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EXHIBIT 99
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SYBRON INTERNATIONAL CORPORATION
PAGE
Independent Auditors' Report................................ 2
Consolidated Balance Sheets as of September 30, 1999 and
2000...................................................... 3
Consolidated Statements of Income for the years ended
September 30, 1998, 1999 and 2000......................... 4
Consolidated Statements of Shareholders' Equity for the
years ended September 30, 1998, 1999 and 2000............. 5
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1999 and 2000......................... 6
Notes to Consolidated Financial Statements.................. 7
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sybron International Corporation:
We have audited the accompanying consolidated balance sheets of Sybron
International Corporation and subsidiaries as of September 30, 1999 and 2000,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended September 30,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sybron
International Corporation and subsidiaries as of September 30, 1999 and 2000,
and the results of their operations and their cash flows for each of the years
in the three-year period ended September 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Milwaukee, Wisconsin
November 13, 2000 except as to footnote 19
which is as of December 11, 2000.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30,
-----------------------
1999 2000
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 12,401 $ 12,411
Accounts receivable (less allowance for doubtful
receivables of $3,098 and $4,041 in 1999 and 2000,
respectively) (note 2)..................................... 147,296 173,585
Inventories (note 3).......................................... 123,628 141,779
Deferred income taxes (note 4)................................ 18,325 13,226
Net assets held for discontinued operations (note 15)......... 155,595 152,970
Prepaid expenses and other current assets..................... 9,083 16,564
----------- ----------
Total current assets.................................. 466,328 510,535
----------- ----------
Available for sale security (note 7).......................... 50,900 54,444
Property, plant and equipment, net (notes 5 and 7)............ 187,759 208,094
Intangible assets (note 6).................................... 820,475 1,008,153
Deferred income taxes (note 4)................................ 7,667 7,870
Other assets.................................................. 6,846 3,268
----------- ----------
Total assets.......................................... $ 1,539,975 $1,792,364
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 49,296 $ 51,899
Advances and loans from SDS (note 13)......................... 56,777 77,762
Current portion of long-term debt (notes 7 and 8)............. 7,391 34,327
Income taxes payable (note 4)................................. 18,372 16,604
Accrued payroll and employee benefits (note 10)............... 35,594 30,509
Restructuring reserve (note 11)............................... 987 5,609
Deferred income taxes (note 4)................................ 717 807
Other current liabilities (notes 11 and 15)................... 29,045 23,622
----------- ----------
Total current liabilities............................. 198,179 241,139
----------- ----------
Long-term debt (notes 7 and 8)................................ 591,807 649,409
Securities lending agreement (note 7)......................... 50,461 54,444
Deferred income taxes (note 4)................................ 69,888 93,048
Other liabilities (note 10)................................... 4,296 4,808
Commitments and contingent liabilities (notes 8, 10 and 13)
Shareholders' equity (note 12):
Preferred stock, $0.01 par value; authorized 20,000,000
shares.................................................... -- --
Common stock, $0.01 par value; authorized 250,000,000
shares, issued 104,023,917 and 105,191,692 shares in
1999 and 2000, respectively; outstanding 104,023,697
and 105,191,692 shares in 1999 and 2000,
respectively.............................................. 1,040 1,052
Equity rights, 50 rights at $1.09 per right in 1999 and
2000...................................................... -- --
Additional paid-in capital................................. 251,251 271,739
Retained earnings.......................................... 403,380 531,701
Accumulated other comprehensive income (note 17)........... (30,327) (54,976)
Treasury common stock, 220 shares at cost in 1999 and
2000...................................................... -- --
----------- ----------
Total shareholders' equity............................ 625,344 749,516
----------- ----------
Total liabilities and shareholders' equity............ $ 1,539,975 $1,792,364
=========== ==========
See accompanying notes to consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 1999 2000
---------- ---------- ----------
Net sales...................................................... $ 557,762 $ 715,037 $ 863,575
Cost of sales:
Cost of product sold......................................... 288,522 372,528 436,508
Restructuring charge (note 11)............................... 1,510 -- 4,413
Depreciation of purchase accounting adjustments.............. 551 551 524
--------- --------- ---------
Total cost of sales............................................ 290,583 373,079 441,445
--------- --------- ---------
Gross profit................................................... 267,179 341,958 422,130
--------- --------- ---------
Selling, general and administrative expenses................... 118,523 147,883 186,418
Restructuring charge (note 11)................................. 7,093 245 5,840
Depreciation and amortization of purchase accounting
adjustments.................................................. 19,145 24,704 36,883
--------- --------- ---------
Total selling, general and administrative expenses............. 144,761 172,832 229,141
--------- --------- ---------
Operating income............................................... 122,418 169,126 192,989
--------- --------- ---------
Other income (expense):
Interest expense (notes 7 and 10)............................ (33,772) (40,073) (48,684)
Interest expense-- SDS (note 13)............................. (1,498) (1,151) (766)
Amortization of deferred financing fees (note 7)............. (151) (224) (533)
Other, net................................................... (161) (286) 1,319
--------- --------- ---------
Income from continuing operations before income taxes and
extraordinary items.......................................... 86,836 127,392 144,325
Income taxes (note 4).......................................... 34,714 49,981 57,601
--------- --------- ---------
Income from continuing operations.............................. 52,122 77,411 86,724
Discontinued operations (net of income tax expense of
$16,347, $30,930 and $28,339) (notes 14 and 15).............. 23,921 47,965 41,597
--------- --------- ---------
Income before extraordinary item............................... 76,043 125,376 128,321
Extraordinary item--
Gain on sale of discontinued operations (net of income tax
expense of $15,828) (note 15)............................. -- 17,171 --
--------- --------- ---------
Net income..................................................... $ 76,043 $ 142,547 $ 128,321
========= ========= =========
Basic earnings per common share from continuing
operations................................................... $ .51 $ .75 $ .83
Discontinued operation......................................... .23 .46 .40
Extraordinary item............................................. -- .17 --
--------- --------- ---------
Basic earnings per common share................................ $ .74 $ 1.38 $ 1.23
========= ========= =========
Diluted earnings per common share from continuing
operations................................................... $ .49 $ .73 $ .81
Discontinued operation......................................... .23 .45 .39
Extraordinary item............................................. -- .16 --
--------- --------- ---------
Diluted earnings per common share.............................. $ .72 $ 1.34 $ 1.20
========= ========= =========
See accompanying notes to consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED TOTAL
ADDITIONAL OTHER TREASURY SHARE-
COMMON EQUITY PAID-IN RETAINED COMPREHENSIVE COMMON HOLDERS'
STOCK RIGHTS CAPITAL EARNINGS INCOME STOCK EQUITY
------ -------- ---------- -------- ------------- -------- --------
Balance at September 30, 1997 .................. $1,014 $212,665 $ 189,952 $ (24,981) $(1) $ 378,649
Comprehensive Income:
Net income ................................... -- -- -- 76,043 -- -- 76,043
Translation adjustment ....................... 4,293 4,293
------ -------- -------- --------- --------- ----- ---------
Total comprehensive income ..................... -- -- -- 76,043 4,293 -- 80,336
Shares issued in connection with
1,445,760 stock options ...................... 15 -- 12,970 -- -- -- 12,985
Conversion of 200 equity rights to
872 common stock ............................. -- -- -- (1) -- 1 --
Tax benefits related to stock
Options ...................................... -- -- 7,291 -- -- -- 7,291
Dividends paid by "A" Company prior
to the merger ................................ -- -- 314 (479) -- -- (165)
Dividends paid by Pinnacle Products
prior to merger .............................. -- -- -- (4,682) -- -- (4,682)
Shares issued -- deferred
compensation Plan "A" Company ................ -- -- 830 -- -- -- 830
------ -------- -------- --------- --------- ----- ---------
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
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 ................................... -- -- -- 128,321 -- -- 128,321
Translation adjustment ....................... -- -- -- -- (26,773) -- (26,773)
Unrealized gain on security
available for sale ......................... -- -- -- -- 2,124 -- 2,124
------ -------- -------- --------- --------- ----- ---------
Total comprehensive income ..................... -- -- -- 128,321 (24,649) -- 103,672
Shares issued in connection with
1,167,775 stock options ...................... 12 -- 12,587 -- -- -- 12,599
Tax benefits related to stock
Options ...................................... -- -- 7,901 -- -- -- 7,901
------ -------- -------- --------- --------- ----- ---------
Balance at September 30, 2000 .................. $1,052 $271,739 $ 531,701 $ (54,976) $ 749,516
====== ======== ======== ========= ========= ===== =========
See accompanying notes to consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1999 AND 2000
(IN THOUSANDS)
1998 1999 2000
---------- ---------- ----------
Cash flows from operating activities:
Net income .............................................................. $ 76,043 $ 142,547 $ 128,321
Adjustments to reconcile net income to net cash provided
by operating activities:
Discontinued operations ............................................... (23,921) (47,965) (41,597)
Depreciation .......................................................... 18,970 24,105 27,957
Amortization .......................................................... 19,860 24,890 38,630
Loss (gain) on sales of property, plant and equipment ................. 50 (39) 79
Provision for losses on doubtful receivables .......................... 462 907 863
Inventory provisions .................................................. (599) 706 (833)
Deferred income taxes ................................................. (5,072) 17,876 10,258
Extraordinary item .................................................... -- (17,171) --
Changes in assets and liabilities, net of effects of
businesses acquired:
Increase in accounts receivable ..................................... (6,001) (19,817) (15,537)
Increase in inventories ............................................. (5,870) (12,646) (7,248)
(Increase) decrease in prepaid expenses and other
current assets .................................................... (2,359) 4,627 (7,200)
Increase (decrease) in accounts payable ............................. 2,196 2,436 (294)
Increase (decrease) in income taxes payable ......................... 13,892 (1,269) (1,768)
Decrease in other current liabilities ............................... (11,410) (5,812) (6,211)
Increase (decrease) in accrued payroll and employee
benefits .......................................................... 2,549 7,212 (4,993)
Increase (decrease) in restructuring reserve ........................ 14,037 (7,036) 1,744
Net change in other assets and liabilities .......................... 11,828 1,551 (5,627)
--------- --------- ---------
Net cash provided by operating activities ........................... 104,655 115,102 116,544
Cash flows from investing activities:
Capital expenditures .................................................... (32,797) (29,920) (42,493)
Security purchased ...................................................... -- (50,461) --
Proceeds from sales of property, plant and equipment .................... 5,129 945 924
Proceeds from sale of NPT ............................................... -- 85,841 (2,600)
Dividends received from SDS ............................................. 47,225 36,483 58,512
Capital contributions paid to SDS ....................................... (49,268) (16,210) (21,399)
Net change in advances and loans to SDS ................................. (26,088) 27,689 20,985
Net payments for businesses acquired .................................... (192,017) (249,923) (207,153)
--------- --------- ---------
Net cash used in investing activities ............................. (247,816) (195,556) (193,224)
Cash flows from financing activities:
Proceeds from long term debt ............................................ 100,000 180,000 --
Principal payments on long-term debt .................................... (19,562) (66,770) (450)
Securities lending agreement ............................................ -- 50,461 3,544
Proceeds from the exercise of stock options ............................. 12,985 10,691 12,599
Refinancing fees ........................................................ (357) (4,163) --
Proceeds-- revolving credit facility .................................... 291,960 351,060 332,640
Principal payments-- revolving credit facility .......................... (243,960) (448,980) (274,320)
Other ................................................................... 521 6,093 3,646
--------- --------- ---------
Net cash provided by financing activities ......................... 141,587 78,392 77,659
Effect of exchange rate changes on cash and cash
equivalents ............................................................. 429 (146) (969)
Net increase (decrease) in cash and cash equivalents ...................... (1,145) (2,208) 10
Cash and cash equivalents at beginning of year ............................ 15,754 14,609 12,401
--------- --------- ---------
Cash and cash equivalents at end of year .................................. $ 14,609 $ 12,401 $ 12,411
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................................................ $ 32,645 $ 41,718 $ 55,833
========= ========= =========
Income taxes ............................................................ $ 20,462 $ 32,431 $ 42,412
========= ========= =========
Capital lease obligations incurred ........................................ $ 183 $ 457 $ 25
========= ========= =========
See accompanying notes to consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1999 AND 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The subsidiaries of Sybron International Corporation are leading
manufacturers of value-added products for the laboratory market in the United
States and abroad. The Company's laboratory subsidiaries manufacture products
for the Labware and Life Sciences, Clinical and Industrial, Diagnostic and
Microbiology and Laboratory Equipment business segments. See note 16.
On November 8, 2000, Sybron International Corporation announced that it had
declared a pro rata distribution to its shareholders of the common stock and
related preferred stock purchase rights of Sybron Dental Specialties, Inc.
(formerly known as SDS Holding Co.) (the "Distribution"). On December 11, 2000,
shareholders of record as of November 30, 2000 received one share of Sybron
Dental Specialties, Inc. common stock for every three shares of Sybron
International common stock they owned as of the record date. Sybron Dental
Specialties, Inc. owns all of the outstanding stock of Sybron Dental Management,
Inc., formerly named Sybron Dental Specialties, Inc. Prior to the Distribution,
Sybron Dental Management, Inc. was a direct wholly-owned subsidiary of the
Company and operated the Company's dental business. Immediately prior to the
Distribution, the Company contributed all of the stock of Sybron Dental
Management, Inc. to Sybron Dental Specialties, Inc. As used in these Notes to
the Consolidated Financial Statements, the term "SDS" means Sybron Dental
Management, Inc. (formerly known as Sybron Dental Specialties, Inc.) for the
periods prior to the Distribution, and Sybron Dental Specialties, Inc. (formerly
known as SDS Holding Co.) for periods after the Distribution.
(a) Principles of Consolidation and Fiscal Year End
The consolidated financial statements reflect the accounts of Sybron
International Corporation and its subsidiaries. The term "Company" or "Sybron"
as used herein refers to Sybron International Corporation and its subsidiaries
and their respective predecessors, unless the context otherwise requires. All
significant intercompany balances and transactions have been eliminated. The
Company's fiscal year ends on September 30. The fiscal years ended September 30,
1998, 1999 and 2000 are hereinafter referred to as "1998," "1999" and "2000,"
respectively. On March 31, 1999 and December 11, 2000, respectively, the Company
sold Nalge Process Technologies Group, Inc. ("NPT") (the "NPT Sale") and
completed the Distribution. The net assets and results of operations of SDS and
NPT have been presented as discontinued operations in all years presented
herein.
(b) Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
investments in debt obligations with original maturities of three months or
less.
(c) Inventories
Inventories are stated at the lower of cost or market. Elements of cost
included in inventories are: raw materials, direct labor, manufacturing overhead
(which includes indirect labor, fringe benefits, consumable supplies,
depreciation of production equipment and tooling) and retained costs
representing the excess of manufacturing or production costs over amounts
charged to cost of sales. Certain domestic inventories of approximately $53,884
and $50,854 at September 30, 1999 and 2000, respectively, are valued on the
last-in, first-out (LIFO) method. The remaining inventories are valued on the
first-in, first-out (FIFO) method.
(d) Securities
When securities are purchased they are classified as held-to-maturity,
available for sale or trading securities. Held to maturity securities are those
which the Company has the positive intent and ability to hold until maturity.
Trading securities are those purchased and held with the intent to sell in the
near term. Available for sale securities include debt securities which are held
for an indefinite period but are neither held to maturity nor trading
securities. At September 30, 1999 and 2000, the Company held a U.S. Treasury
Bond classified as an available for sale security. Available for sale securities
are reported at fair market value. Unrealized gains and losses for this security
are included in comprehensive income as a separate component of shareholders'
equity. See note 7.
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(e) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is provided over the estimated useful lives of
depreciable assets (5 to 45 years for land improvements, buildings and building
improvements, and 3 to 12 years for machinery and equipment) using the
straight-line method. The Company assesses the recoverability of assets by
comparing the carrying amount of an asset to future net cash flows expected to
be generated by that asset. If such assets are considered impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair market value of the assets.
(f) Intangible Assets
Intangible assets are recorded at cost and are amortized, using the
straight-line method, over their estimated useful lives. Excess costs over net
asset values acquired (goodwill) are amortized over 10 to 40 years; proprietary
technology, trademarks, customer lists and other intangibles are amortized over
12 to 20 years, 5 to 40 years, 7 to 40 years, and 1 to 40 years, respectively.
The Company assesses the recoverability of its goodwill by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through projected undiscounted future cash flows of the acquired
businesses. If projected future cash flows indicate that unamortized goodwill
will not be recovered, an adjustment would be made to reduce the net goodwill to
fair value. Cash flow projections are based on trends of historical performance
and management's estimate of future performance, giving consideration to
existing and anticipated competitive and economic conditions. Adjustments to
goodwill were made in 1998 as referred to in note 11. No adjustments were made
to goodwill in 1999 or 2000.
(g) Revenue Recognition
The Company recognizes revenue upon shipment of products when persuasive
evidence of a sales arrangement exists, the price to the buyer is fixed and
determinable and collectibility of the sales price is reasonably assured. A
large portion of the Company's sales are sold through distributors. Revenues
associated with sales to distributors are also recognized upon shipment of
products when all risks and rewards of ownership of the product are passed. The
Company is not obligated to allow for returns.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method wherein
deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income or other comprehensive income in the period that
includes the enactment date.
(i) Research and Development Costs
Research and development costs are charged to selling, general and
administrative expenses in the year they are incurred. Research and development
costs for 1998, 1999 and 2000 were approximately $8,738, $12,562 and $18,302,
respectively.
(j) Foreign Currency Translation
The functional currency for the Company's foreign operations is the
applicable local currency. The translation from the applicable foreign
currencies to U.S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using a weighted average exchange rate during the period. The gains or
losses, net of applicable deferred income taxes, resulting from such
translations are included in shareholders' equity. Gains and losses resulting
from foreign currency transactions are included in net income. Foreign currency
transaction gains for 1998, 1999 and 2000 were approximately $247, $403 and
$1,306, respectively.
(k) Pensions
The Company and its subsidiaries have various pension plans covering
substantially all employees. U.S. pension obligations are funded by payments to
pension fund trustees. Other foreign pensions are funded as expenses are
incurred. The Company's policy with
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respect to its defined benefit plans is generally to fund the minimum amount
required under the Employee Retirement Income Security Act of 1974, as amended,
for plans subject thereto.
(l) Earnings Per Common Share
Basic earnings per common share is calculated by dividing net income by the
weighted average number of common shares outstanding in the period presented.
Diluted earnings per common share is calculated by dividing net income by the
weighted average number of common shares outstanding plus dilutive effects of
potential common shares outstanding during the period. A reconciliation of
shares used in calculating basic and diluted earnings per share follows:
1998 1999 2000
------- ------- -------
Basic ............................................ 102,320 103,412 104,570
Effect of assumed conversion of employee stock
options ........................................ 3,541 3,158 2,233
------- ------- -------
Diluted .......................................... 105,861 106,570 106,803
======= ======= =======
Options to purchase 4,162,920 shares of common stock at prices ranging from
$23.81 to $24.50 per share were outstanding during a portion of 1998 but were
not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares. The options, which expire in fiscal 2008, were still outstanding at the
end of fiscal year 1998.
Options to purchase 570,724 shares of common stock at prices ranging from
$25.74 to $26.75 per share were outstanding during a portion of 1999 but were
not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares. The options, which expire in fiscal 2009, were still outstanding at the
end of fiscal year 1999.
Options to purchase 904,844 shares of common stock at prices ranging from
$25.31 to $32.00 per share were outstanding during a portion of 2000 but were
not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares. The options, which expire in fiscal 2010, were still outstanding at the
end of fiscal year 2000.
(m) Deferred Financing Fees
Deferred financing fees are capitalized and amortized as a separate
component of other income over the life of the related debt agreements.
(n) Advertising Costs
Advertising costs included in selling, general and administrative expenses
are expensed as incurred and were $4,480, $5,730 and $6,014 in 1998, 1999 and
2000, respectively.
(o) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(p) Derivative Financial Instruments
Derivative financial instruments are used by the Company in the management
of its interest rate and foreign currency exposures.
The Company uses interest rate swaps to manage its interest rate risk. The
net amounts to be paid or received under interest rate swap agreements
designated as hedges are accrued as interest rates change and are recognized
over the life of the swap agreements, as an adjustment to interest expense from
the underlying debt to which the swap is designated. The related amounts payable
to, or receivable from, the counterparties are included in other current assets
or other current liabilities. See note 9.
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The Company, from time to time, enters into foreign exchange options
relating to the anticipated cash flow in local currencies of certain foreign
operations. These options allow the Company to exchange foreign currencies for
U.S. dollars. The purpose of the Company's foreign currency hedging activities
is to protect the Company from the risk that eventual cash flows from foreign
activities will be adversely affected by changes in exchange rates. The
recognition of gains or losses on foreign currency option contracts entered into
to hedge sales are recorded as "net sales." The Company had no foreign exchange
option contracts at September 30, 1999 or 2000.
On October 1, 2000, the Company adopted Financial Accounting Standard Board
Opinions No. 133 ("SFAS 133") as modified by FASB Opinion No. 138. These
standards establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. They require the recognition of all
derivative instruments as assets or liabilities in the balance sheet at fair
value. The accounting treatment of changes in fair value is dependent upon
whether or not a derivative instrument is designated as a hedge and if so, the
type of hedge. For derivatives designated as a cash flow hedge, changes in fair
value are recognized in other comprehensive income until the hedged item is
recognized in earnings. At October 1, 2000 the Company had no freestanding
derivatives in place other than interest rate swaps used to hedge variable rate
long-term debt and had no material embedded derivatives. The interest rate swaps
meet the criteria for cash flow hedge accounting. As a result, the swaps are
recorded on the balance sheet as an asset at fair value with the corresponding
gain or loss recorded in other comprehensive income beginning October 1, 2000.
The impact on other comprehensive income upon adoption of the standard was an
unrealized gain, net of tax, of approximately $2,530.
On September 29, 2000, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 140, Accounting of Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS 140").
SFAS 140 modifies and replaces Statement of Financial Accounting Standards No.
125. SFAS 140 provides the accounting and reporting guidance for transfers and
servicing of financial assets and extinguishments of liabilities and will be the
authoritative accounting literature for: (1) securitization transactions
involving financial assets; (2) sales of financial assets (including loan
participations); (3) factoring transactions; (4) wash sales; (5) servicing
assets and liabilities; (6) collateralized borrowing arrangements; (7)
securities lending transactions; (8) repurchase agreements; and (9)
extinguishment of liabilities, and is applicable prospectively. Adoption of the
statement in 2001 is not expected to have any material affect on the
consolidated financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" -- an interpretation of APB
Opinion No. 25 ("FIN 44"). This Interpretation clarifies the definition of
employee for purposes of applying Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employee ("APB #25"), the criteria for
determining whether a plan qualifies as a non-compensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. This Interpretation is effective July 1, 2000, but
certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. We adopted FIN 44 during
the year ended September 30, 2000. This adoption did not have a material effect
on out consolidated financial position or results of operations
(q) Environmental Expenditures
Environmental expenditures that relate to current ongoing operations or to
conditions caused by past operations are expensed. The Company determines its
liability on a site by site basis and records a liability at the time when the
liability is probable and can be reasonably estimated. The estimated liability
is not reduced for possible recoveries from insurance carriers.
(2) BUSINESS AND CREDIT CONCENTRATIONS
Many of the Company's products are sold through major distributors, two of
which have exceeded 10% of the Company's consolidated net sales in prior years.
These distributors accounted for approximately 15.0% and 11.6%, respectively of
the Company's net sales in 1998, 14.9% and 10.7%, respectively of the Company's
net sales in 1999, and 13.9% and 9.7%, respectively of the Company's net sales
in 2000. Accounts receivable from these distributors comprised approximately
16.9% and 11.8%, respectively of the outstanding consolidated accounts
receivable balances at September 30, 1999 and approximately 15.8% and 8.6%,
respectively of the outstanding consolidated accounts receivable balances at
September 30, 2000. (see note 16)
(3) INVENTORIES
Inventories at September 30, 1999 and 2000 consist of the following:
10
11
1999 2000
--------- ---------
Raw materials and supplies ................... $ 44,505 $ 59,178
Work in process .............................. 28,332 29,848
Finished goods ............................... 59,413 60,887
Excess and obsolescence reserves ............. (3,880) (3,872)
LIFO reserve ................................. (4,742) (4,262)
--------- ---------
$ 123,628 $ 141,779
========= =========
During 2000, Quantities of inventory valued on a LIFO basis were consumed.
This resulted in the liquidation of LIFO inventories valued at lower prevailing
costs when such LIFO quantities were originally acquired in prior years. If
these LIFO quantities had not been consumed, but replenished with the quantities
valued at current costs, net income in 2000 would have been decreased by
approximately $125 and would have had no impact on either basic or diluted
earnings per share.
(4) INCOME TAXES
Total income tax expense (benefit) for the years ended September 30, 1998,
1999 and 2000 is allocated as follows:
1998 1999 2000
--------- --------- -------
Income from continuing operations ................................ $ 34,714 $ 49,981 $ 57,601
Extraordinary items .............................................. -- 15,828 --
Discontinued operations .......................................... 16,347 30,930 28,339
Shareholders' equity for unrealized gain on security
available for sale ............................................. -- (173) (1,420)
Shareholders' equity for compensation expense for tax
purposes in excess of amounts recognized for financial
reporting purposes ............................................. (7,291) (6,501) (7,901)
-------- -------- --------
$ 43,770 $ 90,065 $ 76,619
======== ======== ========
Income tax expense (benefit) attributable to income from continuing
operations consists of:
CURRENT DEFERRED TOTAL
-------- -------- -------
Year ended September 30, 1998:
U.S., state and local ............. $ 33,353 $ (2,577) $30,776
Foreign ........................... 6,433 (2,495) 3,938
-------- -------- -------
$ 39,786 $ (5,072) $34,714
======== ======== =======
Year ended September 30, 1999:
U.S., state and local ............. $ 30,294 $ 14,700 $44,994
Foreign ........................... 1,811 3,176 4,987
-------- -------- -------
$ 32,105 $ 17,876 $49,981
======== ======== =======
Year ended September 30, 2000:
U.S., state and local ............. $ 42,664 $ 8,401 $51,065
Foreign ........................... 4,679 1,857 6,536
-------- -------- -------
$ 47,343 $ 10,258 $57,601
======== ======== =======
The domestic and foreign components of income from continuing operations
before income taxes, discontinued operations and extraordinary items are as
follows:
1998 1999 2000
------- -------- --------
United States ........................................ $74,081 $111,930 $123,422
Foreign .............................................. 12,755 15,462 20,903
------- -------- --------
Income before income taxes, discontinued operations
and extraordinary items ............................ $86,836 $127,392 $144,325
======= ======== ========
Income tax expense attributable to income from continuing operations was
$34,714, $49,981 and $57,601 in 1998, 1999 and 2000, respectively, and differed
from the amounts computed by applying the U.S. Federal income tax rate of 35
percent to income from continuing operations before income taxes, discontinued
operations and extraordinary items in 1998, 1999 and 2000 as a result of the
following:
11
12
1998 1999 2000
--------- --------- -------
Computed "expected" tax expense ............................. $ 30,393 $ 44,587 $ 50,514
Increase (reduction) in income taxes resulting from:
Change in beginning of year valuation allowance for
deferred tax assets allocated to income tax expense........ (1,541) (277) (21)
Amortization of goodwill .................................... 1,807 2,332 3,931
State and local income taxes, net of Federal income tax
Benefit ................................................... 1,740 3,077 3,898
Foreign income taxed at rates higher than U.S. Federal
Income .................................................... (588) (561) (836)
Foreign tax credits utilized in excess of U.S. tax on
foreign earnings .......................................... 325 512 205
Other, net .................................................. 2,578 311 (90)
-------- -------- --------
$ 34,714 $ 49,981 $ 57,601
======== ======== ========
The significant components of deferred income tax benefit attributable to
income from continuing operations for 1998, 1999 and 2000 are as follows:
1998 1999 2000
-------- -------- --------
Deferred tax (benefit)/expense (exclusive of the effects
of other components listed below) ........................ $ (3,410) $ 18,388 $ 10,038
Decrease in the valuation allowance for deferred tax
assets ................................................... (1,662) (512) 220
-------- -------- --------
$ (5,072) $ 17,876 $ 10,258
======== ======== ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 1999 and 2000 are presented below.
1999 2000
-------- --------
Deferred tax assets:
Inventories ................................................ $ 2,115 $ 3,560
Compensation ............................................... 2,766 2,679
Sale/Leaseback ............................................. 4,622 4,531
Employee benefits .......................................... 1,726 1,979
Net operating loss carryforwards ........................... 891 1,111
Warranty and other accruals ................................ 14,763 8,347
-------- --------
Total gross deferred tax assets .......................... 26,883 22,207
Less valuation allowance ................................. (891) (1,111)
-------- --------
Net deferred tax assets .................................. 25,992 21,096
-------- --------
Deferred tax liabilities:
Depreciation ............................................... (13,675) (16,928)
Purchase accounting ........................................ (56,144) (74,474)
Unrealized appreciation on securities available for sale ... (173) (1,593)
Other ...................................................... (613) (860)
-------- --------
Total gross deferred tax liabilities ..................... (70,605) (93,855)
-------- --------
Net deferred tax liability ............................... $(44,613) $(72,759)
======== ========
The change in the net deferred tax liability contains $16,295 and $1,420 of
deferred tax liabilities related to acquisitions and the unrealized appreciation
on securities available-for-sale. The valuation allowance for deferred tax
assets as of October 1, 1998 was $1,403. The net change in the total valuation
allowance for the years ended September 30, 1998 and 1999 was a decrease of $512
and an increase of $220, respectively. The valuation allowance relates primarily
to net operating loss carryforwards in certain foreign jurisdictions and U.S.
states, in which there is a history of pre-tax accounting losses. Management is
unable to conclude that there will be pre-tax accounting income in those
jurisdictions in the near term. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment.
At September 30, 2000, the Company has an aggregate of $1,200 of foreign net
operating loss carry forwards from certain foreign jurisdictions, the majority
of which have no expiration. The Company has an aggregate of $13,000 of various
state net operating losses, the majority of which expire between 2005 and 2007.
12
13
Accumulated earnings of foreign subsidiaries at September 30, 1998, 1999 and
2000 of approximately $2,000, $1,000 and $11,000, respectively, have been
reinvested in the business and no provision for income taxes has been made for
the repatriation of these earnings.
(5) PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment at September 30, 1999
and 2000 are as follows:
1999 2000
--------- ---------
Land and land improvements ................... $ 13,445 $ 12,813
Buildings and building improvements .......... 87,192 94,556
Machinery and equipment ...................... 223,688 259,112
Construction in progress ..................... 15,196 17,444
--------- ---------
339,521 383,925
Less: Accumulated depreciation ............... (151,762) (175,831)
--------- ---------
$ 187,759 $ 208,094
========= =========
(6) INTANGIBLE ASSETS
Intangible assets at September 30, 1999 and 2000 are as follows:
1999 2000
----------- -----------
Excess costs over net asset values acquired (goodwill)... $ 708,109 $ 881,593
Proprietary technology .................................. 38,029 48,302
Trademarks .............................................. 36,988 45,409
Customer lists .......................................... 113,159 107,419
Other ................................................... 33,893 71,444
----------- -----------
930,178 1,154,167
Less: Accumulated amortization .......................... (109,703) (146,014)
----------- -----------
$ 820,475 $ 1,008,153
=========== ===========
The increases in intangible assets from 1999 to 2000 were primarily due to
acquisitions accounted for as purchases net of removal of fully written off
intangible assets.
(7) LONG-TERM DEBT
Long-term debt at September 30, 1999 and 2000 consists of the following:
1999 2000
--------- ---------
Term Loan Facility ............................... $ 381,370 $ 380,920
Revolving Credit Facility ........................ 198,080 256,400
Securities lending agreement ..................... 50,461 54,444
Sale/Leaseback Obligation ........................ 12,273 12,024
Capital leases and other (See Note 8) ............ 7,475 34,392
--------- ---------
649,659 738,180
Less: Current portion of long-term debt .......... (7,391) (34,327)
--------- ---------
$ 642,268 $ 703,853
========= =========
CREDIT AGREEMENTS: Until December 11, 2000, the Company and its principal
domestic subsidiaries (including certain subsidiaries of SDS) were parties to a
credit agreement (as amended, the "Previous Credit Agreement") with The Chase
Manhattan Bank ("Chase") and certain other lenders providing for a term A loan
facility of $300,000 (the "Tranche A Term Loan Facility"), a term B loan
facility of $300,000 (the "Tranche B Term Loan Facility") and a revolving credit
facility of up to $600,000 (the "Previous Revolving Credit Facility"). In
connection with the Distribution, on December 1, 2000, the Company entered into
a new credit agreement (the "Credit Agreement") with Chase and certain other
lenders providing for a term loan of $300,000 (the "Term Loan Facility") and a
revolving credit facility up to $500,000 (the "Revolving Credit Facility" and
together with the Term Loan Facility, the "Credit Facilities"). Borrowings under
the Credit Facilities are unsecured. On December 11, 2000, the Company borrowed
approximately $563,000 under the Credit Facilities and together with funds
aggregating $375,000 (approximately $307,100, the amount equal to the
outstanding amounts under the Previous Credit Agreement attributable to SDS on
December 11, 2000 including accrued interest plus a cash
13
14
dividend of $67,900 from SDS to the Company), used such funds to repay all of
the outstanding amounts under the Previous Credit Agreement (including amounts
attributable to SDS and accrued interest) aggregating $938,000.
The Credit Agreement contains financial and operating covenants, including,
among other things: restrictions on investments; requirements that the Company
maintain certain financial ratios; restrictions on the ability of the Company
and its subsidiaries to create or permit liens, or to pay dividends or make
other restricted payments (as defined) in excess of $100,000 plus 50% of the
defined consolidated net income of the Company for each fiscal quarter ending
after September 30, 2000, less any dividends paid or other restricted payments
made after September 30, 2000; and limitations on incurrence of additional
indebtedness.
TERM LOAN FACILITY: Borrowings under the Term Loan Facility are required to
be repaid in one installment due on December 1, 2005. The Term Loan Facility
provides for an annual interest rate, at the option of the Company, equal to (a)
the alternate base rate ("ABR") plus 0% to 1% (the "Term ABR Margin") where ABR
is 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% or (b) the adjusted interbank offered rate for
Eurodollar deposits ("Eurodollar Rates") plus 3/4% to 2.0% (the "Term Loan
Eurodollar Rate Margin"). The Term ABR Margin and the Eurodollar Rate Margin
depend upon the Company's credit rating from Standard and Poor's Rating Group
("S&P") and Moody's Investors Service, Inc. ("Moody's"). Based on the Company's
current credit rating, the Term ABR Margin and the Term Loan Eurodollar Margin
would be 0.25% and 1.25%, respectively.
REVOLVING CREDIT FACILITY: Borrowings under the Revolving Credit Facility
mature on December 1, 2005. The Revolving Credit Facility provides for an annual
interest rate at the option of the Company, equal to (a) ABR plus 0% to .375%
(the "Revolving ABR Margin") or (b) the Eurodollar Rates plus .375% to 1.375%
(the "Revolving Loan Eurodollar Rate Margin"). In addition, the Company has a
third option to set the rate by a competitive bid process among the parties to
the Revolving Credit Facility (the "CAF"). The Company also will pay a facility
fee of .125% to .375% for all commitments from the lenders, whether drawn or
undrawn and a will pay a utilization fee of 0.25% per annum if more than 50% of
the Revolving Credit Facility is drawn or the Term Loan Facility is still
outstanding. The Revolving ABR Margin, the Revolving Loan Eurodollar Rate Margin
and the facility fee depend upon the Company's credit rating from S&P and
Moody's. Based upon the Company's current credit rating, the Revolving ABR
Margin, the Revolving Loan Eurodollar Rate Margin and the facility fee would be
0%, 0.8% and 0.2%, respectively. The Revolving Credit Facility also provides for
a multi currency sub facility providing up to $100,000 in sub commitments in
non-dollar currencies. Terms and conditions on the multi currency sub facility
are to be agreed upon between the Company and Chase and the lenders providing
funding under such facility. The Company may not exceed a total of $500,000 in
dollar and non-dollar commitments under this Revolving Credit Facility. The
Credit Facility also provides for the issuance of standby letters of credit and
commercial letters of credit on behalf of the Company's subsidiaries as required
in the ordinary course of business as part of the working capital line.
TRANCHE A TERM LOAN FACILITY: Borrowings under the Tranche A Term Loan
Facility were required to be repaid in 21 consecutive quarterly installments of
principal. On July 31, 1997 the Company began repaying the principal balance by
paying the $8,750 due in 1997, $35,000 due in 1998 and $17,500 of the $36,250
due in fiscal 1999. On March 31, 1999 as a result of the sale of NPT, the
Company received approximately $87,500 ($83,200 net of fees, expenses and an
adjustment to the purchase price). Net proceeds of the sale, after a reduction
for 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 approximately $67,900 due under the Tranche A Term Loan Facility.
In connection with the Distribution on December 11, 2000, the Company repaid the
remaining balance (including amounts attributable to SDS and accrued interest)
of approximately $260,600 of the Tranche A Term Loan Facility.
TRANCHE B TERM LOAN FACILITY: Borrowings under the Tranche B Term Loan
Facility were required to be repaid in consecutive quarterly installments
beginning January 31, 2000 as follows: $750 due in fiscal 2000, $1,000 due in
fiscal 2001, $1,000 due in fiscal 2002, $120,250 due in fiscal 2003 and $177,000
due in fiscal 2004, with the final payment due on July 31, 2004. In connection
with the Distribution, on December 11, 2000, the Company repaid the remaining
balance (including amounts attributable to SDS and accrued interest) of $301,300
of the Tranche B Term Loan Facility.
Borrowings under the Tranche A and Tranche B Term Loan Facilities (and the
Revolving Credit Facility) were secured by the capital stock of the Company's
domestic subsidiaries, and by 65% of the stock held by the domestic subsidiaries
in their direct foreign subsidiaries. The Tranche A Term Loan Facility provided
for an annual interest rate, at the option of the Company, 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 "ABR") or (b) the adjusted
interbank offered rate for Eurodollar deposits ("Eurodollar Rates") plus 1/2% to
7/8% (the "Tranche A Eurodollar Rate Margin") depending upon the ratio of the
Company's total debt to Consolidated Adjusted Operating Profit (as defined).
14
15
The Tranche B Term Loan Facility provided 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.
As of September 30, 2000, the Company has seven interest rate swaps
outstanding aggregating a notional amount of $381,000. 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 2000, the Tranche
A and Revolver Eurodollar Rate Margins were .75%. The Tranche B Eurodollar
Margin was 2.0%. The swap agreement rates and duration as of September 30, 2000
are as follows:
EXPIRATION DATE NOTIONAL AMOUNT SWAP AGREEMENT DATE SWAP AGREEMENT RATE
- --------------------- --------------- ------------------- -------------------
February 7, 2001..... $ 50,000 August 7, 1997 5.910%
August 7, 2001....... $ 50,000 August 7, 1997 5.900%
September 10, 2001... $ 50,000 December 8, 1995 5.623%
December 31, 2001.... $ 6,000 March 24, 1999 5.500%
June 8, 2002......... $ 50,000 December 8, 1995 5.500%
July 31, 2002........ $ 75,000 May 7, 1997 6.385%
July 31, 2002........ $ 50,000 October 23, 1998 4.733%
October 1, 2002...... $ 50,000 October 1, 1999 6.260%
The Company's risk with regard to the swaps is limited to the counterparty's
(Bank of America, Illinois, with a notional amount of $131,000, The Sumitomo
Bank Limited, The Bank of Nova Scotia, The Bank of New York, Bank of Tokyo
Mitsubishi and First Union with notional amounts of $50,000 each) ability to
meet the payment terms of the contract. All interest expense for all debt is
calculated using the interest method.
On December 11, 2000, due to the extinguishment of debt, interest rate swaps
previously designated as cash flow hedges ceased to meet hedge criteria under
SFAS 133 as modified by SFAS 138. The approximate fair value on December 11,
2000 was $1,700. The Company sold these interest rate swaps on December 12, 2000
for approximately $1,700, and realized a gain of $1,100 (net of tax). Because
these interest rate swaps were designated as a hedge against future variable
rate interest payments and the extinguished debt, the gain will continue to be
carried in other comprehensive income and recognized as an adjustment of yield
interest expense of the Credit Facilities over the remaining term of the
interest rate contract.
PREVIOUS REVOLVING CREDIT FACILITY: The Company paid a commitment fee of
.20% with the ability to increase or reduce the amount from .225% to .15%
depending upon the ratio of the Company's total debt to Consolidated Adjusted
Operating Profit. The Revolving Credit Facility also provided for the issuance
of standby letters of credit and commercial letters of credit on behalf of the
Company's subsidiaries as required in the ordinary course of business as part of
the working capital line. Borrowings under the Revolving Credit Facility were
similar in terms of interest as those under the Tranche A Term Loan Facility
described above, except that the Company had a third option to set the rate by a
competitive bid process among the parties to the Revolving Credit Facility (the
"CAF"). In connection with the Distribution, on December 11, 2000, the Company
repaid the remaining balance (including amounts attributable to SDS and accrued
interest) of approximately $376,100 of the Previous Revolving Credit Facility.
The Company paid fees on the average unused portion of credit commitments
under the Previous Revolving Credit Facility of approximately $327, $201 and
$479 in 1998, 1999 and 2000, respectively. The Company paid fees of
approximately $55, $38 and $59 for standby letters of credit under the Previous
Revolving Credit Facility in 1998, 1999 and 2000, respectively. Standby letters
of credit were approximately $2,985 and $18,562 at September 30, 1999 and 2000,
respectively.
SECURITIES LENDING AGREEMENT: On September 29, 1999, the Company purchased a
United States Treasury Bond ("Treasury") with a par value of $50,000, 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. This securities lending
transaction is related to the Company's existing lending policy by fixing
$50,000 of its floating rate debt. 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
15
16
to receive a fee for the loan of the security at a floating rate equal to LIBOR
minus .75%. The weighted-average pay and receive rates in 2000 were 6.478% and
5.26%, respectively, at a weighted average notional amount of $52,500.
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%) and the Company receives all distributions made on or
in respect to the Treasury. This transaction is accounted for as a secured
borrowing under Statement of Financial Accounting Standards No. 125.
SALE/LEASEBACK: On December 22, 1988, the Company completed the sale and
leaseback (the "Sale/ Leaseback") of its then principal domestic manufacturing
and office facilities with an unaffiliated third party. The proceeds of $22,500
(net of approximately $1,100 in fees) were used to retire debt. The transaction
has been accounted for as a financing for financial statement purposes and as a
sale for income tax purposes. The financing obligation is being amortized over
the initial 25-year lease term.
The Company pays all costs of maintenance and repair, insurance, taxes, and
all other expenses associated with the properties. In addition, each of the
leases is unconditionally guaranteed by the Company.
The initial term of each lease is 25 years with five five-year renewal
options. The initial aggregate annual payments relating to the Company under the
leases were $1,727 payable monthly in advance. On the fifth anniversary of the
leases and every five years thereafter (including renewal terms), the rent is
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 will be capped at 15%. Beginning January 1,
1999 annual payments increased to $2,176. The next adjustment will not occur
until January 1, 2004.
The Company has the option to purchase the facilities according to the terms
of any bona fide offer received by the lessor from a third party (the "Third
Party Offer") at any time during the term of the leases. The purchase price upon
exercise of the option will be an amount equal to the purchase price contained
in the Third Party Offer. The Company also has the option to purchase the
facilities, subject to complying with the notice provision in the leases, on any
date between June 1, 2008 and May 31, 2009. The purchase price upon the exercise
of the option is the greater of the fair market value of the leased premises or
the sum of the landlord's acquisition cost for the leased premises and any
prepayment premiums that would be payable under the landlord's financing for the
premises.
In the event of a breach of certain covenants which include, subject to
certain exceptions, restrictions on the Company's and its subsidiaries'
incurrence of certain additional indebtedness, payment of dividends or the
making of other distributions or the repurchase of the Company's capital stock,
or the creation of liens on their respective properties, the Company must cause
each subsidiary to make a rejectable offer to the lessor to purchase its
facility. If the lessor accepts the rejectable offer, each subsidiary will pay
to the lessor a formula price based upon the lessor's equity in the property and
the lessor's pre-payment premium to its lender. The Company may also be
obligated to repurchase the property upon the occurrence of certain other
events.
MATURITIES OF LONG-TERM DEBT: As of September 30, 2000, maturities of
long-term debt, including capital leases, are as follows:
FISCAL
- -------------
2001......... $ 34,327
2002......... 566
2003......... 473
2004......... 504
2005......... 556
Thereafter... 701,754
---------
$ 738,180
=========
Maturity of long term debt related to the Term Loan Facility and the
Revolving Credit Facility are based upon their maturity dates of December 11,
2005.
(8) LEASE COMMITMENTS
As of September 30, 2000, minimum rentals, excluding rent payments under the
Sale/Leaseback described in note 7, under capital and noncancellable operating
leases consisting primarily of machinery and equipment, and building leases are:
16
17
FISCAL CAPITAL OPERATING
- ------------------------------------------------------ ------- ---------
2001 ................................................. $ 336 $ 8,019
2002 ................................................. 178 7,176
2003 ................................................. 48 5,922
2004 ................................................. 3 4,331
2005 ................................................. -- 3,703
Thereafter ........................................... -- 17,610
------- -------
$ 565 $46,761
=======
Less amounts representing interest ................... 67
-------
Present value of net minimum lease payments .......... 498
Less current portion ................................. 264
-------
Long-term obligations under capital leases ........... $ 234
=======
Amortization of assets held under capital leases is included with
depreciation expense.
Rental expense under operating leases was $4,028, $6,704 and $9,434 in 1998,
1999 and 2000, respectively.
(9) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments approximate fair value due to
the short maturity of those instruments except as follows:
Long-Term Debt
TERM LOAN FACILITY AND REVOLVING CREDIT FACILITY: The fair value was
determined by estimating the interest rate margins (the premium over the
Eurodollar Rate) on each of the Tranche A Term Loan Facility, Tranche B Term
Loan Facility and the Previous Revolving Credit Facility for companies with
credit risk similar to that of the Company. In 2000 the Company's spread over
the Eurodollar Rate was 75 basis points for the Tranche A Term Loan Facility and
the Previous Revolving Credit Facility and a spread of the Eurodollar Rate plus
200 basis points on the Tranche B Term Loan Facility. Since the Company has
refinanced these facilities on December 11, 2000 at a rate of LIBOR + 125 basis
points, LIBOR + 125 basis points was used for the calculations of fair market
value.
SALE/LEASEBACK: The fair value was determined by estimating the interest
rate at which the Company could refinance the Sale/Leaseback given the same
maturity period.
INTEREST RATE SWAP AGREEMENTS: The fair values of interest rate swap
agreements are obtained from dealer quotes. These values represent the estimated
amount the Company would receive/(pay) if the agreements were terminated as
quoted by the bank with which the Company executed the swap agreements.
SEPTEMBER 30, SEPTEMBER 30,
1999 2000
----------------------- -----------------------
REPORTED ESTIMATED REPORTED ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Long-term debt (including current
portion) ......................... $649,959 $654,126 $738,180 $742,132
Interest rate swap agreements ...... -- 2,768 -- 4,221
DERIVATIVES: The Company uses derivative financial instruments to manage its
foreign currency exposures and interest rate risk. The Company does not hold or
issue financial instruments for trading purposes. The notional amounts of these
contracts do not represent amounts exchanged by the parties and, thus, are not a
measure of the Company's risk. The net amounts exchanged are calculated on the
basis of the notional amounts and other terms of the contracts, such as interest
rates or exchange rates, and only represent a small portion of the notional
amounts. The credit and market risk under these agreements is minimized through
diversification among counter parties with high credit ratings. Depending on the
item being hedged, gains and losses on derivative financial instruments are
either recognized in the results of operations as they accrue or are deferred
until the hedged transaction occurs. Derivatives used as hedges are effective at
reducing the risk associated with the exposure being hedged and are designated
as a hedge at the inception of the derivative contract. Accordingly, changes in
the market value of the derivative are highly correlated with changes in the
market value of the underlying hedged item at the inception of the hedge and
over the life of the hedge contract.
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18
FOREIGN EXCHANGE CONTRACTS: The Company enters into foreign exchange hedging
contracts to hedge certain sales commitments and loans made to foreign
subsidiaries denominated in foreign currencies. The term of these contracts is
less than one year. The purpose of the Company's foreign currency hedging
activities is to protect the Company from the risk that the eventual cash flows
resulting from foreign activities will be adversely affected by changes in
exchange rates. The recognition of gains and losses on contracts entered into to
hedge sales commitments are included in net income as an adjustment to net
sales. At September 30, 1999 and 2000, the Company had no foreign exchange
option contracts.
INTEREST RATE SWAPS: The Company enters into interest rate swaps to
stabilize funding costs by minimizing the effect of potential interest rate
increases on floating-rate debt in a rising interest rate environment. Under
these agreements, the Company contracts with a counter party to exchange the
difference between a fixed rate and a floating rate applied to the notional
amount of the swap. Swap contracts are principally between one and five years in
duration. The differential to be paid or received on interest rate swap
agreements is accrued as interest rates change and is recognized in net income
as an adjustment to interest expense. Gains and losses resulting from terminated
interest rate swap agreements are deferred and recognized in net income over the
shorter term of the remaining contractual life of the swap agreement or the
remaining term of the debt underlying the swap agreement. If swap agreements are
terminated due to the underlying debt being extinguished, any resulting gain or
loss is recognized in net income as an adjustment to interest expense at the
time of the termination. The Company has not terminated any interest rate swap
agreements. The weighted-average pay and receive rates for the swaps outstanding
at September 30, 2000, were 5.79% and 6.24%, respectively, at a weighted average
notional amount of $382,000. The weighted-average pay and receive rates for the
swaps outstanding at September 30, 1999 were 5.78% and 5.22%, respectively at a
weighted average notional amount of $382,000.
(10) EMPLOYEE BENEFIT PLANS
Effective September 30, 1999, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This standard only modifies the financial statement
presentation of the Company's pension and post retirement benefit obligations
and does not impact measurement of such obligations.
PENSION AND OTHER POSTRETIREMENT BENEFITS: The Company has defined benefit
pension plans covering approximately 48 percent of its U.S. employees. The
benefits are generally based on various formulas, the principal factors of which
are years of service and compensation. The Company's funding policy is to
generally make the minimum annual contributions required by applicable
regulations. Plan assets are invested primarily in U.S. stocks, bonds and
International stocks. In addition to the defined benefit plans, the Company
provides certain health care benefits for eligible retired employees which are
funded as costs are incurred. Certain employees who reached the age of 55 prior
to January 1, 1996 will become eligible for postretirement health care only if
they reach retirement age while working for the Company. The Company accrues, as
current costs, the future lifetime retirement benefits for both qualifying
active and retired employees and their dependents. The postretirement health
care plans for subsidiaries of the Company and certain divested operations are
generally contributory, with retiree contributions adjusted annually. In 1986,
the Company instituted a policy with respect to postretirement medical premiums
where the Company's contributions were frozen at the levels equal to the
Company's contribution on December 31, 1988, except where collective bargaining
agreements prohibited such a freeze.
The following assumptions were used in determining the funded status of the
Company's defined benefit plans:
1999 2000
---- ----
Discount rate ......................................... 7.75% 8.0%
Rate of increase in compensation levels ............... 4.0% 4.0%
Expected long-term rate of return on assets ........... 10.0% 10.0%
The following assumptions were used in determining the accumulated
postretirement benefit obligation of the Company's postretirement plans.
1999 2000
---- ----
Discount rate........................ 7.75% 8.0%
Average increase in medical costs.... 5.5% 5.5%
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PENSION BENEFITS OTHER BENEFITS
------------------------ ----------------------
1999 2000 1999 2000
-------- -------- ------- -------
Change in benefit obligations:
Obligations at beginning of year ....................... $ 50,761 $ 44,275 $ 8,961 $ 5,556
Service cost ........................................... 2,818 2,032 28 12
Interest cost .......................................... 3,435 3,691 557 399
Actuarial (gain) loss .................................. (10,497) 3,129 (2,555) (68)
Benefit payments ....................................... (2,242) (2,118) (1,435) (1,442)
-------- -------- ------- -------
Obligations at end of year ............................. $ 44,275 $ 51,009 $ 5,556 $ 4,457
Change in fair value of plan assets:
Fair value of plan assets at beginning of year ......... $ 42,343 $ 44,898 $ -- $ --
Actual return on plan assets ........................... 4,614 6,463 -- --
Employer contributions ................................. 184 1,240 -- --
Benefit payments ....................................... (2,242) (2,118) -- --
-------- -------- ------- -------
Fair value of plan assets at end of year ............... $ 44,899 $ 50,483 $ -- $ --
Funded Status:
Funded status at end of year ........................... $ 624 $ (526) $(5,556) $(4,457)
Unrecognized transition (asset) obligation ............. 113 6 -- --
Unrecognized prior service cost ........................ 92 144 -- --
Unrecognized (gain) loss ............................... (7,979) (6,869) 314 245
Remaining excess of fair value of plan assets over
projected benefit obligation recognized as a
result of the 1987 acquisition of Sybron
Corporation ......................................... 2,341 1,869 -- --
-------- -------- ------- -------
Net amount recognized at measurement date ................ (4,809) (5,376) (5,242) (4,212)
Employer contribution paid after measurement date ........ -- 167 -- --
-------- -------- ------- -------
Net amount recognized at end of year ..................... $ (4,809) $ (5,209) $(5,242) $(4,212)
======== ======== ======= =======
The following table provides the amounts recognized in the Company's
consolidated balance sheets:
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
1999 2000 1999 2000
------- ------- ------- -------
Prepaid benefit cost .......................................... $ 124 $ 188 $(5,242) $(4,212)
Accrued benefit liability ..................................... (7,274) (7,433) -- --
Remaining excess of fair value of plan assets over
projected benefit obligation recognized as a result
of the 1987 acquisition of Sybron Corporation .............. 2,341 1,869 -- --
------- ------- ------- -------
Net amount recognized at measurement date ..................... (4,809) (5,376) (5,242) (4,212)
Employer contribution paid after measurement date ............. -- 167 -- --
------- ------- ------- -------
Net amount recognized at September 30 ......................... $(4,809) $(5,209) $(5,242) $(4,212)
======= ======= ======= =======
The following table provides disclosure of the net periodic benefit cost:
PENSION BENEFITS OTHER BENEFITS
--------------------------------------- ----------------------------
1998 1999 2000 1998 1999 2000
------- ------- ------- ---- ---- ----
Service cost ................................... $ 2,544 $ 2,818 $ 2,032 $ 23 $ 28 $ 12
Interest cost .................................. 3,074 3,435 3,691 662 557 399
Expected return on plan assets ................. (4,118) (4,123) (4,509) -- -- --
Amortization of transition (asset)
obligation ................................... 107 108 107 -- -- --
Amortization of prior service cost............ (52) (52) (52) -- -- --
Amortization of net (gain) loss ................ 13 126 65 42 66 --
------- ------- ------- ---- ---- ----
Net periodic benefit cost ...................... $ 1,568 $ 2,312 $ 1,334 $727 $651 $411
======= ======= ======= ==== ==== ====
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of fair value of plan assets were $4,139, $1,853, and $0,
respectively, as of September 30, 1999 and $2,880, $1,732 and $0, respectively
as of September 30, 2000.
An increase of one percentage point in the per capita cost of health care
costs associated with the plans for which the Company contributions are not
frozen would increase the accumulated postretirement benefit obligation and
service and interest cost components as of September 30, 2000 by approximately
$61 and $3, respectively.
Because the majority of the postretirement plans are remaining liabilities
from certain divested operations and more than 85% of the 1998, 1999 and 2000
net periodic postretirement benefit costs relate to interest costs, the Company
has classified such interest
19
20
costs as interest expense. This results in a non-cash increase in interest
expense of approximately $662, $557 and $399 in 1998, 1999 and 2000,
respectively.
Savings Plans: Employees in the United States are eligible to participate in
contributory savings plans maintained by the Company under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). Company matching
contributions under the plans, net of forfeitures, were approximately $2,321,
$2,324 and $2,770 for 1998, 1999 and 2000, respectively.
(11) RESTRUCTURING CHARGES
In June 1998, the Company recorded a restructuring charge of approximately
$8,500 (approximately $5,400 after tax or $.05 per share on a diluted basis) for
the rationalization of certain acquired companies, combination of certain
duplicate production facilities, movement of certain customer service and
marketing functions, and the exiting of several product lines. The restructuring
charge was classified as components of cost of sales (approximately $1,800
relating to the write-off of inventory discussed below), selling, general and
administrative expenses (approximately $6,700).
Restructuring activity since June 30, 1998 and its components are as
follows:
LEASE INVENTORY FIXED
SEVERANCE PAYMENTS WRITE-OFF ASSETS GOODWILL
(A) (B) (C) (C) (D) TOTAL
--------- -------- --------- ------ -------- ------
(IN THOUSANDS)
1998 Restructuring Charge .................. $3,400 $200 $1,800 $1,000 $2,100 $8,500
1998 Cash Payments ......................... 900 100 -- -- -- 1,000
1998 Non-Cash Charges ...................... -- -- 1,800 1,000 2,100 4,900
------ ---- ------ ------ ------ ------
September 30, 1998 balance ................. $2,500 $100 $ -- $ -- $ -- $2,600
1999 Cash Payments ......................... 1,900 100 -- -- -- 2,000
Adjustments(a) ............................. 300 -- -- -- -- 300
------ ---- ------ ------ ------ ------
September 30, 1999 balance ................. $ 900 $-- $ -- $ -- $ -- $ 900
2000 Cash Payments ......................... 700 -- -- -- -- 700
------ ---- ------ ------ ------ ------
September 30, 2000 balance ................. $ 200 $-- $ -- $ -- $ -- $ 200
====== ==== ====== ====== ====== ======
- ----------
(a) Amount represents severance and termination costs for approximately
65 terminated employees (primarily sales and marketing personnel). As
of September 30, 2000, all employees have been terminated as a result
of the restructuring plan. Payments will continue to certain
employees previously terminated under this restructuring plan. An
adjustment of approximately $300 was made in the third quarter of
fiscal 1999 to adjust the accrual primarily representing under
accruals for anticipated costs associated with outplacement services,
accrued fringe benefits, and severance associated with employees who
were previously notified of termination. No additional employees will
be terminated under this restructuring plan.
(b) Amount represents lease payments on exited facilities.
(c) Amount represents write-offs of inventory and fixed assets associated
with discontinued product lines.
(d) Amount represents goodwill associated with exited product lines.
The Company expects to make future cash payments of approximately $200 in
fiscal 2001.
In September 2000, the Company recorded a restructuring charge of
approximately $11,300 (approximately $7,500 after tax or $.07 per share on a
diluted basis) for the consolidation of certain businesses, product
rationalizations, changes in management structure and taxes associated with
restructuring the U.K. operations. The restructuring charge was classified as
components of cost of sales (approximately $4,400 relating to the write-off of
inventory, write-offs of fixed assets, certain lease terminations and severance
associated with employees in production activities), selling, general and
administrative expense at $5,800 and income tax expense of $1,000, related to
the companies restructuring of its U.K. operations. Restructuring activity since
its inception in September 2000 and its components is as follows:
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FIXED LEASE SHUT-DOWN
SEVERANCE INVENTORY ASSETS COMMITMENTS COSTS TAX
(A) (B) (B) (C) (C) (D) OTHER TOTAL
--------- --------- ------ ----------- --------- ------ ----- -------
2000 Restructuring charge ............... $5,500 $2,100 $1,000 $500 $300 $1,000 $900 $11,300
2000 Cash payments ...................... 1,100 -- -- -- -- -- -- 1,100
2000 Non-cash charges ................... -- 2,100 1,000 -- -- -- 800 3,900
------ ------ ------ ---- ---- ------ ---- -------
September 30, 2000 balance .............. $4,400 $ -- $ -- $500 $300 $1,000 $100 $ 6,300
====== ====== ====== ==== ==== ====== ==== =======
- ----------
(a) Amount represents severance and termination costs for 151 terminated
employees (primarily sales, marketing and corporate personnel). As of
September 30, 2000, 48 employees have been terminated as a result of
the restructuring plan.
(b) Amount represents write-offs of inventory and fixed assets associated
with discontinued product lines.
(c) Amount represents lease payments and shut down costs on exited
facilities.
(d) Amount represents income tax expense associated with the
restructuring of our U.K. facilities.
The Company expects to make cash payments of approximately $1,700, $800,
$2,200 and $400 in each of the four quarters of fiscal 2001, respectively and
$1,200 in fiscal 2002 and beyond.
(12) CAPITAL STOCK
STOCK OPTION PLANS: The Company has five stock option plans. As of September
30, 2000, there were options with respect to 5,616 shares of Common Stock
outstanding under the 1988 Stock Option Plan (the "1988 Plan"), and there were
no shares available for the granting of options under such plan; there were
options with respect to 26,800 shares of Common Stock outstanding under the 1990
Stock Option Plan (the "1990 Plan") and there were no shares remaining available
for the granting of options under such plan; there were options with respect to
7,869,242 shares of Common Stock outstanding under the Amended and Restated 1993
Long-Term Incentive Plan (the "1993 Plan") and there were 980,896 shares
remaining available for the granting of options under such plan; there were
options with respect to 324,000 shares of Common Stock outstanding under the
Amended and Restated 1994 Outside Directors' Stock Option Plan (the "1994
Outside Directors' Plan"), and there were no shares available for the granting
of options under such plan; there were options with respect to 168,000 shares of
Common Stock outstanding under the 1999 Outside Directors' Stock Option Plan
(the "1999 Outside Directors' Plan"), and there were 312,000 shares remaining
available for the granting of options under such plan. Changes in stock options
outstanding are as follows:
NUMBER OF WEIGHTED AVERAGE
SHARES PRICE PER SHARE EXERCISE PRICE
--------- --------------- ----------------
Options outstanding at September 30,
1997 ........................................... 6,943,280 $ 5.99-- $15.35 $ 9.36
Granted ........................................ 4,188,064 $23.81-- $24.50 $ 24.42
Exercised ...................................... (1,455,760) $ 5.99-- $15.35 $ 8.63
Canceled and available for reissue ............. (277,556) $ 8.34-- $23.81 $ 10.92
----------
Options outstanding at September 30,
1998 ........................................... 9,398,028 $ 5.99-- $24.50 $ 16.14
Granted ........................................ 896,748 $25.31-- $26.75 $ 26.18
Exercised ...................................... (1,121,421) $ 5.99-- $24.34 $ 9.53
Canceled and available for reissue ............. (145,584) $11.55-- $26.75 $ 20.86
----------
Options outstanding at September 30,
1999 ........................................... 9,027,771 $ 6.06-- $26.75 $ 17.88
Granted ........................................ 764,040 $22.00-- $32.00 $ 24.05
Exercised ...................................... (1,167,775) $ 6.06-- $26.75 $ 10.79
Canceled and available for reissue ............. (230,378) $11.54-- $26.75 $ 24.13
----------
Options outstanding at September 30,
2000 ........................................... 8,393,658 $ 6.36-- $32.00 $ 19.27
Options exercisable at September 30,
2000 ........................................... 5,212,321 $ 6.36-- $26.75 $ 16.09
Options available for grant at September
30, 2000 ....................................... 1,292,896
==========
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22
The range of exercise prices for options outstanding at September 30, 2000
was $6.06 to $26.75. The range of exercise prices for options is wide due to the
increasing price of the Company's stock (upon which the exercise price is based)
over the period of the grants.
The following table summarizes information about options outstanding and
outstanding and exercisable on September 30, 1999:
OPTIONS OPTIONS
OUTSTANDING OUTSTANDING AND EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF NUMBER OF REMAINING EXERCISE NUMBER OF WEIGHTED AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES EXERCISE PRICE
- ---------------- ---------- ----------------- ---------------- ---------- ----------------
$ 5.00-- $10.00 ... 2,327,718 4.0 $ 8.43 2,327,718 $ 8.43
$10.01-- $15.00 ... 392,270 5.4 11.94 392,270 11.94
$15.01-- $20.00 ... 257,124 6.3 15.36 187,328 15.36
$20.01-- $25.00 ... 4,511,702 7.8 24.22 2,051,778 24.36
$25.01-- $30.00 ... 799,844 8.3 26.20 253,227 26.34
$30.01-- $35.00 ... 105,000 9.6 31.02 -- --
--------- ---------
8,393,658 6.7 19.27 5,212,321 16.09
========= =========
1988, 1990 and 1993 Plans
No options may be granted under the plans after ten years from the date the
plans are approved by the shareholders of the Company. Options granted pursuant
to the plans shall be either incentive options which are intended to meet the
requirements of section 422 of the Code or nonstatutory options. The exercise
price of the options will be determined by the Compensation/Stock Option
Committee. The exercise price of any incentive option shall not be less than the
fair market value per share of the Common Stock on the date of the grant of such
option. An optionee under the plans must pay the full option price of an option
either (a) in cash or its equivalent, (b) with the Compensation/Stock Option
Committee's consent, by delivering previously acquired shares of Common Stock
having a fair market value at the time of the exercise equal to the total option
price, (c) with the Compensation/Stock Option Committee's consent, by a cashless
exercise as permitted under The Federal Reserve Board's Regulation T or (d) in
any combination of the foregoing.
In general, options granted under the 1990 Plan after May 14, 1992, and
under the 1993 Plan, vest in equal annual installments on each of the first four
anniversaries following the date of grant. The Company made significant
management changes in connection with the Spin-Off, including a change in the
Chief Executive Officer, Chief Financial Officer and General Counsel. The Board
of Directors and the Compensation Committee amended certain stock options
previously granted to each of the executive officers so replaced to provide for
the vesting of any unvested portion of the options granted to each of them in
April of 1998, provided the individual remains an employee of the Company until
June 1, 2001. If the individual is terminated prior to that date, the options
would fully vest at that time. These options were also amended to provide for a
five year period (rather than a three month period) to exercise the options
after termination of employment. The amendments to these options had no earnings
impact because the options had no intrinsic value (i.e. there was no positive
spread between the market price and exercise price of the option shares) at the
time of the amendment.
Outside Directors' Plans
The 1994 Outside Directors' Plan provided for the automatic granting of
nonstatutory stock options to those of the Company's directors who qualify as
"outside directors" at the time of grant. Following each annual meeting of
shareholders prior to September 30, 1998, the plan's expiration date, each
outside director was automatically granted an option to purchase 12,000 shares
of Common Stock at an exercise price equal to the fair market value of the
Common Stock on the date of grant. Each option granted under the 1994 Outside
Directors' Plan became exercisable six months after the date of grant,
regardless of whether the grantee was still a director of the Company on such
date. All rights to exercise an option granted under the 1994 Outside Directors'
Plan terminate upon the earlier of ten years from the date of grant or two years
from the date the grantee ceases to be a director of the Company. The exercise
price must be paid in full at the time of exercise, and such payment may be made
in cash, by delivering shares of Common Stock which the optionee or the
optionee's spouse or both have beneficially owned for at least six months prior
to the time of exercise, or through a combination of cash and such delivered
Common Stock.
The 1999 Outside Directors' Plan provides for the automatic granting of
nonstatutory stock options to those of the Company's directors who qualify as
"outside directors" at the time of grant. Following each annual meeting of
shareholders beginning in 1999,
22
23
when the plan was approved by the shareholders, each outside director is
automatically granted an option to purchase 12,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. Each option granted under the 1999 Outside Directors' Plan is exercisable
immediately upon grant. All rights to exercise an option granted under the 1999
Outside Directors' Plan terminate upon the earlier of ten years from the date of
grant or two years from the date the grantee ceases to be a director of the
Company. The exercise price must be paid in full at the time of exercise, and
such payment may be made in cash, by delivering shares of Common Stock which the
optionee or the optionee's spouse or both have beneficially owned for at least
six months prior to the time of exercise, or through a combination of cash and
such delivered Common Stock.
The Company has adopted the provisions of Statement of Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), and continues
to apply Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for its stock plans. If the Company had elected to recognize
compensation cost for all of the plans based upon the fair value at the grant
dates for awards under those plans, consistent with the method prescribed by
SFAS 123, net income and earnings per share would have been changed to the pro
forma amounts indicated below:
1998 1999 2000
------- --------- ---------
Pro forma net income..................... $68,966 $ 130,902 $ 116,437
Basic pro forma earnings per share....... .67 1.27 1.11
Diluted pro forma earnings per share .... .65 1.23 1.09
The fair value of the Company's stock options used to compute pro forma net
income and earnings per share disclosures is the estimated present value at
grant date using the Black-Scholes option pricing model with the following
weighted average assumptions:
1998 1999 2000
--------- --------- ---------
Volatility...................... 34.1% 28.8% 35.0%
Risk-free interest rate......... 5.66% 4.99% 6.50%
Expected holding period......... 8.7 years 7.7 years 7.8 years
Dividend yield.................. 0 0 0
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in the opinion of management, the existing
models do not necessarily provide a reliable single value of its options and may
not be representative of the future effects on reported net income or the future
stock price of the Company. The weighted average estimated fair value of
employee stock options granted in 1998, 1999 and 2000 was $13.13, $13.53 and
$14.54 per share, respectively. For purposes of pro forma disclosure, the
estimated fair value of the options is amortized to expense over the options'
vesting period.
EQUITY RIGHTS: As of September 30, 2000, the Company holds 220 shares of
treasury stock for delivery to equity right holders who have not yet surrendered
their certificates. Equity right holders are entitled to receive 4.375 shares of
Common Stock upon surrender of such certificates.
(13) TRANSACTIONS WITH SYBRON DENTAL SPECIALTIES
CASH MANAGEMENT AND ADVANCES: The Company has managed the cash not
considered necessary for current operating requirements of its subsidiaries,
including the operations of SDS. Cash collected from and cash payments to the
operations of SDS are collected or funded from a centralized treasury operation
and are either credited or charged to SDS. Advances to and collections from SDS
are indirectly charged or credited with interest as such advances to or
collections from SDS were applied to borrowings or repayments under the Old
Credit Facilities. On an annual basis, outstanding balances are cleared via an
intercompany dividend to or capital contribution from Sybron International.
DIVIDENDS PAID TO SYBRON INTERNATIONAL: From time to time, SDS has paid
dividends to the Company. Dividends in 1998, 1999 and 2000 were $47,225, $36,483
and $58,512, respectively.
CAPITAL CONTRIBUTIONS TO SDS. From time to time, the Company has made
capital contributions to SDS. Capital contributions in 1998, 1999 and 2000 were
$49,268, $16,210 and $21,399, respectively.
23
24
SYBRON INTERNATIONAL CREDIT FACILITIES: Sybron, consistent with the terms of
its Old Credit Facilities, has historically recorded a portion of its
outstanding debt (and associated interest expense) under its Old Credit
Facilities to certain of its subsidiaries, including the operations of SDS.
SDS's historical debt outstanding under the Old Credit Facilities at September
30, 1999 and 2000 were $273,192 and $311,772, respectively. SDS's historical
interest expense was $20,195, $17,074 and $25,899 in 1998, 1999 and 2000,
respectively.
SYBRON INTERNATIONAL CHARGES: Sybron performs certain functions for its
subsidiaries (legal, tax, treasury, consolidation accounting, financial
reporting and insurance) and therefore charges its corporate office, general and
administration expenses to its subsidiaries. Such costs charged to SDS amounted
to $3,620, $4,228 and $2,979 in 1998, 1999 and 2000, respectively. Services
performed at the corporate office generally benefit the domestic operations, and
therefore Sybron International corporate office, general and administrative
expenses are generally charged based on SDS's domestic revenues as a percentage
of total Sybron International domestic revenues. Because corporate office
general and administrative expenses at Sybron International generally benefit
domestic operations, Sybron International considers this method to be a
reasonable basis for allocation. Management estimates that costs incurred by SDS
if it had operated as an unaffiliated entity would have exceeded the amounts
actually charged by approximately $2,500 in each of the three years reported.
INTERCOMPANY LOANS WITH SYBRON DENTAL SPECIALTIES: Loans due from (to) SDS
at September 30, 1998, 1999 and 2000 were as follows:
AMOUNT RATE MATURITY
---------- ------- ----------
1998:
Sybron Holdings A/S ....... $ (21,098) 8.00% On Demand
Sybron Deutchland GmbH .... (342) 6.50% 12/31/98
Sybron Deutchland GmbH .... (1,497) 6.50% 8/3/99
Sybron Deutchland GmbH .... (493) 3.75% On Demand
1999:
Sybron Holdings A/S ....... $ (11,472) 5.50% On Demand
Electrothermal ............ (1,647) 8.00% 8/9/00
Sybron Deutchland GmbH .... (1,367) 6.50% 8/3/00
Sybron U.K. ............... (554) 8.00% 7/30/00
Sybron Deutchland GmbH .... (454) 3.75% On Demand
Sybron Deutchland GmbH .... (110) 6.50% 12/31/99
Nalge U.K. ................ 1,071 0.00% None
2000:
Sybron Holdings A/S ....... $ (1,773) 5.50% On Demand
(14) COMMITMENTS AND CONTINGENT LIABILITIES
Applied Biotech, Inc. ("ABI"), a subsidiary in our Diagnostics and
Microbiology business segment, manufactures and supplies immunoassay pregnancy
tests to Warner Lambert Co. (now part of Pfizer Inc.). Warner Lambert sells the
tests to retailers who sell them over-the-counter to consumers. ABI supplies the
product to Warner Lambert pursuant to a supply agreement which Warner Lambert
claims requires ABI to defend and indemnify Warner Lambert with respect to any
liability arising out of claims that the product infringes any patents held by
third parties. On January 8, 1999, Conopco, Inc. d/b/a Unipath Diagnostics
Company filed a lawsuit against Warner Lambert in the U.S. District Court for
the District of New Jersey. Conopco claims in the suit that the Warner Lambert
pregnancy test supplied by ABI infringes certain patents owned by Conopco. ABI
has agreed to defend the lawsuit on behalf of Warner Lambert. In November 2000,
the U.S. District Court granted a motion for summary judgment in favor of Warner
Lambert and ABI, ruling that ABI's product does not infringe on the Conopco
patents. The Company therefore believes the resolution of this lawsuit will not
have a material adverse effect on the results of operations or financial
condition of the Company. Additionally, another third party has contacted Warner
Lambert regarding patents it holds which may apply to the Warner Lambert
pregnancy test. Thus, Warner Lambert or ABI may in the future be subject to
additional lawsuits by third parties for patent infringement with respect to
these products. ABI believes it has meritorious defenses to these patents and
will vigorously defend any such lawsuits against it, if brought.
The Company or its subsidiaries are at any one time parties to a number of
lawsuits or subject to claims arising out of their respective operations, or the
operation of businesses divested in the 1980's for which certain subsidiaries
may continue to have legal or contractual liability, including product
liability, patent and trademark or other intellectual property infringement,
contractual liability, workplace safety and environmental claims and cases, some
of which involve claims for substantial damages. The Company and its
subsidiaries are vigorously defending lawsuits and other claims against them.
Based upon the insurance available under an insurance
24
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program and the potential for liability with respect to claims which are
uninsured, the Company believes that any liabilities which might reasonably
result from any of the pending cases and claims would not have a material
adverse effect on the results of operations or financial condition of the
Company. There can be no assurance as to this, however, or that litigation
having such a material adverse effect will not arise in the future. The Company
does not reduce legal or contractual liabilities for possible recoveries from
insurance companies.
On September 30, 1999, the Company assigned its rights to receive in 2022 a
Treasury with a par value of $50,000 to an unrelated third party. The third
party has also agreed to assume any obligations for which the security has been
pledged.
(15) ACQUISITIONS AND DISCONTINUED OPERATIONS
The Company has completed 40 acquisitions, sold one business and spun off
one business since the beginning of 1998. The acquired companies are all engaged
in businesses which are similar to the Company's existing businesses. The
divested company was engaged in the business of process technologies. The spun
off company was engaged in the dental business.
1998
During 1998, the Company completed 17 acquisitions for cash. The aggregate
cash purchase price of the acquisitions was approximately $192,382, including
fees and expenses. The Company is not subject to future purchase price
adjustments based upon earnout provisions under any of the purchase and sale
agreements. All acquisitions were accounted for as purchases. The results of the
acquisitions were included as of the date they were acquired. The following
table outlines sales and operating income for the most recent available twelve-
month period prior to acquisition, and total assets at the most recent available
date prior to acquisition, for each of the acquired companies accounted for as
purchases. The total goodwill for the acquired companies was $143,886.
OPERATING TOTAL TYPE OF
BUSINESS SEGMENT DATE SALES INCOME ASSETS ACQUISITION
--------------- ------------- ------- --------- ------- -----------
Company Acquired
LABWARE AND LIFE SCIENCES:
Lida Manufacturing Corporation ... October 1997 $ 5,694 $ 379 $ 1,585 Stock
CLINICAL AND INDUSTRIAL:
Chase Instruments Corp ........... October 1997 21,592 1,957 11,946 Asset
Cel-Line Associates, Inc. ........ January 1998 1,878 39 155 Asset
SciCan Scientific................. April 1998 5,483 311 2,982 Asset
Marks Polarized Corporation ...... May 1998 935 84 263 Asset
Scherf Prazision GmbH ............ August 1998 2,621 184 1,327 Asset
DIAGNOSTICS AND MICROBIOLOGY:
Clinical Standards Labs, Inc. .... November 1997 2,759 106 911 Stock
Diagnostic Reagents, Inc. ........ January 1998 7,609 3,057 5,795 Stock
Criterion Sciences ............... April 1998 5,572 2,731 686 Asset
Custom Laboratories, Inc. ........ April 1998 1,444 72 1,616 Asset
DiMed Corporation ................ April 1998 1,830 154 1,248 Asset
Summit Biotechnology, Inc. ....... May 1998 1,237 414 455 Asset
Applied Biotech, Inc. ............ August 1998 25,141 13,663 12,920 Stock
Seradyn, Inc. .................... August 1998 12,038 (535) 8,518 Asset
MicroBio Products, Inc. .......... August 1998 3,675 22 1,032 Stock
LABORATORY EQUIPMENT:
Electrothermal Engineering Ltd ... July 1998 5,565 (21) 2,627 Stock
Lab-Line Instruments, Inc. ....... July 1998 20,323 633 8,995 Stock
See note 16 for a description of business segments.
1999
Acquisitions
During 1999, the Company completed 16 acquisitions for cash. The aggregate
cash price of the acquisitions (none of which individually or aggregated was
significant) was $251,332. The Company is not subject to future purchase price
adjustments based upon earnout provisions under any of the purchase and sale
agreements. All acquisitions were accounted for as purchases. The results of the
acquisitions were included as of the date they were acquired. The following
table outlines sales and operating income for the
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most recent date prior to the acquisition, and total assets at the most recent
available date prior to acquisition, for each of the acquired companies. The
type of acquisition refers to whether the Company purchased assets or the stock
of the acquired companies. The total goodwill for the acquired companies was
$182,926.
OPERATING TOTAL TYPE OF
BUSINESS SEGMENT DATE SALES INCOME ASSETS ACQUISITION
---------------- ------------- ------- --------- ------- -----------
Company Acquired
LABWARE AND LIFE SCIENCES:
InVitro Scientific Products, Inc ...... October 1998 $ 5,095 $ 708 $ 1,897 Assets
Pacofin Intersep Filtration Products
Business of Pacofin, Ltd. ........... November 1998 902 343 952 Assets
Scientific Resources, Inc. ............ January 1999 4,480 165 1,043 Assets
Molecular BioProducts, Inc. ........... January 1999 15,617 4,217 6,727 Stock
Matrix Technologies Corporation ....... September 16,775 1,313 8,419 Stock
CLINICAL AND INDUSTRIAL:
Corning Samco Corporation ............. October 1998 22,996 2,316 15,690 Stock
HistoScreen(TM) and
Histogel(TM) product lines of
Perk Scientific ..................... January 1999 932 254 227 Assets
Stahmer, Weston & Co., Inc. ........... February 1999 2,961 (74) 873 Stock
System Sales Associates, Inc. ......... August 1999 4,382 565 1,810 Assets
Novelty Glass & Mirror Co., Inc. ...... February 1999 280 (9) 4,949 Assets
DIAGNOSTICS AND MICROBIOLOGY:
Rascher & Betzold, Inc................. January 1999 104 (9) 200 Assets
Microgenics Corporation................ June 1999 37,165 8,034 25,573 Stock
MicroTest, Inc......................... July 1999 1,631 1,033 320 Assets
Bioreagent and ELISA immunochemistry
product lines of Genzyme
Diagnostics ......................... July 1999 3,391 2,465 434 Assets
LABORATORY EQUIPMENT:
Laboratory Devices, Inc. .............. January 1999 940 202 273 Assets
Stem Corporation Ltd .................. August 1999 1,655 714 1,090 Stock
See note 16 for a description of business segments.
2000
Acquisitions
During 2000, the Company completed 10 acquisitions, nine for all cash and
one for cash and notes in the amount of $30,600. The aggregate cash price of the
acquisitions (none of which individually or aggregated was significant) was
$206,900. The Company may be subject to future purchase price adjustments based
upon earnout provisions under one of the purchase and sale agreements. Such
earnout provision has a maximum payout of $6,000. The earnout provision is
subject to the achievement of certain financial goals and is not contingent upon
employment. The entire earnout is expected to be paid in fiscal 2001 and will be
accounted for as additional goodwill. All acquisitions were accounted for as
purchases. The results of the acquisitions were included as of the date they
were acquired. The following table outlines sales and operating income for the
most recent date prior to the acquisition, and total assets at the most recent
available date prior to acquisition, for each of the acquired companies. The
type of acquisition refers to whether the Company purchased assets or the stock
of the acquired companies. The total goodwill for the acquired companies was
approximately $205,100. which will be amortized over 20 to 40 years.
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OPERATING TOTAL TYPE OF
BUSINESS SEGMENT DATE SALES INCOME ASSETS ACQUISITION
---------------- ------------- ------- --------- ------ -----------
Company Acquired
LABWARE AND LIFE SCIENCES:
Robbins Scientific Corporation ........ October 1999 $19,601 $ 4,088 $9,876 Stock
Versi Dry(R) product line of National
Packaging Services Corporation ...... February 2000 2,494 1,300 Asset
Sun International ..................... February 2000 5,818 (270) 2,269 Asset
Genevac Limited ....................... May 2000 10,624 1,082 4,165 Stock
Genevac Inc ........................... May 2000 1,626 -- N/A Stock
CLINICAL AND INDUSTRIAL:
Microm Laborgorate GmbH ............... October 1999 20,676 1,112 7,907 Asset
Lab Vision Corporation................. August 2000 7,487 1,146 4,426 Stock
DIAGNOSTICS AND MICROBIOLOGY:
Consolidated Technologies, Inc. ....... March 2000 7,782 2,888 6,100 Asset
Murex bacteriology latex
agglutination product line of
Abbott Laboratories ................. August 2000 20,461 10,026 N/A Asset
The thyroid and coagulation product
line of Axis Shield ................. September 2000 4,507 2,174 N/A Asset
See note 16 for a description of business segments.
The following pro forma financial information presents the combined results
of the operations of the Company and the purchased businesses referred to above
as if the 1999 acquisitions had occurred as of the beginning of 1998, after
giving effect to certain adjustments, including amortization of goodwill,
additional depreciation expense, increased interest expense on debt related to
the acquisition and related tax effects. The pro forma information does not
necessarily reflect the results of operations that would have occurred had the
Company and the purchased companies listed above constituted a single entity
during such periods.
YEAR ENDED SEPTEMBER 30,
------------------------
1999 2000
--------- ---------
Net sales .......................... $ 816,114 $ 903,781
Net income ......................... $ 140,151 $ 128,936
Basic earnings per common share .... $ 1.36 $ 1.23
Diluted earnings per common share .. $ 1.32 $ 1.21
Subsequent to September 30, 2000, the Company completed one acquisition for
cash which will be accounted for as a purchases. The following unaudited table
outlines the sales, operating income and total assets for the most recent
available twelve-month period prior to each cash acquisition.
(UNAUDITED)
OPERATING TOTAL TYPE OF
BUSINESS SEGMENT DATE SALES INCOME ASSETS ACQUISITION
---------------- ------------- ------- --------- ------- -----------
Company Acquired
CLINICAL AND INDUSTRIAL:
Vacuum Process Technology, Inc......... November 2000 $ 3,977 $(19) $ 1,097 Asset
Discontinued Operations:
Charge Related to Former Operations
In 1998, the Company incurred after tax charges of $7,750 related to legal
proceedings commenced by Combustion Engineering, Inc. against the Company with
respect to the former Taylor Instruments facility in Rochester, New York (the
"Site"), an operation accounted for as a discontinued operation when the
decision was made to exit the industrial capital goods business in 1983. See
note 12.
Divestiture
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 approximately $1,900 of selling expenses and a reduction to the
purchase price
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of approximately $2,600 paid subsequent to September 30, 1999, amounted to
approximately $83,200. The proceeds of the sale net of tax and expenses were
used to repay approximately $67,900 previously owed under the Company's credit
facilities.
Net sales from NPT were approximately $47,800 in 1998. Certain expenses were
allocated to discontinued operations in 1998 and 1999 (up to the date of sale),
including interest expense, which was allocated based upon the historical
purchase prices and cash flows of the companies comprising NPT. Income from the
discontinued operations of NPT in 1998 and 1999 were $3,848 and $121,
respectively.
Distribution
On November 8, 2000, Sybron International Corporation announced that it had
declared a pro rata distribution (or spin-off) to its shareholders of the common
stock and related preferred stock purchase rights of Sybron Dental Specialties,
Inc. (the "Distribution"). Shareholders of record as of November 30, 2000
received one share of Sybron Dental Specialties, Inc. ("SDS") common stock for
every three shares of Sybron International common stock they own. These
consolidated financial statements have reclassified SDS and its affiliates to
discontinued operations. On December 11, 2000 the Distribution was completed. No
proceeds will be received by the Company in connection with the Distribution.
Income included in discontinued operations for 1998, 1999 and 2000 was $27,823.
$47,844 and $41,597, respectively. SDS will issue its own financial statements
as of September 30, 2000.
As a result, these consolidated financial statements have reclassified SDS
and its affiliates to discontinued operations. SDS included the business
segments, Professional Dental, Orthodontics and Infection Control Products. The
components of net assets held for sale of discontinued operations included in
the consolidated balance sheets at September 30, 1999 and 2000 are as follows:
SEPTEMBER 30, SEPTEMBER 30,
1999 2000
--------- ---------
Cash ......................................... $ 6,090 $ 5,783
Net account receivables ...................... 84,210 85,767
Net inventories .............................. 79,574 74,383
Other current assets ......................... 6,336 6,497
Advances and loans to Sybron International ... 56,777 77,762
Property plant and equipment -- net .......... 57,488 55,326
Intangible assets ............................ 207,606 220,705
Other assets ................................. 6,263 6,967
Current portion of long term debt ............ (1,571) (21,761)
Accounts payable ............................. (13,122) (11,351)
Income taxes payable ......................... (3,918) (5,680)
Accrued liabilities .......................... (29,402) (27,859)
Deferred income taxes -- net ................. (6,203) (6,252)
Long term debt ............................... (283,447) (298,482)
Other liabilities ............................ (11,086) (8,835)
--------- ---------
$ 155,595 $ 152,970
========= =========
(16) SEGMENT INFORMATION
The Company's operating subsidiaries are engaged in the manufacture and sale
of laboratory products in the United States and other countries. The Company's
products are categorized in the business segments of Labware and Life Sciences;
Clinical and Industrial; Diagnostics and Microbiology; and Laboratory Equipment.
A description of the business segments follows:
Products in the Labware and Life Sciences business segment include
approximately 4,900 items, including reusable plastic products (bottles,
carboys, graduated ware, beakers and flasks) and disposable plastic products
(microfiltration and cryogenic storage products). Other labware products include
products for critical packaging applications (bottles for packaging diagnostic
and other reagents, media, pharmaceuticals and specialty chemicals), safety
products (hazard labeled containers and biohazard disposal products),
environmental containers, and autosampler vials and seals used in chromatography
analysis. Life sciences products include applications of cell culture,
filtration, molecular biology, cryopreservation, immunology, electrophoresis,
liquid handling and high throughput screening for pharmaceutical drug discovery.
Products in the Clinical and Industrial business segment include microscope
slides, cover glass, glass tubes and vials, stains and reagents and histology
and immunochemistry instrumentation for clinical testing, thin glass for watch
crystals, cosmetic mirrors, precision and coated glass used in various optic
applications, and precision thin film optical coating equipment.
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Products in the Diagnostics and Microbiology business segment are used for drug
testing, therapeutic drug monitoring, infectious disease detection, pregnancy
testing, glucose tolerance testing, blood bank saline testing, clinical
diagnostic liquid standards and research application temperature measurement.
Products include diagnostic test kits, culture media, diagnostic reagents, and
other products used in detecting causes of various infections or diseases.
Products in the Laboratory Equipment business segment include heating,
stirring and temperature control apparatus such as hot plates, stirrers,
shakers, heating tapes, muffle furnaces, incubators, dri-baths, bench top
sterilizers and cryogenic storage apparatus, which are fundamental to basic
procedures performed in the laboratory; systems for producing ultra pure water;
bottle top dispensers, positive displacement micropipettors, and small mixers
used in biomolecular research; constant temperature equipment including
refrigerators/freezers, ovens, water baths, environmental chambers; and furnaces
and fluorometers, spectrophotometers, and strip chart recorders.
Inter-business segment sales are not material. Information on these business
segments is summarized as follows:
LABWARE CLINICAL DIAGNOSTICS
AND LIFE AND AND LABORATORY TOTAL
SCIENCES INDUSTRIAL MICROBIOLOGY EQUIPMENT ELIMINATIONS SLP OTHER(a) TOTAL
-------- ---------- ------------ --------- ------------ ------- -------- -----
1998
Revenues:
External customer .......... 228,775 135,438 114,683 78,866 -- 557,762 -- 557,762
Intersegment ............... 717 5,608 352 972 (6,761) 888 (888) --
Total revenues ....... 229,492 141,046 115,035 79,838 (6,761) 558,650 (888) 557,762
Gross profit ................. 115,724 57,351 59,407 34,697 -- 267,179 -- 267,179
Selling, general and admin ... 65,570 23,082 34,294 16,405 -- 139,351 5,410 144,761
Operating income ............. 50,154 34,269 25,113 18,292 -- 127,828 (5,410) 122,418
Depreciation and
amortization ............... 16,551 8,271 8,477 4,082 -- 37,381 1,449 38,830
Interest income .............. 433 66 66 11 -- 576 47 623
Interest expense ............. 138 201 10 16 -- 365 33,407 33,772
Segment assets ............... 362,637 220,886 320,190 118,306 -- 1,022,019 205,833 1,227,852
Expenditures for property,
plant and equipment ........ 19,493 7,456 3,430 2,686 -- 33,065 180 33,245
1999
Revenues:
External customer .......... 268,788 176,059 171,647 98,543 -- 715,037 -- 715,037
Intersegment ............... 976 5,833 392 804 (7,367) 638 (638) --
Total revenues ....... 269,764 181,892 172,039 99,347 (7,367) 715,675 (638) 715,037
Gross profit ................. 136,004 75,407 89,458 41,089 -- 341,958 -- 341,958
Selling, general and admin ... 68,600 30,102 46,246 20,632 -- 165,580 7,252 172,832
Operating income ............. 67,404 45,305 43,212 20,457 -- 176,378 (7,252) 169,126
Depreciation and
amortization ............... 18,768 11,696 12,401 4,393 -- 47,258 1,737 48,995
Interest income .............. 183 66 79 12 -- 340 421 761
Interest expense ............. 233 204 203 45 -- 685 39,388 40,073
Segment assets ............... 465,648 290,598 417,313 131,942 -- 1,305,501 234,474 1,539,975
Expenditures for property,
plant and equipment ........ 15,598 7,377 4,743 2,254 -- 29,972 405 30,377
2000
Revenues:
External customer .......... 347,437 208,686 210,147 97,305 -- 863,575 -- 863,575
Intersegment ............... 1,087 6,962 463 305 (8,817) -- -- --
Total revenues ....... 348,524 215,648 210,610 97,610 (8,817) 863,575 -- 863,575
Gross profit ................. 179,460 89,667 111,651 41,352 -- 422,130 -- 422,130
Selling, general and admin ... 100,365 37,077 60,797 21,148 -- 219,387 9,754 229,141
Operating income ............. 79,095 52,590 50,854 20,204 -- 202,743 (9,754) 192,989
Depreciation and
amortization ............... 27,962 13,049 18,921 4,649 -- 64,581 2,006 66,587
Interest income .............. 217 120 353 14 -- 704 133 837
Interest expense ............. 933 110 25 1 -- 1,069 47,615 48,684
Segment assets ............... 428,044 274,968 521,987 88,439 -- 1,313,438 478,926 1,792,364
Expenditures for property,
plant and equipment ........ 21,670 8,511 10,527 1,726 -- 42,434 84 42,518
- ----------
(a) Includes the elimination of intercompany activity and corporate
office assets consisting primarily of cash, assets held for sale,
securities available for sale (1999 and 2000), deferred taxes, and
property, plant and equipment.
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The Company's international operations are conducted principally in Europe.
Inter-geographic sales are made at prices approximating market.
1998 1999 2000
--------- --------- ---------
Net Sales:
United States:
Customers .............. $ 422,055 $ 543,846 $ 643,188
Inter-geographic ....... 37,237 43,777 55,616
--------- --------- ---------
459,292 587,623 698,804
--------- --------- ---------
Europe:
Customers .............. 83,488 103,097 133,437
Inter-geographic ....... 21,069 23,653 28,059
--------- --------- ---------
104,557 126,750 161,496
--------- --------- ---------
All other areas:
Customers .............. 52,219 68,094 86,950
Inter-geographic ....... 8,021 7,798 8,934
--------- --------- ---------
60,240 75,892 95,884
Inter-geographic sales ... (66,327) (75,228) (92,609)
--------- --------- ---------
Total net sales ........ $ 557,762 $ 715,037 $ 863,575
========= ========= =========
Net Property:
United States .......... $ 127,181 $ 147,802 $ 168,472
Europe ................. 40,424 39,174 38,766
All other areas ........ 733 783 856
--------- --------- ---------
Total net property ..... $ 168,338 $ 187,759 $ 208,094
========= ========= =========
Major customer information:
During 1998, 1999 and 2000, one customer, Fisher Scientific, accounted for
10% or more of the Company's net revenues. During 1998 and 1999, another
customer, VWR, accounted for 10% or more of the Company's net revenues. The
table below lists by segment the 1998, 1999 and 2000 sales to Fisher Scientific
and the 1998 and 1999 sales to VWR.
FISCHER SCIENTIFIC VWR
------------------------------ -----------------
1998 1999 2000 1998 1999
--------- --------- --------- --------- --------
Labware and Life Sciences ...... $47,957 $ 55,514 $ 60,818 $48,504 $53,391
Clinical and Industrial ........ 15,040 24,490 35,953 5,245 7,736
Laboratory Equipment ........... 16,025 20,119 22,189 11,037 17,044
Diagnostics and Microbiology ... 4,602 6,230 5,571 190 450
------- --------- --------- ------- -------
$83,624 $ 106,353 $ 119,904 $64,976 $78,621
======= ========= ========= ======= =======
(17) COMPREHENSIVE INCOME
The components of other comprehensive income (loss) are as follows:
PRETAX TAX AFTER TAX
Year ended September 30, 1998
Translation Adjustment ............. $ 4,293 $ -- $ 4,293
========= ======== =========
Year ended September 30, 1999
Translation Adjustment ............. $ (9,905) $ -- $ (9,905)
Unrealized gain on security ........ 439 (173) 266
--------- -------- ---------
Total other comprehensive income ... $ (9,466) $ (173) $ (9,639)
========= ======== =========
Year ended September 30, 2000
Translation Adjustment ............. $ (26,773) $ -- $ (26,773)
Unrealized gain on security ........ 3,544 (1,420) 2,124
--------- -------- ---------
Total other comprehensive income ... $ (23,229) $ (1,420) $ (24,649)
========= ======== =========
(18) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
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FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
---- ---------- --------- --------- --------- ----------
Net sales ........................... $ 156,412 $ 175,406 $ 183,559 $ 199,660 $ 715,037
========== ========= ========= ========= ==========
Gross profit ........................ $ 73,620 $ 83,094 $ 88,142 $ 97,102 $ 341,958
========== ========= ========= ========= ==========
Income from continuing operations ... $ 14,951 $ 20,596 $ 20,860 $ 21,004 $ 77,411
Discontinued operation .............. 8,909 11,496 12,484 15,076 $ 47,965
Income before extraordinary item
Extraordinary item .................. -- 18,796 (838) (787) 17,171
---------- --------- --------- --------- ----------
Net income .......................... $ 23,860 $ 50,888 $ 32,506 $ 35,293 $ 142,547
========== ========= ========= ========= ==========
Basic Per Common Share Earnings:
Income from continuing operations ... $ .14 $ .20 $ .20 $ .20 $ .75
Discontinued operations ............. .09 .11 .12 .15 .46
Extraordinary item .................. -- .18 (.01) (.01) .17
---------- --------- --------- --------- ----------
Net income .......................... $ .23 $ .49 $ .31 $ .34 $ 1.38
========== ========= ========= ========= ==========
Diluted Per Common Share Earnings:
Income from continuing operations
Before extraordinary item ......... $ .14 $ .19 $ .19 $ .20 $ .73
Discontinued operations ............. .09 .11 .12 .14 .45
Extraordinary item .................. -- .18 (.01) (.01) .16
---------- --------- --------- --------- ----------
Net income .......................... $ .23 $ .48 $ .30 $ .33 $ 1.34
========== ========= ========= ========= ==========
FIRST SECOND THIRD FOURTH
2000 QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
---- ---------- --------- --------- --------- ----------
Net sales ........................... $ 204,883 $ 218,074 $ 212,029 $ 228,589 $ 863,575
========== ========= ========= ========= ==========
Gross profit ........................ $ 100,091 $ 107,165 $ 105,409 $ 109,465 $ 422,130
========== ========= ========= ========= ==========
Income from continuing operations ... $ 20,461 $ 25,340 $ 23,943 $ 16,980 $ 86,724
Discontinued operation ............. $ 9,963 $ 13,635 $ 11,275 $ 6,724 $ 41,597
---------- --------- --------- --------- ----------
Net income ......................... $ 30,424 $ 38,975 $ 35,218 $ 23,704 $ 128,321
========== ========= ========= ========= ==========
Basic Per Common Share Earnings:
Income from continuing operations ... $ .20 $ .24 $ .23 $ .16 $ .83
Discontinued operations ............ .09 .13 .11 .07 .40
---------- --------- --------- --------- ----------
Net income ......................... $ .29 $ .37 $ .34 $ .23 $ 1.23
========== ========= ========= ========= ==========
Diluted Per Common Share Earnings:
Income from continuing operations
Before extraordinary item ......... $ .20 $ .24 $ .22 $ .16 $ .81
Discontinued operations ............. .09 .13 .11 .06 .39
---------- --------- --------- --------- ----------
Net income .......................... $ .29 $ .37 $ .33 $ .22 $ 1.20
========== ========= ========= ========= ==========
(19) SUBSEQUENT EVENTS
On December 11, 2000 (the "Distribution Date"), the Company completed the
Spin-Off. Just prior to the Spin-Off, the Company received a cash dividend of
approximately $67,900 from SDS as well as a non-cash dividend equal to the net
intercompany payable from the Company to SDS and its affiliates on the
Distribution Date. On the Distribution Date, the Company borrowed approximately
$563,000 under the Credit Facilities and, together with funds aggregating
$375,000 (approximately $307,100, the amount equal to the outstanding amounts
under the Previous Credit Agreement attributable to SDS on the Distribution Date
including accrued interest, plus the cash dividend of $67,900 from SDS to the
Company), used such funds to repay all of the outstanding amounts under the
Previous Credit Agreement (including amounts attributable to SDS and accrued
interest) aggregating approximately $938,000. See footnote 7 regarding terms and
amount of the Credit Facilities.
On December 11, 2000, due to the extinguishment of debt, interest rate swaps
previously designated as cash flow hedges ceased to meet hedge criteria under
SFAS 133 as modified by SFAS 138. The approximate fair value on December 11,
2000 was $1,700. The Company sold these interest rate swaps on December 12, 2000
for approximately $1,700, and realized a gain of $1,100 (net of tax). Because
these interest rate swaps were designated as a hedge against future variable
rate interest payments and the extinguished debt, the gain will continue to be
carried in other comprehensive income and recognized as an adjustment of yield
interest expense of the Credit Facilities over the remaining term of the
interest rate contract. Options under Sybron's employee stock option programs
with respect to 1,320,515 shares of Company common stock were exchanged for
options to purchase SDS common stock by SDS employees in connection with the
Spin-Off.
On November 8, 2000, the Board of Directors adopted, effective upon
completion of the Distribution, a Rights Agreement, dated as of December 11,
2000, pursuant to which Rights are distributed as a dividend at the rate of one
Right for each share of common stock, par value $.01 per share, of the Company
held by shareholders of record as of the close of business on December 12, 2000,
the day after the Distribution, or issued thereafter. Each Right initially will
entitle shareholders to buy one one-hundredth of a share of a series of
preferred stock for one hundred forty dollars. The Rights generally will be
exercisable if a person or group acquires beneficial ownership of 15 percent or
more of the Company's common stock or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 15 percent or
more of the Company's common stock. Thereafter, or if thereafter
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the Company is involved in a merger or certain other business combinations not
approved by the Board of Directors, each right will entitle its holder, other
than the acquiring person or group, to purchase common stock of either the
Company or the acquirer having a value of twice the exercise price of the Right.
The Rights are attached to the common stock unless and until they become
exercisable and will expire on December 12, 2010, unless earlier redeemed for
$.01 each, or exchanged by the Company as provided in the Rights Agreement.
(20) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Below are the condensed consolidating balance sheets, statements of
operations and statements of cash flows of Apogent Technologies Inc., as of and
for the fiscal years ended September 30, 2000 and 1999.
Certain general corporate expenses have not been allocated to the
subsidiaries, and are all included under the Apogent Technologies Inc. heading.
As a matter of course, the Company retains certain assets and liabilities at the
corporate level that are not allocated to the subsidiaries including, but not
limited to, certain employee benefit, insurance and tax liabilities. Income tax
provisions for subsidiaries are typically recorded using an estimate and
finalized in total with an adjustment recorded at the corporate level. Certain
debt under which Apogent Technologies is listed as the debtor has been allocated
to the Guarantor subsidiaries. Intercompany balances include
receivables/payables incurred in the normal course of business in addition to
investments and loans transacted between subsidiaries of the Company or with
Apogent Technologies Inc.
Condensed Consolidating Balance Sheets:
33
CONDENSED CONSOLIDATING BALANCE SHEETS
As of September 30, 2000
------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,086 $ - $ 7,902 $ (2,577) $ 12,411
Accounts receivable, net - 146,564 27,021 - 173,585
Inventories, net 1,187 120,399 24,020 (3,827) 141,779
Net assets held for discontinued operations 152,970 - - - 152,970
Other current assets 16,467 28,387 4,112 (19,176) 29,790
----------- ----------- --------- ---------- -----------
Total current assets 177,710 295,350 63,055 (25,580) 510,535
Property, plant and equipment, net 8,840 162,431 36,823 - 208,094
Intangible assets 2,922 895,583 109,648 - 1,008,153
Deferred income taxes 12,563 (4,693) - - 7,870
Investment in subsidiaries 813,152 51,069 - (864,221) -
Other assets 52,154 3,914 1,644 - 57,712
----------- ----------- --------- ---------- -----------
Total assets $ 1,067,341 $ 1,403,654 $ 211,170 $ (889,801) $ 1,792,364
=========== =========== ========= ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 594 $ 37,361 $ 16,521 $ (2,577) $ 51,899
Advances and loans from SDS 77,762 - - - 77,762
Current portion of long-term debt - 34,252 75 - 34,327
Income taxes payable 34,117 - 2,523 (20,036) 16,604
Accrued expenses and other current liabilities 17,331 29,782 13,434 - 60,547
----------- ----------- --------- ---------- -----------
Total current liabilities 129,804 101,395 32,553 (22,613) 241,139
----------- ----------- --------- ---------- -----------
Long-term debt - 649,383 26 - 649,409
Securities lending agreement 54,444 - - - 54,444
Deferred income taxes 70,388 14,793 7,867 93,048
Other liabilities 1,164 3,772 1,060 (1,188) 4,808
Net intercompany payable/(receivable) (519,063) 463,622 55,232 209 -
Commitments and contingent liabilities
Shareholders' equity
Preferred stock - - - - -
Common stock 1,052 - - 1,052
Equity rights - - - - -
Additional paid-in-capital 271,739 786,251 77,970 (864,221) 271,739
Retained earnings (deficit) 1,055,421 (615,562) 93,830 (1,988) 531,701
Other comprehensive income 2,392 - (57,368) (54,976)
Treasury stock (at cost) - - - - -
----------- ----------- --------- ---------- -----------
Total shareholders' equity 1,330,604 170,689 114,432 (866,209) 749,516
----------- ----------- --------- ---------- -----------
Total liabilities and shareholders' equity $ 1,067,341 $ 1,403,654 $ 211,170 $ (889,801) $ 1,792,364
=========== =========== ========= ========== ===========
As of September 30, 1999
-------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,708 $ - $ 8,126 $ (2,433) $ 12,401
Accounts receivable, net - 128,123 19,173 - 147,296
Inventories, net 1,189 103,501 21,772 (2,834) 123,628
Net assets held for discontinued operations 155,595 - - - 155,595
Other current assets 20,037 4,264 3,107 - 27,408
----------- ----------- --------- ---------- -----------
Total current assets 183,529 235,888 52,178 (5,267) 466,328
Property, plant and equipment, net 10,053 138,172 39,534 - 187,759
Intangible assets 561 725,050 94,864 - 820,475
Deferred income taxes 7,667 - - 7,667
Investment in subsidiaries 686,481 13,298 - (699,779) -
Other assets 55,220 1,587 939 57,746
----------- ----------- --------- ---------- -----------
Total assets $ 943,511 $ 1,113,995 $ 187,515 $ (705,046) $ 1,539,975
=========== =========== ========= ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 649 $ 32,834 $ 18,246 $ (2,433) $ 49,296
Advances and loans from SDS 56,777 - - - 56,777
Current portion of long-term debt - 7,341 50 - 7,391
Income taxes payable 14,899 1,671 2,374 (572) 18,372
Accrued expenses and other current liabilities 33,734 23,320 9,289 - 66,343
----------- ----------- --------- ---------- -----------
Total current liabilities 106,059 65,166 29,959 (3,005) 198,179
----------- ----------- --------- ---------- -----------
Long-term debt - 541,290 56 - 541,346
Securities lending agreement 50,461 - - - 50,461
Deferred income taxes 36,174 24,170 9,544 - 69,888
Other liabilities 49,398 4,747 612 - 54,757
Net intercompany (receivable) payable (435,045) 330,751 105,274 (980) -
Commitments and contingent liabilities - - - - -
Shareholders' equity
Preferred stock - - - - -
Common stock 1,040 - - - 1,040
Equity rights - - - - -
Additional paid-in-capital 251,251 659,580 40,199 (699,779) 251,251
Retained earnings (deficit) 883,907 (511,709) 32,464 (1,282) 403,380
Other comprehensive income 266 - (30,593) - (30,327)
Treasury stock (at cost) - - - - -
----------- ----------- --------- ---------- -----------
Total shareholders' equity 1,136,464 147,871 42,070 (701,061) 625,344
----------- ----------- --------- ---------- -----------
Total liabilities and shareholders' equity $ 943,511 $ 1,113,995 $ 187,515 $ (705,046) $ 1,539,975
=========== =========== ========= ========== ===========
34
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Year Ended September 30, 2000
-------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $ 761,723 $ 146,223 $ (44,371) $ 863,575
Cost of sales - 397,009 87,821 (43,385) 441,445
------------ ------------ ------------ ------------ ------------
Gross profit - 364,714 58,402 (986) 422,130
Selling, general and administrative expenses 9,563 184,749 34,829 229,141
------------ ------------ ------------ ------------ ------------
Operating income (9,563) 179,965 23,573 (986) 192,989
Other income (expense):
Interest expense (78) (43,888) (5,484) - (49,450)
Other, net 776 1,439 (1,429) 786
------------ ------------ ------------ ------------ ------------
Income before income taxes, discontinued
operations and extraordinary items (8,865) 137,516 16,660 (986) 144,325
Income taxes (2,595) 51,859 8,624 (287) 57,601
------------ ------------ ------------ ------------ ------------
Income from continuing operations before
extraordinary items (6,270) 85,657 8,036 (699) 86,724
Discontinued operations 41,597 - - - 41,597
------------ ------------ ------------ ------------ ------------
Net income $ 35,327 $ 85,657 $ 8,036 $ (699) $ 128,321
============ ============ ============ ============ ============
For the Year Ended September 30, 1999
-------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $ 638,886 $ 109,883 $ (33,732) $ 715,037
Cost of sales - 337,597 67,008 (31,526) 373,079
------------ ------------ ----------- ------------ ------------
Gross profit - 301,289 42,875 (2,206) 341,958
Selling, general and administrative expenses 14,943 132,418 25,471 172,832
------------ ------------ ----------- ------------ ------------
Operating income (14,943) 168,871 17,404 (2,206) 169,126
Other income (expense):
Interest expense (2,948) (31,785) (6,491) - (41,224)
Other, net 131 (585) (56) - (510)
------------ ------------ ---------- ------------ ------------
Income before income taxes, discontinued
operations and extraordinary items (17,760) 136,501 10,857 (2,206) 127,392
Income taxes (7,454) 50,916 6,820 (301) 49,981
------------ ------------ ----------- ------------ ------------
Income from continuing operations before
extraordinary items (10,306) 85,585 4,037 (1,905) 77,411
Discontinued operations 47,965 - - - 47,965
------------ ------------ ----------- ------------ ------------
Income before extraordinary items 37,659 85,585 4,037 (1,905) 125,376
Extraordinary item 17,171 - - - 17,171
------------ ------------ ----------- ------------ ------------
Net income $ 54,830 $ 85,585 $ 4,037 $ (1,905) $ 142,547
============ ============ =========== ============ ============
For the Year Ended September 30, 1998
-------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $ - $ 490,145 $ 93,803 $ (26,186) $ 557,762
Cost of sales - 260,599 55,999 (26,015) 290,583
----------- ------------ ------------ ------------ ------------
Gross profit - 229,546 37,804 (171) 267,179
Selling, general and administrative expenses 19,438 104,727 20,596 - 144,761
----------- ------------ ------------ ------------ ------------
Operating income (19,438) 124,819 17,208 (171) 122,418
Other income (expense):
Interest expense (3,236) (32,285) 251 - (35,270)
Other, net (44) (452) 184 - (312)
----------- ------------ ------------ ------------ ------------
Income before income taxes, discontinued
operations and extraordinary items (22,718) 92,082 17,643 (171) 86,836
Income taxes 3,081 26,929 4,733 (29) 34,714
----------- ------------ ------------ ------------ ------------
Income from continuing operations before
extraordinary items (25,799) 65,153 12,910 (142) 52,122
Discontinued operations 23,921 - - - 23,921
----------- ------------ ------------ ------------ ------------
Net income $ (1,878) $ 65,153 $ 12,910 $ (142) $ 76,043
=========== ============ ============ ============ ============
35
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended September 30, 2000
-------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows provided by operating activities: $ 8,446 $ 105,872 $ 2,226 $ - $ 116,544
Cash flows from investing activities:
Capital expenditures (1,007) (33,823) (7,663) - (42,493)
Proceeds from sales of property, plant and
equipment - 873 51 - 924
Proceeds from sale of NPT (2,600) - - - (2,600)
Net cash inflow from SDS 58,098 - - - 58,098
Net payments for businesses acquired (82,348) (130,992) 6,187 - (207,153)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (27,857) (163,944) (1,425) - (193,224)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt - 332,640 - - 332,640
Principal payments on long-term debt - (274,712) (58) - (274,770)
Securities lending agreement 3,544 - - - 3,544
Proceeds from the exercise of stock options 12,599 - - - 12,599
Other 3,646 - - - 3,646
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities 19,789 57,928 (58) - 77,659
Effect of exchange rate on cash and cash
equivalents - - (969) - (969)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 378 (144) (224) - 10
Cash and cash equivalents at beginning of year 6,708 (2,433) 8,126 - 12,401
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of year $ 7,086 $ (2,577) $ 7,902 $ - $ 12,411
============ ============ ============ ============ ============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 55,509 $ 324 $ - $ 55,833
============ ============ ============ ============ ============
Income taxes $ 40,544 $ 319 $ 1,549 $ - $ 42,412
============ ============ ============ ============ ============
Capital lease obligations incurred $ - $ 25 $ - $ - $ 25
============ ============ ============ ============ ============
For the Year Ended September 30, 1999
-------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows provided by operating activities: $ 3,519 $ 111,711 $ (128) $ - $ 115,102
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (1,030) (22,477) (6,413) - (29,920)
Security purchased (50,461) - - - (50,461)
Proceeds from sales of property, plant and
equipment - 787 158 - 945
Proceeds from sale of NPT 85,841 - - - 85,841
Net cash inflow from SDS 47,962 - - - 47,962
Net payments for businesses acquired (143,907) (104,375) (1,641) - (249,923)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (61,595) (126,065) (7,896) - (195,556)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt - 531,060 - - 531,060
Principal payments on long-term debt - (515,737) (13) - (515,750)
Securities lending agreement 50,461 - - - 50,461
Proceeds from the exercise of stock options 10,691 - - - 10,691
Other 1,930 - - - 1,930
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities 63,082 15,323 (13) - 78,392
Effect of exchange rate on cash and cash
equivalents - - (146) - (146)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 5,006 969 (8,183) - (2,208)
Cash and cash equivalents at beginning of year 1,702 (3,402) 16,309 - 14,609
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of year $ 6,708 $ (2,433) $ 8,126 $ - $ 12,401
============ ============ ============ ============ ============
Supplemental disclosures of cash flow
information
Cash paid during the year for:
Interest $ - $ 41,464 $ 254 $ - $ 41,718
============ ============ ============ ============ ============
Income taxes $ 27,009 $ 2,185 $ 3,237 $ - $ 32,431
============ ============ ============ ============ ============
Capital lease obligations incurred $ 104 $ 353 $ - $ - $ 457
============ ============ ============ ============ ============
For the Year Ended September 30, 1998
-------------------------------------
Non
Apogent Guarantor Guarantor
(In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Cash flows provided by operating activities: $ 123,165 $ (32,882) $ 14,372 $ - $ 104,655
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (2,223) (23,959) (6,615) - (32,797)
Proceeds from sales of property, plant
and equipment - 5,087 42 - 5,129
Net cash inflow from outflow to SDS (28,131) - - - (28,131)
Net payments for businesses acquired (111,805) (79,961) (251) - (192,017)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (142,159) (98,383) (6,824) - (247,816)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt - 100,000 - - 100,000
Principal payments on long-term debt - (19,559) (3) - (19,562)
Securities lending agreement - - - - -
Proceeds from the exercise of stock options 12,985 - - - 12,985
Proceeds - revolving credit facility - 291,960 - - 291,960
Principal payments - revolving credit facility - (243,960) - - (243,960)
Other 164 - - - 164
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities 13,149 128,441 (3) - 141,587
Effect of exchange rate on cash and cash
equivalents - - 429 - 429
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents (5,845) (3,274) 7,974 - (1,145)
Cash and cash equivalents at beginning of year 7,547 (128) 8,335 - 15,754
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,702 $ (3,402) $ 16,309 $ - $ 14,609
============ ============ ============ ============ ============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ - $ 32,283 $ 362 $ - $ 32,645
============ ============ ============ ============ ============
Income taxes $ 13,476 $ 835 $ 6,151 $ - $ 20,462
============ ============ ============ ============ ============
Capital lease obligations incurred $ - $ 183 $ - $ - $ 183
============ ============ ============ ============ ============
36
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Sybron International Corporation:
On November 13, 2000, except as to footnote 19 which is as of December 11,
2000, we reported on the consolidated balance sheets of Sybron International
Corporation and subsidiaries as of September 30, 1999 and 2000, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended September 30, 2000, which are
included in the 2000 Annual Report on Form 10-K. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related financial statement schedule as listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Milwaukee, Wisconsin
November 13, 2000 except as to footnote 19
which is as of December 11, 2000
37
SCHEDULE II
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1999 AND 2000
(IN THOUSANDS)
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTIONS OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
------------ ---------- ----------- ----------- ------------ -----------
Year ended September 30, 1998
Deducted from asset accounts:
Allowance for doubtful
receivables .............. $1,766 $ 462 $ 533(d) $ 682(a) $2,079
====== ======== ======= ======= ======
Inventory reserves ......... $2,997 $ (763) $ 1,479(d) $ 254(b) $3,459
====== ======== ======= ======= ======
Legal reserves ............... $1,147 $ (649) $ -- $ 230(c) $ 268
====== ======== ======= ======= ======
Restructuring reserve ........ $ 164 $ 9,424 $ -- $ 6,585(c) $3,003
====== ======== ======= ======= ======
Year ended September 30, 1999
Deducted from asset accounts:
Allowance for doubtful
receivables .............. $2,079 $ 907 $ 1,080(d) $ 968(a) $3,098
====== ======== ======= ======= ======
Inventory reserves ......... $3,459 $ 889 $ 967(d) $ 1,435(b) $3,880
====== ======== ======= ======= ======
Legal reserves ............... $ 268 $ 1,034 $ $ 866(c) $ 436
====== ======== ======= ======= ======
Restructuring reserve ........ $3,003 $ 245 $ -- $ 2,261(c) $ 987
====== ======== ======= ======= ======
Year ended September 30, 2000
Deducted from asset accounts:
Allowance for doubtful
receivables .............. $3,098 $ 863 $ 109(d) $ 29(a) $4,041
====== ======== ======= ======= ======
Inventory reserves ......... $3,880 $ (305) $ 1,010(d) $ 713(b) $3,872
====== ======== ======= ======= ======
Legal reserves ................. $ 436 $ 199 $ -- $ 110(c) $ 525
====== ======== ======= ======= ======
Restructuring reserve .......... $ 987 $ 11,300 $ -- $ 5,687(c) $6,609
====== ======== ======= ======= ======
- ----------
Note: Above additions and deductions include the effects of foreign currency
rate changes.
(a) Uncollectible accounts written off, net of recoveries.
(b) Inventory written off.
(c) Net disbursements.
(d) Reserves of acquired businesses.
33