-----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, QcCQuiLhfSQmYMVrbNoWrOmN/PrdvHuOWyyNkUM70RS7sh46CHcimfW4+r26Zics htx3yZCu+i75quLc7MqWsw== 0000950124-00-003248.txt : 20000516 0000950124-00-003248.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950124-00-003248 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 633728 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 FORM 10-Q 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 March 31, 2000 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 May 9, 2000, there were 104,543,125 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, March 31, 2000 (unaudited) and September 30, 1999 2 Consolidated Statements of Income for the three and six months ended March 31, 2000 (unaudited) and 1999 (unaudited) 3 Consolidated Statements of Shareholders' Equity for the year ended September 30, 1999 and the six months ended March 31, 2000 (unaudited) 4 Consolidated Statements of Cash Flows for the six months ended March 31, 2000 (unaudited) and 1999 (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 37 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 39 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 40 SIGNATURES 41
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
March 31, September 30, 2000 1999 ----------- ------------- Current assets: Cash and cash equivalents ............................................. $ 9,763 $ 18,491 Accounts receivable (less allowance for doubtful receivables of $5,828 and $5,676, respectively) ..................... 245,096 231,506 Inventories (note 2) .................................................. 228,533 203,202 Deferred income taxes ................................................. 24,531 23,339 Prepaid expenses and other current assets ............................. 21,532 15,419 ----------- ----------- Total current assets ............................................. 529,455 491,957 Available for sale security ............................................. 51,521 50,900 Property, plant and equipment, net of accumulated depreciation of $232,168 and $212,995, respectively .............................. 252,567 245,247 Intangible assets ....................................................... 1,119,774 1,028,081 Deferred income taxes ................................................... 12,745 13,623 Other assets ............................................................ 10,524 13,109 ----------- ----------- Total assets ..................................................... $ 1,976,586 $ 1,842,917 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ...................................................... $ 55,133 $ 62,418 Current portion of long-term debt ..................................... 5,350 8,962 Income taxes payable .................................................. 24,982 23,490 Accrued payroll and employee benefits ................................. 42,578 49,006 Restructuring reserve (note 4) ........................................ 1,565 2,332 Deferred income taxes ................................................. 3,245 3,251 Other current liabilities ............................................. 29,497 42,490 ----------- ----------- Total current liabilities ......................................... 162,350 191,949 ----------- ----------- Long-term debt .......................................................... 969,923 875,254 Securities lending agreement ............................................ 51,521 50,461 Deferred income taxes ................................................... 89,022 84,527 Other liabilities ....................................................... 14,265 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 104,429,611 and 104,023,697 shares, respectively ............. 1,044 1,040 Equity Rights, 50 rights at $1.09 per right ........................... -- -- Additional paid-in capital ............................................ 258,001 251,251 Retained earnings ..................................................... 472,779 403,380 Accumulated other comprehensive income ................................ (42,319) (30,327) Treasury common stock, 220 shares at cost ............................. -- -- ----------- ----------- Total shareholders' equity ....................................... 689,505 625,344 ----------- ----------- Total liabilities and shareholders' equity ....................... $ 1,976,586 $ 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 Six Months Ended March 31, March 31, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales ........................................... $ 326,389 $ 272,017 $ 624,636 $ 520,347 Cost of sales: Cost of product sold ............................. 155,353 130,284 299,249 252,846 Depreciation of purchase accounting adjustments .. 161 169 322 336 --------- --------- --------- --------- Total cost of sales ................................. 155,514 130,453 299,571 253,182 --------- --------- --------- --------- Gross profit ........................................ 170,875 141,564 325,065 267,165 Selling, general and administrative expenses ........ 78,309 65,464 153,271 128,235 Merger, transaction and integration expenses ........ -- -- -- 2,691 Depreciation and amortization of purchase accounting adjustments ............................. 10,792 7,600 21,335 14,860 --------- --------- --------- --------- Total selling, general and administrative expenses .. 89,101 73,064 174,606 145,786 --------- --------- --------- --------- Operating income .................................... 81,774 68,500 150,459 121,379 Other income (expense): Interest expense ................................. (18,259) (14,033) (36,182) (28,149) Amortization of deferred financing fees .......... (221) (80) (399) (160) Other, net ....................................... 820 (874) 776 (633) --------- --------- --------- --------- Income before income taxes and discontinued operations ......................................... 64,114 53,513 114,654 92,437 Income taxes ........................................ 25,139 21,003 45,255 36,607 --------- --------- --------- --------- Income from continuing operations ................... 38,975 32,510 69,399 55,830 Discontinued operations: Income (loss) from discontinued operations (net of income tax expense/(benefit) of ($165) and $80) (note 5) ........................................... -- (418) -- 121 Extraordinary Item: Gain on sale of discontinued operations (less income taxes of $18,651) (note 5) ....................... -- 18,796 -- 18,796 --------- --------- --------- --------- Net income .......................................... $ 38,975 $ 50,888 $ 69,399 $ 74,747 ========= ========= ========= ========= Basic earnings per common share from continuing operations ......................................... $ .37 $ .31 $ .67 $ .54 Discontinued operations ............................. -- -- -- -- Extraordinary item .................................. -- .18 -- .18 --------- --------- --------- --------- Basic earnings per common share ..................... $ .37 $ .49 $ .67 $ .72 ========= ========= ========= ========= Diluted earnings per common share from continuing operations ......................................... $ .37 $ .31 $ .65 $ .53 Discontinued operations ............................. -- -- -- -- Extraordinary item .................................. -- .17 -- .17 --------- --------- --------- --------- Diluted earnings per common share ................... $ .37 $ .48 $ .65 $ .70 ========= ========= ========= =========
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 SIX MONTHS ENDED MARCH 31, 2000 (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 .......................... -- -- 69,399 -- 69,399 Translation adjustment .............. -- -- -- (12,362) (12,362) 0 0 Unrealized gain on security available for sale ........................... -- -- -- 370 370 --------- --------- --------- --------- --------- Total comprehensive income ............ -- -- 69,399 (11,992) 57,407 Shares issued in connection with the exercise of 405,914 stock options .... 4 4,637 -- -- 4,641 Tax benefits related to stock options.. -- 2,113 -- -- 2,113 --------- --------- --------- --------- --------- Balance at March 31, 2000 ............. $ 1,044 $ 258,001 $ 472,779 $ (42,319) $ 689,505 ========= ========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements. 4 6 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Six Months Ended March 31, 2000 1999 --------- --------- Cash flows from operating activities: Net income .................................................................. $ 69,399 $ 74,747 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of NPT ....................................................... -- (18,796) Depreciation ............................................................... 19,254 17,623 Amortization ............................................................... 21,452 14,998 Provision for losses on doubtful accounts .................................. 592 494 Inventory provisions ....................................................... 1,199 (409) Deferred income taxes ...................................................... 4,185 (4,257) Changes in assets and liabilities, net of effects of businesses acquired: Decrease (increase) in accounts receivable ................................. (5,954) 2,522 Increase in inventories .................................................... (12,201) (9,500) Decrease (increase) in prepaid expenses and other current assets ........... (5,801) 10,567 Decrease in accounts payable ............................................... (8,480) (4,725) Increase (decrease) in income taxes payable ................................ 3,198 (6,641) Decrease in accrued payroll and employee benefits .......................... (5,928) (7,182) Decrease in restructuring reserve .......................................... (767) (2,512) Decrease in other current liabilities ...................................... (18,232) (15,725) Net change in other assets and liabilities ................................. 25 (2,081) --------- --------- Net cash provided by operating activities ................................ 61,941 49,123 Cash flows from investing activities: Capital expenditures ....................................................... (22,995) (14,346) Proceeds from sales of property, plant and equipment ....................... 744 812 Proceeds (refund) from the sale of NPT, net of sale expenses ............... (2,600) 86,000 Payments for businesses acquired ........................................... (139,571) (119,512) --------- --------- Net cash used in investing activities ..................................... (164,422) (47,046) Cash flows from financing activities: Proceeds - revolving credit facility ........................................ 320,000 265,300 Principal payments - revolving credit facility .............................. (222,500) (195,500) Principal payments on long-term debt ........................................ (3,810) (87,284) Receipt of collateral under securities lending agreement .................... 1,011 -- Proceeds from the exercise of common stock options .......................... 4,645 4,404 Deferred financing fees ..................................................... (197) (70) Other ....................................................................... (2,676) 1,137 --------- --------- Net cash provided by (used in) financing activities ....................... 96,473 (12,013) Effect of exchange rate changes on cash and cash equivalents ................. (2,720) (654) Net decrease in cash and cash equivalents .................................... (8,728) (10,590) Cash and cash equivalents at beginning of period ............................. 18,491 23,891 --------- --------- Cash and cash equivalents at end of period ................................... $ 9,763 $ 13,301 ========= =========
See accompanying notes to unaudited consolidated financial statements. 5 7 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED) (IN THOUSANDS)
Six Months Ended March 31, 2000 1999 ---- ---- Supplemental disclosures of cash flow information: Cash paid during the period for interest ........ $33,786 $28,670 ======= ======= Cash paid during the period for income taxes .... $37,615 $34,685 ======= ======= Capital lease obligations incurred .............. $ 43 $ 186 ======= =======
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 and six month periods ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. On April 24, 2000, Sybron International Corporation ("the Company") announced its intention to spin-off its dental group by way of a pro rata distribution of Sybron Dental Specialties, Inc. ("SDS") stock to Sybron International Corporation shareholders. The spin-off is subject to a number of conditions, including (i) receipt by the Company of a favorable ruling from the Internal Revenue Service concerning the tax-free nature of the distribution, (ii) effectiveness of a registration statement registering the stock of SDS under the Securities Exchange Act of 1934, including an information statement that would be sent to the Company's shareholders in connection with the distribution, (iii) appropriate stock market conditions for the distribution and (iv) approval by the Company's Board of Directors of the final terms of the distribution, including, without limitation, the formal declaration of a dividend to the Company's shareholders and other specific actions necessary for the distribution. The spin-off process is expected to take six to eight months. The results of SDS will continue to be included in the Company's results from continuing operations until such time as the conditions to the spin-off have been satisfied. Upon satisfaction of the conditions, SDS will be shown as a discontinued operation. 2. Inventories at March 31, 2000 and September 30, 1999 consist of the following:
March 31, September 30, 2000 1999 ---- ---- Raw materials $ 88,747 $ 67,541 Work-in-process 41,547 39,439 Finished goods 108,531 106,010 Excess and obsolescence reserves (7,375) (7,091) LIFO reserve (2,917) (2,697) -------- -------- $228,533 $203,202 ======== ========
3. For the three and six month periods ended March 31, 2000, the Company completed four and seven acquisitions, respectively, for cash. The aggregate purchase price of the acquisitions for the quarter and year to date periods (which are not significant, individually or in the aggregate), net of cash acquired, was approximately $44.2 million and $136.1 million, respectively. There are no future purchase price adjustments with respect to earnout provisions for any of these transactions. All 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 three and six month periods ended March 31, 2000 for acquired companies was approximately $28.2 million and 7 9 $110.2 million, respectively, and will be amortized over 5 to 20 years. Descriptions of the companies acquired in the second quarter are as follows: (a) On February 1, 2000, the Company acquired the Versi-Dry(R) product line from National Packaging Services Corporation 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, gas chromatography and high throughput screening applications. Sales revenues in 1999 were approximately $5.8 million. Sun will be included in the Labware and Life Sciences business segment. (c) On February 29, 2000, the Company acquired Safe-Wave Products Inc. ("Safe-Wave"), a manufacturer of disposable tips and adapters for air/water syringes used in dental operatory. Sales revenues in 1999 were approximately $4.0 million. Safe-Wave will be included in the Professional Dental business segment. (d) On March 6, 2000, the Company acquired the assets of the Consolidated Technologies operations of Sera Care, Inc. ("CTI"). CTI products include intermediate biological products, calibration, and controls used in immunology, clinical chemistry, toxicology, infectious disease and nucleic acid testing. CTI's sales revenues in 1999 were approximately $7.8 million. CTI will be included in the Diagnostic and Microbiology business segment. An acquisition was completed for cash after the second fiscal quarter of 2000 and will be accounted for as a purchase. The aggregate purchase price was not significant. There are no future purchase price adjustments due to earnout provisions from this transaction. The results of this acquisition will be included as of the date it was acquired. The total goodwill for the acquired company is currently being assessed. A descriptions of the acquired company is as follows: (a) On May 9, 2000, the Company acquired Genevac Limited ("Genevac"), located in Ipswich , England. Genevac is a designer and manufacturer of specialty evaporators used in chemical, agrochemical and biotechnology laboratories for drug discovery and other chemistry related applications. Sales revenues in 1999 were approximately $11.2 million. Genevac will be included in the Labware and Life Sciences business segment. 4. The following table updates activity to the Company's 1998 restructuring charges as described in footnote 11 to the Company's 1999 annual report filed on Form 10-K.
SEVERANCE LEASE SHUT-DOWN INVENTORY FIXED CONTRACTUAL --------- ----- --------- --------- ----- ----------- (A) PAYMENTS COSTS (B) WRITE-OFF ASSETS TAX GOODWILL (E) OBLIGATIONS --- -------- --------- --------- ------ --- ------------ ----------- (B) (C) (C) (D) (F) OTHER TOTAL --- --- --- --- --- ----- -----
8 10 (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 400 -- -- -- -- -- -- 200 100 700 --------- -------- -------- -------- -------- -------- --------- --------- --------- ----------- March 31, 2000 balance $ 500 $ -- $ -- $ -- $ -- $ 700 $ -- $ 100 $ 300 $ 1,600 ========= ======== ======== ======== ======== ======== ========= ========= ========= ===========
(a) Amount represents severance and termination costs for approximately 165 terminated employees (primarily sales and marketing personnel). As of March 31, 2000, 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. (f) Amount represents certain terminated contractual obligations primarily associated with SDS. The Company expects to make future cash payments of approximately $300 in the remainder of fiscal 2000 and approximately $1,300 in fiscal 2001 and beyond. 5. On March 31, 1999, the Company completed the sale of Nalge Process Technologies Group, Inc. ("NPT"). The results and gain on the sale of NPT in the fiscal 1999 period are classified as discontinued operations and an extraordinary item, respectively. 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. 6. 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 two pages: 9 11
LABWARE CLINICAL DIAGNOSTICS AND LIFE AND AND LABORATORY SCIENCES INDUSTRIAL MICROBIOLOGY EQUIPMENT -------- ---------- ------------ --------- THREE MONTHS ENDED 3/31/99 Revenues: External customer ................. $67,270 $44,144 $40,074 $23,917 Intersegment ...................... 287 1,585 85 181 Total revenues .................. 67,557 45,729 40,159 24,098 Gross profit ........................ 34,215 18,503 20,433 9,943 Selling, general and admin .......... 16,773 7,381 9,834 4,907 Operating income .................... 17,442 11,122 10,599 5,036 THREE MONTHS ENDED 3/31/00 Revenues: External customer ................. 85,584 54,666 53,179 24,645 Intersegment ...................... 285 1,768 91 229 Total revenues .................. 85,869 56,434 53,270 24,874 Gross profit ........................ 45,166 23,264 28,434 10,301 Selling, general and admin .......... 23,773 9,248 14,022 5,292 Operating income .................... 21,393 14,016 14,412 5,009 ELIMIN- TOTAL PROFESSIONAL ATIONS SLP DENTAL ORTHODONTICS ------ --- ------ ------------ THREE MONTHS ENDED 3/31/99 Revenues: External customer ................ $ -- $ 175,405 $ 46,881 $ 43,536 Intersegment ..................... (1,993) 145 56 949 Total revenues.................. (1,993) 175,550 46,937 44,485 Gross profit ....................... -- 83,094 26,813 28,211 Selling, general and admin ......... -- 38,895 15,297 14,435 Operating income ................... -- 44,199 11,516 13,776 THREE MONTHS ENDED 3/31/00 Revenues: External customer ................ -- 218,074 55,217 46,699 Intersegment ..................... (2,216) 157 293 2,074 Total revenues ................. (2,216) 218,231 55,510 48,773 Gross profit ....................... -- 107,165 32,342 28,674 Selling, general and admin ......... -- 52,335 15,764 15,186 Operating income ................... -- 54,830 16,578 13,488 INFECTION CONTROL ELIMIN- TOTAL PRODUCTS ATIONS SDS OTHER (a) TOTAL -------- ------ --- -------- ----- THREE MONTHS ENDED 3/31/99 Revenues: External customer ............... $6,195 $ -- $ 96,612 $ -- $ 272,017 Intersegment .................... -- (1,005) -- (145) -- Total revenues ................ 6,195 (1,005) 96,612 (145) 272,017 Gross profit ...................... 3,446 -- 58,470 -- 141,564 Selling, general and admin......... 2,506 -- 32,238 1,931 73,064 Operating income .................. 940 -- 26,232 (1,931) 68,500 THREE MONTHS ENDED 3/31/00 Revenues: External customer ............... 6,399 -- 108,315 -- 326,389 Intersegment .................... 4 (2,371) -- (157) -- Total revenues ................ 6,403 (2,371) 108,315 (157) 326,389 Gross profit ...................... 2,694 -- 63,710 -- 170,875 Selling, general and admin ........ 2,622 -- 33,572 3,194 89,101 Operating income .................. 72 -- 30,138 (3,194) 81,774
- --------------- (a) Includes the elimination of intergroup and corporate office activity. 10 12
LABWARE CLINICAL DIAGNOSTICS AND LIFE AND AND LABORATORY SCIENCES INDUSTRIAL MICROBIOLOGY EQUIPMENT -------- ---------- ------------ --------- SIX MONTHS ENDED 3/31/99 Revenues: External customer ........... $ 121,917 $ 84,414 $ 76,923 $ 48,564 Intersegment ................ 549 3,053 180 358 Total revenues ............ 122,466 87,467 77,103 48,922 Gross profit .................. 61,985 35,107 39,491 20,131 Selling, general and admin..... 31,836 14,529 19,737 10,314 Operating income .............. 30,149 20,578 19,754 9,817 SIX MONTHS ENDED 3/31/00 Revenues: External customer ........... 165,482 106,577 103,795 47,103 Intersegment ................ 638 3,327 193 442 Total revenues ............ 166,120 109,904 103,988 47,545 Gross profit .................. 86,023 44,910 56,433 19,890 Selling, general and admin..... 46,978 18,195 28,862 10,362 Operating income .............. 39,045 26,715 27,571 9,528 Segment Assets ................ 548,992 295,467 440,839 130,364 ELIMIN- TOTAL PROFESSIONAL ATIONS SLP DENTAL ORTHODONTICS ------ --- ------ ------------ SIX MONTHS ENDED 3/31/99 Revenues: External customer ............ $ -- $ 331,818 $ 91,992 $ 84,950 Intersegment ................. (3,860) 280 196 2,074 Total revenues ............. (3,860) 332,098 92,188 87,024 Gross profit ................... -- 156,714 51,420 52,640 Selling, general and admin...... -- 76,416 31,602 28,630 Operating income ............... -- 80,298 19,818 24,010 SIX MONTHS ENDED 3/31/00 Revenues: External customer ............ -- 422,957 102,822 86,760 Intersegment ................. (4,315) 285 439 2,672 Total revenues ............. (4,315) 423,242 103,261 89,432 Gross profit ................... -- 207,256 58,586 53,600 Selling, general and admin...... -- 104,397 -- 28,979 Operating income ............... -- 102,859 29,607 23,622 Segment Assets ................. -- 1,415,662 199,422 190,518
INFECTION CONTROL ELIMIN- TOTAL PRODUCTS ATIONS SDS OTHER (A) TOTAL -------- ------ --- --------- ----- SIX MONTHS ENDED 3/31/99 Revenues: External customer ........... $ 11,587 $ -- $ 188,529 $ -- $ 520,347 Intersegment ................ -- (2,270) -- (280) -- Total revenues ............ 11,587 (2,270) 188,529 (280) 520,347 Gross profit .................. 6,391 -- 110,451 -- 267,165 Selling, general and admin..... 4,732 -- 64,964 4,406 145,786 Operating income .............. 1,659 -- 45,487 (4,406) 121,379 SIX MONTHS ENDED 3/31/00 Revenues: External customer ........... 12,097 -- 201,679 -- 624,636 Intersegment ................ 4 (3,115) -- (285) -- Total revenues ............ 12,101 (3,115) 201,679 (285) 624,636 Gross profit .................. 5,623 -- 117,809 -- 325,065 Selling, general and admin..... 4,971 -- 63,928 6,281 174,606 Operating income .............. 652 -- 53,881 (6,281) 150,459 Segment Assets ................ 56,756 -- 446,696 114,228 1,976,586
- ---------------- (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 International Corporation (the "Company" or "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.
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 12 14 quarters refer to the Company's fiscal quarters. The quarters ended March 31, 1999 and 2000, refer to the Company's second fiscal quarters of 1999 and 2000, respectively. PROPOSED SPIN-OFF OF SDS On April 24, 2000, Sybron International Corporation ("the Company") announced its intention to spin off its dental group by way of a pro rata distribution of Sybron Dental Specialties, Inc. ("SDS") stock to Sybron International Corporation shareholders. The spin-off is subject to a number of conditions, including (i) receipt by the Company of a favorable ruling from the Internal Revenue Service concerning the tax-free nature of the distribution, (ii) effectiveness of a Registration Statement registering the stock of SDS under the Securities Exchange Act of 1934, including an information statement that would be sent to the Company's shareholders in connection with the distribution, (iii) appropriate stock market conditions for the distribution and (iv) approval by the Company's Board of Directors of the final terms of the distribution, including, without limitation, the formal declaration of a dividend to the Company's shareholders and other specific actions necessary for the distribution. The spin-off process is expected to take six to eight months. The results of SDS will continue to be included in the Company's results from continuing operations until such time as the conditions to the spin-off have been satisfied. Upon satisfaction of the conditions, SDS will be shown as a discontinued operation. In the opinion of management, the spin-off of SDS will enhance the success of each of the Company's major lines of business, the life science and laboratory business (grouped under SLP) and the dental business (grouped under SDS). The separation will allow management of each of the groups to adopt strategies and pursue objectives that are appropriate to their respective businesses, recognizing that the two businesses have unique financial, investment and operating characteristics, human resource concerns, return on invested capital profiles, capital requirements and growth opportunities. OVERVIEW 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. We rely heavily on debt to finance our growth strategy, and our growth strategy has resulted over the years in substantial portions of our sales, income and cash flows coming from international markets. The environment for execution of our strategy has become significantly more challanging over the past year as interest rates have increased and as the U.S. dollar has strengthened against currencies in key markets for us. For further information about our interest rate risk, see "Liquidity and Capital Resources," below, and "Item 3. Quantitative and Qualitative Disclosures about Market Risk - -Interest Rates." For further information about our foreign exchange risk, see the last two paragraphs of this "Overview" section, and "Item 3. Quantitative and Qualitative Disclosures about Market Risk - Foreign Exchange." Our results for the six months ended March 31, 1999 include approximately $2.7 million of charges relating to integration costs associated with two mergers (the "1999 Special Charges"). 13 15 Both our sales and operating income for the quarter and year to date period ended March 31, 2000 grew over the corresponding prior year periods. Net sales for both the second quarter and first half of fiscal 2000 increased by 20.0% over the corresponding fiscal 1999 periods. Operating income for the second quarter and first half of fiscal 2000 increased by 19.4% and 24.0%, respectively over the corresponding fiscal 1999 periods. Excluding the 1999 Special Charges, operating income for the first half of fiscal 2000 increased by 21.3% over the corresponding fiscal 1999 period. Sales growth in the quarter was strong both domestically and internationally. In the second quarter of fiscal 2000, domestic and international sales increased by 21.5% and by 16.7%, respectively, over the corresponding fiscal 1999 quarter. For the first half of fiscal 2000, domestic and international sales increased by 21.8% and 16.4%, respectively, over the corresponding fiscal 1999 period. In both the second quarter and first half of fiscal 2000, international sales growth was negatively impacted by the strengthening of the U.S. dollar. Without the negative currency effects, international sales growth for the quarter and first half of fiscal 2000 would have been 20.3% and 20.4%, respectively, over the corresponding fiscal 1999 periods. 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 seven acquisitions in the first half of fiscal 2000. (See Note 3 to the Unaudited Consolidated Financial Statements.) Our ability to continue to grow at historical rates through acquisitions is subject to a number of uncertainties, including but not limited to the availability of suitable acquisition candidates at reasonable prices, our ability to raise, and the cost of capital for acquisitions. NON-CASH CHARGES Our results of operations include goodwill amortization, other amortization, and depreciation. These non-cash charges totaled $19.9 million and $16.8 million for the quarters ended March 31, 2000 and 1999, respectively, and $40.7 million and $32.6 million for the first half ended March 31, 2000 and 1999, 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 in accordance with GAAP. Our "Adjusted EBITDA" amounted to $102.3 million and $84.3 million for the quarters ended March 31, 2000 and 1999, respectively, and $191.5 million and $155.9 million for the first half ended March 31, 2000 and 1999, respectively. INTERNATIONAL OPERATIONS 14 16 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. The options, designed to mitigate the detrimental effects on the Company from a strengthening of the U.S. dollar in the second quarter of fiscal 2000 were sold or expired worthless during the second quarter of fiscal 2000, at a net gain of $0.7 million. The remaining contracts with a notional value of $31.6 million remained in place at March 31, 2000. RESULTS OF OPERATIONS 15 17 QUARTER ENDED MARCH 31, 2000 COMPARED TO THE QUARTER ENDED MARCH 31, 1999 NET SALES.
FISCAL FISCAL DOLLAR PERCENT NET SALES: (IN THOUSANDS) 1999 2000 CHANGE CHANGE ------------------------- ---- ---- ------ ------ SLP: Labware and Life Sciences $ 67,270 $ 85,584 $ 18,314 27.2% Clinical and Industrial 44,144 54,666 10,522 23.8% Diagnostics and Microbiology 40,074 53,179 13,105 32.7% Laboratory Equipment 23,917 24,645 728 3.0% -------- -------- -------- ----- Subtotal SLP 175,405 218,074 42,669 24.3% SDS: Professional Dental 46,881 55,217 8,336 17.8% Orthodontics 43,536 46,699 3,163 7.3% Infection Control Products 6,195 6,399 204 3.3% -------- -------- -------- ----- Subtotal SDS 96,612 108,315 11,703 12.1% -------- -------- -------- ----- Total Net Sales $272,017 $326,389 $ 54,372 20.0% ======== ======== ======== =====
Overall Company. Net sales for the second quarter of fiscal 2000, ended March 31, 2000 increased by $54.4 million or 20.0% from the corresponding fiscal 1999 quarter. Net sales at SLP increased by $42.7 million in the second quarter of fiscal 2000, an increase of 24.3% from SLP's net sales in the corresponding fiscal 1999 quarter. Net sales at SDS increased by $11.7 million in the second quarter of fiscal 2000, an increase of 12.1% 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 $14.3 million), (b) increased net sales of existing products (approximately $4.3 million) and (c) increased net sales of new products (approximately $0.4 million). Increased net sales were partially offset by: (a) unfavorable foreign currency fluctuations (approximately $0.6 million) and (b) price decreases (approximately $0.1 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 $6.5 million), (b) increased net sales of existing products (approximately $3.3 million) and (c) price increases (approximately $1.5 million). Increased net sales were partially offset by unfavorable foreign currency fluctuations (approximately $0.8 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 $9.4 million), (b) increased net sales of existing products (approximately $2.8 million) and (c) increased net sales of new products (approximately $0.6 million) and (d) price increases (approximately $0.3 million). Laboratory Equipment. Increased net sales in the Laboratory Equipment segment resulted primarily from (a) price increases (approximately $0.3 million), (b) increased net sales of new products (approximately $0.2 million), (c) net sales of products of acquired companies (approximately $0.1 million) and (d) increased net sales of existing products (approximately $0.1 million). 16 18 Professional Dental. Increased net sales in the Professional Dental segment resulted primarily from (a) increased net sales of new products (approximately $8.5 million) and (b) net sales of products from an acquired company (approximately ($0.4 million). Increased net sales were partially offset by: (a) unfavorable foreign currency fluctuations (approximately $0.5 million) and (b) a decrease in existing product net sales (approximately $0.1 million). Orthodontics. Increased net sales in the Orthodontics segment resulted primarily from: (a) increased net sales of new products (approximately $2.2 million), (b) net sales of products from an acquired company (approximately $1.5 million) and (c) increased net sales of existing products (approximately $0.8 million). Increased net sales were partially offset by: (a) unfavorable foreign currency fluctuations (approximately $1.3 million). Infection Control Products. Increased net sales in the Infection Control Products segment resulted primarily from net sales of products of an acquired company (approximately $1.0 million) partially offset by decreased net sales of existing products (approximately $0.8 million). Decreased net sales of existing products resulted primarily from a voluntary suppression of sales of certain products as the result of issues raised by an FDA inspection of Metrex Research, Inc.'s Parker, Colorado facility. The impact of the action was mitigated by Metrex's ability to supply substitute products to its customers. Metrex also conducted a voluntary recall of certain of their products, for which it incurred a charge of approximately $0.5 million in the quarter ended March 31, 2000. Metrex may incur an additional charge of up to $0.6 million during the third quarter of fiscal 2000 for inventory adjustments and disposal costs related to this matter. 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 $ 34,215 50.9% $ 45,166 52.8% $ 10,951 32.0% Clinical and Industrial 18,503 41.9% 23,264 42.6% 4,761 25.7% Diagnostics and Microbiology 20,433 51.0% 28,434 53.3% 8,001 39.2% Laboratory Equipment 9,943 41.6% 10,301 41.8% 358 3.6% --------- ---- -------- ---- -------- ----- Subtotal SLP 83,094 47.4% 107,165 49.1% 24,071 29.0% SDS: Professional Dental 26,813 57.2% 32,342 58.6% 5,529 20.6% Orthodontics 28,211 64.8% 28,674 61.4% 463 1.6% Infection Control Products 3,446 55.6% 2,694 42.1% (752) (21.8)% --------- ---- --------- ---- ------- ----- Subtotal SDS 58,470 60.5% 63,710 58.8% 5,240 9.0% -------- ---- -------- ---- -------- ----- Total Gross Profit $141,564 52.0% $170,875 52.4% $ 29,311 20.7% ======== ==== ======== ==== ======== =====
Overall Company. Gross profit for the quarter ended March 31, 2000 increased by $29.3 million or 20.7% from the corresponding fiscal 1999 period. Gross profit at SLP increased by $24.1 million in the second quarter of fiscal 2000, an increase of 29.0% from SLP's gross profit in the corresponding fiscal 1999 quarter. Gross profit at SDS increased by $5.2 million in the second quarter of fiscal 2000, an increase of 9.0% 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 primarily from: (a) the effects of acquired companies (approximately $8.3 million), (b) increased volume 17 19 (approximately $2.3 million), (c) a favorable product mix (approximately $1.7 million), (d) favorable foreign currency fluctuations (approximately $1.0 million) and (e) inventory valuation adjustments (approximately $0.6 million). Increased gross profit was partially offset by: (a) increased manufacturing overhead (approximately $2.8 million) and (b) price decreases (approximately $0.1 million). Clinical and Industrial. Increased gross profit in the Clinical and Industrial segment resulted primarily from: (a) increased volume (approximately $1.6 million), (b) price increases (approximately $1.5 million), (c) the effects of acquired companies (approximately $1.4 million), (d) an improved product mix (approximately $1.2 million) and (e) inventory valuation adjustments (approximately $0.3 million). Increased gross profit was partially offset by: (a) increased manufacturing overhead (approximately $1.1 million) and (b) unfavorable foreign currency fluctuations (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 $6.2 million), (b) a favorable product mix (approximately $1.8 million), (c) increased volume (approximately $0.9 million) and (d) price increases (approximately $0.3 million). Increased gross profit was partially offset by increased manufacturing overhead (approximately $1.2 million). Laboratory Equipment. Increased gross profit in the Laboratory Equipment segment resulted primarily from: (a) price increases (approximately $0.3 million), (b) increased volume (approximately $0.2 million), (c) the effects of acquired companies (approximately $0.1 million) and (d) inventory valuation adjustments (approximately $0.2 million). Increased gross profit was partially offset by increased manufacturing overhead (approximately $0.4 million). Professional Dental. Increased gross profit in the Professional Dental segment resulted primarily from: (a) increased volume (approximately $5.0 million), (b) a favorable product mix (approximately $0.7 million), (c) the effects of an acquired company (approximately $0.2 million) and (d) inventory valuation adjustments (approximately $0.1 million). Increased gross profit was partially offset by: (a) increased manufacturing overhead (approximately $0.4 million) and (b) unfavorable foreign currency fluctuations (approximately $0.1 million). Orthodontics. Increased gross profit in the Orthodontics segment resulted primarily from: (a) increased volume (approximately $2.0 million), (b) the effects of an acquired company (approximately $0.4 million) and (c) a favorable product mix (approximately $0.3 million). Increased gross profit was partially offset by: (a) unfavorable foreign currency fluctuations (approximately $1.3 million), (b) increased manufacturing overhead (approximately $0.3 million) and (c) inventory valuation adjustments (approximately $0.6 million). Infection Control Products. Decreased gross profit in the Infection Control Products segment resulted primarily from: (a) costs associated with the product recall referred to above, including the write-off of inventory (approximately $0.6 million), (b) decreased volume (approximately $0.5 million) and (c) an unfavorable product mix (approximately $0.3 million). Decreased gross profit was partially offset by the effects of an acquired company (approximately $0.6 million). SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. 18 20
SELLING GENERAL AND ADMINISTRATIVE PERCENT OF PERCENT OF DOLLAR PERCENT EXPENSES: (IN THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE - ----------------------------- ---- ----- ---- ----- ------ ------ SLP: Labware and Life Sciences $ 16,773 24.9% $ 23,773 27.8% $ 7,000 41.7% Clinical and Industrial 7,381 16.7% 9,248 16.9% 1,867 25.3% Diagnostics and Microbiology 9,834 24.5% 14,022 26.4% 4,188 42.6% Laboratory Equipment 4,907 20.5% 5,292 21.5% 385 7.8% -------- ---- -------- ---- -------- ----- Subtotal SLP 38,895 22.2% 52,335 24.0% 13,440 34.6% SDS: Professional Dental 15,297 32.6% 15,764 28.5% 467 3.1% Orthodontics 14,435 33.2% 15,186 32.5% 751 5.2% Infection Control Products 2,506 40.5% 2,622 41.0% 116 4.6% -------- ---- -------- ---- -------- ----- Subtotal SDS 32,238 33.4% 33,572 31.0% 1,334 4.1% Corporate Office 1,931 N/A 3,194 N/A 1,263 65.4% -------- ---- -------- ---- -------- ---- Total Selling General and Administrative Expenses $ 73,064 26.9% $ 89,101 27.3% $ 16,037 21.9% ======== ==== ======== ==== ======== ====
Overall Company. Selling, general and administrative expenses for the quarter ended March 31, 2000 increased by $16.0 million or 21.9% from the corresponding fiscal 1999 quarter. Selling, general and administrative expenses at SLP increased by $13.4 million in the second quarter of fiscal 2000, an increase of 34.6% from SLP's corresponding fiscal 1999 quarter. Selling, general and administrative expenses at SDS increased by $1.3 million in the second quarter of fiscal 2000, an increase of 4.1% from SDS's corresponding fiscal 1999 quarter. Selling, general and administrative expenses at the corporate office increased by $1.3 million in the second quarter of fiscal 1999, an increase of 65.4% 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 $4.6 million), (b) increased amortization of intangibles primarily as a result of acquisitions (approximately $1.3 million), (c) increased general and administrative expenses (approximately $0.8 million) and (d) increased selling and marketing expenses (approximately $0.3 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 $1.3 million), (b) increased general and administrative expenses (approximately $0.3 million), (c) increased selling and marketing expenses (approximately $0.2 million) and (d) increased amortization of intangibles primarily as a result of acquisitions (approximately $0.2 million). Increased selling, general and administrative expenses were partially offset by 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 general and administrative expenses (approximately $0.4 million) and (d) increased selling and marketing expense (approximately $0.1 million). Increased selling, general and administrative expenses were partially offset by decreased research and development expense (approximately $0.2 million). 19 21 Laboratory Equipment. Increased selling, general and administrative expenses in the Laboratory Equipment segment resulted primarily from: (a) increased research and development expenses (approximately $0.3 million) and (b) increased amortization of intangibles primarily as a result of acquisitions (approximately $0.1 million). Professional Dental. Increased selling, general and administrative expenses in the Professional Dental segment resulted primarily from: (a) unfavorable foreign currency fluctuations (approximately $0.2 million), (b) increased general and administrative expenses (approximately $0.1 million), (c) increased research and development expenses (approximately $0.1 million) and (d) increased amortization of intangibles primarily as a result of an acquisition (approximately $0.1 million). Orthodontics. Increased selling, general and administrative expenses in the Orthodontics segment resulted primarily from: (a) increased general and administrative expenses (approximately $0.6 million), (b) increased selling, general and administrative expenses as a result of acquired companies (approximately $0.4 million) and (c) increased amortization of intangibles primarily as a result of an acquisition (approximately $0.2 million). Increased selling, general and administrative expenses in the Orthodontics segment were partially offset by (a) decreased selling and marketing expenses (approximately $0.2 million) and (b) decreased research and development expenses (approximately $0.2 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 an acquired company (approximately $0.1 million), (b) amortization of intangibles primarily from acquired businesses (approximately $0.1 million) and (c) increased selling and marketing expenses (approximately $0.1 million). Increased selling, general and administrative expenses were partially offset by decreased general and administrative 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 $1.3 million). OPERATING INCOME
PERCENT OF PERCENT OF DOLLAR PERCENT OPERATING INCOME: (IN THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE - ------------------------------- ---- ----- ---- ----- ------ ------ SLP: Labware and Life Sciences $ 17,442 25.9% $ 21,393 25.0% $ 3,951 22.7% Clinical and Industrial 11,122 25.2% 14,016 25.6% 2,894 26.0% Diagnostics and Microbiology 10,599 26.4% 14,412 27.1% 3,813 36.0% Laboratory Equipment 5,036 21.1% 5,009 20.3% (27) (0.5)% -------- ---- -------- ---- -------- ---- Subtotal SLP 44,199 25.2% 54,830 25.1% 10,631 24.1% SDS: Professional Dental 11,516 24.6% 16,578 30.0% 5,062 44.0%
20 22 Orthodontics 13,776 31.6% 13,488 28.9% (288) (2.1)% Infection Control Products 940 15.2% 72 1.1% (868) (92.3)% --------- ---- --------- ----- -------- ---- Subtotal SDS 26,232 27.2% 30,138 27.8% 3,906 14.9% Corporate Office (1,931) N/A (3,194) N/A (1,263) 65.4% --------- ---- --------- ----- -------- ---- Total Operating Income $ 68,500 25.2% $ 81,774 25.1% $ 13,274 19.4% ========= ==== ========= ===== ======== ====
As a result of the foregoing, operating income in the second quarter of fiscal 2000 increased by 19.4% or $13.3 million over operating income in the corresponding quarter of fiscal 1999. INTEREST EXPENSE. Interest expense was $18.3 million in the second quarter of fiscal 2000, an increase of $4.2 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 to the addition of a Term B Loan in July 1999. INCOME TAXES. Taxes on income from continuing operations in the second quarter of fiscal 2000 were $25.1 million, an increase of $4.1 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 $39.0 million in the second quarter of fiscal 2000, as compared to $32.5 million in the corresponding 1999 period. DISCONTINUED OPERATIONS. Loss from discontinued operations was $0.4 million in the second quarter of fiscal 1999. The 1999 discontinued operations resulted from the operating results of NPT. EXTRAORDINARY ITEM. On March 31, 1999, Sybron completed the sale of NPT to Norton Performance Plastics Corporation. Net proceeds from the sale, net of estimated selling expenses of $1.7 million, amounted to $86.0 million. The Company realized a gain on this sale in the second quarter of fiscal 1999 (net of tax of $18.7 million) of $18.8 million. Reductions to the gain were made in the Company's third and fourth fiscal quarters of 1999 of $0.8 million each reducing the final gain on the sale of NPT to $17.2 million. NET INCOME. 21 23 As a result of the foregoing, we had net income of $39.0 million in the second quarter of fiscal 2000, as compared to net income of $50.9 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 $3.1 million in the second 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. FIRST SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO THE FIRST SIX MONTHS ENDED MARCH 31, 1999 NET SALES.
FISCAL FISCAL DOLLAR PERCENT NET SALES: (IN THOUSANDS) 1999 2000 CHANGE CHANGE - ------------------------- ---- ---- ------ ------ SLP: Labware and Life Sciences $ 121,917 $ 165,482 $ 43,565 35.7% Clinical and Industrial 84,414 106,577 22,163 26.3% Diagnostics and Microbiology 76,923 103,795 26,872 34.9% Laboratory Equipment 48,564 47,103 (1,461) (3.0)% --------- --------- -------- ------- Subtotal SLP 331,818 422,957 91,139 27.5% SDS: Professional Dental 91,992 102,822 10,830 11.8% Orthodontics 84,950 86,760 1,810 2.1% Infection Control Products 11,587 12,097 510 4.4% --------- --------- -------- ------- Subtotal SDS 188,529 201,679 13,150 7.0% --------- --------- -------- ------- Total Net Sales $ 520,347 $ 624,636 $104,289 20.0% ========= ========= ======== =======
Overall Company. Net sales for the six months ended March 31, 2000 increased by $104.3 million or 20.0% from the corresponding fiscal 1999 period. Net sales at SLP increased by $91.1 million in the first half of fiscal 2000, an increase of 27.5% from SLP's net sales in the corresponding fiscal 1999 period. Net sales at SDS increased by $13.2 million in the first half of fiscal 2000, an increase of 7.0% 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 $33.4 million), (b) increased net sales of existing products (approximately $10.5 million), (c) increased net sales of new products (approximately $0.8 million) and (d) price increases (approximately $0.2 million). Increased net sales were partially offset by unfavorable foreign currency fluctuations (approximately $1.3 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 $14.6 million), (b) increased net sales of existing products (approximately $6.0 million) and (c) price increases (approximately $2.9 million). Increased net sales were partially offset by unfavorable foreign currency fluctuations (approximately $1.3 million). 22 24 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 $19.7 million), (b) increased net sales of existing products (approximately $6.3 million) and (c) increased net sales of new products (approximately $1.0 million). Increased net sales were partially offset by price decreases (approximately $0.1 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 $3.1 million) and (b) unfavorable foreign currency fluctuations (approximately $0.1 million). The constant temperature business is expected to continue to undergo 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 $0.7 million), (b) increased net sales of new products (approximately $0.6 million) and (c) price increases (approximately $0.4 million). Professional Dental. Increased net sales in the Professional Dental segment resulted primarily from increased net sales of new products (approximately $13.1 million). Increased net sales were partially offset by: (a) decreased net sales of existing products (approximately $1.0 million), (b) unfavorable foreign currency fluctuations (approximately $1.2 million) and (c) discontinued product lines (net of sales from an acquired company) (approximately $0.1 million). Orthodontics. Increased net sales in the Orthodontics segment resulted primarily from: (a) increased net sales of new products (approximately $3.1 million) and (b) increased net sales of products of an acquired company (approximately $2.0 million). Increased net sales were partially offset by: (a) decreased net sales of existing products (approximately $1.0 million) and (b) unfavorable foreign currency fluctuations (approximately $2.3 million). Infection Control Products. Increased net sales in the Infection Control Products segment resulted primarily from net sales of products of an acquired company (approximately $2.0 million) partially offset by decreased net sales of existing products due to product life cycle maturities and from a voluntary suppression of sales of certain products as the result of issues raised by an FDA inspection of Metrex Research, Inc.'s Parker, Colorado facility. The impact of the action was mitigated by Metrex's ability to supply substitute products to its customers (approximately $1.5 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 $ 61,985 50.8% $86,023 52.0% 24,038 38.8% Clinical and Industrial 35,107 41.6% 44,910 42.1% 9,803 27.9% Diagnostics and Microbiology 39,491 51.3% 56,433 54.4% 16,942 42.9% Laboratory Equipment 20,131 41.5% 19,890 42.2% (241) (1.2)% --------- ---- ------- ---- ------- ------- Subtotal SLP 156,714 47.2% 207,256 49.0% 50,542 32.3% SDS:
23 25 Professional Dental 51,420 55.9% 58,586 57.0% 7,166 13.9% Orthodontics 52,640 62.0% 53,600 61.8% 960 1.8% Infection Control Products 6,391 55.2% 5,623 46.5% (768) (12.0)% --------- ---- -------- ---- -------- ----- Subtotal SDS 110,451 58.6% 117,809 58.4% 7,358 6.7% --------- ---- -------- ---- -------- ----- Total Gross Profit $267,165 51.3% $325,065 52.0% $ 57,900 21.7% ========= ==== ======== ==== ======== =====
Overall Company. Gross profit for the six months ended March 31, 2000 increased by $57.9 million or 21.7% from the corresponding fiscal 1999 period. Gross profit at SLP increased by $50.5 million in the first half of fiscal 2000, an increase of 32.3% from SLP's gross profit in the corresponding fiscal 1999 period. Gross profit at SDS increased by $7.4 million in the first half of fiscal 2000, an increase of 6.7% from SDS's gross profit in the corresponding fiscal 1999 period. Labware and Life Sciences. Increased gross profit in the Labware and Life Sciences segment resulted primarily from: (a) the effects of acquired companies (approximately $18.2 million), (b) increased volume (approximately $5.1 million), (c) inventory valuation adjustments (approximately $1.2 million), (d) a favorable product mix (approximately $2.2 million), (e) price increases (approximately $0.2 million) and (f) favorable foreign currency fluctuations (approximately $1.0 million). Increased gross profit was partially offset by increased manufacturing overhead (approximately $3.9 million). Clinical and Industrial. Increased gross profit in the Clinical and Industrial segment resulted primarily from: (a) the effects of acquired companies (approximately $5.5 million), (b) an improved product mix (approximately $2.7 million), (c) price increases (approximately $2.9 million), (d) increased volume (approximately $2.2 million) and (e) inventory valuation adjustments (approximately $0.2 million). Increased gross profit was partially offset by: (a) increased manufacturing overhead (approximately $3.6 million) and (b) unfavorable effects of foreign currency fluctuations (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 $13.4 million), (b) increased volume (approximately $2.6 million), (c) a favorable product mix (approximately $2.9 million) and (d) inventory valuation adjustments (approximately $0.8 million). Increased gross profit was partially offset by: (a) increased manufacturing overhead (approximately $2.7 million) and (b) price decreases (approximately $0.1 million). Laboratory Equipment. Decreased gross profit in the Laboratory Equipment segment resulted primarily from: (a) reduced volume (approximately $1.0 million) and (b) increased manufacturing overhead (approximately $0.1 million). Decreased gross profit was partially offset by: (a) the effects of acquired companies (approximately $0.4 million), (b) price increases (approximately $0.4 million) and (c) an improved product mix (approximately $0.1 million). Professional Dental. Increased gross profit in the Professional Dental segment resulted primarily from: (a) increased volume (approximately $7.3 million) and (b) a favorable product mix (approximately $1.4 million). Increased gross profit was partially offset by: (a) inventory valuation adjustments (approximately $0.4 million), (b) increased manufacturing overhead (approximately $0.7 million), (c) unfavorable foreign currency fluctuations (approximately $0.3 million) and (d) discontinued product lines (net of an acquired company) (approximately $0.1 million). 24 26 Orthodontics. Increased gross profit in the Orthodontics segment resulted primarily from: (a) a favorable product mix (approximately $2.8 million) (b) increased volume (approximately $1.4 million) and (c) the effects of an acquired company (approximately $0.6 million). Increased gross profit was partially offset by: (a) unfavorable foreign currency fluctuations (approximately $2.3 million), (b) increased manufacturing overhead (approximately $0.7 million) and (d) inventory valuation adjustments (approximately $0.8 million). Infection Control Products. Decreased gross profit in the Infection Control Products segment resulted primarily from: (a) decreased volume (approximately $0.9 million) (b) costs associated with the product recall referred to above, including the write-off of inventory (approximately $0.6 million) and (c) increased manufacturing overhead (approximately $0.5 million). Decreased gross profit was partially offset by: the effects of an acquired company (approximately $1.2 million). SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
SELLING GENERAL AND PERCENT OF PERCENT OF DOLLAR PERCENT ADMINISTRATIVE EXPENSES: 1999 SALES 2000 SALES CHANGE CHANGE - ------------------------ ---- ----- ---- ----- ------ ------ (IN THOUSANDS) - -------------- SLP: Labware and Life Sciences $ 31,836 26.1% $ 46,978 28.4% $ 15,142 47.6% Clinical and Industrial 14,529 17.2% 18,195 17.1% 3,666 25.2% Diagnostics and Microbiology 19,737 25.7% 28,862 27.8% 9,125 46.2% Laboratory Equipment 10,314 21.2% 10,362 22.0% 48 0.5% -------- ---- -------- ---- -------- ---- Subtotal SLP 76,416 23.0% 104,397 24.7% 27,981 36.6% SDS: Professional Dental 31,602 34.4% 28,979 28.2% (2,623) (8.3)% Orthodontics 28,630 33.7% 29,978 34.6% 1,348 4.7% Infection Control Products 4,732 40.8% 4,971 41.1% 239 5.1% -------- ---- -------- ---- -------- ---- Subtotal SDS 64,964 34.5% 63,928 31.7% (1,036) (1.6)% Corporate Office 4,406 N/A 6,281 N/A 1,875 42.6% -------- ---- -------- ---- -------- ---- Total Selling General and Administrative Expenses $145,786 28.0% $174,606 28.0% $ 28,820 19.8% ======== ==== ======== ==== ======== ====
Overall Company. Selling, general and administrative expenses for the six months ended March 31, 2000 increased by $28.8 million or 19.8% from the corresponding fiscal 1999 period. Selling, general and administrative expenses at SLP increased by $28.0 million in the first half of fiscal 2000, an increase of 36.6% from SLP's corresponding fiscal 1999 period. Selling, general and administrative expenses at SDS decreased by $1.0 million in the first half of fiscal 2000, a decrease of 1.6% from SDS's corresponding fiscal 1999 period. Selling, general and administrative expenses at the corporate office increased by $1.9 million in the first half of fiscal 1999, an increase of 42.6% from the corporate office's corresponding fiscal 1999 period. 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 $10.1 million), (b) increased amortization of intangibles primarily as a result of acquisitions (approximately $2.6 million), (c) increased selling and marketing expenses (approximately $1.3 million) and (d) increased general and administrative expenses (approximately $1.2 million). Increased selling, general and administrative expenses were partially offset by favorable foreign currency fluctuations (approximately $0.1 million). 25 27 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 $2.8 million), (b) increased selling and marketing expenses (approximately $0.6 million) and (c) increased amortization of intangibles primarily as a result of acquisitions (approximately $0.5 million). Increased selling, general and administrative expenses were partially offset by favorable foreign currency fluctuations (approximately $0.2 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 $5.4 million), (b) increased amortization of intangibles primarily as a result of acquisitions (approximately $2.5 million) and (c) increased selling and marketing expenses (approximately $1.2 million). Laboratory Equipment. Selling, general and administrative expenses in the Laboratory Equipment segment were flat and resulted primarily from: (a) increased research and development expenses (approximately $0.3 million), (b) increased amortization of intangibles primarily as a result of acquired businesses (approximately $0.1 million) and (c) increased selling, general and administrative expense as a result of acquisitions (approximately ($0.1 million). Increased selling, general and administrative expenses were offset by: (a) decreased selling and marketing expenses (approximately $0.5 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 $0.2 million) and (d) decreased research and development expenses (approximately $0.1 million). Decreased selling, general and administrative expenses in the Professional Dental segment were partially offset by: (a) unfavorable foreign currency fluctuations (approximately ($0.2 million) and (b) increased amortization of intangibles primarily as a result of an acquisition (approximately $0.1 million). Orthodontics. Increased selling, general and administrative expenses in the Orthodontics segment resulted primarily from: (a) increased general and administrative expenses (approximately $1.4 million), (b) increased selling, general and administrative expenses as a result of acquired companies (approximately $0.6 million), (c) increased amortization of intangibles primarily as a result of acquisitions (approximately $0.4 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), (b) decreased research and development expenses (approximately $0.3 million) and (c) decreased selling and marketing expenses (approximately $0.2 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 $0.2 million) and (b) amortization of intangibles primarily from acquired businesses (approximately $0.2 million). Increased selling, general and administrative expenses were partially offset by: (a) decreased selling and marketing expenses (approximately $0.1 million) and (b) decreased general and administrative expenses (approximately $0.1 26 28 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 $1.9 million). 27 29 OPERATING INCOME.
PERCENT OF PERCENT OF DOLLAR PERCENT OPERATING INCOME: (IN THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE -------------------------------- ---- ----- ---- ----- ------ ------- SLP: Labware and Life Sciences $ 30,149 24.7% $ 39,045 23.6% $ 8,896 29.5% Clinical and Industrial 20,578 24.4% 26,715 25.1% 6,137 29.8% Diagnostics and Microbiology 19,754 25.7% 27,571 26.6% 7,817 39.6% Laboratory Equipment 9,817 20.2% 9,528 20.2% (289) (2.9)% -------- ---- -------- ---- ------- ----- Subtotal SLP 80,298 24.2% 102,859 24.3% 22,561 28.1% SDS: Professional Dental 19,818 21.5% 29,607 28.8% 9,789 49.4% Orthodontics 24,010 28.3% 23,622 27.2% (388) (1.6)% Infection Control Products 1,659 14.3% 652 5.4% (1,007) (60.7)% -------- ---- -------- ----- ------- ----- Subtotal SDS 45,487 24.1% 53,881 26.7% 8,394 18.5% Corporate Office (4,406) N/A (6,281) N/A (1,875) 42.6% -------- ---- -------- ---- ------- ---- Total Operating Income $121,379 23.3% $150,459 24.1% $29,080 24.0% ======== ==== ======== ==== ======= ====
As a result of the foregoing, operating income in the first six months of fiscal 2000 increased by 24.0% or $29.1 million over operating income in the corresponding fiscal 1999 period. INTEREST EXPENSE. Interest expense was $36.2 million in the first half of fiscal 2000, an increase of $8.0 million from the corresponding fiscal 1999 period. 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 to the addition of a Term B Loan in July 1999. INCOME TAXES. Taxes on income from continuing operations in the first half of fiscal 2000 were $45.3 million, an increase of $8.6 million from the corresponding 1999 period. 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 $69.4 million in the first half of fiscal 2000, as compared to $55.8 million in the corresponding 1999 period. DISCONTINUED OPERATIONS. Income from discontinued operations was $0.1 million in the first half of fiscal 1999. The 1999 discontinued operations resulted from the operating results of NPT. EXTRAORDINARY ITEM. On March 31, 1999, Sybron completed the sale of NPT to Norton Performance Plastics Corporation. Net proceeds from the sale, net of estimated selling expenses of $1.7 million, amounted to $86.0 million. 28 30 The Company realized a gain on this sale in the second quarter of fiscal 1999 (net of tax of $18.7 million) of $18.8 million. Reductions to the gain were made in the Company's third and fourth fiscal quarters of 1999 of $0.8 million each reducing the final gain on the sale of NPT to $17.2 million. NET INCOME. As a result of the foregoing, we had net income of $69.4 million in the first half of fiscal 2000, as compared to net income of $74.7 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 $8.1 million in the first half 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 $28.9 million and $113.1 million in the second quarter and first half of fiscal 2000, respectively, 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 29 31 responsibilities resulting from acquisitions. See "Cautionary Factors" below. Approximately $61.9 million of cash was generated from operating activities in the first half of fiscal 2000, an increase of $12.8 million or 26.1%, from the corresponding 1999 period. Increased cash flow from operating activities resulted primarily from an increase in Adjusted EBITDA (approximately $35.6 million) partially offset by increases in other net assets (approximately $14.8 million) an increase in interest paid (approximately $5.1 million) and an increase in taxes paid (approximately $2.9 million). Approximately $164.4 million of cash was used in investing activities in the first half of fiscal 2000, an increase of $117.4 million, or 249.5%, from the corresponding 1999 period. Increased investing activities resulted primarily from the proceeds of the sale of NPT on March 31, 1999 net of a refund of $2.6 million in the first half of fiscal 2000 (approximately $88.6 million), an increase in acquisitions (approximately $20.1 million) and increased capital expenditures (approximately $8.7 million). Approximately $96.5 million of cash was provided from financing activities, primarily from the Company's existing Credit Facilities (approximately $93.7 million), payments received from the exercise of employee stock options (approximately $4.6 million), borrowings under other financing sources (approximately $2.8 million) and a refund of collateral under a securities loan agreement (approximately $1.0 million). With respect to the 1998 restructuring charge of approximately $24.0 million, of which approximately $11.7 million represents cash expenditures, as of March 31, 2000, we have made cash payments of approximately $10.1 million. The Company expects to make future cash payments of approximately $0.3 million in fiscal 2000 and approximately $1.3 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 30 32 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 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 second quarter and first half of fiscal 2000 was 6.3% in both periods. The average interest rate on the Tranche B Term Loan Facility in the second quarter and first half of fiscal 2000 was 7.9% and 7.8%, respectively. The average interest rate on the Revolving Credit Facility in the second quarter and first half of fiscal 2000 was 6.8% and 6.7%, respectively. 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 March 31, 2000, 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 March 31, 2000 are as follows: 31 33
EXPIRATION DATE NOTIONAL AMOUNT SWAP AGREEMENT DATE SWAP AGREEMENT RATE --------------- --------------- ------------------- ------------------- 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% June 8, 2002 $50 million December 8, 1995 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%
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 March 31, 2000, there was approximately $217.7 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
32 34 (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 5.37 223.75 218.3 ------- -------- -------- Total $ 67.91 $ 338.75 $ 270.84 ======= ======== ========
In addition, under the terms of the Tranche B Term Loan Facility, the Company is 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. The Company paid $0.25 million of its fiscal 2000 obligations on January 31, 2000. The remaining payments of $0.25 million each will be made on April 30, 2000 and July 31, 2000. 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 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. 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 33 35 do not expect reasonably foreseeable consequences of the Euro conversion to have a material adverse effect on our business operations or financial condition. 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 "may", "goal", "continue", "outlook", "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. This volatility in demand can also arise with large OEM customers to whom we sell direct when such customers fail to balance their needs for out products with sales of their products with which our products are used. - - Factors affecting certain high growth industries we serve, such as consolidation in the drug discovery and diagnostics industries. - - Factors affecting our ability to profitably distribute and sell our products, including any changes in our business relationships with our principal distributors, competitive factors such as the entrance 34 36 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. - - 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. 35 37 - - Factors affecting our ability to complete the proposed spin-off of the Company's dental group, including but not limited to a favorable ruling by the Internal Revenue Service regarding the tax-free nature of the transaction and market conditions favorable to completing the spin-off. - - 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. 36 38 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, in November 1999 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 the second quarter, two of the options were sold and the third expired worthless, in aggregate netting a gain of $0.7 million. In November 1999, we acquired the following put options: 37 39
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 March 31, 2000 we had floating rate debt of approximately $949.9 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 half 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 March 31, 2000 are as follows: 38 40
EXPIRATION DATE NOTIONAL AMOUNT SWAP AGREEMENT DATE SWAP AGREEMENT RATE --------------- --------------- ------------------- ------------------- 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% June 8, 2002 $50 million December 8, 1995 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 6.30% (the "Eurodollar Base Rate") which approximates the March 31, 2000 three month Eurodollar Rate, b) the Company's floating rate debt is equal to it's March 31, 2000 floating rate debt balance of $949.9 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 March 31, 2000), and e) the Eurodollar Rate varies by 10% of the Base Rate.
INTEREST EXPENSE INCREASE FROM A 10% INTEREST EXPENSE DECREASE FROM A 10% ANNUAL INTEREST RATE EXPOSURE INCREASE IN THE EURODOLLAR BASE RATE DECREASE IN THE EURODOLLAR BASE RATE - ----------------------------- ------------------------------------ ------------------------------------ Without interest rate swaps: $6.0 million ($6.0 million) With interest rate swaps: $3.2 million ($3.2 million)
PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Information regarding our annual meeting of shareholders held on February 2, 2000 was previously reported in out Form 10-Q for the quarter ended December 31, 1999. 39 41 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. However, subsequent to the end of the quarter the following report was filed: A Form 8-K dated as of April 24, 2000 was filed on April 25, 2000 to report, under Item 5, the projected spin- off of the Company's dental group. A copy of the Company's Press Release dated April 24, 2000, was filed as an exhibit. 40 42 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: May 15, 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. 41 43 SYBRON INTERNATIONAL CORPORATION (THE "REGISTRANT") (COMMISSION FILE NO. 1-11091) EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
INCORPORATED EXHIBIT HEREIN BY FILED NUMBER DESCRIPTION REFERENCE TO HEREWITH 27 Financial Data Schedule X
EI-1 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SYBRON INTERNATIONAL CORPORATION FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 1,000 6-MOS SEP-30-2000 OCT-01-1999 MAR-31-2000 9,763 0 245,096 5,828 228,533 529,455 252,567 232,168 1,976,586 162,350 969,923 0 0 1,044 688,461 1,976,586 624,636 624,636 299,571 174,600 (377) 0 36,182 114,654 45,255 69,399 0 0 0 69,399 .67 .65
-----END PRIVACY-ENHANCED MESSAGE-----