UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 2004
Commission File Number 001-11091
APOGENT TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
| Wisconsin | 22-2849508 | |
| (State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification No.) |
30 Penhallow Street, Portsmouth, New Hampshire 03801
(Address of principal executive offices, including zip code)
(603) 433-6131
(Registrant’s telephone number, including area code)
The registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q for omission of information by certain wholly owned subsidiaries and is therefore filing this Form with the reduced disclosure format.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨
At August 4, 2004, Fisher Scientific International Inc. holds all 1,000 shares of the Registrant’s outstanding Common Stock, par value $0.01.
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 2004
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
| June 30, 2004 |
September 30, 2003 |
|||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 92,872 | $ | 18,505 | ||||
| Marketable securites—available for sale |
15,166 | 17,625 | ||||||
| Accounts receivable (less allowance for doubtful accounts of $5,369 and $4,286 respectively) |
191,055 | 179,523 | ||||||
| Inventories |
222,315 | 206,549 | ||||||
| Deferred income taxes |
15,308 | 15,308 | ||||||
| Prepaid expenses and other current assets |
19,699 | 16,518 | ||||||
| Total current assets |
556,415 | 454,028 | ||||||
| Property, plant and equipment, net |
269,555 | 282,752 | ||||||
| Intangible assets, net |
199,833 | 179,492 | ||||||
| Goodwill |
1,023,564 | 999,243 | ||||||
| Other assets |
39,061 | 34,476 | ||||||
| Total assets |
$ | 2,088,428 | $ | 1,949,991 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: |
||||||||
| Short-term debt and overdrafts |
$ | 10,889 | $ | 12,801 | ||||
| Current portion of long-term debt |
2,190 | 2,281 | ||||||
| Accounts payable |
47,339 | 50,220 | ||||||
| Income taxes payable |
41,584 | 20,053 | ||||||
| Accrued payroll and employee benefits |
39,389 | 34,484 | ||||||
| Accrued interest expense |
3,780 | 8,844 | ||||||
| Restructuring reserve |
3,048 | 1,758 | ||||||
| Other current liabilities |
48,851 | 38,883 | ||||||
| Total current liabilities |
197,070 | 169,324 | ||||||
| Long-term debt, less current portion |
912,333 | 891,989 | ||||||
| Deferred income taxes |
154,827 | 137,683 | ||||||
| Other liabilities |
29,350 | 26,948 | ||||||
| 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 107,120,682 and 107,057,865 shares; outstanding 89,988,443 and 92,013,345 shares, respectively |
1,071 | 1,071 | ||||||
| Additional paid-in capital |
287,400 | 270,119 | ||||||
| Retained earnings |
833,994 | 737,045 | ||||||
| Accumulated other comprehensive income (loss) |
18,085 | (3,127 | ) | |||||
| Deferred compensation |
(4,955 | ) | — | |||||
| Treasury common stock, 17,132,239 and 15,044,520 shares at cost |
(340,747 | ) | (281,061 | ) | ||||
| Total shareholders’ equity |
794,848 | 724,047 | ||||||
| Total liabilities and shareholders’ equity |
$ | 2,088,428 | $ | 1,949,991 | ||||
See accompanying notes to the unaudited consolidated financial statements.
1
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three Months Ended June 30, |
Nine Months Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales |
$ | 307,701 | $ | 278,478 | $ | 884,290 | $ | 812,914 | ||||||||
| Cost of sales: |
||||||||||||||||
| Cost of products sold |
161,008 | 143,839 | 464,529 | 422,205 | ||||||||||||
| Restructuring charges |
1,365 | 955 | 1,652 | 955 | ||||||||||||
| Total cost of sales |
162,373 | 144,794 | 466,181 | 423,160 | ||||||||||||
| Gross profit |
145,328 | 133,684 | 418,109 | 389,754 | ||||||||||||
| Selling, general and administrative expenses |
79,330 | 69,923 | 227,940 | 209,863 | ||||||||||||
| Merger expenses |
1,953 | — | 4,239 | — | ||||||||||||
| Restructuring charges and asset impairments |
399 | 475 | 5,370 | 807 | ||||||||||||
| Total selling, general and administrative expenses |
81,682 | 70,398 | 237,549 | 210,670 | ||||||||||||
| Operating income |
63,646 | 63,286 | 180,560 | 179,084 | ||||||||||||
| Other income (expense): |
||||||||||||||||
| Interest expense, net |
(6,891 | ) | (11,635 | ) | (22,707 | ) | (32,427 | ) | ||||||||
| Amortization of deferred financing fees |
(1,681 | ) | (1,006 | ) | (4,693 | ) | (2,809 | ) | ||||||||
| Loss on extinguishment of debt |
— | — | (171 | ) | — | |||||||||||
| Other, net |
313 | 163 | 741 | 943 | ||||||||||||
| Income from continuing operations before income taxes |
55,387 | 50,808 | 153,730 | 144,791 | ||||||||||||
| Income taxes |
20,693 | 15,104 | 56,514 | 49,408 | ||||||||||||
| Income from continuing operations |
34,694 | 35,704 | 97,216 | 95,383 | ||||||||||||
| Discontinued operations, net of income taxes |
(413 | ) | (188 | ) | (267 | ) | (87,516 | ) | ||||||||
| Net income |
$ | 34,281 | $ | 35,516 | $ | 96,949 | $ | 7,867 | ||||||||
| Basic earnings per common share from continuing operations |
$ | 0.39 | $ | 0.36 | $ | 1.08 | $ | 0.93 | ||||||||
| Discontinued operations |
(0.00 | ) | (0.00 | ) | (0.00 | ) | (0.85 | ) | ||||||||
| Basic earnings per common share |
$ | 0.38 | $ | 0.36 | $ | 1.08 | $ | 0.08 | ||||||||
| Diluted earnings per common share from continuing operations |
$ | 0.36 | $ | 0.36 | $ | 1.05 | $ | 0.92 | ||||||||
| Discontinued operations |
$ | (0.00 | ) | (0.00 | ) | $ | (0.00 | ) | (0.84 | ) | ||||||
| Diluted earnings per common share |
$ | 0.36 | $ | 0.35 | $ | 1.05 | $ | 0.08 | ||||||||
| Weighted average basic shares outstanding |
89,654 | 99,486 | 89,601 | 103,053 | ||||||||||||
| Weighted average diluted shares outstanding |
95,812 | 100,526 | 92,884 | 104,056 | ||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
2
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the Nine Months Ended June 30, 2004
(in thousands)
(unaudited)
| Common Stock |
Additional Paid - In Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Deferred Compensation |
Treasury Common Stock |
Total Shareholders’ Equity |
|||||||||||||||||||
| Balance at September 30, 2003 |
$ | 1,071 | $ | 270,119 | $ | 737,045 | $ | (3,127 | ) | $ | — | $ | (281,061 | ) | $ | 724,047 | |||||||||
| Comprehensive income: |
|||||||||||||||||||||||||
| Net income |
— | — | 96,949 | — | — | — | 96,949 | ||||||||||||||||||
| Translation adjustment |
— | — | — | 22,774 | — | — | 22,774 | ||||||||||||||||||
| Unrealized loss on marketable security net of tax of $897 |
— | — | — | (1,562 | ) | — | — | (1,562 | ) | ||||||||||||||||
| Total comprehensive income |
— | — | 96,949 | 21,212 | — | — | 118,161 | ||||||||||||||||||
| Treasury shares purchased |
— | — | — | — | — | (109,437 | ) | (109,437 | ) | ||||||||||||||||
| Deferred compensation |
— | 5,946 | — | — | (5,946 | ) | — | — | |||||||||||||||||
| Amortization of deferred compensation |
— | — | — | — | 991 | — | 991 | ||||||||||||||||||
| Shares issued in connection with employee stock purchase program |
— | 1,586 | — | — | — | — | 1,586 | ||||||||||||||||||
| Shares issued in connection with stock options |
— | 995 | — | — | — | 49,751 | 50,746 | ||||||||||||||||||
| Tax benefit related to stock options |
— | 8,754 | — | — | — | — | 8,754 | ||||||||||||||||||
| Balance at June 30, 2004 |
$ | 1,071 | $ | 287,400 | $ | 833,994 | $ | 18,085 | $ | (4,955 | ) | $ | (340,747 | ) | $ | 794,848 | |||||||||
See accompanying notes to the unaudited consolidated financial statements.
3
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 96,949 | $ | 7,867 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities; |
||||||||
| Discontinued operations |
267 | 87,516 | ||||||
| Depreciation |
34,464 | 31,819 | ||||||
| Amortization |
17,745 | 14,377 | ||||||
| Loss on sale of property plant and equipment |
196 | 244 | ||||||
| Asset impairments |
2,693 | (808 | ) | |||||
| Loss on extinguishment of debt |
171 | 982 | ||||||
| Deferred income taxes |
15,370 | 10,252 | ||||||
| Changes in assets and liabilities, net of effects of businesses acquired: |
||||||||
| (Increase) decrease in accounts receivable |
(4,518 | ) | 3,312 | |||||
| Increase in inventories |
(8,327 | ) | (12,092 | ) | ||||
| Increase in prepaid expenses and other current assets |
(3,111 | ) | (3,376 | ) | ||||
| Decrease in accounts payable |
(4,892 | ) | (6,956 | ) | ||||
| Increase (decrease) in income taxes payable |
20,735 | (6,604 | ) | |||||
| Increase (decrease) in accrued payroll and employee benefits |
3,933 | (1,372 | ) | |||||
| Decrease in accrued interest expense |
(5,064 | ) | (7,290 | ) | ||||
| Increase (decrease) in restructuring reserve |
1,290 | (298 | ) | |||||
| Increase in other current liabilities |
6,336 | 2,842 | ||||||
| Net change in other assets and liabilities |
2,532 | (4,970 | ) | |||||
| Net cash provided by operating activities |
176,769 | 115,445 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(18,466 | ) | (37,684 | ) | ||||
| Proceeds from sales of property, plant and equipment |
2,639 | 1,221 | ||||||
| Net payments for businesses acquired |
(41,983 | ) | (21,654 | ) | ||||
| Other investing activities |
696 | 1,546 | ||||||
| Net cash used in investing activities |
(57,114 | ) | (56,571 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from revolving credit facility |
161,300 | 469,400 | ||||||
| Principal payments on revolving credit facility |
(484,406 | ) | (469,400 | ) | ||||
| Proceeds from long-term debt |
345,000 | 250,000 | ||||||
| Principal payments on long-term debt |
— | (23,408 | ) | |||||
| Proceeds from the exercise of stock options |
50,770 | 2,543 | ||||||
| Proceed from employee stock purchase program |
1,586 | 927 | ||||||
| Purchase of treasury stock |
(109,437 | ) | (226,348 | ) | ||||
| Financing fees paid |
(9,320 | ) | (9,168 | ) | ||||
| Premium paid on extinguishment of debt and settlement of securities lending |
(171 | ) | — | |||||
| Other financing activities |
— | 2,510 | ||||||
| Net cash used in financing activities |
(44,678 | ) | (2,944 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents |
(610 | ) | 13,893 | |||||
| Net decrease in cash and cash equivalents |
74,367 | 69,823 | ||||||
| Cash and cash equivalents at beginning of period |
18,505 | 16,327 | ||||||
| Cash and cash equivalents at end of period |
$ | 92,872 | $ | 86,150 | ||||
See accompanying notes to unaudited consolidated financial statements.
4
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data, or when specified in millions)
1. Basis of Presentation
In the opinion of management, all adjustments that are necessary for a fair statement of the results for the interim periods presented have been included, and are of a normal recurring nature. The results for the three and nine month periods ended June 30, 2004 are not necessarily indicative of the results to be expected for the full fiscal year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States. These statements should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2003.
Historical financial information has been restated to reflect the discontinuance of the businesses conducted by the Company’s former Applied Biotech, Inc., BioRobotics Group Limited Ltd., and Vacuum Process Technology, Inc. subsidiaries.
2. Guarantees (Financial Accounting Standards Board Interpretation No. 45)
There have been no new guarantees or modifications to existing guarantees since September 30, 2003.
A rollforward of our product warranties is as follows:
| Beginning balance |
Payments and other reductions |
Additions |
Ending balance | |||||||||
| (in thousands) | ||||||||||||
| Year ended September 30, 2003 |
$ | 1,462 | $ | 1,542 | $ | 1,318 | $ | 1,238 | ||||
| Nine months ended June 30, 2004 |
$ | 1,238 | $ | 489 | $ | 749 | $ | 1,498 | ||||
3. Fair Value of Stock Options
The Company has adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” which is an amendment of SFAS No. 123, “Accounting for Stock-Based Compensation,” 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 No. 123, net income and earnings per share would have been changed to the pro forma amounts indicated below:
| Three Months Ended June 30, |
Nine Months Ended June 30, |
||||||||||||
| 2004 |
2003 |
2004 |
2003 |
||||||||||
| Net income, as reported |
$ | 34,281 | $ | 35,516 | $ | 96,949 | $ | 7,867 | |||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
3,093 | 2,991 | 9,180 | 8,972 | |||||||||
| Add: Total stock-based compensation expense recorded during period, net of related tax effects |
317 | — | 634 | — | |||||||||
| Pro forma net income (loss) |
$ | 31,505 | $ | 32,525 | $ | 88,403 | $ | (1,105 | ) | ||||
| Earnings per share: |
|||||||||||||
| Basic-as reported |
$ | 0.38 | $ | 0.36 | $ | 1.08 | $ | 0.08 | |||||
| Basic-pro forma |
$ | 0.35 | $ | 0.33 | $ | 0.99 | $ | (0.01 | ) | ||||
| Diluted-as reported |
$ | 0.36 | $ | 0.35 | $ | 1.05 | $ | 0.08 | |||||
| Diluted-pro forma |
$ | 0.33 | $ | 0.33 | $ | 0.96 | $ | (0.01 | ) | ||||
5
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data, or when specified in millions)
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:
| Nine Months Ended June 30, |
||||||
| 2004 |
2003 |
|||||
| Volatility |
27.55 | % | 31.16 | % | ||
| Risk-free rate |
2.50 | % | 2.50 | % | ||
| Expected holding period |
8.0 years | 8.0 years | ||||
| Dividend yield |
0.00 | % | 0.00 | % | ||
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.
4. Inventories
Inventories at June 30, 2004 and September 30, 2003 consisted of the following:
| June 30, 2004 |
September 30, 2003 | |||||
| Raw materials and supplies |
$ | 68,378 | $ | 66,816 | ||
| Work in process |
21,209 | 19,531 | ||||
| Finished goods |
132,728 | 120,202 | ||||
| $ | 222,315 | $ | 206,549 | |||
5. Intangible Assets
As a result of current year acquisitions, changes in foreign currency rates, and final adjustments to purchase price of companies acquired during fiscal 2003, goodwill and intangible assets increased by approximately $57.3 million during the first nine months of fiscal 2004. Unamortizable intangible assets (goodwill) were approximately $1,023.6 million as of June 30, 2004.
6
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data, or when specified in millions)
Intangible assets are as follows:
| June 30, 2004 |
September 30, 2003 |
|||||||
| Amortizable intangible assets |
||||||||
| Proprietary technology |
$ | 83,326 | $ | 80,838 | ||||
| Trademarks |
83,175 | 80,823 | ||||||
| Patents |
37,393 | 36,604 | ||||||
| Licenses |
12,130 | 11,913 | ||||||
| Drawings |
11,957 | 11,806 | ||||||
| Non-compete agreements |
11,493 | 11,007 | ||||||
| Customer lists and other |
47,796 | 21,342 | ||||||
| Less: Accumulated amortization |
(87,437 | ) | (74,841 | ) | ||||
| Net amortizable intangible assets |
199,833 | 179,492 | ||||||
| Unamortizable intangible assets (goodwill) |
1,023,564 | 999,243 | ||||||
| $ | 1,223,397 | $ | 1,178,735 | |||||
Intangible assets at June 30, 2004 by business segment are as follows:
| Clinical Group |
Research Group |
Consolidated |
||||||||||
| Proprietary technology |
$ | 66,764 | $ | 16,562 | $ | 83,326 | ||||||
| Less: Accumulated amortization |
(23,206 | ) | (8,893 | ) | (32,099 | ) | ||||||
| Net proprietary technology |
43,558 | 7,669 | 51,227 | |||||||||
| Trademarks |
18,452 | 64,723 | 83,175 | |||||||||
| Less: Accumulated amortization |
(2,766 | ) | (18,523 | ) | (21,289 | ) | ||||||
| Net trademarks |
15,686 | 46,200 | 61,886 | |||||||||
| Patents |
20,624 | 16,769 | 37,393 | |||||||||
| Less: Accumulated amortization |
(6,079 | ) | (5,529 | ) | (11,608 | ) | ||||||
| Net patents |
14,545 | 11,240 | 25,785 | |||||||||
| Licenses |
9,725 | 2,405 | 12,130 | |||||||||
| Less: Accumulated amortization |
(3,449 | ) | (407 | ) | (3,856 | ) | ||||||
| Net licenses |
6,276 | 1,998 | 8,274 | |||||||||
| Drawings |
— | 11,957 | 11,957 | |||||||||
| Less: Accumulated amortization |
— | (6,575 | ) | (6,575 | ) | |||||||
| Net drawings |
— | 5,382 | 5,382 | |||||||||
| Non-compete agreements |
5,878 | 5,615 | 11,493 | |||||||||
| Less: Accumulated amortization |
(4,341 | ) | (4,300 | ) | (8,641 | ) | ||||||
| Net non-compete agreements |
1,537 | 1,315 | 2,852 | |||||||||
| Other identifiable intangible assets (a) |
32,853 | 14,249 | 47,102 | |||||||||
| Less: Accumulated amortization |
(1,413 | ) | (1,531 | ) | (2,944 | ) | ||||||
| Net other identifiable intangibles (a) |
31,440 | 12,718 | 44,158 | |||||||||
| Net amortizable intangible assets (a) |
$ | 113,042 | $ | 86,522 | $ | 199,564 | ||||||
| Excess cost over net asset values acquired (goodwill) |
$ | 520,106 | $ | 503,458 | $ | 1,023,564 | ||||||
| Unamortizable intangible assets |
$ | 520,106 | $ | 503,458 | $ | 1,023,564 | ||||||
7
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data, or when specified in millions)
Note (a): At June 30, 2004, Apogent Corporate Office had $694 of amortizable other identifiable intangible assets and $425 of related accumulated amortization that were not allocated to either of the business segments and are not included in the consolidated totals in the above table.
Amortization of intangible assets was $4,228 and $3,812 for the three months ended June 30, 2004 and 2003, respectively. Amortization of intangible assets was $12,061 and $11,568 for the nine months ended June 30, 2004 and 2003, respectively. Amortization expense relating to the existing identifiable intangible assets for each of the next five years (beginning with fiscal 2004) is expected to be $15,691, $15,780, $15,139, $14,532 and $13,284, respectively.
The changes in the carrying amount of goodwill for the nine months ended June 30, 2004 are as follows:
| Clinical Group |
Research Group |
Consolidated | |||||||
| Balance at September 30, 2003 |
$ | 513,216 | $ | 486,027 | $ | 999,243 | |||
| Goodwill acquired during the year |
6,772 | 3,105 | 9,877 | ||||||
| Adjustments to purchase price of prior year acquisitions |
— | 941 | 941 | ||||||
| Effect of change in foreign currencies |
118 | 13,385 | 13,503 | ||||||
| Balance at June 30, 2004 |
$ | 520,106 | $ | 503,458 | $ | 1,023,564 | |||
6. Acquisitions
Acquisitions
During the nine months ended June 30, 2004, the Company completed five acquisitions for cash. The aggregate purchase price for these acquisitions, net of cash acquired, was approximately $42.0 million. None of the acquisitions was considered individually significant. The total goodwill and identifiable intangible assets for the acquired companies was approximately $39.3 million (allocated approximately $9.9 million to goodwill and $29.4 million to amortizable intangible assets). In addition to the purchase price paid for J&S Medical, we have accrued $4.4 million as a holdback from the purchase price. The intangible assets will be amortized over their expected lives ranging from 5 to 20 years. The aggregate purchase price of these acquisitions was allocated to tangible and intangible assets acquired based on their fair values as follows:
| Nine Months Ended June 30, 2004 |
||||
| Tangible assets |
$ | 9,424 | ||
| Liabilities assumed |
(6,686 | ) | ||
| Net assets assumed |
2,738 | |||
| Goodwill and intangible assets |
39,314 | |||
| Less cash acquired, if any |
(69 | ) | ||
| Cash paid for acquisitions, net of cash acquired |
$ | 41,983 | ||
8
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data, or when specified in millions)
The following table outlines our estimates of sales, operating income and total assets for the most recent available twelve-month period prior to each cash acquisition.
Business Segment:
| Company Acquired |
Acquisition Date |
Sales |
Operating Income |
Total Assets |
Type of Acquisition | ||||||||
| Clinical Group: | |||||||||||||
| Perk Scientific |
1/8/04 | $ | 1,700 | $ | 699 | $ | — | Asset | |||||
| J&S Medical Associates, Inc. |
3/5/04 | 4,050 | 1,123 | 1,389 | Asset | ||||||||
| Eagle Picher |
4/2/04 | 12,248 | 2,877 | 4,189 | Asset | ||||||||
| Thuringer Pharmaglas |
5/10/04 | 437 | — | 142 | Asset | ||||||||
| Research Group: | |||||||||||||
| H.A.L. Baggin, Inc. (d/b/a Pactech) |
2/20/04 | 13,049 | 1,322 | 4,314 | Asset | ||||||||
7. Long-Term Debt
In connection with its merger with Fisher (see Note 15—Subsequent Events), Apogent made concurrent exchange offers for up to $345.0 million of our Floating Rate Senior Convertible Contingent Debt Securities due 2033 for a like principal amount of Floating Rate Convertible Senior Debentures due 2033 and up to $300.0 million of our 2.25% Senior Convertible Contingent Debt Securities due 2021 for a like principal amount of 2.25% Convertible Senior Debentures due 2021.
On August 3, 2004, Apogent completed the exchange offers. Approximately $344.6 million aggregate principal amount representing 99.9% of the outstanding principal amount of the Floating Rate Senior Convertible Contingent Debt Securities and approximately $298.8 million aggregate principal amount representing approximately 99.6% of the outstanding principal amount of the 2.25% Senior Convertible Contingent Debt Securities were exchanged for debentures with similar financial terms. We paid an exchange fee of 0.50% of the principal amount of the Convertible Contingent Debt Securities tendered. Apogent also paid a consent fee relating to the Floating Rate Senior Convertible Contingent Debt Securities exchange offer of 0.60% of the principal amount of Floating Rate Convertible Contingent Debt Securities tendered. Neither Fisher nor Apogent received any proceeds from the issuance of the new Convertible Senior Debentures in the exchange offers.
On August 3, 2004, Apogent also completed its tender offer and related consent solicitation for any and all of its 6 1/2 % senior subordinated notes due 2013. Apogent purchased approximately $249.6 million aggregate principal amount of its $250.0 million principal amount of 6 1/2% senior subordinated notes. The purchase price for the senior subordinated notes was $1,107.50 in cash per $1,000 principal amount, plus accrued and unpaid interest.
9
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data, or when specified in millions)
8. Employee Benefit Plans
The Company has four defined benefit pension plans covering approximately 43% of its U.S. employees. The following is a breakdown of the components of net period pension benefit cost for the three and nine months ended June 30, 2004 and 2003.
| Components of Net Periodic Pension Benefit Cost | ||||||||||||||
| Three months ended June 30, |
||||||||||||||
| (in thousands) |
||||||||||||||
| Pension Benefits |
Other Benefits | |||||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||||
| Service cost |
$ | 1,045 | $ | 848 | $ | 5 | $ | 5 | ||||||
| Interest cost |
1,400 | 1,353 | 103 | 122 | ||||||||||
| Expected return on plan assets |
(1,151 | ) | (1,056 | ) | — | — | ||||||||
| Amortization of prior service cost |
5 | 5 | — | — | ||||||||||
| Amortization of net (gain) loss |
435 | 214 | 64 | 63 | ||||||||||
| Net periodic benefit cost |
$ | 1,734 | $ | 1,364 | $ | 172 | $ | 190 | ||||||
| Nine months ended June 30, |
||||||||||||||
| (in thousands) |
||||||||||||||
| Pension Benefits |
Other Benefits | |||||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||||
| Service cost |
$ | 3,134 | $ | 2,544 | $ | 14 | $ | 14 | ||||||
| Interest cost |
4,200 | 4,058 | 308 | 366 | ||||||||||
| Expected return on plan assets |
(3,453 | ) | (3,167 | ) | — | — | ||||||||
| Amortization of prior service cost |
16 | 17 | — | — | ||||||||||
| Amortization of net (gain) loss |
1,306 | 642 | 193 | 189 | ||||||||||
| Net periodic benefit cost |
$ | 5,203 | $ | 4,094 | $ | 515 | $ | 569 | ||||||
Employer Contributions
Apogent previously disclosed in its annual report for the year ended September 30, 2003, that it expected to contribute $6.1 million to its pension plan during fiscal 2004. As of June 30, 2004, $2.3 million of contributions have been made. Apogent presently anticipates contributing an additional $1.1 million to fund its pension plan during fiscal 2004 for a total of $3.4 million. The large reduction in planned contributions is due to the relief provided by the Pension Funding Equity Act of 2004, signed into law on April 10, 2004.
9. Restructuring
During the first nine months of fiscal 2004, the Company recorded additional restructuring charges of approximately $7,248 (approximately $4,566 net of tax), related to restructuring activities announced during fiscal 2003 and fiscal 2004, for the consolidation of certain facilities and discontinuance of certain product lines due to product rationalizations. The restructuring charges were classified as a component of cost of sales and selling, general, and administrative expenses which consisted of approximately $1,642 related to severance and termination costs, approximately $2,693 related to the write-off of fixed assets and a $2,467 charge for the present value of future lease payments, less assumed sublease amounts.
10
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data, or when specified in millions)
A rollforward of these restructuring activities is as follows:
| Severance(a) |
Inventory(b) |
Fixed Assets(b) |
Facility Closure Costs(c) |
Other |
Total |
|||||||||||||||||||
| 2003 Restructuring charges |
$ | 3,664 | $ | 5,825 | $ | 2,798 | $ | 1,220 | $ | 28 | $ | 13,535 | ||||||||||||
| 2003 Cash payments |
(2,378 | ) | — | — | (1,070 | ) | — | (3,448 | ) | |||||||||||||||
| 2003 Non-cash charges |
— | (5,825 | ) | (2,798 | ) | — | (28 | ) | (8,651 | ) | ||||||||||||||
| September 30, 2003 balance |
$ | 1,286 | $ | — | $ | — | $ | 150 | $ | — | $ | 1,436 | ||||||||||||
| 2004 Restructuring charges |
1,642 | — | 2,693 | 2,467 | 446 | 7,248 | ||||||||||||||||||
| 2004 Cash payments |
(1,660 | ) | — | — | — | (300 | ) | (1,960 | ) | |||||||||||||||
| 2004 Non-cash charges |
— | — | (2,693 | ) | (1,068 | ) | (146 | ) | (3,907 | ) | ||||||||||||||
| June 30, 2004 balance |
$ | 1,268 | $ | — | $ | — | $ | 1,549 | $ | — | $ | 2,817 | ||||||||||||
| (a) | Amount represents severance and termination costs for terminated employees (primarily sales, marketing and manufacturing personnel). |
| (b) | Amount represents write-offs of inventory and fixed assets associated with discontinued product lines. |
| (c) | Amount represents lease payments and other facility closure costs on exited operations. |
As of June 30, 2004, included in the restructuring liability was a balance of $231 related to fiscal 2002 facility closure activities.
The Company expects to make future cash payments of approximately $1,902 associated with the above restructuring actions during fiscal 2004 and approximately $1,146 in fiscal 2005 and beyond.
10. Capital Stock
During the nine months ended June 30, 2004, the Company purchased approximately 4.8 million shares of its common stock at an average purchase price of $23.01 per share. All of these purchases occurred during the quarter ended December 31, 2003. The aggregate purchase price of the shares purchased was approximately $109.4 million.
11
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data, or when specified in millions)
11. 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 income available to common shareholders after assumed conversions by the weighted average number of common shares outstanding plus the dilutive effects of potential common shares outstanding during the period. A reconciliation of income available to shareholders and shares used in calculating basic and diluted earnings per share follows (in thousands):
| Three Months Ended June 30, |
Nine Months Ended June 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Numerator: |
||||||||||||||||
| Income from continuing operations |
$ | 34,694 | $ | 35,704 | $ | 97,216 | $ | 95,383 | ||||||||
| Discontinued operations, net of income taxes |
(413 | ) | (188 | ) | (267 | ) | (87,516 | ) | ||||||||
| Net income |
34,281 | 35,516 | 96,949 | 7,867 | ||||||||||||
| Effect of dilutive securities: |
||||||||||||||||
| Interest expense related to convertible debt |
182 | — | 179 | — | ||||||||||||
| Numerator for diluted earnings per share |
$ | 34,463 | $ | 35,516 | $ | 97,128 | $ | 7,867 | ||||||||
| Denominator: |
||||||||||||||||
| Basic |
89,654 | 99,486 | 89,601 | 103,053 | ||||||||||||
| Effect of assumed excercise of employee stock options |
2,817 | 1,040 | 2,174 | 1,003 | ||||||||||||
| Effect of assumed conversion of convertible debt |
3,341 | — | 1,109 | — | ||||||||||||
| Diluted |
95,812 | 100,526 | 92,884 | 104,056 | ||||||||||||
Excluded from the shares used in calculating the diluted earnings per common share in the above table are options to purchase 9,759 shares of common stock for the three and nine months ended June 30, 2003, as their effects would have been anti-dilutive.
The calculation of diluted shares reflects a 15 day period in June 2004 (beginning June 16, 2004) during which, as a result of the then proposed merger with Fisher, approximately 9,839 shares of common stock became issuable upon the conversion of our senior convertible contingent debt securities (2.25% CODES) based on a conversion price of $30.49 per share and approximately 10,426 shares of common stock became issuable upon the conversion of our floating rate senior convertible contingent debt securities (floating rate CODES) based on a conversion price of $33.09 per share. None of these securities were actually converted during the periods presented in the table above.
12. Segment Information
During fiscal 2003, we realigned our lines of business for financial reporting purposes. Our three former business segments (clinical diagnostics, labware and life sciences, and laboratory equipment) were reclassified into two business segments: Clinical Group and Research Group. The Clinical Group business segment is the former clinical diagnostics business segment. The Research Group business segment is composed of the former labware and life sciences and laboratory equipment business segments.
12
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data, or when specified in millions)
The Company’s operating subsidiaries are engaged primarily 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: the Clinical Group and the Research Group. Corporate office expenses are allocated to the business segments based on net sales. A description of the business segments follows.
Clinical Group
Our Clinical Group manufactures, distributes, and sells products primarily to clinical and commercial laboratories and to scientific research and industrial customers. These products are used in a number of in vitro (out of body) diagnostic applications, including specimen collection, specimen transportation, drug testing, therapeutic drug monitoring, and infectious disease detection. Other applications include human tissue research and human cell research, with an emphasis on cancer applications. Clinical Group products include:
| • | microscope slides, cover glass, and glass tubes and vials; |
| • | stains and reagents; |
| • | instrumentation for human tissue and cell research; |
| • | diagnostic test kits; |
| • | sample vials used in diagnostic testing; |
| • | culture media; |
| • | diagnostic reagents; and |
| • | other products used in detecting and/or monitoring the existence of infectious diseases and conditions, therapeutic drugs, and drugs of abuse. |
Research Group
Our Research Group manufactures, distributes, and sells products primarily to the research and clinical life sciences industries. Applications of these products include general laboratory uses as well as genetic research, protein research, high-throughput screening for drug discovery, cell culture, filtration, and other liquid handling. In addition, this segment manufactures, distributes, and sells basic laboratory equipment used by medical, pharmaceutical, and scientific laboratories. Research Group products include:
| • | reusable plastic and glass products; |
| • | disposable plastic and glass products; |
| • | products for critical packaging applications; |
| • | environmental and safety containers; |
| • | liquid handling automation products; |
| • | glass liquid sample vials and seals used in various applications; |
| • | heating, cooling, shaking, stirring, mixing, and temperature control instruments; and |
| • | water purification systems. |
13
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data, or when specified in millions)
The costs of some corporate functions are allocated to the business segments at predetermined rates that approximate cost. Information on these business segments is summarized as follows (unaudited):
| Clinical Group |
Research Group |
Eliminations |
Total | ||||||||||
| Three Months Ended June 30, 2004 | |||||||||||||
| Revenues: |
|||||||||||||
| External customer |
$ | 141,298 | $ | 166,403 | $ | — | $ | 307,701 | |||||
| Intersegment |
2,852 | 209 | (3,061 | ) | — | ||||||||
| Total revenues |
144,150 | 166,612 | (3,061 | ) | 307,701 | ||||||||
| Gross profit |
68,136 | 77,192 | — | 145,328 | |||||||||
| Selling general and administrative |
33,465 | 48,217 | — | 81,682 | |||||||||
| Operating income |
34,671 | 28,975 | — | 63,646 | |||||||||
| Three Months Ended June 30, 2003 | |||||||||||||
| Revenues: |
|||||||||||||
| External customer |
$ | 127,818 | $ | 150,660 | $ | — | $ | 278,478 | |||||
| Intersegment |
2,685 | 160 | (2,845 | ) | — | ||||||||
| Total revenues |
130,503 | 150,820 | (2,845 | ) | 278,478 | ||||||||
| Gross profit |
61,319 | 72,365 | — | 133,684 | |||||||||
| Selling general and administrative |
28,857 | 41,541 | — | 70,398 | |||||||||
| Operating income |
32,462 | 30,824 | — | 63,286 | |||||||||
| Clinical Group |
Research Group |
Eliminations |
Total | ||||||||||
| Nine Months Ended June 30, 2004 | |||||||||||||
| Revenues: |
|||||||||||||
| External customer |
$ | 409,775 | $ | 474,515 | $ | — | $ | 884,290 | |||||
| Intersegment |
8,389 | 729 | (9,118 | ) | — | ||||||||
| Total revenues |
418,164 | 475,244 | (9,118 | ) | 884,290 | ||||||||
| Gross profit |
196,671 | 221,438 | — | 418,109 | |||||||||
| Selling general and administrative |
96,967 | 140,582 | — | 237,549 | |||||||||
| Operating income |
99,704 | 80,856 | — | 180,560 | |||||||||
| Segment assets (as of June 30, 2004) |
1,016,994 | 1,071,434 | — | 2,088,428 | |||||||||
| Nine Months Ended June 30, 2003 | |||||||||||||
| Revenues: |
|||||||||||||
| External customer |
$ | 379,747 | $ | 433,167 | $ | — | $ | 812,914 | |||||
| Intersegment |
7,795 | 442 | (8,237 | ) | — | ||||||||
| Total revenues |
387,542 | 433,609 | (8,237 | ) | 812,914 | ||||||||
| Gross profit |
179,186 | 210,568 | — | 389,754 | |||||||||
| Selling general and administrative |
87,145 | 123,525 | — | 210,670 | |||||||||
| Operating income |
92,041 | 87,043 | — | 179,084 | |||||||||
14
APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data, or when specified in millions)
13. Supplementary Cash Flow Information
| Nine Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for acquisitions, net of cash acquired: |
||||||||
| Tangible assets |
$ | 9,424 | $ | 3,176 | ||||
| Liabilities assumed |
(6,686 | ) | (6,373 | ) | ||||
| Net assets assumed |
2,738 | (3,197 | ) | |||||
| Goodwill and intangible assets |
39,314 | 26,493 | ||||||
| Less cash acquired |
(69 | ) | (1,642 | ) | ||||
| Cash paid for acquisitions, net of cash acquired |
$ | 41,983 | $ | 21,654 | ||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | 27,539 | $ | 39,467 | ||||
| Income taxes |
$ | 10,435 | $ | 39,720 | ||||
| Capital lease obligations incurred |
$ | 34 | $ | 102 | ||||
14. Condensed Consolidating Financial Statements
In connection with the merger with a subsidiary of Fisher Scientific International Inc. on August 2, 2004, and the related financing transactions described in Notes 7 and 15, all of Apogent’s subsidiaries were released from their guarantees of the Company’s indebtedness. Accordingly, condensed consolidating financial statements have been omitted from this report.
15. Subsequent Events
On August 2, 2004, Apogent completed the merger with a subsidiary of Fisher Scientific International Inc., or “Fisher,” a world leader in serving science, headquartered in Hampton, New Hampshire, as a result of which we became a subsidiary of Fisher. The transaction will be accounted for using the purchase method of accounting, with each share of Apogent common stock exchanged for .56 shares of Fisher common stock. In connection with the completion of the merger, transaction expenses of approximately $12 million, which were contingent upon the successful completion of the merger, were paid to its investment banker and attorneys.
In connection with its merger with Fisher, Apogent made concurrent exchange offers for up to $345.0 million of our Floating Rate Senior Convertible Contingent Debt Securities due 2033 for a like principal amount of Floating Rate Convertible Senior Debentures due 2033 and up to $300.0 million of our 2.25% Senior Convertible Contingent Debt Securities due 2021 for a like principal amount of 2.25% Convertible Senior Debentures due 2021.
On August 3, 2004, Apogent completed the exchange offers. Approximately $344.6 million aggregate principal amount representing 99.9% of the outstanding principal amount of the Floating Rate Senior Convertible Contingent Debt Securities and approximately $298.8 million aggregate principal amount representing approximately 99.6% of the outstanding principal amount of the 2.25% Senior Convertible Contingent Debt Securities were exchanged for Convertible Senior Debentures with similar financial terms. We paid an exchange fee of 0.50% of the principal amount of the Convertible Contingent Debt Securities tendered. Apogent also paid a consent fee relating to the Floating Rate Senior Convertible Contingent Debt Securities exchange offer of 0.60% of the principal amount of Floating Rate Convertible Contingent Debt Securities tendered. Neither Fisher nor Apogent received any proceeds from the issuance of the new Convertible Senior Debentures in the exchange offers.
On August 3, 2004, Apogent also completed its tender offer and related consent solicitation for any and all of its 6 1/2% senior subordinated notes due 2013. Apogent purchased approximately $249.6 million aggregate principal amount of its $250.0 million principal amount of 6 1/2% senior subordinated notes. The purchase price for the senior subordinated notes was $1,107.50 in cash per $1,000 principal amount, plus accrued and unpaid interest.
15
Item 2: Management’s Analysis of Results of Operations
Overview
Apogent is a leading developer and manufacturer of products for the clinical and research industries. We are organized into two business segments, the Clinical Group and the Research Group, to serve our customers in these industries.
Business
Our subsidiaries manufacture most of the products we sell. Over 50% of our sales are made through distributors. In addition to distributors, our customers include pharmaceutical and biotechnology companies, clinical, academic, research and industrial laboratories, original equipment manufacturers, and others. Approximately 69% of our consolidated net sales during the nine months ended June 30, 2004 were generated from sales transactions with customers within the U.S. and the remainder was generated internationally, mostly from Europe.
The end-users of our products include scientists and lab technicians in the fields of life science research, clinical diagnostics, and basic scientific research. These individuals typically work at pharmaceutical companies, other types of manufacturing companies, hospitals, scientific research organizations, academic and government institutions, and clinical reference laboratories.
Net Sales
Net sales for the nine months ended June 30, 2004 were $884.3 million, an increase of $71.4 million or 8.8% over the same period of fiscal 2003.
The increase in net sales is primarily due to the following factors:
| • | Sales by newly-acquired businesses (approximately $29.5 million), primarily our Quality Scientific Plastics (QSP) subsidiary acquired in August 2003, our Pactech subsidiary acquired in January 2004, and our Eagle Picher subsidiary acquired in April 2004; |
| • | Sales of newly developed products (approximately $26.0 million); |
| • | A positive impact of foreign currency fluctutations (approximately $18.5 million); and |
| • | An increase in our average selling prices (approximately $6.7 million). |
The above increases in net sales are offset by a reduction in the quantity of existing products (approximately $10.7 million).
Gross Profit
Gross profit for the nine months ended June 30, 2004 was $418.1 million, or 47.3% of net sales, as compared to $389.8 million, or 47.9% of net sales, for the same period of fiscal 2003. The factors described above that contributed to our growth in net sales also contributed to higher gross profit.
The decrease in gross margin as a percent of sales was due primarily to the acquisitions of QSP and Pactech, which operate at lower margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended June 30, 2004 were $237.5 million, an increase of $26.9 million or 12.8% over the same period of fiscal 2003.
The following factors contributed to the increase in selling, general and administrative expenses:
| • | A negative impact from foreign currency fluctuations; |
| • | Costs related to the merger with Fisher; |
16
| • | Increased restructuring expenses; |
| • | Increased payroll and other employee-related expenses from higher headcounts primarily due to the acquisitions of QSP, Pactech, and Eagle Picher; |
| • | An increase in subsidiary bonus accruals; |
| • | An increase in bad debt expense due to a customer bankruptcy; and |
| • | Increased pension, insurance, and workers’ compensation costs. |
Operating Income
Operating income for the nine months ended June 30, 2004 was $180.6 million, an increase of $1.5 million, or 0.8%, compared to $179.1 million for the same period of fiscal 2003.
Interest Expense, net
Interest expense, net, was $22.7 million for the nine months ended June 30, 2004, as compared to $32.4 million for the same period of fiscal 2003. The decrease in interest expense is primarily due to a reduction in the Company’s weighted average interest rate offset in part by an increase in our outstanding debt obligations. Interest income was approximately $240,000 for nine months ended June 30, 2004 as compared to $207,000 for the same period of fiscal 2003.
Other Income
Other income was $0.5 million for the nine months ended June 30, 2004, as compared to other income of $0.9 million in the same period of fiscal 2003.
Income Taxes
Taxes on income from continuing operations for the nine months ended June 30, 2004 were $56.5 million, an increase of $7.1 million from the same period of fiscal 2003. The increase in income taxes resulted from an increase in income from continuing operations before income taxes and nonrecurring benefits during fiscal 2003 relating to the utilization of additional foreign tax credits as well as the cumulative effect of the decrease in the fiscal 2003 effective tax rate from 36.5% to 36.0%.
Income from Continuing Operations
Income from continuing operations for the nine months ended June 30, 2004 was $97.2 million, an increase of $1.8 million, from $95.4 million for the same period of fiscal 2003.
Discontinued Operations
Loss from discontinued operations, net of tax, for the nine months ended June 30, 2004 was $0.3 million, as compared to a loss $87.5 million for the same period of fiscal 2003. The loss from discontinued operations during fiscal 2003 was the result of the Company’s decision to dispose of two of its businesses: the rapid diagnostic test business (on-site rapid tests used in the detection of pregnancy, drugs of abuse and infectious diseases) as conducted by the former Applied Biotech, Inc. subsidiary; and the manufacture and sale of automated micro array instrumentation for the genomics market as conducted by our former BioRobotics Group Limited subsidiary.
Net Income
Net income for the nine months ended June 30, 2004 was $96.9 million, as compared to $7.9 million for the same period of fiscal 2003.
Subsequent Events / Merger with Fisher Scientific International
On August 2, 2004, Apogent completed the merger with a subsidiary of Fisher Scientific International Inc., or “Fisher,” a world leader in serving science, headquartered in Hampton, New Hampshire, as a result of which we became a subsidiary of Fisher. The transaction will be accounted for using the purchase method of accounting, with each share of Apogent common stock exchanged for .56 shares of Fisher common stock.
17
In connection with its merger with Fisher, Apogent made concurrent exchange offers for up to $345.0 million of our Floating Rate Senior Convertible Contingent Debt Securities due 2033 for a like principal amount of Floating Rate Convertible Senior Debentures due 2033 and up to $300.0 million of our 2.25% Senior Convertible Contingent Debt Securities due 2021 for a like principal amount of 2.25% Convertible Senior Debentures due 2021.
On August 3, 2004, Apogent completed the exchange offers. Approximately $344.6 million aggregate principal amount representing 99.9% of the outstanding principal amount of the Floating Rate Senior Convertible Contingent Debt Securities and approximately $298.8 million aggregate principal amount representing approximately 99.6% of the outstanding principal amount of the 2.25% Senior Convertible Contingent Debt Securities were exchanged for Convertible Senior Debentures with similar financial terms. We paid an exchange fee of 0.50% of the principal amount of the Convertible Contingent Debt Securities tendered. Apogent also paid a consent fee relating to the Floating Rate Senior Convertible Contingent Debt Securities exchange offer of 0.60% of the principal amount of Floating Rate Convertible Contingent Debt Securities tendered. Neither Fisher nor Apogent received any proceeds from the issuance of the new Convertible Senior Debentures in the exchange offers.
On August 3, 2004, Apogent also completed its tender offer and related consent solicitation for any and all of its 6 1/2% senior subordinated notes due 2013. Apogent purchased approximately $249.6 million aggregate principal amount of its $250.0 million principal amount of 6 1/2% senior subordinated notes. The purchase price for the senior subordinated notes was $1,107.5 in cash per $1,000 principal amount, plus accrued and unpaid interest.
18
Item 4: Controls and Procedures
Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
Internal Control Over Financial Reporting: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s third fiscal quarter ended June 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, and subject to the supplemental note below, there has been no such change during the Company’s third fiscal quarter.
Supplemental Note to Item 4 Controls and Procedures—Internal Control Over Financial Reporting:
On June 23, 2004, Apogent Technologies Inc. announced that its Molecular BioProducts, Inc. subsidiary (“MBP”) may have improperly recognized, from a timing perspective, between $200,000 and $600,000 of revenue during the quarter ended March 31, 2004.
Promptly upon learning of a possible improper recognition of revenue at MBP, Apogent began a comprehensive internal review of the matter under the direction and oversight of Apogent’s Audit Committee and its General Counsel. Forensic accounting specialists at PricewaterhouseCoopers LLP (“PwC”) were retained to assist in the review. KPMG LLP, Apogent’s independent auditor, was notified of the matter and was informed of the review being conducted. The reviews by both Apogent and Fisher covered not only MBP, but also other selected Apogent subsidiaries, in order to confirm that these revenue recognition issues were isolated at the MBP level. In connection with Apogent’s review of the MBP matter, appropriate action with respect to the responsible employees has taken place. During the course of Apogent’s review of the MBP matter, Apogent’s Audit Committee met regularly to consider and discuss materials prepared and presented by PwC relating to the matter. Upon review of the matter, the Apogent Audit Committee concluded that the MBP matter was an isolated incident and was not material to Apogent and reported its findings to the Apogent board of directors.
19
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index following the Signature page in this report, which is incorporated herein by reference.
(b) Reports on Form 8-K:
On April 19, 2004, Apogent filed a Current Report on Form 8-K dated April 16, 2004 announcing that the Agreement and Plan of Merger by and among Fisher Scientific International Inc. and Fox Merger Corporation, a direct wholly owned subsidiary of Fisher, and Apogent, had been amended.
On April 29, 2004, Apogent furnished a Current Report on Form 8-K dated April 28, 2004 providing public disclosure of its second quarter and year-to-date financial results.
On June 1, 2004, Apogent filed a Current Report on Form 8-K dated May 28, 2004 announcing the commencement of exchange offers that relate to an aggregate of $645 million of its existing debt securities in connection with the proposed merger of Apogent and Fisher Scientific and announcing the commencement of a tender offer and consent solicitation for all of its $250 million principal amount of 6 1/2 percent senior subordinated notes due 2013.
On June 14, 2004, Apogent filed a Current Report on Form 8-K announcing that the Early Consent Payment Deadline in respect of the tender offer and consent solicitation for all of its $250.0 million principal amount of 6 1/2 percent senior subordinated notes due 2013 had been extended.
On June 16, 2004, Apogent filed a Current Report on Form 8-K dated June 15, 2004 announcing that Apogent and Fisher provided conversion rights notices to the holders of Apogent’s Floating Rate Senior Convertible Contingent Debt Securities due 2033 and Apogent’s 2.25% Senior Convertible Contingent Debt Securities due 2021.
On June 18, 2004, Apogent filed a Current Report on Form 8-K announcing that the Consent Payment Deadline in respect of the tender offer and consent solicitation for all of Apogent’s $250.0 million principal amount of 6 1/2 percent senior subordinated notes due 2013 had been extended.
On June 24, 2004, Apogent filed a Current Report on Form 8-K dated June 23, 2004 announcing that the vote of Apogent stockholders on the merger with Fisher, scheduled for June 28, 2004, was being postponed.
After the end of the quarter, Apogent filed the following reports on Form 8-K:
On July 2, 2004, Apogent filed a Current Report on Form 8-K announcing the extension until July 16, 2004 of the pending exchange offers that relate to an aggregate of $645 million of its existing senior convertible debt securities in connection with the merger and announcing the extension until July 16, 2004 of the pending tender offer and consent solicitation for all of its $250.0 million principal amount of 6 1/2 percent senior subordinated notes due 2013.
On July 14, 2004, Apogent filed a Current Report on Form 8-K dated July 13, 2004 announcing that it would reconvene its special stockholder meeting for the purpose of holding a stockholder vote on the proposed merger with Fisher, the extension of the pending tender offer and consent solicitation for all of its $250.0 million principal amount of 6 1/2 percent senior subordinated notes due 2013, the fixing of July 27, 2004 as the Consent Payment Deadline with respect to the tender offer and consent solicitation, the increase in the tender offer and consent compensation payable, and the extension until August 2, 2004 of, and the increase in exchange fees with respect to, the pending exchange offers for $645 million of its existing senior convertible debt securities in connection with the merger.
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On July 28, 2004, Apogent filed a Current Report on Form 8-K dated July 27, 2004 announcing that it had received the requisite consents to execute a supplemental indenture amending the indenture relating to its 6 1/2 percent senior subordinated notes due 2013 pursuant to a previously announced consent solicitation and tender offer for all of these notes.
On July 29, 2004, Apogent filed a Current Report on Form 8-K dated July 28, 2004 reporting financial results for the third quarter and the nine months ended June 30, 2004. As part of this same report, Apogent furnished a copy of its earnings press release containing certain non-GAAP financial information related to the financial results for the third quarter and the nine months ended June 30, 2004.
On August 2, 2004, Apogent filed a Current Report on Form 8-K reporting a change in control of Apogent resulting from the merger with Fisher.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
| APOGENT TECHNOLOGIES INC. (Registrant) | ||||
| Date: August 9, 2004 |
/S/ DENNIS BROWN | |||
| Dennis Brown Chief Financial Officer* | ||||
* Executing as both the principal financial officer and a duly authorized officer of the Company | ||||
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(“Apogent”)
(Commission File No. 1-11091)
EXHIBIT INDEX
to
QUARTERLY REPORT ON FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2004
| Exhibit |
Description |
Incorporated Herein By Reference To |
Filed or Submitted Herewith | |||
| 2.1 | Agreement and Plan of Merger, dated as of March 17, 2004, as amended on April 16, 2004, by and among Fisher, Fox Merger Corporation and Apogent | Exhibit 2.1 to Apogent’s Form 8-K dated April 16, 2004 | ||||
| 2.2 | Articles of Merger dated August 2, 2004, merging Fox Merger Corporation with and into Apogent | X | ||||
| 3.1 | Restated Articles of Incorporation of Apogent | X | ||||
| 3.2 | Amended and Restated Bylaws of Apogent | X | ||||
| 4.1 | Indenture, dated as of August 3, 2004, among Apogent, Fisher Scientific International Inc. and The Bank of New York, as Trustee, providing for Apogent’s Floating Rate Convertible Senior Debentures due 2033 | X | ||||
| 4.2 | Indenture, dated as of August 3, 2004, among Apogent, Fisher Scientific International Inc. and The Bank of New York, as Trustee, providing for Apogent’s 2.25% Convertible Senior Debentures due 2021 | X | ||||
| 4.3 | Supplemental Indenture, dated as of August 2, 2004, to the Indenture dated as of October 10, 2001, among Apogent, Fisher Scientific International Inc. and The Bank of New York, as Trustee | X | ||||
| 4.4 | Supplemental Indenture, dated as of August 2, 2004, to the Indenture dated as of December 17, 2003, among Apogent, Fisher Scientific International Inc. and The Bank of New York, as Trustee | X | ||||
| 4.5 | Supplemental Indenture, dated as of July 27, 2004, to the Indenture dated June 2, 2003, among Apogent and The Bank of New York, as Trustee | X | ||||
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| Exhibit |
Description |
Incorporated Herein By Reference To |
Filed or Submitted Herewith | |||
| 10.1 | Guaranty, dated as of August 2, 2004, among Fisher Scientific International Inc., as Borrower, Apogent Technologies Inc., as Guarantor, the other Guarantors named therein, and Bank of America, N.A., as Administrative Agent for the Lenders, as Guarantied Party | X | ||||
| 10.2 | Pledge Agreement dated as of August 2, 2004 by and among Fisher Scientific International Inc., as Borrower, Apogent Technologies Inc., as Pledgor, the other Pledgors named therein, J.P. Morgan Trust Company, National Association, as Senior Note Trustee and Bank of America, N.A., as Agent for the Lenders, as Secured Party | X | ||||
| 12.1 | Computation of Ratio of Earnings to Fixed Charges | X | ||||
| 31.1 | Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO) | X | ||||
| 31.2 | Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO) | X | ||||
| 32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO) | X | ||||
| 32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO) | X | ||||
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