of "A" Company were
primarily from Pinnacle Merger non-shareholder compensation (approximately
$2.0 million), and costs related to miscellaneous expenses primarily related
to completing the "A" Company integration including customer announcements,
professional fees, and relocation expenses (approximately $0.7 million). The
Company does not anticipate incurring any further merger, transaction and
integration expenses associated with the LRS and Pinnacle Mergers.
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6. On March 31, 1999, the Company completed the sale of NPT. The results of
NPT in the fiscal 1999 period are classified as discontinued operations. In
addition, in the first quarter of fiscal 2000, the Company refunded
approximately $2.6 million of previously accrued purchase price adjustments
to the purchaser. The Company does not anticipate any additional
adjustments to the purchase price.
7. The Company's operating subsidiaries are engaged in the manufacture and
sale of laboratory and dental products in the United States and other
countries. Laboratory products are categorized in the business segments of
a) Labware and Life Sciences, b) Clinical and Industrial, c) Diagnostics
and Microbiology and d) Laboratory Equipment. Dental products are
categorized in the business segments of a) Professional Dental, b)
Orthodontics and c) Infection Control Products.
Information on these business segments is summarized on the following page:
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LABWARE CLINICAL DIAGNOSTICS
AND LIFE AND AND LABORATORY TOTAL PROFESSIONAL
SCIENCES INDUSTRIAL MICROBIOLOGY EQUIPMENT ELIMINATIONS SLP DENTAL
-------- ---------- ------------ ---------- ------------ ----- ------------
THREE MONTHS ENDED 12/31/98
Revenues:
External customer........... $ 54,647 $ 40,270 $ 36,849 $ 24,647 $ -- $ 156,413 $ 45,111
Intersegment................ 262 1,468 94 177 (1,867) 134 140
Total revenues............ 54,909 41,738 36,943 24,824 (1,867) 156,547 45,251
Gross profit.................. 27,770 16,604 19,058 10,188 -- 73,620 24,607
Selling, general and admin.... 15,063 7,148 9,903 5,407 -- 37,521 16,305
Operating income.............. 12,707 9,456 9,155 4,781 -- 36,099 8,302
THREE MONTHS ENDED 12/31/99
Revenues:
External customer........... 79,898 51,911 50,616 22,458 -- 204,883 47,605
Intersegment................ 353 1,558 102 214 (2,099) 128 146
Total revenues............ 80,251 53,469 50,718 22,672 (2,099) 205,011 47,751
Gross profit.................. 40,857 21,646 27,999 9,589 -- 100,091 26,244
Selling, general and admin.... 23,205 8,947 14,840 5,070 -- 52,062 13,215
Operating income.............. 17,652 12,699 13,159 4,519 -- 48,029 13,029
Segment Assets................ 536,467 292,752 425,096 129,444 -- 1,383,759 178,560
INFECTION
CONTROL TOTAL
ORTHODONTICS PRODUCTS ELIMINATIONS SDS OTHER(A) TOTAL
------------ --------- ------------ ----- -------- -----
THREE MONTHS ENDED 12/31/98
Revenues:
External customer........... $ 41,414 $ 5,392 $ -- $ 91,917 $ -- $ 248,330
Intersegment................ 1,125 -- (1,265) -- (134) --
Total revenues............ 42,539 5,392 (1,265) 91,917 (134) 248,330
Gross profit.................. 24,429 2,945 -- 51,981 -- 125,601
Selling, general and admin.... 14,195 2,226 -- 32,726 2,475 72,722
Operating income.............. 10,234 719 -- 19,255 (2,475) 52,879
THREE MONTHS ENDED 12/31/99
Revenues:
External customer........... 40,061 5,698 -- 93,364 -- 298,247
Intersegment................ 598 -- (744) -- (128) --
Total revenues............ 40,659 5,698 (744) 93,364 (128) 298,247
Gross profit.................. 24,926 2,929 -- 54,099 -- 154,190
Selling, general and admin.... 14,792 2,349 -- 30,356 3,087 85,505
Operating income.............. 10,134 580 -- 23,743 (3,087) 68,685
Segment Assets................ 188,464 54,672 -- 421,696 129,783 1,935,238
- -----------
(a) Includes the elimination of intergroup and corporate office activity.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The subsidiaries of Sybron are leading manufacturers of value-added products
for the Labware and Life Sciences, Clinical and Industrial, Diagnostics and
Microbiology, Laboratory Equipment, Professional Dental, Orthodontics and
Infection Control Products markets in the United States and abroad. Our Labware
and Life Sciences, Clinical and Industrial, Diagnostics and Microbiology and
Laboratory Equipment business segments are grouped under Sybron Laboratory
Products Corporation ("SLP"), and our Professional Dental, Orthodontics and
Infection Control Products business segments are grouped under Sybron Dental
Specialties, Inc. ("SDS"). SLP and SDS are both first-tier wholly owned
subsidiaries of Sybron. The primary subsidiaries in each of our business
segments are as follows:
SLP
Labware and Life Sciences Clinical and Industrial
- ------------------------- -----------------------
Matrix Technologies Corporation Erie Scientific Company
Nalge Nunc International Corporation Chase Scientific Glass, Inc.
National Scientific Company The Naugatuck Glass Company
Nunc A/S Richard-Allan Scientific Company
Molecular BioProducts, Inc. Samco Scientific Corporation
Robbins Scientific Corporation Microm Laborgerate GmbH
Gerhard Menzel Glasbearbeitungswerk
GmbH & Co. K.G.
Diagnostics and Microbiology Laboratory Equipment
- ---------------------------- --------------------
Applied Biotech, Inc. Barnstead Thermolyne Corporation
Microgenics Corporation Lab-Line Instruments, Inc.
Alexon-Trend, Inc.
Remel Inc.
SDS
Professional Dental Orthodontics
- ------------------- ------------
Kerr Corporation Ormco Corporation
Beavers Dental Company Ormodent Group
Infection Control Products
- --------------------------
Metrex Research Corporation
Alden Scientific, Inc.
Over the past several years the Company has been pursuing a growth
strategy designed to increase sales and enhance operating margins. Elements of
that strategy include emphasis on acquisitions, product line extensions, new
product introductions, international growth and rationalization of existing
businesses and product lines.
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When we use the terms "we" or "our" in this report, we are referring to
Sybron International Corporation and its subsidiaries. Our fiscal year ends on
September 30 and, accordingly, all references to quarters refer to the Company's
fiscal quarters. The quarters ended December 31, 1998 and 1999, refer to the
Company's first fiscal quarters of 1999 and 2000, respectively.
Our results for the three months ended December 31, 1998 include
approximately $2.7 million of charges relating to integration costs associated
with the merger with LRS Acquisition Corp. ("LRS") (the "LRS Merger"), the
parent of "A" Company, and transaction costs associated with the merger with
Pinnacle Products of Wisconsin, Inc. ("Pinnacle") (collectively, the "1999
Special Charges").
Both our sales and operating income for the quarter ended December 31,
1999 grew over the corresponding prior year period. Net sales for the first
quarter of fiscal 2000 increased by 20.1% over the corresponding fiscal 1999
period. Operating income for the first quarter of fiscal 2000 increased by 29.9%
over the corresponding fiscal 1999 period. Excluding the 1999 Special Charges,
operating income for the first quarter of fiscal 2000 increased by 23.6% over
the corresponding fiscal 1999 period.
Sales growth in the quarter was strong both domestically and
internationally. Domestic and international sales increased by 22.0% and by
15.9%, respectively, over the corresponding fiscal 1999 quarter. International
sales growth was negatively impacted by the strengthening of the U.S. dollar.
Without the negative currency effects, international sales growth would have
been 20.4% over the corresponding fiscal 1999 period.
Sales growth for the quarter in our dental businesses was negatively
impacted by a backlog build-up in curing lights attributable to a vendor
component shortage as well as soft orthodontic sales. Although there was general
softness in our orthodontic sales, the problem was particularly acute in
Germany, our largest European market for orthodontics, where we suffered a
decline in business resulting from year-end reimbursement cuts by the government
to orthodontic practitioners. Sales growth in our laboratory business was
negatively impacted by a decline in sales in our laboratory equipment business.
Although we are taking steps to address these issues, there can be no assurance
that these conditions will not continue to have a negative impact on our
results.
We continue to maintain an active program of developing and marketing new
products and product line extensions, as well as pursuing growth through
acquisitions. We completed three acquisitions in the first quarter of fiscal
2000. (See Note 3 to the Unaudited Consolidated Financial Statements.)
Our results of operations include goodwill amortization, other
amortization, and depreciation. These non-cash charges totaled $20.8 million and
$15.8 million for the quarters ended December 31, 1999 and 1998, respectively.
Because our operating results reflect significant depreciation and amortization
expense largely associated with stepped-up assets, goodwill and other
intangibles from our acquisition program and the leveraged buyout in 1987 of a
company known at that time as Sybron Corporation (the "Acquisition"), we believe
our "Adjusted EBITDA" is a useful measure of our ability to internally fund our
liquidity requirements. "Adjusted EBITDA" (while not a measure under generally
accepted accounting principles ("GAAP"), and not a substitute for GAAP measured
earnings or cash flows or an indication of operating performance or a measure of
liquidity) represents, for any relevant period, net income from continuing
operations plus (i) interest expense, (ii) provision for income taxes, (iii) the
1999 Special Charges and (iv) depreciation and amortization, all determined on a
consolidated basis and
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in accordance with GAAP. Our "Adjusted EBITDA" amounted to $89.3 million and
$71.6 million for the quarters ended December 31, 1999 and 1998, respectively.
Substantial portions of our sales, income and cash flows are derived
internationally. The financial position and the results of operations from
substantially all of our international operations, other than most U.S. export
sales, are measured using the local currency of the countries in which such
operations are conducted and are then translated into U.S. dollars. While the
reported income of foreign subsidiaries will be impacted by a weakening or
strengthening of the U.S. dollar in relation to a particular local currency, the
effects of foreign currency fluctuations are partially mitigated by the fact
that manufacturing costs and other expenses of foreign subsidiaries are
generally incurred in the same currencies in which sales are generated. Such
effects of foreign currency fluctuations are also mitigated by the fact that
such subsidiaries' operations are conducted in numerous foreign countries and,
therefore, in numerous foreign currencies. In addition, our U.S. export sales
may be impacted by foreign currency fluctuations relative to the value of the
U.S. dollar as foreign customers may adjust their level of purchases upward or
downward according to the weakness or strength of their respective currencies
versus the U.S. dollar.
From time to time we may employ currency hedges to mitigate the impact of
foreign currency fluctuations. If currency hedges are not employed, we may be
exposed to earnings volatility as a result of foreign currency fluctuations. In
October 1998, we decided to employ a series of foreign currency options with a
U.S. dollar notional amount of approximately $45.7 million at a cost of
approximately $0.3 million. These options were designed to protect the Company
from potential detrimental effects of currency movements associated with the
U.S. dollar versus the German mark, French franc, Swiss franc, and Japanese yen
in the second, third and fourth quarters of fiscal 1999. These options were sold
or expired worthless in their respective quarters of fiscal 1999 at a net gain
of $1.1 million. In November 1999, we again decided to employ a series of
foreign currency options with a U.S. dollar notional amount of approximately
$47.6 million at a cost of approximately $1.2 million. These options are
designed to protect the Company from potential detrimental effects of currency
movements associated with the U.S. dollar verses the Euro, Danish krone and
Japanese yen in the second, third and fourth quarters of fiscal 2000 as compared
to the second, third and fourth quarters of fiscal 1999.
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RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1999
COMPARED TO THE QUARTER ENDED DECEMBER 31, 1998
NET SALES.
FISCAL FISCAL DOLLAR PERCENT
NET SALES: (IN THOUSANDS) 1999 2000 CHANGE CHANGE
- ------------------------- --------- -------- -------- -------
SLP:
Labware and Life Sciences $ 54,647 $ 79,898 $ 25,251 46.2 %
Clinical and Industrial 40,270 51,911 11,641 28.9 %
Diagnostics and Microbiology 36,849 50,616 13,767 37.4 %
Laboratory Equipment 24,647 22,458 (2,189) (8.9)%
--------- -------- -------- ----
Subtotal SLP 156,413 204,883 48,470 31.0 %
SDS:
Professional Dental 45,111 47,605 2,494 5.5 %
Orthodontics 41,414 40,061 (1,353) (3.3)%
Infection Control Products 5,392 5,698 306 5.7 %
--------- -------- -------- ----
Subtotal SDS 91,917 93,364 1,447 1.6 %
--------- -------- -------- ----
Total Net Sales $ 248,330 $298,247 $ 49,917 20.1 %
========= ======== ======== ====
Overall Company. Net sales for the first quarter of fiscal 2000, ended
December 31, 1999 increased by $49.9 million or 20.1% from the corresponding
fiscal 1999 quarter. Net sales at SLP increased by $48.5 million in the first
quarter of fiscal 2000, an increase of 31.0% from SLP's net sales in the
corresponding fiscal 1999 quarter. Net sales at SDS increased by $1.4 million in
the first quarter of fiscal 2000, an increase of 1.6% from SDS's net sales in
the corresponding fiscal 1999 quarter.
Labware and Life Sciences. Increased net sales in the Labware and Life
Sciences segment resulted primarily from: (a) net sales of products of acquired
companies (approximately $19.2 million), (b) increased net sales of existing
products (approximately $6.0 million), (c) increased net sales of new products
(approximately $0.4 million) and (d) price increases (approximately $0.3
million). Increased net sales were partially offset by unfavorable foreign
currency fluctuations (approximately $0.6 million).
Clinical and Industrial. Increased net sales in the Clinical and Industrial
segment resulted primarily from: (a) net sales of products of acquired companies
(approximately $8.1 million), (b) increased net sales of existing products
(approximately $2.7 million) and (c) price increases (approximately $1.4
million). Increased net sales were partially offset by unfavorable foreign
currency fluctuations (approximately $0.6 million).
Diagnostics and Microbiology. Increased net sales in the Diagnostics and
Microbiology segment resulted primarily from: (a) net sales of products of
acquired companies net of discontinued products (approximately $10.3 million),
(b) increased net sales of existing products (approximately $3.5 million) and
(c) increased net sales of new products (approximately $0.4 million). Increased
net sales were partially offset by price decreases (approximately $0.4 million).
Laboratory Equipment. Decreased net sales in the Laboratory Equipment
segment resulted primarily from decreased net sales of existing products
primarily related to the constant temperature business, ovens and incubators
(approximately $3.3 million). This business is expected to continue to undergo
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pressure due to the large number of competing companies in the marketplace.
Decreased net sales were partially offset by: (a) net sales of products of
acquired companies (approximately $0.5 million), (b) increased net sales of new
products (approximately $0.4 million) and (c) price increases (approximately
$0.2 million).
Professional Dental. Increased net sales in the Professional Dental segment
resulted primarily from increased net sales of new products (approximately $4.6
million). New products sales were hampered by a backlog build-up in a new curing
light attributable to a vendor component shortage. Increased net sales were
partially offset by: (a) decreased net sales of existing products (approximately
$0.9 million), (b) unfavorable foreign currency fluctuations (approximately $0.7
million) and (c) discontinued product lines (approximately $0.5 million).
Orthodontics. Decreased net sales in the Orthodontics segment resulted
primarily from: (a) decreased net sales of existing products (approximately $1.8
million) primarily related to soft orthodontic sales in Germany where doctors
suffered some year end reimbursement cuts by the government and (b) unfavorable
foreign currency fluctuations (approximately $1.0 million). Although the Company
is taking steps to address the softness in orthodontic sales, there is no
assurance that these conditions will not continue to have a negative impact on
our results. Decreased net sales were partially offset by: (a) increased net
sales of new products (approximately $0.9 million) and (b) increased net sales
of products of acquired companies net of discontinued products (approximately
$0.5 million).
Infection Control Products. Increased net sales in the Infection Control
Products segment resulted primarily from net sales of products of acquired
companies (approximately $1.0 million) partially offset by decreased net sales
of existing products due to dealer consolidations and product life cycle
maturities (approximately $0.7 million).
GROSS PROFIT.
FISCAL PERCENT OF FISCAL PERCENT OF DOLLAR PERCENT
GROSS PROFIT: (IN THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE
- ---------------------------- ----------- ------ ---------- ----- --------- ------
SLP:
Labware and Life Sciences $ 27,770 50.8% $ 40,857 51.1% $ 13,087 47.1 %
Clinical and Industrial 16,604 41.2% 21,646 41.7% 5,042 30.4 %
Diagnostics and Microbiology 19,058 51.7% 27,999 55.3% 8,941 46.9 %
Laboratory Equipment 10,188 41.3% 9,589 42.7% (599) (5.9)%
--------- ---- ---------- ---- --------- ----
Subtotal SLP 73,620 47.1% 100,091 48.9% 26,471 36.0 %
SDS:
Professional Dental 24,607 54.5% 26,244 55.1% 1,637 6.7 %
Orthodontics 24,429 59.0% 24,926 62.2% 497 2.0 %
Infection Control Products 2,945 54.6% 2,929 51.4% (16) (0.5)%
--------- ---- ---------- ---- --------- ----
Subtotal SDS 51,981 56.6% 54,099 57.9% 2,118 4.1 %
--------- ---- ---------- ---- --------- ----
Total Gross Profit $ 125,601 50.6% $ 154,190 51.7% $ 28,589 22.8 %
========= ==== ========== ==== ========= ====
Overall Company. Gross profit for the quarter ended December 31, 1999
increased by $28.6 million or 22.8% from the corresponding fiscal 1999 period.
Gross profit at SLP increased by $26.5 million in the first quarter of fiscal
2000, an increase of 36.0% from SLP's gross profit in the corresponding fiscal
1999 quarter. Gross profit at SDS increased by $2.1 million in the first quarter
of fiscal 2000, an increase of 4.1% from SDS's gross profit in the corresponding
fiscal 1999 quarter.
Labware and Life Sciences. Increased gross profit in the Labware and Life
Sciences segment resulted
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primarily from: (a) the effects of acquired companies (approximately $9.9
million), (b) increased volume (approximately $2.9 million), (c) inventory
valuation adjustments (approximately $0.6 million), (d) a favorable product mix
(approximately $0.5 million) and (e) price increases (approximately $0.3
million). Increased gross profit was partially offset by increased manufacturing
overhead (approximately $1.1 million).
Clinical and Industrial. Increased gross profit in the Clinical and
Industrial segment resulted primarily from: (a) the effects of acquired
companies (approximately $4.1 million), (b) an improved product mix
(approximately $1.5 million), (c) price increases (approximately $1.3 million)
and (d) increased volume (approximately $0.6 million). Increased gross profit
was partially offset by: (a) increased manufacturing overhead (approximately
$2.4 million) and (b) inventory valuation adjustments (approximately $0.1
million).
Diagnostics and Microbiology. Increased gross profit in the Diagnostics and
Microbiology segment resulted primarily from: (a) the effects of acquired
companies net of discontinued product lines (approximately $7.2 million), (b)
increased volume (approximately $1.6 million), (c) a favorable product mix
(approximately $1.2 million) and (d) inventory valuation adjustments
(approximately $0.8 million). Increased gross profit was partially offset by:
(a) increased manufacturing overhead (approximately $1.5 million) and (b) price
decreases (approximately $0.4 million).
Laboratory Equipment. Decreased gross profit in the Laboratory Equipment
segment resulted primarily from: (a) reduced volume (approximately $1.2 million)
and (b) inventory valuation adjustments (approximately $0.2 million). Decreased
gross profit was partially offset by: (a) the effects of acquired companies
(approximately $0.3 million), (b) decreased manufacturing overhead
(approximately $0.3 million) and (c) price increases (approximately $0.2
million).
Professional Dental. Increased gross profit in the Professional Dental
segment resulted primarily from: (a) increased volume (approximately $2.3
million) and (b) a favorable product mix (approximately $0.7 million). Increased
gross profit was partially offset by: (a) inventory valuation adjustments
(approximately $0.6 million), (b) discontinued product lines (approximately $0.3
million), (c) increased manufacturing overhead (approximately $0.3 million) and
(d) unfavorable foreign currency fluctuations (approximately $0.2 million).
Orthodontics. Increased gross profit in the Orthodontics segment resulted
primarily from: (a) a favorable product mix (approximately $2.5 million) and (b)
the effects of acquired companies net of discontinued product lines
(approximately $0.2 million). Increased gross profit was partially offset by:
(a) unfavorable foreign currency fluctuations (approximately $1.0 million), (b)
decreased volume (approximately $0.6 million), (c) increased manufacturing
overhead (approximately $0.4 million) and (d) inventory valuation adjustments
(approximately $0.2 million).
Infection Control Products. Gross profit in the Infection Control Products
segment was essentially flat and resulted primarily from: (a) the effects of
acquired companies (approximately $0.6 million) and (b) an improved product mix
(approximately $0.3 million), offset by (a) increased manufacturing overhead
(approximately $0.5 million) and (b) decreased volume (approximately $0.4
million).
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
SELLING GENERAL AND
ADMINISTRATIVE EXPENSES: (IN PERCENT OF PERCENT OF DOLLAR PERCENT
THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE
- ----------------------------- ------- ----- ---------- ----- ------- ------
SLP:
Labware and Life Sciences $ 15,063 27.6% $ 23,205 29.0% $ 8,142 54.1%
Clinical and Industrial 7,148 17.8% 8,947 17.2% 1,799 25.2%
Diagnostics and Microbiology 9,903 26.9% 14,840 29.3% 4,937 49.9%
Laboratory Equipment 5,407 21.9% 5,070 22.6% (337) (6.2)%
--------- ---- ---------- ---- ------- ----
Subtotal SLP 37,521 24.0% 52,062 25.4% 14,541 38.8%
SDS:
Professional Dental 16,305 36.1% 13,215 27.8% (3,090) (19.0)%
Orthodontics 14,195 34.3% 14,792 36.9% 597 4.2%
Infection Control Products 2,226 41.3% 2,349 41.2% 123 5.5%
--------- ---- ---------- ---- ------- ---
Subtotal SDS 32,726 35.6% 30,356 32.5% (2,370) (7.2)%
Corporate Office 2,475 N/A 3,087 N/A 612 24.7%
--------- ---- ---------- ---- ------- ----
Total Selling General and
Administrative Expenses $ 72,722 29.3% $ 85,505 28.7% $12,783 17.6%
========= ==== ========== ==== ======= ====
Overall Company. Selling, general and administrative expenses for the
quarter ended December 31, 1999 increased by $12.8 million or 17.6% from the
corresponding fiscal 1999 quarter. Selling, general and administrative expenses
at SLP increased by $14.5 million in the first quarter of fiscal 2000, an
increase of 38.8% from SLP's corresponding fiscal 1999 quarter. Selling, general
and administrative expenses at SDS decreased by $2.4 million in the first
quarter of fiscal 2000, a decrease of 7.2% from SDS's corresponding fiscal 1999
quarter. Selling, general and administrative expenses at the corporate office
increased by $0.6 million in the first quarter of fiscal 1999, an increase of
24.7% from the corporate office's corresponding fiscal 1999 quarter.
Labware and Life Sciences. Increased selling, general and administrative
expenses in the Labware and Life Sciences segment resulted primarily from: (a)
increased selling, general and administrative expenses as a result of acquired
businesses (approximately $5.6 million), (b) increased amortization of
intangibles primarily as a result of acquisitions (approximately $1.3 million),
(c) increased marketing expenses (approximately $1.0 million) and (d) increased
general and administrative expenses (approximately $0.4 million). Increased
selling, general and administrative expenses were partially offset by favorable
foreign currency fluctuations (approximately $0.2 million).
Clinical and Industrial. Increased selling, general and administrative
expenses in the Clinical and Industrial segment resulted primarily from: (a)
increased selling, general and administrative expenses as a result of acquired
businesses (approximately $1.5 million), (b) increased marketing expenses
(approximately $0.4 million) and (c) increased amortization of intangibles
primarily as a result of acquisitions (approximately $0.3 million). Increased
selling, general and administrative expenses were partially offset by: (a)
decreased general and administrative expenses (approximately $0.3 million) and
(b) favorable foreign currency fluctuations (approximately $0.1 million)
Diagnostics and Microbiology. Increased selling, general and administrative
expenses in the Diagnostics and Microbiology segment resulted primarily from:
(a) increased selling, general and administrative expenses as a result of
acquired businesses (approximately $2.7 million), (b) increased amortization of
intangibles primarily as a result of acquisitions (approximately $1.2 million),
(c) increased marketing expenses (approximately $1.2 million) and (d) increased
research and development expense (approximately $0.1 million). Increased
selling, general and administrative expenses were
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partially offset by decreased 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
marketing expenses (approximately $0.4 million) and (b) decreased general and
administrative expenses (approximately $0.1 million). Decreased selling, general
and administrative expenses were partially offset by: (a) increased selling,
general and administrative expenses as a result of acquired businesses
(approximately $0.1 million) and (b) increased amortization of intangibles
primarily as a result of acquisitions (approximately $0.1 million).
Professional Dental. Decreased selling, general and administrative expenses
in the Professional Dental segment resulted primarily from: (a) the
non-recurring 1999 Special Charges (approximately $2.0 million), (b) decreased
selling and marketing expenses (approximately $0.6 million), (c) reduced general
and administrative expenses (approximately $0.3 million) and (d) decreased
research and development expenses (approximately ($0.2 million).
Orthodontics. Increased selling, general and administrative expenses in the
Orthodontics segment resulted primarily from: (a) increased general and
administrative expenses (approximately $0.9 million), (b) increased selling,
general and administrative expenses as a result of acquired companies
(approximately $0.2 million), (c) increased amortization of intangibles
primarily as a result of acquisitions (approximately $0.2 million) and (d)
unfavorable foreign currency fluctuations (approximately $0.1 million).
Increased selling, general and administrative expenses in the Orthodontics
segment were partially offset by (a) the non-recurring 1999 Special Charges
(approximately $0.7 million) and (b) decreased research and development expenses
(approximately $0.1 million).
Infection Control Products. Increased selling, general and administrative
expenses in the Infection Control Products segment resulted primarily from: (a)
increased selling, general and administrative expenses as a result of acquired
companies (approximately $0.1 million), (b) amortization of intangibles
primarily from acquired businesses (approximately $0.1 million) and (c)
increased general and administrative expenses (approximately $0.1 million).
Increased selling, general and administrative expenses were partially offset by
decreased selling and marketing expenses (approximately $0.2 million).
Corporate Office. Increased selling, general and administrative expenses at
the corporate office resulted primarily from: (a) an increase in legal expense
and professional fees (approximately $0.6 million).
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OPERATING INCOME.
PERCENT OF PERCENT OF DOLLAR PERCENT
OPERATING INCOME: (IN THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE
- -------------------------------- --------- ----- -------- ----- -------- ------
SLP:
Labware and Life Sciences $ 12,707 23.3% $ 17,652 22.1% $ 4,945 38.9%
Clinical and Industrial 9,456 23.5% 12,699 24.5% 3,243 34.3%
Diagnostics and Microbiology 9,155 24.8% 13,159 26.0% 4,004 43.7%
Laboratory Equipment 4,781 19.4% 4,519 20.1% (262) (5.5)%
--------- ---- -------- ---- ------- -----
Subtotal SLP 36,099 23.1% 48,029 23.4% 11,930 33.0%
SDS:
Professional Dental 8,302 18.4% 13,029 27.4% 4,727 56.9%
Orthodontics 10,234 24.7% 10,134 25.3% (100) (1.0)%
Infection Control Products 719 13.3% 580 10.2% (139) (19.3)%
--------- ---- -------- ---- ------- -----
Subtotal SDS 19,255 20.9% 23,743 25.4% 4,488 23.3%
Corporate Office (2,475) N/A (3,087) N/A (612) 24.7%
--------- ---- -------- ---- ------- -----
Total Operating Income $ 52,879 21.3% $ 68,685 23.0% $15,806 29.9%
========= ==== ======== ==== ======= =====
As a result of the foregoing, operating income in the first quarter of
fiscal 2000 increased by 29.9% or $15.8 million over operating income in the
corresponding quarter of fiscal 1999.
INTEREST EXPENSE.
Interest expense was $17.9 million in the first quarter of fiscal 2000, an
increase of $3.8 million from the corresponding fiscal 1999 quarter. The
increase resulted from a higher average debt balance in 2000, resulting
primarily from funding acquisitions (partially offset by the application of
proceeds from the sale of Nalge Process Technologies Group, Inc. ("NPT") in
March 1999) and an increase in average interest rates primarily due from the
addition of a Term B Loan in July 1999.
INCOME TAXES.
Taxes on income from continuing operations in the first quarter of fiscal
2000 were $20.1 million, an increase of $4.5 million from the corresponding 1999
quarter. The increase resulted primarily from increased taxable earnings.
INCOME FROM CONTINUING OPERATIONS.
As a result of the foregoing we had net income from continuing operations of
$30.4 million in the first quarter of fiscal 2000, as compared to $23.3 million
in the corresponding 1999 period.
DISCONTINUED OPERATIONS.
Income from discontinued operations was $0.5 million in the first quarter of
fiscal 1999. The 1999 discontinued operations resulted from the operating
results of NPT. On March 31, 1999 Sybron completed the sale of NPT to Norton
Performance Plastics Corporation, a subsidiary of Saint-Gobain-France. Net
proceeds from the sale, net of $1.9 million of selling expenses and a reduction
to the original purchase price of approximately $2.6 million, amounted to $83.2
million. The proceeds of the sale net of tax and expenses were used to repay
approximately $67.9 million of debt under the Company's credit facilities.
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NET INCOME.
As a result of the foregoing, we had net income of $30.4 million in the
first quarter of fiscal 2000, as compared to net income of $23.9 million in the
corresponding 1999 period.
DEPRECIATION AND AMORTIZATION.
Depreciation and amortization expense is allocated among cost of sales,
selling, general and administrative expenses and other expense. Depreciation and
amortization increased $5.0 million in the first quarter of fiscal 2000 due to
additional depreciation and amortization from the step-up of assets, goodwill
and intangibles recorded from the various acquisitions as well as routine
operating capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the acquisition of Sybron's predecessor in 1987 and the
acquisitions we completed since 1987, we have increased the carrying value of
certain tangible and intangible assets consistent with generally accepted
accounting principles. Accordingly, our results of operations include a
significant level of non-cash expenses related to the depreciation of fixed
assets and the amortization of intangible assets, including goodwill. Goodwill
and other intangible assets increased by approximately $84.2 million in the
first quarter of fiscal 2000, primarily as a result of continued acquisition
activity. We believe, therefore, that Adjusted EBITDA represents the more
appropriate measure of our ability to internally fund our capital requirements.
Our capital requirements arise principally from indebtedness incurred in
connection with the permanent financing for the 1987 acquisition and our
subsequent refinancings, our obligation to pay rent under the Sale/Leaseback
facility (as defined later herein), our working capital needs, primarily related
to inventory and accounts receivable, our capital expenditures, primarily
related to purchases of machinery and molds, the purchase of various businesses
and product lines in execution of our acquisition strategy and the periodic
expansion of physical facilities. It is currently our intent to pursue our
acquisition strategy. If acquisitions continue at our historical pace, of which
there can be no assurance, we may require financing beyond the capacity of our
Credit Facilities (as defined below). In addition, certain acquisitions
previously completed contain "earnout provisions" requiring further payments in
the future if certain financial results are achieved by the acquired companies.
The preceding statement about our intent to continue to pursue our
acquisition strategy is a forward-looking statement. Our ability to continue our
acquisition strategy is subject to a number of uncertainties, including, but not
limited to, our ability to raise capital beyond the capacity of our Credit
Facilities or use of stock for acquisitions, the cost of capital required to
effect our acquisition strategy, the availability of suitable acquisition
candidates at reasonable prices, our ability to realize the synergies expected
to result from acquisitions, and the ability of our existing personnel to
efficiently handle increased transitional responsibilities resulting from
acquisitions. See "Cautionary Factors" below.
Approximately $21.5 million of cash was generated from operating activities
in the first quarter of fiscal 2000, an increase of $3.0 million or 16.1%, from
the corresponding 1999 period. Increased cash flow from operating activities
resulted primarily from an increase in Adjusted EBITDA (approximately $17.7
million), a decrease in taxes paid (approximately $6.1 million) partially offset
by increases in
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other net assets (approximately $18.3 million) and an increase in interest paid
(approximately $2.5 million). Approximately $100.2 million of cash was used in
investing activities in the first quarter of fiscal 2000, an increase of $40.3
million, or 67.2%, from the corresponding 1999 period. Increased investing
activities resulted primarily from an increase in acquisitions (approximately
$38.6 million), increased capital expenditures (approximately $2.0 million)
partially offset by an increase in the proceeds from sales of property plant and
equipment (approximately $0.3 million). Approximately $84.0 million of cash was
provided from financing activities, primarily from the Company's existing Credit
Facilities (approximately $90.6 million), partially offset by a refund of
collateral under a securities loan agreement (approximately $2.8 million), and
repayments of other financing sources (approximately $3.8 million). With respect
to the 1998 restructuring charge of approximately $24.0 million, of which
approximately $11.7 million represents cash expenditures, as of December 31,
1999, we have made cash payments of approximately $9.9 million. The Company
expects to make future cash payments of approximately $0.7 million in fiscal
2000 and approximately $1.1 million in fiscal 2001 and beyond.
On July 31, 1995, we entered into a credit agreement (as amended to date,
the "Credit Agreement") with Chemical Bank (now known as The Chase Manhattan
Bank ("Chase")) and certain other lenders providing for a term loan facility of
$300 million (the "Tranche A Term Loan Facility"), and a revolving credit
facility of $250 million (the "Revolving Credit Facility"). On the same day, we
borrowed $300 million under the Tranche A Term Loan Facility and approximately
$122.5 million under the Revolving Credit Facility. Approximately $158.5 million
of the borrowed funds were used to finance the acquisition of the Nunc group of
companies (approximately $9.1 million of the acquisition price for Nunc was
borrowed under our previous credit facilities). The remaining borrowed funds of
approximately $264.0 million were used to repay outstanding amounts, including
accrued interest, under our previous credit facilities and to pay certain fees
in connection with such refinancing. On July 9, 1996, under the First Amendment
to the Credit Agreement (the "First Amendment"), the capacity of the Revolving
Credit Facility was increased to $300 million, and a competitive bid process was
established as an additional option for us in setting interest rates. On April
25, 1997, we entered into the Second Amended and Restated Credit Agreement (the
"Second Amendment"). The Second Amendment was an expansion of the credit
facilities. The Tranche A Term Loan Facility was restored to $300 million by
increasing it by $52.5 million (equal to the amount previously repaid through
April 24, 1997) and the Revolving Credit Facility was expanded from $300 million
to $600 million. On April 25, 1997, we borrowed a total of $622.9 million under
the credit facilities. The proceeds were used to repay $466.3 million of
previously existing Eurodollar Rate and Tranche A ABR loans (as defined below)
(including accrued interest and certain fees and expenses) under the credit
facilities and to pay $156.6 million with respect to the purchase of Remel
Limited Partnership which includes both the purchase price and payment of
assumed debt. The $72 million of CAF borrowings (as defined below) remained in
place. On July 1, 1998, we completed the First Amendment to the Second Amended
Credit Agreement (the "Additional Amendment"). The Additional Amendment provided
for an increase in the Tranche A Term Loan Facility of $100 million. On July 1,
1998, we used the $100 million of proceeds from the Additional Amendment to pay
$100 million of existing debt balances under the Revolving Credit Facility. The
Additional Amendment also provided us with the ability to use proceeds from the
issuance of additional unsecured, subordinated indebtedness of up to $300
million, to pay amounts outstanding under the Revolving Credit Facility without
reducing our ability to borrow under the Revolving Credit Facility in the
future. On July 29, 1999, we entered into the Third Amended and Restated Credit
Agreement (the "Third Amendment") and borrowed an additional $300 million under
a new term loan facility (the "Tranche B Term Loan Facility"). On July 29, 1999,
we used the $300 million of proceeds
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from the Tranche B Term Loan Facility (after a reduction for fees of
approximately $1.6 million) to repay $298.4 million of outstanding amounts under
the Revolving Credit Facility.
Payment of principal and interest with respect to the credit facilities and
the Sale/Leaseback (as defined later herein) are anticipated to be our largest
use of operating funds in the future. The Tranche A Term Loan Facility and
Revolving Credit Facility provide for an annual interest rate, at our option,
equal to (a) the higher of (i) the rate from time to time publicly announced by
Chase in New York City as its prime rate, (ii) the federal funds rate plus 1/2
of 1%, and (iii) the base CD rate plus 1%, (collectively referred to as "Tranche
A ABR") or (b) the adjusted interbank offered rate for eurodollar deposits
("Eurodollar Rate") plus 1/2% to 7/8% (the "Tranche A Eurodollar Rate Margin")
depending upon the ratio of our total debt to Consolidated Adjusted Operating
Profit (as defined in the Third Amendment), or (c) with respect to certain
advances under Revolving Credit Facility, the rate set by the competitive bid
process among the parties to the Revolving Credit Facility ("CAF"). The Tranche
B Term Loan Facility provides for an annual interest rate, at our option, equal
to (a) the higher of (i) the rate from time to time publicly announced by Chase
in New York City as its prime rate plus 1% to 1 1/4%, (ii) the federal funds
rate plus of 1 1/2% to 1 3/4%, and (iii) the base CD rate plus 2% to 2 1/4%,
depending upon the ratio of our total debt to Consolidated Adjusted Operating
Profit or (b) the Eurodollar Rate plus 2% to 2 1/4% depending upon the ratio of
our total debt to Consolidated Adjusted Operating Profit. The average interest
rate on the Tranche A Term Loan Facility (inclusive of the swap agreements
described below) in the first quarter of fiscal 2000 was 6.3%. The average
interest rate on the Tranche B Term Loan Facility in the first quarter of fiscal
2000 was 7.7%. The average interest rate on the Revolving Credit Facility in the
first quarter of fiscal 2000 was 6.5%.
As a result of the terms of our credit facilities, we are sensitive to a
rise in interest rates. A rise in interest rates would result in increased
interest expense on our outstanding debt. In order to reduce our sensitivity to
interest rate increases, from time to time we enter into interest rate swap
agreements. As of December 31, 1999, the Company has eight interest rate swaps
outstanding aggregating a notional amount of $383.5 million. Under the terms of
the swap agreements, the Company is required to pay a fixed rate amount equal to
the swap agreement rate listed below. In exchange for the payment of the fixed
rate amount, the Company receives a floating rate amount equal to the
three-month LIBOR rate in effect on the date of the swap agreements and the
subsequent reset dates. For each of the swap agreements the rate resets on each
quarterly anniversary of the swap agreement date until the swap expiration date.
The net interest rate paid by the Company is approximately equal to the sum of
the swap agreement rate plus the applicable Eurodollar Rate Margin. In the first
quarter of fiscal 2000, the Tranche A and Revolver Eurodollar Rate Margins were
.75%. The Tranche B Eurodollar Margin, which became applicable on July 29, 1999,
was 2.0%. The swap agreement rates and durations as of December 31, 1999 are as
follows:
EXPIRATION DATE NOTIONAL AMOUNT SWAP AGREEMENT DATE SWAP AGREEMENT RATE
--------------- --------------- ------------------- -------------------
June 8, 2002 $50 million December 8, 1995 5.500%
February 7, 2001 $50 million August 7, 1997 5.910%
August 7, 2001 $50 million August 7, 1997 5.900%
September 10, 2001 $50 million December 8, 1995 5.623%
December 31, 2001 $8.5 million March 24, 1999 5.500%
July 31, 2002 $75 million May 7, 1997 6.385%
July 31, 2002 $50 million October 23, 1998 4.733%
October 1, 2002 $50 million October 1, 1999 6.260%
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Also as part of the permanent financing for the acquisition of Sybron's
predecessor in 1987, on December 22, 1988, we entered into the sale and
leaseback of what were our principal domestic facilities at that time (the
"Sale/Leaseback"). In January 1999, the annual obligation under the
Sale/Leaseback increased from $3.3 million to $3.6 million, payable monthly. On
the fifth anniversary of the leases and every five years thereafter (including
renewal terms), the rent will be increased by the percentage equal to 75% of the
percentage increase in the Consumer Price Index over the preceding five years.
The percentage increase to the rent in any five-year period is capped at 15%.
The next adjustment will occur on January 1, 2004.
We intend to fund our acquisitions, working capital requirements, capital
expenditure requirements, principal and interest payments, obligations under the
Sale/Leaseback, restructuring expenditures, other liabilities and periodic
expansion of facilities, to the extent available, with funds provided by
operations and short-term borrowings under the Revolving Credit Facility. To the
extent that funds are not available from those sources, particularly with
respect to our acquisition strategy, we would have to raise additional capital.
The Revolving Credit Facility provides up to $600 million in available
credit. At December 31, 1999, there was approximately $224.6 million of
available credit under the Revolving Credit Facility. Under the Tranche A Term
Loan Facility, on July 31, 1997 we began to repay principal in 21 consecutive
quarterly installments by paying the $8.75 million due in fiscal 1997, $35.0
million due in fiscal 1998 and, during the first half of fiscal 1999, $17.5
million of the $36.25 million due in fiscal 1999. On March 31, 1999, as a result
of the sale of NPT, the Company received approximately $87.7 million
(approximately $86.0 million net of fees and expenses). The net proceeds were
subsequently reduced in October 1999 by approximately $2.8 million relating to a
reduction in the purchase price of approximately $2.6 million and additional
fees of $0.2 million. Net proceeds of the sale, after a reduction for estimated
applicable income taxes, were required to be used to repay amounts owed by the
Company under the Tranche A Term Loan Facility. On March 31, 1999, the Company
paid principal of approximately $67.9 million due under the Tranche A Term Loan
Facility. The following table shows how the payments were applied, and the
resulting revised schedule of principal payments under the Tranche A Term Loan
Facility.
PAYMENTS PREVIOUSLY PRINCIPAL DUE
APPLIED FROM SCHEDULED AFTER APPLICATION
NPT SALE PRINCIPAL OF NPT PROCEEDS
-------- --------- ---------------
(IN MILLIONS)
Payments previously due in fiscal 1999 $ 18.75 $ 18.75 $ -
Payments due in 2000 42.50 42.50 -
Payments due in 2001 1.29 53.75 52.46
Payments due in 2002 5.37 223.75 218.38
------- -------- --------
Total $ 67.91 $ 338.75 $ 270.84
======= ======== ========
In addition, under the terms of the Tranche B Term Loan Facility, the
Company will be required to repay principal in consecutive quarterly
installments beginning on January 31, 2000 as follows: $0.75 million due in
fiscal 2000, $1.0 million due in fiscal 2001, $1.0 million due in fiscal 2002,
$120.25 million due in fiscal 2003 and $177 million due in fiscal 2004, with the
final payment due on July 31, 2004. To secure the repayment of borrowings under
the Credit Agreement, the Company has pledged to Chase, as collateral agent for
the lenders, all of the capital stock of the Company's principal domestic
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subsidiaries and 65% of the capital stock of its principal foreign subsidiaries
(excluding capital stock not owned by the Company directly or indirectly, and
also excluding certain immaterial subsidiaries), and certain intra-company
promissory notes issued in connection with the acquisition of Nunc.
The Credit Agreement contains numerous financial and operating covenants,
including, among other things, restrictions on investments; requirements that we
maintain certain financial ratios; restrictions on our ability to incur
indebtedness or to create or permit liens or to pay cash dividends in excess of
$50.0 million plus 50% of our consolidated net income for each fiscal quarter
ending after June 30, 1995, less any dividends paid after June 22, 1994; and
limitations on incurrence of additional indebtedness. The Credit Agreement
permits us to make acquisitions provided we continue to satisfy all covenants
upon any such acquisition. Our ability to meet our debt service requirements and
to comply with such covenants is dependent upon our future performance, which is
subject to financial, economic, competitive and other factors affecting us, many
of which are beyond our control.
YEAR 2000
We did not experience any significant malfunctions or errors in our
information or non-information technology systems when the date changed from
1999 to 2000, and we have not experienced any significant problems with our
suppliers' or customers' ability to function as a result of the date change.
Because it is possible that the full impact of the date change has not been
fully recognized, we will continue to monitor our Y2K situation, particularly
through additional key dates such as February 29, 2000. We believe, however,
that any potential problems are likely to be minor, short-term, and correctable.
From the beginning of fiscal 1998 through the first quarter of fiscal
2000, the Company incurred approximately $3.0 million in capital costs and
approximately $1.5 million in expenses for Y2K readiness matters. The primary
components of these costs were external consulting and hardware and software
upgrades. We did not separately track internal costs (primarily payroll costs of
employees) of our initiative.
EUROPEAN ECONOMIC MONETARY UNIT
On January 1, 1999, eleven of the European Union countries (including
four countries in which we have operations) adopted the Euro as their single
currency. At that time, a fixed exchange rate was established between the Euro
and the individual countries' existing currencies (the "legacy currencies"). The
Euro trades on currency exchanges and is available for non-cash transactions.
Following the introduction of the Euro, the legacy currencies will remain legal
tender in the participating countries during a transition period from January 1,
1999 through January 1, 2002. Beginning on January 1, 2002, the European Central
Bank will issue Euro-denominated bills and coins for use in cash transactions.
On or before July 1, 2002, the participating countries will withdraw all legacy
bills and coins and use the Euro as their legal currency.
Our operating units located in European countries affected by the Euro
conversion intend to keep their books in their respective legacy currencies
through a portion of the transition period. At this time, we do not expect
reasonably foreseeable consequences of the Euro conversion to have a material
adverse effect on our business operations or financial condition.
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CAUTIONARY FACTORS
This report contains various forward-looking statements concerning our
prospects that are based on the current expectations and beliefs of management.
Forward-looking statements may also be made by us 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", "estimate",
"expect", "objective" and similar expressions are intended to identify
forward-looking statements. The statements contained herein and such future
statements involve or may involve certain assumptions, risks and uncertainties,
many of which are beyond our control, that could cause our actual results and
performance to differ materially from what is expected. In addition to the
assumptions and other factors referenced specifically in connection with such
statements, the following factors could impact our business and financial
prospects:
- - Factors affecting our international operations, including relevant
foreign currency exchange rates, which can affect the cost to produce
our products or the ability to sell our products in foreign markets,
and the value in U.S. dollars of sales made in foreign currencies.
Other factors include our ability to obtain effective hedges against
fluctuations in currency exchange rates; foreign trade, monetary and
fiscal policies; laws, regulations and other activities of foreign
governments, agencies and similar organizations; and risks associated
with having major manufacturing facilities located in countries, such
as Mexico, Hungary and Italy, which have historically been less stable
than the United States in several respects, including fiscal and
political stability; and risks associated with the economic downturns
in other countries.
- - Factors affecting our ability to continue pursuing our current
acquisition strategy, including our ability to raise capital beyond the
capacity of our existing credit facilities or to use our stock for
acquisitions, the cost of the capital required to effect our
acquisition strategy, the availability of suitable acquisition
candidates at reasonable prices, our ability to realize the synergies
expected to result from acquisitions, and the ability of our existing
personnel to efficiently handle increased transitional responsibilities
resulting from acquisitions.
- - Our reliance on major independent distributors for a substantial
portion of our sales subjects our sales performance to volatility in
demand if distributor inventories get out of balance with end user
demand. This can happen when distributors merge or consolidate, or when
inventories are not managed to end-user demand.
- - Factors affecting our ability to profitably distribute and sell our
products, including any changes in our business relationships with our
principal distributors, primarily in the laboratory segment,
competitive factors such as the entrance of additional competitors into
our markets, pricing and technological competition, and risks
associated with the development and marketing of new products in order
to remain competitive by keeping pace with advancing dental,
orthodontic and laboratory technologies.
- - With respect to Erie, factors affecting its Erie Electroverre S.A.
subsidiary's ability to manufacture the glass used by Erie's worldwide
manufacturing operations, including delays encountered in connection
with the periodic rebuild of the sheet glass furnace and furnace
malfunctions at a time when inventory levels are not sufficient to
sustain Erie's flat glass operations.
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- - Factors affecting our ability to hire and retain competent employees,
including unionization of our non-union employees and changes in
relationships with our unionized employees.
- - The risk of strikes or other labor disputes at those locations which
are unionized which could affect our operations.
- - Factors affecting 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, including the promulgation of stricter laws or
regulations, reclassification of our products into categories subject
to more stringent requirements, or the withdrawal of the approval
needed to sell one or more of our products.
- - Factors affecting the economy generally, including a rise in interest
rates, the financial and business conditions of our customers and the
demand for customers' products and services that utilize Company
products.
- - Factors relating to the impact of changing public and private health
care budgets which could affect demand for or pricing of our products.
- - Factors affecting our financial performance or condition, including tax
legislation, unanticipated restrictions on our ability to transfer
funds from our subsidiaries and changes in applicable accounting
principles or environmental laws and regulations.
- - The cost and other effects of claims involving our products and other
legal and administrative proceedings, including the expense of
investigating, litigating and settling any claims.
- - Factors affecting our ability to produce products on a competitive
basis, including the availability of raw materials at reasonable
prices.
- - Unanticipated technological developments that result in competitive
disadvantages and create the potential for impairment of our existing
assets.
- - Factors affecting our operations in European countries related to the
conversion from local legacy currencies to the Euro.
- - 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
RISK MANAGEMENT
We are exposed to market risk from changes in foreign currency exchange
rates and interest rates. To reduce our risk from these foreign currency rate
and interest rate fluctuations, we occasionally enter into various hedging
transactions. We do not anticipate material changes to our primary market risks
other than fluctuations in magnitude from increased or decreased foreign
currency denominated business activity or floating rate debt levels. We do not
use financial instruments for trading purposes and are not a party to any
leveraged derivatives.
FOREIGN EXCHANGE
We have, from time to time, used foreign currency options to hedge our
exposure from adverse changes in foreign currency rates. Our foreign currency
exposure exists primarily in the Euro, Danish Krone and the Japanese Yen values
versus the U.S. dollar. Hedging is accomplished by the use of foreign currency
options, and the gain or loss on these options is used to offset gains or losses
in the foreign currencies to which they pertain. Hedges of anticipated
transactions are accomplished with options that expire on or near the maturity
date of the anticipated transactions. In November 1999 we entered into nine
foreign currency options to hedge our exposure to each of the aforementioned
currencies.
In 2000, we expect our exposure from our primary foreign currencies to
approximate the following:
ESTIMATED
EXPOSURE DENOMINATED ESTIMATED
IN THE RESPECTIVE EXPOSURE
CURRENCY FOREIGN CURRENCY IN U.S. DOLLARS
-------- ---------------- ---------------
(IN THOUSANDS)
Euro (EUR) 42,000 EUR $44,520
Danish Krone (DKK) 87,400 DKK 12,485
Japanese Yen (JPY) 800,000 JPY 7,619
As a result of these anticipated exposures, we entered into a series of
options expiring at the end of the second, third and fourth quarters of 2000 to
protect ourselves from possible detrimental effects of foreign currency
fluctuations. We accomplished this by taking approximately one-fourth of the
exposure in each of the foreign currencies listed above and purchasing a put
option on that currency (giving us the right but not the obligation to sell the
foreign currency at a predetermined rate). We purchased put options on the
foreign currencies at amounts approximately equal to our quarterly exposure. The
EUR and DKK options expire on a quarterly basis, at an exchange rate
approximately equal to the spot exchange rate at the date of purchase for each
of the respective currencies. The JPY options expire on a quarterly basis at an
exchange rate approximately equal to the prior year's respective quarters actual
exchange rate. In November 1999, we acquired the following put options:
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30
NOTIONAL OPTION STRIKE
CURRENCY AMOUNT(A) EXPIRATION DATE PRICE PRICE(B)
-------- --------- --------------- ----- --------
(In thousands, except strike prices)
EUR 10,500 March 29, 2000 $ 250 .9524
EUR 10,500 June 28, 2000 297 .9524
EUR 10,500 September 26, 2000 329 .9524
DKK 21,850 March 29, 2000 88 7.00
DKK 21,850 June 28, 2000 103 7.00
DKK 21,850 September 26, 2000 114 7.00
JPY 200,000 March 29, 2000 9 116.00
JPY 200,000 June 28, 2000 10 120.00
JPY 200,000 September 26, 2000 24 115.00
- ---------------------
(a) Amounts expressed in units of foreign currency.
(b) Amounts expressed in foreign currency per U.S. dollar.
Our exposure in terms of these options is limited to the purchase price. To
illustrate this, the following example, uses the Euro contract due to expire at
September 26, 2000.
EUR EXCHANGE GAIN/(LOSS) GAIN/(LOSS)
RATE ON OPTION (A) FROM PRIOR YEAR RATE (B) NET GAIN/(LOSS)
------------ ------------- ------------------------ ---------------
(IN THOUSANDS, EXCEPT EXCHANGE RATE)
.90 $ (329) $ 659 $ 330
.95 (329) 45 (284)
1.0 196 (507) (311)
- --------------------
(a) Calculated as (notional amount/strike price) - (notional amount/exchange
rate) - premium paid, with losses limited to the premium paid on the
contract.
(b) Calculated as (notional amount/exchange rate) - (notional amount/prior year
exchange rate of .9539).
INTEREST RATES
We use interest rate swaps to reduce our exposure to interest rate
movements. Our net exposure to interest rate risk consists of floating rate
instruments whose interest rates are determined by the Eurodollar Rate. Interest
rate risk management is accomplished by the use of swaps to create fixed
interest rate debt by resetting Eurodollar Rate loans concurrently with the
rates applying to the swap agreements. At December 31, 1999 we had floating rate
debt of approximately $943.2 million of which a total of $383.5 million was
swapped to fixed rates. The net interest rate paid by the Company is
approximately equal to the sum of the swap agreement rate plus the applicable
Eurodollar Rate Margin. In the first quarter of fiscal 2000, the Tranche A and
Revolver Eurodollar Rate Margins were .75%. The Tranche B Eurodollar Margin,
which became applicable on July 29, 1999, was 2.0%. The swap agreement rates and
durations as of September 30, 1999 are as follows:
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EXPIRATION DATE NOTIONAL AMOUNT SWAP AGREEMENT DATE SWAP AGREEMENT RATE
--------------- --------------- ------------------- -------------------
June 8, 2002 $50 million December 8, 1995 5.500%
February 7, 2001 $50 million August 7, 1997 5.910%
August 7, 2001 $50 million August 7, 1997 5.900%
September 10, 2001 $50 million December 8, 1995 5.623%
December 31, 2001 $8.5 million March 24, 1999 5.500%
July 31, 2002 $75 million May 7, 1997 6.385%
July 31, 2002 $50 million October 23, 1998 4.733%
October 1, 2002 $50 million October 1, 1999 6.260%
In addition to the aforementioned swaps, on September 29, 1999, the Company
entered into a repurchase agreement in which we purchased a United States
Treasury Bond ("Treasury") with a par value of $50 million, an interest rate of
6.15% and a maturity date of August 15, 2029. Concurrent with the purchase of
the Treasury, the Company lent the security to an unrelated third party for a
period of 23 years. In exchange for the loaned Treasury, the Company has
received collateral equal to the market value of the Treasury on the date of the
loan, and adjusted on a weekly basis. For a period of five years the Company is
obligated to pay a rebate on the loaned collateral at an annual fixed rate of
6.478% and is entitled to receive a fee for the loan of the security at a
floating rate equal to LIBOR minus .75%. Thereafter, the Company is required to
pay the unrelated third party a collateral fee equal to the one-week general
collateral rate of interest (as determined weekly in good faith by the unrelated
third party, provided that such rate shall not exceed the federal funds rate in
effect as of the day of determination plus .25%).
The model below quantifies the Company's sensitivity to interest rate
movements as determined by the Eurodollar Rate and the effect of the interest
rate swaps which reduce that risk. The model assumes a) a base Eurodollar Rate
of 6.00% (the "Eurodollar Base Rate") which approximates the December 31, 1999
three month Eurodollar Rate, b) the Company's floating rate debt is equal to
it's December 31, 1999 floating rate debt balance of $943.8 million, c) the
Company pays interest on floating rate debt equal to the Eurodollar Rate + 75
basis points, d) the Company has interest rate swaps (including the repurchase
agreement) with a notional amount of $433.5 million (equal to the notional
amount of the Company's interest rate swaps at December 31, 1999), and e) the
Eurodollar Rate varies by 10% of the Base Rate.
INTEREST EXPENSE INCREASE FROM A 10% INTEREST EXPENSE DECREASE FROM A 10%
INTEREST RATE EXPOSURE INCREASE IN THE EURODOLLAR BASE RATE DECREASE IN THE EURODOLLAR BASE RATE
- ---------------------- ------------------------------------ ------------------------------------
Without interest rate swaps: $5.7 million ($5.7 million)
With interest rate swaps: $3.1 million ($3.1 million)
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Quorum
The Company, a Wisconsin corporation, held its Annual Meeting of
Shareholders on February 2, 2000. A quorum was present at the Annual Meeting,
with 94,984,653 shares out of a total of 104,026,205 shares entitled to cast
votes represented in person or by proxy at the meeting.
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Proposal Number 1: To Elect Two Directors to Serve as Class II Directors
Until the 2003 Annual Meeting of Shareholders and Until
Their Respective Successors are Duly Elected and
Qualified.
The shareholders voted to elect Thomas O. Hicks and Robert B. Haas to serve
as Class II directors until the 2003 Annual Meeting of Shareholders and until
their respective successors are duly elected and qualified. The results of the
vote are as follows:
Mr. Hicks Mr. Haas
For 78,436,131 93,863,224
Withheld From 16,548,522 1,121,429
The terms of office as directors of Kenneth F. Yontz, Joe L. Roby, William
U. Parfet, Christopher L. Doerr, Don H. Davis, Jr. and Richard W. Vieser
continued after the meeting.
Proposal Number 2: To Reapprove the Sybron International Corporation Senior
Executive Incentive Compensation Plan, as Amended, as
Required by Section 162(m) of the Internal Revenue Code.
The shareholders voted to reapprove the Sybron International Corporation
Senior Executive Incentive Compensation Plan. The results of the vote are as
follows:
For 92,889,440
Against 2,024,333
Abstentions 70,880
Broker Non-Votes 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
See the Exhibit Index following the Signature page in this report,
which is incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYBRON INTERNATIONAL CORPORATION
--------------------------------
(Registrant)
Date: February 14, 2000 /s/ Dennis Brown
- ------------------------ --------------------------------
Dennis Brown
Vice President - Finance, Chief
Financial Officer & Treasurer*
* executing as both the principal
financial officer and the duly
authorized officer of the Company.
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SYBRON INTERNATIONAL CORPORATION
(THE "REGISTRANT")
(COMMISSION FILE NO. 1-11091)
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1999
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
3 Bylaws of Sybron International X
Corporation, Adopted December 10, 1993
and Amended as of December 22, 1999
27 Financial Data Schedule X
EI-1