-----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, E0eE+GvI72kukinUaeKIgyLdVfE3n7xPaZ6yVo2bG4QnRVpjwjxdXpm82u4H4c9W IQJPNNJEI0ngUSNnkot10Q== 0000950124-00-000652.txt : 20000215 0000950124-00-000652.hdr.sgml : 20000215 ACCESSION NUMBER: 0000950124-00-000652 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYBRON INTERNATIONAL CORP 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: SEC FILE NUMBER: 001-11091 FILM NUMBER: 541274 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 INTERNATIONAL INC DATE OF NAME CHANGE: 19951221 10-Q 1 QUARTERLY REPORT ENDED 12/31/99 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to -------------- ---------------- Commission File Number: 1-11091 SYBRON INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) Wisconsin 22-2849508 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 (Address of principal executive offices) (Zip Code) (414) 274-6600 (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- At February 9, 2000, there were 104,098,999 shares of the Registrant's Common Stock, par value $0.01 per share, outstanding. 2 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
Index Page - -------------------------------------------- ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets, December 31, 1999 (unaudited) and September 30, 1999 2 Consolidated Statements of Income for the three months ended December 31, 1999 (unaudited) and 1998 (unaudited) 3 Consolidated Statements of Shareholders' Equity for the year ended September 30, 1999 and the three months ended December 31, 1999 (unaudited) 4 Consolidated Statements of Cash Flows for the three months ended December 31, 1999 (unaudited) and 1998 (unaudited) 5 Notes to Unaudited Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 28 Part II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 31 Signatures 32
1 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS December 31, September 30, 1999 1999 ------------ ------------- Current assets: Cash and cash equivalents....................................... $ 22,003 $ 18,491 Accounts receivable (less allowance for doubtful receivables of $5,202 and $5,676, respectively)............... 230,480 231,506 Inventories (note 2)............................................ 218,809 203,202 Deferred income taxes........................................... 22,265 23,339 Prepaid expenses and other current assets....................... 20,809 15,419 ---------- ---------- Total current assets....................................... 514,366 491,957 Available for sale security....................................... 47,620 50,900 Property, plant and equipment, net of accumulated depreciation of $225,583 and $212,995, respectively........................ 248,872 245,247 Intangible assets................................................. 1,101,332 1,028,081 Deferred income taxes............................................. 13,012 13,623 Other assets...................................................... 10,036 13,109 ---------- ---------- Total assets............................................... $1,935,238 $1,842,917 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable................................................ $ 57,211 $ 62,418 Current portion of long-term debt............................... 7,724 8,962 Income taxes payable............................................ 31,957 23,490 Accrued payroll and employee benefits........................... 37,010 49,006 Restructuring reserve (note 4).................................. 1,800 2,332 Reserve for discontinued operations (note 6).................... 3,480 6,141 Deferred income taxes........................................... 3,326 3,251 Other current liabilities....................................... 33,675 36,349 ---------- ---------- Total current liabilities................................... 176,183 191,949 ---------- ---------- Long-term debt.................................................... 963,471 875,254 Securities lending agreement...................................... 47,620 50,461 Deferred income taxes............................................. 86,862 84,527 Other liabilities................................................. 13,882 15,382 Commitments and contingent liabilities: Shareholders' equity: Preferred Stock, $.01 par value; authorized 20,000,000 shares - - Common Stock, $.01 par value; authorized 250,000,000 shares, issued 104,026,205 and 104,023,697 shares, respectively....... 1,040 1,040 Equity Rights, 50 rights at $1.09 per right..................... - - Additional paid-in capital...................................... 251,282 251,251 Retained earnings............................................... 433,804 403,380 Accumulated other comprehensive income.......................... (38,906) (30,327) Treasury common stock, 220 shares at cost ...................... - - ---------- ---------- Total shareholders' equity................................. 647,220 625,344 ---------- ---------- Total liabilities and shareholders' equity................. $1,935,238 $1,842,917 ========== ==========
See accompanying notes to unaudited consolidated financial statements. 2 4 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended December 31, 1999 1998 -------- -------- Net sales.............................................. $298,247 $248,330 Cost of sales: Cost of product sold................................ 143,896 122,562 Depreciation of purchase accounting adjustments..... 161 167 -------- -------- Total cost of sales.................................... 144,057 122,729 -------- -------- Gross profit........................................... 154,190 125,601 Selling, general and administrative expenses........... 74,962 62,771 Merger, transaction and integration expenses (note 5).. - 2,691 Depreciation and amortization of purchase accounting adjustments................................ 10,543 7,260 -------- -------- Total selling, general and administrative expenses..... 85,505 72,722 -------- -------- Operating income....................................... 68,685 52,879 Other income (expense): Interest expense.................................... (17,923) (14,116) Amortization of deferred financing fees............. (178) (80) Other, net.......................................... (44) 242 --------- --------- Income before income taxes and discontinued operations............................................ 50,540 38,925 Income taxes........................................... 20,116 15,604 --------- --------- Income from continuing operations...................... 30,424 23,321 Discontinued operations: Income from discontinued operations (net of income taxes of $385) (note 6)... - 539 --------- --------- Net income............................................. $ 30,424 $ 23,860 ========= ========= Basic earnings per common share from continuing operations............................................ $ .29 $ .23 Discontinued operations................................ - - --------- --------- Basic earnings per common share........................ $ .29 $ .23 ========= ========= Diluted earnings per common share from continuing operations............................................ $ .29 $ .22 Discontinued operations................................ - .01 --------- --------- Diluted earnings per common share...................... $ .29 $ .23 ========= =========
See accompanying notes to unaudited consolidated financial statements. 3 5 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND THE THREE MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED ADDITIONAL OTHER TOTAL COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS' STOCK CAPITAL EARNINGS INCOME EQUITY ------ ---------- -------- -------------- ------------ Balance at September 30, 1998........... $1,029 $234,070 $260,833 $(20,688) $475,244 Comprehensive income: Net income............................ - - 142,547 - 142,547 Translation adjustment................ - - - (9,905) (9,905) Unrealized gain on security available for sale............................ - - - 266 266 ------ -------- -------- -------- -------- Total comprehensive income.............. - - 142,547 (9,639) 132,908 Shares issued in connection with the exercise of 1,121,421 stock options... 11 10,680 - - 10,691 Tax benefits related to stock options... - 6,501 - - 6,501 ------ -------- -------- -------- -------- Balance at September 30, 1999........... 1,040 251,251 403,380 (30,327) 625,344 Comprehensive income: Net income............................ - - 30,424 - 30,424 Translation adjustment................ - - - (6,608) (6,608) Unrealized loss on security available for sale............................. - - - (1,971) (1,971) ------ -------- -------- -------- -------- Total comprehensive income.............. - - 30,424 (8,579) 21,845 Shares issued in connection with the exercise of 2,508 stock options........ - 31 - - 31 ------ -------- -------- -------- -------- Balance at December 31, 1999 ........... $1,040 $251,282 $433,804 $(38,906) $647,220 ====== ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements. 4 6 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended December 31, 1999 1998 ----------- ---------- Cash flows from operating activities: Net income............................................................... $ 30,424 $ 23,860 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................................................. 10,187 8,542 Amortization............................................................. 10,611 7,292 Provision for losses on doubtful accounts................................ (310) 294 Inventory provisions..................................................... 831 313 Deferred income taxes.................................................... 4,095 (5,413) Changes in assets and liabilities, net of effects of businesses acquired: Decrease in accounts receivable.......................................... 6,100 14,484 Increase in inventories.................................................. (9,086) (7,413) (Increase) decrease in prepaid expenses and other current assets......... (4,946) 3,306 Decrease in accounts payable............................................. (6,258) (6,156) Increase (decrease) in income taxes payable.............................. 9,591 (4,628) Decrease in accrued payroll and employee benefits........................ (11,652) (9,580) Decrease in restructuring reserve........................................ (532) (1,236) Decrease in reserve for discontinued operations.......................... (2,661) (8,627) Increase (decrease) in other current liabilities........................ (7,986) 2,802 Net change in other assets and liabilities............................... (6,943) 644 ---------- ---------- Net cash provided by operating activities................................ 21,465 18,484 Cash flows from investing activities: Capital expenditures..................................................... (7,970) (6,007) Proceeds from sales of property, plant, and equipment.................... 443 115 Payments for businesses acquired......................................... (92,709) (54,059) ---------- ---------- Net cash used in investing activities.................................... (100,236) (59,951) Cash flows from financing activities: Proceeds - revolving credit facility..................................... 206,800 127,700 Principal payments - revolving credit facility........................... (116,200) (79,700) Principal payments on long-term debt..................................... (1,139) (10,602) Refund of collateral under securities lending agreement.................. (2,841) - Proceeds from the exercise of common stock options....................... 31 2,236 Deferred financing fees.................................................. (169) (5) Other.................................................................... (2,525) 1,634 ---------- ---------- Net cash provided from financing activities.............................. 83,957 41,263 Effect of exchange rate changes on cash and cash equivalents............... (1,674) (1,937) Net increase (decrease) in cash and cash equivalents....................... 3,512 (2,141) Cash and cash equivalents at beginning of year............................. 18,491 23,891 ---------- ---------- Cash and cash equivalents at end of period................................. $ 22,003 $ 21,750 ========== ==========
See accompanying notes to unaudited consolidated financial statements. 5 7 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED) (IN THOUSANDS)
Three Months Ended December 31, 1999 1998 ---------- ---------- Supplemental disclosures of cash flow information: Cash paid during the period for interest.................................. $ 17,557 $ 15,019 ========== ========== Cash paid during the period for income taxes.............................. $ 8,396 $ 14,446 ========== ========== Capital lease obligations incurred........................................ $ 43 $ 145 ========== ==========
See accompanying notes to unaudited consolidated financial statements. 6 8 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of management, all adjustments which are necessary for a fair statement of the results for the interim periods presented have been included. Except as described in note 5 below, all such adjustments were of a normal recurring nature. The results for the three month period ended December 31, 1999 are not necessarily indicative of the results to be expected for the full year. 2. Inventories at December 31, 1999 and September 30, 1999 consist of the following:
December 31, September 30, 1999 1999 -------- -------- Raw materials $ 81,226 $ 67,541 Work-in-process 39,864 39,439 Finished goods 108,337 106,010 Excess and obsolescence reserves (7,819) (7,091) LIFO reserve (2,799) (2,697) -------- -------- $218,809 $203,202 ======== ========
3. In the first quarter of fiscal 2000, the Company completed three acquisitions for cash. The aggregate purchase price of the acquisitions, net of cash acquired, (none of which individually or aggregated was significant) was approximately $91.9 million. There are no future purchase price adjustments due to earnout provisions from any of these three transactions. All three of these acquisitions have been accounted for as purchases. The results of these acquisitions were included as of the date they were acquired. The total goodwill and intangibles for the acquired companies was approximately $82.0 million and will be amortized over 20 to 30 years. Descriptions of the acquired companies are as follows: (a) On October 7, 1999, the Company acquired Robbins Scientific Corporation ("Robbins"), a manufacturer of biomedical products used in certain types of high throughput screening, molecular biology, chemical synthesis and tissue typing. Robbins' line of products include microdispensers and automated dispensing machines with specialty pipette tips for robotic workstations, plastic plates, tubes, storage tools and hybridization incubators, gel loaders and water baths, organic synthesis systems, filtration blocks and covers, trays, and syringe dispensers. Robbins' revenues in 1999 were approximately $19.6 million. Robbins is included in the Company's Labware and Life Sciences business segment. (b) On October 13, 1999, the Company acquired Microm Laborgerate GmbH ("Microm"), a leading manufacturer of histology laboratory instrumentation headquartered in Walldorf, Germany. Microm's products include microtome and cryostat machines used in tissue sectioning, as well as automatic slide stainers, tissue processors, cover slippers and cassettes used in routine histology and cytology applications. Microm's sales in 1999 were approximately $20.7 million. Microm is included in the Company's Clinical and Industrial business segment. 7 9 (c) On December 13, 1999 the Company acquired Professional Positioners, Inc. ("Pro"), a manufacturer of orthodontic retainers and positioners. Pro's products range from functional orthopedic devices used at the beginning of orthodontic treatment to retainers and positioners which are used to hold teeth in the final occlusion after treatment. Pro's sales revenues in 1999 were approximately $5.4 million. Pro is included in the Company's Orthodontics business segment. Two acquisitions were completed for cash after the first fiscal quarter of 2000 and will be accounted for as purchases. The aggregate purchase price was not significant either individually or aggregated. There are no future purchase price adjustments due to earnout provisions from either of these transactions. The results of these acquisitions will be included as of the date they were acquired. The total goodwill for the acquired companies is currently being assessed. Descriptions of the acquired companies are as follows: (a) On February 1, 2000, the Company acquired the Versi-Dry(R) product line from National Packaging Services Corporation ("NPS") located in Green Bay, Wisconsin. The Versi-Dry(R) product is an absorbent pad used in research and industrial laboratories and is designed to absorb and contain chemicals and other spillage occurring in the laboratory. Sales revenues in 1999 were approximately $2.5 million. The Versi-Dry(R) product line will be included in the Labware and Life Sciences business segment. (b) On February 4, 2000, the Company acquired Sun International ("Sun"), a leading supplier of consumables for high-pressure liquid chromatography (HPLC), gas chromatography (GC) and high throughput screening (HTS) applications. In addition to autosampler vials, inserts and closures, Sun recently introduced their PLATE+(TM) and MICROMAT(TM) product line for high throughput screening in the biotechnology and pharmaceutical markets. Sales revenues in 1999 were approximately $5.8 million. Sun will be included in the Labware and Life Sciences business segment. 4. In June 1998, the Company recorded a restructuring charge of approximately $24 million (approximately $16.7 million after tax or $.16 per share on a diluted basis) for the rationalization of certain acquired companies, combination of certain duplicate production facilities, movement of certain customer service and marketing functions, and the exiting of several product lines. The restructuring charge was originally classified as components of cost of sales (approximately $6.4 million relating to the write-off of inventory discussed below), selling, general and administrative expenses (approximately $16.9 million) and income tax expense (approximately $0.7 million). Upon reclassifying Nalge Process Technologies Group, Inc. ("NPT") to a discontinued operation in December 1998, approximately $0.3 million and $0.6 million were reclassified from cost of sales and selling, general and administrative expenses to discontinued operations. 8 10 Restructuring activity since June 30, 1998 and its components are as follows:
SEVERANCE LEASE SHUT-DOWN INVENTORY FIXED CONTRACTUAL --------- ----- --------- --------- ----- ----------- (A) PAYMENTS COSTS(B) WRITE-OFF ASSETS TAX(D) GOODWILL(E) OBLIGATIONS --- -------- --------- --------- ------ ------ ----------- ----------- OTHER TOTAL (B) (C) (C) (F) ----- ----- --- --- --- --- (IN THOUSANDS) 1998 Restructuring charge $ 8,500 $ 400 $ 500 $ 6,400 $ 2,300 $ 700 $ 2,100 $ 1,000 $ 2,100 $24,000 1998 cash payments 3,300 100 100 -- -- -- -- 400 700 4,600 1998 non-cash charges -- -- -- 6,400 2,300 -- 2,100 -- 600 11,400 ------- ----- ----- ------- ------- ----- ------- ------- ------- ------- September 30, 1998 balance $ 5,200 $ 300 $ 400 $ -- $ -- $ 700 $ -- $ 600 $ 800 $ 8,000 1999 cash payments 3,400 300 400 -- -- -- -- 300 400 4,800 Adjustments (a) 900 -- -- -- -- -- -- -- -- 900 ------- ----- ----- ------- ------- ----- ------- ------- ------- ------- September 30, 1999 balance $ 900 $ -- $ -- $ -- $ -- $ 700 $ -- $ 300 $ 400 $ 2,300 2000 cash payments 300 -- -- -- -- -- -- 100 100 500 ------- ----- ----- ------ ------- ----- ------- ------- ------- ------- December 31, 1999 balance $ 600 $ -- $ -- $ -- $ -- $ 700 $ -- $ 200 $ 300 $ 1,800 ======= ===== ===== ====== ======= ===== ======= ======= ======= =======
- ----------------- (a) Amount represents severance and termination costs for approximately 165 terminated employees (primarily sales and marketing personnel). As of December 31, 1999, 154 employees have been terminated as a result of the restructuring plan. Payments will continue to certain employees previously terminated under this restructuring plan. An adjustment of approximately $900 was made in the third quarter of fiscal 1999 to adjust the accrual primarily representing over accruals for anticipated costs associated with outplacement services, accrued fringe benefits, and severance associated with employees who were previously notified of termination and subsequently filled other Company positions. No additional employees will be terminated under this restructuring plan. (b) Amount represents lease payments and shutdown costs on exited facilities. (c) Amount represents write-offs of inventory and fixed assets associated with discontinued product lines. (d) Amount represents a statutory tax relating to assets transferred from an exited sales facility in Switzerland. (e) Amount represents goodwill associated with exited product lines at Sybron Laboratory Products Corporation ("SLP"). (f) Amount represents certain terminated contractual obligations primarily associated with Sybron Dental Specialties, Inc. The Company expects to make future cash payments of approximately $700 in the remainder of fiscal 2000 and approximately $1,100 in fiscal 2001 and beyond. 5. For the three months ended December 31, 1998, the Company incurred approximately $2.7 million ($1.7 million after tax or $.02 per share on a diluted basis) of costs associated with the October 29, 1998 merger with Pinnacle Products of Wisconsin, Inc. ("Pinnacle") (the "Pinnacle Merger") and the integration of "A" Company Orthodontics (`"A" Company'), a subsidiary of LRS Acquisition Corp. ("LRS"), with SDS. LRS was merged with a subsidiary of the Company on April 9, 1998 (the "LRS Merger"). Both transactions were accounted for as poolings of interests. The costs associated with the Pinnacle Merger and the integration of "A" Company were primarily from Pinnacle Merger non-shareholder compensation (approximately $2.0 million), and costs related to miscellaneous expenses primarily related to completing the "A" Company integration including customer announcements, professional fees, and relocation expenses (approximately $0.7 million). The Company does not anticipate incurring any further merger, transaction and integration expenses associated with the LRS and Pinnacle Mergers. 9 11 6. On March 31, 1999, the Company completed the sale of NPT. The results of NPT in the fiscal 1999 period are classified as discontinued operations. In addition, in the first quarter of fiscal 2000, the Company refunded approximately $2.6 million of previously accrued purchase price adjustments to the purchaser. The Company does not anticipate any additional adjustments to the purchase price. 7. The Company's operating subsidiaries are engaged in the manufacture and sale of laboratory and dental products in the United States and other countries. Laboratory products are categorized in the business segments of a) Labware and Life Sciences, b) Clinical and Industrial, c) Diagnostics and Microbiology and d) Laboratory Equipment. Dental products are categorized in the business segments of a) Professional Dental, b) Orthodontics and c) Infection Control Products. Information on these business segments is summarized on the following page: 10 12
LABWARE CLINICAL DIAGNOSTICS AND LIFE AND AND LABORATORY TOTAL PROFESSIONAL SCIENCES INDUSTRIAL MICROBIOLOGY EQUIPMENT ELIMINATIONS SLP DENTAL -------- ---------- ------------ ---------- ------------ ----- ------------ THREE MONTHS ENDED 12/31/98 Revenues: External customer........... $ 54,647 $ 40,270 $ 36,849 $ 24,647 $ -- $ 156,413 $ 45,111 Intersegment................ 262 1,468 94 177 (1,867) 134 140 Total revenues............ 54,909 41,738 36,943 24,824 (1,867) 156,547 45,251 Gross profit.................. 27,770 16,604 19,058 10,188 -- 73,620 24,607 Selling, general and admin.... 15,063 7,148 9,903 5,407 -- 37,521 16,305 Operating income.............. 12,707 9,456 9,155 4,781 -- 36,099 8,302 THREE MONTHS ENDED 12/31/99 Revenues: External customer........... 79,898 51,911 50,616 22,458 -- 204,883 47,605 Intersegment................ 353 1,558 102 214 (2,099) 128 146 Total revenues............ 80,251 53,469 50,718 22,672 (2,099) 205,011 47,751 Gross profit.................. 40,857 21,646 27,999 9,589 -- 100,091 26,244 Selling, general and admin.... 23,205 8,947 14,840 5,070 -- 52,062 13,215 Operating income.............. 17,652 12,699 13,159 4,519 -- 48,029 13,029 Segment Assets................ 536,467 292,752 425,096 129,444 -- 1,383,759 178,560
INFECTION CONTROL TOTAL ORTHODONTICS PRODUCTS ELIMINATIONS SDS OTHER(A) TOTAL ------------ --------- ------------ ----- -------- ----- THREE MONTHS ENDED 12/31/98 Revenues: External customer........... $ 41,414 $ 5,392 $ -- $ 91,917 $ -- $ 248,330 Intersegment................ 1,125 -- (1,265) -- (134) -- Total revenues............ 42,539 5,392 (1,265) 91,917 (134) 248,330 Gross profit.................. 24,429 2,945 -- 51,981 -- 125,601 Selling, general and admin.... 14,195 2,226 -- 32,726 2,475 72,722 Operating income.............. 10,234 719 -- 19,255 (2,475) 52,879 THREE MONTHS ENDED 12/31/99 Revenues: External customer........... 40,061 5,698 -- 93,364 -- 298,247 Intersegment................ 598 -- (744) -- (128) -- Total revenues............ 40,659 5,698 (744) 93,364 (128) 298,247 Gross profit.................. 24,926 2,929 -- 54,099 -- 154,190 Selling, general and admin.... 14,792 2,349 -- 30,356 3,087 85,505 Operating income.............. 10,134 580 -- 23,743 (3,087) 68,685 Segment Assets................ 188,464 54,672 -- 421,696 129,783 1,935,238
- ----------- (a) Includes the elimination of intergroup and corporate office activity. 11 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The subsidiaries of Sybron are leading manufacturers of value-added products for the Labware and Life Sciences, Clinical and Industrial, Diagnostics and Microbiology, Laboratory Equipment, Professional Dental, Orthodontics and Infection Control Products markets in the United States and abroad. Our Labware and Life Sciences, Clinical and Industrial, Diagnostics and Microbiology and Laboratory Equipment business segments are grouped under Sybron Laboratory Products Corporation ("SLP"), and our Professional Dental, Orthodontics and Infection Control Products business segments are grouped under Sybron Dental Specialties, Inc. ("SDS"). SLP and SDS are both first-tier wholly owned subsidiaries of Sybron. The primary subsidiaries in each of our business segments are as follows: SLP Labware and Life Sciences Clinical and Industrial - ------------------------- ----------------------- Matrix Technologies Corporation Erie Scientific Company Nalge Nunc International Corporation Chase Scientific Glass, Inc. National Scientific Company The Naugatuck Glass Company Nunc A/S Richard-Allan Scientific Company Molecular BioProducts, Inc. Samco Scientific Corporation Robbins Scientific Corporation Microm Laborgerate GmbH Gerhard Menzel Glasbearbeitungswerk GmbH & Co. K.G. Diagnostics and Microbiology Laboratory Equipment - ---------------------------- -------------------- Applied Biotech, Inc. Barnstead Thermolyne Corporation Microgenics Corporation Lab-Line Instruments, Inc. Alexon-Trend, Inc. Remel Inc. SDS Professional Dental Orthodontics - ------------------- ------------ Kerr Corporation Ormco Corporation Beavers Dental Company Ormodent Group Infection Control Products - -------------------------- Metrex Research Corporation Alden Scientific, Inc. Over the past several years the Company has been pursuing a growth strategy designed to increase sales and enhance operating margins. Elements of that strategy include emphasis on acquisitions, product line extensions, new product introductions, international growth and rationalization of existing businesses and product lines. 12 14 When we use the terms "we" or "our" in this report, we are referring to Sybron International Corporation and its subsidiaries. Our fiscal year ends on September 30 and, accordingly, all references to quarters refer to the Company's fiscal quarters. The quarters ended December 31, 1998 and 1999, refer to the Company's first fiscal quarters of 1999 and 2000, respectively. Our results for the three months ended December 31, 1998 include approximately $2.7 million of charges relating to integration costs associated with the merger with LRS Acquisition Corp. ("LRS") (the "LRS Merger"), the parent of "A" Company, and transaction costs associated with the merger with Pinnacle Products of Wisconsin, Inc. ("Pinnacle") (collectively, the "1999 Special Charges"). Both our sales and operating income for the quarter ended December 31, 1999 grew over the corresponding prior year period. Net sales for the first quarter of fiscal 2000 increased by 20.1% over the corresponding fiscal 1999 period. Operating income for the first quarter of fiscal 2000 increased by 29.9% over the corresponding fiscal 1999 period. Excluding the 1999 Special Charges, operating income for the first quarter of fiscal 2000 increased by 23.6% over the corresponding fiscal 1999 period. Sales growth in the quarter was strong both domestically and internationally. Domestic and international sales increased by 22.0% and by 15.9%, respectively, over the corresponding fiscal 1999 quarter. International sales growth was negatively impacted by the strengthening of the U.S. dollar. Without the negative currency effects, international sales growth would have been 20.4% over the corresponding fiscal 1999 period. Sales growth for the quarter in our dental businesses was negatively impacted by a backlog build-up in curing lights attributable to a vendor component shortage as well as soft orthodontic sales. Although there was general softness in our orthodontic sales, the problem was particularly acute in Germany, our largest European market for orthodontics, where we suffered a decline in business resulting from year-end reimbursement cuts by the government to orthodontic practitioners. Sales growth in our laboratory business was negatively impacted by a decline in sales in our laboratory equipment business. Although we are taking steps to address these issues, there can be no assurance that these conditions will not continue to have a negative impact on our results. We continue to maintain an active program of developing and marketing new products and product line extensions, as well as pursuing growth through acquisitions. We completed three acquisitions in the first quarter of fiscal 2000. (See Note 3 to the Unaudited Consolidated Financial Statements.) Our results of operations include goodwill amortization, other amortization, and depreciation. These non-cash charges totaled $20.8 million and $15.8 million for the quarters ended December 31, 1999 and 1998, respectively. Because our operating results reflect significant depreciation and amortization expense largely associated with stepped-up assets, goodwill and other intangibles from our acquisition program and the leveraged buyout in 1987 of a company known at that time as Sybron Corporation (the "Acquisition"), we believe our "Adjusted EBITDA" is a useful measure of our ability to internally fund our liquidity requirements. "Adjusted EBITDA" (while not a measure under generally accepted accounting principles ("GAAP"), and not a substitute for GAAP measured earnings or cash flows or an indication of operating performance or a measure of liquidity) represents, for any relevant period, net income from continuing operations plus (i) interest expense, (ii) provision for income taxes, (iii) the 1999 Special Charges and (iv) depreciation and amortization, all determined on a consolidated basis and 13 15 in accordance with GAAP. Our "Adjusted EBITDA" amounted to $89.3 million and $71.6 million for the quarters ended December 31, 1999 and 1998, respectively. Substantial portions of our sales, income and cash flows are derived internationally. The financial position and the results of operations from substantially all of our international operations, other than most U.S. export sales, are measured using the local currency of the countries in which such operations are conducted and are then translated into U.S. dollars. While the reported income of foreign subsidiaries will be impacted by a weakening or strengthening of the U.S. dollar in relation to a particular local currency, the effects of foreign currency fluctuations are partially mitigated by the fact that manufacturing costs and other expenses of foreign subsidiaries are generally incurred in the same currencies in which sales are generated. Such effects of foreign currency fluctuations are also mitigated by the fact that such subsidiaries' operations are conducted in numerous foreign countries and, therefore, in numerous foreign currencies. In addition, our U.S. export sales may be impacted by foreign currency fluctuations relative to the value of the U.S. dollar as foreign customers may adjust their level of purchases upward or downward according to the weakness or strength of their respective currencies versus the U.S. dollar. From time to time we may employ currency hedges to mitigate the impact of foreign currency fluctuations. If currency hedges are not employed, we may be exposed to earnings volatility as a result of foreign currency fluctuations. In October 1998, we decided to employ a series of foreign currency options with a U.S. dollar notional amount of approximately $45.7 million at a cost of approximately $0.3 million. These options were designed to protect the Company from potential detrimental effects of currency movements associated with the U.S. dollar versus the German mark, French franc, Swiss franc, and Japanese yen in the second, third and fourth quarters of fiscal 1999. These options were sold or expired worthless in their respective quarters of fiscal 1999 at a net gain of $1.1 million. In November 1999, we again decided to employ a series of foreign currency options with a U.S. dollar notional amount of approximately $47.6 million at a cost of approximately $1.2 million. These options are designed to protect the Company from potential detrimental effects of currency movements associated with the U.S. dollar verses the Euro, Danish krone and Japanese yen in the second, third and fourth quarters of fiscal 2000 as compared to the second, third and fourth quarters of fiscal 1999. 14 16 RESULTS OF OPERATIONS QUARTER ENDED DECEMBER 31, 1999 COMPARED TO THE QUARTER ENDED DECEMBER 31, 1998 NET SALES.
FISCAL FISCAL DOLLAR PERCENT NET SALES: (IN THOUSANDS) 1999 2000 CHANGE CHANGE - ------------------------- --------- -------- -------- ------- SLP: Labware and Life Sciences $ 54,647 $ 79,898 $ 25,251 46.2 % Clinical and Industrial 40,270 51,911 11,641 28.9 % Diagnostics and Microbiology 36,849 50,616 13,767 37.4 % Laboratory Equipment 24,647 22,458 (2,189) (8.9)% --------- -------- -------- ---- Subtotal SLP 156,413 204,883 48,470 31.0 % SDS: Professional Dental 45,111 47,605 2,494 5.5 % Orthodontics 41,414 40,061 (1,353) (3.3)% Infection Control Products 5,392 5,698 306 5.7 % --------- -------- -------- ---- Subtotal SDS 91,917 93,364 1,447 1.6 % --------- -------- -------- ---- Total Net Sales $ 248,330 $298,247 $ 49,917 20.1 % ========= ======== ======== ====
Overall Company. Net sales for the first quarter of fiscal 2000, ended December 31, 1999 increased by $49.9 million or 20.1% from the corresponding fiscal 1999 quarter. Net sales at SLP increased by $48.5 million in the first quarter of fiscal 2000, an increase of 31.0% from SLP's net sales in the corresponding fiscal 1999 quarter. Net sales at SDS increased by $1.4 million in the first quarter of fiscal 2000, an increase of 1.6% from SDS's net sales in the corresponding fiscal 1999 quarter. Labware and Life Sciences. Increased net sales in the Labware and Life Sciences segment resulted primarily from: (a) net sales of products of acquired companies (approximately $19.2 million), (b) increased net sales of existing products (approximately $6.0 million), (c) increased net sales of new products (approximately $0.4 million) and (d) price increases (approximately $0.3 million). Increased net sales were partially offset by unfavorable foreign currency fluctuations (approximately $0.6 million). Clinical and Industrial. Increased net sales in the Clinical and Industrial segment resulted primarily from: (a) net sales of products of acquired companies (approximately $8.1 million), (b) increased net sales of existing products (approximately $2.7 million) and (c) price increases (approximately $1.4 million). Increased net sales were partially offset by unfavorable foreign currency fluctuations (approximately $0.6 million). Diagnostics and Microbiology. Increased net sales in the Diagnostics and Microbiology segment resulted primarily from: (a) net sales of products of acquired companies net of discontinued products (approximately $10.3 million), (b) increased net sales of existing products (approximately $3.5 million) and (c) increased net sales of new products (approximately $0.4 million). Increased net sales were partially offset by price decreases (approximately $0.4 million). Laboratory Equipment. Decreased net sales in the Laboratory Equipment segment resulted primarily from decreased net sales of existing products primarily related to the constant temperature business, ovens and incubators (approximately $3.3 million). This business is expected to continue to undergo 15 17 pressure due to the large number of competing companies in the marketplace. Decreased net sales were partially offset by: (a) net sales of products of acquired companies (approximately $0.5 million), (b) increased net sales of new products (approximately $0.4 million) and (c) price increases (approximately $0.2 million). Professional Dental. Increased net sales in the Professional Dental segment resulted primarily from increased net sales of new products (approximately $4.6 million). New products sales were hampered by a backlog build-up in a new curing light attributable to a vendor component shortage. Increased net sales were partially offset by: (a) decreased net sales of existing products (approximately $0.9 million), (b) unfavorable foreign currency fluctuations (approximately $0.7 million) and (c) discontinued product lines (approximately $0.5 million). Orthodontics. Decreased net sales in the Orthodontics segment resulted primarily from: (a) decreased net sales of existing products (approximately $1.8 million) primarily related to soft orthodontic sales in Germany where doctors suffered some year end reimbursement cuts by the government and (b) unfavorable foreign currency fluctuations (approximately $1.0 million). Although the Company is taking steps to address the softness in orthodontic sales, there is no assurance that these conditions will not continue to have a negative impact on our results. Decreased net sales were partially offset by: (a) increased net sales of new products (approximately $0.9 million) and (b) increased net sales of products of acquired companies net of discontinued products (approximately $0.5 million). Infection Control Products. Increased net sales in the Infection Control Products segment resulted primarily from net sales of products of acquired companies (approximately $1.0 million) partially offset by decreased net sales of existing products due to dealer consolidations and product life cycle maturities (approximately $0.7 million).
GROSS PROFIT. FISCAL PERCENT OF FISCAL PERCENT OF DOLLAR PERCENT GROSS PROFIT: (IN THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE - ---------------------------- ----------- ------ ---------- ----- --------- ------ SLP: Labware and Life Sciences $ 27,770 50.8% $ 40,857 51.1% $ 13,087 47.1 % Clinical and Industrial 16,604 41.2% 21,646 41.7% 5,042 30.4 % Diagnostics and Microbiology 19,058 51.7% 27,999 55.3% 8,941 46.9 % Laboratory Equipment 10,188 41.3% 9,589 42.7% (599) (5.9)% --------- ---- ---------- ---- --------- ---- Subtotal SLP 73,620 47.1% 100,091 48.9% 26,471 36.0 % SDS: Professional Dental 24,607 54.5% 26,244 55.1% 1,637 6.7 % Orthodontics 24,429 59.0% 24,926 62.2% 497 2.0 % Infection Control Products 2,945 54.6% 2,929 51.4% (16) (0.5)% --------- ---- ---------- ---- --------- ---- Subtotal SDS 51,981 56.6% 54,099 57.9% 2,118 4.1 % --------- ---- ---------- ---- --------- ---- Total Gross Profit $ 125,601 50.6% $ 154,190 51.7% $ 28,589 22.8 % ========= ==== ========== ==== ========= ====
Overall Company. Gross profit for the quarter ended December 31, 1999 increased by $28.6 million or 22.8% from the corresponding fiscal 1999 period. Gross profit at SLP increased by $26.5 million in the first quarter of fiscal 2000, an increase of 36.0% from SLP's gross profit in the corresponding fiscal 1999 quarter. Gross profit at SDS increased by $2.1 million in the first quarter of fiscal 2000, an increase of 4.1% from SDS's gross profit in the corresponding fiscal 1999 quarter. Labware and Life Sciences. Increased gross profit in the Labware and Life Sciences segment resulted 16 18 primarily from: (a) the effects of acquired companies (approximately $9.9 million), (b) increased volume (approximately $2.9 million), (c) inventory valuation adjustments (approximately $0.6 million), (d) a favorable product mix (approximately $0.5 million) and (e) price increases (approximately $0.3 million). Increased gross profit was partially offset by increased manufacturing overhead (approximately $1.1 million). Clinical and Industrial. Increased gross profit in the Clinical and Industrial segment resulted primarily from: (a) the effects of acquired companies (approximately $4.1 million), (b) an improved product mix (approximately $1.5 million), (c) price increases (approximately $1.3 million) and (d) increased volume (approximately $0.6 million). Increased gross profit was partially offset by: (a) increased manufacturing overhead (approximately $2.4 million) and (b) inventory valuation adjustments (approximately $0.1 million). Diagnostics and Microbiology. Increased gross profit in the Diagnostics and Microbiology segment resulted primarily from: (a) the effects of acquired companies net of discontinued product lines (approximately $7.2 million), (b) increased volume (approximately $1.6 million), (c) a favorable product mix (approximately $1.2 million) and (d) inventory valuation adjustments (approximately $0.8 million). Increased gross profit was partially offset by: (a) increased manufacturing overhead (approximately $1.5 million) and (b) price decreases (approximately $0.4 million). Laboratory Equipment. Decreased gross profit in the Laboratory Equipment segment resulted primarily from: (a) reduced volume (approximately $1.2 million) and (b) inventory valuation adjustments (approximately $0.2 million). Decreased gross profit was partially offset by: (a) the effects of acquired companies (approximately $0.3 million), (b) decreased manufacturing overhead (approximately $0.3 million) and (c) price increases (approximately $0.2 million). Professional Dental. Increased gross profit in the Professional Dental segment resulted primarily from: (a) increased volume (approximately $2.3 million) and (b) a favorable product mix (approximately $0.7 million). Increased gross profit was partially offset by: (a) inventory valuation adjustments (approximately $0.6 million), (b) discontinued product lines (approximately $0.3 million), (c) increased manufacturing overhead (approximately $0.3 million) and (d) unfavorable foreign currency fluctuations (approximately $0.2 million). Orthodontics. Increased gross profit in the Orthodontics segment resulted primarily from: (a) a favorable product mix (approximately $2.5 million) and (b) the effects of acquired companies net of discontinued product lines (approximately $0.2 million). Increased gross profit was partially offset by: (a) unfavorable foreign currency fluctuations (approximately $1.0 million), (b) decreased volume (approximately $0.6 million), (c) increased manufacturing overhead (approximately $0.4 million) and (d) inventory valuation adjustments (approximately $0.2 million). Infection Control Products. Gross profit in the Infection Control Products segment was essentially flat and resulted primarily from: (a) the effects of acquired companies (approximately $0.6 million) and (b) an improved product mix (approximately $0.3 million), offset by (a) increased manufacturing overhead (approximately $0.5 million) and (b) decreased volume (approximately $0.4 million). 17 19
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SELLING GENERAL AND ADMINISTRATIVE EXPENSES: (IN PERCENT OF PERCENT OF DOLLAR PERCENT THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE - ----------------------------- ------- ----- ---------- ----- ------- ------ SLP: Labware and Life Sciences $ 15,063 27.6% $ 23,205 29.0% $ 8,142 54.1% Clinical and Industrial 7,148 17.8% 8,947 17.2% 1,799 25.2% Diagnostics and Microbiology 9,903 26.9% 14,840 29.3% 4,937 49.9% Laboratory Equipment 5,407 21.9% 5,070 22.6% (337) (6.2)% --------- ---- ---------- ---- ------- ---- Subtotal SLP 37,521 24.0% 52,062 25.4% 14,541 38.8% SDS: Professional Dental 16,305 36.1% 13,215 27.8% (3,090) (19.0)% Orthodontics 14,195 34.3% 14,792 36.9% 597 4.2% Infection Control Products 2,226 41.3% 2,349 41.2% 123 5.5% --------- ---- ---------- ---- ------- --- Subtotal SDS 32,726 35.6% 30,356 32.5% (2,370) (7.2)% Corporate Office 2,475 N/A 3,087 N/A 612 24.7% --------- ---- ---------- ---- ------- ---- Total Selling General and Administrative Expenses $ 72,722 29.3% $ 85,505 28.7% $12,783 17.6% ========= ==== ========== ==== ======= ====
Overall Company. Selling, general and administrative expenses for the quarter ended December 31, 1999 increased by $12.8 million or 17.6% from the corresponding fiscal 1999 quarter. Selling, general and administrative expenses at SLP increased by $14.5 million in the first quarter of fiscal 2000, an increase of 38.8% from SLP's corresponding fiscal 1999 quarter. Selling, general and administrative expenses at SDS decreased by $2.4 million in the first quarter of fiscal 2000, a decrease of 7.2% from SDS's corresponding fiscal 1999 quarter. Selling, general and administrative expenses at the corporate office increased by $0.6 million in the first quarter of fiscal 1999, an increase of 24.7% from the corporate office's corresponding fiscal 1999 quarter. Labware and Life Sciences. Increased selling, general and administrative expenses in the Labware and Life Sciences segment resulted primarily from: (a) increased selling, general and administrative expenses as a result of acquired businesses (approximately $5.6 million), (b) increased amortization of intangibles primarily as a result of acquisitions (approximately $1.3 million), (c) increased marketing expenses (approximately $1.0 million) and (d) increased general and administrative expenses (approximately $0.4 million). Increased selling, general and administrative expenses were partially offset by favorable foreign currency fluctuations (approximately $0.2 million). Clinical and Industrial. Increased selling, general and administrative expenses in the Clinical and Industrial segment resulted primarily from: (a) increased selling, general and administrative expenses as a result of acquired businesses (approximately $1.5 million), (b) increased marketing expenses (approximately $0.4 million) and (c) increased amortization of intangibles primarily as a result of acquisitions (approximately $0.3 million). Increased selling, general and administrative expenses were partially offset by: (a) decreased general and administrative expenses (approximately $0.3 million) and (b) favorable foreign currency fluctuations (approximately $0.1 million) Diagnostics and Microbiology. Increased selling, general and administrative expenses in the Diagnostics and Microbiology segment resulted primarily from: (a) increased selling, general and administrative expenses as a result of acquired businesses (approximately $2.7 million), (b) increased amortization of intangibles primarily as a result of acquisitions (approximately $1.2 million), (c) increased marketing expenses (approximately $1.2 million) and (d) increased research and development expense (approximately $0.1 million). Increased selling, general and administrative expenses were 18 20 partially offset by decreased general and administrative expenses (approximately $0.3 million). Laboratory Equipment. Decreased selling, general and administrative expenses in the Laboratory Equipment segment resulted primarily from: (a) decreased marketing expenses (approximately $0.4 million) and (b) decreased general and administrative expenses (approximately $0.1 million). Decreased selling, general and administrative expenses were partially offset by: (a) increased selling, general and administrative expenses as a result of acquired businesses (approximately $0.1 million) and (b) increased amortization of intangibles primarily as a result of acquisitions (approximately $0.1 million). Professional Dental. Decreased selling, general and administrative expenses in the Professional Dental segment resulted primarily from: (a) the non-recurring 1999 Special Charges (approximately $2.0 million), (b) decreased selling and marketing expenses (approximately $0.6 million), (c) reduced general and administrative expenses (approximately $0.3 million) and (d) decreased research and development expenses (approximately ($0.2 million). Orthodontics. Increased selling, general and administrative expenses in the Orthodontics segment resulted primarily from: (a) increased general and administrative expenses (approximately $0.9 million), (b) increased selling, general and administrative expenses as a result of acquired companies (approximately $0.2 million), (c) increased amortization of intangibles primarily as a result of acquisitions (approximately $0.2 million) and (d) unfavorable foreign currency fluctuations (approximately $0.1 million). Increased selling, general and administrative expenses in the Orthodontics segment were partially offset by (a) the non-recurring 1999 Special Charges (approximately $0.7 million) and (b) decreased research and development expenses (approximately $0.1 million). Infection Control Products. Increased selling, general and administrative expenses in the Infection Control Products segment resulted primarily from: (a) increased selling, general and administrative expenses as a result of acquired companies (approximately $0.1 million), (b) amortization of intangibles primarily from acquired businesses (approximately $0.1 million) and (c) increased general and administrative expenses (approximately $0.1 million). Increased selling, general and administrative expenses were partially offset by decreased selling and marketing expenses (approximately $0.2 million). Corporate Office. Increased selling, general and administrative expenses at the corporate office resulted primarily from: (a) an increase in legal expense and professional fees (approximately $0.6 million). 19 21
OPERATING INCOME. PERCENT OF PERCENT OF DOLLAR PERCENT OPERATING INCOME: (IN THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE - -------------------------------- --------- ----- -------- ----- -------- ------ SLP: Labware and Life Sciences $ 12,707 23.3% $ 17,652 22.1% $ 4,945 38.9% Clinical and Industrial 9,456 23.5% 12,699 24.5% 3,243 34.3% Diagnostics and Microbiology 9,155 24.8% 13,159 26.0% 4,004 43.7% Laboratory Equipment 4,781 19.4% 4,519 20.1% (262) (5.5)% --------- ---- -------- ---- ------- ----- Subtotal SLP 36,099 23.1% 48,029 23.4% 11,930 33.0% SDS: Professional Dental 8,302 18.4% 13,029 27.4% 4,727 56.9% Orthodontics 10,234 24.7% 10,134 25.3% (100) (1.0)% Infection Control Products 719 13.3% 580 10.2% (139) (19.3)% --------- ---- -------- ---- ------- ----- Subtotal SDS 19,255 20.9% 23,743 25.4% 4,488 23.3% Corporate Office (2,475) N/A (3,087) N/A (612) 24.7% --------- ---- -------- ---- ------- ----- Total Operating Income $ 52,879 21.3% $ 68,685 23.0% $15,806 29.9% ========= ==== ======== ==== ======= =====
As a result of the foregoing, operating income in the first quarter of fiscal 2000 increased by 29.9% or $15.8 million over operating income in the corresponding quarter of fiscal 1999. INTEREST EXPENSE. Interest expense was $17.9 million in the first quarter of fiscal 2000, an increase of $3.8 million from the corresponding fiscal 1999 quarter. The increase resulted from a higher average debt balance in 2000, resulting primarily from funding acquisitions (partially offset by the application of proceeds from the sale of Nalge Process Technologies Group, Inc. ("NPT") in March 1999) and an increase in average interest rates primarily due from the addition of a Term B Loan in July 1999. INCOME TAXES. Taxes on income from continuing operations in the first quarter of fiscal 2000 were $20.1 million, an increase of $4.5 million from the corresponding 1999 quarter. The increase resulted primarily from increased taxable earnings. INCOME FROM CONTINUING OPERATIONS. As a result of the foregoing we had net income from continuing operations of $30.4 million in the first quarter of fiscal 2000, as compared to $23.3 million in the corresponding 1999 period. DISCONTINUED OPERATIONS. Income from discontinued operations was $0.5 million in the first quarter of fiscal 1999. The 1999 discontinued operations resulted from the operating results of NPT. On March 31, 1999 Sybron completed the sale of NPT to Norton Performance Plastics Corporation, a subsidiary of Saint-Gobain-France. Net proceeds from the sale, net of $1.9 million of selling expenses and a reduction to the original purchase price of approximately $2.6 million, amounted to $83.2 million. The proceeds of the sale net of tax and expenses were used to repay approximately $67.9 million of debt under the Company's credit facilities. 20 22 NET INCOME. As a result of the foregoing, we had net income of $30.4 million in the first quarter of fiscal 2000, as compared to net income of $23.9 million in the corresponding 1999 period. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense is allocated among cost of sales, selling, general and administrative expenses and other expense. Depreciation and amortization increased $5.0 million in the first quarter of fiscal 2000 due to additional depreciation and amortization from the step-up of assets, goodwill and intangibles recorded from the various acquisitions as well as routine operating capital expenditures. LIQUIDITY AND CAPITAL RESOURCES As a result of the acquisition of Sybron's predecessor in 1987 and the acquisitions we completed since 1987, we have increased the carrying value of certain tangible and intangible assets consistent with generally accepted accounting principles. Accordingly, our results of operations include a significant level of non-cash expenses related to the depreciation of fixed assets and the amortization of intangible assets, including goodwill. Goodwill and other intangible assets increased by approximately $84.2 million in the first quarter of fiscal 2000, primarily as a result of continued acquisition activity. We believe, therefore, that Adjusted EBITDA represents the more appropriate measure of our ability to internally fund our capital requirements. Our capital requirements arise principally from indebtedness incurred in connection with the permanent financing for the 1987 acquisition and our subsequent refinancings, our obligation to pay rent under the Sale/Leaseback facility (as defined later herein), our working capital needs, primarily related to inventory and accounts receivable, our capital expenditures, primarily related to purchases of machinery and molds, the purchase of various businesses and product lines in execution of our acquisition strategy and the periodic expansion of physical facilities. It is currently our intent to pursue our acquisition strategy. If acquisitions continue at our historical pace, of which there can be no assurance, we may require financing beyond the capacity of our Credit Facilities (as defined below). In addition, certain acquisitions previously completed contain "earnout provisions" requiring further payments in the future if certain financial results are achieved by the acquired companies. The preceding statement about our intent to continue to pursue our acquisition strategy is a forward-looking statement. Our ability to continue our acquisition strategy is subject to a number of uncertainties, including, but not limited to, our ability to raise capital beyond the capacity of our Credit Facilities or use of stock for acquisitions, the cost of capital required to effect our acquisition strategy, the availability of suitable acquisition candidates at reasonable prices, our ability to realize the synergies expected to result from acquisitions, and the ability of our existing personnel to efficiently handle increased transitional responsibilities resulting from acquisitions. See "Cautionary Factors" below. Approximately $21.5 million of cash was generated from operating activities in the first quarter of fiscal 2000, an increase of $3.0 million or 16.1%, from the corresponding 1999 period. Increased cash flow from operating activities resulted primarily from an increase in Adjusted EBITDA (approximately $17.7 million), a decrease in taxes paid (approximately $6.1 million) partially offset by increases in 21 23 other net assets (approximately $18.3 million) and an increase in interest paid (approximately $2.5 million). Approximately $100.2 million of cash was used in investing activities in the first quarter of fiscal 2000, an increase of $40.3 million, or 67.2%, from the corresponding 1999 period. Increased investing activities resulted primarily from an increase in acquisitions (approximately $38.6 million), increased capital expenditures (approximately $2.0 million) partially offset by an increase in the proceeds from sales of property plant and equipment (approximately $0.3 million). Approximately $84.0 million of cash was provided from financing activities, primarily from the Company's existing Credit Facilities (approximately $90.6 million), partially offset by a refund of collateral under a securities loan agreement (approximately $2.8 million), and repayments of other financing sources (approximately $3.8 million). With respect to the 1998 restructuring charge of approximately $24.0 million, of which approximately $11.7 million represents cash expenditures, as of December 31, 1999, we have made cash payments of approximately $9.9 million. The Company expects to make future cash payments of approximately $0.7 million in fiscal 2000 and approximately $1.1 million in fiscal 2001 and beyond. On July 31, 1995, we entered into a credit agreement (as amended to date, the "Credit Agreement") with Chemical Bank (now known as The Chase Manhattan Bank ("Chase")) and certain other lenders providing for a term loan facility of $300 million (the "Tranche A Term Loan Facility"), and a revolving credit facility of $250 million (the "Revolving Credit Facility"). On the same day, we borrowed $300 million under the Tranche A Term Loan Facility and approximately $122.5 million under the Revolving Credit Facility. Approximately $158.5 million of the borrowed funds were used to finance the acquisition of the Nunc group of companies (approximately $9.1 million of the acquisition price for Nunc was borrowed under our previous credit facilities). The remaining borrowed funds of approximately $264.0 million were used to repay outstanding amounts, including accrued interest, under our previous credit facilities and to pay certain fees in connection with such refinancing. On July 9, 1996, under the First Amendment to the Credit Agreement (the "First Amendment"), the capacity of the Revolving Credit Facility was increased to $300 million, and a competitive bid process was established as an additional option for us in setting interest rates. On April 25, 1997, we entered into the Second Amended and Restated Credit Agreement (the "Second Amendment"). The Second Amendment was an expansion of the credit facilities. The Tranche A Term Loan Facility was restored to $300 million by increasing it by $52.5 million (equal to the amount previously repaid through April 24, 1997) and the Revolving Credit Facility was expanded from $300 million to $600 million. On April 25, 1997, we borrowed a total of $622.9 million under the credit facilities. The proceeds were used to repay $466.3 million of previously existing Eurodollar Rate and Tranche A ABR loans (as defined below) (including accrued interest and certain fees and expenses) under the credit facilities and to pay $156.6 million with respect to the purchase of Remel Limited Partnership which includes both the purchase price and payment of assumed debt. The $72 million of CAF borrowings (as defined below) remained in place. On July 1, 1998, we completed the First Amendment to the Second Amended Credit Agreement (the "Additional Amendment"). The Additional Amendment provided for an increase in the Tranche A Term Loan Facility of $100 million. On July 1, 1998, we used the $100 million of proceeds from the Additional Amendment to pay $100 million of existing debt balances under the Revolving Credit Facility. The Additional Amendment also provided us with the ability to use proceeds from the issuance of additional unsecured, subordinated indebtedness of up to $300 million, to pay amounts outstanding under the Revolving Credit Facility without reducing our ability to borrow under the Revolving Credit Facility in the future. On July 29, 1999, we entered into the Third Amended and Restated Credit Agreement (the "Third Amendment") and borrowed an additional $300 million under a new term loan facility (the "Tranche B Term Loan Facility"). On July 29, 1999, we used the $300 million of proceeds 22 24 from the Tranche B Term Loan Facility (after a reduction for fees of approximately $1.6 million) to repay $298.4 million of outstanding amounts under the Revolving Credit Facility. Payment of principal and interest with respect to the credit facilities and the Sale/Leaseback (as defined later herein) are anticipated to be our largest use of operating funds in the future. The Tranche A Term Loan Facility and Revolving Credit Facility provide for an annual interest rate, at our option, equal to (a) the higher of (i) the rate from time to time publicly announced by Chase in New York City as its prime rate, (ii) the federal funds rate plus 1/2 of 1%, and (iii) the base CD rate plus 1%, (collectively referred to as "Tranche A ABR") or (b) the adjusted interbank offered rate for eurodollar deposits ("Eurodollar Rate") plus 1/2% to 7/8% (the "Tranche A Eurodollar Rate Margin") depending upon the ratio of our total debt to Consolidated Adjusted Operating Profit (as defined in the Third Amendment), or (c) with respect to certain advances under Revolving Credit Facility, the rate set by the competitive bid process among the parties to the Revolving Credit Facility ("CAF"). The Tranche B Term Loan Facility provides for an annual interest rate, at our option, equal to (a) the higher of (i) the rate from time to time publicly announced by Chase in New York City as its prime rate plus 1% to 1 1/4%, (ii) the federal funds rate plus of 1 1/2% to 1 3/4%, and (iii) the base CD rate plus 2% to 2 1/4%, depending upon the ratio of our total debt to Consolidated Adjusted Operating Profit or (b) the Eurodollar Rate plus 2% to 2 1/4% depending upon the ratio of our total debt to Consolidated Adjusted Operating Profit. The average interest rate on the Tranche A Term Loan Facility (inclusive of the swap agreements described below) in the first quarter of fiscal 2000 was 6.3%. The average interest rate on the Tranche B Term Loan Facility in the first quarter of fiscal 2000 was 7.7%. The average interest rate on the Revolving Credit Facility in the first quarter of fiscal 2000 was 6.5%. As a result of the terms of our credit facilities, we are sensitive to a rise in interest rates. A rise in interest rates would result in increased interest expense on our outstanding debt. In order to reduce our sensitivity to interest rate increases, from time to time we enter into interest rate swap agreements. As of December 31, 1999, the Company has eight interest rate swaps outstanding aggregating a notional amount of $383.5 million. Under the terms of the swap agreements, the Company is required to pay a fixed rate amount equal to the swap agreement rate listed below. In exchange for the payment of the fixed rate amount, the Company receives a floating rate amount equal to the three-month LIBOR rate in effect on the date of the swap agreements and the subsequent reset dates. For each of the swap agreements the rate resets on each quarterly anniversary of the swap agreement date until the swap expiration date. The net interest rate paid by the Company is approximately equal to the sum of the swap agreement rate plus the applicable Eurodollar Rate Margin. In the first quarter of fiscal 2000, the Tranche A and Revolver Eurodollar Rate Margins were .75%. The Tranche B Eurodollar Margin, which became applicable on July 29, 1999, was 2.0%. The swap agreement rates and durations as of December 31, 1999 are as follows:
EXPIRATION DATE NOTIONAL AMOUNT SWAP AGREEMENT DATE SWAP AGREEMENT RATE --------------- --------------- ------------------- ------------------- June 8, 2002 $50 million December 8, 1995 5.500% February 7, 2001 $50 million August 7, 1997 5.910% August 7, 2001 $50 million August 7, 1997 5.900% September 10, 2001 $50 million December 8, 1995 5.623% December 31, 2001 $8.5 million March 24, 1999 5.500% July 31, 2002 $75 million May 7, 1997 6.385% July 31, 2002 $50 million October 23, 1998 4.733% October 1, 2002 $50 million October 1, 1999 6.260%
23 25 Also as part of the permanent financing for the acquisition of Sybron's predecessor in 1987, on December 22, 1988, we entered into the sale and leaseback of what were our principal domestic facilities at that time (the "Sale/Leaseback"). In January 1999, the annual obligation under the Sale/Leaseback increased from $3.3 million to $3.6 million, payable monthly. On the fifth anniversary of the leases and every five years thereafter (including renewal terms), the rent will be increased by the percentage equal to 75% of the percentage increase in the Consumer Price Index over the preceding five years. The percentage increase to the rent in any five-year period is capped at 15%. The next adjustment will occur on January 1, 2004. We intend to fund our acquisitions, working capital requirements, capital expenditure requirements, principal and interest payments, obligations under the Sale/Leaseback, restructuring expenditures, other liabilities and periodic expansion of facilities, to the extent available, with funds provided by operations and short-term borrowings under the Revolving Credit Facility. To the extent that funds are not available from those sources, particularly with respect to our acquisition strategy, we would have to raise additional capital. The Revolving Credit Facility provides up to $600 million in available credit. At December 31, 1999, there was approximately $224.6 million of available credit under the Revolving Credit Facility. Under the Tranche A Term Loan Facility, on July 31, 1997 we began to repay principal in 21 consecutive quarterly installments by paying the $8.75 million due in fiscal 1997, $35.0 million due in fiscal 1998 and, during the first half of fiscal 1999, $17.5 million of the $36.25 million due in fiscal 1999. On March 31, 1999, as a result of the sale of NPT, the Company received approximately $87.7 million (approximately $86.0 million net of fees and expenses). The net proceeds were subsequently reduced in October 1999 by approximately $2.8 million relating to a reduction in the purchase price of approximately $2.6 million and additional fees of $0.2 million. Net proceeds of the sale, after a reduction for estimated applicable income taxes, were required to be used to repay amounts owed by the Company under the Tranche A Term Loan Facility. On March 31, 1999, the Company paid principal of approximately $67.9 million due under the Tranche A Term Loan Facility. The following table shows how the payments were applied, and the resulting revised schedule of principal payments under the Tranche A Term Loan Facility.
PAYMENTS PREVIOUSLY PRINCIPAL DUE APPLIED FROM SCHEDULED AFTER APPLICATION NPT SALE PRINCIPAL OF NPT PROCEEDS -------- --------- --------------- (IN MILLIONS) Payments previously due in fiscal 1999 $ 18.75 $ 18.75 $ - Payments due in 2000 42.50 42.50 - Payments due in 2001 1.29 53.75 52.46 Payments due in 2002 5.37 223.75 218.38 ------- -------- -------- Total $ 67.91 $ 338.75 $ 270.84 ======= ======== ========
In addition, under the terms of the Tranche B Term Loan Facility, the Company will be required to repay principal in consecutive quarterly installments beginning on January 31, 2000 as follows: $0.75 million due in fiscal 2000, $1.0 million due in fiscal 2001, $1.0 million due in fiscal 2002, $120.25 million due in fiscal 2003 and $177 million due in fiscal 2004, with the final payment due on July 31, 2004. To secure the repayment of borrowings under the Credit Agreement, the Company has pledged to Chase, as collateral agent for the lenders, all of the capital stock of the Company's principal domestic 24 26 subsidiaries and 65% of the capital stock of its principal foreign subsidiaries (excluding capital stock not owned by the Company directly or indirectly, and also excluding certain immaterial subsidiaries), and certain intra-company promissory notes issued in connection with the acquisition of Nunc. The Credit Agreement contains numerous financial and operating covenants, including, among other things, restrictions on investments; requirements that we maintain certain financial ratios; restrictions on our ability to incur indebtedness or to create or permit liens or to pay cash dividends in excess of $50.0 million plus 50% of our consolidated net income for each fiscal quarter ending after June 30, 1995, less any dividends paid after June 22, 1994; and limitations on incurrence of additional indebtedness. The Credit Agreement permits us to make acquisitions provided we continue to satisfy all covenants upon any such acquisition. Our ability to meet our debt service requirements and to comply with such covenants is dependent upon our future performance, which is subject to financial, economic, competitive and other factors affecting us, many of which are beyond our control. YEAR 2000 We did not experience any significant malfunctions or errors in our information or non-information technology systems when the date changed from 1999 to 2000, and we have not experienced any significant problems with our suppliers' or customers' ability to function as a result of the date change. Because it is possible that the full impact of the date change has not been fully recognized, we will continue to monitor our Y2K situation, particularly through additional key dates such as February 29, 2000. We believe, however, that any potential problems are likely to be minor, short-term, and correctable. From the beginning of fiscal 1998 through the first quarter of fiscal 2000, the Company incurred approximately $3.0 million in capital costs and approximately $1.5 million in expenses for Y2K readiness matters. The primary components of these costs were external consulting and hardware and software upgrades. We did not separately track internal costs (primarily payroll costs of employees) of our initiative. EUROPEAN ECONOMIC MONETARY UNIT On January 1, 1999, eleven of the European Union countries (including four countries in which we have operations) adopted the Euro as their single currency. At that time, a fixed exchange rate was established between the Euro and the individual countries' existing currencies (the "legacy currencies"). The Euro trades on currency exchanges and is available for non-cash transactions. Following the introduction of the Euro, the legacy currencies will remain legal tender in the participating countries during a transition period from January 1, 1999 through January 1, 2002. Beginning on January 1, 2002, the European Central Bank will issue Euro-denominated bills and coins for use in cash transactions. On or before July 1, 2002, the participating countries will withdraw all legacy bills and coins and use the Euro as their legal currency. Our operating units located in European countries affected by the Euro conversion intend to keep their books in their respective legacy currencies through a portion of the transition period. At this time, we do not expect reasonably foreseeable consequences of the Euro conversion to have a material adverse effect on our business operations or financial condition. 25 27 CAUTIONARY FACTORS This report contains various forward-looking statements concerning our prospects that are based on the current expectations and beliefs of management. Forward-looking statements may also be made by us from time to time in other reports and documents as well as oral presentations. When used in written documents or oral statements, the words "anticipate", "believe", "estimate", "expect", "objective" and similar expressions are intended to identify forward-looking statements. The statements contained herein and such future statements involve or may involve certain assumptions, risks and uncertainties, many of which are beyond our control, that could cause our actual results and performance to differ materially from what is expected. In addition to the assumptions and other factors referenced specifically in connection with such statements, the following factors could impact our business and financial prospects: - - Factors affecting our international operations, including relevant foreign currency exchange rates, which can affect the cost to produce our products or the ability to sell our products in foreign markets, and the value in U.S. dollars of sales made in foreign currencies. Other factors include our ability to obtain effective hedges against fluctuations in currency exchange rates; foreign trade, monetary and fiscal policies; laws, regulations and other activities of foreign governments, agencies and similar organizations; and risks associated with having major manufacturing facilities located in countries, such as Mexico, Hungary and Italy, which have historically been less stable than the United States in several respects, including fiscal and political stability; and risks associated with the economic downturns in other countries. - - Factors affecting our ability to continue pursuing our current acquisition strategy, including our ability to raise capital beyond the capacity of our existing credit facilities or to use our stock for acquisitions, the cost of the capital required to effect our acquisition strategy, the availability of suitable acquisition candidates at reasonable prices, our ability to realize the synergies expected to result from acquisitions, and the ability of our existing personnel to efficiently handle increased transitional responsibilities resulting from acquisitions. - - Our reliance on major independent distributors for a substantial portion of our sales subjects our sales performance to volatility in demand if distributor inventories get out of balance with end user demand. This can happen when distributors merge or consolidate, or when inventories are not managed to end-user demand. - - Factors affecting our ability to profitably distribute and sell our products, including any changes in our business relationships with our principal distributors, primarily in the laboratory segment, competitive factors such as the entrance of additional competitors into our markets, pricing and technological competition, and risks associated with the development and marketing of new products in order to remain competitive by keeping pace with advancing dental, orthodontic and laboratory technologies. - - With respect to Erie, factors affecting its Erie Electroverre S.A. subsidiary's ability to manufacture the glass used by Erie's worldwide manufacturing operations, including delays encountered in connection with the periodic rebuild of the sheet glass furnace and furnace malfunctions at a time when inventory levels are not sufficient to sustain Erie's flat glass operations. 26 28 - - Factors affecting our ability to hire and retain competent employees, including unionization of our non-union employees and changes in relationships with our unionized employees. - - The risk of strikes or other labor disputes at those locations which are unionized which could affect our operations. - - Factors affecting our ability to continue manufacturing and selling those of our products that are subject to regulation by the United States Food and Drug Administration or other domestic or foreign governments or agencies, including the promulgation of stricter laws or regulations, reclassification of our products into categories subject to more stringent requirements, or the withdrawal of the approval needed to sell one or more of our products. - - Factors affecting the economy generally, including a rise in interest rates, the financial and business conditions of our customers and the demand for customers' products and services that utilize Company products. - - Factors relating to the impact of changing public and private health care budgets which could affect demand for or pricing of our products. - - Factors affecting our financial performance or condition, including tax legislation, unanticipated restrictions on our ability to transfer funds from our subsidiaries and changes in applicable accounting principles or environmental laws and regulations. - - The cost and other effects of claims involving our products and other legal and administrative proceedings, including the expense of investigating, litigating and settling any claims. - - Factors affecting our ability to produce products on a competitive basis, including the availability of raw materials at reasonable prices. - - Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of our existing assets. - - Factors affecting our operations in European countries related to the conversion from local legacy currencies to the Euro. - - Other business and investment considerations that may be disclosed from time to time in our Securities and Exchange Commission filings or in other publicly available written documents. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 27 29 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. RISK MANAGEMENT We are exposed to market risk from changes in foreign currency exchange rates and interest rates. To reduce our risk from these foreign currency rate and interest rate fluctuations, we occasionally enter into various hedging transactions. We do not anticipate material changes to our primary market risks other than fluctuations in magnitude from increased or decreased foreign currency denominated business activity or floating rate debt levels. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. FOREIGN EXCHANGE We have, from time to time, used foreign currency options to hedge our exposure from adverse changes in foreign currency rates. Our foreign currency exposure exists primarily in the Euro, Danish Krone and the Japanese Yen values versus the U.S. dollar. Hedging is accomplished by the use of foreign currency options, and the gain or loss on these options is used to offset gains or losses in the foreign currencies to which they pertain. Hedges of anticipated transactions are accomplished with options that expire on or near the maturity date of the anticipated transactions. In November 1999 we entered into nine foreign currency options to hedge our exposure to each of the aforementioned currencies. In 2000, we expect our exposure from our primary foreign currencies to approximate the following:
ESTIMATED EXPOSURE DENOMINATED ESTIMATED IN THE RESPECTIVE EXPOSURE CURRENCY FOREIGN CURRENCY IN U.S. DOLLARS -------- ---------------- --------------- (IN THOUSANDS) Euro (EUR) 42,000 EUR $44,520 Danish Krone (DKK) 87,400 DKK 12,485 Japanese Yen (JPY) 800,000 JPY 7,619
As a result of these anticipated exposures, we entered into a series of options expiring at the end of the second, third and fourth quarters of 2000 to protect ourselves from possible detrimental effects of foreign currency fluctuations. We accomplished this by taking approximately one-fourth of the exposure in each of the foreign currencies listed above and purchasing a put option on that currency (giving us the right but not the obligation to sell the foreign currency at a predetermined rate). We purchased put options on the foreign currencies at amounts approximately equal to our quarterly exposure. The EUR and DKK options expire on a quarterly basis, at an exchange rate approximately equal to the spot exchange rate at the date of purchase for each of the respective currencies. The JPY options expire on a quarterly basis at an exchange rate approximately equal to the prior year's respective quarters actual exchange rate. In November 1999, we acquired the following put options: 28 30
NOTIONAL OPTION STRIKE CURRENCY AMOUNT(A) EXPIRATION DATE PRICE PRICE(B) -------- --------- --------------- ----- -------- (In thousands, except strike prices) EUR 10,500 March 29, 2000 $ 250 .9524 EUR 10,500 June 28, 2000 297 .9524 EUR 10,500 September 26, 2000 329 .9524 DKK 21,850 March 29, 2000 88 7.00 DKK 21,850 June 28, 2000 103 7.00 DKK 21,850 September 26, 2000 114 7.00 JPY 200,000 March 29, 2000 9 116.00 JPY 200,000 June 28, 2000 10 120.00 JPY 200,000 September 26, 2000 24 115.00
- --------------------- (a) Amounts expressed in units of foreign currency. (b) Amounts expressed in foreign currency per U.S. dollar. Our exposure in terms of these options is limited to the purchase price. To illustrate this, the following example, uses the Euro contract due to expire at September 26, 2000.
EUR EXCHANGE GAIN/(LOSS) GAIN/(LOSS) RATE ON OPTION (A) FROM PRIOR YEAR RATE (B) NET GAIN/(LOSS) ------------ ------------- ------------------------ --------------- (IN THOUSANDS, EXCEPT EXCHANGE RATE) .90 $ (329) $ 659 $ 330 .95 (329) 45 (284) 1.0 196 (507) (311)
- -------------------- (a) Calculated as (notional amount/strike price) - (notional amount/exchange rate) - premium paid, with losses limited to the premium paid on the contract. (b) Calculated as (notional amount/exchange rate) - (notional amount/prior year exchange rate of .9539). INTEREST RATES We use interest rate swaps to reduce our exposure to interest rate movements. Our net exposure to interest rate risk consists of floating rate instruments whose interest rates are determined by the Eurodollar Rate. Interest rate risk management is accomplished by the use of swaps to create fixed interest rate debt by resetting Eurodollar Rate loans concurrently with the rates applying to the swap agreements. At December 31, 1999 we had floating rate debt of approximately $943.2 million of which a total of $383.5 million was swapped to fixed rates. The net interest rate paid by the Company is approximately equal to the sum of the swap agreement rate plus the applicable Eurodollar Rate Margin. In the first quarter of fiscal 2000, the Tranche A and Revolver Eurodollar Rate Margins were .75%. The Tranche B Eurodollar Margin, which became applicable on July 29, 1999, was 2.0%. The swap agreement rates and durations as of September 30, 1999 are as follows: 29 31
EXPIRATION DATE NOTIONAL AMOUNT SWAP AGREEMENT DATE SWAP AGREEMENT RATE --------------- --------------- ------------------- ------------------- June 8, 2002 $50 million December 8, 1995 5.500% February 7, 2001 $50 million August 7, 1997 5.910% August 7, 2001 $50 million August 7, 1997 5.900% September 10, 2001 $50 million December 8, 1995 5.623% December 31, 2001 $8.5 million March 24, 1999 5.500% July 31, 2002 $75 million May 7, 1997 6.385% July 31, 2002 $50 million October 23, 1998 4.733% October 1, 2002 $50 million October 1, 1999 6.260%
In addition to the aforementioned swaps, on September 29, 1999, the Company entered into a repurchase agreement in which we purchased a United States Treasury Bond ("Treasury") with a par value of $50 million, an interest rate of 6.15% and a maturity date of August 15, 2029. Concurrent with the purchase of the Treasury, the Company lent the security to an unrelated third party for a period of 23 years. In exchange for the loaned Treasury, the Company has received collateral equal to the market value of the Treasury on the date of the loan, and adjusted on a weekly basis. For a period of five years the Company is obligated to pay a rebate on the loaned collateral at an annual fixed rate of 6.478% and is entitled to receive a fee for the loan of the security at a floating rate equal to LIBOR minus .75%. Thereafter, the Company is required to pay the unrelated third party a collateral fee equal to the one-week general collateral rate of interest (as determined weekly in good faith by the unrelated third party, provided that such rate shall not exceed the federal funds rate in effect as of the day of determination plus .25%). The model below quantifies the Company's sensitivity to interest rate movements as determined by the Eurodollar Rate and the effect of the interest rate swaps which reduce that risk. The model assumes a) a base Eurodollar Rate of 6.00% (the "Eurodollar Base Rate") which approximates the December 31, 1999 three month Eurodollar Rate, b) the Company's floating rate debt is equal to it's December 31, 1999 floating rate debt balance of $943.8 million, c) the Company pays interest on floating rate debt equal to the Eurodollar Rate + 75 basis points, d) the Company has interest rate swaps (including the repurchase agreement) with a notional amount of $433.5 million (equal to the notional amount of the Company's interest rate swaps at December 31, 1999), and e) the Eurodollar Rate varies by 10% of the Base Rate.
INTEREST EXPENSE INCREASE FROM A 10% INTEREST EXPENSE DECREASE FROM A 10% INTEREST RATE EXPOSURE INCREASE IN THE EURODOLLAR BASE RATE DECREASE IN THE EURODOLLAR BASE RATE - ---------------------- ------------------------------------ ------------------------------------ Without interest rate swaps: $5.7 million ($5.7 million) With interest rate swaps: $3.1 million ($3.1 million)
PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Quorum The Company, a Wisconsin corporation, held its Annual Meeting of Shareholders on February 2, 2000. A quorum was present at the Annual Meeting, with 94,984,653 shares out of a total of 104,026,205 shares entitled to cast votes represented in person or by proxy at the meeting. 30 32 Proposal Number 1: To Elect Two Directors to Serve as Class II Directors Until the 2003 Annual Meeting of Shareholders and Until Their Respective Successors are Duly Elected and Qualified. The shareholders voted to elect Thomas O. Hicks and Robert B. Haas to serve as Class II directors until the 2003 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified. The results of the vote are as follows: Mr. Hicks Mr. Haas For 78,436,131 93,863,224 Withheld From 16,548,522 1,121,429 The terms of office as directors of Kenneth F. Yontz, Joe L. Roby, William U. Parfet, Christopher L. Doerr, Don H. Davis, Jr. and Richard W. Vieser continued after the meeting. Proposal Number 2: To Reapprove the Sybron International Corporation Senior Executive Incentive Compensation Plan, as Amended, as Required by Section 162(m) of the Internal Revenue Code. The shareholders voted to reapprove the Sybron International Corporation Senior Executive Incentive Compensation Plan. The results of the vote are as follows: For 92,889,440 Against 2,024,333 Abstentions 70,880 Broker Non-Votes 0 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS: See the Exhibit Index following the Signature page in this report, which is incorporated herein by reference. (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the quarter for which this report is filed. 31 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYBRON INTERNATIONAL CORPORATION -------------------------------- (Registrant) Date: February 14, 2000 /s/ Dennis Brown - ------------------------ -------------------------------- Dennis Brown Vice President - Finance, Chief Financial Officer & Treasurer* * executing as both the principal financial officer and the duly authorized officer of the Company. 32 34 SYBRON INTERNATIONAL CORPORATION (THE "REGISTRANT") (COMMISSION FILE NO. 1-11091) EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1999
INCORPORATED EXHIBIT HEREIN BY FILED NUMBER DESCRIPTION REFERENCE TO HEREWITH 3 Bylaws of Sybron International X Corporation, Adopted December 10, 1993 and Amended as of December 22, 1999 27 Financial Data Schedule X
EI-1 EX-3 2 BYLAWS 1 BYLAWS OF SYBRON INTERNATIONAL CORPORATION ADOPTED DECEMBER 10, 1993 AND AMENDED AS OF DECEMBER 22, 1999 2
TABLE OF CONTENTS ARTICLE I Offices; Records 1.01. Principal and Business Offices...........................................................................1 1.02. Registered Office and Registered Agent...................................................................1 1.03. Corporate Records........................................................................................1 ARTICLE II Shareholders 2.01. Annual Meeting...........................................................................................1 2.02. Special Meetings.........................................................................................2 2.03. Place of Meeting.........................................................................................2 2.04. Notices to Shareholders..................................................................................2 (a) Required Notice................................................................................2 (b) Adjourned Meeting..............................................................................2 (c) Waiver of Notice..............................................................................2 (d) Contents of Notice...........................................................................2 (e) Fundamental Transactions.......................................................................3 2.05. Fixing of Record Date....................................................................................3 2.06. Shareholder List.........................................................................................3 2.07. Quorum and Voting Requirements...........................................................................3 2.08. Conduct of Meetings......................................................................................4 2.09. Proxies..................................................................................................4 2.10. Voting of Shares.........................................................................................4 2.11. Notice of Shareholder Nomination(s) and/or Proposal(s)...................................................5 ARTICLE III Board of Directors 3.01. General Powers and Number................................................................................6 3.02. Election, Removal, Tenure and Qualifications.............................................................6 3.03. Regular Meetings........................................................................................7 3.04. Special Meetings.......................................................................................7 3.05. Meetings By Telephone or Other Communication Technology..................................................7 3.06. Notice of Meetings.....................................................................................7 3.07. Quorum...................................................................................................7 3.08. Manner of Acting.........................................................................................8 3.09. Conduct of Meetings......................................................................................8 3.10. Vacancies................................................................................................8 3.11. Compensation.............................................................................................8 3.12. Presumption of Assent....................................................................................8 3.13. Committees...............................................................................................8 ARTICLE IV Officers 4.01. Appointment..............................................................................................9 4.02. Resignation and Removal..................................................................................9 4.03. Vacancies................................................................................................9 4.04. Chairperson of the Board.................................................................................9 4.05. Chief Executive Officer..................................................................................9 4.06. President................................................................................................9 4.07. Vice Presidents.........................................................................................10 4.08. Secretary...............................................................................................10 4.09. Treasurer...............................................................................................10 4.10. Assistants and Acting Officers..........................................................................10 4.11. Bonding.................................................................................................10
i 3 4.12. Salaries................................................................................................11 ARTICLE V Certificates for Shares and Their Transfer 5.01. Certificates for Shares.................................................................................11 5.02. Signature by Former Officers............................................................................11 5.03. Transfer of Shares......................................................................................11 5.04. Restrictions on Transfer................................................................................11 5.05. Lost, Destroyed or Stolen Certificates..................................................................11 5.06. Consideration for Shares................................................................................12 5.07. Stock Regulations.......................................................................................12 ARTICLE VI Waiver of Notice 6.01. Shareholder Written Waiver............................................................................12 6.02. Shareholder Waiver by Attendance........................................................................12 6.03. Director Written Waiver.................................................................................12 6.04. Director Waiver by Attendance...........................................................................12 ARTICLE VII Action Without Meetings 7.01. Shareholder Action Without Meeting......................................................................12 7.02. Director Action Without Meeting.........................................................................13 ARTICLE VIII Indemnification 8.01. Indemnification for Successful Defense..................................................................13 8.02. Other Indemnification...................................................................................13 8.03. Written Request.........................................................................................14 8.04. Nonduplication..........................................................................................14 8.05. Determination of Right to Indemnification...............................................................14 8.06. Advance of Expenses.....................................................................................15 8.07. Nonexclusivity..........................................................................................15 8.08. Court-Ordered Indemnification...........................................................................15 8.09. Indemnification and Allowance of Expenses of Employes and Agents........................................16 8.10. Insurance...............................................................................................16 8.11. Securities Law Claims...................................................................................16 8.12. Liberal Construction...................................................................................16 8.13. Definitions Applicable to this Article..................................................................16 ARTICLE IX Miscellaneous 9.01. Seal....................................................................................................17 9.02. Fiscal Year.............................................................................................17 ARTICLE X Amendments 10.01. By Shareholders.........................................................................................17 10.02. By Directors............................................................................................18 10.03. Implied Amendments......................................................................................18
ii 4 ARTICLE I OFFICES; RECORDS 1.01. Principal and Business Offices. The corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the corporation may require from time to time. 1.02. Registered Office and Registered Agent. The registered office of the corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin. The address of the registered office may be changed from time to time by any officer or by the registered agent. The office of the registered agent of the corporation shall be identical to such registered office. 1.03. Corporate Records. The following documents and records shall be kept at the corporation's principal office or at such other reasonable location as may be specified by the corporation: (a) Minutes of shareholders' and Board of Directors' meetings and any written notices thereof. (b) Records of actions taken by the shareholders or directors without a meeting. (c) Records of actions taken by committees of the Board of Directors. (d) Accounting records. (e) Records of its shareholders. (f) Current Bylaws. (g) Written waivers of notice by shareholders or directors (if any). (h) Written consents by shareholders or directors for actions without a meeting (if any). (i) Voting trust agreements (if any). (j) Stock transfer agreements to which the corporation is a party or of which it has notice (if any). (k) Consents by shareholders and directors to receive notice via electronic transmission (if any). ARTICLE II SHAREHOLDERS 2.01. Annual Meeting. The annual meeting of the shareholders shall be held on such date and at such time in each fiscal year as may be fixed by or under the authority of the Board of Directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting is a legal holiday in the State of Wisconsin, such meeting shall be held on the next succeeding business day. If the election of directors is not held on the day designated herein, or fixed as herein provided, for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as may be convenient. 1 5 2.02. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairperson of the Board, if there is one, or pursuant to a resolution adopted by a majority of the members of the Board of Directors. If and as required by the Wisconsin Business Corporation Law, a special meeting shall be called upon written demand describing one or more purposes for which it is to be held by holders of shares with at least 10% of the votes entitled to be cast on any issue proposed to be considered at the meeting. The purpose or purposes of any special meeting shall be described in the notice required by Section 2.04 of these Bylaws. 2.03. Place of Meeting. The Board of Directors may designate any place, either within or without the State of Wisconsin, as the place of meeting for any annual meeting or any special meeting. If no designation is made, the place of meeting shall be the principal office of the corporation but any meeting may be adjourned to reconvene at any place designated by vote of a majority of the shares represented thereat. 2.04. Notices to Shareholders. (a) Required Notice. Written notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) days nor more than sixty (60) days before the date of the meeting (unless a different time is provided by law or the Articles of Incorporation), by or at the direction of the Chairperson of the Board, if there is one, the President or the Secretary, to each shareholder entitled to vote at such meeting or, for the fundamental transactions described in subsections (e)(1) to (4) below (for which the Wisconsin Business Corporation Law requires that notice be given to shareholders not entitled to vote), to all shareholders. For purposes of this Section 2.04, notice by "electronic transmission" (as defined in the Wisconsin Business Corporation Law) is written notice. Written notice is effective: (1) When mailed, if mailed postpaid and addressed to the shareholder's address shown in the corporation's current record of shareholders. (2) When electronically transmitted to the shareholder in a manner authorized by the shareholder. At least twenty (20) days' notice shall be provided if the purpose, or one of the purposes, of the meeting is to consider a plan of merger or share exchange for which shareholder approval is required by law, or the sale, lease, exchange or other disposition of all or substantially all of the corporation's property, with or without good will, otherwise than in the usual and regular course of business. (b) Adjourned Meeting. Except as provided in the next sentence, if any shareholder meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, and place, if the new date, time, and place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed, then notice must be given pursuant to the requirements of paragraph (a) of this Section 2.04, to those persons who are shareholders as of the new record date. (c) Waiver of Notice. A shareholder may waive notice in accordance with Article VI of these Bylaws. (d) Contents of Notice. The notice of each special shareholder meeting shall include a description of the purpose or purposes for which the meeting is called. Except as otherwise provided in subsection (e) of this Section 2.04, in the Articles of Incorporation, or in the Wisconsin Business Corporation Law, the notice of an annual shareholder meeting need not include a description of the purpose or purposes for which the meeting is called. (e) Fundamental Transactions. If a purpose of any shareholder meeting is to consider either: (1) a proposed amendment to the Articles of Incorporation (including any restated articles); (2) a plan of merger or share exchange for which shareholder approval is required by law; (3) the sale, lease, exchange or other disposition of all or substantially all of the corporation's property, with or without good will, otherwise than in the usual and regular course of business; (4) the dissolution of the corporation; or (5) the removal of a director, the notice must so state and in cases 2 6 (1), (2) and (3) above must be accompanied by, respectively, a copy or summary of the: (1) proposed articles of amendment or a copy of the restated articles that identifies any amendment or other change; (2) proposed plan of merger or share exchange; or (3) proposed transaction for disposition of all or substantially all of the corporation's property. If the proposed corporate action creates dissenters' rights, the notice must state that shareholders and beneficial shareholders are or may be entitled to assert dissenters' rights, and must be accompanied by a copy of Sections 180.1301 to 180.1331 of the Wisconsin Business Corporation Law. 2.05. Fixing of Record Date. The Board of Directors may fix in advance a date as the record date for one or more voting groups for any determination of shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action, such date in any case to be not more than seventy (70) days prior to the meeting or action requiring such determination of shareholders, and may fix the record date for determining shareholders entitled to a share dividend or distribution. If no record date is fixed for the determination of shareholders entitled to demand a shareholder meeting, to notice of or to vote at a meeting of shareholders, or to consent to action without a meeting, (a) the close of business on the day before the corporation receives the first written demand for a shareholder meeting, (b) the close of business on the day before the first notice of the meeting is mailed or otherwise delivered to shareholders, or (c) the close of business on the day before the first written consent to shareholder action without a meeting is received by the corporation, as the case may be, shall be the record date for the determination of shareholders. If no record date is fixed for the determination of shareholders entitled to receive a share dividend or distribution (other than a distribution involving a purchase, redemption or other acquisition of the corporation's shares), the close of business on the day on which the resolution of the Board of Directors is adopted declaring the dividend or distribution shall be the record date. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall be applied to any adjournment thereof unless the Board of Directors fixes a new record date and except as otherwise required by law. A new record date must be set if a meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 2.06. Shareholder List. The officer or agent having charge of the stock transfer books for shares of the corporation shall, before each meeting of shareholders, make a complete record of the shareholders entitled to notice of such meeting, arranged by class or series of shares and showing the address of and the number of shares held by each shareholder. The shareholder list shall be available at the meeting and may be inspected by any shareholder or his or her agent or attorney at any time during the meeting or any adjournment. Any shareholder or his or her agent or attorney may inspect the shareholder list beginning two (2) business days after the notice of the meeting is given and continuing to the date of the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held and, subject to Section 180.1602(2)(b)3. to 5. of the Wisconsin Business Corporation Law, may copy the list, during regular business hours and at his or her expense, during the period that it is available for inspection hereunder. The original stock transfer books and nominee certificates on file with the corporation (if any) shall be prima facie evidence as to who are the shareholders entitled to inspect the shareholder list or to vote at any meeting of shareholders. Failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. 2.07. Quorum and Voting Requirements. Except as otherwise provided in the Articles of Incorporation or the Wisconsin Business Corporation Law, a majority of the votes entitled to be cast by shares entitled to vote as a separate voting group on a matter, represented in person or by proxy, shall constitute a quorum of that voting group for action on that matter at a meeting of shareholders. If a quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action unless a greater number of affirmative votes is required by the Wisconsin Business Corporation Law or the Articles of Incorporation. If the Articles of Incorporation or the Wisconsin Business Corporation Law provide for voting by two (2) or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one (1) voting group on a matter even though no action is taken by another voting group entitled to vote on the matter. Once a share is represented for any purpose at a meeting, other than for the purpose of objecting to holding the meeting or 3 7 transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that meeting. 2.08. Conduct of Meetings. The Chairperson of the Board, or if there is none, or in his or her absence, the Chief Executive Officer, and in the Chief Executive Officer's absence, the President, and in the President's absence, a Vice President, in the order provided under Section 4.07 of these Bylaws, and in their absence, any person chosen by the shareholders present shall call the meeting of the shareholders to order and shall act as chairperson of the meeting, and the Secretary shall act as secretary of all meetings of the shareholders, but, in the absence of the Secretary, the presiding officer may appoint any other person to act as secretary of the meeting. 2.09. Proxies. At all meetings of shareholders, a shareholder entitled to vote may vote in person or by proxy appointed as provided in the Wisconsin Business Corporation Law. The means by which a shareholder or the shareholder's authorized officer, director, employee, agent or attorney-in-fact may authorize another person to act for the shareholder by appointing the person as proxy include: (a) Appointment of a proxy in writing by signing or causing the shareholder's signature to be affixed to an appointment form by any reasonable means, including, but not limited to, by facsimile signature. (b) Appointment of a proxy by transmitting or authorizing the transmission of an electronic transmission of the appointment to the person who will be appointed as proxy or to a proxy solicitation firm, proxy support service organization or like agent authorized to receive the transmission by the person who will be appointed as proxy. Every electronic transmission shall contain, or be accompanied by, information that can be used to reasonably determine that the shareholder transmitted or authorized the transmission of the electronic transmission. Any person charged with determining whether a shareholder transmitted or authorized the transmission of the electronic transmission shall specify the information upon which the determination is made. An appointment of a proxy is effective when a signed appointment form or an electronic transmission of the appointment is received by the inspector of election or the officer or agent of the corporation authorized to tabulate votes. An appointment is valid for 11 months unless a different period is expressly provided in the appointment. An appointment of a proxy is revocable unless the appointment form or electronic transmission states that it is irrevocable and the appointment is coupled with an interest. The presence of a shareholder who has made an effective proxy appointment shall not of itself constitute a revocation. The Board of Directors shall have the power and authority to make rules that are not inconsistent with the Wisconsin Business Corporation Law as to the validity and sufficiency of proxy appointments. 2.10. Voting of Shares. Each outstanding share shall be entitled to one (1) vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares are enlarged, limited or denied by the Articles of Incorporation or the Wisconsin Business Corporation Law. Shares owned directly or indirectly by another corporation are not entitled to vote if this corporation owns, directly or indirectly, sufficient shares to elect a majority of the directors of such other corporation. However, the prior sentence shall not limit the power of the corporation to vote any shares, including its own shares, held by it in a fiduciary capacity. Redeemable shares are not entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares. 2.11. Notice of Shareholder Nomination(s) and/or Proposal(s). Except with respect to nomination(s) or proposal(s) adopted or recommended by the Board of Directors for inclusion in the corporation's proxy statement for its annual meeting, a shareholder entitled to vote at an annual meeting may nominate a person or persons for election as director(s) or propose action(s) to be taken at the meeting only if written notice of any shareholder nomination(s) and/or proposal(s) to be considered for a vote at an annual meeting of shareholders is delivered to the Secretary of the 4 8 corporation personally or mailed by Certified Mail-Return Receipt Requested and received at the principal business office of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the meeting is changed by more than thirty (30) days from such anniversary date, notice by the shareholder (to be timely received) must be received no later than the close of business on the tenth day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure of the meeting date was made; and provided further that, notwithstanding the notice requirements contained herein, notice of any shareholder nomination(s) and/or proposal(s) shall be deemed timely received by the corporation for purposes of this Section 2.11 if such nomination(s) and/or proposal(s) are delivered to the corporation in a timely fashion in order to be considered for inclusion in the corporation's proxy material relating to the meeting in accordance with the applicable proxy rules of the Securities and Exchange Commission. With respect to shareholder nomination(s) for the election of directors, each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination(s) and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record or a beneficial holder of stock of the corporation entitled to vote at such meeting (including the number of shares the shareholder owns and the length of time the shares have been held) and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all relationships, arrangements and understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission (whether or not such rules are applicable) had each nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the written consent of each nominee to serve as a director of the corporation if so elected, with such written consent attached thereto. With respect to shareholder proposal(s) for action(s) to be taken at an annual meeting of shareholders, the notice shall clearly set forth: (a) the name and address of the shareholder who intends to make the proposal(s); (b) a representation that the shareholder is a holder of record or a beneficial holder of the stock of the corporation entitled to vote at the meeting (including the number of shares the shareholder owns and the length of time the shares have been held) and intends to appear in person or by proxy to make the proposal(s) specified in the notice; (c) the proposal(s) and a brief supporting statement of such proposal(s); (d) any material interest of such shareholder in the proposal(s); and (e) such other information regarding the proposal(s) as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission (whether or not such rules are applicable). Except with respect to nomination(s) or proposal(s) adopted or recommended by the Board of Directors for inclusion in the notice to shareholders for a special meeting of shareholders, a shareholder entitled to vote at a special meeting may nominate a person or persons for election as director(s) and/or propose action(s) to be taken at a special meeting only if written notice of any shareholder nomination(s) and/or proposal(s) to be considered for a vote at a special meeting is delivered to the Secretary of the Corporation personally or mailed by Certified Mail-Return Receipt Requested and received at the principal business office of the corporation not later than the close of business on the tenth day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure of the meeting date was made. Only business within the purposes described in the notice to shareholders of the special meeting may be considered at the special meeting. All other notice requirements regarding shareholder nomination(s) and/or proposal(s) applicable to annual meetings also apply to nomination(s) and/or proposal(s) for special meetings. The chairperson of the meeting may refuse to acknowledge the nomination(s) and/or proposal(s) of any person made without compliance with the foregoing procedures. This section shall not affect the corporation's rights or responsibilities with respect to its proxies or proxy statement for any meeting. Notwithstanding the foregoing provisions of this Section 2.11 of these Bylaws, a shareholder shall also comply with all applicable requirements of law, including without limitation the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, with respect to the matters set forth herein. 5 9 ARTICLE III BOARD OF DIRECTORS 3.01. General Powers and Number. As provided in the Articles of Incorporation, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, its Board of Directors. The number of directors of the corporation shall be no less than six and no more than nine (plus such number of directors as may be elected from time to time pursuant to the terms of any preferred stock that may be issued and outstanding from time to time), as determined by the Board of Directors. The directors of the corporation shall be divided into three classes ("Class I", "Class II" and "Class III"), as nearly equal in number as possible, as determined by the Board of Directors. The term of office of the Class III directors shall expire at the 1995 annual meeting of shareholders, the term of office of the Class I directors shall expire at the 1996 annual meeting of shareholders and the term of office of the Class II directors shall expire at the 1997 annual meeting of shareholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of shareholders, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of shareholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock issued by the corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Articles of Incorporation or the resolution or resolutions adopted by the Board of Directors pursuant to the Articles of Incorporation and applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Bylaw unless expressly provided by such terms. 3.02. Election, Removal, Tenure and Qualifications. Unless action is taken without a meeting under Section 7.01 of these Bylaws, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a shareholders meeting at which a quorum is present; i.e., the individuals with the largest number of votes in favor of their election are elected as directors up to the maximum number of directors to be chosen in the election. Votes against a candidate are not given legal effect and are not counted as votes cast in an election of directors. In the event two (2) or more persons tie for the last vacancy to be filled, a run-off vote shall be taken from among the candidates receiving the tie vote. Each director shall hold office until the annual meeting of shareholders at which his or her term expires and until the director's successor shall have been elected or there is a decrease in the number of directors, or until his or her prior death, resignation or removal. If cumulative voting for directors is not authorized by the Articles of Incorporation, any director or directors may be removed from office by the shareholders by the affirmative vote of a majority of the votes entitled to be cast in an election of directors, taken at a meeting of shareholders called for that purpose (unless action is taken without a meeting under Section 7.01 of these Bylaws), provided that the meeting notice states that the purpose, or one of the purposes, of the meeting is removal of the director. As provided in the Articles of Incorporation, the removal may be made only for cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove that director. A director may resign at any time by delivering a written resignation to the Board of Directors, to the Chairperson of the Board (if there is one), or to the corporation through the Secretary or otherwise. Directors need not be residents of the State of Wisconsin or shareholders of the corporation. 3.03. Regular Meetings. A regular meeting of the Board of Directors shall be held, without notice other than this Bylaw, immediately after the annual meeting of shareholders, and each adjourned session thereof, for the purpose of electing officers and for the transaction of such other business as may come before the meeting. The place of such regular meeting shall be the same as the place of the meeting of shareholders which precedes it, or such other suitable place as may be announced at such meeting of shareholders. The Board of Directors and any committee may provide, by resolution, the time and place, either within or without the State of Wisconsin, for the holding of additional regular meetings without notice other than such resolution. 3.04. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairperson of the Board, if there is one, the President or any two (2) directors. Special meetings of any committee 6 10 may be called by or at the request of the foregoing persons or the chairperson of the committee. The persons calling any special meeting of the Board of Directors or committee may fix any place, either within or without the State of Wisconsin, as the place for holding any special meeting called by them, and if no other place is fixed the place of meeting shall be the principal office of the corporation in the State of Wisconsin. 3.05. Meetings By Telephone or Other Communication Technology. (a) Any or all directors may participate in a regular or special meeting or in a committee meeting of the Board of Directors by, or conduct the meeting through the use of, telephone or any other means of communication by which either: (i) all participating directors may simultaneously hear each other during the meeting, or (ii) all communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting will be conducted through the use of any means described in paragraph (a), all participating directors shall be informed that a meeting is taking place at which official business may be transacted. A director participating in a meeting by any means described in paragraph (a) is deemed to be present in person at the meeting. 3.06. Notice of Meetings. Except as otherwise provided in the Articles of Incorporation or the Wisconsin Business Corporation Law, notice of the date, time and place of any special meeting of the Board of Directors and of any special meeting of a committee of the Board shall be given orally or in writing to each director or committee member at least 48 hours prior to the meeting, except that notice by mail shall be given at least 72 hours prior to the meeting. For purposes of this Section 3.06, notice by electronic transmission is written notice. The notice need not describe the purpose of the meeting. Notice may be communicated in person; by mail or other method of delivery (meaning any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery and "electronic transmission", as defined in the Wisconsin Business Corporation Law); by telephone, including voice mail, answering machine or answering service; or by any other electronic means. Oral notice is effective when communicated. Written notice is effective as follows: if delivered in person or by commercial delivery, when received; if given by mail, when deposited, postage prepaid, in the United States mail addressed to the director at his or her business or home address (or such other address as the director may have designated in writing filed with the Secretary); if given by facsimile, at the time transmitted to a facsimile number at any address designated above; if given by telegraph, when delivered to the telegraph company; and if given by electronic transmission, when electronically transmitted to the director in a manner authorized by the director. 3.07. Quorum. Except as otherwise provided by the Wisconsin Business Corporation Law, a majority of the number of directors constituting the Board of Directors as determined pursuant to Section 3.01 shall constitute a quorum of the Board of Directors. Except as otherwise provided by the Wisconsin Business Corporation Law, a majority of the number of directors appointed to serve on a committee shall constitute a quorum of the committee. If a quorum shall not be present at any meeting of the Board of Directors or a Committee thereof, the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. 3.08. Manner of Acting. Except as otherwise provided by the Wisconsin Business Corporation Law or the Articles of Incorporation, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors or any committee thereof. 3.09. Conduct of Meetings. The Chairperson of the Board, or if there is none, or in his or her absence, the Chief Executive Officer, and in the Chief Executive Officer's absence, the President, and in the President's absence, a Vice President in the order provided under Section 4.07 of these Bylaws, and in their absence, any director chosen by the directors present, shall call a meeting of the Board of Directors to order and shall chair the meeting. The Secretary of the corporation shall act as secretary of all meetings of the Board of Directors, but in the absence of the Secretary, the presiding officer may appoint any assistant secretary or any director or other person present to act as secretary of the meeting. 7 11 3.10. Vacancies. As provided in the Articles of Incorporation, any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, shall be filled only by the affirmative vote of a majority of the directors then in office, even if such majority is less than a quorum of the Board of Directors, or by a sole remaining director. If the vacant office was held by a director elected by a voting group of shareholders, only the remaining directors elected by that voting group may vote to fill the vacancy. If no director entitled to fill the vacancy remains in office, such vacancy may be filled by the voting group of shareholders entitled to elect such director. Any director elected to fill a vacancy shall serve until the next election of the class for which such director shall have been chosen. A vacancy that will occur at a specific later date (because of a resignation effective at a later date or otherwise) may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. 3.11. Compensation. The Board of Directors, irrespective of any personal interest of any of its members, may fix the compensation of directors. Nothing contained herein shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 3.12. Presumption of Assent. A director who is present and is announced as present at a meeting of the Board of Directors or a committee thereof at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (i) the director objects at the beginning of the meeting or promptly upon his or her arrival to holding the meeting or transacting business at the meeting, or (ii) the director's dissent or abstention from the action taken is entered in the minutes of the meeting, or (iii) the director delivers his or her written dissent or abstention to the presiding officer of the meeting before the adjournment thereof or to the corporation immediately after the adjournment of the meeting. Such right to dissent or abstain shall not apply to a director who voted in favor of such action. 3.13. Committees. Unless the Articles of Incorporation otherwise provide, the Board of Directors, by resolution adopted by the affirmative vote of a majority of all the directors then in office, may create one (1) or more committees, each committee to consist of two (2) or more directors as members, which to the extent provided in the resolution as initially adopted, and as thereafter supplemented or amended by further resolution adopted by a like vote, may exercise the authority of the Board of Directors, except that no committee may: (a) authorize distributions; (b) approve or propose to shareholders action that the Wisconsin Business Corporation Law requires be approved by shareholders; (c) fill vacancies on the Board of Directors or any of its committees, except that the Board of Directors may provide by resolution that any vacancies on a committee shall be filled by the affirmative vote of a majority of the remaining committee members; (d) amend the Articles of Incorporation; (e) adopt, amend or repeal Bylaws; (f) approve a plan of merger not requiring shareholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; or (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except within limits prescribed by the Board of Directors. The Board of Directors may elect one or more of its members as alternate members of any such committee who may take the place of any absent member or members at any meeting of such committee, upon request by the Chairperson of the Board, if there is one, the President or upon request by the chairperson of such meeting. Each such committee shall fix its own rules (consistent with the Wisconsin Business Corporation Law, the Articles of Incorporation and these Bylaws) governing the conduct of its activities and shall make such reports to the Board of Directors of its activities as the Board of Directors may request. Unless otherwise provided by the Board of Directors in creating a committee, a committee may employ counsel, accountants and other consultants to assist it in the exercise of authority. The creation of a committee, delegation of authority to a committee or action by a committee does not relieve the Board of Directors or any of its members of any responsibility imposed on the Board of Directors or its members by law. 8 12 ARTICLE IV OFFICERS 4.01. Appointment. The principal officers shall include any one or more of a Chairperson of the Board, a Chief Executive Officer, a President, one or more Vice Presidents (the number and designations to be determined by the Board of Directors), a Secretary, and a Treasurer, and may include such other officers, if any, as may be deemed necessary by the Board of Directors, each of whom shall be appointed by the Board of Directors. Any two or more offices may be held by the same person. 4.02. Resignation and Removal. An officer shall hold office until he or she resigns, dies, is removed hereunder, or a different person is appointed to the office. An officer may resign at any time by delivering an appropriate written notice to the corporation. The resignation is effective when the notice is delivered, unless the notice specifies a later effective date and the corporation accepts the later effective date. Any officer may be removed by the Board of Directors with or without cause and notwithstanding the contract rights, if any, of the person removed. Except as provided in the preceding sentence, the resignation or removal is subject to any remedies provided by any contract between the officer and the corporation or otherwise provided by law. Appointment shall not of itself create contract rights. 4.03. Vacancies. A vacancy in any office because of death, resignation, removal or otherwise, shall be filled by the Board of Directors. If a resignation is effective at a later date, the Board of Directors may fill the vacancy before the effective date if the Board of Directors provides that the successor may not take office until the effective date. 4.04. Chairperson of the Board. The Board of Directors may at its discretion appoint a Chairperson of the Board. The Chairperson of the Board, if there is one, shall preside at all meetings of the shareholders and Board of Directors, and shall carry out such other duties as directed by the Board of Directors. 4.05. Chief Executive Officer. The Chief Executive Officer shall have, subject only to the Board of Directors and any executive committee, overall responsibility for managing and supervising the business and affairs of the corporation and shall see that all orders and resolutions of the Board of Directors and the executive committee, if any, are carried into effect. The Chief Executive Officer shall have all powers and duties of supervision and management usually vested in the general manager of a corporation, including the supervision and direction of all other officers of the corporation and the power to appoint and discharge agents and employes. 4.06. President. The President shall be the chief operating officer and, subject to the control and direction of the Board of Directors and the Chief Executive Officer, shall in general supervise and control all of the business and affairs of the corporation. He or she shall, in the absence of the Chairperson of the Board and the Chief Executive Officer (if appointed), preside at all meetings of the shareholders and of the Board of Directors. The President shall have authority, subject to such rules as may be prescribed by the Board of Directors and the Chief Executive Officer, to appoint such agents and employees of the corporation as he or she shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employes shall hold office at the discretion of the President. The President shall have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or directed by the Board of Directors or the Chief Executive Officer, the President may authorize any Vice President or other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in his or her place and stead. In general he or she shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer from time to time. 4.07. Vice Presidents. In the absence of the President, or in the event of the President's death, inability or refusal to act, or in the event for any reason it shall be impracticable for the President to act personally, a Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their appointment) shall perform the duties of the 9 13 President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or Assistant Secretary, certificates for shares of the corporation; and shall perform such other duties and have such authority as from time to time may be delegated or assigned to him or her by the Chief Executive Officer, President or Board of Directors. The execution of any instrument of the corporation by any Vice President shall be conclusive evidence, as to third parties, of the Vice President's authority to act in the stead of the President. 4.08. Secretary. The Secretary shall: (a) keep (or cause to be kept) regular minutes of all meetings of the shareholders, the Board of Directors and any committees of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation, if any, and see that the seal of the corporation, if any, is affixed to all documents which are authorized to be executed on behalf of the corporation under its seal; (d) keep or arrange for the keeping of a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) sign with the President, or a Vice President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of Secretary and have such other duties and exercise such authority as from time to time may be delegated or assigned to him or her by the Chief Executive Officer, President or Board of Directors. 4.09. Treasurer. If the Board of Directors appoints a Treasurer, the Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected by the corporation; and (c) in general perform all of the duties incident to the office of Treasurer and have such other duties and exercise such other authority as from time to time may be delegated or assigned to him or her by the Chief Executive Officer, President or Board of Directors. 4.10. Assistants and Acting Officers. The Board of Directors, Chief Executive Officer and President shall have the power to appoint any person to act as assistant to any officer, or as agent for the corporation in the officer's stead, or to perform the duties of such officer whenever for any reason it is impracticable for such officer to act personally, and such assistant or acting officer or other agent so appointed by the Board of Directors, Chief Executive Officer or President shall have the power to perform all the duties of the office to which that person is so appointed to be assistant, or as to which he or she is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors, the Chief Executive Officer or the President. 4.11. Bonding. If required by the Board of Directors, all or certain of the officers shall give the corporation a bond, in such form, in such sum, and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of their office and for the restoration to the corporation, in case of their death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the corporation. 4.12. Salaries. The salaries of the principal officers shall be fixed from time to time by the Board of Directors or by a duly authorized committee thereof, and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the corporation. 10 14 ARTICLE V CERTIFICATES FOR SHARES AND THEIR TRANSFER 5.01. Certificates for Shares. All shares of this corporation shall be represented by certificates unless determined otherwise by the Board of Directors in accordance with Section 180.0626 of the Wisconsin Business Corporation Law (or any successor provision). Certificates representing shares of the corporation shall be in such form, consistent with law, as shall be determined by the Board of Directors. At a minimum, a share certificate shall state on its face the name of the corporation and that it is organized under the laws of the State of Wisconsin, the name of the person to whom issued, and the number and class of shares and the designation of the series, if any, that the certificate represents. If the corporation is authorized to issue different classes of shares or different series within a class, the front or back of the certificate must contain either (a) a summary of the designations, relative rights, preferences and limitations applicable to each class, and the variations in the rights, preferences and limitations determined for each series and the authority of the Board of Directors to determine variations for future series, or (b) a conspicuous statement that the corporation will furnish the shareholder the information described in clause (a) on request, in writing and without charge. Such certificates shall be signed, either manually or in facsimile, by the Chief Executive Officer, President or a Vice President and by the Secretary or an Assistant Secretary and may be sealed with the seal of the corporation or a facsimile thereof. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except as provided in Section 5.05. 5.02. Signature by Former Officers. If an officer or assistant officer, who has signed or whose facsimile signature has been placed upon any certificate for shares, has ceased to be such officer or assistant officer before such certificate is issued, the certificate may be issued by the corporation with the same effect as if that person were still an officer or assistant officer at the date of its issue. 5.03. Transfer of Shares. Prior to due presentment of a certificate for shares for registration of transfer, and unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the shareholder, the corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all the rights and power of an owner. The corporation may require reasonable assurance that all transfer endorsements are genuine and effective and in compliance with all regulations prescribed by or under the authority of the Board of Directors. 5.04. Restrictions on Transfer. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of any restriction upon the transfer of such shares imposed by the corporation or imposed by any agreement of which the corporation has written notice. 5.05. Lost, Destroyed or Stolen Certificates. Where the owner claims that his or her certificate for shares has been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the corporation has notice that such shares have been acquired by a bona fide purchaser, and (b) if required by the corporation, files with the corporation a sufficient indemnity bond, and (c) satisfies such other reasonable requirements as may be prescribed by or under the authority of the Board of Directors. 5.06. Consideration for Shares. The shares of the corporation may be issued for such consideration as shall be fixed from time to time and determined to be adequate by the Board of Directors, provided that any shares having a par value shall not be issued for a consideration less than the par value thereof. The consideration may consist of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the corporation. When the corporation receives the consideration for which the Board of Directors authorized the issuance of shares, such shares shall be deemed to be fully paid and nonassessable by the corporation. 11 15 5.07. Stock Regulations. The Board of Directors shall have the power and authority to make all such rules and regulations not inconsistent with the statutes of the State of Wisconsin as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the corporation, including the appointment or designation of one or more stock transfer agents and one or more registrars. ARTICLE VI WAIVER OF NOTICE 6.01. Shareholder Written Waiver. A shareholder may waive any notice required by the Wisconsin Business Corporation Law, the Articles of Incorporation or these Bylaws before or after the date and time stated in the notice. The waiver shall be in writing and signed by the shareholder entitled to the notice, shall contain the same information that would have been required in the notice under the Wisconsin Business Corporation Law except that the time and place of meeting need not be stated, and shall be delivered to the corporation for inclusion in the corporate records. 6.02. Shareholder Waiver by Attendance. A shareholder's attendance at a meeting, in person or by proxy, waives objection to both of the following: (a) Lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting. (b) Consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 6.03. Director Written Waiver. A director may waive any notice required by the Wisconsin Business Corporation Law, the Articles of Incorporation or the Bylaws before or after the date and time stated in the notice. The waiver shall be in writing, signed by the director entitled to the notice and retained by the corporation. 6.04. Director Waiver by Attendance. A director's attendance at or participation in a meeting of the Board of Directors or any committee thereof waives any required notice to him or her of the meeting unless the director at the beginning of the meeting or promptly upon his or her arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. ARTICLE VII ACTION WITHOUT MEETINGS 7.01. Shareholder Action Without Meeting. Action required or permitted by the Wisconsin Business Corporation Law to be taken at a shareholders' meeting may be taken without a meeting (a) by all shareholders entitled to vote on the action, or (b) if the Articles of Incorporation so provide (and except with respect to an election of directors for which shareholders may vote cumulatively), by shareholders who would be entitled to vote at a meeting shares with voting power sufficient to cast not less than the minimum number (or, in the case of voting by voting groups, the minimum numbers) of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote were present and voted. The action must be evidenced by one or more written consents describing the action taken, signed by the shareholders consenting thereto and delivered to the corporation for inclusion in its corporate records. A consent hereunder has the effect of a meeting vote and may be described as such in any document. The Wisconsin Business Corporation Law requires that notice of the action be given to certain shareholders and specifies the effective date thereof and the record date in respect thereto. 7.02. Director Action Without Meeting. Unless the Articles of Incorporation provide otherwise, action required or permitted by the Wisconsin Business Corporation Law to be taken at a Board of Directors meeting or committee meeting may be taken without a meeting if the action is taken by all members of the Board or committee. The action shall be evidenced by one or more written consents describing the action taken, signed by each director and 12 16 retained by the corporation. Action taken hereunder is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed hereunder has the effect of a unanimous vote taken at a meeting at which all directors or committee members were present, and may be described as such in any document. ARTICLE VIII INDEMNIFICATION 8.01. Indemnification for Successful Defense. Within twenty (20) days after receipt of a written request pursuant to Section 8.03, the corporation shall indemnify a director or officer, to the extent he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses incurred in the proceeding if the director or officer was a party because he or she is a director or officer of the corporation. 8.02. Other Indemnification. (a) In cases not included under Section 8.01, the corporation shall indemnify a director or officer against all liabilities and expenses incurred by the director or officer in a proceeding to which the director or officer was a party because he or she is a director or officer of the corporation, unless liability was incurred because the director or officer breached or failed to perform a duty he or she owes to the corporation and the breach or failure to perform constitutes any of the following: (1) A willful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director or officer has a material conflict of interest. (2) A violation of criminal law, unless the director or officer had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful. (3) A transaction from which the director or officer derived an improper personal profit. (4) Willful misconduct. (b) Determination of whether indemnification is required under this Section shall be made pursuant to Section 8.05. (c) The termination of a proceeding by judgment, order, settlement or conviction, or upon a plea of no contest or an equivalent plea, does not, by itself, create a presumption that indemnification of the director or officer is not required under this Section. 8.03. Written Request. A director or officer who seeks indemnification under Sections 8.01 or 8.02 shall make a written request to the corporation. 8.04. Nonduplication. The corporation shall not indemnify a director or officer under Sections 8.01 or 8.02 if the director or officer has previously received indemnification or allowance of expenses from any person, including the corporation, in connection with the same proceeding. However, the director or officer has no duty to look to any other person for indemnification. 8.05. Determination of Right to Indemnification. (a) Unless otherwise provided by the Articles of Incorporation or by written agreement between the director or officer and the corporation, the director or officer seeking indemnification under Section 8.02 shall select one of the following means for determining his or her right to indemnification: (1) By a majority vote of a quorum of the Board of Directors consisting of directors not at the time parties to the same or related proceedings. If a quorum of disinterested directors cannot be obtained, by 13 17 majority vote of a committee duly appointed by the Board of Directors and consisting solely of two (2) or more directors who are not at the time parties to the same or related proceedings. Directors who are parties to the same or related proceedings may participate in the designation of members of the committee. (2) By independent legal counsel selected by a quorum of the Board of Directors or its committee in the manner prescribed in sub. (1) or, if unable to obtain such a quorum or committee, by a majority vote of the full Board of Directors, including directors who are parties to the same or related proceedings. (3) By a panel of three (3) arbitrators consisting of one arbitrator selected by those directors entitled under sub. (2) to select independent legal counsel, one arbitrator selected by the director or officer seeking indemnification and one arbitrator selected by the two (2) arbitrators previously selected. (4) By an affirmative vote of shares represented at a meeting of shareholders at which a quorum of the voting group entitled to vote thereon is present. Shares owned by, or voted under the control of, persons who are at the time parties to the same or related proceedings, whether as plaintiffs or defendants or in any other capacity, may not be voted in making the determination. (5) By a court under Section 8.08. (6) By any other method provided for in any additional right to indemnification permitted under Section 8.07. (b) In any determination under (a), the burden of proof is on the corporation to prove by clear and convincing evidence that indemnification under Section 8.02 should not be allowed. (c) A written determination as to a director's or officer's indemnification under Section 8.02 shall be submitted to both the corporation and the director or officer within sixty (60) days of the selection made under (a). (d) If it is determined that indemnification is required under Section 8.02, the corporation shall pay all liabilities and expenses not prohibited by Section 8.04 within ten (10) days after receipt of the written determination under (c). The corporation shall also pay all expenses incurred by the director or officer in the determination process under (a). 8.06. Advance of Expenses. Within ten (10) days after receipt of a written request by a director or officer who is a party to a proceeding, the corporation shall pay or reimburse his or her reasonable expenses as incurred if the director or officer provides the corporation with all of the following: (1) A written affirmation of his or her good faith belief that he or she has not breached or failed to perform his or her duties to the corporation. (2) A written undertaking, executed personally or on his or her behalf, to repay the allowance to the extent that it is ultimately determined under Section 8.05 that indemnification under Section 8.02 is not required and that indemnification is not ordered by a court under Section 8.08(b)(2). The undertaking under this subsection shall be an unlimited general obligation of the director or officer and may be accepted without reference to his or her ability to repay the allowance. The undertaking may be secured or unsecured. 8.07. Nonexclusivity. (a) Except as provided in (b), Sections 8.01, 8.02 and 8.06 do not preclude any additional right to indemnification or allowance of expenses that a director or officer may have under any of the following: (1) The Articles of Incorporation. (2) A written agreement between the director or officer and the corporation. 14 18 (3) A resolution of the Board of Directors. (4) A resolution, after notice, adopted by a majority vote of all of the corporation's voting shares then issued and outstanding. (b) Regardless of the existence of an additional right under (a), the corporation shall not indemnify a director or officer, or permit a director or officer to retain any allowance of expenses, unless it is determined by or on behalf of the corporation that the director or officer did not breach or fail to perform a duty he or she owes to the corporation which constitutes conduct under Section 8.02(a)(1), (2), (3) or (4). A director or officer who is a party to the same or related proceeding for which indemnification or an allowance of expenses is sought may not participate in a determination under this subsection. (c) Sections 8.01 to 8.14 do not affect the corporation's power to pay or reimburse expenses incurred by a director or officer in any of the following circumstances: (1) As a witness in a proceeding to which he or she is not a party. (2) As a plaintiff or petitioner in a proceeding because he or she is or was an employe, agent, director or officer of the corporation. 8.08. Court-Ordered Indemnification. (a) Except as provided otherwise by written agreement between the director or officer and the corporation, a director or officer who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. Application shall be made for an initial determination by the court under Section 8.05(a)(5) or for review by the court of an adverse determination under Section 8.05(a) (1), (2), (3), (4) or (6). After receipt of an application, the court shall give any notice it considers necessary. (b) The court shall order indemnification if it determines any of the following: (1) That the director or officer is entitled to indemnification under Sections 8.01 or 8.02. (2) That the director or officer is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, regardless of whether indemnification is required under Section 8.02. (c) If the court determines under (b) that the director or officer is entitled to indemnification, the corporation shall pay the director's or officer's expenses incurred to obtain the court-ordered indemnification. 8.09. Indemnification and Allowance of Expenses of Employes and Agents. The corporation shall indemnify an employe of the corporation who is not a director or officer of the corporation, to the extent that he or she has been successful on the merits or otherwise in defense of a proceeding, for all reasonable expenses incurred in the proceeding if the employe was a party because he or she was an employe of the corporation. In addition, the corporation may indemnify and allow reasonable expenses of an employe or agent who is not a director or officer of the corporation to the extent provided by the Articles of Incorporation or these Bylaws, by general or specific action of the Board of Directors or by contract. 8.10. Insurance. The corporation may purchase and maintain insurance on behalf of an individual who is an employe, agent, director or officer of the corporation against liability asserted against or incurred by the individual in his or her capacity as an employe, agent, director or officer, regardless of whether the corporation is required or authorized to indemnify or allow expenses to the individual against the same liability under Sections 8.01, 8.02, 8.06, 8.07 and 8.09. 15 19 8.11. Securities Law Claims. (a) Pursuant to the public policy of the State of Wisconsin, the corporation shall provide indemnification and allowance of expenses and may insure for any liability incurred in connection with a proceeding involving securities regulation described under (b) to the extent required or permitted under Sections 8.01 to 8.10. (b) Sections 8.01 to 8.10 apply, to the extent applicable to any other proceeding, to any proceeding involving a federal or state statute, rule or regulation regulating the offer, sale or purchase of securities, securities brokers or dealers, or investment companies or investment advisers. 8.12. Liberal Construction. In order for the corporation to obtain and retain qualified directors, officers and employes, the foregoing provisions shall be liberally administered in order to afford maximum indemnification of directors, officers and, where Section 8.09 of these Bylaws applies, employes. The indemnification above provided for shall be granted in all applicable cases unless to do so would clearly contravene law, controlling precedent or public policy. 8.13. Definitions Applicable to this Article. For purposes of this Article: (a) "Affiliate" shall include, without limitation, any corporation, partnership, joint venture, employe benefit plan, trust or other enterprise that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the corporation. (b) "Corporation" means this corporation and any domestic or foreign predecessor of this corporation where the predecessor corporation's existence ceased upon the consummation of a merger or other transaction. (c) "Director or officer" means any of the following: (1) An individual who is or was a director or officer of this corporation. (2) An individual who, while a director or officer of this corporation, is or was serving at the corporation's request as a director, officer, partner, trustee, member of any governing or decision- making committee, employe or agent of another corporation or foreign corporation, partnership, joint venture, trust or other enterprise. (3) An individual who, while a director or officer of this corporation, is or was serving an employe benefit plan because his or her duties to the corporation also impose duties on, or otherwise involve services by, the person to the plan or to participants in or beneficiaries of the plan. (4) Unless the context requires otherwise, the estate or personal representative of a director or officer. For purposes of this Article, it shall be conclusively presumed that any director or officer serving as a director, officer, partner, trustee, member of any governing or decision-making committee, employe or agent of an affiliate shall be so serving at the request of the corporation. (d) "Expenses" include fees, costs, charges, disbursements, attorney fees and other expenses incurred in connection with a proceeding. (e) "Liability" includes the obligation to pay a judgment, settlement, penalty, assessment, forfeiture or fine, including an excise tax assessed with respect to an employe benefit plan, and reasonable expenses. 16 20 (f) "Party" includes an individual who was or is, or who is threatened to be made, a named defendant or respondent in a proceeding. (g) "Proceeding" means any threatened, pending or completed civil, criminal, administrative or investigative action, suit, arbitration or other proceeding, whether formal or informal, which involves foreign, federal, state or local law and which is brought by or in the right of the corporation or by any other person. ARTICLE IX MISCELLANEOUS 9.01. Seal. The Board of Directors may provide a corporate seal which may be circular in form and have inscribed thereon the name of the corporation and the state of incorporation and the words "Corporate Seal." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Any officer of the corporation shall have the authority to affix the seal to any document requiring it. 9.02. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE X AMENDMENTS 10.01. By Shareholders. As provided in the Articles of Incorporation, these Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the shareholders by the affirmative vote of the holders of at least two-thirds (2/3) of the votes entitled to be cast thereon at any annual or special meeting of shareholders of the corporation. If authorized by the Articles of Incorporation, the shareholders may adopt or amend a Bylaw that fixes a greater or lower quorum requirement or a greater voting requirement for shareholders or voting groups of shareholders than otherwise is provided in the Wisconsin Business Corporation Law. The adoption or amendment of a Bylaw that adds, changes or deletes a greater or lower quorum requirement or a greater voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect. 10.02. By Directors. Except as the Articles of Incorporation may otherwise provide, these Bylaws may also be amended or repealed and new Bylaws may be adopted by the Board of Directors by the vote provided in Section 3.08, but (a) no Bylaw adopted by the shareholders shall be amended, repealed or readopted by the Board of Directors if the Bylaw so adopted so provides and (b) a Bylaw adopted or amended by the shareholders that fixes a greater or lower quorum requirement or a greater voting requirement for the Board of Directors than otherwise is provided in the Wisconsin Business Corporation Law may not be amended or repealed by the Board of Directors unless the Bylaw expressly provides that it may be amended or repealed by a specified vote of the Board of Directors. Action by the Board of Directors to adopt or amend a Bylaw that changes the quorum or voting requirement for the Board of Directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect, unless a different voting requirement is specified as provided by the preceding sentence. A Bylaw that fixes a greater or lower quorum requirement or a greater voting requirement for shareholders or voting groups of shareholders than otherwise is provided in the Wisconsin Business Corporation Law may not be adopted, amended or repealed by the Board of Directors. 10.03. Implied Amendments. Any action taken or authorized by the shareholders or by the Board of Directors, which would be inconsistent with the Bylaws then in effect but is taken or authorized by a vote that would be sufficient to amend the Bylaws so that the Bylaws would be consistent with such action, shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. 17 EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the unaudited consolidated financial statements of Sybron International Corporation for the three months ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS SEP-30-2000 OCT-01-1999 DEC-31-1999 22,003 0 230,480 5,202 218,809 514,366 248,872 225,583 1,935,238 176,183 963,471 0 0 1,040 646,180 1,935,238 298,247 298,247 144,057 85,505 222 0 17,923 50,540 20,116 30,424 0 0 0 30,424 .29 .29
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