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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2001
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11091
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APOGENT TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Wisconsin 22-2849508
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
48 Congress Street, Portsmouth, New Hampshire 03801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(603) 433-6131
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $0.01 per share New York Stock Exchange
Preferred Stock Purchase Rights (associated with
the Common Stock) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant, based upon the closing sale price of the registrant's Common
Stock on December 7, 2001 as reported on the New York Stock Exchange, was
approximately $2,443,339,000. Shares of Common Stock held by each executive
officer and director and by each person known to beneficially own more than 5%
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
At December 7, 2001, there were 106,129,455 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on January 28, 2002 have been incorporated by
reference into Part III of this Form 10-K.
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APOGENT TECHNOLOGIES INC.
TABLE OF CONTENTS
TO
2001 ANNUAL REPORT ON FORM 10-K
Item Page
---- ----
PART I
1 Business.......................................................... 1
2 Properties........................................................ 9
3 Legal Proceedings................................................. 10
4 Submissions of Matters to a Vote of Security Holders.............. 11
PART II
Market for Registrant's Common Equity and Related Shareholder
5 Matters........................................................... 13
6 Selected Financial Data........................................... 14
Management's Discussion and Analysis of Financial Condition and
7 Results of Operations............................................. 15
7A Quantitative and Qualitative Disclosures About Market Risk........ 32
8 Financial Statements and Supplementary Data....................... 34
Changes in and Disagreements With Accountants on Accounting and
9 Financial Disclosure.............................................. 78
PART III
10 Directors and Executive Officers of the Registrant................ 78
11 Executive Compensation............................................ 78
12 Security Ownership of Certain Beneficial Owners and Management.... 78
13 Certain Relationships and Related Transactions.................... 78
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 79
Signatures........................................................ 80
PART I
ITEM 1. Business
General
Apogent Technologies Inc. is a Wisconsin corporation, incorporated in 1993
to be the successor by merger in January 1994 to Sybron Corporation, a
Delaware corporation. The merger was accomplished to change the Company's
corporate domicile from Delaware to Wisconsin. The Company changed its name
from Sybron International Corporation to Apogent Technologies Inc. in January
2001.
On December 11, 2000, the Company spun off its dental business (the "Spin-
Off") by way of a pro rata distribution to its shareholders of all the
outstanding common stock and related preferred stock purchase rights of Sybron
Dental Specialties, Inc. ("SDS"). As a result of the Spin-Off, SDS became an
independent public company operating what was the Company's dental business.
Apogent continues to operate its clinical diagnostics, labware and life
sciences, and laboratory equipment businesses, as described herein.
During the fourth quarter of 2001, Apogent changed its reporting business
segments by combining its former clinical and industrial segment with its
former diagnostics and microbiology segment to form the clinical diagnostics
business segment. This change aligns the Company's financial reporting with
its operational activity. All historical financial information for the years
ended September 30, 2000 and 1999 has been restated to reflect this new
business segment.
When we use the terms "Company," "Apogent," "we," or "our" in this Annual
Report, we are referring to Apogent Technologies Inc. and its subsidiaries and
their respective predecessors, without the dental business. Our fiscal year
ends on September 30. All references to a particular year mean the fiscal year
ended September 30 of that year, unless we indicate otherwise. As a result of
the Spin-Off, SDS has been accounted for as a discontinued operation. In
addition, on March 31, 1999, the Company sold Nalge Process Technologies
Group, Inc. ("NPT") (the "NPT Sale"). NPT has also been accounted for as a
discontinued operation. All data, unless otherwise indicated, has been
restated to reflect the Spin-Off and the NPT Sale.
Forward-Looking Statements
The description of our businesses included in this Item 1, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7, and other portions of this Annual Report contain statements that could
be deemed to be forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Those statements concern, among
other things, our intent, belief, or current expectations with respect to our
operating and growth strategies, our capital expenditures, financing or other
matters, regulatory matters pertaining to us specifically and the industry in
general, industry trends, competition, risks attendant to foreign operations,
reliance on key distributors and large OEM customers, litigation,
environmental matters, and other factors affecting our financial condition or
results of operations. Such forward-looking statements involve certain risks
and uncertainties, many of which are beyond our control and could cause actual
results to differ materially from those contemplated in the forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in connection with such
statements as well as those described in the section entitled "Cautionary
Factors" in Item 7 of this Annual Report.
Business Segments
Apogent is a leading developer and manufacturer of products for the labware
and life sciences, clinical diagnostics, and laboratory equipment industries.
We are organized into three business segments to serve our customers in each
of these industries. Our subsidiaries manufacture most of these products in
approximately 80 facilities. We have over 120 facilities worldwide. Our
customers comprise distributors, pharmaceutical and
1
biotechnology companies, clinical and research laboratories, OEMs, and others.
Approximately 74% of our net sales are generated from sales transactions with
customers within the U.S. and the remainder is generated internationally,
mostly from Europe and Japan.
The end-users of our products generally comprise scientists and lab
technicians in the fields of life science research, clinical diagnostics, and
basic scientific research. These individuals typically work in laboratories at
pharmaceutical companies, hospitals, scientific research organizations, and
academic and government institutions. Life science research laboratories focus
on the discovery and development of new drugs, including the identification of
new drug targets, the discovery of new drug candidates, the development of
these candidates, and subsequent toxicology and efficacy testing. This sector
has experienced significant growth as pharmaceutical companies, biotechnology
companies, and academic institutions increase their research and development
efforts in order to develop new drugs.
Clinical Diagnostics Segment
Our clinical diagnostics business segment manufactures and sells products
primarily to clinical and commercial laboratories and to scientific research
and industrial customers. These products are used in a number of diagnostic
applications--specimen collection, specimen transportation, drug testing,
therapeutic drug monitoring, infectious disease detection, pregnancy testing,
glucose tolerance testing, clinical diagnostic liquid standards, precision
temperature measurement, anatomical pathology (histology and cytology) and
immunohistochemistry, with an emphasis on cancer applications, among others.
Products include:
. microscope slides, cover glass, glass tubes and vials;
. stains and reagents;
. histology and immunochemistry instrumentation;
. diagnostic test kits;
. culture media;
. diagnostic reagents;
. other products used in detecting causes of various infections or
diseases;
. thin glass for watch crystals, cosmetic mirrors, precision and coated
glass used in various optic applications; and
. precision thin film optical coating equipment.
Our primary U.S. and foreign subsidiaries in this business segment include:
Applied Biotech, Inc.
Chase Scientific Glass, Inc.
Erie Electroverre S.A.
Erie Scientific Company
Gerhard Menzel Glasbearbeitungswerk GmbH & Co. K.G.
Microgenics Corporation
Microm International GmbH
The Naugatuck Glass Company
Remel Inc.
Richard-Allan Scientific Company
Samco Scientific Corporation
This segment accounted for approximately 49% of our consolidated net sales
in 2001 and 48% in each of 2000 and 1999. For the fiscal years 2001, 2000, and
1999, net sales for this segment grew 15%, 21%, and 39%, respectively,
compared to the prior year.
2
Labware and Life Sciences Segment
Our labware and life sciences business segment manufactures and sells
products to the research and clinical life sciences industries. Applications
of these products include general everyday laboratory uses as well as
genomics, proteomics, high-throughput screening for drug discovery,
combinatorial chemistry, cell culture, filtration, and liquid handling.
Products in this business segment include:
. reusable plastic and glass products (e.g., bottles, carboys, graduated
ware, beakers and flasks);
. disposable plastic and glass products;
. products for critical packaging applications;
. environmental and safety containers;
. autosampler vials and seals used in chromatography analysis; and
. applications of cell culture, filtration, molecular biology,
cryopreservation, immunology, electrophoresis, liquid handling,
genomics, and high-throughput screening for pharmaceutical drug
discovery.
Our primary U.S. and foreign subsidiaries in this business segment include:
Advanced Biotechnologies Ltd.
BioRobotics Group Limited
Genevac Limited
Matrix Technologies Corporation
Molecular BioProducts, Inc.
Nalge Nunc International Corporation
Nalge Nunc International K.K.
National Scientific Company
Nunc A/S
Robbins Scientific Corporation
During fiscal 2001, we entered into a sales and marketing joint venture
with Kimble Glass, Inc. that involves reusable, disposable and specialty
glassware for the laboratory.
This segment accounted for approximately 41%, 40%, and 38% of our
consolidated net sales in 2001, 2000, and 1999, respectively, with sales
growing 15%, 29%, and 17%.
Laboratory Equipment Segment
Our laboratory equipment business segment manufactures basic laboratory
equipment needed by medical, pharmaceutical, and scientific laboratories.
Applications of these products include heating, cooling, shaking, stirring,
mixing, and temperature control as well as water purification and production.
The products 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;
. 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, and environmental chambers; and
. furnaces and fluorometers, spectrophotometers, and strip chart
recorders.
3
Our primary U.S. and foreign subsidiaries in the laboratory equipment
segment include:
Barnstead Thermolyne Corporation
Electrothermal Engineering, Ltd.
Lab-Line Instruments, Inc.
This segment accounted for approximately 11%, 12%, and 15% of our
consolidated net sales in 2001, 2000, and 1999, respectively. For the fiscal
years 2001 and 1999 net sales grew 4% and 25%, respectively, and declined 1%
in 2000.
Certain Financial Information
The following table sets forth our net sales by segment.
Years Ended September 30,
--------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Clinical Diagnostics............................. $477,233 $413,565 $342,529
Labware and Life Sciences........................ 400,823 347,437 268,788
Laboratory Equipment............................. 106,409 102,573 103,720
-------- -------- --------
Total Net Sales................................ $984,465 $863,575 $715,037
======== ======== ========
We have included other financial information about our business segments
and foreign operations in Note 15 to our consolidated financial statements
included in this Annual Report, and such information is incorporated herein by
reference.
New Products
During fiscal 2001, we introduced a number of new products that contributed
approximately $28 million in net sales. No single new product or group of
related products was material to our business or any one of our business
segments.
Growth Strategy
Our goal is to consistently grow our worldwide market presence, net sales,
earnings, and cash flows. Annual revenue growth in fiscal 2001 was $121
million, or 14% over the prior year. Key elements of our strategy continue to
be:
Develop Profitable New Products. We consistently strive to develop and
introduce new products that contribute to sales, earnings, and cash flows.
These products include new offerings and improvements of our currently
marketed products. We are especially focused on developing new products for
our life sciences research and clinical diagnostics customers.
Make Strategic Acquisitions. Our acquisition program is focused on adding
complementary products and technologies that enhance our market position. Our
operating subsidiaries generally have been able to use their existing channels
to market our acquired products. We have a rigorous process of candidate
identification, due diligence, and integration designed to mitigate
acquisition risk. Acquired businesses are converted to our standard financial
reporting system. In most cases, we retain the senior management of acquired
businesses and have an integration plan and budget in place at the time the
acquisition closes.
Increase Penetration of Existing and New Customers. We seek to leverage our
strong market presence and excellent customer and distributor relationships
into increased sales to current customers and sales to new customers. We
believe that our large and growing product offering is conducive to cross-
selling products to
4
existing customers. This broad product offering is also conducive to
negotiating favorable terms with our distributors.
Improve Operating Efficiencies. We are focused on improving our operating
efficiencies through vertical integration, streamlined manufacturing
techniques, better product sourcing, and the sharing of technology across our
Company. We believe that our focus on efficiencies improves our gross margins
while maintaining or improving the quality of our products and increasing
customer satisfaction.
Sales, Marketing and Distribution
We estimate that there are more than 150,000 industrial, academic,
clinical, governmental, pharmaceutical, and biotechnology laboratories that
are existing and potential customers for our products. Our products reach
these customers in several ways. Our laboratory equipment business segment
sells primarily through distributors. Products from our labware and life
sciences business segment are also sold primarily through distributors,
although some of our businesses in this segment, such as Matrix Technologies
and Robbins Scientific, have direct sales forces and sell directly to end-
users. Sales from our clinical diagnostics businesses are made both directly
and through distribution, depending on the type of product and/or the type of
end-user. For example, Richard-Allan and Microm International sell directly to
end-users, the microbiology products of our Remel subsidiary are primarily
sold directly to end-users, and the drugs of abuse testing products of
Microgenics are primarily sold to OEMs of clinical chemistry analyzers. Most
of our subsidiaries maintain their own sales forces, whether they sell
directly to end-users, through distribution, or otherwise.
During fiscal 2001, several companies within our labware and life sciences
business segment have coordinated their sales and marketing efforts under the
"Apogent Discoveries" name. Working together, they warehouse their products
together in Europe and the U.S. and sell (and cross-sell) products directly to
a shared customer base. Additionally, during fiscal 2001, the Company entered
into a sales and marketing joint venture with Kimble Glass, Inc. that involves
reusable, disposable and specialty glassware for the laboratory.
From time to time, the Company's net sales performance has been affected by
short-term volatility in demand from distributors. The Company has also
experienced volatility in demand when distributors merge or consolidate, when
distributors do not manage their inventories to end-user demand and when
distributors otherwise experience softness in sales or make alternate sourcing
decisions.
Our major distributors offer a wide variety of supplies, apparatus and
instruments for the laboratory, primarily through catalogs and through e-
commerce web sites. End-users rely heavily on these catalogs and web sites in
identifying suitable products and making purchase decisions, and the
prominence of and the number of product items listed for a particular vendor
are critical marketing variables. We believe the number of our products
offered by the major distributors is among the highest of any of our
competitors. Also, the major distributors often have contracts with large end-
users or purchasing organizations to supply such users or organizations with a
broad array of laboratory products and supplies. We believe that our ability
to manufacture and supply a broad range of products can help distributors be
more efficient in these situations.
Our three major distributors (primarily domestic), Fisher Scientific, VWR
Scientific, and Allegiance Healthcare Corporation, accounted in the aggregate
for approximately 21% of our clinical diagnostic segment sales, 32% of our
labware and life sciences segment sales, and 41% of our laboratory equipment
segment sales in 2001. The loss of any one of these major laboratory
distributors could have a material adverse effect on our business. Only a few
of our subsidiaries have written contractual relationships with these
distributors. However, our subsidiaries have long-standing relationships with
them or their predecessors.
Our subsidiaries private label for and sell products to a number of
original equipment manufacturers. These OEM relationships are most prevalent
in our clinical diagnostics segment, although subsidiaries in our other
segments also enter into OEM and private label relationships as opportunities
arise. Volatility in demand can
5
arise if the OEM's fail to manage inventories to end-user demand, discontinue
product lines or switch business to other manufacturers.
Domestic and International
Our U.S. subsidiaries had approximately 76% of our assets as of September
30, 2001 and generated approximately 95% of our income from continuing
operations for the fiscal year ended September 30, 2001, with the balance
attributable to our foreign subsidiaries. In addition to an extensive
distributor network, our subsidiaries maintain sales offices and manufacturing
plants in many international locations. Foreign sales offices are located in
the United Kingdom, Japan, Germany, Spain, Hong Kong, Australia, and
Switzerland. International manufacturing facilities are located in Denmark,
Germany, Switzerland, Hungary, the United Kingdom, Hong Kong, Mexico, and
Puerto Rico.
Domestic and international sales of our products by business segment are as
follows:
Fiscal Year Ended
September 30,
--------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Clinical Diagnostics
Domestic....................................... $381,599 $331,570 $284,585
International.................................. 95,634 81,995 57,944
-------- -------- --------
Total........................................ $477,233 $413,565 $342,529
======== ======== ========
Labware and Life Sciences:
Domestic....................................... $263,546 $233,597 $176,649
International.................................. 137,277 113,840 92,139
-------- -------- --------
Total........................................ $400,823 $347,437 $268,788
======== ======== ========
Laboratory Equipment:
Domestic....................................... $ 82,163 $ 79,004 $ 82,685
International.................................. 24,246 23,569 21,035
-------- -------- --------
Total........................................ $106,409 $102,573 $103,720
======== ======== ========
We have included other financial information about our business segments
and foreign operations in Note 15 to our consolidated financial statements
included in this Annual Report, and such information is incorporated herein by
reference.
Research and Development
We have a number of research and development programs in our various
business segments. We spent approximately $20.9 million, $18.3 million, and
$12.6 million on research and development in 2001, 2000, and 1999,
respectively, focused primarily on product development.
Our research and development expenditures by business segment are as
follows:
Fiscal Year Ended
September 30,
-----------------------
2001 2000 1999
------- ------- -------
(in thousands)
Clinical Diagnostics................................. $ 8,157 $ 8,234 $ 5,983
Labware and Life Sciences............................ 8,785 6,964 4,265
Laboratory Equipment................................. 3,916 3,104 2,314
------- ------- -------
Total............................................ $20,858 $18,302 $12,562
======= ======= =======
6
Backlog
Our total backlog of orders at September 30, 2001, 2000, and 1999 was
approximately $35.9 million, $38.5 million, and $31.1 million, respectively.
Our backlog by business segment is as follows:
Fiscal Year Ended
September 30,
-----------------------
2001 2000 1999
------- ------- -------
(in thousands)
Clinical Diagnostics................................ $15,760 $11,739 $10,951
Labware and Life Sciences........................... 15,589 20,685 15,908
Laboratory Equipment................................ 4,517 6,097 4,261
------- ------- -------
Total............................................. $35,866 $38,521 $31,120
======= ======= =======
Seasonality
None of our business segments are seasonal to a material extent.
Markets; Competition
Our products serve a large number of markets worldwide in which there are
numerous competitors. We strive to achieve a leading market share in every
market in which we compete, and we believe that our size and breadth of
products offered as well as our relationships with our customers provide us
with competitive advantages relative to many of our small and mid-sized
competitors. The strategies outlined under "Growth Strategy" above are key to
our ability to stay competitive, although there can be no assurance that we
will not encounter increased competition in the future.
We have significant competitors in each of our business segments. Our
competitors include product manufacturers, private label resellers, and
product distributors, a number of whom have substantially greater financial
and other resources than ours. Product price, product quality, product brand
recognition, customer service, breadth of product lines, and convenience for
customers are relevant factors to achieving and maintaining our competitive
position. Our principal competitors in the labware and life sciences business
segment include (among others) Corning Incorporated, Millipore Corporation,
Becton Dickinson, and Greiner Holding AG. Principal competitors in the
clinical diagnostics business segment include (among others) Shandon (a
subsidiary of Thermo Electron Corporation), Leica Microsystems, Sakura
Finetek, Knittel Glaser, Surgipath Medical Industries, Inc., Sigma-Aldrich
Company, Copan Diagnostics Company, Elkay Products, Inc., Becton Dickinson,
Meridian Diagnostics, Dade Behring, Roche Diagnostics, Quidel Corporation,
Biokit S.A., Dyno Particles AS, and Princeton Biomeditech Corporation.
Principal competitors in the laboratory equipment business segment include
(among others) Fisher Scientific, Corning Incorporated, Millipore Corporation,
New Brunswick Scientific Company, Inc.
Employees
We employed approximately 6,400 people at September 30, 2001, including
approximately 4,700 in the U.S. and 1,700 in the rest of the world.
Approximately 350 of our U.S. employees are covered by collective bargaining
agreements. Many of our non-management employees in Europe are subject to
national labor contracts, which are negotiated from time to time at the
national level between the national labor union and an employees' council.
Once national contracts are set, further negotiation may take place at the
local level. Such negotiations may affect local operations. Our Danish
subsidiary, Nunc A/S, was closed during the third quarter of 1998 for nine
days as the result of the first national strike in Denmark since 1985. After
the national strike was settled, Nunc A/S non-management employees struck for
two days over local issues. All issues were resolved in a new contract with an
original term ending in March 2000, which was then extended to March 2002.
7
Government Regulation
Medical Devices. Certain of our products are medical devices that are
subject to regulation by the FDA and by the counterpart agencies of the
foreign countries where our products are sold. Some of the regulatory
requirements of these foreign countries are more stringent than those
applicable in the United States. Pursuant to the Federal Food, Drug, and
Cosmetic Act (the "FDCA"), the FDA regulates virtually all phases of the
manufacture, sale, and distribution of medical devices, including their
introduction into interstate commerce and their advertising, labeling,
packaging, marketing, distribution, and recordkeeping. Pursuant to the FDCA
and FDA regulations, certain facilities of our operating subsidiaries are
registered with the FDA as medical device manufacturing establishments, and
many of our products are regulated as Class I or Class II medical devices. The
FDA regularly inspects these facilities and operations.
Environmental, Health and Safety. Our operations entail a number of
environmentally sensitive production processes. Compliance with environmental
laws and regulations, along with regulations relating to workplace safety, is
a priority in our businesses. Our domestic facilities are subject to federal,
state, and local laws and regulations concerning, among other things, solid
and hazardous waste disposal, air emissions, and wastewater discharge. Our
foreign facilities are subject to local laws and regulations regarding the
environment. Our operations are also subject to regulation relating to
workplace safety, both in the United States and abroad. Violations of any of
these laws or regulations or the release of toxic or hazardous materials used
in our operations into the environment could expose us to significant
liability. Similarly, third party lawsuits relating to environmental and
workplace safety issues could result in substantial liability.
Patents, Trademarks and Licenses
Our products are sold under a variety of trademarks and trade names. We own
or license all of the trademarks and trade names we believe to be material to
the operation of our businesses, including the NALGE(R), NALGENE(R), NUNC(TM),
SUPERFROST(R), COLORFROST(R), THERMOLYNE(R), BARNSTEAD(R), REMEL(R), RICHARD-
ALLAN SCIENTIFIC(TM), ART(R), LAB-LINE(R), ABgene(R), KIMAX(R), and KIMBLE(R)
trademarks, each of which we believe to have widespread name brand recognition
in its respective field and all of which we intend to continue to protect. We
also own various patents, employ various patented processes, and from time to
time acquire licenses from owners of patents. In addition to trade secret,
copyright, patent and trademark laws, we rely upon a combination of non-
disclosure and other contractual agreements to protect our intellectual
property rights. Except for the trademarks referred to above, we do not
believe any single patent, trademark, or license is material to the operations
of our business as a whole.
Raw Materials
We purchase a wide range of raw materials and supplies from a number of
suppliers, and except with respect to our supply of white glass, we do not
rely on sole sources to any material extent. All of our white glass comes from
a single source, our Electroverre, SA facility in Switzerland. In the event
that Electroverre could not continue to supply the necessary white glass, we
would have to seek alternative sources which could have a material effect on
our clinical diagnostics business segment. We do not foresee any significant
difficulty in obtaining necessary materials or supplies.
Risks Attendant to Foreign Operations
We conduct our businesses in numerous foreign countries and as a result are
subject to risks of fluctuations in exchange rates of various foreign
currencies and other risks associated with foreign trade. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--International Operations" and Item 7A, "Quantitative and
Qualitative Disclosures About Market Risk--Foreign Exchange" for further
information concerning the possible effects of foreign currency fluctuations
and currency hedges intended to mitigate their impact.
8
ITEM 2. Properties
We currently lease or own over 3.4 million square feet worldwide.
Typically, each of our subsidiaries maintains its own manufacturing, research
and development, warehouse, and office space.
The following table sets forth information regarding our principal
properties by business segment. Properties with less than 20,000 square feet
of building space have been omitted from this table.
Subsidiary/location of facility Building space and use Owned or leased
------------------------------- ---------------------- ---------------
Labware and Life Sciences
300,000 sq.
ft./manufacturing,
Penfield, New York warehouse and office leased
26,000 sq.
ft./manufacturing,
New Castle, Delaware warehouse and office leased
21,000 sq. ft./warehouse
Wiesbaden, Germany and office leased
103,000 sq.
ft./manufacturing,
Naperville, Illinois warehouse and office owned
151,000 sq.
ft./manufacturing,
Roskilde, Denmark warehouse and office owned
Ichikawa, Japan 38,000 sq. ft./warehouse leased
44,000 sq.
ft./manufacturing,
Hudson, New Hampshire warehouse and office leased
Otay, California 29,000 sq. ft./warehouse leased
38,000 sq. ft./office and
Duluth, Georgia warehouse leased
25,000 sq.
ft./manufacturing,
Tijuana, Mexico warehouse and office leased
74,000 sq.
ft./manufacturing and
San Diego, California office leased
24,000 sq. ft./warehouse
Hereford, England and office leased
27,000 sq.
ft./manufacturing,
Portsmouth, New Hampshire warehouse and office leased
70,000 sq.
ft./manufacturing and
Sunnyvale, California office leased
45,000 sq.
ft./manufacturing, office
Surrey, England and warehouse leased
49,000 sq.
ft./manufacturing, office
Epsom, England and warehouse leased
Clinical Diagnostics
220,000 sq.
ft./manufacturing,
Rockwood, Tennessee warehouse and office owned
151,000 sq.
ft./manufacturing,
Portsmouth, New Hampshire warehouse and office leased
40,000 sq.
ft./manufacturing,
Braunschweig, Germany warehouse and office owned
200,000 sq.
ft./manufacturing,
Romont, Switzerland warehouse and office owned
23,000 sq.
ft./manufacturing,
Aguadilla, Puerto Rico warehouse and office leased
80,000 sq.
ft./manufacturing,
Naugatuck, Connecticut warehouse and office owned
28,000 sq.
ft./manufacturing,
Budapest, Hungary warehouse and office owned
77,000 sq.
ft./manufacturing,
San Fernando, California warehouse and office owned
22,000 sq.
ft./manufacturing,
Meiningen, Germany warehouse and office owned
30,000 sq.
ft./manufacturing,
Holtsville, New York warehouse and office owned
21,000 sq.
ft./manufacturing and
Baltimore, Maryland office leased
32,000 sq.
ft./manufacturing,
Wayne, New Jersey warehouse and office leased
116,000 sq.
ft./manufacturing,
Kalamazoo, Michigan warehouse and office leased
36,000 sq.
ft./manufacturing,
Plymouth, Massachusetts warehouse and office leased
49,000sq.
ft./manufacturing,
Indianapolis, Indiana warehouse and R & D leased
116,000 sq.
ft./manufacturing and
Lenexa, Kansas office owned
63,000 sq. ft./warehouse
Lenexa, Kansas and office leased
24,000 sq.
ft./manufacturing and
Lake Charles, Louisiana office owned
25,000 sq.
ft./manufacturing,
Ramsey, Minnesota warehouse and office leased
67,000 sq.
ft./manufacturing,
San Diego, California warehouse, office and labs leased
109,000 sq.
ft./manufacturing,
Fremont, California warehouse and office leased
26,000 sq.
ft/manufacturing,
Austin, Texas warehouse and office leased
69,000 sq.
ft./manufacturing,
East Providence, Rhode Island warehouse and office leased
24,000 sq.
Walldorf, Germany ft./manufacturing leased
20,000 sq.
Barcelona, Spain ft./manufacturing leased
41,000
sq.ft./manufacturing and
Lake Forest, California office owned
Laboratory Equipment
190,000 sq.
ft./manufacturing and
Dubuque, Iowa office leased
117,000 sq.
ft./manufacturing and
Melrose Park, Illinois office owned
20,000 sq.
West Paterson, New Jersey ft./manufacturing leased
29,000 sq.
ft./manufacturing,
Southend-on-Sea, England warehouse and office leased
Apogent Corporate
Headquarters
Portsmouth, New Hampshire 24,000 sq. ft./office leased
9
We consider our plants and equipment to be well maintained and suitable for
their purposes. We have, from time to time, expanded and will continue to
expand our facilities as the need arises. We expect to fund such expansions
through internally generated funds or borrowings under our credit facilities
described in Note 7 to our consolidated financial statements contained in Item
8 of this Annual Report. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
ITEM 3. Legal Proceedings
A subsidiary of Apogent has been identified as a potentially responsible
party ("PRP") at the Aqua-Tech site in South Carolina (the "Aqua-Tech Site")
with respect to a previously owned facility. An action has been conducted at
the Aqua-Tech Site for the removal of surface contaminants under the
supervision of the Environmental Protection Agency ("EPA") under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"). Our total contribution to date has been approximately
$49,000. The site has been placed by the EPA on the federal National Priority
List under CERCLA, which is a prerequisite to any federally-mandated
requirement for long-term remedial work at the site under CERCLA, such as
would be involved in soil and groundwater remediation. We are participating
with a PRP group composed of approximately 100 parties in an agreement with
the EPA to undertake a remedial investigation and feasibility study, which
will be used by the EPA to determine what remedy, if any, should be required
at the site. A draft remedial investigation was submitted to the EPA in August
1999, and a draft baseline risk assessment was submitted in October 1999.
After review of the draft remedial investigation, the EPA requested and
obtained additional sampling work from the PRP group. The final remedial
investigation was submitted in 2000, and the feasibility study is expected to
be completed in 2002. Because the study, which involves extensive testing to
characterize the existence, extent and nature of any contamination in order to
determine potential remedies, has not yet been completed, an estimate of our
potential liability cannot be made. Our share of waste allegedly sent to the
site is reportedly not more than 1% of the total waste sent; therefore, even
though CERCLA does provide for joint and several liability, we believe that
any ultimate liability will not have a material adverse effect on our results
of operations or financial condition.
Applied Biotech, Inc. ("ABI"), a subsidiary in our clinical diagnostics
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
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. Although Conopco has appealed the court's ruling, we believe
the resolution of this lawsuit will not have a material adverse effect on our
results of operations or financial condition. 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 our 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. We are vigorously
defending lawsuits and other claims against us. Based upon the insurance
available under our insurance program and the potential for liability with
respect to the claims that are uninsured, we believe that any liabilities
which might reasonably result from
10
any of the pending cases and claims would not have a material adverse effect
on our results of operations or financial condition. However, there can be no
assurance that litigation having such a material adverse effect will not arise
in the future. See Note 13 to our consolidated financial statements contained
in Item 8 of this Annual Report and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Cautionary
Factors."
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
Set forth below is a complete list of the names, ages, positions and
offices of our executive officers. All executive officers hold office at the
pleasure of the Board of Directors.
Name Age Positions
---- --- ---------
Kenneth F. Yontz........ 57 Chairman of the Board
Frank H. Jellinek,
Jr. ................... 56 President and Chief Executive Officer
Jeffrey C. Leathe....... 45 Executive Vice President--Finance, Chief Financial Officer and Treasurer
Michael K. Bresson...... 43 Executive Vice President--General Counsel and Secretary
Robert N. Griffin....... 62 Vice President, Regulatory Affairs and Quality Assurance
Gary J. Marmontello..... 56 Vice President, Human Resources
Verner Andersen......... 45 Group President, Labware and Life Sciences
Mark F. Stuppy.......... 47 Group President, Clinical Consumables
Stephen K. Wiatt........ 56 Group President, Industrial Glass Operations
Peter Scheu............. 36 Group President, Clinical Diagnostics
Duncan R. Ross.......... 44 Group President, Laboratory Equipment
Yuh-geng Tsay........... 55 Group President, Immunoassay Diagnostics
The following sets forth the principal occupations of the executive
officers for the periods specified, as well as directorships of public
companies.
Mr. Yontz. Chairman of the Board since December 1987; President and Chief
Executive Officer of the Company from 1987 to 2000; Director of Viasystems
Group, Inc.; Chairman of the Board of Sybron Dental Specialties, Inc.
Mr. Jellinek. Director, President and Chief Executive Officer since
December 2000; Director, President and Chief Executive Officer of Sybron
Laboratory Products Corporation ("SLP") from 1998 to 2000; President of Erie
Scientific Company ("Erie") from 1975 to 1998; has from time to time held
general management responsibilities for various businesses of Apogent's
predecessor.
Mr. Leathe. Executive Vice President--Finance, Chief Financial Officer and
Treasurer since December 2000; Executive Vice President--Chief Financial
Officer, and Treasurer of SLP from 1998 to 2000; Vice President, Chief
Financial Officer, and Treasurer of Erie from 1990 to 1998.
Mr. Bresson. Executive Vice President--General Counsel and Secretary since
December 2000; Group Counsel of SLP from 1998 to 2000; Partner at the law firm
of Quarles & Brady LLP from 1990 to 1998.
Mr. Griffin. Vice President, Regulatory Affairs and Quality Assurance since
December 2000; Vice President, Regulatory Affairs of SLP from 1998 to 2000;
Director of Quality and Safety at Erie from prior to 1996 to 1998.
11
Mr. Marmontello. Vice President, Human Resources since December 2000; Vice
President, Human Resources of SLP from 1997 to 2000; Associate Director for
the University System of New Hampshire prior to joining SLP.
Mr. Andersen. Group President, Labware and Life Sciences since December
2000; SLP Group President, Labware and Life Sciences from 1999 to 2000;
President of Nalge Nunc International Corporation ("NNI") from 1998 to 1999;
Vice President/General Manager of North American Operations of NNI from 1995
to 1998.
Mr. Stuppy. Group President, Clinical Consumables since April 2001;
President of Erie since January 2001; Executive Vice President, Sales and
Marketing, Clinical Products from 2000 to 2001; Executive Vice President of
Sales & Marketing at SLP from 1998 to 2000; Vice President of Marketing at
Erie from 1986 to 1998.
Mr. Wiatt. Group President, Industrial Glass Operations since April 2001;
Executive Vice President, Worldwide Glass Operations from 2000 to 2001;
Executive Vice President, Worldwide Glass Operations of SLP from 1998 to 2000;
Vice President of Manufacturing at Erie from 1978 to 1998.
Mr. Scheu. Group President, Clinical Diagnostics since September 2001;
President of Richard-Allan Scientific Company ("Richard-Allan") from 1997 to
2001; Executive Vice President of Richard-Allan from 1995 to 1997.
Mr. Ross. Group President, Laboratory Equipment since September 2001;
President of Barnstead Thermolyne Corporation ("B/T") since October 2000;
Executive Vice President-Diagnostics of Sysmex Corporation of America from
1998 to 2000; Vice President, Sales and Marketing of Sysmex from prior to 1996
until 1998.
Dr. Tsay. Group President, Immunoassay Diagnostics since December 2000;
President of Microgenics Corporation since September 1999; President of
Diagnostic Reagents, Inc. ("DRI") from 1991 to 1999.
SLP, Erie, NNI, Richard-Allan, B/T, Microgenics Corporation, and DRI are
subsidiaries of the Company.
12
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since our inception, we have not paid any cash dividends on our Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" in Item 7 of this
Annual Report, and Note 8 to our consolidated financial statements contained
in Item 8 of this Annual Report for a description of certain restrictions on
our ability to pay cash dividends. Subject to such limitations, any future
cash dividends will be at the discretion of our Board of Directors and will
depend upon, among other factors, our earnings, financial condition and other
requirements. We have no current intention to pay cash dividends on our Common
Stock.
Based upon record ownership as of December 7, 2001, the number of holders
of our Common Stock is 365.
Our Common Stock trades on the NYSE under the symbol "AOT" ("SYB" prior to
the Spin-Off). The market information set forth below for our two most recent
fiscal years is based on NYSE sales prices and no adjustment has been made to
reflect the distribution of SDS in which one share of SDS Common Stock (and
the associated preferred stock purchase right) was distributed for each three
shares of the Company's Common Stock held of record as of November 30, 2000.
Our Common Stock began to trade regular way post-distribution on December 12,
2000.
Common Stock
---------------
High Low
------- -------
(in dollars)
Fiscal Year and Quarter
2000
1st Quarter.............................................. $27.813 $20.668
2nd Quarter.............................................. 29.313 21.375
3rd Quarter.............................................. 33.063 16.375
4th Quarter.............................................. 25.875 19.063
2001
1st Quarter through December 11, 2000*................... $29.125 $18.952
1st Quarter beginning December 12, 2000*................. 24.438 18.625
2nd Quarter.............................................. 22.050 17.875
3rd Quarter.............................................. 25.800 18.950
4th Quarter.............................................. 25.400 21.350
- --------
* Our Spin-Off of SDS was completed on December 11, 2000, and our Common Stock
began to trade regularly following the Spin-Off on December 12, 2000.
Accordingly, market prices before the Spin-Off are not necessarily
comparable to those after the Spin-Off.
Private Offering of Convertible Contingent Debt Securities.
On October 10, 2001, we issued and sold, in a private placement, $300
million of our 2.25% Senior Convertible Contingent Debt Securities ("CODES")
due 2021. The CODES have an interest rate of 2.25% (subject to adjustment) and
also pay contingent interest under certain circumstances. The CODES are
convertible, subject to certain conditions, into Apogent Common Stock at a
conversion rate of 32.7955 shares of Common Stock per $1,000 principal amount
of CODES, subject to adjustment in certain circumstances. This is equivalent
to a conversion price of approximately $30.49 per share. The CODES are
guaranteed by our material U.S. subsidiaries.
The CODES were sold to Lehman Brothers Inc., Credit Suisse First Boston
Corporation, Banc of America Securities LLC, ABN AMRO Rothschild LLC and UBS
Warburg LLC as "accredited investors" within the meaning of Rule 501 under the
Securities Act of 1933, in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act for transactions by an issuer
not involving any public offering, and were offered and sold by the initial
purchasers to "qualified institutional buyers" in reliance on Rule 144A under
the Securities Act. Pursuant to a resale registration rights agreement entered
into in connection with the private
13
offering, Apogent has agreed to file one or more shelf registration statements
to permit the registered resale of the CODES, the guarantees and the Common
Stock issuable upon conversion of the CODES.
The aggregate offering price of the CODES was $300 million, 100% of the
principal amount thereof. The purchase price paid to Apogent by the initial
purchasers was the initial offering price less an underwriting discount of
$7.5 million, 2.5% of the principal amount of the CODES.
The net proceeds from the sale of the CODES were used to repay borrowings
under the revolving credit facility under our bank credit agreement dated as
of December 1, 2000, and for other general corporate purposes.
ITEM 6. Selected Financial Data
The following table sets forth selected consolidated financial information
for the five years in the period ended September 30, 2001. The consolidated
data presented herein reflects the classification of the Company's former SDS
subsidiary and its affiliates and the Company's former NPT subsidiary as
discontinued operations. This selected financial information should be read in
conjunction with our consolidated financial statements and the notes thereto
contained in Item 8 of this Annual Report.
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- --------
(in thousands, except for per share data)
Statement of Income
Data:
Net sales............... $ 984,465 $ 863,575 $ 715,037 $ 557,762 $439,940
Income from continuing
operations............. 109,871 86,724 77,411 52,122 47,045
Discontinued
operations............. (11,824)(b) 41,597(b) 47,965(b) 23,921(c) 41,493(b)
Income before
extraordinary items.... 98,047 128,321 125,376 76,043 88,538
Extraordinary items..... (2,106)(a) -- 17,171(d) -- (404)(a)
Net income.............. 95,941 128,321 142,547 76,043 88,134
Earnings per share:
Basic earnings per
common share from
continuing operations.. 1.04 .83(e) .75 .51(e) .47
Discontinued
operations............. (.11) .40 .46 .23 .41
Extraordinary items..... (.02) -- .17 -- --
Basic earnings per
common share........... .91 1.23(e) 1.38 .74(e) .88
Diluted earnings per
common share from
continuing operations.. 1.02 .81(e) .73 .49(e) .45
Discontinued
operations............. (.11) .39 .45 .23 .40
Extraordinary items..... (.02) -- .16 -- --
Diluted earnings per
common share........... .89 1.20(e) 1.34 .72(e) .85
As of September 30,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- --------
(in thousands)
Balance Sheet Data:
Net assets of
discontinued
operations............. $ -- $ 152,970 $ 155,595 $ 129,508 $104,800
Total assets............ 1,835,138 1,792,364 1,539,975 1,227,852 975,084
Loans and advances from
SDS.................... -- 77,762 56,777 29,088 55,176
Long-term debt.......... 657,430 683,736 599,198 541,914 416,740
Shareholders' equity.... 838,490 749,516 625,344 475,244 378,649
- -------
(a) Amount resulted from the refinancing of our debt. See Note 8 to our
consolidated financial statements contained in Item 8 of this Annual
Report.
(b) Amounts resulted from the operations of NPT of $4,698 and $121 in 1997 and
1999, respectively, which was sold on March 31, 1999, and the operations
of SDS and its affiliates of $36,795, $47,844 and $41,597 in 1997, 1999,
and 2000, respectively, which became an unaffiliated company on December
11, 2000 as a result of the Spin-Off. For 2001, the Company included a net
loss of $11,824 from discontinued operations. The net loss included
transaction expenses related to the Spin-Off of $12,462. See Note 5 to our
consolidated financial statements contained in Item 8 of this Annual
Report.
14
(c) Amount includes an expense of $7,750 from the settlement of environmental
litigation relating to a facility which was sold in 1983 as part of a
discontinued operation, income of $3,848 from the operations of NPT, sold
on March 31, 1999, and $27,823 from the operations of SDS and its
affiliates, spun off on December 11, 2000.
(d) Amount represents gain on the March 31, 1999 sale of NPT.
(e) Includes a reduction for restructuring charges of $.05 and $.07 per basic
and diluted common share in 1998 and 2000, respectively. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" below, and Note 12 to our consolidated financial statements
contained in Item 8 of this Annual Report.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
We are a leading manufacturer and provider of value-added products under
three business segments--labware and life sciences, clinical diagnostics, and
laboratory equipment. Our fiscal year ends on September 30. We encourage you
to review our consolidated financial statements, including the notes thereto,
copies of which are included herein.
On December 11, 2000, Apogent, then known as Sybron International
Corporation, completed the Spin-Off ("Spin-Off") of its dental business as a
separate publicly traded company. The Spin-Off was effected by way of a pro
rata distribution of all the outstanding common stock and related preferred
stock purchase rights of Sybron Dental Specialties, Inc. ("SDS") to Apogent's
shareholders. SDS is now an independent public company operating what was
Sybron's dental business. As a result of the Spin-Off, all historical
financial data relating to the operations of SDS and its affiliates have been
classified as discontinued operations.
Results of Operations
Year Ended September 30, 2001 Compared to the Year Ended September 30, 2000
Net Sales
Fiscal Fiscal Dollar Percent
2001 2000 Change Change
-------- -------- -------- -------
(in thousands)
Net Sales
Clinical Diagnostics.................... $477,233 $413,565 $ 63,668 15.4%
Labware and Life Sciences............... 400,823 347,437 53,386 15.4%
Laboratory Equipment.................... 106,409 102,573 3,836 3.7%
-------- -------- --------
Total Net Sales....................... $984,465 $863,575 $120,890 14.0%
======== ======== ========
Overall Company. Net sales for the year ended September 30, 2001 increased
by $120.9 million or 14% over fiscal 2000.
Clinical Diagnostics. Increased net sales in the clinical diagnostics
segment resulted primarily from: (a) net sales of products of acquired
companies (approximately $44.6 million), (b) increased net sales of existing
products (approximately $18.4 million), and (c) increased net sales of new
products developed by us (approximately $6.2 million). Net sales were
partially reduced by: (a) foreign currency fluctuations (approximately $3.2
million) and (b) price decreases (approximately $2.3 million.).
Labware and Life Sciences. Increased net sales in the labware and life
sciences segment resulted primarily from: (a) net sales of products of
acquired companies (approximately $26.8 million), (b) increased net sales of
new products developed by us (approximately $17.6 million), (c) increased net
sales of existing products (approximately $9.7 million), and (d) price
increases (approximately $5.7 million). Net sales were partially reduced by
foreign currency fluctuations (approximately $6.4 million).
15
Laboratory Equipment. Increased net sales in the laboratory equipment
segment resulted primarily from: (a) increased net sales of new products
developed by us (approximately $3.9 million) and (b) price increases
(approximately $2.3 million). Net sales were partially reduced by: (a) foreign
currency fluctuations (approximately $0.5 million) and (b) decreased net sales
of existing products (approximately $2.0 million).
Gross Profit
Fiscal Percent Fiscal Percent Dollar Percent
2001 of Sales 2000 of Sales Change Change
-------- -------- -------- -------- ------- -------
(in thousands)
Gross Profit
Clinical Diagnostics.. $228,009 47.8% $199,571 48.3% $28,438 14.2%
Labware and Life
Sciences............. 205,079 51.2% 179,019 51.5% 26,060 14.6%
Laboratory Equipment.. 45,188 42.5% 43,540 42.4% 1,648 3.8%
-------- -------- -------
Total Gross Profit.. $478,276 48.6% $422,130 48.9% $56,146 13.3%
======== ======== =======
Overall Company. Gross profit for the year ended September 30, 2001
increased by $56.1 million or 13.3% over fiscal 2000.
Clinical Diagnostics. Increased gross profit in the clinical diagnostics
segment resulted primarily from: (a) the effects of acquired companies
(approximately $20.3 million), (b) product mix (approximately $9.9 million),
(c) the effects of new products (approximately $3.3 million), (d) increased
volume (approximately $3.6 million), and (e) the 2000 Special Charges (which
is defined below under the heading "Special Charges") (approximately $2.4
million). Gross profit was partially reduced by: (a) inventory adjustments
(approximately $4.1 million), (b) increased manufacturing overhead
(approximately $3.6 million), (c) price decreases (approximately $2.3
million), and (d) foreign currency fluctuations (approximately $1.1 million).
Labware and Life Sciences. Increased gross profit in the labware and life
sciences segment resulted primarily from: (a) the effects of acquired
companies (approximately $12.3 million), (b) the effects of new products
(approximately $9.5 million), (c) price increases (approximately $5.8
million), (d) product mix (approximately $3.8 million), (e) increased volume
(approximately $1.0 million), and (f) the 2000 Special Charges (approximately
$1.8 million). Gross profit was partially reduced by: (a) foreign currency
fluctuations (approximately $3.7 million), (b) increased manufacturing
overhead (approximately $4.0 million), and (c) inventory adjustments
(approximately $0.6 million).
Laboratory Equipment. Increased gross profit in the laboratory equipment
segment resulted primarily from: (a) price increases (approximately $2.4
million), (b) the effects of new products (approximately $1.7 million), (c)
product mix (approximately $0.1 million), and (d) the 2000 Special Charges
(approximately $0.1 million). Gross profit was partially reduced by: (a)
inventory adjustments (approximately $1.0 million), (b) decreased volume
(approximately $0.9 million), (c) increased manufacturing overhead
(approximately $0.6 million), and (d) foreign currency fluctuations
(approximately $0.2 million).
Selling, General and Administrative Expenses
Fiscal Fiscal Dollar Percent
2001 2000 Change Change
-------- -------- ------- -------
(in thousands)
Selling, General and Administrative
Expenses
Clinical Diagnostics................. $109,566 $ 96,706 $12,860 13.3 %
Labware and Life Sciences............ 114,685 100,365 14,320 14.3 %
Laboratory Equipment................. 23,045 22,316 729 3.3 %
-------- -------- -------
Subtotal........................... 247,296 219,387 27,909 12.7 %
Corporate Office..................... 6,264 9,754 (3,490) (35.8)%
-------- -------- -------
Total Selling, General and
Administrative Expenses........... $253,560 $229,141 $24,419 10.7 %
======== ======== =======
Overall Company. Selling, general and administrative expenses for the year
ended September 30, 2001 increased by $24.4 million or 10.7% from fiscal 2000.
16
Clinical Diagnostics. Increased selling, general and administrative
expenses in the clinical diagnostics segment resulted primarily from: (a)
acquired businesses (approximately $4.5 million), (b) marketing expenses
(approximately $6.2 million), (c) general and administrative expenses
(approximately $2.4 million), and (d) increased amortization of intangibles
primarily as a result of acquisitions (approximately $3.2 million). Selling,
general and administrative expenses were partially reduced by: (a) foreign
currency fluctuations (approximately $0.7 million), (b) research and
development expenses (approximately $0.6 million), and (c) the 2000 Special
Charges (approximately $2.2 million).
Labware and Life Sciences. Increased selling, general and administrative
expenses in the labware and life sciences segment resulted primarily from: (a)
acquired businesses (approximately $11.9 million), (b) general and
administrative expenses (approximately $2.2 million), (c) increased
amortization of intangibles primarily as a result of acquisitions
(approximately $0.9 million), (d) marketing expenses (approximately $0.6
million), and (e) research and development expense (approximately $0.5
million). Selling, general and administrative expenses were partially reduced
by: (a) foreign currency fluctuations (approximately $0.3 million) and (b) the
2000 Special Charges (approximately $1.5 million).
Laboratory Equipment. Increased selling, general and administrative
expenses in the laboratory equipment segment resulted primarily from: (a)
general and administrative expenses (approximately $0.5 million) and
(b) research and development expenses (approximately $0.9 million). Selling,
general and administrative expenses were partially reduced by: (a) foreign
currency fluctuations (approximately $0.1 million) and (b) the 2000 Special
Charges (approximately $0.6 million).
Corporate Office. Decreased general and administrative expenses at the
corporate office resulted primarily from: (a) the 2000 Special Charges
(approximately $1.7 million) and (b) a decrease in expenses as a result of the
closure of our Milwaukee, Wisconsin corporate office (approximately $1.6
million).
Special Charges
Results for the year ended September 30, 2001 include a charge of
approximately $0.6 million ($0.4 million after tax) relating to adjustments
made to the 2000 restructuring accrual, consisting of additional severance.
This charge is included in the corporate office selling, general and
administrative expenses.
Operating Income
Fiscal Fiscal Dollar Percent
2001 2000 Change Change
-------- -------- ------- -------
(in thousands)
Operating Income
Clinical Diagnostics.................. $118,446 $102,506 $15,940 15.6 %
Labware and Life Sciences............. 90,388 79,095 11,293 14.3 %
Laboratory Equipment.................. 22,146 21,142 1,004 4.7 %
-------- -------- -------
Subtotal............................ 230,980 202,743 28,237 13.9 %
Corporate Office...................... (6,264) (9,754) 3,490 (35.8)%
-------- -------- -------
Total Operating Income.............. $224,716 $192,989 $31,727 16.4 %
======== ======== =======
As a result of the foregoing, operating income for the year ended September
30, 2001 increased by $31.7 million or 16.4% over fiscal 2000.
Interest Expense
Interest expense was $48.7 million for 2001 and 2000.
17
Other Income
Other income for 2001 was $5.3 million, an increase of $4.0 million over
2000. The increase resulted primarily from the gain on the sale of assets of
$4.1 million during the second quarter of fiscal 2001.
Income Taxes
Taxes on income from continuing operations for 2001 were $70.9 million, an
increase of $13.3 million from 2000. The increase resulted primarily from
increased taxable earnings.
Income from Continuing Operations Before Extraordinary Items
As a result of the foregoing, for 2001, income from continuing operations
was $109.9 million as compared to $86.7 million in 2000.
Discontinued Operations
Losses from discontinued operations were $11.8 million (net of income taxes
of $0.4 million) for 2001, as compared to income of $41.6 million (net of
income tax of $28.3 million) in 2000. The 2001 loss from discontinued
operations resulted from transaction expenses relating to the Spin-Off of
approximately $12.4 million offset by the operating results of SDS (through
December 11, 2000) of $0.6 million.
Extraordinary Items
As a result of the December 2000 debt refinancing and the April 2001
issuance of our 8% Senior Notes due 2011, we wrote off deferred financing
costs of approximately $3.5 million that related to prior debt agreements.
This was recorded as an extraordinary item of $2.1 million, net of income
taxes.
Net Income
As a result of the foregoing, we had net income of $95.9 million for 2001,
as compared to net income of $128.3 million for 2000.
Depreciation and Amortization
Depreciation and amortization expense is allocated among cost of sales,
selling, general and administrative expenses, and other expense. Depreciation
expense and amortization expense increased $11.5 million for 2001 due to
additional depreciation and amortization from goodwill and intangibles
recorded from the various acquisitions as well as routine operating capital
expenditures.
Impact of Recently Issued Accounting Standards
In July 2001, the FASB issued Statement No. 141, "Business Combinations"
and Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce
may not be accounted for separately. Statement 142 will require that goodwill
and intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually. Statement 142 will also
require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to the estimated residual values, and
reviewed for impairment.
18
We were required to adopt the provisions of Statement 141 effective July 1,
2001, and elected to adopt Statement 142 effective October 1, 2001.
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-Statement 142
accounting literature. Goodwill and intangible assets acquired in a business
combination completed before July 1, 2001 continued to be amortized prior to
the adoption of Statement 142.
At September 30, 2001, we had unamortized goodwill and unamortized
identifiable intangible assets in the amount of $950.9 million and $189.5
million, respectively, all of which is subject to the transition provisions of
Statements 141 and 142. At this time it is not practical to estimate the
impact of the adoption of both statements on us. However, any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in our statement of earnings.
On August 16, 2001, FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations. The standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
The standard will apply to the Company effective October 1, 2002. The Company
is currently reviewing the impact of this provision.
On October 3, 2001, FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, that replaced FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of. The primary objectives of this project were to
develop one accounting model, based on the framework established in Statement
121, for long-lived assets to be disposed of by sale and to address
significant implementation issues. The accounting model for long-lived assets
to be disposed of by sale applies to all long-lived assets, including
discontinued operations, and replaces the provisions of APB Opinion No. 30,
Reporting Results of Operations-Reporting the Effects of Disposal of a Segment
of a Business, for the disposal of segments of a business. Statement 144
requires that those long-lived assets be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. The provisions of Statement 144
will apply to the Company effective October 1, 2002. The Company is currently
reviewing the impact of these provisions.
Year Ended September 30, 2000 Compared to the Year Ended September 30, 1999
Net Sales
Fiscal Fiscal Dollar Percent
2000 1999 Change Change
-------- -------- -------- -------
(in thousands)
Net Sales
Clinical Diagnostics.................. $413,565 $342,529 $ 71,036 20.7 %
Labware and Life Sciences............. 347,437 268,788 78,649 29.3 %
Laboratory Equipment.................. 102,573 103,720 (1,147) (1.1)%
-------- -------- --------
Total Net Sales..................... $863,575 $715,037 $148,538 20.8 %
======== ======== ========
Overall Company. Net sales for the year ended September 30, 2000 increased
by $148.5 million or 20.8% from 1999.
Clinical Diagnostics. Increased net sales in the clinical diagnostics
segment resulted primarily from: (a) net sales of products of acquired
companies (approximately $60.1 million), (b) price increases (approximately
19
$6.3 million), (c) increased net sales of existing products (approximately
$3.9 million), and (d) increased net sales of new products developed by us
(approximately $3.9 million). Increased net sales were partially offset by
foreign currency fluctuations (approximately $3.1 million).
Labware and Life Sciences. Increased net sales in the labware and life
sciences segment resulted primarily from: (a) net sales of products of
acquired companies (approximately $65.4 million), (b) increased net sales of
existing products (approximately $8.9 million), (c) increased net sales of new
products developed by us (approximately $4.1 million), and (d) price increases
(approximately $3.0 million). Increased net sales were partially offset by
foreign currency fluctuations (approximately $2.7 million).
Laboratory Equipment. Decreased net sales in the laboratory equipment
segment resulted primarily from: (a) decreased net sales of existing products
(approximately $4.4 million) and (b) foreign currency fluctuations
(approximately $0.2 million). Decreased net sales were partially offset by:
(a) net sales of new products developed by us (approximately $2.1 million),
(b) price increases (approximately $1.1 million), and (c) net sales of
products of acquired companies (approximately $0.1 million).
Gross Profit
Fiscal Percent Fiscal Percent Dollar Percent
2000 of Sales 1999 of Sales Change Change
-------- -------- -------- -------- ------- -------
(in thousands)
Gross Profit
Clinical Diagnostics.. $199,571 48.3% $160,357 46.8% $39,214 24.5 %
Labware and Life
Sciences............. 179,019 51.5% 136,018 50.6% 43,001 31.6 %
Laboratory Equipment.. 43,540 42.4% 45,583 43.9% (2,043) (4.5)%
-------- -------- -------
Total Gross Profit.. $422,130 48.9% $341,958 47.8% $80,172 23.4 %
======== ======== =======
Overall Company. Gross profit for the year ended September 30, 2000
increased by $80.2 million or 23.4% from 1999.
Clinical Diagnostics. Increased gross profit in the clinical diagnostics
segment resulted primarily from: (a) the effects of acquired companies
(approximately $31.2 million), (b) a favorable product mix (approximately $7.4
million), (c) price increases (approximately $6.3 million), (d) increased
volume (approximately $1.3 million), and (e) inventory adjustments
(approximately $0.4 million). Gross profit was partially reduced by:
(a) increased manufacturing overhead (approximately $7.3 million), (b) foreign
currency fluctuations (approximately $0.6 million), and (c) the 2000 Special
Charges (approximately $2.4 million).
Labware and Life Sciences. Increased gross profit in the labware and life
sciences segment resulted primarily from: (a) the effects of acquired
companies (approximately $36.2 million), (b) increased volume (approximately
$7.2 million), (c) a favorable product mix (approximately $4.6 million), (d)
price increases (approximately $3.0 million), (e) foreign currency
fluctuations (approximately $1.0 million), and (f) inventory adjustments
(approximately $1.1 million). Gross profit was partially reduced by: (a)
increased manufacturing overhead (approximately $7.8 million) and (b) the 2000
Special Charges (approximately $1.8 million).
Laboratory Equipment. Increased gross profit in the laboratory equipment
segment resulted primarily from: (a) price increases (approximately $1.1
million), (b) a favorable product mix (approximately $0.5 million), and (c)
the effects of acquired companies (approximately $0.2 million). Gross profit
was partially reduced by: (a) reduced volume (approximately $1.2 million), (b)
increased manufacturing overhead (approximately $0.1 million), (c) the 2000
Special Charges (approximately $0.1 million), and (d) foreign currency
fluctuations (approximately $0.1 million).
20
Selling, General and Administrative Expenses
Fiscal Fiscal Dollar Percent
2000 1999 Change Change
-------- -------- ------- -------
(in thousands)
Selling, General and Administrative Expenses
Clinical Diagnostics....................... $ 96,706 $ 75,030 $21,676 28.9%
Labware and Life Sciences.................. 100,365 68,600 31,765 46.3%
Laboratory Equipment....................... 22,316 21,950 366 1.7%
-------- -------- -------
Subtotal................................. 219,387 165,580 53,807 32.5%
Corporate Office........................... 9,754 7,252 2,502 34.5%
-------- -------- -------
Total Selling, General and Administrative
Expenses................................ $229,141 $172,832 $56,309 32.6%
======== ======== =======
Overall Company. Selling, general and administrative expenses for the year
ended September 30, 2000 increased by $56.3 million or 32.6% from 1999.
Clinical Diagnostics. Increased selling, general and administrative
expenses in the clinical diagnostics segment resulted primarily from: (a)
acquired businesses (approximately $13.0 million), (b) increased marketing
expenses (approximately $4.4 million), (c) increased amortization of
intangibles primarily as a result of acquisitions (approximately $5.6
million), and (d) the 2000 Special Charges (approximately $2.2 million).
Selling, general and administrative expenses were partially reduced by: (a) a
reduction in general and administrative expenses (approximately $2.3 million),
(b) favorable foreign currency fluctuations (approximately $0.8 million), and
(c) decreased research and development expenses (approximately $0.6 million).
Labware and Life Sciences. Increased selling, general and administrative
expenses in the labware and life sciences segment resulted primarily from: (a)
acquired businesses (approximately $19.9 million), (b) increased amortization
of intangibles primarily as a result of acquisitions (approximately $6.2
million), (c) increased marketing expenses (approximately $4.3 million), (d)
the 2000 Special Charges (approximately $1.3 million), and (e) increased
general and administrative expenses (approximately $1.2 million). Selling,
general and administrative expenses were partially reduced by favorable
foreign currency fluctuations (approximately $1.2 million).
Laboratory Equipment. Increased selling, general and administrative
expenses in the laboratory equipment segment resulted primarily from: (a)
acquired businesses (approximately $0.5 million), (b) the 2000 Special Charges
(approximately $0.5 million), (c) increased research and development expenses
(approximately $0.3 million), and (d) increased amortization of intangibles
primarily as a result of acquisitions (approximately $0.2 million). Selling,
general and administrative expenses were partially reduced by: (a) decreased
marketing expenses (approximately $0.8 million) and (b) decreased general and
administrative expenses (approximately $0.2 million).
Corporate Office. Increased general and administrative expenses at the
corporate office resulted primarily from: (a) the 2000 Special Charges
(approximately $1.7 million), (b) a decrease in expenses charged to SDS as a
result of a decrease in domestic sales at SDS in proportion to the domestic
sales of Apogent (approximately $1.3 million), and (c) an increase in legal
and professional fees (approximately $0.3 million). Selling, general and
administrative expenses were partially reduced by a reduction in employee
compensation and benefits (approximately $0.8 million).
Special Charges
Our results for 2000 include charges of approximately $11.3 million ($7.5
million after tax) with respect to the restructuring of various parts of our
business. These charges relate primarily to restructured staffing
(approximately $5.5 million), operating location rationalization
(approximately $2.7 million), product rationalization (approximately $2.1
million), and a tax expense from the restructuring of our U.K. operations
21
(approximately $1.0 million). Of these charges approximately $7.4 million will
be cash expenditures. Through September 30, 2001, approximately $5.9 million
has been paid. These charges are referred to as the "2000 Special Charges."
The actions related to the 2000 Special Charges are expected to eliminate
annual costs of approximately $6.6 million. Savings were projected to result
from: (a) reduced salaries and related expenses as a result of consolidating
our CASCO operations with our Microgenics operation, a reduction of workforce
at NNI Naperville facility, and the elimination of corporate personnel in
Milwaukee (approximately $5.6 million); (b) the consolidation of several
facilities, including those of CASCO, NNI Biotech, and Naperville
(approximately $0.8 million); and (c) the elimination of product lines that
were either duplicative or no longer meet management's profitability
expectations (approximately $0.2 million). We do not anticipate, and have not
experienced to date, significant offsets to savings in either increased
expenses or reduced revenues.
Our results for 1999 include a charge of approximately $0.3 million ($0.2
million after tax) relating to adjustments made to the 1998 restructuring
reserve, consisting of additional severance. This charge is referred to herein
as the "1999 Special Charge." All historical financial data relating to SDS
and its affiliates and NPT, which was sold in 1999, have been classified as
discontinued operations.
Operating Income
Fiscal Fiscal Dollar Percent
2000 1999 Change Change
-------- -------- ------- -------
(in thousands)
Operating Income
Clinical Diagnostics................. $102,506 $ 87,587 $14,919 17.0 %
Labware and Life Sciences............ 79,095 67,404 11,691 17.3 %
Laboratory Equipment................. 21,142 21,387 (245) (1.1)%
-------- -------- -------
Subtotal........................... 202,743 176,378 26,365 14.9 %
Corporate Office..................... (9,754) (7,252) (2,502) 34.5 %
-------- -------- -------
Total Operating Income............. $192,989 $169,126 $23,863 14.1 %
======== ======== =======
As a result of the foregoing, operating income in 2000 increased by 14.1%
or $23.9 million over operating income in 1999.
Interest Expense
Interest expense was $48.7 million in 2000, an increase of $8.6 million
from 1999. The increase resulted from higher average debt balances resulting
primarily from funding acquisitions and increased interest rates in 2000.
Income Taxes
Taxes on income from continuing operations were $57.6 million, an increase
of $7.6 million from 1999. The increase resulted primarily from increased
taxable earnings.
Income From Continuing Operations Before Extraordinary Item
As a result of the foregoing we had net income from continuing operations
of $86.7 million in 2000, as compared to $77.4 million in 1999.
Discontinued Operations
Income from discontinued operations was $41.6 million in 2000, a decrease
of $6.4 million from income of $48.0 million in 1999. The decrease in income
from discontinued operations resulted primarily from restructuring charges
incurred at SDS in 2000 of approximately $5.9 million, net of tax.
22
Extraordinary Item
Income from an extraordinary item decreased by $17.2 million and related to
a non-recurring gain on the sale of NPT in 1999.
Net Income
As a result of the foregoing, we had net income of $128.3 million in 2000,
as compared to net income of $142.5 million in 1999.
Depreciation and Amortization
Depreciation and amortization expense is allocated among cost of sales,
selling, general and administrative expenses, and other expense. Depreciation
and amortization increased $17.6 million in 2000 due to additional
depreciation and amortization from the step-up of assets and goodwill recorded
from the various acquisitions as well as routine operating capital
expenditures.
2001 Acquisitions
We maintain an active program of developing and marketing both new products
and product line extensions. We believe that new product introductions are
important to the ability of our operating subsidiaries to maintain their
competitive positions. We have also pursued numerous acquisition
opportunities. Acquisitions completed in 2001 were as follows:
Approximate
Annual Sales Prior Acquisition
Company to Acquisition Date Description
------- ------------------ ----------- -----------
(in thousands)
Clinical Diagnostics
Vacuum Process Technology, $ 3,977 November 2000 Designer and
Inc........................ manufacturer of
precision film optical
coating equipment used
to manufacture optically
motivated product for a
variety of markets.
Disposable Glass Culture $ 5,800 April 2001 Disposable glass culture
Tube Business of tubes used in a variety
Kimble Glass Inc........... of general laboratory
applications, including
blood collection, blood
banking, urinalysis and
certain cell culture
procedures.
Innovative Diagnostics, $ 1,300 July 2001 Distributor of clinical
Inc......................... chemistry controls.
Medtek Diagnostics LLC...... $ 220 July 2001 Latex agglutination
product line.
Disposable Glass Pasteur $ 2,000 August 2001 Disposable glass Pasteur
Pipette and Perfume Sampler pipette and perfume
Vial Product Line of Kimble sampler product lines.
Glass, Inc.................
Daniel Mirror Company....... $ 6,800 September 2001 Manufacturer of
specialized "cut to
order" mirrors.
Labware and Life Sciences
BioRobotics Group Limited... $10,500 March 2001 Designer and
manufacturer of
automated
instrumentation
solutions used in
functional genomics.
23
Approximate
Annual Sales Prior Acquisition
Company to Acquisition Date Description
------- ------------------ ----------- -----------
(in thousands)
Advanced Biotechnologies $21,500 April 2001 Manufacturer of a
Limited.................... comprehensive range of
molecular biology
reagents and special
plastic consumables for
the life sciences
market.
Mosaic Technologies, Inc.... $ 1,400 July 2001 Developer and
manufacturer of solid
phase DNA amplification
technology.
Chromotography Vial Product $ 7,200 August 2001 Chromatography vial
Line of Kimble Glass, product line including
Inc........................ vial inserts and
accessories.
Special Charges
Our results for 2001 include a charge of approximately $0.6 million ($0.4
million after tax) relating to adjustments made to the 2000 restructuring
reserve (discussed below), consisting of additional severance. All historical
financial data relating to SDS and its affiliates have been reclassified to
discontinued operations.
Our results for 2000 include charges of approximately $11.3 million ($7.5
million after tax) with respect to the restructuring of various parts of our
business. These charges relate primarily to restructured staffing
(approximately $5.5 million), operating location rationalization
(approximately $2.7 million), product rationalization (approximately $2.1
million), and a tax expense from the restructuring of our U.K. operations
(approximately $1.0 million). These charges are referred to as the "2000
Special Charges." Savings were projected to result from: (a) reduced salaries
and related expenses as a result of consolidating our CASCO operations with
our Microgenics operation, a reduction of workforce at NNI's Naperville
facility, and the elimination of corporate personnel in Milwaukee
(approximately $5.6 million); (b) the consolidation of several facilities,
including those of CASCO, NNI Biotech, and Naperville (approximately $0.8
million); and (c) the elimination of product lines that are either duplicative
or no longer meet management's profitability expectations (approximately $0.2
million). We do not anticipate, and have not experienced to date, significant
offsets to savings in either increased expenses or reduced revenues.
Our results for 1999 include a charge of approximately $0.3 million ($0.2
million after tax) relating to adjustments made to the 1998 restructuring
reserve, consisting of additional severance. This charge is referred to herein
as the "1999 Special Charge." All historical financial data relating to SDS
and its affiliates and NPT, which was sold in 1999, have been classified as
discontinued operations.
Our results for 1998 contain charges with respect to the restructuring of
our laboratory group. These charges are collectively referred to herein as the
"1998 Special Charges," and together with the 1999 Special Charge and the 2000
Special Charges, are referred to as the "Special Charges."
The 1998 Special Charges totaled $8.5 million ($5.4 million after tax) and
consisted of items relating to the realignment of our laboratory subsidiaries
under Sybron Laboratory Products Corporation ("SLP"). This restructuring
charge consisted primarily of severance expenditures associated with the
consolidation of certain functions, the restructuring of sales and marketing
activities, and costs associated with exiting certain product lines. In 1999,
an additional $0.3 million was added to this reserve as an adjustment to
original severance estimates. We expect no additional adjustments to this
reserve. Approximately $3.9 million of these charges are cash expenditures of
which $1.0 million was paid in 1998, $2.0 was paid in 1999, $0.7 million was
paid in 2000, and the remaining $0.2 million was paid in 2001.
24
These actions eliminated annual costs of approximately $5.3 million. The
savings at SLP were revised from the original estimate of $6.1 million to
eliminate savings associated with the discontinued operations of NPT. Savings
at SLP were projected to result from: (a) reduced salaries and related
expenses associated with the elimination of duplicative sales, marketing and
administrative personnel at Nalge Nunc International (approximately $2.5
million); (b) reduced salaries and related expenses from consolidating sales,
marketing and administrative personnel at Remel Inc. and Alexon Trend
(approximately $1.2 million); (c) reduced salaries and related expenses
associated with eliminating duplicative sales personnel due to product line
consolidation at Owl Separation Systems, Inc. (approximately $0.7 million);
(d) reduced salaries and related expenses associated with eliminating
duplicative sales, information systems and marketing personnel at Barnstead
Thermolyne Corporation (approximately $0.5 million); and (e) reduced salaries
and related expenses associated with eliminating duplicative sales and
administrative functions at other SLP locations (approximately $0.4 million).
The Company has achieved actual savings in line with these expectations. We
do not anticipate, and have not experienced to date, significant offsets to
savings in either increased expenses or reduced revenues.
Activity related to the 2000 Special Charges and its components are as
follows:
Fixed Lease Shut down
Severance Inventory Assets Commitments Costs Tax
(a) (b) (b) (c) (c) (d) Other Total
--------- --------- ------ ----------- --------- ------ ----- -------
(in thousands)
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
Adjustments (e)......... 600 600
2001 Cash payments...... 3,800 -- -- 200 200 1,000 -- 5,200
2001 Non-cash charges... -- -- 100 -- 100 200
------ ------ ------ ---- ---- ------ ---- -------
September 30, 2001
balance................ $1,200 $ -- $ -- $300 $ -- $ -- $ -- $ 1,500
====== ====== ====== ==== ==== ====== ==== =======
- --------
(a) Amount represents severance and termination costs for 151 terminated
employees (primarily sales, marketing and corporate personnel). As of
September 30, 2001, all employees had 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. operations.
(e) Amount represents an increase in the severance costs for 16 employees
(primarily corporate personnel).
These employees are included in the total 151 terminated employees
referenced above.
The Company expects to make future cash payments of approximately $1,500 in
fiscal 2002 and beyond.
25
Activity related to the 1998 Special Charges 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
2001 Cash payments........ 200 -- -- -- -- 200
------ ---- ------ ------ ------ ------
September 30, 2001
balance.................. $ -- $ -- $ -- $ -- $ -- $ --
====== ==== ====== ====== ====== ======
- --------
(a) Amount represents severance and termination costs for approximately 65
terminated employees (primarily sales and marketing personnel). As of
September 30, 2001, all employees had been terminated as a result of the
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.
Inflation
We do not believe that inflation has had a material impact on net sales or
income during any of the periods presented above. There can be no assurance,
however, that our business will not be affected by inflation in the future.
International Operations
Our U.S. subsidiaries have approximately 76% of our assets and generated
approximately 95% of our income from continuing operations for the fiscal year
ended September 30, 2001, with the balance attributable to our foreign
subsidiaries. Portions of our sales, income and cash flows from both domestic
and foreign subsidiaries are derived internationally. The financial position
and the results of operations from substantially all of our international
operations, other than most U.S. export sales, are measured using the local
currency of the countries in which such operations are conducted and are then
translated into U.S. dollars. While the reported income of foreign
subsidiaries will be impacted by a weakening or strengthening of the U.S.
dollar in relation to a particular local currency, the effects of foreign
currency fluctuations are partially mitigated by the fact that manufacturing
costs and other expenses of foreign subsidiaries are generally incurred in the
same currencies in which sales are generated. Such effects of foreign currency
fluctuations are also mitigated by the fact that such subsidiaries' operations
are conducted in numerous foreign countries and, therefore, in numerous
foreign currencies. In addition, our U.S. export sales may be impacted by
foreign currency fluctuations relative to the value of the U.S. dollar as
foreign customers may adjust their level of purchases upward or downward
according to the weakness or strength of their respective currencies versus
the U.S. dollar.
26
From time to time we may employ currency hedges to mitigate the effect of
foreign currency fluctuations. If currency hedges are not employed, we may be
exposed to earnings volatility as a result of foreign currency fluctuations.
Two foreign currency hedges aggregating $33.6 million were in place as of
September 30, 2001.
The following table sets forth our domestic sales and sales outside the
United States in fiscal 2001, 2000, and 1999, respectively.
2001 2000 1999
-------- -------- --------
(in thousands)
Domestic net sales................................ $727,310 $643,188 $543,846
International net sales........................... 257,155 220,387 171,191
-------- -------- --------
Total net sales................................. $984,465 $863,575 $715,037
======== ======== ========
Liquidity and Capital Resources
As a result of the acquisition of our predecessor in 1987 and the
acquisitions we completed since 1987, we have increased the carrying value of
certain tangible and intangible assets consistent with accounting principles
generally accepted in the United States. Accordingly, our results of
operations include a significant level of non-cash expenses related to the
depreciation of fixed assets and the amortization of intangible assets,
including goodwill. Goodwill and intangible assets, net of amortization,
increased by approximately $132 million in 2001, primarily as a result of
continued acquisition activity.
Our capital requirements arise principally from indebtedness incurred in
connection with the permanent financing for the 1987 acquisition and our
subsequent refinancings, our obligation to pay rent under the Sale/Leaseback
facility (as defined herein), our working capital needs, primarily related to
inventory and accounts receivable, our capital expenditures, primarily related
to purchases of machinery and molds, the purchase of various businesses and
product lines in execution of our acquisition strategy, and the periodic
expansion of physical facilities. It is currently our intent to continue to
pursue our acquisition strategy.
Approximately $182.2 million of cash was generated from operating
activities in 2001, an increase of $65.6 million or 56.3% from 2000. Non-cash
depreciation and amortization charged against net income increased
approximately $11.5 million for 2001. The cash outflow resulting from the net
change in working capital, net of the effects of acquisitions and
divestitures, was $9.5 million for 2001, or an increase in cash flow of
$37.6 million, as compared to $47.1 million in cash outflow for 2000. These
changes are set forth in detail in the Consolidated Statements of Cash Flows.
Although working capital decreased in 2001, the increase in certain working
capital accounts throughout 2001 is attributable to the higher level of
business activity as reflected in our increased sales.
Investing activities in 2001 used approximately $157.6 million of cash.
Decreased cash outflow used in investing activities as compared to 2000
resulted primarily from an decrease in net payments for businesses acquired of
approximately $43.6 million, and increase in the proceeds from sales of
property, plant and equipment of $11.5 million, offset in part by an increase
in capital expenditures of $10.4 million, and a decrease in net payments from
SDS of $11.7 million.
Financing activities used approximately $30.5 million of cash. Proceeds
from long-term debt relating to acquisitions of $79.9 million were offset by
the payments made on the Revolving Credit Facilities in excess of proceeds of
$47.9 million and payments made on prior acquisition debt of $6 million. In
addition, we paid down a further $51.0 million on the Term Loan Facilities
above the results of the December 2000 refinancing and April 2001 bond
issuance (discussed below). Financing fees of $6.7 million were paid in
connection with the December 2000 refinancing and April 2001 bond issuance.
Prior to the Spin-Off, we were a party to a credit agreement (the "Old
Credit Agreement") with The Chase Manhattan Bank ("Chase") and certain other
lenders. On December 1, 2000, we entered into a new credit
27
agreement (the "Credit Agreement") with Chase and certain other lenders
providing for a term loan facility of $300 million (the "Term Loan Facility")
due in a single payment on December 1, 2005, and a revolving credit facility
of up to $500 million for a period of up to five years (the "Revolving Credit
Facility" and, together with the Term Loan Facility, the "Credit Facilities").
On December 11, 2000, we borrowed approximately $563.0 million under the
Credit Facilities and together with funds aggregating $375.0 million ($307.1
million, the amount equal to the outstanding amounts under the Old Credit
Facilities attributable to SDS on December 11, 2000 including accrued interest
plus a cash dividend of $67.9 million from SDS to us), used such funds to
repay all of the outstanding amounts under the Old Credit Facilities,
aggregating $938.0 million (including accrued interest).
On April 4, 2001, we issued $325 million of unsecured senior notes in a
private placement with exchange and registration rights, and in August we
completed a registered exchange of the privately placed notes for similar
notes that had been registered with the SEC. We used the proceeds from the
issuance to repay all of our Term Loan Facility ($300 million) and a portion
of our Revolving Credit Facility. The notes were offered at a discount of
approximately $1.5 million. They will mature on April 1, 2011. Interest is
fixed at an annual rate of 8% and is payable on April 1 and October 1 of each
year, beginning on October 1, 2001. Interest accrues from April 4, 2001. The
notes are redeemable by us at any time in whole, or from time to time in part,
at a price equal to the greater of (i) 100% of the principal amount of the
notes to be redeemed or (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon (exclusive of interest
accrued to the date of redemption) discounted to the date of redemption on a
semiannual basis at the applicable Treasury Yield (as defined in the notes,
the form of which is an exhibit to the related indenture dated as of April 4,
2001) plus 35 basis points, plus accrued interest to the date of redemption.
These notes are guaranteed by our material U.S. subsidiaries, which also
guarantee our obligations under our bank credit facility.
On October 10, 2001, we issued $300 million of senior convertible
contingent debt securities (CODES) in a private placement with registration
rights. The CODES have an interest rate of 2.25% (subject to adjustment) and
also pay contingent interest under certain circumstances. Interest is payable
on April 15 and October 15 of each year, beginning April 15, 2002. They will
mature on October 15, 2021. The CODES are convertible, subject to certain
conditions, into Apogent Common Stock at a price of $30.49 per share, subject
to adjustment. We may redeem some or all of the CODES on or after October 20,
2004. The holders may require us to purchase all or a portion of the CODES
outstanding on October 20, 2004 and on October 15, 2006, 2011 and 2016, or
subject to specified exceptions, upon a change of control event. Our material
U.S. subsidiaries guarantee Apogent's obligations under the CODES. We used the
proceeds from the issuance to repay the outstanding balance on our Revolving
Credit Facility in full, and for general corporate purposes. We have promised
to file one or more registration statements with the SEC to register resales
of the Codes, the guarantees and the Common Stock issuable upon conversion of
the CODES by the beneficial owners thereof.
European Economic Monetary Unit
On January 1, 1999, eleven of the European Union countries (including one
country in which we have material operations) adopted the Euro as their single
currency. At that time, a fixed exchange rate was established between the Euro
and the individual countries' existing currencies (the "legacy currencies").
The Euro trades on currency exchanges and is available for non-cash
transactions. Following the introduction of the Euro, the legacy currencies
will remain legal tender in the participating countries during a transition
period from January 1, 1999 through January 1, 2002. Beginning on January 1,
2002, the European Central Bank will issue Euro-denominated bills and coins
for use in cash transactions.
Our German operating units affected by the Euro conversion intend to keep
their books in their respective legacy currencies through a portion of the
transition period. At this time, we do not expect Euro conversions to have a
material adverse effect on our business operations or financial condition.
28
Cautionary Factors
This report contains various forward-looking statements concerning our
prospects that are based on the current expectations and beliefs of
management. We may also make forward-looking statements from time to time in
other reports and documents as well as oral presentations. When used in
written documents or oral statements, the words "anticipate," "believe,"
"continue," "estimate," "goal," "expect," "objective," "outlook" and similar
expressions are intended to identify forward-looking statements. The
statements contained herein and such future statements involve or may involve
certain assumptions, risks and uncertainties, many of which are beyond our
control, that could cause our actual results and performance to differ
materially from what is expected. In addition to the assumptions and other
factors referenced specifically in connection with such statements, the
following factors could impact our business and financial prospects:
Our holding company structure increases financial risks.
We are organized as a holding company, with all of our net sales generated
through our subsidiaries. Approximately 18% of our net sales and 7% of our
operating cash flow for 2001 were from foreign subsidiaries. Consequently, our
operating cash flow and ability to service indebtedness depend in part upon
the operating cash flow of our foreign subsidiaries and the payment of funds
by them to us in the form of loans, dividends or otherwise. Their ability to
pay dividends and make loans, advances and other payments to us depends upon
statutory or other contractual restrictions that apply, which may include
requirements to maintain minimum levels of working capital and other assets.
Our international operations pose currency and other risks.
We have significant operations outside the United States, where a
significant portion of our revenue is generated. We are therefore subject to
risk factors affecting our international operations, including relevant
foreign currency exchange rates, which can affect the cost of our products or
the ability to sell our products in foreign markets, and the value in U.S.
dollars of sales made in foreign currencies. Our sales were reduced by $10.1
million and $6 million in 2001 and 2000, respectively, by the impact of
currency fluctuations. Other factors include our ability to obtain effective
hedges against fluctuations in currency exchange rates; foreign trade,
monetary and fiscal policies; laws, regulations and other activities of
foreign governments, agencies and similar organizations; risks associated with
having major manufacturing facilities located in countries that have
historically been less stable than the United States in several respects,
including fiscal and political stability; and risks associated with an
economic downturn in other countries. In addition, world events can increase
the volatility of the currency markets, and such volatility could affect our
financial results.
Our failure to keep pace with the technological demands of our customers or
with the products and services offered by our competitors could significantly
harm our business.
Some of the industries served by our products are characterized by rapid
technological changes and new product introductions. Some of our competitors
may invest more heavily in research or product development than we do.
Successful new product offerings depend upon a number of factors, including
our ability to:
. accurately anticipate customer needs;
. innovate and develop new technologies and applications;
. successfully commercialize new products in a timely manner;
. price our products competitively and manufacture and deliver our
products in sufficient volumes and on time; and
. differentiate our offerings from those of our competitors.
29
If we do not introduce new products in a timely manner and make
enhancements to meet the changing needs of our customers, some of our products
could become obsolete over time, in which case our customer relationships,
revenue, and operating results would suffer.
Our operating results may suffer if the industries into which we sell our
products are in downward cycles.
Some of the industries and markets into which we sell our products are
cyclical. Any significant downturn in our customers' markets or in general
economic conditions could result in reduced demand for our products and could
harm our business.
Future acquisitions may not be available or may create transitional
challenges.
A significant portion of our growth over the past several years has been
achieved through our acquisition program. Our rate of continued growth is
therefore subject to factors affecting our ability to continue pursuing our
current acquisition strategy and to be successful with that strategy. These
factors include the cost of the capital required to effect our acquisition
strategy, the availability of suitable acquisition candidates at reasonable
prices, competition for appropriate acquisition candidates, our ability to
realize the synergies expected to result from acquisitions, our ability to
retain key personnel in connection with acquisitions and the ability of our
existing personnel to efficiently handle increased transitional
responsibilities resulting from acquisitions.
We may incur restructuring or impairment charges that would reduce our
earnings.
We have in the past and may in the future restructure some of our
operations. In such circumstances, we may take actions that would result in a
charge and reduce our earnings. These restructurings have or may be undertaken
to realign our subsidiaries, eliminate duplicative functions, rationalize our
operating facilities and products and reduce our staff. These restructurings
may be implemented to improve the operations of recently acquired subsidiaries
as well as subsidiaries that have been part of our operations for many years.
Our historical financial results as discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" include special charges related to restructuring activities of
approximately $11.3 million and $8.5 million in fiscal years 2000 and 1998,
respectively. As a result of adjustments to prior restructuring reserves, we
incurred special charges of $0.6 million and $0.3 million for 2001 and 1999,
respectively. Additionally, on October 1, 2001 we adopted SFAS 142, "Goodwill
and Other Intangible Assets," which requires that goodwill and intangible
assets that have an indefinite useful life be tested at least annually for
impairment. This will require us to perform a transitional assessment for
possible impairment as of October 1, 2001. We have not quantified the impact
of adopting this standard.
We rely heavily upon sales to key distributors and original equipment
manufacturers, and could lose sales if any of them stop doing business with
us.
Our three most significant distributors represent a significant portion of
our revenues. For example, sales to Fisher Scientific, VWR Scientific, and
Allegiance Healthcare Corporation accounted for approximately 12%, 10%, and 6%
of revenues in fiscal 2001, respectively. Our reliance on major independent
distributors for a substantial portion of our sales subjects our sales
performance to volatility in demand from distributors. We can experience
volatility when distributors merge or consolidate, when inventories are not
managed to end-user demand, or when distributors experience softness in their
sales or make alternate sourcing decisions. We rely primarily upon the long-
standing and mutually beneficial nature of our relationships with our key
distributors, rather than on contractual rights, to protect these
relationships. Volatility in end-user demand can also arise with large OEM
customers to whom we sell directly. The loss of a substantial contract could
adversely affect our business. Sales to our OEM customers are sometimes
unpredictable and wide variances sometimes occur quarter to quarter.
30
We could be injured by disruptions of our manufacturing operations.
We rely upon our manufacturing operations to produce most of the products
we sell. Any significant disruption of those operations for any reason, such
as strikes, labor disputes or other labor unrest, power interruptions, fire,
war, or other force majuere, could adversely affect our sales and customer
relationships and therefore adversely affect our business. In particular, the
supply of white glass, which is used in our clinical diagnostics segment's
worldwide manufacturing operations, comes solely from our glass manufacturing
facility in Switzerland. Risks include delays encountered in connection with
the periodic rebuilding of the sheet glass furnace or furnace malfunctions.
Although most of our raw materials are available from a number of potential
suppliers, our operations also depend upon our ability to obtain raw materials
at reasonable prices.
The success of many of our products depends on the effectiveness of our
patents, trademarks, and licenses to defend our intellectual property rights.
Our success with many of our products depends, in part, on our ability to
protect our current and future innovative products and to defend our
intellectual property rights. Our subsidiaries' products are sold under a
variety of trademarks and trade names. They own or license all of the
trademarks and trade names we believe to be material to the operation of their
businesses. We also rely upon a combination of non-disclosure and other
contractual agreements and trade secret, copyright, patent, and trademark laws
to protect our intellectual property rights. Disputes may arise concerning the
ownership of intellectual property or the applicability of confidentiality
agreements. If we fail to adequately protect our intellectual property,
competitors may manufacture and market products similar to ours.
We could be hurt by product liability claims or other litigation.
Our business is subject to the risks of claims involving our products and
other legal and administrative proceedings, including the expense of
investigating, litigating and settling any claims. Although we currently
maintain insurance against some of these risks, uninsured losses could occur.
Our business is subject to regulatory risks.
Our ability to continue manufacturing and selling those of our products
that are subject to regulation by the United States Food and Drug
Administration or other domestic or foreign governments or agencies is subject
to a number of risks. In the future, some of our products may be affected by
the passage of stricter laws or regulations, reclassification of our products
into categories subject to more stringent requirements, or the withdrawal of
approvals needed to sell one or more of our products.
Some of our products are affected by general levels of insurance and
reimbursement.
The demand for and pricing of some of our products can be affected by
changing levels of public and private health care budgets, including
reimbursement by private or governmental insurance programs.
We could be harmed by the loss of key management.
The success of our operations depends in significant part upon the
experience and expertise of our management team, both within Apogent and in
our operating subsidiaries. Any loss of these key personnel could harm our
business.
Our recent separation from SDS poses a potential tax sharing and
indemnification risk.
We recently spun off the dental businesses now owned by SDS. We and SDS
each agreed to indemnify the other with respect to certain indebtedness,
liabilities, and obligations, including potential tax liabilities if future
transactions change the tax treatment of the Spin-Off. Our ability to collect
on these indemnities from SDS, if applicable, depends upon the future
financial strength of SDS.
31
We sometimes experience quarterly variations in our operating results.
Our business is subject to quarterly variations in operating results caused
by a number of factors, including business and industry conditions, timing of
acquisitions, distribution and OEM customer issues, and other factors listed
here. All these factors make it difficult to predict operating results for any
particular period.
Other risks may arise.
We may be subject to risks arising from other business and investment
considerations that may be disclosed from time to time in our Securities and
Exchange Commission filings or in other publicly available written documents.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Risk Management
We are exposed to market risk from changes in foreign currency exchange
rates and interest rates. To reduce our risk from these foreign currency rate
and interest rate fluctuations, we occasionally enter into various hedging
transactions. We do not anticipate material changes to our primary market
risks other than fluctuations in magnitude from increased or decreased foreign
currency denominated business activity or floating rate debt levels. We do not
use financial instruments for trading purposes and are not a party to any
leveraged derivatives.
Foreign Exchange
We have, from time to time, used foreign currency options to hedge our
exposure from adverse changes in foreign currency rates. At September 30, 2001
we had two outstanding foreign currency options. Both options were entered
into in March 2001 to hedge against the effect of fluctuations in foreign
exchange rates on two notes issued in British Pounds. The options of $11.5
million GBP and $11.75 million GBP have maturity dates approximating those of
the notes, of July 31, 2002 and July 2003, respectively. Both options were
priced at $0.69 GBP. These options are accounted for as a fair value hedge. At
September 30, 2000 we had no outstanding foreign currency options. Our foreign
currency exposure exists primarily in the British Pound and Danish Krone
versus the U.S. dollar. Hedging is accomplished by the use of foreign currency
options, and the gain or loss on these options is used to offset gains or
losses in the foreign currencies to which they pertain. The purpose of our
foreign currency hedging activities is to protect against risk that eventual
cash flows from foreign activities will be adversely affected by changes in
exchange rates and the effect of related changes on payments on long-term debt
denominated in foreign currencies. Recognized gains or losses on foreign
currency contracts entered into to hedge long-term debt are recorded as "other
income." We did not enter into any other foreign currency options to hedge our
exposure from operations in fiscal 2001.
Interest Rates
From time to time, we use interest rate swaps to reduce our exposure to
interest rate movements. Our net exposure to interest rate risk consists of
floating rate instruments whose interest rates are determined by the prime
rate as publicly announced by The Chase Manhattan Bank and the Eurodollar
Rate. As of October 10, 2001, we had no floating rate debt outstanding. See
Note 18 of the accompanying financial statements.
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 of the
interest rate swaps on December 11, 2000 was $1.7 million. The Company sold
these interest rate swaps on December 12, 2000 for approximately $1.7 million
and realized a gain of $1.1 million (net of tax). Upon the sale of the
interest rate swaps, the Company reduced the unrealized gain recorded at
October 1, 2000 in other comprehensive income to reflect the fair market value
net of tax on the date of sale. Because these interest rate swaps were
designated as a hedge against future variable rate interest payments and the
extinguished debt, the
32
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. For the period December 12, 2000
through September 30, 2001 the Company recognized a gain of $619, net of tax.
In addition to the aforementioned swaps, on September 29, 1999, the Company
entered into a securities lending agreement in which we purchased a United
States Treasury Bond ("Treasury") with a par value of $50 million, an interest
rate of 6.15% and a maturity date of August 15, 2029. Concurrent with the
purchase of the Treasury, the Company lent the security to an unrelated third
party for a period of 23 years. In exchange for the loaned Treasury, the
Company has received collateral equal to the market value of the Treasury on
the date of the loan, and adjusted on a weekly basis. This securities lending
transaction is related to the Company's consistent hedging policy by fixing
$50.0 million 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 to receive a fee for the loan of the
security at a floating rate equal to LIBOR minus 0.75%. Thereafter, the
Company is required to pay the unrelated third party a collateral fee equal to
the one-week general collateral rate of interest (as determined weekly in good
faith by the unrelated third party, provided that such rate shall not exceed
the federal funds rate in effect as of the day of determination plus 0.25%)
and the Company receives all distributions on or in respect to the Treasury.
33
ITEM 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
APOGENT TECHNOLOGIES INC.
Page
----
Independent Auditors' Report............................................. 35
Consolidated Balance Sheets as of September 30, 2001 and 2000............ 36
Consolidated Statements of Income for the years ended September 30, 2001,
2000, and 1999.......................................................... 37
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 2001, 2000, and 1999...................................... 38
Consolidated Statements of Cash Flows for the years ended September 30,
2001, 2000, and 1999.................................................... 39
Notes to Consolidated Financial Statements............................... 40
34
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Apogent Technologies, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Apogent
Technologies, Inc. and subsidiaries as of September 30, 2001 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, 2001. 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 Apogent
Technologies, Inc. and subsidiaries as of September 30, 2001 and 2000, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
Boston, Massachusetts
November 9, 2001
35
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
----------------------
2001 2000
---------- ----------
(In thousands except
share and per share
data)
ASSETS
------
Current assets:
Cash and cash equivalents............................ $ 9,192 $ 12,411
Accounts receivable (less allowance for doubtful
accounts of $3,975 and $4,041 in 2001and 2000,
respectively)....................................... 183,278 173,585
Inventories.......................................... 167,436 141,779
Deferred income taxes................................ 13,046 13,226
Net assets held for discountinued operations......... -- 152,970
Prepaid expenses and other current assets............ 20,985 16,564
---------- ----------
Total current assets............................... 393,937 510,535
Available for sale security.......................... 55,072 54,444
Property, plant and equipment, net................... 223,687 208,094
Intangible assets.................................... 1,140,334 1,008,153
Deferred income taxes................................ 6,147 7,870
Other assets......................................... 15,961 3,268
---------- ----------
Total assets....................................... $1,835,138 $1,792,364
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable..................................... $ 53,822 $ 51,899
Advances and loans from SDS.......................... -- 77,762
Current portion of long-term debt.................... 73,642 34,327
Income taxes payable................................. 38,747 16,604
Accrued payroll and employee benefits................ 33,236 30,509
Accrued interest expense............................. 15,292 4,849
Restructuring reserve................................ 1,552 5,609
Deferred income taxes................................ 911 807
Other current liabilities............................ 26,364 18,773
---------- ----------
Total current liabilities.......................... 243,566 241,139
Long-term debt....................................... 583,788 649,409
Securities lending agreement......................... 55,072 54,444
Deferred income taxes................................ 107,220 93,048
Other liabilities.................................... 7,002 4,808
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, $0.01 par value; authorized
20,000,000 shares................................... -- --
Common stock, $0.01 par value; authorized 250,000,000
shares, issued 105,875,768 and 105,191,692 shares in
2001 and 2000, respectively; 105,875,548 outstanding
and 105,191,472 shares in 2001 and 2000
respectively........................................ 1,059 1,052
Equity rights, 50 rights at $1.09 per right in 2001
and 2000 ........................................... -- --
Additional paid-in capital........................... 254,637 271,739
Retained earnings.................................... 627,642 531,701
Accumulated other comprehensive income............... (44,848) (54,976)
Treasury common stock, 220 shares at cost in 2001 and
2000................................................ -- --
---------- ----------
Total shareholders' equity......................... 838,490 749,516
---------- ----------
Total liabilities and shareholders' equity......... $1,835,138 $1,792,364
========== ==========
See accompanying notes to consolidated financial statements
36
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended September 30,
----------------------------
2001 2000 1999
-------- -------- --------
(In thousands except per
share data)
Net sales....................................... $984,465 $863,575 $715,037
Cost of sales:
Cost of products sold......................... 505,559 436,508 372,528
Restructuring charge.......................... -- 4,413 --
Depreciation of purchase accounting
adjustments.................................. 630 524 551
-------- -------- --------
Total cost of sales......................... 506,189 441,445 373,079
-------- -------- --------
Gross profit................................ 478,276 422,130 341,958
Selling, general and administrative expenses.... 208,305 186,418 147,883
Restructuring charge............................ 583 5,840 245
Depreciation and amortization of purchase
accounting adjustments......................... 44,672 36,883 24,704
-------- -------- --------
Total selling, general and administrative
adjustments................................ 253,560 229,141 172,832
-------- -------- --------
Operating income............................ 224,716 192,989 169,126
Other income (expense):
Interest expense.............................. (48,698) (48,684) (40,073)
Interest expense--SDS......................... -- (766) (1,151)
Amortization of deferred financing fees....... (563) (533) (224)
Other, net.................................... 5,284 1,319 (286)
-------- -------- --------
Income from continuing operations before income
taxes and extraordinary items.................. 180,739 144,325 127,392
Income taxes.................................... 70,868 57,601 49,981
-------- -------- --------
Income from continuing operations before
extraordinary items............................ 109,871 86,724 77,411
Discontinued operations (net of income tax
expense of $435, $28,339, and $30,930)......... (11,824) 41,597 47,965
-------- -------- --------
Income before extraordinary items............... 98,047 128,321 125,376
Extraordinary items
Loss from early extinguishment of debt (net of
income tax benefit of $1,359)................ (2,106) -- --
Gain on sale of discontinued operations (net
of income tax expense of $15,828)............ -- -- 17,171
-------- -------- --------
Net income...................................... $ 95,941 $128,321 $142,547
======== ======== ========
Basic earnings per common share from continuing
operations..................................... $ 1.04 $ 0.83 $ 0.75
Discontinued operations......................... (0.11) 0.40 0.46
Extraordinary items............................. (0.02) -- 0.17
-------- -------- --------
Basic earnings per common share................. $ 0.91 $ 1.23 $ 1.38
======== ======== ========
Diluted earning per common share from continuing
operations..................................... $ 1.02 $ 0.81 $ 0.73
Discontinued operations......................... (0.11) 0.39 0.45
Extraordinary items............................. (0.02) -- 0.16
-------- -------- --------
Diluted earnings per common share............... $ 0.89 $ 1.20 $ 1.34
======== ======== ========
See accompanying notes to consolidated financial statements
37
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
Additional Other Treasury Total
Common Equity Paid-In Retained Comprehensive Common Sharholders'
Stock Rights Capital Earnings Income Stock Equity
------ ------ ---------- -------- ------------- -------- ------------
(In thousands except share data)
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 benefit 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 benefit related to
stock options.......... -- -- 7,901 -- -- -- 7,901
------ ----- -------- -------- -------- ----- --------
Balance at September 30,
2000................... 1,052 -- 271,739 531,701 (54,976) -- 749,516
Comprehensive income:
Cumulative effect of
accounting change for
cash flow hedge, net
of tax effect of
$1,687................ -- -- -- -- 2,530 -- 2,530
Net income............. -- -- -- 95,941 -- -- 95,941
Translation
adjustment............ -- -- -- -- (3,611) -- (3,611)
Adjustment to interest
rate swap agreements
upon sale, net of tax
benefit of $984....... -- -- -- -- (1,475) -- (1,475)
Amortization of gain on
sale of interest rate
swaps, net of tax
benefit of $413....... -- -- -- -- (619) -- (619)
Unrealized gain on
security available for
sale, net of tax
effect of $251........ -- -- -- -- 377 377
------ ----- -------- -------- -------- ----- --------
Total comprehensive
income................. -- -- -- 95,941 (2,798) -- 93,143
Shares issued in
connection with stock
options................ 7 -- 6,624 -- -- -- 6,631
Tax benefit related to
stock options.......... -- -- 3,301 -- -- -- 3,301
Distribution of the
equity of Sybron Dental
Specialties, Inc. on
December 11, 2000, net
of dividends of
$142,880............... -- -- (27,027) -- 12,926 -- (14,101)
------ ----- -------- -------- -------- ----- --------
Balance at September 30,
2001................... $1,059 $ -- $254,637 $627,642 $(44,848) $ -- $838,490
------ ----- -------- -------- -------- ----- --------
See accompanying notes to consolidated financial statements
38
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30,
-------------------------------
2001 2000 1999
--------- --------- ---------
(In thousands)
Cash flows from operating activities:
Net income...................................... $ 95,941 $ 128,321 $ 142,547
Adjustments to reconcile net income to net cash
provided by operating activities
Discontinued operations........................ 11,824 (41,597) (47,965)
Depreciation................................... 33,411 29,336 24,105
Amortization................................... 44,672 37,251 24,890
(Gain) loss on sale of property, plant and
equipment..................................... (4,784) 79 (39)
Provision for losses on doubtful accounts...... (7) 863 907
Inventory provisions........................... 4,604 (833) 706
Deferred income taxes.......................... 3,954 10,258 17,876
Extraordinary items............................ 2,106 -- (17,171)
Changes in assets and liabilities, net of
effects of businesses acquired:
Increase in accounts receivable............... (981) (15,537) (19,817)
Increase in inventories....................... (28,935) (7,248) (12,646)
(Increase) decrease in prepaid expenses and
other current assets......................... (3,956) (7,200) 4,627
(Decrease) increase in accounts payable....... (2,096) (294) 2,436
Increase (decrease) in income taxes payable... 24,334 (1,768) (1,269)
Increase (decrease) in other current
liabilities.................................. 15,623 (6,211) (5,812)
Increase (decrease) in accrued payroll and
employee benefits............................ 578 (4,993) 7,212
(Decrease) increase in restructuring reserve.. (5,164) 1,744 (7,036)
Net change in other assets and liabilities.... (8,950) (5,627) 1,551
--------- --------- ---------
Net cash provided by operating activities... 182,174 116,544 115,102
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures............................ (52,901) (42,493) (29,920)
Securities purchased............................ -- -- (50,461)
Proceeds from sales of property, plant and
equipment...................................... 12,457 924 945
Proceeds from sale of NPT....................... -- (2,600) 85,841
Dividends received from SDS..................... 67,900 58,512 36,483
Capital contributions paid to SDS............... (4,623) (21,399) (16,210)
Net change in advances and loans to SDS......... (2,782) 20,985 27,689
Distribution of the net equity of SDS........... (14,101) -- --
Net payment for businesses acquired............. (163,519) (207,153) (249,923)
--------- --------- ---------
Net cash used in investing activities......... (157,569) (193,224) (195,556)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt.................... 703,448 -- 180,000
Principal payments on long-term debt............ (681,854) (450) (66,770)
Securities lending agreement.................... -- -- 50,461
Proceeds from the exercise of stock options..... 6,631 12,599 10,691
Financing fees paid............................. (6,721) -- (4,163)
Proceeds from revolving credit facility......... 454,560 332,640 351,060
Principal payments on revolving credit
facility....................................... (502,460) (274,320) (448,980)
Other financing activities...................... (4,118) 7,190 6,093
--------- --------- ---------
Net cash (used in) provided by financing
activities................................... (30,514) 77,659 78,392
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents..................................... 2,690 (969) (146)
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents..................................... (3,219) 10 (2,208)
Cash and cash equivalents at beginning of year... 12,411 12,401 14,609
--------- --------- ---------
Cash and cash equivalents at end of year......... $ 9,192 $ 12,411 $ 12,401
========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest........................................ $ 37,132 $ 55,833 $ 41,718
--------- --------- ---------
Income taxes.................................... $ 43,070 $ 42,412 $ 32,431
========= ========= =========
Capital lease obligations incurred............... $ 104 $ 25 $ 457
========= ========= =========
See accompanying notes to consolidated financial statements
39
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
1. Summary of Significant Accounting Policies
The subsidiaries of Apogent are leading manufacturers of value-added
products for the laboratory market in the United States and abroad. The
Company's subsidiaries manufacture products for the clinical diagnostics,
labware and life Sciences, and laboratory equipment business segments.
On November 8, 2000, Sybron International Corporation (which subsequently
changed its name to Apogent Technologies Inc.) 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.
On January 31, 2001, the name of the Company was changed from Sybron
International Corporation to Apogent Technologies Inc.
(a) Principles of Consolidation and Fiscal Year End
The consolidated financial statements reflect the accounts of Apogent
Technologies Inc. and its subsidiaries. The term "Company" or "Apogent" as
used herein refers to Apogent Technologies Inc. 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, 2001, 2000, and 1999 are hereinafter referred to as "2001," "2000," and
"1999," respectively. On December 11, 2000 and March 31, 1999, respectively,
the Company completed the Distribution and sold Nalge Process Technologies
Group, Inc. ("NPT") (the "NPT Sale"). The net assets and results of operations
of SDS and NPT have been presented as discontinued operations in all years
presented herein. Dollar references throughout these footnotes are in
thousands, except per share amounts or as otherwise indicated.
(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). Certain domestic
inventories of approximately $57,698 and $50,854 at September 30, 2001 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 that the Company has the positive intent and ability to hold until
maturity.
40
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Trading securities are those purchased and held with the intent to sell in the
near term. Available for sale securities include debt securities that are held
for an indefinite period but are neither held to maturity nor trading
securities. At September 30, 2001 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.
(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 exceeds 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 intangible
assets by determining whether the amortization of the intangible assets
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 intangible assets will not be recovered,
an adjustment would be made to reduce the net intangible assets 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. No adjustments were made
to goodwill or intangible assets in 2001 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.
(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 2001, 2000, and 1999 were approximately $20,858,
$18,302, and $12,562, respectively.
41
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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 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 2001, 2000, and
1999 were approximately $177, $1,306, and $403, 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 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:
2001 2000 1999
------- ------- -------
(in thousands)
Basic.............................................. 105,517 104,570 103,412
Effect of assumed conversion of employee stock
options........................................... 2,555 2,233 3,158
------- ------- -------
Diluted............................................ 108,072 106,803 106,570
======= ======= =======
Options to purchase 1,568,845 shares of common stock at prices ranging from
$22.24 to $24.51 per share were outstanding during a portion of 2001 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 2011, were still
outstanding at the end of fiscal year 2001.
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.
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.
(m) Deferred Financing Fees
Deferred financing fees are capitalized and amortized as a separate
component of other expense over the lifre of the related debt agreements.
42
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(n) Advertising Costs
Advertising costs included in selling, general and administrative expenses
are expensed as incurred and were $5,415, $6,014, and $5,730 in 2001, 2000,
and 1999, 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
In the normal course of business, we manage risks associated with foreign
exchange and interest rates through a variety of strategies, including the use
of hedging transactions, executed in accordance with our policies. Our hedging
transactions include, but are not limited to, the use of derivative
instruments. As a matter of policy, we do not use derivative instruments
unless there is an underlying exposure. Any change in the value of our
derivative instruments would be substantially offset by an opposite change in
the value of the underlying hedged items. We do not use derivative instruments
for trading or speculative purposes.
The Company uses interest rate swaps, from time to time, 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.
The Company, from time to time, enters foreign currency options to hedge
the exposure from adverse changes in foreign currency rates. In March 2001, we
entered into two foreign currency options to hedge against the effect of
fluctuations in foreign exchange rates on two notes issued in British Pounds.
The options of $11,500 GBP and $11,750 GBP have maturity dates approximating
those of the notes, of July 31, 2002 and July 2003, respectively. Both options
were priced at $0.69 GBP. These options are accounted for as a fair value
hedge. All changes in the underlying values are reflected in net income. At
September 30, 2000 there were no outstanding foreign currency options. The
purpose of the Company's foreign currency hedging activities is to protect
against risk that eventual cash flows from foreign activities will be
adversely affected by changes in exchange rates and the effect of related
changes on payments on long-term debt denominated in foreign currencies.
Recognized gains or losses on foreign currency option contracts entered into
to hedge sales are recorded as "net sales." Recognized gains or losses on
foreign currency contracts entered into to hedge long-term debt are recorded
as "other income." The Company has not entered into any foreign currency
options to hedge against exposure from operations in fiscal 2001.
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. As a result, the
swaps are
43
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
(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.
(r) Reclassifications
Certain reclassifications to prior year balances have been made to conform
with current year presentations.
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 12.3% and 9.5%, respectively, of the
Company's net sales in 2001, for 13.9% and 9.7%, respectively, of the
Company's net sales in 2000, and 14.9% and 10.7%, respectively, of the
Company's net sales in 1999. Accounts receivable from these distributors
comprised approximately 10.6% and 10.7%, respectively, of the outstanding
consolidated accounts receivable balances at September 30, 2001 and
approximately 15.8% and 8.6%, respectively, of the outstanding consolidated
accounts receivable balances at September 30, 2000.
3. Inventories
Inventories at September 30, 2001 and 2000 consist of the following:
2001 2000
--------- --------
Raw materials and supplies............................... $ 84,802 $ 59,178
Work in process.......................................... 25,974 29,848
Finished goods........................................... 56,660 52,753
--------- --------
$ 167,436 $141,779
========= ========
The Company uses the last-in, first-out (LIFO) method to value inventory at
certain subsidiaries. Inventories would have been $7,573 and $4,262 higher at
September 30, 2001 and 2000, respectively, if the first-in, first-out method
(FIFO) had been used.
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. No such events occurred in 2001 and 1999.
44
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Income Taxes
Total income tax expense (benefit) for the years ended September 30, 2001,
2000, and 1999 is allocated as follows:
2001 2000 1999
------- ------- -------
Income from continuing operations................ $70,868 $57,601 $49,981
Extraordinary items.............................. (1,359) -- 15,828
Discontinued operations.......................... 435 28,339 30,930
Shareholders' equity for unrealized gain on
security available for sale..................... 251 (1,420) (173)
Shareholders' equity for cumulative effect of
accounting changes for cash flow hedge.......... 1,687 -- --
Shareholders' equity for interest rate swap
agreements...................................... (1,397) -- --
Shareholders' equity for compensation expense for
tax purposes in excess of amounts recognized for
financial reporting purposes.................... (3,301) (7,901) (6,501)
------- ------- -------
$67,184 $76,619 $90,065
======= ======= =======
Income tax expense (benefit) attributable to income from continuing
operations of:
Current Deferred Total
-------- -------- -------
Year ended September 30, 2001:
U.S., state and local.......................... $ 57,654 $ 3,296 $60,950
Foreign........................................ 9,260 658 9,918
-------- ------- -------
$ 66,914 $ 3,954 $70,868
======== ======= =======
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
======== ======= =======
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
======== ======= =======
The domestic and foreign components of income from continuing operations
before income taxes, discontinued operations and extraordinary items are as
follows:
2001 2000 1999
-------- -------- --------
United States................................... $149,946 $123,422 $111,930
Foreign......................................... 30,793 20,903 15,462
-------- -------- --------
Income before income taxes, discontinued
operations and extraordinary items............. $180,739 $144,325 $127,392
======== ======== ========
45
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income tax expense attributable to income from continuing operations was
$70,868, $57,601, and $49,981 and in 2001, 2000, and 1999, 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 2001, 2000, and 1999 as a
result of the following:
2001 2000 1999
------- ------- -------
Computed "expected" tax expense.................. $63,259 $50,514 $44,587
Increase (reduction) in income taxes resulting
from:
Change in beginning of year valuation allowance
for deferred tax assets allocated to income tax
expense......................................... (21) (277)
Amortization of goodwill......................... 4,255 3,931 2,332
State and local income taxes, net of Federal
income tax benefit.............................. 6,286 3,898 3,077
Foreign income taxed at rates lower than U.S.
Federal income.................................. (860) (836) (561)
Foreign tax credits utilized in excess of U.S.
tax on foreign earnings......................... 205 512
Other, net....................................... (2,072) (90) 311
------- ------- -------
$70,868 $57,601 $49,981
======= ======= =======
The significant components of deferred income tax benefit attributable to
income from continuing operations for 2001, 2000, and 1999 are as follows:
2001 2000 1999
------ ------- -------
Deferred tax (benefit)/expense (exclusive of the
effects of other components listed below)........ $3,651 $10,038 $18,388
Increase (decrease) in the valuation allowance for
deferred tax assets.............................. 303 220 (512)
------ ------- -------
$3,954 $10,258 $17,876
====== ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 2001 and 2000 are presented below.
2001 2000
--------- --------
Deferred tax assets:
Inventories........................................... $ 5,143 $ 3,560
Compensation.......................................... 2,369 2,679
Sale/Leaseback........................................ 4,427 4,531
Employee benefits..................................... 826 1,979
Net operating loss carryforwards...................... 1,414 1,111
Warranty and other accruals........................... 6,428 8,347
--------- --------
Total gross deferred tax assets..................... 20,607 22,207
Less valuation allowance............................ (1,414) (1,111)
--------- --------
Net deferred tax assets............................. 19,193 21,096
--------- --------
Deferred tax liabilities:
Depreciation.......................................... (16,338) (16,928)
Purchase accounting................................... (88,818) (74,474)
Unrealized appreciation on securities available for
sale................................................. (2,029) (1,593)
Other................................................. (946) (860)
--------- --------
Total deferred tax liabilities...................... (108,131) (93,855)
--------- --------
Net deferred tax liability.......................... $ (88,938) $(72,759)
========= ========
46
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The change in the net deferred tax liability contains $11,974 and $251 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, 1999 was $891. The net change in the
total valuation allowance for the years ended September 30, 2001 and 2000 was
an increase of $303 and $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, 2001, the Company has an aggregate of $665 of foreign net
operating loss carry forwards from certain foreign jurisdictions, the majority
of which have no expiration. The Company has an aggregate of $14,118 of
various state net operating losses, the majority of which expire between 2005
and 2007.
Accumulated earnings of foreign subsidiaries at September 30, 2001, 2000,
and 1999 of approximately $25,000, $11,000, and $1,000, respectively, have
been reinvested in the business and no provision for income taxes has been
made for the repatriation of these earnings.
47
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Acquisitions and Divestitures
The Company has completed 36 acquisitions, sold one business and spun off
one business since the beginning of 1999. The acquired companies are all
engaged in businesses that 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.
2001
During 2001, the Company completed 10 acquisitions for cash. The aggregate
cash price of the acquisitions (none of which individually or aggregated was
significant) was approximately $158 million. The results of these acquisitions
were included as of the date they were acquired. The total goodwill and
intangibles for the acquired companies was approximately $153 million.
Intangible assets with a definite life will be amortized over 3 to 40 years.
The following table outlines unaudited sales and operating income for the most
recent date prior to the acquisition, and unaudited 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.
Business Segment
Operating Total Type of
Company Acquired Date Sales Income Assets Acquisition
---------------- ---- ------ --------- ------ -----------
(in thousands)
Clinical Diagnostics
Vacuum Process
Technologies, Inc....... Nov. 2000 $3,977 $ (19) $1,097 Asset
Disposable Glass Culture
Tube Business of Kimble
Glass, Inc.............. April 2001 5,800 331 -- Asset
Innovative Diagnostics,
Inc..................... July 2001 1,300 163 -- Asset
Disposable Glass Pasteur
Pipette and Perfume
Sampler Vial Product
Line of Kimble Glass
Inc..................... August 2001 2,000 400 -- Asset
Latex Agglutination
Product Line of Medtek
Diagnostics LLC......... July 2001 220 150 -- Asset
Daniel Mirror Company.... September 2001 6,800 2,000 100 Asset
Labware and Life Sciences
BioRobotics Group
Limited................. March 2001 10,500 2,500 4,592 Stock
Advanced Biotechnologies
Ltd..................... April 2001 21,500 6,700 14,265 Stock
Mosaic Technologies
Inc..................... July 2001 1,400 (747) -- Asset
Chromatography Vial
Product Line of Kimble
Glass, Inc.............. August 2001 7,200 1,300 -- Asset
48
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 was paid in fiscal 2001 and is 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 total goodwill for the acquired companies was approximately
$205,100, which will be amortized over 20 to 40 years. The following table
outlines unaudited sales and operating income for the most recent date prior
to the acquisition, and unaudited total assets at the most recent available
date prior to acquisition, for each of the acquired companies.
Business Segment
Operating Total Type of
Company Acquired Date Sales Income Assets Acquisition
---------------- ---- ------- --------- ------ -----------
(in thousands)
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 -- -- Stock
Clinical Diagnostics
Microm Laborgorate
GmbH................... October 1999 20,676 1,112 7,907 Asset
Lab Vision Corporation.. August 2000 7,487 1,146 4,426 Stock
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 -- Asset
The thyroid and
coagulation product
line of Axis Shield.... September 2000 4,507 2,174 -- Asset
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 total
goodwill for the acquired companies was $182,926. The following table outlines
unaudited sales and operating income for the most recent date prior to the
acquisition, and unaudited total assets at the most recent available date
prior to acquisition, for each of the acquired companies.
49
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Business Segment
Operating Total Type of
Company Acquired Date Sales Income Assets Acquisition
---------------- ---- ------- --------- ------- -----------
(in thousands)
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 1999 16,775 1,313 8,419 Stock
Clinical Diagnostics:
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
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
2002
Subsequent to September 30, 2001, the Company completed four acquisitions
for cash that will be accounted for as 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.
Business Segment
Operating Total Type of
Company Acquired Date Sales Income Assets Acquisition
---------------- ---- ------- --------- ------ -----------
(in thousands)
Clinical Diagnostics:
Chromacol Limited, Epsom
Glass Industries....... October 2001 $ 9,900 $ 350 $4,458 Stock
Limited and Amchro,
Inc....................
Forefront Diagnostics,
Inc.................... November 2001 6,300 1,700 9,900 Stock
Labware and Life
Sciences:
Cosmotec Co. Ltd........ October 2001 10,500 2,500 -- Stock
Barden Engineering...... October 2001 570 130 150 Asset
50
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Discontinued Operations:
Divestiture
On March 31, 1999, the Company 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 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, the Company 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 Apogent common stock they owned. 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. For 2001
the Company has included a net loss of $11,800 from discontinued operations.
The net loss included transaction expenses of $12,500 relating to the
Distribution of SDS. Revenues and net income from SDS through the date of the
Distribution (December 11, 2000) were $67,400 and $638, respectively, and
offset the transaction expenses. Income included in discontinued operations
for 2000 and 1999 was $41,597 and $47,844, respectively. SDS will issue its
own financial statements as of September 30, 2000.
As a result, these consolidated financial statements have classified SDS
and its affiliates to discontinued operations. SDS now owns and operates what
were formerly the Professional Dental, Orthodontics and Infection Control
Products business segments. The components of net assets held for sale of
discontinued operations included in the consolidated balance sheet at
September 30, 2000 is as follows:
September 30,
2000
-------------
Cash......................................................... $ 5,783
Net account receivables...................................... 85,767
Net inventories.............................................. 74,383
Other current assets......................................... 6,497
Advances and loans to Sybron International................... 77,762
Property plant and equipment--net............................ 55,326
Intangible assets............................................ 220,705
Other assets................................................. 6,967
Current portion of long term debt............................ (21,761)
Accounts payable............................................. (11,351)
Income taxes payable......................................... (5,680)
Accrued liabilities.......................................... (27,859)
Deferred income taxes--net................................... (6,252)
Long term debt............................................... (298,482)
Other liabilities............................................ (8,835)
---------
$ 152,970
=========
51
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Property, Plant and Equipment
Major classifications of property, plant and equipment at September 30,
2001 and 2000 are as follows:
2001 2000
---------- ----------
Land and land improvements......................... $ 13,067 $ 12,813
Buildings and building improvements................ 102,856 94,556
Machinery and equipment............................ 291,564 259,112
Construction in progress........................... 18,755 17,444
---------- ----------
426,242 383,925
Less: Accumulated depreciation..................... (202,555) (175,831)
---------- ----------
$ 223,687 $ 208,094
========== ==========
7. Intangible Assets
Intangible assets at September 30, 2001 and 2000 are as follows:
2001 2000
---------- ----------
Excess cost over net asset values acquired
(goodwill)........................................ $1,086,323 $ 989,012
Proprietary technology............................. 109,376 48,302
Trademarks......................................... 58,894 45,409
Other.............................................. 74,587 71,444
---------- ----------
1,329,180 1,154,167
Less: Accumulated amortization..................... (188,846) (146,014)
---------- ----------
$1,140,334 $1,008,153
========== ==========
The increase in intangible assets from 2000 to 2001 was primarily due to
acquisitions accounted for as purchases net of removal of fully amortized
intangible assets.
8. Long-Term Debt
Long-term debt at September 30, 2001 and 2000 consists of the following:
2001 2000
---------- ----------
Term Loan Facility................................. $ -- $ 380,920
Revolving Credit Facility.......................... 208,500 256,400
8% Senior Notes, net of discount................... 323,580 --
Sale/Leaseback Obligation.......................... 11,734 12,024
Sellers' Notes..................................... 103,685 30,600
Capital leases and other........................... 9,931 3,792
---------- ----------
657,430 683,736
Less: Current portion of long-term debt............ (73,642) (34,327)
---------- ----------
$ 583,788 $ 649,409
========== ==========
Securities Lending Agreement....................... $ 55,072 $ 54,444
========== ==========
52
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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.
On April 4, 2001 the Company issued $325,000 of unsecured senior notes in a
private placement with exchange and registration rights, and in August we
completed a registered exchange of the privately placed notes for similar
notes that had been registered with the SEC. The notes were offered at a
discount of approximately $1,469. They will mature on April 1, 2011. Interest
is fixed at an annual rate of 8% and is payable on April 1 and October 1 of
each year, beginning on October 1, 2001. The notes are redeemable by the
Company at any time in whole, or from time to time in part, at a price equal
to the greater of (i) 100% of the principal amount of the notes to be redeemed
or (ii) the sum of the present values of the remaining scheduled payments of
principal and interest thereon (exclusive of interest accrued to the date of
redemption) discounted to the date of redemption on a semiannual basis at the
applicable Treasury Yield (as defined in the bond agreement) plus 35 basis
points, plus accrued interest to the date of redemption. The Company used the
proceeds from the issuance to repay all of its Term Loan Facility ($300
million) and a portion of its Revolving Credit Facility. The notes are
guaranteed by the Company's material U.S. subsidiaries, which also guarantee
the Company's obligations under its bank credit facility.
For 2001, the Company recorded an extraordinary loss of $2,106 after taxes
as a result of entering into the Credit Agreement and the issuance of the
senior notes. This loss related to the write-off of deferred financing costs
of approximately $1,200 associated with the Previous Credit Agreement paid off
in the December 2000 refinancing, and costs of approximately $2,200 associated
with debt paid-off from the proceeds of the senior note issuance in April
2001.
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.
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 pays a
facility fee of .125% to .375% for all commitments from the lenders, whether
drawn or undrawn and pays a utilization fee of 0.25% per annum if more than
50% of the Revolving Credit Facility is drawn or the Term
53
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Term Loan Facility: Borrowings under the Term Loan Facility were paid in
full from the proceeds of the Senior Notes Offering completed in April 2001.
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 to receive a fee for the loan of the security at a
floating rate equal to LIBOR minus .75%. Thereafter, the Company is required
to pay the unrelated third party a collateral fee equal to the one-week
general collateral rate of interest (as determined weekly in good faith by the
unrelated third party, provided that such rate shall not exceed the federal
funds rate in effect as of the day of determination plus .25%) and the Company
receives all distributions made on or in respect to the Treasury. This
transaction is accounted for as a secured borrowing.
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.
54
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Sellers' Notes: In connection with certain acquisitions, the Company has
issued notes payable to the related sellers. The notes bear interest of 5% to
6% and mature at various dates through July, 2003. Certain notes are
redeemable by the holders, subject to certain time restrictions. The notes are
unsecured, however in certain instances, some are guaranteed by a subsidiary
of the Company.
Maturities of Long-Term Debt: As of September 30, 2001, maturities of long-
term debt, including capital leases, are as follows:
Fiscal
------
2002............................................................. $ 73,642
2003............................................................. 40,704
2004............................................................. 511
2005............................................................. 209,063
2006............................................................. 645
Thereafter....................................................... 332,865
---------
$ 657,430
=========
Maturity of long-term debt related to the Revolving Credit Facility is
based upon its maturity date of December 1, 2005.
9. Lease Commitments
As of September 30, 2001, minimum rentals, excluding rent payments under
the Sale/Leaseback described in note 8, under capital and noncancellable
operating leases consisting primarily of machinery and equipment, and building
leases are:
Fiscal Capital Operating
------ ------- ---------
2002..................................................... $ 372 $ 9,602
2003..................................................... 204 8,870
2004..................................................... 114 7,255
2005..................................................... 13 5,806
2006..................................................... -- 4,794
Thereafter............................................... -- 17,650
----- -------
$ 703 $53,977
=======
Less amounts representing interest....................... 79
-----
Present value of net minimum lease payments.............. 624
Less current portion..................................... 320
-----
Long-term obligations under capital leases............... $ 304
=====
55
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Amortization of assets held under capital leases is included with
depreciation expense.
Rental expense under operating leases was $11,710, $9,434, and $6,704 and
in 2001, 2000, and 1999, respectively.
10. 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:
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.
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.
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 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, 2001 and 2000, the
Company had no foreign exchange option contracts with respect to sales
commitments. At September 30, 2001, the Company had two foreign exchange
option contracts relating to loans made to purchase a foreign subsidiary.
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. As
of September 30, 2001, the Company has no interest rate swap agreements.
On December 11, 2000, the Company extinguished the variable rate long-term
debt to which the swaps were designated and as a result the interest rate
swaps ceased to be accounted for as hedges. On December 12, 2000,
56
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company sold the interest rate swaps for an aggregate gain of $1,055, net
of tax. Upon the sale of the interest rate swaps, the Company reduced the
unrealized gain recorded at October 1, 2000 in other comprehensive income to
reflect the fair market value net of tax on the date of sale. 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 to yield
interest expense of the new Credit Facilities over the remaining term of the
interest rate contract. For the period December 12, 2000 through September 30,
2001, the Company recognized a gain of $619, net of tax.
11. 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 whereby 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:
2001 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:
2001 2000
---- ----
Discount rate.................................................. 7.75% 8.0%
Average increase in medical costs.............................. 5.5% 5.5%
57
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pension Benefits Other Benefits
----------------- ----------------
2001 2000 2001 2000
-------- ------- ------- -------
Change in benefit obligations:
Obligations at beginning of year........ $ 51,009 $44,275 $ 4,457 $ 5,556
Service cost............................ 2,125 2,032 13 12
Interest cost........................... 3,981 3,691 298 399
Actuarial (gain) loss................... 8,603 3,129 2,475 (68)
Benefit payments........................ (2,548) (2,118) (1,451) (1,442)
-------- ------- ------- -------
Obligations at end of year.............. $ 63,170 $51,009 $ 5,792 $ 4,457
Change in fair value of plan assets:
Fair value of plan assets at beginning
of year................................ $ 50,483 $44,898 $ -- $ --
Actual return on plan assets............ 1,250 6,463 -- --
Employer contributions.................. 2,692 1,240 -- --
Benefit payments........................ (2,624) (2,118) -- --
-------- ------- ------- -------
Fair value of plan assets at end of
year................................... $ 51,801 $50,483 $ -- $ --
Funded Status:
Funded status at end of year............ $(11,369) $ (526) $(5,792) $(4,457)
Unrecognized transition (asset)
obligation............................. (6) 6 -- --
Unrecognized prior service cost......... 145 144 -- --
Unrecognized (gain) loss................ 5,565 (6,869) 2,721 245
Remaining excess of fair value of plan
assets over projected benefit obligation
recognized as a result of the 1987
acquisition of Sybron Corporation........ -- 1,869 -- --
-------- ------- ------- -------
Net amount recognized at measurement
date..................................... (5,665) (5,376) (3,071) (4,212)
Employer contribution paid after
measurement date......................... -- 167 -- --
-------- ------- ------- -------
Net amount recognized at end of year...... $ (5,665) $(5,209) $(3,071) $(4,212)
======== ======= ======= =======
The following table provides the amounts recognized in the Company's
consolidated balance sheets:
Pension Benefits Other Benefits
----------------- ----------------
2001 2000 2001 2000
-------- ------- ------- -------
Prepaid benefit cost...................... $ 67 $ 188 $ -- $ --
Accrued benefit liability................. (5,732) (7,433) (3,071) (4,212)
Remaining excess of fair value of plan
assets over projected benefit obligation
recognized as a result of the 1987
acquisition of Sybron Corporation........ -- 1,869 -- --
-------- ------- ------- -------
Net amount recognized at measurement
date..................................... (5,665) (5,376) (3,071) (4,212)
Employer contribution paid after
measurement date......................... -- 167 -- --
-------- ------- ------- -------
Net amount recognized at September 30..... $ (5,665) $(5,209) $(3,071) $(4,212)
======== ======= ======= =======
58
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table provides disclosure of the net periodic benefit cost:
Pension Benefits Other Benefits
------------------------- --------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ---- ---- ----
Service cost........................ $ 2,125 $ 2,032 $ 2,818 $ 13 $ 12 $ 28
Interest cost....................... 4,026 3,691 3,435 298 399 557
Expected return on plan assets...... (4,940) (4,509) (4,123) -- -- --
Amortization of transition (asset)
obligation......................... 12 107 108 -- -- --
Amortization of prior service cost.. (1) (52) (52) -- -- --
Amortization of net (gain) loss..... (110) 65 126 -- -- 66
------- ------- ------- ---- ---- ----
Net periodic benefit cost........... $ 1,112 $ 1,334 $ 2,312 $311 $411 $651
======= ======= ======= ==== ==== ====
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 $2,907, $1,853, and
$0, respectively as of September 30, 2001 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, 2001 by approximately
$110 and $9, respectively.
Because the majority of the postretirement plans are remaining liabilities
from certain divested operations and more than 85% of the 2001, 2000 and 1999
net periodic postretirement benefit costs relate to interest costs, the
Company has classified such interest costs as interest expense. This results
in a non-cash increase in interest expense of approximately $299, $399 and
$557 in 2001, 2000 and 1999, 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"). Matching
contributions made by the Company under the plans, net of forfeitures, were
approximately $3,079, $2,770 and $2,324 for 2001, 2000 and 1999, respectively.
59
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Restructuring Charges
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 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 of $5,800 and income tax expense of $1,000,
related to the Company's restructuring of its U.K. operations. Restructuring
activity since its inception in September 2000 and its components are as
follows:
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
Adjustments (e)......... 600 600
2001 Cash payments...... 3,800 -- -- 200 200 1,000 -- 5,200
2001 Non-cash charges... -- -- -- 100 -- 100 200 --
------ ------ ------ ---- ---- ------ ---- -------
September 30, 2001
balance................ $1,200 $ -- $ -- $300 $ -- $ -- $ -- $ 1,500
====== ====== ====== ==== ==== ====== ==== =======
- --------
(a) Amount represents severance and termination costs for 151 terminated
employees (primarily sales, marketing and corporate personnel). As of
September 30, 2001, all 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. operations.
(e) Amount represents an increase in the severance costs for 16 employees
(primarily corporate personnel). These employees are included in the total
151 terminated employees referenced above.
The Company expects to make future cash payments of approximately $1,500 in
fiscal 2002 and beyond.
60
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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),
and 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
--------- -------- --------- ------ -------- ------
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
2001 Cash payments........ 200 -- -- -- -- 200
------ ---- ------ ------ ------ ------
September 30, 2001
balance.................. $ -- $-- $ -- $ -- $ -- $ --
====== ==== ====== ====== ====== ======
- --------
(a) Amount represents severance and termination costs for approximately 65
terminated employees (primarily sales and marketing personnel). As of
September 30, 2001, all employees have been terminated as a result of the
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.
13. Commitments and Contingent Liabilities
A subsidiary of Apogent has been identified as a potentially responsible
party ("PRP") at the Aqua-Tech site in South Carolina (the "Aqua-Tech Site")
with respect to a previously owned facility. An action has been conducted at
the Aqua-Tech Site for the removal of surface contaminants under the
supervision of the Environmental Protection Agency ("EPA") under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"). Our total contribution to date has been approximately
$49. The site has been placed by the EPA on the federal National Priority List
under CERCLA, which is a prerequisite to any federally-mandated requirement
for long-term remedial work at the site under CERCLA, such as would be
involved in soil and groundwater remediation. We are participating with a PRP
group composed of approximately 100 parties in an agreement with the EPA to
undertake a remedial investigation and feasibility study, which will be used
by the EPA to determine what remedy, if any, should be required at the site. A
draft remedial investigation was submitted to the EPA in August 1999, and a
draft baseline risk assessment was
61
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
submitted in October 1999. After review of the draft remedial investigation,
the EPA requested and obtained additional sampling work from the PRP group.
The final remedial investigation was submitted in 2000, and the feasibility
study is expected to be completed in 2002. Because the study, which involves
extensive testing to characterize the existence, extent and nature of any
contamination in order to determine potential remedies, has not yet been
completed, an estimate of our potential liability cannot be made. Our share of
waste allegedly sent to the site is reportedly not more than 1% of the total
waste sent; therefore, even though CERCLA does provide for joint and several
liability, we believe that any ultimate liability will not have a material
adverse effect on our results of operations or financial condition.
Applied Biotech, Inc. ("ABI"), a subsidiary in our Clinical Diagnostics
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 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.
14. Capital Stock
Stock Option Plans: The Company has five stock option plans. As of
September 30, 2001, there were options with respect to 4,986 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 26,148 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
62
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with respect to 9,132,445 shares of Common Stock outstanding under the Amended
and Restated 1993 Long-Term Incentive Plan (the "1993 Plan") and there were
577,653 shares remaining available for the granting of options under such
plan; there were options with respect to 403,983 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 305,426 shares of Common Stock outstanding under the 1999 Outside
Directors' Stock Option Plan (the "1999 Outside Directors' Plan"), and there
were 216,000 shares remaining available for the granting of options under such
plan.
On December 11, 2000, in connection with the Spin-Off of SDS, certain
employees of SDS exchanged 1,320,515 outstanding options to purchase Apogent
common stock for 2,331,214 options to purchase Sybron Dental Specialties, Inc.
common stock. All remaining stock options (owned by remaining employees and
directors of the Company) were adjusted by adjusting the exercise price and
the number of shares subject to each such option to reflect the change in
market value of the Company's common stock resulting from the Spin-Off, so
that the intrinsic value of the options (the spread between the market value
and the exercise price of the option shares) after the Spin-Off was equal to
their intrinsic value immediately prior to the Spin-Off. The spread on options
for fractional shares resulting from the exchange or adjustment was paid in
cash. As a result of these exchanges and adjustments, the number of
outstanding employee and director stock options increased by 1,449,749 shares
and the average exercise price decreased by approximately $3.80.
Changes in stock options outstanding are as follows:
Number of Weighted Average
Shares Price Per Share Exercise Price
---------- ----------------- ----------------
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
Effect on outstanding options
from Spin-Off of SDS......... 1,449,749
Granted....................... 953,443 $21.58 -- $24.52 $22.69
Exercised..................... (706,522) $ 5.10 -- $21.46 $ 9.29
Canceled and available for
reissue...................... (151,880) $12.31 -- $25.67 $20.47
----------
Options outstanding at September
30, 2001....................... 9,938,448 $ 5.10 -- $24.84 $17.10
==========
Options exercisable at September
30, 2001....................... 6,437,559 $ 5.10 -- $24.84 $14.48
==========
Options available for grant at
September 30, 2001............. 793,653
==========
The range of exercise prices for options outstanding at September 30, 2001
was $5.10 to $24.84. 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.
63
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about options outstanding and
outstanding and exercisable on September 30, 2001:
Options
Outstanding and
Options Outstanding Exercisable
------------------------------------------- --------------------------
Range of Weighted Average
Exercise Number of Remaining Weighted Average Number of Weighted Average
Price Shares Contractual Life Exercise Price Shares Exercise Prices
- -------- --------- ---------------- ---------------- --------- ----------------
$2.57 --
$5.13... 50,135 1.3 $ 5.10 501,135 $ 5.10
$5.14 --
$7.70... 2,232,767 3.1 $ 6.87 2,232,767 $ 6.87
$7.71 --
$10.28.. 296,982 4.2 $ 9.26 296,982 $ 9.26
$10.29 --
$12.83.. 181,962 5.0 $12.31 181,962 $12.31
$12.84 --
$15.40.. 2,493 5.6 $13.61 2,493 $13.61
$15.41 --
$17.97.. 31,165 8.2 $17.65 7,790 $17.65
$17.98 --
$20.54.. 4,547,405 6.7 $19.50 3,252,389 $19.54
$20.55 --
$23.10.. 1,033,127 8.3 $21.48 386,864 $21.43
$23.11 --
$25.67.. 1,562,412 9.3 $24.26 26,177 $24.84
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. 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
64
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 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:
2001 2000 1999
--------- --------- ---------
Pro forma net income...................... $ 77,729 $ 110,498 $ 124,029
Basic pro forma earnings per share........ 0.74 1.06 1.20
Diluted pro forma earnings per share...... 0.72 1.04 1.16
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:
2001 2000 1999
--------- --------- ---------
Volatility................................ 35.80% 35.0% 28.8%
Risk-free interest rate................... 5.66% 6.50% 4.99%
Expected holding period................... 7.8 years 7.8 years 7.7 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 2001, 2000
and 1999 was $9.25, $14.54 and $13.53, respectively. For purposes of pro forma
disclosure, the estimated fair value of the options is amortized to expense
over the options' vesting period.
65
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Equity Rights: As of September 30, 2001, 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.
15. Segment Information
The Company's operating subsidiaries are engaged in the manufacture and
sale of laboratory products in the United States and other countries. The
Company's products are categorized in the business segments of: clinical
diagnostics; labware and life sciences; and laboratory equipment. A
description of the business segments follows:
Products in the clinical diagnostic business segment include microscope
slides, cover glass, glass tubes and vials, stains and reagents and histology
and immunochemistry instrumentation for clinical testing, thin glass for watch
crystals, cosmetic mirrors, precision and coated glass used in various optic
applications, and precision thin film optical coating equipment. Certain
products in this segment are used 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 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 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.
66
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inter-business segment sales are not material. Information on these
business segments is summarized as follows:
Labware
Clinical and Life Laboratory Other
Diagnostics Sciences Equipment Eliminations (a) Total
----------- -------- ---------- ------------ ------- ---------
2001
Revenues:
External customer..... $477,233 $400,823 $106,409 $ 984,465
Intersegment.......... 6,973 1,273 428 (8,674) --
Total revenues...... 484,206 402,096 106,837 (8,674) 984,465
Gross profit............ 228,009 205,079 45,188 478,276
Selling general and
administrative......... 109,566 114,685 23,045 6,264 253,560
Operating income........ 118,446 90,388 22,146 (6,264) 224,716
Depreciation and
amortization........... 38,869 33,237 4,932 1,044 78,082
Interest income......... 649 315 24 55 1,043
Interest expense........ --
Segment assets.......... 887,356 749,050 128,169 70,563 1,835,138
Expenditures for
property, plant and
equipment.............. 25,673 25,137 2,150 182 53,142
2000
Revenues:
External customer..... 413,565 347,437 102,573 863,575
Intersegment.......... 5,669 1,087 969 (7,725) --
Total revenues...... 419,234 348,524 103,542 (7,725) 863,575
Gross profit............ 199,571 179,019 43,540 422,130
Selling general and
administrative......... 96,706 100,365 22,316 9,754 229,141
Operating income........ 102,506 79,095 21,142 (9,754) 192,989
Depreciation and
amortization........... 31,866 27962 4,753 2,006 66,587
Interest income......... 473 217 14 127 831
Interest expense........ 135 933 1 47,615 48,684
Segment assets.......... 796,955 428,044 88,439 478,926 1,792,364
Expenditures for
property, plant and
equipment.............. 19,038 21,645 1,726 84 42,493
1999
Revenues:
External customer..... 342,529 268,788 103,720 715,037
Intersegment.......... 4,550 975 836 (6,361) --
Total revenues...... 347,079 269,763 104,556 (6,361) 715,037
Gross profit............ 160,357 136,018 45,583 341,958
Selling general and
administrative......... 75,030 68,600 21,950 7,252 172,832
Operating income........ 87,587 67,404 21,387 (7,252) 169,126
Depreciation and
amortization........... 24,004 18,768 4,486 1,737 48,995
Interest income......... 145 183 12 421 761
Interest expense........ 807 233 45 38,988 40,073
Segment assets.......... 707,911 465,648 131,942 234,474 1,539,975
Expenditures for
property, plant and
equipment.............. 11,912 15,598 2,462 405 30,377
- --------
(a) Includes the elimination of intercompany and corporate office activity.
67
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's international operations are conducted principally in Europe.
Inter-geographic sales are made at prices approximating market.
2001 2000 1999
--------- -------- --------
Net Sales:
United States:
Customers...................................... $ 727,310 $643,188 $543,846
Inter-geographic............................... 64,035 55,616 43,777
--------- -------- --------
791,345 698,804 587,623
--------- -------- --------
Europe:
Customers...................................... 159,869 133,437 103,097
Inter-geographic............................... 38,271 28,059 23,653
--------- -------- --------
198,140 161,496 126,750
--------- -------- --------
All other areas:
Customers...................................... 97,286 86,950 68,094
Inter-geographic............................... 7,893 8,934 7,798
--------- -------- --------
105,179 95,884 75,892
Inter-geographic sales........................... (110,199) (92,609) (75,228)
--------- -------- --------
Total net sales................................ $ 984,465 $863,575 $715,037
========= ======== ========
Net Property:
United States.................................. 177,834 $168,472 $147,802
Europe......................................... 44,911 38,766 39,174
All other areas................................ 942 856 783
--------- -------- --------
Total net property............................. $ 223,687 $208,094 $187,759
========= ======== ========
Major customer information:
During 2001, 2000 and 1999, one customer, Fisher Scientific, accounted for
10% or more of the Company's net revenues. During 1999, another customer, VWR,
accounted for 10% or more of the Company's net revenues. The table below lists
by segment the 2001, 2000 and 1999 sales to Fisher Scientific and the 1999
sales to VWR.
Fischer Scientific VWR
-------------------------- -------
2001 2000 1999 1999
-------- -------- -------- -------
Clinical Diagnostics........................ $ 35,214 $ 36,897 $ 30,720 $ 8,186
Labware and Life Sciences................... 61,579 60,818 55,514 53,391
Laboratory Equipment........................ 23,937 22,189 20,119 17,044
-------- -------- -------- -------
Total..................................... $120,730 $119,904 $106,353 $78,621
======== ======== ======== =======
68
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Quarterly Financial Information (Unaudited)
First Second Third Forth Total
Quarter Quarter Quarter Quarter Year
2001 -------- -------- -------- -------- --------
Net sales..................... $220,758 $245,104 $260,396 $258,207 $984,465
======== ======== ======== ======== ========
Gross profit.................. $105,953 $120,513 $125,501 $126,309 $478,276
======== ======== ======== ======== ========
Income from continuing
operations................... 22,187 30,190 28,103 29,391 109,871
Discontinued operation........ (10,986) (838) -- -- (11,824)
Income before extraordinary
items........................ 11,201 29,352 28,103 29,391 98,047
Extraordinary items........... (745) -- (1,361) -- (2,106)
-------- -------- -------- -------- --------
Net income.................... $ 10,456 $ 29,352 $ 26,742 $ 29,391 $ 95,941
======== ======== ======== ======== ========
Basic income per common share:
Income from continuing
operations................. $ 0.21 $ 0.29 $ 0.27 $ 0.28 $ 1.04
Discontinued operation...... (0.10) (0.01) -- -- (0.11)
Extraordinary items......... (0.01) -- (0.01) -- (0.02)
Net income per common
share...................... 0.10 0.28 0.25 0.28 0.91
Diluted income per common
share:
Income from continuing
operations................. $ 0.21 $ 0.28 $ 0.26 $ 0.27 $ 1.02
Discontinued operation...... (0.10) (0.01) -- -- (0.11)
Extraordinary items......... (0.01) -- (0.01) -- (0.02)
Net income per common
share...................... 0.10 0.27 0.25 0.27 0.89
2000
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 income per common share:
Income from continuing
operations................. $ 0.20 $ 0.24 $ 0.23 $ 0.16 $ 0.83
Discontinued operation...... 0.09 0.13 0.11 0.07 0.40
Net income per common
share...................... 0.29 0.37 0.34 0.23 1.23
Diluted income per common
share:
Income from continuing
operations................. $ 0.20 $ 0.24 $ 0.22 $ 0.16 $ 0.81
Discontinued operation...... 0.09 0.13 0.11 0.06 0.39
Net income per common
share...................... 0.29 0.37 0.33 0.22 1.20
17. Condensed Consolidating Financial Information
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, 2001, 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.
69
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Balance Sheets
As of September 30, 2001
-----------------------------------------------------------------
Non
Apogent Guarantor Guarantor
Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
(In thousands)
ASSETS
------
Current assets:
Cash and cash
equivalents........... $ 4,145 $ -- $ 10,699 $ (5,652) $ 9,192
Accounts receivable,
net................... -- 146,981 36,297 -- 183,278
Inventories, net....... 1,263 136,906 33,335 (4,068) 167,436
Net assets held for
discontinued
operations............ -- -- -- -- --
Other current assets... 15,010 13,458 5,969 (406) 34,031
---------- ---------- -------- ----------- ----------
Total current
assets.............. 20,418 297,345 86,300 (10,126) 393,937
Property, plant and
equipment, net........ 9,553 169,032 45,102 -- 223,687
Intangible assets...... 7,003 913,651 219,680 -- 1,140,334
Deferred income taxes.. 6,147 -- -- -- 6,147
Investment in
subsidiaries.......... 1,593,800 46,461 -- (1,640,261) --
Other assets........... 58,605 11,543 885 -- 71,033
---------- ---------- -------- ----------- ----------
Total assets......... $1,695,526 $1,438,032 $351,967 $(1,650,387) $1,835,138
========== ========== ======== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable....... $ 787 $ 46,802 $ 11,885 $ (5,652) $ 53,822
Advances and loans from
SDS................... -- -- -- -- --
Current portion of
long-term debt........ 378 33,450 36 -- 33,864
Income taxes payable... 33,432 -- 6,638 (1,323) 38,747
Accrued expenses and
other current
liabilities........... 33,784 28,603 14,968 -- 77,355
---------- ---------- -------- ----------- ----------
Total current
liabilities........... 68,381 108,855 33,527 (6,975) 203,788
---------- ---------- -------- ----------- ----------
Long-term debt......... -- 623,543 23 -- 623,566
Securities lending
agreement............. 55,072 -- -- -- 55,072
Deferred income taxes.. 74,411 20,778 12,031 -- 107,220
Other liabilities...... 3,231 2,453 1,318 -- 7,002
Net intercompany
payable/(receivable).. 375,705 (599,911) 224,169 37 --
Commitments and
contingent
liabilities........... --
Shareholders' equity
Preferred stock....... -- -- -- -- --
Common stock......... 1,059 -- -- -- 1,059
Equity rights........ -- -- -- -- --
Additional paid-in-
capital............. 234,166 1,561,854 80,265 (1,621,648) 254,637
Retained earnings
(deficit)........... 880,299 (279,540) 48,684 (21,801) 627,642
Other comprehensive
income.............. 3,202 -- (48,050) -- (44,848)
Treasury stock (at
cost)............... -- -- -- -- --
---------- ---------- -------- ----------- ----------
Total shareholders'
equity............ 1,118,726 1,282,314 80,899 (1,643,449) 838,490
---------- ---------- -------- ----------- ----------
Total liabilities
and shareholders'
equity............ $1,695,526 $1,438,032 $351,967 $(1,650,387) $1,835,138
========== ========== ======== =========== ==========
70
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Balance Sheets
As of September 30, 2000
----------------------------------------------------------------
Non
Apogent Guarantor Guarantor
Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
(In thousands)
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
Accumulated 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
========== ========== ======== ========= ==========
71
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statements of Operations
For the Year Ended September 30, 2001
----------------------------------------------------------------
Non
Apogent Guarantor Guarantor
Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
(In thousands)
Net sales............... $ -- $859,022 $179,100 $(53,657) $984,465
Cost of sales........... -- 455,950 103,650 (53,411) 506,189
-------- -------- -------- -------- --------
Gross profit.......... -- 403,072 75,450 (246) 478,276
Selling, general and
administrative
expenses............... 24,961 183,718 44,881 -- 253,560
-------- -------- -------- -------- --------
Operating income........ (24,961) 219,354 30,569 (246) 224,716
Other income (expense):
Interest expense...... -- (48,773) 75 -- (48,698)
Other, net............ 4,095 1,510 (884) 4,721
-------- -------- -------- -------- --------
Income before income
taxes, discontinued
operations and
extraordinary items.... (20,866) 172,091 29,760 (246) 180,739
Income taxes............ (7,798) 67,115 11,606 (56) 70,868
-------- -------- -------- -------- --------
Income from continuing
operations before
extraordinary items.... (13,068) 104,976 18,154 (190) 109,871
Discontinued
operations............. (11,824) -- -- -- (11,824)
-------- -------- -------- -------- --------
Income before
extraordinary items.... (24,892) 104,976 18,154 (190) 98,047
Extraordinary items..... -- (2,106) -- -- (2,106)
-------- -------- -------- -------- --------
Net income.............. $(24,892) $102,870 $ 18,154 $ (190) $ 95,941
======== ======== ======== ======== ========
For the Year Ended September 30, 2000
----------------------------------------------------------------
Non
Apogent Guarantor Guarantor
Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
(In thousands)
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 and discontinued
operations............. (8,865) 137,516 16,660 (986) 144,325
Income taxes............ (2,595) 51,859 8,624 (287) 57,601
-------- -------- -------- -------- --------
Income from continuing
operations............. (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
======== ======== ======== ======== ========
72
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statements of Operations
For the Year Ended September 30, 1999
----------------------------------------------------------------
Non
Apogent Guarantor Guarantor
Technologies Subsidiaries Subsidiaries Eliminations Consolidated
(in thousands) ------------ ------------ ------------ ------------ ------------
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
======= ======== ======== ======== ========
73
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended September 30, 2001
----------------------------------------------------------------
Non
Apogent Guarantor Guarantor
Technologies Subsidiaries Subsidiaries Eliminations Consolidated
(in thousands) ------------ ------------ ------------ ------------ ------------
Cash flows (used by)
provided by operating
activities:............ $(53,740) $ 223,879 $12,035 $ -- $ 182,174
-------- ---------- ------- ------ ----------
Cash flows from
investing activities:
Capital expenditures.. (8,320) (34,836) (9,745) -- (52,901)
Proceeds from sales of
property, plant and
equipment............ 10,212 2,076 169 -- 12,457
Net cash inflow from
SDS.................. 46,394 -- -- -- 46,394
Net payments for
businesses acquired.. -- (161,208) (2,311) -- (163,519)
-------- ---------- ------- ------ ----------
Net cash provided by
(used in) investing
activities......... 48,286 (193,968) (11,887) -- (157,569)
-------- ---------- ------- ------ ----------
Cash flows from
financing activities:
Proceeds from long-
term debt............ -- 1,158,008 -- -- 1,158,008
Principal payments on
long-term debt....... -- (1,184,273) (41) -- (1,184,314)
Proceeds from the
exercise of stock
options.............. 6,631 -- -- -- 6,631
Other................. (4,118) (6,721) -- -- (10,839)
-------- ---------- ------- ------ ----------
Net cash provided by
(used in) financing
activities......... 2,513 (32,986) (41) -- (30,514)
Effect of exchange rate
on cash and cash
equivalents............ -- -- 2,690 -- 2,690
-------- ---------- ------- ------ ----------
Net (decrease) increase
in cash and cash
equivalents............ (2,941) (3,075) 2,797 -- (3,219)
Cash and cash
equivalents at
beginning of year...... 7,086 (2,577) 7,902 -- 12,411
-------- ---------- ------- ------ ----------
Cash and cash
equivalents at end of
year................... $ 4,145 $ (5,652) $10,699 $ -- $ 9,192
======== ========== ======= ====== ==========
Supplemental disclosures
of cash flow
information
Cash paid during the
year for:
Interest.............. $ -- $ 36,767 $ 365 $ -- $ 37,132
======== ========== ======= ====== ==========
Income taxes.......... $ 35,629 $ 638 $ 6,803 $ -- $ 43,070
======== ========== ======= ====== ==========
Capital lease
obligations incurred... $ 36 $ 59 $ 9 $ -- $ 104
======== ========== ======= ====== ==========
74
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended September 30, 2000
----------------------------------------------------------------
Non
Apogent Guarantor Guarantor
Technologies Subsidiaries Subsidiaries Eliminations Consolidated
(in thousands) ------------ ------------ ------------ ------------ ------------
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)
Security purchased.... -- -- -- -- --
Proceeds from sales of
property, plant and
equipment............ -- 871 53 -- 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) (1,423) -- (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
(used in) 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
======= ======== ====== ======= ========
75
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended September 30, 1999
----------------------------------------------------------------
Non
Apogent Guarantor Guarantor
Technologies Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
(In thousands)
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
Net intercompany
financing............ -- -- -- -- --
Other................. 1,930 -- -- -- 1,930
--------- --------- ------- ---- ---------
Net cash provided by
(used in) 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
========= ========= ======= ==== =========
Incomet taxes......... $ 27,009 $ 2,185 $ 3,237 $-- $ 32,431
========= ========= ======= ==== =========
Capital lease
obligations incurred... $ 104 $ 353 $ -- $-- $ 457
========= ========= ======= ==== =========
76
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. Subsequent Events
October 10, 2001, the Company issued $300 million of senior convertible
contingent debt securities (CODES) in a private placement with registration
rights. The CODES have an interest rate of 2.25% (subject to adjustment) and
also pay contingent interest under certain circumstances. Interest is payable
on April 15 and October 15 of each year, beginning April 15, 2002. They will
mature on October 15, 2021. The CODES are convertible, subject to certain
conditions, into Apogent Common Stock at a price of $30.49 per share, subject
to adjustment. The Company may redeem some or all of the CODES on or after
October 20, 2004. The holders may require the Company, to purchase all or a
portion of the CODES outstanding on October 20, 2004 and on October 15, 2006,
2011 and 2016, or subject to specified exceptions, upon a change of control
event. The Company's material U.S. subsidiaries guarantee Apogent's
obligations under the CODES. The proceeds from the issuance were used to repay
the outstanding balance on our Revolving Credit Facility in full, and for
general corporate purposes. The Company has promised to file one or more
registration statements with the SEC to register resales of the CODES, the
guarantees, and the Common Stock issuable upon conversion of the CODES by the
beneficial owners thereof.
77
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information called for by Item 10 of Form 10-K with respect to
directors and executive officers is incorporated herein by reference to such
information included in the Company's Proxy Statement for the Annual Meeting
of Shareholders to be held January 28, 2002 (the "2002 Annual Meeting Proxy
Statement") under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" and to the information under the
caption "Executive Officers of the Registrant" in Part I hereof.
ITEM 11. Executive Compensation
The information called for by Item 11 of Form 10-K is incorporated herein
by reference to such information included in the 2002 Annual Meeting Proxy
Statement under the captions "Executive Compensation," "Election of
Directors--Directors' Compensation," and "Compensation Committee Interlocks
and Insider Participation."
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by Item 12 of Form 10-K is incorporated herein
by reference to such information included in the 2002 Annual Meeting Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners
and Management."
ITEM 13. Certain Relationships and Related Transactions
The information called for by Item 13 of Form 10-K is incorporated herein
by reference to such information included in the 2002 Annual Meeting Proxy
Statement under the captions "Election of Directors," "Compensation Committee
Interlocks and Insider Participation," and "Certain Relationships and Related
Transactions."
78
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed. The following documents are filed as part of this Annual
Report or incorporated by reference as indicated:
1. Financial Statements. The consolidated financial statements of Apogent
Technologies Inc. and its subsidiaries filed under Item 8:
Page
----
Independent Auditors' Report........................................ 35
Consolidated Balance Sheets as of September 30, 2001 and 2000....... 36
Consolidated Statements of Income for the years ended September 30,
2001, 2000 and 1999................................................ 37
Consolidated Statements of Shareholders' Equity for the Years ended
September 30, 2001, 2000 and 1999.................................. 38
Consolidated Statements of Cash Flows for the years ended September
30, 2001, 2000 and 1999............................................ 39
Notes to Consolidated Financial Statements.......................... 40
2. Financial Statement Schedules. The following report and financial
statement schedule should be read in conjunction with the consolidated
financial statements set forth in Item 8:
Page
----
Independent Auditors' Report.......................................... 81
Schedule II--Valuation and Qualifying Accounts........................ 82
Schedules other than those listed above are omitted because they are not
applicable or because the required information is given in the consolidated
financial statements and notes thereto.
3. Exhibits and Exhibit Index. See the Exhibit Index included as the last
part of this report, which is incorporated herein by reference. Each
management contract and compensatory plan or arrangement required to be filed
as an exhibit to this report is identified in the Exhibit Index by an asterisk
following its exhibit number.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
December 17, 2001 APOGENT TECHNOLOGIES INC.
By: /s/ Frank H. Jellinek, Jr.
---------------------------------
Frank H. Jellinek, Jr.,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ Frank H. Jellinek, Jr. President and Chief Executive
------------------------------------- Officer
Frank H. Jellinek, Jr.
December 17, 2001
Principal Financial Officer and Principal Accounting Officer:
/s/ Jeffrey C. Leathe Executive Vice President --
------------------------------------- Finance,
Jeffrey C. Leathe Chief Financial Officer and
Treasurer
December 17, 2001
All of the members of the Board of Directors:
William H. Binnie
Don H. Davis, Jr.
Christopher L. Doerr /s/ Michael K. Bresson
Stephen R. Hardis -----------------------------
R. Jeffrey Harris Michael K. Bresson
Frank H. Jellinek, Jr. Attorney and Agent for each member
William U. Parfet of
Joe L. Roby the Board of Directors of
Richard W. Vieser Apogent Technologies Inc.
Kenneth F. Yontz under Powers of Attorney
December 17, 2001 dated December 7, 2001
80
Independent Auditors' Report
The Board of Directors
Apogent Technologies, Inc. and Subsidiaries:
Under date of November 9, 2001, we reported on the consolidated balance sheets
of Apogent Technologies, Inc. and subsidiaries as of September 30, 2001 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, 2001, which are included in the Company's report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule in the Company's report on Form 10-K. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this 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.
/s/ KPMG LLP
Boston, Massachusetts
November 9, 2001
81
SCHEDULE II
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
VALUATION AND QUALIIFYING ACCOUNTS
For the Years Ended September 30, 2001, 2000 and 1999
(In Thousands)
Additions
---------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Descriptions of Year Expenses Accounts Deductions Year
------------ ---------- ---------- ---------- ---------- ----------
Year ended September 30,
2001
Dedectucted from asset
accounts:
Allowance for doubtful
receivables.......... $4,041 $972 $ 33 (b) $1,071 (a) $3,975
====== ==== ====== ====== ======
Year ended September 30,
2000
Dedectucted from asset
accounts:
Allowance for doubtful
receivables.......... $3,098 $863 $ 109 (b) $ 29 (a) $4,041
====== ==== ====== ====== ======
Year ended September 30,
1999
Dedectucted from asset
accounts:
Allowance for doubtful
receivables.......... $2,079 $907 $1,080 (b) $ 968 (a) $3,098
====== ==== ====== ====== ======
Note: Above additions and deductions include the effects of foreign currency
rate changes.
(a) Uncollectible accounts written off, net of recoveries
(b) Reserves of acquired businesses
82
APOGENT TECHNOLOGIES INC.
(THE "REGISTRANT")
(COMMISSION FILE NO. 1-11091)
EXHIBIT INDEX
TO
2001 ANNUAL REPORT ON FORM 10-K
Exhibit Filed
Number Description Incorporated Herein By Reference To Herewith
------- --------------------------------------------- ----------------------------------------- --------
2.1 Contribution Agreement, Plan andAgreement Exhibit 2.1 to the Registrant's Form 10-K
of Reorganization andDistribution, dated as for the year ended September 30, 2000
of November 28,2000, between the Registrant (the "2000 10-K")
andSybron Dental Specialties, Inc.("SDS")
and Sybron Dental Management, Inc.
(excluding the forms of the ancillary
agreements attached thereto as exhibits,
definitive copies of which are filed as
Exhibits 2.2 through 2.8 below)
2.2 General Assignment, Assumption and Exhibit 2.2 to the 2000 10-K
Agreement Regarding Litigation, Claims
and Other Liabilities, dated as of
December 11, 2000, between the Registrant
and SDS
2.3 Trade Name Assignment and Transitional Exhibit 2.3 to the 2000 10-K
Trade Name Use and License Agreement,
dated as of December 11, 2000, between the
Registrant and SDS
2.4 Insurance Matters Agreement, dated as of Exhibit 2.4 to the 2000 10-K
December 11, 2000, between the Registrant
and SDS
2.5 Employee Benefits Agreement, dated as of Exhibit 2.5 to the 2000 10-K
December 11, 2000, between the Registrant
and SDS
2.6 Tax Sharing and Indemnification Agreement, Exhibit 2.6 to the 2000 10-K
dated as of December 11, 2000, between the
Registrant and SDS
2.7 Interim Administrative Services Agreement, Exhibit 2.7 to the 2000 10-K
dated as of December 11, 2000, between the
Registrant and SDS
2.8 Confidentiality and Nondisclosure Agreement, Exhibit 2.8 to the 2000 10-K
dated as of December 11, 2000, between the
Registrant and SDS
3.1 (a) Restated Articles of Incorporation of the Exhibit 3.1 to the Registrant's For 10-Q
Registrant for the quarter ended December 31, 2000
(b) Articles of Amendment containing Exhibit 3.1(b) to the 2000 10-K
Certificate of Designation, Preferences
and Rights of Series A Preferred Stock
83
Exhibit Filed
Number Description Incorporated Herein By Reference To Herewith
------- ------------------------------------------- ------------------------------------------ --------
3.2 Bylaws of the Registrant, as amended Exhibit 3.2 to the Registrant's Form 10-Q
as of January 30, 2001 for the quarter ended December 31, 2000
4.1 Restated Articles of Incorporation Exhibits 3.1 and 3.2 hereto
and Restated Bylaws of the Registrant
4.2 Rights Agreement, dated as of December 11, Exhibit 1 to the Registrant's Registration
2000, between theRegistrant and Fleet Statement on Form 8-A and Exhibit 4 to the
National Bank,as Rights Agent, including Registrant's Current Report on Form 8-K,
the Formof Certificate of Designation, both dated December 11, 2000 and filed
Preferences and Rights of Series A December 12, 2000
Preferred Stock (Exhibit A), Form of Rights
Certificate (Exhibit B) and Form of
Summary of Rights (Exhibit C)
4.3 Credit Agreement, dated as of Exhibit 4.3 to the 2000 10-K
December 1, 2000 (the "Credit
Agreement''), among the Registrant,
the several Lenders from time to
time parties thereto, Bank One, NA,
as Domestication Agent, Bank of
America, N.A., as Syndication
Agent, and The Chase Manhattan
Bank, as Administrative Agent
4.4 Subsidiaries Guarantee, dated as of Exhibit 4.4 to the 2000 10-K
December 1, 2000, executed pursuant
to the Credit Agreement
4.5 Purchase Agreement dated March 30, Exhibit 4.3 to the Registrant's
2001 between the Registrant, the Registration Statement on Form S-4
Subsidiary Guarantors named therein (File No. 333-62182)
and the Initial Purchasers named therein
4.6 Indenture dated April 4, 2001 among Exhibit 4.1 to the Registrant's
the Registrant, the Subsidiary Form 10-Q for the quarter ended
Guarantors named therein and The March 31, 2001
Bank of New York, as Trustee
4.7 Exchange and Registration Rights Exhibit 4.2 to the Registrant's
Agreement dated April 4, 2001 among Form 10-Q for the quarter ended
the Registrant, the Subsidiary March 31, 2001
Guarantors named therein and the
Initial Purchasers named therein
4.8 Purchase Agreement dated October 3, X
2001 between the Registrant, the
Subsidiary Guarantors named therein
and the Initial Purchasers named therein
4.9 Indenture dated October 10, 2001 among Exhibit 99.2 to the Registrant's
the Registrant, the Subsidiary Form 8-K dated October 11, 2001
Guarantors named therein and The
Bank of New York, as Trustee
84
Exhibit Filed
Number Description Incorporated Herein By Reference To Herewith
------- -------------------------------------------- --------------------------------------- --------
4.10 Resale Registration Rights Agreement X
dated as of October 10, 2001 among the
Registrant, the Subsidiary Guarantors
named therein and the Initial Purchasers
named therein
10.1* Form of former Employment Agreement Exhibit 10(a) to Sybron Corporation's
with the former executive officers of the Form 10-K for the fiscal year ended
Registrant September 30, 1993 (the "1993 10-K")
10.2* Schedule of former executive officers who Exhibit 10.2 to the Registrant's
were parties to the former Employment Form 10-K for the fiscal year ended
Agreement filed as Exhibit 10.1, with a September 30, 1998 (the "1998 10-K")
summary of significant terms
10.3* Form of current Employment Agreement Exhibit 10.3 to the 2000 10-K
with Kenneth F. Yontz, R. Jeffrey Harris,
and Dennis Brown
10.4* Summary of significant terms for each Exhibit 10.4 to the 2000 10-K
Employment Agreement filed as Exhibit 10.3
10.5* Form of Employment Agreement with the Exhibit 10.5 to the 2000 10-K
current executive officers of the Registrant
10.6* Schedule of executive officers who are Exhibit 10.6 to the 2000 10-K
parties to the Employment Agreement filed
as Exhibit 10.5, with a summary of
significant terms
10.7* Form of Indemnification Agreement with Exhibit 10 to the Registrant's Form 8-K
each of the executive officers and directors filed November 15, 2001
identified on the schedule thereto
10.8* 1988 Stock Option Plan Exhibit 10(q) to Sybron Corporation's
Registration Statement on Form S-1
(No. 33-20829)
10.9* Amendment to the 1988 Stock Option Plan Exhibit 10(q-4) to the Registrant's
Form 10-K for the fiscal year ended
September 30, 1992 (the "1992 10-K")
10.10* Form of Nonstatutory Stock Option Exhibit 10(r) to Sybron Corporation's
Agreement under the 1988 Stock option Plan Registration Statement on Form S-1
(No. 33-20829)
10.11* 1990 Stock Option Plan Exhibit 10(q-2) to Sybron Corporation's
Registration Statement on Form S-1
(No. 33-20829)
10.12* Amendment to 1990 Stock Option Plan Exhibit 10(q-6) to the 1992 10-K
10.13* Form of Nonstatutory Stock Option Exhibit 10(s-1) to Sybron Corporation's
Agreement under the 1990 Stock Registration Statement on Form S-1
OptionPlan (No. 33-20829)
10.14* Amended and Restated 1994 Outside Exhibit 10.41 to the Registrant's
Directors' Stock Option Plan Form 10-K for the fiscal year ended
September 30, 1996
85
Exhibit Filed
Number Description Incorporated Herein By Reference To Herewith
------- ------------------------------------------- -------------------------------------- --------
10.15* Form of Nonstatutory Stock Option Exhibit 10.42 to the Registrant's
Agreement under the Amended and Restated Form 10-K for the fiscal year ended
1994 Outside Directors' Stock Option Plan September 30, 1999 (the "1999 10-K")
10.16* 1999 Outside Directors' Stock Option Plan Exhibit A to the Registrant's Proxy
Statement dated December 22, 1998 for
its Annual Meeting of Shareholders on
January 27, 1999
10.17* Form of Nonstatutory Stock Option Exhibit 10.43 to the 1999 10-K
Agreement under the 1999 Outside Directors'
Stock Option Plan
10.18* Amended and Restated 1993 Long-Term Exhibit A to the Registrant's Proxy
Incentive Plan Statement dated December 23, 1997 for
its Annual Meeting of Shareholders on
January 30, 1998
10.19* Form of Nonstatutory Stock Option Exhibit 10(u) to the 1993 10-K
Agreement under the 1993 Long-Term
Incentive Plan
10.20* Amended and Restated Senior Executive Exhibit A to the Registrant's Proxy
Incentive Compensation Plan Statement dated December 22, 1999
for its Annual Meeting of Shareholders
on February 2, 2000
10.21* Sybron International Corporation Exhibit 10.40 to the 1998 10-K
Deferred Compensation Plan
10.22 Lease Agreement dated December 21, 1988 Exhibit 10(cc) to Sybron
between CPA:7 and CPA:8, as landlord, and Corporation's Registration Statement
Barnstead Thermolyne Company, as tenant on Form S-1 (No. 33-24640)
(the "Barnstead Thermolyne Lease")
10.23 First Amendment to the Barnstead Exhibit 10.23 to the 2000 10-K
Thermolyne Lease
10.24 Lease Agreement dated December 21, 1988 Exhibit 10(ee) to Sybron Corporation's
between CPA:7 and CPA:8, as landlord, and Registration Statement on Form S-1
Erie Scientific Company, as tenant (No. 33-24640)
(the "Erie Lease")
10.25 First Amendment to the Erie Lease Exhibit 10.25 to the 2000 10-K
10.26 Lease Agreement dated December 21, 1988 Exhibit 10(ff) to Sybron Corporation's
between CPA:7 and CPA:8, as landlord, and Registration Statement on Form S-1
Nalge Nunc International Corporation, as (No. 33-24640)
tenant (the "NNI Lease")
10.27 Second Amendment to the NNI lease Exhibit 10.27 to the 2000 10-K
10.28 Amended and Restated Guaranty and Exhibit 10.28 to the 2000 10-K
Suretyship Agreement, dated December 11,
2000, between the Registrant and CPA:7
and CPA:8
86
Exhibit Filed
Number Description Incorporated Herein By Reference To Herewith
------- -------------------------------------------- -------------------------------------- --------
10.29 Tenant Agreement dated December 21, 1988 Exhibit 10(tt) to Sybron Corporation's
between New England Mutual Life Registration Statement on Form S-1
Insurance Company, as lender, and CPA:7 (No. 33-24640) Form S-1
and CPA:8, as landlord, and Barnstead (No. 33-24640)
Thermolyne Corporation, as tenant
10.30 Tenant Agreement dated December 21, 1988 Exhibit 10(uu) to Sybron Corporation's
between New England Mutual Life Insurance Registration Statement on Form S-1
Company, as lender, and CPA:7 and CPA:8, (No. 33-24640) Form S-1
as landlord, and Erie Scientific Company, (No. 33-24640)
as tenant
10.31 Tenant Agreement dated December 21, 1988 Exhibit 10(vv) to Sybron Corporation's
between New England Mutual Life Insurance Registration Statement on Form S-1
Company, as lender, and CPA:7 and CPA:8, (No. 33-24640) Form S-1
as landlord, and Nalge Nunc International (No. 33-24640)
Corporation (formerly Nalge Company),
as tenant
10.32 Sale and Leaseback Agreement dated Exhibit 10(ww) to Sybron Corporation's
December 21, 1988 between Sybron Registration Statement on Form S-1
Corporation and New England Mutual Life (No. 33-24640)
Insurance Company, as lender
10.33 Environmental Risk Agreement dated Exhibit 10(yy) to Sybron
December 21, 1988 from Sybron Corporation's Registration Statement
Corporation and Barnstead Thermolyne on Form S-1 (No. 33-24640)
Corporation, as indemnitors, to
New England Mutual Life Insurance
Company, as lender, and CPA:7 and CPA:8,
as Borrowers
10.34 Environmental Risk Agreement dated Exhibit 10(aaa) to Sybron
December 21, 1988 from Sybron Corporation's Registration Statement
Corporation and Erie Scientific Company, on Form S-1 (No. 33-24640)
as indemnitors, to New England Mutual Life
Insurance Company, as lender, and CPA:7
and CPA:8, as Borrowers
10.35 Environmental Risk Agreement dated Exhibit 10(bbb) to Sybron
December 21, 1988 from Sybron Corporation Corporation's Registration Statement
and Nalge Nunc International Corporation on Form S-1 (No. 33-24640)
(formerly Nalge Company), as indemnitors,
to New England Mutual Life Insurance
Company, as lender, and CPA:7 and CPA:8,
as borrowers
10.36* Life insurance policy for Kenneth F. Yontz, Exhibit 10(eee) to Sybron
executive officer of the Registrant Corporation's Registration Statement
on Form S-1 (No. 33-45948)
10.37* Life insurance policy for Frank H. Jellinek, Exhibit 10(eee-1) to Sybron
Jr., executive officer of the Registrant Corporation's Registration Statement
on Form S-1 (No. 33-45948)
10.38* Life insurance policy for R. Jeffrey Harris, Exhibit 10(rr) to the 1993 10-K
former executive officer of the Registrant
87
Exhibit Incorporated Herein By Reference Filed
Number Description To Herewith
------- ------------------------------------------------- ---------------------------------- --------
10.39* Life insurance policy for Dennis Brown, Exhibit 10.42 to the Registrant's
former executive officer of the Registrant Form10-K for the fiscal year ended
September 30, 1995
10.40* Sybron Laboratory Products Corporation Exhibit 10.41 to the 2000 10-K
Senior Salaried Executive Financial
Performance Incentive Compensation Plan
10.41 Aircraft Purchase Agreement dated November 20, X
2000 between Sybron International Corporation
(as Buyer) and Volare Partners, LLC (as Seller)
21 Subsidiaries of the Registrant X
23 Consent of KPMG LLP X
24 Powers of Attorney of Directors of the Registrant X
- --------
* Denotes management contract or executive compensation plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
88