-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E7yVYgj57lkonxTOOuLCfD4vxHSDr4J0Y1hIX6GChWvg7CyCgR5OQY9FRa1xiAMJ bbjd2jdokhSzdgDcQnExLg== 0000927016-02-003989.txt : 20020813 0000927016-02-003989.hdr.sgml : 20020813 20020813081523 ACCESSION NUMBER: 0000927016-02-003989 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APOGENT TECHNOLOGIES INC CENTRAL INDEX KEY: 0000824803 STANDARD INDUSTRIAL CLASSIFICATION: DENTAL EQUIPMENT & SUPPLIES [3843] IRS NUMBER: 222849508 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11091 FILM NUMBER: 02727947 BUSINESS ADDRESS: STREET 1: 411 E WISCONSIN AVE 24TH FLR CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142746600 MAIL ADDRESS: STREET 1: 411 EAST WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 FORMER COMPANY: FORMER CONFORMED NAME: SYBRON CORP /DE/ DATE OF NAME CHANGE: 19940114 FORMER COMPANY: FORMER CONFORMED NAME: SYBRON INTERNATIONAL INC DATE OF NAME CHANGE: 19951221 FORMER COMPANY: FORMER CONFORMED NAME: SYBRON INTERNATIONAL CORP DATE OF NAME CHANGE: 19960321 10-Q 1 d10q.txt FORM 10-Q 6/30/2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 Or [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to _______________. COMMISSION FILE NUMBER: 1-11091 APOGENT TECHNOLOGIES INC. ------------------------- (Exact name of registrant as specified in its charter) Wisconsin 22-2849508 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification incorporation or organization) Number) 30 Penhallow Street, Portsmouth, New Hampshire 03801 - ---------------------------------------------- --------- (Address of principal executive offices) (Zip Code) (603) 433-6131 -------------- (Registrant's telephone number, including area code) Indicate by checkmark, whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]. At August 2, 2002, there were 106,948,259 shares of the Registrant's Common Stock, par value $0.01 per share, outstanding. APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES Index Page Part I - FINANCIAL INFORMATION Item 1. Financial Statements 1 Consolidated Balance Sheets as of June 30, 2002 and September 30, 2001 1 Consolidated Statements of Income for the three and nine months ended June 30, 2002 and 2001 2 Consolidated Statement of Shareholders' Equity for the nine months ended June 30, 2002 3 Consolidated Statements of Cash Flows for the nine months ended June 30, 2002 and 2001 4 Notes to unaudited consolidated financial statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Item 3. Quantitative and Qualitative Disclosures About Market Risk 40 Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 40 Signatures 40 PART I. FINANCIAL INFORMATION Item 1. Financial Statements APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share data)
June 30, September 30, 2002 2001 -------------- -------------- Assets Current assets: Cash and cash equivalnts $ 34,609 $ 9,192 Accounts receivable (less allowance for doubtful accounts of $4,787 and $3,975, respectively) 194,818 183,278 Inventories 195,177 167,436 Deferred income taxes 13,046 13,046 Prepaid expenses and other current assets 23,749 20,985 Assets of Vacuum Process Technology, Inc.("VPT") avail. for sale 6,270 - ---------- ---------- Total current assets 467,669 393,937 Available for sale security 54,698 55,072 Property, plant and equipment, net 255,393 223,687 Intangible assets 1,237,514 1,140,334 Deferred income taxes 6,147 6,147 Other assets 17,916 15,961 ---------- ---------- Total assets $2,039,337 $1,835,138 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 48,454 $ 53,822 Current portion of long-term debt 62,192 73,642 Income taxes payable 61,588 38,747 Accrued payroll and employee benefits 32,622 33,236 Accrued interest expense 8,432 15,292 Restructuring reserve 4,852 1,552 Deferred income taxes 911 911 Other current liabilities 28,044 26,364 Liabilities of Vacuum Process Technology, Inc. 202 - ---------- ---------- Total current liabilities 247,297 243,566 Long-term debt 663,439 583,788 Securities lending agreement 54,698 55,072 Deferred income taxes 119,700 107,220 Other liabilities 7,821 7,002 Commitments and contingent liabilities - - Shareholders' equity: Preferred stock, $0.01 par value; authorized 20,000,000 shares - - Common stock, $0.01 par value; authorized 250,000,000 shares issued 106,906,029 and 105,875,768 shares respectively; outstanding 106,905,809 and 105,875,548 shares respectively 1,069 1,059 Equity rights, 50 rights at $1.09 per right - - Additional paid-in capital 269,557 254,637 Retained earnings 712,634 627,642 Accumulated other comprehensive income (loss) (36,878) (44,848) Treasury common stock, 220 shares at cost - - ---------- ---------- Total shareholders' equity 946,382 838,490 ---------- ---------- Total liabilities and shareholders' equity $2,039,337 $1,835,138 ========== ==========
See the accompanying notes to the unaudited consolidated financial statements 1 APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended June 30, June 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net sales $276,847 $255,261 $779,683 $712,723 Cost of sales: Cost of products sold 141,152 130,654 398,488 363,265 Restructuring charge 1,440 - 5,113 - Depreciation of purchase accounting adjustments 1,170 180 2,779 448 -------- -------- -------- -------- Total cost of sales 143,762 130,834 406,380 363,713 -------- -------- -------- -------- Gross profit 133,085 124,427 373,303 349,010 Selling, general and administrative expenses 61,153 55,060 172,669 152,200 Restructuring charge - - 1,614 583 Depreciation and amortization of purchase accounting adjustments 4,644 11,313 12,808 32,729 -------- -------- -------- -------- Total selling, general and administrative expenses 65,797 66,373 187,091 185,512 -------- -------- -------- -------- Operating income 67,288 58,054 186,212 163,498 Other income (expense): Interest expense (10,273) (12,717) (30,804) (37,109) Amortization of deferred financing fees (938) (133) (2,680) (382) Other, net 943 240 3,217 5,506 -------- -------- -------- -------- Income from continuing operations before income taxes and extraordinary item 57,020 45,444 155,945 131,513 Income taxes 20,846 17,738 57,076 52,177 -------- -------- -------- -------- Income from continuing operations before extraordinary item 36,174 27,706 98,869 79,336 Discontinued operations: (Loss) income from operations of VPT including estimated loss on sale of $13,200 (net of income tax benefit (expense) of $58, ($230), $8,316, and ($709), respectively) (101) 397 (13,877) 1,144 Loss from distribution of SDS (net of income tax expense of $435) - - - (11,824) -------- -------- -------- -------- Income before extraordinary item 36,073 28,103 84,992 68,656 Extraordinary item (net of income tax of $863 and $1,359, respectively) - (1,361) - (2,106) -------- -------- -------- -------- Net income $ 36,073 $ 26,742 $ 84,992 $ 66,550 ======== ======== ======== ======== Basic earnings per common share from continuing operations $ 0.34 $ 0.26 $ 0.93 $ 0.75 Discontinued operations (0.00) 0.00 (0.13) (0.10) Extraordinary item - (0.01) - (0.02) -------- -------- -------- -------- Basic earnings per common share $ 0.34 $ 0.25 $ 0.80 $ 0.63 ======== ======== ======== ======== Diluted earning per common share from continuing operations $ 0.33 $ 0.26 $ 0.91 $ 0.73 Discontinued operations (0.00) 0.00 (0.13) (0.10) Extraordinary item - (0.01) - (0.02) -------- -------- -------- -------- Diluted earnings per common share $ 0.33 $ 0.25 $ 0.78 $ 0.62 ======== ======== ======== ======== Weighted average basic shares outstanding 106,816 105,563 106,452 105,421 Weighted average diluted shares outstanding 109,010 108,333 108,996 108,193
See accompanying notes to the unaudited consolidated financial statements. 2 APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES Consolidated Statement of Shareholders' Equity For the nine months ended June 30, 2002 (In thousands) (Unaudited)
Accumulated Additional Other Treasury Total Common Equity Paid-In Retained Comprehensive Common Shareholders' Stock Rights Capital Earnings Income Stock Equity ----- ------ ------- -------- ------ ----- ------ Balance at September 30, 2001 $1,059 $ - $254,637 $627,642 $(44,848) $ - $838,490 Comprehensive income: Net income - - - 84,992 - - 84,992 Translation adjustment - - - - 8,861 - 8,861 Amortization of gain on sale of interest rate swaps, net of tax benefit of $445 - - - - (667) - (667) Unrealized loss on security available for sale, net of tax of $149 - - - - (224) - (224) ------ ------- -------- -------- -------- -------- -------- Total comprehensive income - - - 84,992 7,970 - 92,962 Shares issued in connection with stock options 10 - 8,397 - - - 8,407 Tax benefit related to stock options - - 6,523 - - - 6,523 ------ ------- -------- -------- -------- -------- -------- Balance at June 30, 2002 $1,069 $ - $269,557 $712,634 $(36,878) $ - $946,382 ====== ======= ======== ======== ======== ======== ========
See accompanying notes to the unaudited consolidated financial statements. 3 APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Nine Months Ended June 30, 2002 2001 ---- ---- Cash flows from operating activities: Net income $ 84,992 $ 66,550 Adjustments to reconcile net income to net cash provided by operating activities Discontinued operations 13,877 10,680 Depreciation 27,682 25,121 Amortization 15,488 31,802 Gain on sale of property, plant and equipment 81 (4,988) Provision for losses on doubtful accounts (107) (188) Inventory provisions 2,324 1,667 Deferred income taxes - 632 Extraordinary item - 2,106 Changes in assets and liabilities, net of effects of businesses acquired: (Increase) decrease in accounts receivable (1,584) 1,013 Increase in inventories (17,880) (21,842) Increase in prepaid expenses and other current assets (4,877) (6,116) Decrease in accounts payable (9,221) (6,334) Increase in income taxes payable 16,955 13,745 (Decrease) increase in accrued payroll and employee benefits (1,598) 3,057 (Decrease) increase in accrued interest expense (6,861) 4,209 Increase (decrease) in restructuring reserve 3,188 (2,643) Decrease in other current liabilities (6,044) (5,157) Net change in other assets and liabilities 3,300 (1,456) --------- --------- Net cash provided by operating activities 119,715 111,858 --------- --------- Cash flows from investing activities: Capital expenditures (32,421) (35,502) Proceeds from sales of property, plant and equipment 1,257 11,446 Net cash flow from SDS - 46,394 Net payment for businesses acquired (142,117) (139,020) --------- --------- Net cash used in investing activities (173,281) (116,682) --------- --------- Cash flows from financing activities: Proceeds from long-term debt 300,000 703,448 Principal payments on long-term debt (45,372) (680,291) Proceeds from the exercise of stock options 8,407 4,382 Financing fees paid (8,081) (6,721) Proceeds from revolving credit facility 285,200 407,060 Principal payments on revolving credit facility (465,300) (410,960) Other financing activities (374) 489 --------- --------- Net cash provided by financing activities 74,480 17,407 --------- --------- Effect of exchange rate changes on cash and cash equivalents 4,503 1,826 --------- --------- Net increase in cash and cash equivalents 25,417 14,409 Cash and cash equivalents at beginning of period 9,192 12,411 --------- --------- Cash and cash equivalents at end of period $ 34,609 $ 26,820 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 37,701 $ 25,665 ========= ========= Income taxes $ 27,783 $ 21,147 ========= ========= Capital lease obligations incurred $ 209 $ - ========= =========
See accompanying notes to unaudited consolidated financial statements. 4 APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements (dollars in thousands except per share data, or when specified in millions) 1. Basis of Presentation In the opinion of management, all adjustments that are necessary for a fair statement of the results for the interim periods presented have been included, and are of a normal recurring nature. The results for the three-month and nine-month periods ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. The financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles in the United States. These statements should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended September 30, 2001. 2. Adoption of New Accounting Pronouncements The Company adopted Statement No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), on October 1, 2001. SFAS 142 requires that all goodwill and intangible assets with indefinite useful lives will no longer be amortized, but instead tested for impairment at least annually. The Company has performed its initial impairment tests and the results indicate no circumstances of impaired goodwill. The following table reconciles reported amounts to that which would have been reported if the current method of accounting was used for the three and nine months ended June 30, 2001 and the fiscal years ended September 30, 2001, 2000, and 1999:
Three Months Nine Months Ended Ended Year Ended September 30, June 30 2001 June 30, 2001 2001 2000 1999 ------------ ------------- ---- ---- ---- Income before extraordinary items: Reported income before extraordinary items $ 28,103 $ 68,656 $ 98,047 $ 128,321 $ 125,376 Add back: goodwill amortization, net of tax 5,800 15,655 22,363 19,605 12,813 --------- --------- --------- --------- --------- Adjusted income before extraordinary items $ 33,903 $ 84,311 $ 120,410 $ 147,926 $ 138,189 ========= ========= ========= ========= ========= Net income: Reported net income $ 26,742 $ 66,550 $ 95,941 $ 128,321 $ 142,547 Add back: goodwill amortization, net of tax 5,800 15,655 22,363 19,605 12,813 --------- --------- --------- --------- --------- Adjusted net income $ 32,542 $ 82,205 $ 118,304 $ 147,926 $ 155,360 ========= ========= ========= ========= ========= Basic earnings per common share: Reported earnings per share $ 0.25 $ 0.63 $ 0.91 $ 1.23 $ 1.38 Add back: goodwill amortization, net of tax 0.05 0.15 0.21 0.19 0.12 --------- --------- --------- --------- --------- Adjusted basic earnings per common share $ 0.30 $ 0.78 $ 1.12 $ 1.42 $ 1.50 ========= ========= ========= ========= ========= Diluted earnings per common share: Reported fully diluted earnings per share $ 0.25 $ 0.62 $ 0.89 $ 1.20 $ 1.34 Add back: goodwill amortization, net of tax 0.05 0.14 0.21 0.18 0.12 --------- --------- --------- --------- --------- Adjusted Diluted earnings per common share $ 0.30 $ 0.76 $ 1.10 $ 1.38 $ 1.46 ========= ========= ========= ========= =========
5 3. Inventories Inventories at June 30, 2002 and September 30, 2001 consist of the following: June 30, September 30, 2002 2001 ---- ---- Raw materials and supplies 74,178 56,660 Work in process 21,210 25,974 Finished goods 99,789 84,802 ---------- --------- $ 195,177 $ 167,436 ========== ========= 4. Intangible Assets As a result of SFAS 142, the Company is no longer amortizing approximately $994 million of goodwill as of June 30, 2002. As a result of current year acquisitions and subsequent payments made in relation to prior year acquisitions, the Company added approximately $113 million to intangibles and goodwill since September 30, 2001 (approximately $43 million to goodwill and $70 million to amortizable intangible assets). The Company is currently assessing the final allocation of purchase price premium to the various tangible and intangible assets for these acquisitions. Deferred financing fees paid in connection with the October 2001 convertible debt offering increased other intangible assets by $8.1 million. In addition, the Company wrote off approximately $21 million in goodwill and intangibles in connection with the estimated loss on sale of VPT, and reduced goodwill by $6 million as a result of a reduction in the purchase price premium for a prior year acquisition. Intangible assets are as follows: June 30, September 30, 2002 2001 ---- ---- Amortizable intangible assets Proprietary technology $ 131,407 $ 109,376 Trademarks 76,388 58,894 Patents 38,276 28,547 Licenses 17,910 10,703 Drawings 11,736 11,486 Non-compete agreements 16,009 13,240 Other 20,742 10,611 Less: Accumulated amortization (69,054) (53,389) ------------ ------------ Net amortizable intangible assets 243,414 189,468 Unamortizable intangible assets (goodwill) 994,100 950,866 ------------ ------------ $ 1,237,514 $ 1,140,334 ============ ============ 6 Intangible assets at June 30, 2002 by business segment are as follows:
Clinical Labware & Laboratory Diagnostics LifeScience Equipment Consolidated ----------- ----------- ---------- ------------ Proprietary technology $ 109,560 $ 12,687 $ 9,160 $ 131,407 Less: Accumulated amortization (19,181) (3,905) (1,527) (24,613) --------- -------- ------- --------- Net proprietary technology 90,379 8,782 7,633 106,794 --------- -------- ------- --------- Trademarks 15,087 50,132 11,169 76,388 Less: Accumulated amortization (1,182) (9,852) (3,893) (14,927) --------- -------- ------- --------- Net trademarks 13,905 40,280 7,276 61,461 --------- -------- ------- --------- Patents 23,439 13,253 1,584 38,276 Less: Accumulated amortization (3,351) (2,192) (533) (6,076) --------- -------- ------- --------- Net patents 20,088 11,061 1,051 32,200 --------- -------- ------- --------- Licenses 15,578 2,332 - 17,910 Less: Accumulated amortization (3,602) (133) - (3,735) --------- -------- ------- --------- Net licenses 11,976 2,199 - 14,175 --------- -------- ------- --------- Drawings - 436 11,300 11,736 Less: Accumulated amortization - (145) (5,556) (5,701) --------- -------- ------- --------- Net drawings - 291 5,744 6,035 --------- -------- ------- --------- Non-compete agreements 8,703 7,104 202 16,009 Less: Accumulated amortization (3,805) (3,917) (143) (7,865) --------- -------- ------- --------- Net non-compete agreements 4,898 3,187 59 8,144 --------- -------- ------- --------- Other identifiable intangible assets (a) 670 3,645 - 4,315 Less: Accumulated amortization (100) (2,251) - (2,351) --------- -------- ------- --------- Net other identifiable intangibles (a) 570 1,394 - 1,964 --------- -------- ------- --------- Net amortizable intangible assets (a) $ 141,816 $ 67,194 $21,763 $ 230,773 ========= ======= ======= ========= Excess cost over net asset values acquired (goodwill) $ 510,239 $399,836 $84,025 $ 994,100 --------- -------- ------- --------- Unamortizable intangible assets 510,239 399,836 84,025 994,100 ========= ======== ======= =========
Note (a): At June 30, 2002, Apogent Corporate Office had $16,427 of amortizable other identifiable intangible assets and $3,786 of related accumulated amortization that was not allocated to any of the business segments. Amortization expense relating to the existing identifiable intangible assets for each of the next five years is expected to be $19,519, $18,325, $16,974, $12,657, and $11,008, respectively. 5. Acquisitions During the nine months ended June 30, 2002, the Company completed nine acquisitions for cash. The aggregate purchase price for these acquisitions, net of cash acquired, was approximately $141 million. None of the acquisitions were considered individually significant. The total goodwill and identifiable intangibles assets for the acquired companies was approximately $111 million. The intangible assets will be amortized over their expected lives ranging from 3 to 20 years. The following table outlines the sales, operating income and total assets for the most recent available twelve-month period prior to each cash acquisition. 7
Business Segment: Operating Total Type of Company Acquired Acquisition Date Sales Income Assets Acquisition ----------------- ---------------- ----- ------ ------ ----------- Clinical Diagnostics: Forefront Diagnostics, Inc. November 2001 6,300 1,700 9,900 Stock Separation Technology, Inc. January 2002 3,200 1,000 3,000 Stock Capitol Vial, Inc. February 2002 27,000 9,600 26,200 Stock Mirror Product Line of SMC May 2002 600 200 10 Asset Manufacturing Labware and Life Sciences: Cosmotee Co. Ltd. October 2001 10,500 2,500 2,600 Stock Barden Engineering October 2001 570 130 540 Asset Chromacol Limited, Epsom Glass Industries Limited, and Amchro Inc. October 2001 $9,900 $350 $5,080 Stock TFO Incorporated May 2002 1,700 160 850 Asset Marsh BioProducts, Inc. April 2002 17,000 1,800 4,700 Asset
6. Discontinued Operations During March 2002, we made the decision to dispose of our vacuum deposition chamber business, Vacuum Process Technology, Inc. ("VPT"). The decision was made following a recent slow-down in the telecommunications industry, in which VPT targets a majority of its products, and as a result, the business no longer meets the Company's strategic requirements. In connection with the discontinuance of this business we incurred a one-time charge of $13,200, net of income tax benefit of $7,600 related to the write down of net assets to their estimated realizable value. The decision to sell VPT represents a disposal of long-lived assets and disposal group under Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Accordingly, results of this business have been classified as discontinued operations, and prior periods have been restated. In the event the Company ultimately disposes of VPT for an amount less than the carrying value of the business, an additional charge will be recognized upon disposal. For business reporting purposes, VPT was previously classified in the Clinical Diagnostics business segment. Operating results from VPT for the three months and nine months ended June 30, 2002 and 2001 were as follows:
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2002 2001 2002 2001 ---- ---- ---- ---- Net sales $1,280 $5,135 $ 3,180 $13,535 Gross profit 166 1,074 466 2,957 Pretax income (loss) (159) 627 (1,103) 1,853 Income tax benefit (expense) 58 (230) 426 (709) Net income (loss) (101) 397 (677) 1,144
8 Assets and liabilities of VPT were as follows: June 30, September 30, 2002 2001 ---- ---- Current Assets $ 4,567 $ 6,296 Property, plant and equipment, net 850 912 Intangible assets - 21,023 Total assets 6,270 29,083 Current liabilities 202 2,392 Total liabilities 202 3,954 Net sales and net income from VPT for the year ended September 30, 2001 were $15,372 and $990, respectively. 7. Restructuring During fiscal 2002, the Company recorded restructuring charges of approximately $6,727 (approximately $4,265 net of tax) for the consolidation of certain facilities and discontinuance of certain product lines due to product rationalizations. The restructuring charges were classified as components of cost of sales and selling, general and administrative expenses. The cost of sales component of approximately $5,113 related to the write-off of inventory, write-offs of fixed assets, certain lease terminations, and severance associated with employees in production activities. The selling, general and administrative component of approximately $1,614 related to severance associated with non-production employees as well as certain lease terminations and other shutdown costs. Restructuring activity is as follows:
Fixed Facility Severance Inventory Assets Closure Costs (a) (b) (b) (c) Other Total --------- --------- ------ ------------- ----- ------- 2002 Restructuring charge $ 1,500 $ 3,400 $ 400 $ 1,400 $ - $ 6,700 2002 Cash payments 900 - - 500 - 1,400 2002 Non-cash charges - 900 200 - - 1,100 ------- ------- ------ ------- ----- ------- June 30, 2002 balance $ 600 $ 2,500 $ 200 $ 900 $ - $ 4,200 ======= ======= ====== ======= ===== =======
(a) Amount represents severance and termination costs for 126 terminated employees (primarily sales marketing and manufacturing personnel). As of June 30, 2002, 35 employees have been terminated as a result of the restructuring plan. (b) Amount represents write-offs of inventory and fixed assets associated with discontinued product lines. (c) Amount represents lease payments and other facility closure costs on exited operations. The Company expects to make future cash payments of approximately $700 during the remainder of fiscal 2002 and $200 in fiscal 2003 and beyond. 8. Earnings Per Common Share Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding in the period presented. Diluted earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding plus the dilutive effects of potential common shares outstanding during the period. A reconciliation of shares used in calculating basic and diluted earnings per share follows:
Three Months Ended Nine Months Ended June 30, June 30, ------------------ ----------------- 2002 2001 2002 2001 ---- ---- ---- ---- Basic 106,816 105,563 106,452 105,421 Effect of assumed conversion of employee stock options 2,194 2,770 2,544 2,772 ------- ------- ------- ------- Diluted 109,010 108,333 108,996 108,193 ======= ======= ======= =======
9 9. Long-Term Debt On October 10, 2001, the Company issued $300 million of senior convertible contingent debt securities (CODES). The CODES have a fixed interest rate of 2.25% per annum. Interest is payable on April 15 and October 15 of each year. The Company will also pay contingent interest during any six-month period if the average trading price of the CODES during a specified period of five trading days preceding the relevant six-month period is above specified levels. No contingent interest is payable during the six-month period from April 15, 2002 to October 14, 2002. The CODES will mature on October 15, 2021. The CODES are convertible, subject to certain conditions (based upon specified factors including but not limited to the sale price of the Company's common stock, trading prices of the CODES, maintenance of the Company's credit ratings, and the occurrence of specified corporate transactions), into Apogent Common Stock at a price of approximately $30.49 per share. The Company may redeem some or all of the CODES on or after October 20, 2004. The holders may require the Company to purchase all or a portion of their CODES on October 20, 2004 and on October 15, 2006, 2011 and 2016, or subject to specified exceptions, upon a change of control event. Certain of the Company's U.S. subsidiaries guarantee the Company's obligations under the CODES. The proceeds from the issuance were used to pay down the outstanding balance on our Revolving Credit Facility, and for general corporate purposes. 10. Segment Information The Company's operating subsidiaries are engaged in the manufacture and sale of laboratory products in the United States and other countries. The Company's products are categorized in the businesssegments of: clinical diagnostics; labware and life sciences; and laboratory equipment. A description of each business segment follows. Products in the clinical diagnostic business segment include microscope slides, cover glass, glass tubes and vials, stains and reagents and histology and immunochemistry instrumentation for clinical testing, thin glass for watch crystals, cosmetic mirrors, precision and coated glass used in various optic applications, and precision thin film optical coating equipment. Certain products in this segment are used in drug testing, therapeutic drug monitoring, infectious disease detection, pregnancy testing, and glucose tolerance testing. Products include diagnostic test kits, culture media, diagnostic reagents, and other products used in detecting causes of various infections or diseases. Products in the labware and life sciences business segment include reusable plastic products (bottles, carboys, graduated ware, beakers and flasks) and disposable plastic products (microfiltration and cryogenic storage products). Other labware products include products for critical packaging applications (bottles for packaging diagnostic and other reagents, media, pharmaceuticals and specialty chemicals), safety products (hazard labeled containers and biohazard disposal products), environmental containers, autosampler vials and seals used in chromatography analysis, and glass products for research and industrial applications, manufactured and sold through our joint venture with Kimble Glass. Life sciences products include applications of cell culture, filtration, molecular biology, cryopreservation, immunology, electrophoresis, liquid handling and high throughput screening for pharmaceutical drug discovery. Products in the laboratory equipment business segment include heating, stirring and temperature control apparatus such as hot plates, stirrers, shakers, heating tapes, muffle furnaces, incubators, dri-baths, bench top sterilizers and cryogenic storage apparatus, which are fundamental to basic procedures performed in the laboratory; systems for producing ultra pure water; bottle top dispensers, positive displacement micropipettors, and small mixers used in biomolecular research; constant temperature equipment including refrigerators/freezers, ovens, water baths, environmental chambers; and furnaces and fluorometers, spectrophotometers, and strip chart recorders. During the year, the Company changed its reporting business segments by moving its Genevac subsidiary from the labware and life sciences segment to the laboratory equipment segment. This change aligns the Company's financial reporting with the management of its operational activity. All historical 10 financial information for the three and nine months ended June 30, 2001 has been restated to reflect this change. The costs of some corporate functions are allocated to the business segments at predetermined rates which approximate cost. Information on these business segments is summarized as follows:
LabWare Clinical and Laboratory Diagnostics Life Sciences Equipment Elimination(a) Other (a) Total ----------- ------------- --------- -------------- --------- ----- Three Months Ended June 30, 2002 Revenues: External customer $ 132,578 $ 113,907 $ 30,362 $ - $ - $ 276,847 Intersegment 1,651 218 60 (1,929) - - Total revenues 134,229 114,125 30,422 (1,929) - 276,847 Gross profit 62,056 57,624 13,405 - - 133,085 Selling general and administrative 26,563 31,374 7,744 - 116 65,797 Operating income 35,493 26,250 5,661 - (116) 67,288 Three Months Ended June 30, 2001 Revenues: External customer 119,866 103,707 31,688 - - 255,261 Intersegment 1,666 345 103 (2,114) - - Total revenues 121,532 104,052 31,791 (2,114) - 255,261 Gross profit 57,784 52,768 13,875 - 124,427 Selling general and administrative 27,991 30,228 8,019 - 135 66,373 Operating income 29,793 22,540 5,856 - (135) 58,054
LabWare Clinical and Laboratory Diagnostics Life Sciences Equipment Elimination(a) Other (a) Total ----------- ------------- --------- -------------- --------- ----- Nine Months Ended June 30, 2002 Revenues: External customer $ 374,412 $ 318,040 $ 87,231 $ - $ - $ 779,683 Intersegment 4,597 714 281 (5,592) - - Total revenues 379,009 318,754 87,512 (5,592) - 779,683 Gross profit 175,754 159,840 37,709 - - 373,303 Selling general and administrative 77,579 87,855 21,175 - 482 187,091 Operating income 98,175 71,958 16,534 - (482) 186,212 Segment assets 970,408 764,189 166,640 - 138,100 2,039,337 Nine Months Ended June 30, 2001 Revenues: External customer 341,482 277,371 93,870 - - 712,723 Intersegment 5,070 982 378 (6,430) - - Total revenues 346,552 278,353 94,248 (6,430) - 712,723 Gross profit 164,700 143,250 41,000 - 349,010 Selling general and administrative 82,585 79,862 23,562 - (497) 185,512 Operating income 82,115 63,388 17,498 - 497 163,498
(a) Includes the elimination of intercompany and unallocated corporate office activity. 11 11. Condensed Consolidating Financial Statements The Company's material U.S. subsidiaries are guarantors to its Revolving Credit Facility and 8% Senior Notes. Each of the subsidiary guarantors is 100% owned by the Company. The guarantees are full and unconditional as well as joint and several. Below are the condensed consolidating balance sheets as of June 30, 2002 and September 30, 2001, statements of operations for the three and nine months ended June 30, 2002 and 2001, and statements of cash flows for the nine months ended June 30, 2002 and 2001, of Apogent Technologies Inc. and its subsidiaries, reflecting the subsidiary guarantors for the Revolving Credit Facility and 8% Senior Notes. For guarantors acquired during the period, the results of operations are included from the date of acquisition. Certain general corporate expenses have not been allocated to the subsidiaries, and are included under the Apogent Technologies Inc. heading. As a matter of course, the Company retains certain assets and liabilities at the corporate level that are not allocated to the subsidiaries including, but not limited to, certain employee benefit, insurance and tax liabilities. Income tax provisions for the subsidiaries are typically recorded using an estimate and finalized in total with an adjustment recorded at the corporate level. Certain debt under which Apogent Technologies Inc. is listed as the debtor has been allocated to the Guarantor subsidiaries. Intercompany balances include receivables/payables incurred in the normal course of business in addition to investments and loans transacted between subsidiaries or with Apogent Technologies Inc. 12 Condensed Consolidating Balance Sheets
As of June 30, 2002 ------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Assets ------ Current assets: Cash and cash equivalents $ 29,359 $ - $ 10,109 $ (4,859) $ 34,609 Accounts receivable, net - 156,378 38,440 - 194,818 Inventories, net 1,263 159,362 39,884 (5,332) 195,177 Other current assets 25,889 12,451 10,118 (5,393) 43,065 ----------- ------------ ----------- ------------ ------------ Total current assets 56,511 328,191 98,551 (15,584) 467,669 Property, plant and equipment, net 10,706 189,365 55,322 - 255,393 Intangible assets 12,639 997,433 227,442 - 1,237,514 Deferred income taxes 5,057 121 969 - 6,147 Investment in subsidiaries 2,092,584 66,631 - (2,159,215) - Other assets 58,095 13,502 1,017 - 72,614 ----------- ------------ ----------- ------------ ------------ Total assets $ 2,235,592 $ 1,595,243 $ 383,301 $ (2,174,799) $ 2,039,337 =========== ============ =========== ============ ============ Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 123 $ 42,809 $ 10,381 $ (4,859) $ 48,454 Current portion of long-term debt - 62,173 19 - 62,192 Income taxes payable - 61,070 7,392 (6,874) 61,588 Accrued expenses and other current liabilities 13,788 32,176 29,099 - 75,063 ----------- ------------ ----------- ------------ ------------ Total current liabilities 13,911 198,228 46,891 (11,733) 247,297 ----------- ------------ ----------- ------------ ------------ Long-term debt - 663,414 25 - 663,439 Securities lending agreement 54,698 - - - 54,698 Deferred income taxes 79,499 26,622 13,579 - 119,700 Other liabilities 2,739 3,528 1,554 - 7,821 Net intercompany payable/(receivable) 843,591 (1,056,487) 222,071 (9,175) - Commitments and contingent liabilities - Shareholders' equity Preferred stock - - - - - Common stock 1,069 - - - 1,069 Equity rights - - - - - Additional paid-in-capital 249,085 2,073,347 78,516 (2,131,391) 269,557 Retained earnings (deficit) 988,689 (313,409) 59,854 (22,500) 712,634 Other comprehensive income 2,311 - (39,189) - (36,878) Treasury stock (at cost) - - - - - ----------- ------------ ----------- ------------ ------------ Total shareholders' equity 1,241,154 1,759,938 99,181 (2,153,891) 946,382 ----------- ------------ ----------- ------------ ------------ Total liabilities and shareholders' equity $ 2,235,592 $ 1,595,243 $ 383,301 $ (2,174,799) $ 2,039,337 =========== ============ =========== ============ ============
13 Condensed Consolidating Balance Sheets - Continued
As of September 30, 2001 ------------------------ Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Assets ------ Current assets: Cash and cash equivalents $ 4,145 $ - $ 10,699 $ (5,652) $ 9,192 Accounts receivable, net - 146,981 36,297 - 183,278 Inventories, net 1,263 136,906 33,335 (4,068) 167,436 Other current assets 15,010 13,458 5,969 (406) 34,031 ----------- ----------- --------- ------------ ------------ Total current assets 20,418 297,345 86,300 (10,126) 393,937 Property, plant and equipment, net 9,553 169,032 45,102 - 223,687 Intangible assets 7,003 913,651 219,680 - 1,140,334 Deferred income taxes 6,147 - - - 6,147 Investment in subsidiaries 1,593,800 46,461 - (1,640,261) - Other assets 58,605 11,543 885 - 71,033 ----------- ----------- --------- ------------ ------------ Total assets $ 1,695,526 $ 1,438,032 $ 351,967 $ (1,650,387) $ 1,835,138 =========== =========== ========= ============ ============ Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 787 $ 46,802 $ 11,885 $ (5,652) $ 53,822 Current portion of long-term debt 378 73,228 36 - 73,642 Income taxes payable 33,432 - 6,638 (1,323) 38,747 Accrued expenses and other current liabilities 33,784 28,603 14,968 - 77,355 ----------- ----------- --------- ------------ ------------ Total current liabilities 68,381 148,633 33,527 (6,975) 243,566 ----------- ----------- --------- ------------ ------------ Long-term debt - 583,765 23 - 583,788 Securities lending agreement 55,072 - - - 55,072 Deferred income taxes 74,411 20,778 12,031 - 107,220 Other liabilities 3,231 2,453 1,318 - 7,002 Net intercompany payable/(receivable) 375,705 (599,911) 224,169 37 - Commitments and contingent liabilities - Shareholders' equity Preferred stock - - - - - Common stock 1,059 - - - 1,059 Equity rights - - - - - Additional paid-in-capital 234,166 1,561,854 80,265 (1,621,648) 254,637 Retained earnings (deficit) 880,299 (279,540) 48,684 (21,801) 627,642 Other comprehensive income 3,202 - (48,050) - (44,848) Treasury stock (at cost) - - - - - ----------- ----------- --------- ------------ ------------ Total shareholders' equity 1,118,726 1,282,314 80,899 (1,643,449) 838,490 ----------- ----------- --------- ------------ ------------ Total liabilities and shareholders' equity $ 1,695,526 $ 1,438,032 $ 351,967 $ (1,650,387) $ 1,835,138 =========== =========== ========= ============ ============
14 Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2002 ---------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $ - $237,526 $ 57,487 $(18,166) $276,847 Cost of sales - 127,572 34,353 (18,163) 143,762 -------- -------- -------- --------- -------- Gross profit - 109,954 23,134 (3) 133,085 Selling, general and administrative expenses 6,580 44,071 15,146 - 65,797 -------- -------- -------- --------- -------- Operating income (6,580) 65,883 7,988 (3) 67,288 Other income (expense): Interest expense - (10,223) (50) - (10,273) Other, net (2) 83 (76) - 5 -------- -------- -------- --------- -------- Income before income taxes and discontinued operation (6,582) 55,743 7,862 (3) 57,020 Income taxes (2,688) 20,625 2,909 - 20,846 -------- -------- -------- --------- -------- Income from continuing operations (3,894) 35,118 4,953 (3) 36,174 Loss from discontinued operation - (101) - - (101) -------- -------- -------- --------- -------- Net income $ (3,894) $ 35,017 $ 4,953 $ (3) $ 36,073 ======== ======== ======== ========= ========
For the Three Months Ended June 30, 2001 ---------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $ - $221,411 $ 49,457 $(15,607) $255,261 Cost of sales - 117,404 28,653 (15,223) 130,834 -------- -------- -------- --------- -------- Gross profit - 104,007 20,804 (384) 124,427 Selling, general and administrative expenses 7,154 47,360 11,859 - 66,373 -------- -------- -------- --------- -------- Operating income (7,154) 56,647 8,945 (384) 58,054 Other income (expense): Interest expense - (12,757) 40 - (12,717) Other, net (163) 114 156 - 107 -------- -------- -------- --------- -------- Income before income taxes, discontinued operations and extraordinary item (7,317) 44,004 9,141 (384) 45,444 Income taxes (3,540) 17,622 3,656 - 17,738 -------- -------- -------- --------- -------- Income from continuing operations before extraordinary item (3,777) 26,382 5,485 (384) 27,706 Discontinued operations - 397 - - 397 -------- -------- -------- --------- -------- Income before extraordinary item (3,777) 26,779 5,485 (384) 28,103 Extraordinary item - (1,361) - - (1,361) -------- -------- -------- --------- -------- Net income $ (3,777) $ 25,418 $ 5,485 $ (384) $ 26,742 ======== ======== ======== ========= ========
15 Condensed Consolidating Statements of Operations - Continued
For the Nine Months Ended June 30, 2002 --------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $ - $666,510 $166,623 $(53,450) $779,683 Cost of sales - 359,043 99,523 (52,186) 406,380 --------- -------- -------- -------- -------- Gross profit - 307,467 67,100 (1,264) 373,303 Selling, general and administrative expenses 21,521 124,166 41,404 - 187,091 --------- -------- -------- -------- -------- Operating income (21,521) 183,301 25,696 (1,264) 186,212 Other income (expense): Interest expense - (30,770) (34) - (30,804) Other, net (33) 625 (55) - 537 --------- -------- -------- -------- -------- Income before income taxes and discontinued operation (21,554) 153,156 25,607 (1,264) 155,945 Income taxes (9,066) 56,668 9,475 57,076 --------- -------- -------- -------- -------- Income from continuing operations (12,488) 96,488 16,132 (1,264) 98,869 Loss from discontinued operation - (13,877) - - (13,877) --------- -------- -------- -------- -------- Net income $ (12,488) $ 82,611 $ 16,132 $ (1,264) $ 84,992 ========= ======== ======== ======== ========
For the Nine Months Ended June 30, 2001 --------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $ - $623,450 $128,974 $(39,701) $712,723 Cost of sales - 326,896 75,257 (38,440) 363,713 --------- -------- -------- -------- -------- Gross profit - 296,554 53,717 (1,261) 349,010 Selling, general and administrative expenses 23,189 131,892 30,431 - 185,512 --------- -------- -------- -------- -------- Operating income (23,189) 164,662 23,286 (1,261) 163,498 Other income (expense): Interest expense - (37,134) 25 - (37,109) Other, net 3,622 1,744 (242) - 5,124 --------- -------- -------- -------- -------- Income before income taxes, discontinued operations and extraordinary item (19,567) 129,272 23,069 (1,261) 131,513 Income taxes (8,792) 51,741 9,228 - 52,177 --------- -------- -------- -------- -------- Income from continuing operations before extraordinary item (10,775) 77,531 13,841 (1,261) 79,336 Discontinued operations (11,824) 1,144 - - (10,680) --------- -------- -------- -------- -------- Income before extraordinary item (22,599) 78,675 13,841 (1,261) 68,656 Extraordinary item - (2,106) - - (2,106) --------- -------- -------- -------- -------- Net income $ (22,599) $ 76,569 $ 13,841 $ (1,261) $ 66,550 ========= ======== ======== ======== ========
16 Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended June 30, 2002 --------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Cash flows provided by operating activities: $18,758 $ 96,840 $ 4,117 $ - $ 119,715 ------- -------- ------- --- --------- Cash flows from investing activities: Capital expenditures (1,910) (20,985) (9,526) - (32,421) Proceeds from sales of property, plant and equipment 333 591 333 - 1,257 Net payments for businesses acquired - (142,117) - - (142,117) ------- -------- ------- --- --------- Net cash used in investing activities (1,577) (162,511) (9,193) - (173,281) ------- -------- ------- --- --------- Cash flows from financing activities: Proceeds from long-term debt - 585,200 - - 585,200 Principal payments on long-term debt - (510,655) (17) - (510,672) Proceeds from the exercise of stock options 8,407 - - - 8,407 Other (374) (8,081) - - (8,455) ------- -------- ------- --- --------- Net cash provided by (used in) financing activities 8,033 66,464 (17) - 74,480 Effect of exchange rate on cash and cash equivalents - - 4,503 - 4,503 ------- -------- ------- --- --------- Net increase (decrease) in cash and cash equivalents 25,214 793 (590) - 25,417 Cash and cash equivalents at beginning of year 4,145 (5,652) 10,699 - 9,192 ------- -------- ------- --- --------- Cash and cash equivalents at end of year $29,359 $ (4,859) $ 10,109 $ - $ 34,609 ======= ======== ======= === ========= Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ - $ 37,441 $ 260 $ - $ 37,701 ======= ======== ======= === ========= Income taxes $21,012 $ - $ 6,771 $ - $ 27,783 ======= ======== ======= === ========= Capital lease obligations incurred $ - $ 209 $ - $ - $ 209 ======= ======== ======= === =========
17 Condensed Consolidating Statements of Cash Flows - Continued
For the Nine Months Ended June 30, 2001 --------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Cash flows (used in) provided by operating activities: $(47,066) $ 144,410 $ 14,514 $ - $ 111,858 -------- ----------- -------- ------ ----------- Cash flows from investing activities: Capital expenditures (7,254) (22,360) (5,888) - (35,502) Proceeds from sales of property, plant and equipment 10,167 1,136 143 - 11,446 Net cash inflow from SDS 46,394 - - - 46,394 Net payments for businesses acquired - (136,709) (2,311) - (139,020) -------- ----------- -------- ------ ---------- Net cash provided by (used in) investing activities 49,307 (157,933) (8,056) - (116,682) -------- ----------- -------- ------ ---------- Cash flows from financing activities: Proceeds from long-term debt - 1,110,508 - - 1,110,508 Principal payments on long-term debt - (1,091,219) (32) - (1,091,251) Proceeds from the exercise of stock options 4,382 - - - 4,382 Other 489 (6,721) - - (6,232) -------- ----------- -------- ------ ---------- Net cash provided by (used in) financing activities 4,871 12,568 (32) - 17,407 Effect of exchange rate on cash and cash equivalents - - 1,826 - 1,826 -------- ----------- -------- ------ ---------- Net increase (decrease) in cash and cash equivalents 7,112 (955) 8,252 - 14,409 Cash and cash equivalents at beginning of year 7,086 (2,577) 7,902 - 12,411 -------- ----------- -------- ------ ---------- Cash and cash equivalents at end of year $ 14,198 $ (3,532) $ 16,154 $ - $ 26,820 ======== =========== ======== ====== =========== Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ - $ 25,323 $ 342 $ - $ 25,665 ======== =========== ======== ====== =========== Income taxes $ 19,106 $ 131 $ 1,910 $ - $ 21,147 ======== =========== ======== ====== =========== Capital lease obligations incurred $ - $ - $ - $ - $ - ======== =========== ======== ====== ===========
18 Condensed Consolidating Financial Statements - Continued A majority of the Company's material U.S. subsidiaries are guarantors to its CODES. However, certain recently acquired subsidiaries are guarantors under the 8% Senior Notes and Revolving Credit Facility but are currently non-guarantors under the CODES. This variation in guarantors may continue intermittently while our resale registration statement for the CODES remains effective with the Securities and Exchange Commission. Each of the subsidiary guarantors is 100% owned by the Company. The guarantees are full and unconditional as well as joint and several. Below are the condensed consolidating balance sheets as of June 30, 2002 and September 30, 2001, statements of operations for the three and nine months ended June 30, 2002 and 2001, and statements of cash flows for the nine months ended June 30, 2002 and 2001, of Apogent Technologies Inc. and its subsidiaries, reflecting the subsidiary guarantors for the CODES. Certain general corporate expenses have not been allocated to the subsidiaries, and are included under the Apogent Technologies Inc. heading. As a matter of course, the Company retains certain assets and liabilities at the corporate level that are not allocated to the subsidiaries including, but not limited to, certain employee benefit, insurance and tax liabilities. Income tax provisions for the subsidiaries are typically recorded using an estimate and finalized in total with an adjustment recorded at the corporate level. Certain debt under which Apogent Technologies Inc. is listed as the debtor has been allocated to the Guarantor subsidiaries. Intercompany balances include receivables/payables incurred in the normal course of business in addition to investments and loans transacted between subsidiaries or with Apogent Technologies Inc. 19 Condensed Consolidating Balance Sheets
As of June 30, 2002 ------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Assets ------ Current assets: Cash and cash equivalents $ 29,359 $ - $ 10,238 $ (4,988) $ 34,609 Accounts receivable, net - 150,066 44,752 - 194,818 Inventories, net 1,263 152,702 46,544 (5,332) 195,177 Other current assets 25,889 12,107 10,462 (5,393) 43,065 ---------- ----------- -------- ----------- ---------- Total current assets 56,511 314,875 111,996 (15,713) 467,669 Property, plant and equipment, net 10,706 172,586 72,101 - 255,393 Intangible assets 12,639 925,047 299,828 - 1,237,514 Deferred income taxes 5,057 121 969 - 6,147 Investment in subsidiaries 2,092,584 66,631 - (2,159,215) - Other assets 58,095 13,502 1,017 - 72,614 ---------- ----------- -------- ----------- ---------- Total assets $2,235,592 $ 1,492,762 $485,911 $(2,174,928) $2,039,337 ========== =========== ======== =========== ========== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 123 $ 41,025 $ 12,294 $ (4,988) $ 48,454 Current portion of long-term debt - 62,173 19 - 62,192 Income taxes payable - 60,908 7,554 (6,874) 61,588 Accrued expenses and other current liabilities 13,788 31,295 29,980 - 75,063 ---------- ----------- -------- ----------- ---------- Total current liabilities 13,911 195,401 49,847 (11,862) 247,297 ---------- ----------- -------- ----------- ---------- Long-term debt - 663,414 25 - 663,439 Securities lending agreement 54,698 - - - 54,698 Deferred income taxes 79,499 21,102 19,099 - 119,700 Other liabilities 2,739 3,528 1,554 - 7,821 Net intercompany payable/(receivable) 843,591 (1,124,374) 289,958 (9,175) - Commitments and contingent liabilities - Shareholders' equity Preferred stock - - - - - Common stock 1,069 - - - 1,069 Equity rights - - - - - Additional paid-in-capital 249,085 2,047,342 104,521 (2,131,391) 269,557 Retained earnings (deficit) 988,689 (313,651) 60,096 (22,500) 712,634 Other comprehensive income 2,311 - (39,189) - (36,878) Treasury stock (at cost) - - - - - ---------- ----------- -------- ----------- ---------- Total shareholders' equity 1,241,154 1,733,691 125,428 (2,153,891) 946,382 ---------- ----------- -------- ----------- ---------- Total liabilities and shareholders' equity $2,235,592 $ 1,492,762 $485,911 $(2,174,928) $2,039,337 ========== =========== ======== =========== ==========
20 Condensed Consolidating Balance Sheets - Continued
As of September 30, 2001 ------------------------ Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Assets ------ Current assets: Cash and cash equivalents $ 4,145 $ - $ 10,699 $ (5,652) $ 9,192 Accounts receivable, net - 146,981 36,297 - 183,278 Inventories, net 1,263 136,906 33,335 (4,068) 167,436 Other current assets 15,010 13,458 5,969 (406) 34,031 ---------- ---------- -------- ----------- ---------- Total current assets 20,418 297,345 86,300 (10,126) 393,937 Property, plant and equipment, net 9,553 169,032 45,102 - 223,687 Intangible assets 7,003 913,651 219,680 - 1,140,334 Deferred income taxes 6,147 - - - 6,147 Investment in subsidiaries 1,593,800 46,461 - (1,640,261) - Other assets 58,605 11,543 885 - 71,033 ---------- ---------- -------- ----------- ---------- Total assets $1,695,526 $1,438,032 $351,967 $(1,650,387) $1,835,138 ========== ========== ======== =========== ========== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 787 $ 46,802 $ 11,885 $ (5,652) $ 53,822 Current portion of long-term debt 378 73,228 36 - 73,642 Income taxes payable 33,432 - 6,638 (1,323) 38,747 Accrued expenses and other current liabilities 33,784 28,603 14,968 - 77,355 ---------- ---------- -------- ----------- ---------- Total current liabilities 68,381 148,633 33,527 (6,975) 243,566 ---------- ---------- -------- ----------- ---------- Long-term debt - 583,765 23 - 583,788 Securities lending agreement 55,072 - - - 55,072 Deferred income taxes 74,411 20,778 12,031 - 107,220 Other liabilities 3,231 2,453 1,318 - 7,002 Net intercompany payable/(receivable) 375,705 (599,911) 224,169 37 - Commitments and contingent liabilities - Shareholders' equity Preferred stock - - - - - Common stock 1,059 - - - 1,059 Equity rights - - - - - Additional paid-in-capital 234,166 1,561,854 80,265 (1,621,648) 254,637 Retained earnings (deficit) 880,299 (279,540) 48,684 (21,801) 627,642 Other comprehensive income 3,202 - (48,050) - (44,848) Treasury stock (at cost) - - - - - ---------- ---------- -------- ----------- ---------- Total shareholders' equity 1,118,726 1,282,314 80,899 (1,643,449) 838,490 ---------- ---------- -------- ----------- ---------- Total liabilities and shareholders' equity $1,695,526 $1,438,032 $351,967 $(1,650,387) $1,835,138 ========== ========== ======== =========== ==========
21 Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2002 ---------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $ - $227,126 $67,887 $(18,166) $276,847 Cost of sales - 120,643 41,282 (18,163) 143,762 -------- -------- ------- -------- -------- Gross profit - 106,483 26,605 (3) 133,085 Selling, general and administrative expenses 6,580 42,162 17,055 - 65,797 -------- -------- ------- -------- -------- Operating income (6,580) 64,321 9,550 (3) 67,288 Other income (expense): Interest expense - (10,223) (50) - (10,273) Other, net (2) 83 (76) - 5 -------- -------- ------- -------- -------- Income before income taxes and discontinued operation (6,582) 54,181 9,424 (3) 57,020 Income taxes (2,688) 20,047 3,487 - 20,846 -------- -------- ------- -------- -------- Income from continuing operations (3,894) 34,134 5,937 (3) 36,174 Loss from discontinued operation - (101) - - (101) -------- -------- ------- -------- -------- Net income $ (3,894) $ 34,033 $ 5,937 $ (3) $ 36,073 ======== ======== ======= ======== ========
For the Three Months Ended June 30, 2001 ---------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $ - $221,411 $49,457 $(15,607) $255,261 Cost of sales - 117,404 28,653 (15,223) 130,834 -------- -------- ------- -------- -------- Gross profit - 104,007 20,804 (384) 124,427 Selling, general and administrative expenses 7,154 47,360 11,859 - 66,373 -------- -------- ------- -------- -------- Operating income (7,154) 56,647 8,945 (384) 58,054 Other income (expense): Interest expense - (12,757) 40 - (12,717) Other, net (163) 114 156 - 107 -------- -------- ------- -------- -------- Income before income taxes, discontinued operations and extraordinary item (7,317) 44,004 9,141 (384) 45,444 Income taxes (3,540) 17,622 3,656 - 17,738 -------- -------- ------- -------- -------- Income from continuing operations before extraordinary item (3,777) 26,382 5,485 (384) 27,706 Discontinued operations - 397 - - 397 -------- -------- ------- -------- -------- Income before extraordinary item (3,777) 26,779 5,485 (384) 28,103 Extraordinary item - (1,361) - - (1,361) -------- -------- ------- -------- -------- Net income $ (3,777) $ 25,418 $ 5,485 $ (384) $ 26,742 ======== ======== ======= ======== ========
22 Condensed Consolidating Statements of Operations - Continued
For the Nine Months Ended June 30, 2002 --------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $ - $653,286 $179,847 $(53,450) $779,683 Cost of sales - 350,373 108,193 (52,186) 406,380 --------- -------- -------- -------- -------- Gross profit - 302,913 71,654 (1,264) 373,303 Selling, general and administrative expenses 21,521 121,978 43,592 - 187,091 --------- -------- -------- -------- -------- Operating income (21,521) 180,935 28,062 (1,264) 186,212 Other income (expense): Interest expense - (30,770) (34) - (30,804) Other, net (33) 625 (55) - 537 --------- -------- -------- -------- -------- Income before income taxes and discontinued operation (21,554) 150,790 27,973 (1,264) 155,945 Income taxes (9,066) 55,792 10,350 57,076 --------- -------- -------- -------- -------- Income from continuing operations (12,488) 94,998 17,623 (1,264) 98,869 Loss from discontinued operation - (13,877) - - (13,877) --------- -------- -------- -------- -------- Net income $(12,488) $ 81,121 $ 17,623 $ (1,264) $ 84,992 ========= ======== ======== ======== ========
For the Nine Months Ended June 30, 2001 --------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $ - $623,450 $128,974 $(39,701) $712,723 Cost of sales - 326,896 75,257 (38,440) 363,713 --------- -------- -------- -------- -------- Gross profit - 296,554 53,717 (1,261) 349,010 Selling, general and administrative expenses 23,189 131,892 30,431 - 185,512 --------- -------- -------- -------- -------- Operating income (23,189) 164,662 23,286 (1,261) 163,498 Other income (expense): Interest expense - (37,134) 25 - (37,109) Other, net 3,622 1,744 (242) - 5,124 --------- -------- -------- -------- -------- Income before income taxes, discontinued operations and extraordinary item (19,567) 129,272 23,069 (1,261) 131,513 Income taxes (8,792) 51,741 9,228 - 52,177 --------- -------- -------- -------- -------- Income from continuing operations before extraordinary item (10,775) 77,531 13,841 (1,261) 79,336 Discontinued operations (11,824) 1,144 - - (10,680) --------- -------- -------- -------- -------- Income before extraordinary item (22,599) 78,675 13,841 (1,261) 68,656 Extraordinary item - (2,106) - - (2,106) --------- -------- -------- -------- -------- Net income $(22,599) $ 76,569 $ 13,841 $ (1,261) $ 66,550 ========= ========= ======== ======== ========
23 Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended June 30, 2002 --------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Cash flows provided by operating activities: $18,758 $ 96,678 $ 4,279 $ - $119,715 ------- --------- ------- ----- -------- Cash flows from investing activities: Capital expenditures (1,910) (20,953) (9,558) - (32,421) Proceeds from sales of property, plant and equipment 333 591 333 - 1,257 Net payments for businesses acquired - (142,117) - - (142,117) ------- --------- ------- ----- -------- Net cash used in investing activities (1,577) (162,479) (9,225) - (173,281) ------- --------- ------- ----- -------- Cash flows from financing activities: Proceeds from long-term debt - 585,200 - - 585,200 Principal payments on long-term debt - (510,655) (17) - (510,672) Proceeds from the exercise of stock options 8,407 - - - 8,407 Other (374) (8,081) - - (8,455) ------- --------- ------- ----- -------- Net cash provided by (used in) financing activities 8,033 66,464 (17) - 74,480 Effect of exchange rate on cash and cash equivalents - - 4,503 - 4,503 ------- --------- ------- ----- -------- Net increase (decrease) in cash and cash equivalents 25,214 663 (460) - 25,417 Cash and cash equivalents at beginning of year 4,145 (5,652) 10,699 - 9,192 ------- --------- ------- ----- -------- Cash and cash equivalents at end of year $29,359 $ (4,989) $10,239 $ - $ 34,609 ======= ========= ======= ===== ======== Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ - $ 37,441 $ 260 $ - $ 37,701 ======= ========= ======= ===== ======== Income taxes $21,012 $ - $ 6,771 $ - $ 27,783 ======= ========= ======= ===== ======== Capital lease obligations incurred $ - $ 209 $ - $ - $ 209 ======= ========= ======= ===== ========
24 Condensed Consolidating Statements of Cash Flows - Continued
For the Nine Months Ended June 30, 2001 --------------------------------------- Non Apogent Guarantor Guarantor (In thousands) Technologies Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Cash flows (used in) provided by operating activities: $(47,066) $ 144,410 $14,514 $ - $ 111,858 Cash flows from investing activities: Capital expenditures (7,254) (22,360) (5,888) - (35,502) Proceeds from sales of property, plant and equipment 10,167 1,136 143 - 11,446 Net cash inflow from SDS 46,394 - - - 46,394 Net payments for businesses acquired - (136,709) (2,311) - (139,020) -------- ----------- ------- ----- ----------- Net cash provided by (used in) investing activities 49,307 (157,933) (8,056) - (116,682) -------- ----------- ------- ----- ----------- Cash flows from financing activities: Proceeds from long-term debt - 1,110,508 - - 1,110,508 Principal payments on long-term debt - (1,091,219) (32) - (1,091,251) Proceeds from the exercise of stock options 4,382 - - - 4,382 Other 489 (6,721) - - (6,232) -------- ----------- ------- ----- ----------- Net cash provided by (used in) financing activities 4,871 12,568 (32) - 17,407 Effect of exchange rate on cash and cash equivalents - - 1,826 - 1,826 -------- ----------- ------- ----- ----------- Net increase (decrease) in cash and cash equivalents 7,112 (955) 8,252 - 14,409 Cash and cash equivalents at beginning of year 7,086 (2,577) 7,902 - 12,411 -------- ----------- ------- ----- ----------- Cash and cash equivalents at end of year $ 14,198 $ (3,532) $16,154 $ - $ 26,820 ======== ============ ======= ===== =========== Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ - $ 25,323 $ 342 $ - $ 25,665 ======== ============ ======= ===== =========== Income taxes $ 19,106 $ 131 $ 1,910 $ - $ 21,147 ======== ============ ======= ===== =========== Capital lease obligations incurred $ - $ - $ - $ - $ - ======== ============ ======= ===== ===========
25 Item 2. Management's Discussion and Analysis of Financial Condition and Result of Operations ------------------------------------------------------------------------ General The subsidiaries of Apogent are leading manufacturers of value-added products for the clinical diagnostics, labware and life sciences, and laboratory equipment markets in the United States and abroad. Apogent provides products under three business segments - clinical diagnostics, labware and life Sciences, and laboratory equipment. The primary subsidiaries in each of our business segments are as follows: Clinical Diagnostics Labware and Life Sciences -------------------- ------------------------- Applied Biotech, Inc. Advance Biotechnologies Ltd. Capitol Vial, Inc. BioRobotics Group Limited Chase Scientific Glass, Inc. Matrix Technologies Corporation Erie Electroverre S.A. Marsh BioProducts Erie Scientific Company Molecular BioProducts, Inc. Forefront Diagnostics, Inc. Nalge Nunc International Corporation Gerhard Menzel Glasbearbeitungswerk Nalge Nunc International K.K. GmbH & Co. K.G. National Scientific Company Microgenics Corporation Nunc A/S Microm International GmbH NERL Diagnostics Laboratory Equipment The Naugatuck Glass Company -------------------- Richard-Allan Scientific Company Remel Inc. Barnstead Thermolyne Corporation Samco Scientific Corporation Electrothermal Engineering, Ltd. Lab-Line Instruments, Inc. Genevac Limited When we use the terms "we" or "our" in this report, we are referring to Apogent Technologies Inc. and its subsidiaries. Our fiscal year ends on September 30, and accordingly, all references to quarters refer to our fiscal quarters. The quarters ended June 30, 2002 and 2001 are the Company's third quarters of fiscal 2002 and 2001, respectively. This "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended September 30, 2001. During the year the Company changed its reporting business segments by moving its Genevac subsidiary from the labware and life sciences segment to the laboratory equipment segment. This change aligns the Company's financial reporting with the management of its operational activity. All historical financial information for the three and nine months ended June 30, 2001 has been restated to reflect this change. 26 Results of Operations Summary Net Sales for the quarter ended June 30, 2002 were $276.8 million, an increase of $21.6 million or 8% over the corresponding fiscal 2001 quarter. Net sales for the nine months ended June 30, 2002 were $779.7 million, an increase of $67.0 million or 9% over the corresponding fiscal 2001 period. The Company continues to see a decline in existing product sales within its Laboratory Equipment business, which in turn contributes to a decline in gross profit and operating income for that business segment. Also, the Company's Life Sciences Instruments business, included in Labware and Life Sciences, continues to experience weakness in sales, and the Company expects this weakness to continue. Gross Profit for the three and nine months ended June 30, 2002 was $133.1 million and $373.3 million, respectively, representing increases of $8.7 million and $24.3 million over the corresponding fiscal 2001 periods. Selling, general and administrative expenses for the three and nine months ended June 30, 2002 were $65.8 million and $187.1 million, respectively, as compared to $59.0 million and $163.9 million in the corresponding fiscal 2001 periods (had the Company adopted SFAS 142 as of October 1, 2000). Operating income and net income for the three months ended June 30, 2002 were $67.3 million and $36.1 million, respectively, and for the nine months ended June 30, 2002 were $186.2 million and $85.0 million, respectively. Had the Company adopted SFAS 142 as of October 1, 2000, operating income and net income for the three months ended June 30, 2001 would have been $65.4 million and $32.5 million, respectively, and for the nine months ended June 30, 2001 would have been $185.1 million and $82.2 million, respectively. During March 2002, management made the decision to dispose of its vacuum deposition chamber business, Vacuum Process Technology, Inc. ("VPT"). The decision was made following the slow-down in the telecommunications industry, in which VPT targets a majority of its products, and as a result, the business no longer met the Company's strategic requirements. In connection with the discontinuance of this business, the Company incurred a one-time charge of $13.2 million, net of income tax benefit of $7.6 million related to the write down of net assets to their estimated realizable value. The decision to sell VPT represents a disposal of long-lived assets and disposal group under Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Accordingly, results of this business have been classified as discontinued operations, and prior periods have been restated. In the event the Company ultimately disposes of VPT for an amount less than the carrying value of the business, an additional charge will be recognized upon disposal. For the three and nine months ended June 30, 2002, losses from the operations of VPT, net of tax, were $0.1 million and $0.7 million, respectively. Quarter Ended June 30, 2002 Compared to the Quarter Ended June 30, 2001
Net Sales (in thousands) Fiscal Fiscal Dollar Percent 2002 2001 Change Change --------- --------- -------- -------- Clinical Diagnostics $ 132,578 $ 119,866 $ 12,712 11% Labware and Life Sciences 113,907 103,707 10,200 10% Laboratory Equipment 30,362 31,688 (1,326) -4% --------- --------- -------- $ 276,847 $ 255,261 $ 21,586 8% ========= ========= ========
Overall Company. Net sales for the quarter ended June 30, 2002 increased by $21.6 million or 8% over the corresponding fiscal 2001 quarter. 27 Clinical Diagnostics. Increased net sales in the clinical diagnostics segment resulted primarily from: (a) net sales of products of acquired companies (approximately $12.1 million), (b) price increases (approximately $4.9 million), (c) increased net sales of new products developed by us (approximately $1.3 million), and (d) foreign currency fluctuations (approximately $0.5 million). Net sales were partially reduced by a decrease in net sales of existing products (approximately $6.1 million). Labware and Life Sciences. Increased net sales in the labware and life sciences segment resulted primarily from: (a) net sales of products of acquired companies (approximately $8.8 million), (b) increased net sales of new products developed by us (approximately $3.3 million), and (c) foreign currency fluctuations (approximately $0.8 million). Net sales were partially reduced by: (a) a decrease in net sales of existing products (approximately $2.0 million) and (b) price decreases (approximately $0.7 million). Laboratory Equipment. Reduced net sales in the laboratory equipment segment resulted primarily from a decrease in net sales of existing products (approximately $3.3 million). Net sales were partially increased by: (a) an increase in net sales of new products developed by us (approximately $1.1 million), (b) price increases (approximately $0.8 million), and (c) foreign currency fluctuations (approximately $0.1 million).
Gross Profit (in thousands) Fiscal Percent Fiscal Percent Dollar Percent 2002 of Sales 2001 of Sales Change Change ---------- ---------- ---------- ---------- -------- --------- Clinical Diagnostics $ 62,056 47% $ 57,784 48% $ 4,272 7% Labware and Life Sciences 57,624 51% 52,768 51% 4,856 9% Laboratory Equipment 13,405 44% 13,875 44% (470) -3% ---------- ---------- -------- $ 133,085 48% $ 124,427 49% $ 8,658 7% ========== ========== ========
Overall Company. Gross profit for the quarter ended June 30, 2002 increased by $8.7 million or 7% over the corresponding fiscal 2001 quarter. Clinical Diagnostics. Increased gross profit in the clinical diagnostics segment resulted primarily from: (a) price increases (approximately $4.9 million), (b) product mix (approximately $4.8 million), (c) the effects of acquired companies (approximately $4.4 million), (d) the effects of new products (approximately $0.8 million), (e) lower inventory write-downs (approximately $0.4 million), and (f) foreign currency fluctuations (approximately $0.2 million). Gross profit was partially reduced by: (a) decreased volume (approximately $5.7 million), (b) increased manufacturing overhead (approximately $5.3 million), and (c) restructuring charges (approximately $0.3 million). Labware and Life Sciences. Increased gross profit in the labware and life sciences segment resulted primarily from: (a) product mix (approximately $5.4 million), (b) the effects of acquired companies (approximately $2.9 million), (c) the effects of new products (approximately $2.0 million), (d) foreign currency fluctuations (approximately $0.7 million), and (e) lower inventory write-downs (approximately $0.5 million). Gross profit was partially reduced by: (a) decreased volume (approximately $4.3 million), (b) restructuring charges (approximately $1.1 million), (c) increased manufacturing overhead (approximately $0.7 million), and (d) price decreases (approximately $0.7 million). Laboratory Equipment. Decreased gross profit in the laboratory equipment segment resulted primarily from: (a) decreased volume (approximately $1.0 million) and (b) increased manufacturing overhead (approximately $0.7 million). Gross profit was partially increased by: (a) price increases (approximately $0.8 million), (b) the effects of new products (approximately $0.3 million), and (c) foreign currency fluctuations (approximately $0.1 million). 28
Selling, General, and Administrative Expenses (in thousands) Fiscal Fiscal Dollar Percent 2002 2001 Change Change -------- --------- --------- -------- Clinical Diagnostics $ 26,563 $ 27,991 $ (1,428) -5% Labware and Life Sciences 31,374 30,228 1,146 4% Laboratory Equipment 7,744 8,019 (275) -3% -------- --------- --------- Subtotal 65,681 66,238 (557) -1% Other 116 135 (19) -------- --------- --------- Total $ 65,797 $ 66,373 $ (576) -1% ======== ========= =========
Overall Company. Selling, general and administrative expenses for the quarter ended June 30, 2002 decreased by $0.6 million over the corresponding fiscal 2001 quarter. Adoption of SFAS 142 would have decreased selling, general and administrative expenses by $7.4 million for the three months ended June 30, 2001 had it been effective at the time. Clinical Diagnostics. Decreased selling, general and administrative expenses in the clinical diagnostics segment resulted primarily from: (a) a decrease in amortization expense as a result of the implementation of Statement No. 142, "Goodwill and Other Intangible Assets" (SFAS 142) - see Note 1 to the Unaudited Consolidated Financial Statements (approximately $3.5 million) and (b) marketing expenses (approximately $0.4 million). Selling, general and administrative expenses were partially increased by: (a) acquired businesses (approximately $1.7 million), (b) research and development expenses (approximately $0.5 million), (c) foreign currency fluctuations (approximately $0.2 million), and (d) general and administrative expenses (approximately $0.1 million). Labware and Life Sciences. Increased selling, general and administrative expenses in the labware and life sciences segment resulted primarily from: (a) marketing expenses (approximately $2.3 million), (b) acquired businesses (approximately $2.0 million), (c) foreign currency fluctuations (approximately $0.8 million), and (d) research and development expense (approximately $0.1 million). Selling, general and administrative expenses were partially reduced by: (a) decreased amortization expense as a result of SFAS142 (approximately $2.4 million), and (b) general and administrative expenses (approximately $1.6 million). Laboratory Equipment. Decreased selling, general and administrative expenses in the laboratory equipment segment resulted primarily from: (a) decreased amortization expense as a result of SFAS 142 (approximately $0.7 million) and (b) general and administrative expenses (approximately $0.3 million). Selling, general and administrative expenses were partially increased by: (a) marketing expenses (approximately $0.5 million) and (b) foreign currency fluctuations (approximately $0.3 million).
Operating Income (in thousands) Fiscal Fiscal Dollar Percent 2002 2001 Change Change -------- --------- --------- -------- Clinical Diagnostics $ 35,493 $ 29,793 $ 5,700 19% Labware and Life Sciences 26,250 22,540 3,710 16% Laboratory Equipment 5,661 5,856 (195) -3% -------- --------- --------- Subtotal 67,404 58,189 9,215 16% Other (116) (135) 19 -------- --------- --------- Total $ 67,288 $ 58,054 $ 9,234 16% ======== ========= =========
Operating income for the quarter ended June 30, 2002 increased by $9.2 million over the corresponding fiscal 2001 quarter. Adoption of SFAS 142 would have increased operating income to $65.4 million for the fiscal 2001 quarter, had it been effective at the time. 29 Restructuring In June 2002, the Company recorded a restructuring charge of approximately $1.4 million (approximately $0.9 million net of tax) relating to the charge incurred in the second quarter of fiscal 2002 for the consolidation of certain facilities, and discontinuance of certain product lines due to product rationalizations. The restructuring charge was classified as a component of cost of sales and related to the write-off of inventory, write-offs of fixed assets, and severance associated with employees in production activities. Restructuring activity is as follows:
(in thousands) Fixed Facility Severance Inventory Assets Closure Costs (a) (b) (b) (c) Other Total ---------- ------------ ----------- --------------- ------- ------- 2002 Second quarter restructuring charge $ 1,200 $ 2,400 $ 300 $ 1,400 $ - $ 5,300 2002 Third quarter charge 300 1,000 100 - - 1,400 2002 Cash payments 900 - - 500 - 1,400 2002 Non-cash charges - 900 200 - - 1,100 ------- ------- ------ ------- ---- ------- June 30, 2002 balance $ 600 $ 2,500 $ 200 $ 900 - $ 4,200 ======= ======= ====== ======= ==== =======
(a) Amount represents severance and termination costs for 126 terminated employees (primarily sales, marketing and manufacturing personnel). As of June 30, 2002, 35 employees have been terminated as a result of the restructuring plan. (b) Amount represents write-offs of inventory and fixed assets associated with discontinued product lines. (c) Amount represents lease payments and other facility closure costs on exited operations. Interest Expense Interest expense was $10.3 million for the quarter ended June 30, 2002, as compared to $12.7 million for the corresponding fiscal 2001 quarter. The decrease is the result of lower average interest rates, offset in part by an increase in average debt levels. Other Income Other income was $0.9 million for the quarter ended June 30, 2002, as compared to other income of $0.2 million in the corresponding fiscal 2001 quarter. This increase is primarily due to income of $0.8 million from a joint venture. Income Taxes Taxes on income from continuing operations for the quarter ended June 30, 2002 were $20.8 million, an increase of $3.1 million from the corresponding fiscal 2001 quarter. This increase resulted primarilyfrom an increase in taxable income offset in part by a decrease in the effective tax rate due to the implementation of SFAS 142. Income from Continuing Operations Income from continuing operations for the quarter ended June 30, 2002 was $36.2 million, an increase of $8.5 million from the corresponding fiscal 2001 quarter. Adoption of SFAS 142 would have increased income from continuing operations to $33.5 million for the fiscal 2001 quarter, had it been effective at the time. Discontinued Operations The loss from the discontinued operations for the quarter ended June 30, 2002 was a result of an operating loss from VPT of $0.1 million, net of tax. 30 Net Income Net income was $36.1 million for the quarter ended June 30, 2002 as compared to $26.7 million for the corresponding fiscal 2001 quarter. Adoption of SFAS 142 would have increased net income to $32.5 million for the fiscal 2001 quarter, had it been effective at the time. Nine Months Ended June 30, 2002 Compared to the Nine Months Ended June 30, 2001
Net Sales (in thousands) Fiscal Fiscal Dollar Percent 2002 2001 Change Change --------- --------- -------- -------- Clinical Diagnostics $ 374,412 $ 341,482 $ 32,930 10% Labware and Life Sciences 318,040 277,371 40,669 15% Laboratory Equipment 87,231 93,870 (6,639) -7% --------- --------- -------- $ 779,683 $ 712,723 $ 66,960 9% ========= ========= ========
Overall Company. Net sales for the nine months ended June 30, 2002 increased by $67.0 million or 9% over the corresponding fiscal 2001 period. Clinical Diagnostics. Increased net sales in the clinical diagnostics segment resulted primarily from: (a) net sales of products of acquired companies (approximately $25.3 million), (b) price increases (approximately $13.1 million), (c) increased net sales of new products developed by us (approximately $4.9 million), and (d) foreign currency fluctuations (approximately $0.3 million). Net sales were partially reduced by a decrease in net sales of existing products (approximately $10.7 million). Labware and Life Sciences. Increased net sales in the labware and life sciences segment resulted primarily from: (a) net sales of products of acquired companies (approximately $33.4 million), (b) increased net sales of new products developed by us (approximately $8.2 million), and (c) price increases (approximately $2.4 million). Net sales were partially reduced by: (a) a decrease in net sales of existing products (approximately $2.5 million) and (b) foreign currency fluctuations (approximately $0.9 million). Laboratory Equipment. Reduced net sales in the laboratory equipment segment resulted primarily from a decrease in net sales of existing products (approximately $9.9 million). Net sales were partially increased by: (a) price increases (approximately $1.7 million) and (b) increased net sales of new products developed by us (approximately $1.6 million).
Gross Profit (in thousands) Fiscal Percent Fiscal Percent Dollar Percent 2002 of Sales 2001 of Sales Change Change ---------- ---------- ---------- ---------- --------- --------- Clinical Diagnostics $ 175,754 47% $ 164,700 48% $ 11,054 7% Labware and Life Sciences 159,840 50% 143,250 52% 16,590 12% Laboratory Equipment 37,709 43% 41,060 44% (3,351) -8% ---------- ---------- $ 373,303 48% $ 349,010 49% $ 24,293 7% ========== ==========
Overall Company. Gross profit for the nine months ended June 31, 2002 increased by $24.3 million or 7% over the corresponding fiscal 2001 period. Clinical Diagnostics. Increased gross profit in the clinical diagnostics segment resulted primarily from: (a) price increases (approximately $13.1 million), (b) the effects of acquired companies (approximately $10.2 million), (c) product mix (approximately $ 3.2 million), (d) lower inventory write-downs (approximately $3.1 million), (e) the effects of new products (approximately $2.8 million), and (f) foreign currency fluctuations (approximately $0.2 million). Gross profit was partially reduced by: (a) 31 decreased volume (approximately $10.7 million), (b) increased manufacturing overhead (approximately $9.3 million), and (d) restructuring charges (approximately $1.6 million). Labware and Life Sciences. Increased gross profit in the labware and life sciences segment resulted primarily from: (a) product mix (approximately $11.3 million), (b) the effects of acquired companies (approximately $10.2 million), (c) the effects of new products (approximately $4.1 million), and (d) price increases (approximately $2.4 million). Gross profit was partially reduced by: (a) restructuring charges (approximately $3.8 million), (b) decreased volume (approximately $3.7 million), (c) increased manufacturing overhead (approximately $2.8 million), (d) foreign currency fluctuations (approximately $0.8 million), and (e) inventory write-downs (approximately $0.3 million). Laboratory Equipment. Decreased gross profit in the laboratory equipment segment resulted primarily from: (a) decreased volume (approximately $4.4 million) and (b) increased manufacturing overhead (approximately $2.1 million). Gross profit was partially increased by: (a) price increases (approximately $1.8 million), (b) the effects of new products (approximately $0.6 million), (c) product mix (approximately $0.4 million), and (d) lower inventory write-downs (approximately $0.2 million).
Selling, General, and Administrative Expenses (in thousands) Fiscal Fiscal Dollar Percent 2002 2001 Change Change --------- --------- --------- -------- Clinical Diagnostics $ 77,579 $ 82,585 $ (5,006) -6% Labware and Life Sciences 87,855 79,862 7,993 10% Laboratory Equipment 21,175 23,562 (2,387) -10% --------- --------- --------- Subtotal 186,609 186,009 600 0% Other 482 (497) 979 --------- --------- --------- Total $ 187,091 $ 185,512 $ 1,579 1% ========= ========= =========
Overall Company. Selling, general and administrative expenses for the nine months ended June 30, 2002 increased by $1.6 million over the corresponding fiscal 2001 period. Adoption of SFAS 142 would have decreased selling, general and administrative expenses by $21.6 million for the nine months ended June 30, 2001 had it been effective at the time. Clinical Diagnostics. Decreased selling, general and administrative expenses in the clinical diagnostics segment resulted primarily from a decrease in amortization expense as a result of the implementation of SFAS 142 (approximately $11.4 million). Selling, general and administrative expenses were partially increased by: (a) acquired businesses (approximately $2.0 million), (b) marketing expenses (approximately $1.3 million), (c) research and development expenses (approximately $1.3 million), (d) general and administrative expenses (approximately $1.1 million), (e) restructuring charges (approximately $0.6 million), and (f) foreign currency fluctuations (approximately $0.1 million). Labware and Life Sciences. Increased selling, general and administrative expenses in the labware and life sciences segment resulted primarily from: (a) acquired businesses (approximately $7.9 million), (b) marketing expenses (approximately $5.0 million), (c) research and development expense (approximately $1.0 million), (d) restructuring charges (approximately $0.4 million), and (e) foreign currency fluctuations (approximately $0.3 million). Selling, general and administrative expenses were partially reduced by: (a) decreased amortization expense as a result of SFAS 142 (approximately $6.3 million) and (b) general and administrative expenses (approximately $0.3 million). Laboratory Equipment. Decreased selling, general and administrative expenses in the laboratory equipment segment resulted primarily from: (a) decreased amortization expense as a result of SFAS 142 (approximately $1.8 million) and (b) general and administrative expenses (approximately $1.1 million). 32 Selling, general and administrative expenses were partially increased by: (a) marketing expenses (approximately $0.3 million), (b) research and development expense (approximately $0.2 million), and (c) foreign currency fluctuations (approximately $0.2 million).
Operating Income (in thousands) Fiscal Fiscal Dollar Percent 2002 2001 Change Change --------- --------- --------- -------- Clinical Diagnostics $ 98,175 $ 82,115 $ 16,060 20% Labware and Life Sciences 71,985 63,388 8,597 14% Laboratory Equipment 16,534 17,498 (964) -6% --------- --------- --------- Subtotal 186,694 163,001 23,693 15% Other (482) 497 (979) --------- --------- --------- Total $ 186,212 $ 163,498 $ 22,714 14% ========= ========= =========
Operating income for the nine months ended June 31, 2002 increased by $22.7 million over the corresponding fiscal 2001 period. Adoption of SFAS 142 would have increased operating income to $185.1 million for the nine months ended June 30, 2001, had it been effective at the time. Interest Expense Interest expense was $ 30.8 million for the nine months ended June 30, 2002, as compared to $37.1 million for the corresponding fiscal 2001 period. The decrease is the result of lower average interest rates offset in part by an increase in average debt levels. Other Income Other income was $3.2 million for the nine months ended June 30, 2002, as compared to other income of $5.5 million in the corresponding fiscal 2001 period. This decrease is primarily due to gains on the sales of assets of approximately $4.4 million included in other income for the nine months ended June 30, 2001,offset in part by income of approximately $2.9 million from a joint venture included in other income for the nine months ended June 30, 2002. Income Taxes Taxes on income from continuing operations for the nine months ended June 30, 2002 were $57.1 million, an increase of $4.9 million from the corresponding fiscal 2001 period. This increase resulted primarily from increased taxable earnings offset in part by lower effective tax rates resulting from the implementation of SFAS 142. Income from Continuing Operations Before Extraordinary Items Income from continuing operations before extraordinary items for the nine months ended June 30, 2002 was $98.9 million, as compared to $79.3 million for the corresponding fiscal 2002 period. Adoption of SFAS 142 would have increased income from continuing operations to $95.0 million for the fiscal 2001 period, had it been effective at the time. Discontinued Operations The loss from the discontinued operations for the nine months ended June 30, 2002 was a result of an operating loss from VPT of $0.7 million and an estimated loss on sale of VPT of $13.2 million. For the corresponding fiscal 2001 period, the loss from discontinued operations was a result of a loss from the distribution of Sybron Dental Specialties of $11.8 million, offset by operating income from VPT of $1.1 million. Net Income Net income was $85.0 million for the nine months ended June 30, 2002 as compared to $66.6 million for the corresponding fiscal 2001 period. Adoption of SFAS 142 would have increased net income to $82.2 million for the fiscal 2001 period, had it been effective at the time. 33 Liquidity and Capital Resources As a result of the acquisition of our predecessor in 1987 and the acquisitions we completed since 1987, we have increased the carrying value of certain tangible and intangible assets consistent with accounting principles generally accepted in the United States. Accordingly, our results of operations include a significant level of non-cash expenses related to the depreciation of fixed assets and the amortization of intangible assets. Goodwill and intangible assets, net of amortization, increased by approximately $97 million during the first nine months of 2002, primarily as a result of continued acquisition activity. However, the non-cash amortization expense relating to intangible assets and goodwill has been reduced substantially following the adoption of SFAS 142 on October 1, 2001. Our capital requirements arise principally from indebtedness incurred in connection with our obligation to pay rent under the Sale/Leaseback facility (as defined herein), our working capital needs, primarily related to inventory and accounts receivable, our capital expenditures, primarily related to purchases of machinery and molds, the purchase of various businesses and product lines in execution of our acquisition strategy, and the periodic expansion and/or acquisition of physical facilities. Approximately $119.7 million of cash was generated from operating activities in the first nine months of fiscal 2002, an increase of $7.8 million or 7.0% from the corresponding fiscal 2001 period. Non-cash depreciation and amortization charged against net income decreased approximately $13.8 million, primarily as a result of the adoption of SFAS 142. The cash outflow resulting from the net change in working capital, net of the effects of acquisitions and divestitures, was $27.9 million for the first nine months of fiscal 2002. These changes are set forth in detail in the Consolidated Statements of Cash Flows. Investing activities in the first nine months of fiscal 2002 used approximately $173.3 million of cash. This outflow was due primarily to cash used for acquisitions of $142.1 million. Capital expenditures were$32.4 million for the first nine months of fiscal 2002, compared to $35.5 million in the corresponding fiscal 2001 period. Financing activities provided approximately $74.5 million of cash in the first nine months of fiscal 2002. Proceeds from our CODES offering (discussed below) were used to pay off approximately $208 million outstanding on the Revolving Credit Facility. Financing fees of $8.1 million were paid in connection with the CODES offering. On October 10, 2001, the Company issued $300 million of senior convertible contingent debt securities (CODES). The CODES have a fixed interest rate of 2.25% per annum. Interest is payable on April 15 and October 15 of each year, beginning April 15, 2002. The Company will also pay contingent interest during any six-month period if the average trading price of the CODES during a specified period of five trading days preceding the relevant six-month period is above specified levels. The CODES will mature on October 15, 2021. The CODES are convertible, subject to certain conditions (based on specified factors) including but not limited to the sale price of the Company's common stock, trading prices of the CODES, maintenance of the Company's credit ratings, and the occurrence of specified corporate transactions), into Apogent Common Stock at a price of approximately $30.49 per share. The Company may redeem some or all of the CODES on or after October 20, 2004. The holders may require the Company to purchase all or a portion of their CODES on October 20, 2004 and on October 15, 2006, 2011 and 2016, or subject to specified exceptions, upon a change of control event. Certain of the Company's U.S. subsidiaries guarantee the Company's obligations under the CODES. The proceeds from the issuance were used to repay the outstanding balance on our Revolving Credit Facility, and for general corporate purposes. As of June 30, 2002 there was $28.4 million and $430.3 million outstanding and available on the Revolving Credit Facility, respectively. The CODES, 8% Senior Notes, and Revolving Credit Facility all contain certain cross default provisions. Some of these provisions include financial and operating covenants which, if not met, could cause acceleration of payments on outstanding balances. The covenants include, among other things; 34 restrictions on investments, requirements that the Company maintain certain financial ratios, requirements that the Company maintain certain credit ratings, restrictions on the ability of the Company and its subsidiaries to create or permit liens, or to pay dividends or make other restricted payments (as defined), and limitations on incurrence of additional indebtedness. The Company is not aware of any violations of these covenants and does not anticipate any such violations in light of current business conditions. The Company has announced the authorization of a stock repurchase program of up to two million shares of Apogent common stock within the next two years. Shares will be repurchased at times and prices deemed appropriate to the Company. The Company will use cash generated from operations as well as available credit facilities in order to repurchase these shares. The Company believes that it will continue to be able to meet its present and foreseeable capital and liquidity needs from its existing resources. Application of Critical Accounting Policies In connection with the Company's transitional impairment test for SFAS 142, fair market valuations were performed for each of the reporting units. These valuations required certain assumptions from management regarding future operating performance as well as various industry trends. Fluctuations in these assumptions could have a material impact on the values ascribed to the reporting units and could result in an indication of impairment. These assumptions include, but are not limited to, estimated future cash flows, estimated sales growth, and weighted average cost of capital for each of the reporting units. In order to make informed assumptions, management relied on certain public information and statistical and industry information as well as internal forecasts to determine the various assumptions. In the event that industry, general economic and company trends change, these assumptions will change and impact the calculated fair market values. The Company has three defined benefit pension plans covering a significant number of domestic employees. Accounting for these plans requires the use of actuarial assumptions including estimates on the expected long-term rate of return on assets and discount rates. In order to make informed assumptions management relies on outside actuarial experts as well as public market data and general economic information. If changes in any of these assumptions occur, they may materially affect certain amounts reported on the Company's balance sheet. In particular, a decrease in the expected long-term rate of return on plan assets could result in an increase in the Company's pension liability and a charge to equity. Off-Balance Sheet Arrangements The Company holds a minority interest in an unconsolidated joint venture that is accounted for as an equity investment. The Company owns less than 50% of the underlying joint venture. As of June 30, 2002 the equity investment in this entity, included in "Other Assets", was approximately $9.0 million. Net income from the joint venture for the first nine months of fiscal 2002 was approximately $2.9 million and is included in "Other Income". The joint venture is limited to the extent it can incur any debt other than trade payables arising out of its business activities and does not hold any assets other than inventory and trade receivables. As of June 30, 2002, the joint venture did not have any debt other than trade payables arising out of its business activities. 35 Disclosures About Contractual Obligations and Commercial Commitments In its day-to-day business activities, the Company incurs certain obligations and commitments to make future payments under contracts such as debt and lease agreements. Maturities of these obligations are set forth in the following table (in millions):
Payments Due by Period ---------------------- Less than After 5 Contractual Obligations Total 1 Year 1 - 3 Years 4 - 5 Years Years ----------------------- ----- ---------- ----------- ----------- ------- Long-Term Debt $ 725.6 $ 62.2 $ 28.3 $ 1.2 $ 633.9 Capital Lease Obligations 0.6 0.3 0.3 - - Operating Leases 51.6 9.6 21.9 8.5 11.6 Unconditional Purchase Obligations 15.0 2.5 6.5 3.0 3.0 Other Long-Term Obligations None ------- ------ ------ ------ ------- Total Contractual Cash Obligations $ 817.7 $ 86.0 $ 70.5 $ 12.7 $ 648.5 ------- ------ ------ ------ -------
Amount of Commitment Expiration Per Period Total ------------------------------------------ Amounts Less Than Over 5 Other Commercial Commitments Committed 1 Year 1 - 3 Years 4 - 5 Years Years ---------------------------- --------- ----------- ----------- ----------- ------------ Lines of Credit $ 28.4 $28.4 $ - $ - $ - Standby Letters of Credit 41.3 30.8 10.5 Guarantees None (1) Standby Repurchase Obligations None Other Commercial Commitments None ------- ----- ------ ----- ----- Total Commercial Commitments $ 118.6 $45.5 $ 73.1 $ - $ - ------- ----- ------ ----- -----
(1) Certain of the Company's domestic subsidiaries are guarantors under the Company's Revolving Credit Facility, 8% Senior Notes, and CODES. 36 Cautionary Factors This report contains various forward-looking statements concerning our prospects that are based on the current expectations and beliefs of management. We may also make forward-looking statements from time to time in other reports and documents as well as oral presentations. When used in written documents or oral statements, the words "anticipate," "believe," "continue," "estimate," "goal," "expect," "objective," "outlook" and similar expressions are intended to identify forward-looking statements. The statements contained herein and such future statements involve or may involve certain assumptions, risks and uncertainties, many of which are beyond our control, that could cause our actual results and performance to differ materially from what is expected. In addition to the assumptions and other factors referenced specifically in connection with such statements, the following factors could materially adversely affect our business financial condition, results of operations and prospects: Our holding company structure increases financial risks. We are organized as a holding company, with all of our net sales generated through our subsidiaries. Consequently, our operating cash flow and ability to service indebtedness depend in part upon the operating cash flow of our foreign subsidiaries and the payment of funds by them to us in the form of loans, dividends or otherwise. Their ability to pay dividends and make loans, advances and other payments to us depends upon statutory or other contractual restrictions that apply, which may include requirements to maintain minimum levels of working capital and other assets. Our international operations pose currency and other risks. We have significant operations outside the United States, where a significant portion of our revenue is generated. We are therefore subject to risk factors affecting our international operations, including relevant foreign currency exchange rates, which can affect the cost of our products or the ability to sell our products in foreign markets, and the value in U.S. dollars of sales made in foreign currencies. Other factors include our ability to obtain effective hedges against fluctuations in currency exchange rates; foreign trade, monetary and fiscal policies; laws, regulations and other activities of foreign governments, agencies and similar organizations; risks associated with having major manufacturing facilities located in countries that have historically been less stable than the United States in several respects, including fiscal and political stability; and risks associated with an economic downturn in other countries. In addition, world events can increase the volatility of the currency markets, and such volatility could affect our financial results. Our failure to keep pace with the technological demands of our customers or with the products and services offered by our competitors could significantly harm our business. Some of the industries served by our products are characterized by rapid technological changes and new product introductions. Some of our competitors may invest more heavily in research or product development than we do. Successful new product offerings depend upon a number of factors, including our ability to: o accurately anticipate customer needs; o innovate and develop new technologies and applications; o successfully commercialize new products in a timely manner; o price our products competitively and manufacture and deliver our products in sufficient volumes and on time; and o differentiate our offerings from those of our competitors. If we do not introduce new products in a timely manner and make enhancements to meet the changing needs of our customers, some of our products could become obsolete over time, in which case our customer relationships, revenue, and operating results would suffer. Our operating results may suffer if the industries into which we sell our products are in downward cycles. Some of the industries and markets into which we sell our products are cyclical. Any significant downturn in our customers' markets or in general economic conditions could result in reduced demand for our products and could harm our business. When a downturn occurs, it is difficult to predict if and when a turnaround will occur. 37 Future acquisitions may not be available or may create transitional challenges. A significant portion of our growth over the past several years has been achieved through our acquisition program. Our rate of continued growth is therefore subject to factors affecting our ability to continue pursuing our current acquisition strategy and to be successful with that strategy. These factors include the cost of the capital required to effect our acquisition strategy, the availability of suitable acquisition candidates at reasonable prices, competition for appropriate acquisition candidates, our ability to realize the synergies expected to result from acquisitions, our ability to successfully transition and absorb acquired businesses, our ability to retain key personnel in connection with acquisitions, and the ability of our existing personnel to efficiently handle increased transitional responsibilities resulting from acquisitions. We may incur restructuring or impairment charges that would reduce our earnings. We have in the past and may in the future restructure some of our operations. In such circumstances, we may take actions that would result in a charge and reduce our earnings. These restructurings have or may be undertaken to realign our subsidiaries, eliminate duplicative functions, rationalize our operating facilities and products and reduce our staff. These restructurings may be implemented to improve the operations of recently acquired subsidiaries as well as subsidiaries that have been part of our operations for many years. Additionally, on October 1, 2001 we adopted SFAS 142, "Goodwill and Other Intangible Assets," which requires that goodwill and intangible assets that have an indefinite useful life be tested at least annually for impairment. The Company has performed its initial impairment tests and the results indicate no circumstances of impaired goodwill, but future impairment may occur at any time. We rely heavily upon sales to key distributors and original equipment manufacturers, and could lose sales if any of them stop doing business with us. Our three most significant distributors represent a significant portion of our revenues. Our reliance on major independent distributors for a substantial portion of our sales subjects our sales performance to volatility in demand from distributors. We can experience volatility when distributors merge or consolidate, when inventories are not managed to end-user demand, or when distributors experience softness in their sales or make alternate sourcing decisions. We rely primarily upon the long-standing and mutually beneficial nature of our relationships with our key distributors, rather than on contractual rights, to protect these relationships. Volatility in end-user demand can also arise with large OEM customers to whom we sell directly. The loss of a substantial contract could adversely affect our business. Sales to our OEM customers are sometimes unpredictable and wide variances sometimes occur quarter to quarter. We could be injured by disruptions of our manufacturing operations. We rely upon our manufacturing operations to produce most of the products we sell. Any significant disruption of those operations for any reason, such as the movement of operations from one facility to another, strikes, labor disputes or other labor unrest, power interruptions, fire, war, or other force majuere, could adversely affect our sales, ability to manufacture product, and customer relationships and therefore adversely affect our business. For example, the supply of white glass, which is used in our clinical diagnostics segment's worldwide, manufacturing operations, comes solely from our glass manufacturing facility in Switzerland. Risks include delays encountered in connection with the periodic rebuilding of the sheet glass furnace or furnace malfunctions. Although most of our raw materials are available from a number of potential suppliers, our operations also depend upon our ability to obtain raw materials at reasonable prices. The success of many of our products depends on the effectiveness of our patents, trademarks, and licenses to defend our intellectual property rights. Our success with many of our products depends, in part, on our ability to protect our current and future innovative products and to defend our intellectual property rights. Our subsidiaries' products are sold under a variety of trademarks and trade names. They own or license all of the trademarks and trade names we believe to be material to the operation of their businesses. We also rely upon a combination of non-disclosure and other contractual agreements and trade secret, copyright, patent, and trademark laws to protect our intellectual property rights. Disputes may arise concerning the ownership of intellectual 38 property or the applicability of confidentiality agreements. If we fail to adequately protect our intellectual property, competitors may manufacture and market products similar to ours. We could be hurt by product liability claims or other litigation. Our business is subject to the risks of claims involving our products and facilities (past and present) and other legal and administrative proceedings, including the expense of investigating, litigating and settling any claims. Although we currently maintain insurance against some of these risks, uninsured losses could occur. Our business is subject to regulatory risks. Our ability to continue manufacturing and selling those of our products that are subject to regulation by the United States Food and Drug Administration or other domestic or foreign governments or agencies is subject to a number of risks. In the future, some of our products may be affected by the passage of stricter laws or regulations, reclassification of our products into categories subject to more stringent requirements, delay or inability to validate production facilities or processes, or the withdrawal of approvals needed to sell one or more of our products. Some of our products are affected by general levels of insurance and reimbursement. The demand for and pricing of some of our products can be affected by changing levels of public and private health care budgets, including reimbursement by private or governmental insurance programs. We could be harmed by the loss of key management. The success of our operations depends in significant part upon the experience and expertise of our management team, both within Apogent and in our operating subsidiaries. Any loss of these key personnel could harm our business. We sometimes experience quarterly variations in our operating results. Our business is subject to quarterly variations in operating results caused by a number of factors, including business and industry conditions, timing of acquisitions, distribution and OEM customer issues, and other factors listed here. All these factors make it difficult to predict operating results for any particular period. Other risks may arise. We may be subject to risks arising from other business and investment considerations that may be disclosed from time to time in our Securities and Exchange Commission filings or in other publicly available written documents. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 39 Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- There has been no substantial change in market risk to the Company since September 30, 2001, the end of our prior fiscal year. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: See Exhibit Index following the Signature page in this report, which is incorporated herein by reference. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. APOGENT TECHNOLOGIES INC. ------------------------------------------ (Registrant) Date: August 13, 2002 /s/ JEFFREY C. LEATHE - --------------------------- ------------------------------------------ Jeffrey C. Leathe Executive Vice President - Finance, Chief Financial Officer and Treasurer* * Executing as both the principal financial officer and a duly authorized officer of the Company 40 APOGENT TECHNOLOGIES INC. (the "Registrant") (Commission File No. 1-11091) EXHIBIT INDEX to QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
Filed or Exhibit Submitted Number Description Incorporated Herein By Reference To Herewith - -------- --------------------------------- ----------------------------------- -------- 10.1 Employment Agreement between X Apogent Technologies Inc. and Robert V. Ahlgren, dated April 1, 2002. 10.2 Indemnification Agreement between X Apogent Technologies Inc. and Robert V. Ahlgren, dated April 1, 2002. 12 Computation of ratio of earnings X to fixed charges 99.1 Certification Pursuant to 18 X U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO) 99.2 Certification Pursuant to 18 X U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO)
41 EX-10.1 3 dex101.txt EMPLOYMENT AGREEMENT EXHIBIT 10.1 EMPLOYMENT AGREEMENT This Agreement is made and entered into as of April 1, 2002, between Apogent Technologies Inc., a Wisconsin corporation ("Employer" or "Company"), and Robert V. Ahlgren ("Employee"). W I T N E S S E T H: WHEREAS, Employer desires to retain the services of Employee and is willing to do so upon the terms and conditions set forth herein; and WHEREAS, Employee desires to be employed by Employer upon the terms and conditions set forth herein; NOW, THEREFORE, Employee and Employer, in consideration of the agreements, covenants and conditions herein, hereby agree as follows: 1. Basic Employment Provisions. --------------------------- (a) Employment and Term. Employer hereby employs Employee as Group President - Labware and Life Sciences and Employee agrees to be employed by Employer in such capacity, for a period commencing on the date hereof and continuing thereafter until terminated, by one of the means provided herein, by the Employee or Employer. (b) Duties. Employee shall, as the Group President - Labware and Life Sciences, be subject to the direction and supervision of the President of Employer, or such other persons as determined by the President. Employee shall have those duties and responsibilities that are commensurate with his position and assigned to him by the President, which duties Employee shall faithfully perform to the best of his abilities. Employee's services shall be performed primarily at the offices of the Company's subsidiary, Nalge Nunc International Corporation, which are currently located in Rochester, New York. Employee shall be required to devote his full working time to the performance of his duties hereunder. 2. Compensation. ------------ (a) Salary. ------ (i) As base compensation for the services to be rendered by Employee hereunder, Employer shall to pay to Employee an initial annual base salary at the rate of $320,000 per year. Such salary shall accrue and be payable in accordance with the payroll practices of Employer in effect from time to time. All such payments shall be subject to any deductions and withholdings required by applicable law. (ii) While he continues to be employed by Employer, Employee shall be eligible for consideration for merit salary increases. Such increases shall be at the sole discretion of the Employer and nothing herein contained shall be construed as granting Employee a vested right to any such increases. (iii) If during his employment, Employee fails to perform his duties on account of illness or other incapacity, his base salary will be reduced by the amount of any statutory disability benefits and disability income benefits which he receives. (b) Benefits. In addition to his salary, Employee shall be entitled, while -------- employed by Employer, to such employee benefits and other benefits as are customarily accorded the executives of Employer, including without limitation participation in pension, stock option, bonus and other incentive plans, group life, hospitalization, vacations, other welfare or insurance plans, relocation plans, and automobile plans ("Benefit Plans"). (c) Expense Reimbursement. During his employment, Employer shall reimburse --------------------- Employee, upon the submission of properly documented expense account reports, for all reasonable travel and entertainment expenses incurred by Employee in the course of his employment with Employer. 3. Termination of Employment. ------------------------- (a) Termination by Employee. ----------------------- (i) Except as provided in Section 3(a)(ii), Employee may terminate his employment with Employer for any reason, at any time, by providing Employer with a written notice, at least forty-five (45) days in advance of the termination date, of his desire to terminate his employment. (ii) In the event a Potential Change in Control of the Company, as hereinafter defined, occurs, Employee may not voluntarily terminate his employment with the Company pursuant to subsection (i) above for a period of six (6) months following the initial occurrence of a Potential Change in Control of the Company. If more than one Potential Change in Control of the Company occurs during the term of this Agreement, the provisions of the preceding sentence shall be applicable to each Potential Change in Control of the Company occurring prior to the occurrence of a Change in Control. (iii) Employee may terminate his employment with Employer for Good Reason at any time within sixty (60) days of the event constituting Good Reason by providing Employer with a written notice, at least forty-five (45) days in advance of the termination date, of his desire to terminate his employment. (iv) Employee may terminate his employment with Employer in the event of a Constructive Termination Event, at any time within sixty (60) days of said Constructive Termination Event, by providing Employer with a written notice, at least forty-five (45) days in advance of the termination date, of his desire to terminate his employment. For purposes hereof, "Constructive Termination Event" means (a) the assignment to Employee of any duties materially inconsistent with his status as Group President - Labware and Life Sciences, his removal from the position of Group President - Labware and Life Sciences, or a diminution in the nature or status of Employee's responsibilities; (b) a reduction by the Company in Employee's annual base salary; and/or (c) the failure by the Company to continue to provide Employee with benefits substantially 2 similar to those enjoyed by Employee under any of the Benefit Plans in which Employee was participating, unless such changes apply to all Company executives. (b) Termination by Employer. ----------------------- (i) Employer may terminate Employee's employment with Employer, at any time other than following a Change of Control or in anticipation of a Change of Control, without cause, by providing Employee with a written notice, at least ninety (90) days in advance of the termination date, of its desire to terminate Employee's employment. (ii) Employer may terminate Employee's employment with Employer for cause, at any time, with or without advance notice. For the purposes of this Agreement, "cause" shall be deemed to be a willful and material breach of this Agreement, fraud, dishonesty, competition with Employer or any subsidiary or affiliate of Employer, unauthorized use of Employer's or any of its subsidiaries' or affiliates' trade secrets or confidential information or continued gross neglect by Employee of the duties assigned to him (if such neglect or breach continues for 30 days after written notice by the President of Employer to Employee specifying the duties being neglected or the breach of this Agreement by Employee). (iii) Employer may terminate the Employee's employment with Employer, at any time, with or without advance notice, upon the total disability of the Employee. For the purpose of this Agreement, "total disability" shall be deemed to have occurred if Employee shall have been unable to perform his duties hereunder due to mental or physical incapacity for a period of six consecutive months. (iv) Employer may terminate Employee's employment with Employer, at anytime following a Change of Control or in anticipation of a Change of Control without cause, by providing Employee with a written notice, at least ninety (90) days in advance of the termination date, of its desire to terminate Employee's employment. (c) Termination due to Death. Employee's employment with Employer shall ------------------------ terminate automatically upon the death of Employee. 4. Compensation Upon Termination. ----------------------------- (a) If Employee's employment is terminated pursuant to Sections 3(a)(iv), 3(b)(i), 3(b)(iii) or 3(c), Employee (if living), or Employee's spouse (if the employment was terminated because of the death of Employee and Employee's spouse survives him), or Employee's estate (if the employment was terminated because of the death of Employee and Employee's spouse does not survive him), shall be entitled to receive, and Employer shall pay, in addition to any other benefits provided to them or Employee hereunder or under any of the Benefit Plans, (i) from the date the employment terminates, Employee's then current monthly base salary for a period twelve (12) months; (ii) an amount equal to one year's bonus, based on the annual average of Employee's bonus(es) for the preceding three (3) fiscal years, payable in a single lump sum within thirty (30) days of employment termination; and (iii) an amount equal to the incentive award that would have been earned by the Employee under the Senior Executive Incentive Compensation Plan (or its successor bonus plan/program) for the fiscal year in which the Employee's employment is terminated; multiplied, however, by the percentage equal to the percentage of the fiscal year in 3 which the Employee was actively employed. The payment of this amount shall be made at the same time as the payment to other Company employees of the incentive award is made for the fiscal year in which the Employee's employment is terminated. Additionally, for a 12-month period after termination of Employee's employment, the Company shall arrange to provide Employee, if available under the Benefit Plans, or if not, pay to Employee an amount equal to Employer's costs of, life, disability, accident, health insurance, and other "executive" benefits substantially similar to those which Employee was receiving or entitled to receive immediately prior to the termination. (b) If Employee's employment is terminated pursuant to Section 3(a)(i) or 3(b)(ii) or because of Employee's violation of 3(a)(ii), no further compensation shall be paid to Employee after the date of termination (other than base compensation earned up to the date of termination, exclusive of bonus); provided, however, that the rights of Employee under any of the Benefit Plans shall be determined by the terms of the applicable plan. (c) Compensation in the event of Employee's termination pursuant to Section 3(a)(iii) or 3(b)(iv) is addressed in Section 5(b) below. 5. Further Definitions; Change in Control. -------------------------------------- (a) Definitions. For purposes of this Agreement, the following words and ----------- phrases shall have the meaning ascribed to them. (i) "Change in Control" shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a Change in Control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; (B) during any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals, who at the beginning of such period constitute the Board and any new director added during the period whose election to the Board or nomination for election to the Board by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was approved prior to the beginning of the period, cease for any reason to constitute a majority of the Board; (C) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (D) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. For purposes hereof, "Company" includes the ultimate parent of the Company ("Parent"), if applicable. 4 (ii) "Good Reason" shall mean the occurrence, following a Change in Control or in anticipation of a Change of Control, without Employee's express written consent, of any of the following circumstances unless, in the case of subsections (1), (5), (6), (7), or (8) of this Section 5(a)(ii), such circumstances are fully corrected prior to the date of termination specified in the notice given in respect thereof: (1) the assignment to Employee of any duties materially inconsistent with his status as Group President - Labware and Life Sciences, his removal from the position of Group President - Labware and Life Sciences, or a diminution in the nature or status of Employee's responsibilities; (2) a proposed reduction by the Company in Employee's annual base salary; (3) the relocation of the executive office in which Employee is located to a location more than fifteen miles therefrom except for required travel on the business of the Company and its subsidiaries to an extent substantially consistent with Employee's present business travel obligations; (4) the failure by the Company to pay to Employee any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven (7) days of the date such compensation is due; (5) the failure by the Company to continue in effect any compensation plan in which Employee participates, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made in such plan, or the failure by the Company to continue Employee's participation therein on the same basis, both in terms of the amount of compensation provided and the level of Employee's participation relative to other participants; (6) the failure by the Company to continue to provide Employee with benefits at least as favorable as those enjoyed by Employee under any of the Benefit Plans in which Employee was participating, or the taking of any action by the Company or any of its subsidiaries which would directly or indirectly materially reduce any of the benefits provided by any of the Benefit Plans or deprive Employee of any material fringe benefit enjoyed by him; (7) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 7 hereof; or (8) any purported termination of Employee's employment that is not effected pursuant to a proper notice of termination satisfying the requirements of this Agreement; for purposes of this Agreement, no such purported termination shall be effective. A Change in Control of the Company shall not, by itself, constitute Good Reason. (iii) "Potential Change in Control of the Company" shall mean the occurrence of one or more of the following events: (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (B) any person publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in 5 Control; or (C) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential Change in Control of the Company has occurred. (iv) "Severance Payment" shall mean an amount equal to 2.0 times the sum of (A) Employee's annual base salary in effect at the time notification of termination is provided plus (B) the greater of (x) 200% of the "target" incentive Award that could have been earned by Employee under the Senior Executive Incentive Compensation Plan (or its successor bonus plan/program) for the fiscal year in which Employee's employment is terminated (or such comparable amount in the event of a different bonus plan) or (y) Employee's average annual bonus and incentive compensation for the three complete fiscal years of the Company immediately preceding the date of termination. (b) Payments. -------- (i) Upon the termination of his employment (A) by Employer following a Change in Control or in anticipation of a Change of Control as described in Section 3(b)(iv), or (B) by Employee for Good Reason as described in Section 3(a)(iii), Employee shall be entitled to the following payments and benefits unless such termination is effective more than eighteen (18) months following the occurrence of the Change in Control. (1) The Company shall pay Employee his full base salary, in effect at the time notification of the termination is provided, through the date of termination. The salary payments shall accrue and be payable in accordance with the payroll practices of Employer in effect at the time of termination. All such payments shall be subject to any deductions and withholdings required by applicable law. This payment shall be deemed to be earned as of the last day of the Employee's employment hereunder. (2) The Company shall pay Employee an amount equal to the greater of (A) the incentive award that would have been earned by the Employee under the Senior Executive Incentive Compensation Plan (or its successor bonus plan/program) for the fiscal year in which the Employee's employment is terminated or (B) 200% of the "target" incentive Award that could have been earned by Employee under the Senior Executive Incentive Compensation Plan (or its successor bonus plan/program) for the fiscal year in which Employee's employment is terminated (or such comparable amount in the event of a different bonus plan); multiplied, however, by the percentage equal to the percentage of the fiscal year in which the Employee was actively employed. The payment of this amount shall be made at the same time as the payment of the incentive award is made for the fiscal year in which the Employee's employment is terminated. This payment shall be deemed to be earned as of the last day of the Employee's employment hereunder. (3) The Company shall pay to Employee all amounts to which Employee is entitled under any of the Benefit Plans. Any payments due under a Benefit Plan shall be made at the time the payments are due under the terms of the Benefit Plan. (4) The Company shall pay to Employee the Severance Payment no later than the fifth day following the termination. 6 (5) For a twenty-four (24) month period after termination of Employee's employment, the Company shall arrange to provide Employee with life, disability, accident and health insurance benefits substantially similar to those which Employee was receiving or entitled to receive immediately prior to the termination. Benefits otherwise receivable by Employee pursuant to this Section 5(b)(i)(5) shall be reduced to the extent comparable benefits are actually received by Employee during the twenty-four (24) month period following Employee's termination, and any such benefits actually received by Employee shall be reported to the Company. (c) Mitigation. Employee shall not be required to mitigate the amount ---------- of any payment provided for in this Section 5 by seeking other employment or otherwise nor shall the amount of any payment or benefit provided for in this Section 5 be reduced by any compensation earned by Employee as the result of employment by another employer or by retirement benefits received after the date of termination, or otherwise except as specifically provided in this Section 5. 6. Certain Additional Payments by the Company. ------------------------------------------ (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 6(c), all determinations required to be made under this Section 6, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by such certified public accounting firm as may be designated by the Employee (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within thirty (30) business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Company to the Employee within thirty (30) days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event 7 that the Company exhausts its remedies pursuant to Section 6(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) Give the Company any information reasonably requested by the Company relating to such claim, (ii) Take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) Cooperate with the Company in good faith in order effectively to contest such claim, and (iv) Permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. 8 (d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 6(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 6(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 6(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 7. Assignment. ---------- (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Employee to compensation from the Company in the same amount and on the same terms as Employee would be entitled hereunder if Employee had terminated his employment for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amount would still be payable to him hereunder if Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's spouse or, if there is no spouse, to Employee's estate. 8. Confidential Information. ------------------------ (a) Non-Disclosure. During Employee's employment or at any time -------------- thereafter, irrespective of the time, manner or cause of the termination of this Agreement, Employee will not directly or indirectly, reveal, divulge, disclose or communicate to any person or entity other than authorized officers, directors and employees of Employer, in any manner whatsoever, any Confidential Information (as hereinafter defined) of Employer without the prior written consent of the Company, except in connection with the fulfillment of his duties hereunder. (b) Definition. As used herein, "Confidential Information" means ---------- information disclosed to or known by Employee as a direct or indirect consequence of or through his association with Employer and its subsidiaries and affiliates, about Employer or any subsidiary or affiliate of Employer, their businesses, products and practices, including but not limited to trade secrets, know- 9 how, technical information, and financial information, which information is not generally known in the business in which Employer or any subsidiary of Employer is or may become engaged. However, Confidential Information shall not include any information which is (i) available to the public from a source other than Employee, (ii) released in writing by Employer to the public or to persons who are not under a similar obligation of confidentiality to Employer and who are not parties to this Agreement, (iii) obtained by Employee from a third party not under a similar obligation of confidentiality to Employer, or (iv) required to be disclosed by any court process or any government or agency or department of any government. (c) Return of Property. Upon termination of Employee's employment, ------------------ Employee will surrender to Employer all Confidential Information, including without limitation, all lists, charts, schedules, reports, financial statements, books and records of Employer and all subsidiaries and affiliates of Employer, and all copies thereof, and all other property belonging to Employer and all subsidiaries and affiliates of Employer, provided that Employee shall be accorded reasonable access to such materials subsequent thereto for any proper purpose as determined in the reasonable judgment of Employer. 9. Agreement Not to Solicit Employees. Employee agrees that, for a period ---------------------------------- of three (3) years following the termination of his employment, neither he nor any affiliate shall, either alone or on behalf of any business engaged in a business competitive with Employer or any subsidiary of Employer, solicit or induce, or in any manner attempt to solicit or induce, any person employed by, an agent of, Employer or any subsidiary of Employer to terminate his or its employment, agency, or business relationship, as the case may be, with the Employer or such subsidiary. 10. Assignment of Inventions. Employee agrees that he will assign to ------------------------ Employer or its appropriate subsidiary all inventions, discoveries and improvements relating to its lines of business, conceived or made by him solely or jointly with others during his employment, and to execute, upon request, whether during his employment or thereafter, any and all applications for patents, assignments and other papers which Employer or its counsel may deem necessary or appropriate for securing to it in all countries, exclusive rights in all such inventions, discoveries and improvements. 11. Noncompetition. During the term of Employee's employment with the -------------- Company and for a one-year period thereafter (unless Employee's employment is terminated pursuant to Section 3(b)(iv)), Employee will not, directly or indirectly, within the Territory described below: (a) engage in, continue in or carry on any business which competes with the business conducted by the Company, including owning or controlling any financial interest in any corporation, partnership, firm or other form of business organization which is so engaged; (b) consult with, advise or assist in any way, whether or not for consideration, any corporation, partnership, firm or other business organization which is a competitor of the Company in any aspect with respect to the business conducted by the Company including, but not limited, to, advertising or otherwise endorsing the products of any such competitor; soliciting customers or otherwise serving as an intermediary for any such competitor; loaning money or rendering any other form of financial assistance to or engaging in any similar form of business transaction with any such competitor; provided, however, the foregoing prohibition does not extend to passive ownership of less than 1% of the outstanding stock of any entity whose stock is traded on an established stock exchange or quoted on NASDAQ. For purposes hereof, 10 "Territory" is defined as any county or similar geographic subdivision in which Company conducts business. The parties intend that this noncompete covenant shall be construed as separate covenants, one for each county and subdivision to which the covenant applies. In the event a court of competent jurisdiction determines that the provisions of this covenant not to compete are excessively broad as to duration, geographic scope or activity, it is expressly agreed that this covenant not to compete shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such over broad provisions shall be deemed, without further action on the part of any person, to be modified, amended and/or limited, but only to the extent necessary to render the same valid and enforceable in such jurisdiction. 12. No Violation. Employee represents and warrants to Employer that the ------------ execution, delivery and performance of this Agreement by Employee does not, with or without the giving of notice or the passage of time, or both, conflict with, result in a default, right to accelerate or loss of rights under any provision of any agreement or understanding to which Employee or his affiliates are a party or by which Employee, or to the best knowledge of Employee, Employee's affiliates may be bound or affected. 13. Captions. The captions, headings and arrangements used in this Agreement -------- are for convenience only and do not in any way affect, limit or amplify the provisions hereof. 14. Notices. All notices required or permitted to be given hereunder shall be ------- in writing and shall be deemed delivered when actually received or, if mailed, whether or not actually received, two days after deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the party to whom notice is being given at the specified address or at such other address as such party may designate by notice: Employer: Apogent Technologies Inc. 30 Penhallow Street Portsmouth, NH 03801 Attention: General Counsel Employee: Robert V. Ahlgren c/o Nalge Nunc International Corporation 75 Panorama Creek Drive Rochester, New York 14625-2303 15. Invalid Provisions. If any provision of this Agreement is held to be ------------------ illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, provided that if any of the limitations set forth in Sections 8, 9, 10, and 11 shall be determined to be unreasonable by any court, the parties agree that the provisions of such Section shall be reduced to such lessor limitations as are determined to be reasonable; the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. 11 16. Amendments. This Agreement may be amended only by an instrument ---------- in writing duly executed by an officer of Employer expressly authorized by the Board to do so and by Employee. 17. Waiver. No delay or omission by either party hereto to exercise any right ------ or power hereunder shall impair such right or power or be construed as a waiver thereof including without limitation employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. A waiver by either of the parties hereto of any of the covenants to be performed by the other or of any breach thereof shall not be construed to be a waiver of any succeeding breach thereof or of any other covenant herein contained. All remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available to either party at law, in equity or otherwise. 18. Counterparts. This Agreement may be executed in multiple counterparts, each ------------ of which shall constitute an original, and all of which together shall constitute one and the same agreement. 19. Governing Law. This Agreement shall be construed and enforced according to ------------- the laws of the State of New Hampshire. 20. Legal Fees. Employer shall pay to Employee all legal fees and expenses ---------- incurred by Employee in contesting or disputing any termination or in seeking to obtain or enforce any right or benefit provided by this Agreement. 21. Final Agreement. This Agreement supercedes any other employment agreement ---------------- that Employee may have with the Company or any affiliate thereof. ***** 12 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. APOGENT TECHNOLOGIES INC. By: ------------------------ Name: Frank H. Jellinek, Jr. ---------------------- Title: President and CEO --------------------- EMPLOYEE: By: ------------------------ Robert V. Ahlgren 13 EX-10.2 4 dex102.txt INDEMNIFICATION AGREEMENT EXHIBIT 10.2 INDEMNIFICATION AGREEMENT This Indemnification Agreement (this "Agreement") is made as of April 1, 2002 by and between Apogent Technologies Inc., a Wisconsin corporation (the "Company"), and Robert V. Ahlgren, a director and/or an executive officer of the Company ("Indemnitee"). WHEREAS, it is essential to the Company to retain and attract as directors and executive officers the most capable persons available; and WHEREAS, both the Company and Indemnitee recognize the risk of litigation, and claims being asserted, against directors and executive officers of public companies in today's environment; and WHEREAS, applicable provisions of the Wisconsin Business Corporation Law (the "WBCL") and of the Company's Bylaws (the "Bylaws") require the Company to indemnify and advance expenses to its directors and executive officers to the fullest extent permitted by law and Indemnitee's service as a director and/or an executive officer is in part in consideration of such indemnification rights; and WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's service to the Company in an effective manner, and to provide Indemnitee with specific contractual assurance that the protections promised by the WBCL and the Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of, and the advancing of expenses to, Indemnitee to the fullest extent permitted by law and as set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and of Indemnitee's service as a director and/or an executive officer of the Company, and for other good and valuable consideration, the adequacy of which is hereby acknowledged, the Company and Indemnitee agree as follows: 1. Contractual Nature of Existing Indemnification Provisions. The --------------------------------------------------------- indemnification provisions contained in Subchapter VIII of the WBCL and Article VIII of the Bylaws, as in effect on the date hereof and as either may be amended to provide more advantageous indemnification rights to Indemnitee, shall be deemed to be a contract between the Company and Indemnitee and any amendment, modification, revocation or repeal of any of such provisions of Subchapter VIII of the WBCL or Article VIII of the Bylaws shall not limit any rights of Indemnitee hereunder to indemnification or the allowance of expenses. 2. Subrogation. In the event the Company shall make any payments ----------- pursuant to Subchapter VIII of the WBCL, Article VIII of the Bylaws or this Agreement, the Company shall be subrogated to the extent of such payments to all of the rights of recovery of Indemnitee, who agrees to execute all documents required and to do everything that may be necessary or desirable to secure such rights, including the execution of such documents as may be necessary to enable the Company effectively to bring suit to enforce such rights. 3. Defense and Settlement. In consideration of Indemnitee's rights ---------------------- to indemnification pursuant to this Agreement, the Indemnitee agrees to give written notice to the Company as soon as practicable of any claim ("Claim") made against him for which indemnity will or could be sought. In connection with any Claim, Indemnitee agrees to cooperate fully with the Company and to provide timely access to all relevant documents and other records in Indemnitee's possession or control. The Indemnitee agrees to provide the Company with all of the information, assistance and cooperation which the Company reasonably requests. Further, the Indemnitee agrees not to settle any Claim or otherwise assume any contractual obligation or admit any liability with respect to any Claim without the Company's written consent, which shall not be unreasonably withheld. 4. Non-Exclusivity. Nothing herein shall be deemed to diminish or --------------- otherwise restrict Indemnitee's right to indemnification under any provision of the WBCL, the Company's Articles of Incorporation or the Bylaws. 5. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with Wisconsin law. 6. Severability. The provisions of this Agreement are severable, and ------------ if any clause or provision hereof shall be held invalid or unenforceable in whole or part, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision to the extent that such clause or provision is valid or enforceable, and shall not in any manner affect any other clause or provision of this Agreement. 7. Amendment. No amendment, modification, termination or --------- cancellation of this Agreement shall be effective unless in writing and signed by the parties hereto. 8. Binding Effect. This Agreement shall be binding upon all -------------- successors and assigns of the Company (including any transferee of all or substantially all of the Company's assets and any successor by merger or operation of law) and shall inure to the benefit of the heirs, personal representatives and estate of Indemnitee. 9. Effectiveness. This Agreement supersedes all previously executed ------------- indemnification agreements between the parties. The provisions of this Agreement shall cover claims, actions, suits and other proceedings whether now pending or hereafter commenced and shall be retroactive to cover acts or omissions or alleged acts or omissions, which heretofore have taken place. By way of example but not of limitation, this Agreement shall apply to all liabilities, known or unknown, contingent or otherwise, that presently exist or arise in the future, regardless of whether the liabilities relate to activities of Indemnitee or the Company preceding or subsequent to the date of this Agreement. [Remainder of page intentionally blank] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. APOGENT TECHNOLOGIES INC. By: ----------------------------------- Name: Kenneth F. Yontz Title: Chairman of the Board --------------------------------- Robert V. Ahlgren EX-12 5 dex12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 Apogent Technologies Inc. Computation of Ratio of Earnings to Fixed Charges June 30, 2002
Nine Months Fiscal Year Ended September 30, Ended --------------------------------------------------------------------- June 30, 1997 1998 1999 2000 2001 2002 ---------- ---------- ---------- ---------- ---------- ---------- Fixed Charges: Interest expense 24,999 33,772 40,073 48,684 48,698 30,804 Deferred financing 152 151 224 533 563 2,680 1/3 Rental expense 1,076 1,343 2,235 3,145 3,751 3,410 ------------------------------------------------------------------ ---------- 26,227 35,266 42,532 52,362 53,012 36,894 Earnings: Pre tax income from continuing operations 73,996 86,836 127,392 144,325 180,739 155,945 Add: Fixed charges 26,227 35,266 42,532 52,362 53,012 36,894 Earnings 100,223 122,102 169,924 196,687 233,751 192,839 Ratio of Earnings to Fixed Charges 3.8 3.5 4.0 3.8 4.4 5.2 ================================================================== ========== Rental Expense 3,229 4,028 6,704 9,434 11,253 10,230 ================================================================== ==========
EX-99.1 6 dex991.txt CERTIFICATION OF FRANK H. JELLINEK, JR. Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Apogent Technologies Inc. (the "Company") on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank H. Jellinek, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Frank H. Jellinek, Jr. ------------------------------------ Frank H. Jellinek, Jr. Chief Executive Officer August 13, 2002 This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-99.2 7 dex992.txt CERTIFICATION OF JEFFREY C. LEATHE Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Apogent Technologies Inc. (the "Company") on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey C. Leathe, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jeffrey C. Leathe ------------------------------------- Jeffrey C. Leathe Chief Financial Officer August 13, 2002 This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----