-----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, GnJqfT7qGfZDTPi6Cn/pnFwCho6X+AvnD5t8fNKFBIFm5RUvKnd/y5WwANEhw1ny A/z0juvsAbIxwv/ks9PypQ== 0000950137-97-000555.txt : 19970222 0000950137-97-000555.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950137-97-000555 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-11091 FILM NUMBER: 97532857 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 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 December 31, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to ____________ Commission File Number: 1-11091 SYBRON INTERNATIONAL CORPORATION ---------------------------------------------------- (Exact name of registrant as specified in its charter) Wisconsin 22-2849508 ----------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 ----------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (414) 274-6600 ---------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ At February 6, 1997 there were 47,131,099 shares of the Registrant's Common Stock, par value $0.01 per share, outstanding. 2 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES Index Page ----------------------------------------------------------------- ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets, December 31, 1996 (unaudited) and September 30, 1996 2 Consolidated Statements of Income, for the three months ended December 31, 1996 (unaudited) and 1995 (unaudited) 3 Consolidated Statements of Shareholders' Equity for the three months ended December 31, 1996 (unaudited) and the year ended September 30, 1996 4 Consolidated Statements of Cash Flows, for the three months ended December 31, 1996 (unaudited) and 1995 (unaudited) 5 Notes to Unaudited Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17 SIGNATURES 18
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
December 31, September 30, 1996 1996 ------------ ------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents ...................................... $ 21,800 $ 10,874 Accounts receivable (less allowance for doubtful receivables of $2,360 and $2,429) .............................. 122,618 127,849 Inventories (note 2) ........................................... 123,757 120,317 Deferred income taxes .......................................... 10,261 11,588 Prepaid expenses and other current assets ...................... 15,301 12,012 --------- --------- Total current assets ........................................ 293,737 282,640 --------- --------- Property, plant and equipment net of depreciation of $129,854 and $123,429 ................................................... 170,024 170,151 Intangible assets .............................................. 505,189 502,079 Deferred income taxes .......................................... 15,775 12,563 Other non-current assets ....................................... 5,322 7,180 --------- --------- Total assets ................................................ $990,047 $974,613 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ............................................... $ 24,598 $ 30,398 Current portion of long-term debt .............................. 43,635 40,603 Income taxes payable ........................................... 13,822 7,636 Accrued payroll and employee benefits .......................... 23,593 29,824 Deferred income taxes .......................................... 3,662 2,542 Other current liabilities ...................................... 28,218 27,764 --------- --------- Total current liabilities .................................... 137,528 138,767 --------- --------- Long-term debt .................................................. 478,673 481,037 Deferred income taxes ........................................... 54,350 55,686 Other liabilities ............................................... 15,818 16,044 Commitments and contingent liabilities: Shareholders' equity: Common Stock, $.01 par value; authorized 110,000,000 shares, issued 47,079,178 and 46,924,588 shares, respectively .. 471 469 Preferred Stock, $.01 par value; authorized 20,000,000 shares .. - - Equity Rights; 698 rights at $1.09 per right ................... 1 1 Additional paid-in capital ..................................... 183,343 179,954 Retained earnings .............................................. 127,248 111,845 Cumulative foreign currency translation adjustment ............. (7,384) (9,189) Treasury common stock, 1,528 shares at cost .................... (1) (1) --------- --------- Total shareholders' equity .................................. 303,678 283,079 --------- --------- Total liabilities and shareholders' equity .................. $990,047 $974,613 ========= =========
See accompanying notes to unaudited consolidated financial statements. 2 4 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended December 31, 1996 1995 -------- -------- Net sales .......................................... $171,496 $146,862 Cost of sales: Cost of product sold .............................. 85,620 73,049 Depreciation of purchase accounting adjustments ..................................... 960 963 ------- -------- Total cost of sales ................................ 86,580 74,012 ------- -------- Gross profit ....................................... 84,916 72,850 Selling, general and administrative expenses ....... 44,615 38,792 Depreciation and amortization of purchase accounting adjustments ....................................... 4,763 4,727 ------- -------- Operating income ................................... 35,538 29,331 ------- -------- Other income (expense): Interest expense .................................. (9,151) (8,770) Amortization of deferred financing fees ........... (72) (71) Other, net ........................................ (152) (94) ------- -------- Income before income taxes ......................... 26,163 20,396 Income taxes ....................................... 10,760 8,674 ------- -------- Net income ......................................... $ 15,403 $ 11,722 ======= ======== Earnings per common share: ......................... $.32 $.25 ======= ========
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, 1996 AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT SHARE DATA)
CUMULATIVE AMOUNT FOREIGN RELATED TO ADDITIONAL CURRENCY TREASURY RECORDING TOTAL COMMON EQUITY PAID-IN RETAINED TRANSLATION COMMON MINIMUM SHAREHOLDERS' STOCK RIGHTS CAPITAL EARNINGS ADJUSTMENT STOCK PENSION LIABILITY EQUITY ------ ------ ---------- -------- ----------- -------- ----------------- ------------- Balance at September 30, 1995 $465 $1 $172,774 $ 54,261 $ 220 $(1) $ (470) $227,250 Shares issued in connection with the exercise of 393,722 stock options ................. 4 - 5,635 - - - - 5,639 Tax benefits related to stock options ....................... - - 1,545 - - - - 1,545 Net income .................... - - - 57,584 - - - 57,584 Cumulative foreign currency translation adjustment ........ - - - - (9,409) - - (9,409) Amount related to recording minimum pension liability ..... - - - - - - 470 470 ---- -- -------- -------- ------ --- --- ------- Balance at September 30, 1996 $469 $1 $179,954 $111,845 $(9,189) $(1) $ - $283,079 ==== == ======== ======== ====== === === ======= Shares issued in connection with the exercise of 155,464 stock options ................. 2 - 2,388 - - - - 2,390 Tax benefits related to stock options ....................... - - 1,001 - - - - 1,001 Net income (Unaudited) ........ - - - 15,403 - - - 15,403 Cumulative foreign currency translation adjustment ........ - - - - 1,805 - - 1,805 ---- -- -------- -------- ------ --- --- ------- Balance at December 31, 1996 (Unaudited) ................... $471 $1 $183,343 $127,248 $(7,384) $(1) $ - $303,678 ==== == ======== ======== ====== === === =======
See accompanying notes to unaudited consolidated financial statements. 4 6 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended December 31, 1996 1995 --------- --------- Cash flows from operating activities: Net income .......................................................... $15,403 $11,722 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ....................................................... 6,989 5,978 Amortization ....................................................... 4,756 4,721 Provision for losses on doubtful accounts .......................... 107 132 Inventory provisions ............................................... 779 (11) Deferred taxes ..................................................... (2,101) (3,260) Changes in assets and liabilities: Decrease in accounts receivable .................................... 4,740 9,285 Increase in inventories ............................................ (3,202) (5,673) Increase in prepaid expenses and other current assets .............. (4,406) (1,949) Decrease in accounts payable ....................................... (5,728) (4,357) Increase (decrease) in taxes payable ............................... 3,767 (7,416) Decrease in accrued payroll and employee benefits .................. (5,891) (3,898) Increase (decrease) in other current liabilities 1,604 (2,185) Net change in other assets and liabilities ......................... 2,259 (1,203) ------ ------- Total adjustments ................................................ 3,673 (9,836) ------ ------- Net cash provided by operating activities .......................... 19,076 1,886 Cash flows from investing activities: Capital expenditures ................................................ (6,576) (5,977) Proceeds from sales of property, plant, and equipment .............. 127 25 Payments for businesses acquired ................................... (5,678) (13,451) ------ ------- Net cash used in investing activities .............................. (12,127) (19,403) Cash flows from financing activities: Net change in the revolving credit facility ......................... 8,900 26,500 Principal payments long-term debt ................................... (9,041) (9,055) Proceeds from the exercise of common stock options and warrants ..... 2,390 918 Other ............................................................... 677 1,320 ------ ------- Net cash provided by financing activities .......................... 2,926 19,683 Effect of exchange rate changes on cash ............................. 1,051 (780) Net increase (decrease) in cash ..................................... 10,926 1,386 Cash and cash equivalents at beginning of year ...................... 10,874 9,243 ------ ------- Cash and cash equivalents at end of period .......................... $21,800 $10,629 ====== ======= Supplemental disclosures of cash flow information: Cash paid during the period for interest ............................ $ 8,690 $15,594 Cash paid during the period for income taxes ........................ 4,282 10,792 Capital lease obligations incurred .................................. 132 108
See accompanying notes to unaudited consolidated financial statements. 5 7 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 period have been included. All such adjustments were of a normal recurring nature. The results for the three month period ended December 31, 1996 are not necessarily indicative of the results to be expected for the full year. Certain amounts from the three month period ended December 31, 1995, as originally reported, have been reclassified to conform with the three month period ended December 31, 1996 presentation. 2. Inventories at December 31, 1996 consist of the following:
(In thousands) Raw materials $ 32,742 Work-in-process 30,417 Finished goods 65,370 LIFO Reserve (4,772) ------- $123,757 =======
3. On October 1, 1996, the Company's subsidiary Nalge Nunc International completed the acquisition of Pure Fit, Inc. Pure Fit, with annual sales of approximately $2.7 million in 1996, is a manufacturer of stainless steel fittings used in the fabrication and assembly of sanitary and of food grade hose. On October 1, 1996, The Naugatuck Glass Company, a subsidiary of the Company's subsidiary Erie Scientific Company, acquired certain assets of D & W, Inc. The acquired assets included the D & W customer lists and several glass cutting machines. D & W's annual sales were approximately $0.3 million in 1996. On January 6, 1997, Richard-Allan Scientific Company acquired the stock of Trend Scientific, Inc., a manufacturer of diagnostic testing systems for microbiology laboratories. Trend's annual sales were approximately $2.5 million in 1996. 6 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Both sales and operating income for Sybron International Corporation (the "Company") for the quarter ended December 31, 1996 (the first quarter of fiscal 1997) grew over the corresponding prior year period. Net sales for the quarter ended December 31, 1996 increased by 16.8% over the corresponding fiscal 1996 period. Sales growth in the first quarter of fiscal 1997 was stronger domestically than internationally with increases of 22.8% and 7.1%, respectively, over the corresponding 1996 period. International sales were negatively impacted by the strengthening of the U.S. dollar. If currency effects were removed from sales, the international increase would have been 10.1%. Acquisitions aided sales growth in the quarter ended December 31, 1996, accounting for $15.5 million and $1.3 million of the domestic and international sales increases, respectively. The Company's internal growth was 5.3% most of which came from the dental side of the business this quarter. Management continues to maintain an active program of developing and marketing both new products and product line extensions, as well as growth through acquisitions. The Company completed two acquisitions in the first quarter of fiscal 1997 (See note 3 to the unaudited Consolidated Financial Statements) and a third in January 1997. The results of operations of the Company reflect goodwill amortization, other amortization, and depreciation. These non-cash charges totaled $11.7 million and $10.7 million for the quarters ended December 31, 1996 and 1995, respectively. The Company's earnings before interest, taxes, depreciation and amortization ("EBITDA") which, as discussed below in "Liquidity and Capital Resources", the Company believes is the appropriate measure of the Company's ability to internally fund its liquidity requirements, amounted to $47.1 million and $39.9 million for the quarters ended December 31, 1996 and 1995, respectively. EBITDA represents, for any relevant period, net income plus (i) interest expense, (ii) provision for income taxes, (iii) depreciation and (iv) amortization, all determined on a consolidated basis and in accordance with generally accepted accounting principles. Substantial portions of the Company's sales, income and cash flows are derived internationally. The financial position and the results of operations from substantially all of the Company's 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 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, the Company's U.S. export sales may be impacted by foreign currency fluctuations to the relative 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 the U.S. dollar. 7 9 From time to time, management may employ currency hedges to mitigate the impact of foreign currency fluctuations. If currency hedges are not employed, the Company is exposed to earnings volatility as a result of foreign currency fluctuations. The Company has decided not to employ foreign currency hedges at this time. In March of 1996, the Company recorded a restructuring charge of $8.3 million ($6.1 million after tax or $.13 per share) for the rationalization of certain acquired companies, combination of certain production facilities, movement of certain customer service and marketing functions, and the exiting of several product lines. As of December 31, 1996, approximately $5.5 million was charged against this reserve. At December 31, 1996, approximately $ 2.7 million remains to be expended and is recorded in other current liabilities. The Company expects to charge approximately $2.5 million against this reserve in fiscal 1997. Principal items included in the reserve are severance and termination costs for approximately 130 notified employees (primarily production, sales and marketing personnel) (approximately $2.3 million), remaining lease payments and shut down costs on exited facilities (approximately $2.1 million), the non-cash write-off of certain fixed assets and inventory associated with exited product lines, primarily at Sybron Dental Specialties (approximately $2.5 million), a statutory tax penalty (approximately $0.7 million) and other related restructuring costs (approximately $0.7 million). The Company estimates that savings from this restructuring will approximate $3.8 million annually, before income taxes. The realization of most of the savings began in fiscal 1997. As reported previously, on May 2, 1996, Combustion Engineering, Inc. ("CE") commenced legal proceedings in the New York Supreme Court, County of Monroe (the "CE Litigation"), against the Company with respect to the former Taylor Instruments ("Taylor") facility in Rochester, New York (the "Rochester Site"), a discontinued operation. According to CE's complaint, its claims are based on an asset purchase and sale agreement dated as of September 30, 1983, pursuant to which Taylor was sold to CE (the "1983 Agreement"), and an agreement between a subsidiary of the Company and CE dated August 14, 1987 (the "1987 Agreement"). The complaint alleges that under the 1983 Agreement the Company retained certain liabilities for, and indemnified CE with respect to, environmental contamination, hazards and other conditions that existed at the time of the sale of Taylor to CE, and that under the 1987 Agreement, the Company agreed to bear 70 percent of the costs thereafter incurred to clean up, remediate and remove mercury from the land and buildings at the Rochester Site. CE's complaint seeks declaratory relief and claims damages of at least $10 million with respect to expenses CE has incurred and expects to incur to remediate and remove mercury contamination from the land and buildings sold to CE at the Rochester Site. The complaint also seeks declaratory relief and claims damages in excess of $1 million with respect to expenses incurred and expected to be incurred for remediating other alleged environmental hazards associated with the Rochester Site. Some of CE's claims relate to the cost to demolish and dispose of the buildings at the Rochester Site, which CE maintains it had to do because the buildings were contaminated with mercury. CE previously informed the Company that CE claims that the Company's share of such demolition and disposal costs is approximately $4.2 million. The Company denies it has any liability for such costs. CE's remaining claims relate to alleged soil and groundwater contamination, including mercury contamination, for which the Company also denies liability. CE implemented a plan in early 1996 to assess the extent of potential soil and groundwater 8 10 contamination at the Rochester Site, the results of which have been provided by CE to the Company. The results indicate there is mercury and inorganic and volatile organic compound contamination in the soil and groundwater at certain Rochester Site locations. CE has prepared a voluntary clean-up proposal based on these results which it has presented to the New York Department of Environmental Conservation (the "NYDEC") for consideration. The cost to remediate the Rochester Site will depend upon the remediation standards incorporated into the voluntary clean-up agreement CE is negotiating with the NYDEC. Because the clean-up standards which may be applied have not been determined, the extent of remediation to be undertaken, and its cost, is unknown. As a result, the Company cannot, at this time, estimate the cost of the soil and groundwater remediation claims. The Company previously reported that prior to beginning the Rochester Site assessment which generated the current test results, CE had indicated to the Company that, based upon information available to it and subject to a number of caveats, including the lack of assessment information and the fact that clean-up standards which may be applied to the Rochester Site have not been determined, the cost to remediate the soil and groundwater would range from $3 million to $5 million. Because the bases for this estimate were not disclosed by CE to the Company, the Company cannot make a judgment about how the test results it has been provided would affect this estimate. The Company intends to pursue insurance coverage for CE's claims and has therefore provided notice of CE's claims to its third party liability insurance carriers. To date the carriers have denied coverage. RESULTS OF OPERATIONS QUARTER ENDED DECEMBER 31, 1996 COMPARED TO THE QUARTER ENDED DECEMBER 31, 1995 NET SALES. Net sales for the three months ended December 31, 1996 were $171.5 million, an increase of $24.6 million (16.8%) from net sales of $146.9 million for the corresponding three months ended December 31, 1995. Sales in the laboratory segment were $100.8 million for the three months ended December 31, 1996, an increase of 18.7% from the corresponding 1996 fiscal period. Increased sales in the laboratory segment resulted primarily from (i) sales of products of acquired companies (approximately $13.9 million), (ii) price increases at Barnstead/Thermolyne (approximately $0.7 million) and at Nalge Nunc International (approximately $0.5 million), (iii) increased volume from sales of existing products at Erie (approximately $1.0 million) and at Nalge Nunc International (approximately $0.2 million) and (iv) increased volume from sales of new products at Erie (approximately $0.4 million: primarily sales from the Daiichi line of electrophoresis devices and consumables, BURST-PAK(TM) Sequencing gels, and sales from the Standard Stain line), at Nalge Nunc International (approximately $0.3 million; primarily their line of Bio-Media packaging and safety products) and at Barnstead/Thermolyne (approximately $0.2 million; primarily sales from their NCAT Asphalt Furnace and STERILEMAX(TM) line of sterilization products). Increased sales in the laboratory segment were partially offset by (i) reduced volume from sales of existing products at Barnstead/Thermolyne (approximately $0.9) and (ii) unfavorable foreign currency impacts at Nalge Nunc International (approximately $0.5 million) and at Erie (approximately $0.2 million). In the dental segment, net sales were $70.7 million for the three months ended December 31, 1996, an increase of 14.1% from the corresponding fiscal 1996 period. Increased sales in the dental segment resulted primarily from (i) increased volume from 9 11 sales of existing products (approximately $6.7 million), (ii) sales of products of acquired companies (approximately $2.9 million) and (iii) increased volume from sales of new products (approximately $0.4 million; primarily sales from the OPTIBOND SOLO(TM) product line and sales of CANTILEVER BITE JUMPER(TM) kits), partially offset by unfavorable foreign currency impacts (approximately $1.3 million). GROSS PROFIT. Gross profit for the first quarter of fiscal 1997 was $84.9 million, an increase of 16.6% from gross profit of $72.9 million for the corresponding fiscal 1996 period. Gross profit in the laboratory segment was $45.5 million (45.2% of net segment sales) in the first quarter of fiscal 1997, an increase of 18.2% from gross profit of $38.5 million (45.4% of net segment sales) during the corresponding fiscal 1996 period. Gross profit in the laboratory segment increased primarily as a result of (i) the effects of acquired companies (approximately $5.9 million), (ii) an improved product mix at Nalge Nunc International (approximately $1.4 million) and (iii) increased volume at Erie (approximately $1.2 million). Increased gross profit was partially offset by (i) an unfavorable product mix at Erie (approximately $1.3 million) and (ii) increased material costs at Nalge Nunc International (approximately $0.3 million). In the dental segment, gross profit was $39.4 million (55.7% of net segment sales) in the first quarter of fiscal 1997, an increase of 14.7% from gross profit of $34.3 million (55.4% of net segment sales) during the corresponding fiscal 1996 period. Increased gross profit in the dental segment resulted primarily from (i) increased volume (approximately $4.4 million) and (ii) the effects of acquired companies (approximately $1.5 million), partially offset by unfavorable foreign currency (approximately $0.9 million). SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the first quarter of fiscal 1997 were $49.4 million (28.8% of net sales) as compared to $43.5 million (29.6% of net sales) in the corresponding fiscal 1996 period. General and administrative expenses at the corporate level, including amortization of purchase accounting adjustments and goodwill associated with acquisitions, were $5.6 million in the first quarter of fiscal 1996, representing an increase of 1.7% from $5.5 million in the corresponding fiscal 1996 period. Selling, general and administrative expenses at the subsidiary level, including amortization of intangibles, were $43.7 million (25.5% of sales), representing an increase of 15.2% from $38.0 million (25.9% of sales) in the corresponding fiscal 1996 period. Increases at the subsidiary level were primarily due to (i) increased marketing expense (approximately $2.5 million), (ii) expenses related to newly acquired businesses (approximately $2.5 million), (iii) increased research and development expenses (approximately $0.6 million), (iv) increased general and administrative expense (approximately $0.5 million) and (v) increased amortization of intangible assets as a result of acquisitions (approximately $0.2 million) partially, offset by favorable foreign currency impacts (approximately $0.6 million). OPERATING INCOME. As a result of the foregoing, operating income was $35.5 million (20.7% of net sales) in the first quarter of fiscal 1997 compared to $29.3 million (20.0% of net sales) in the corresponding fiscal 1996 period. Operating income in the laboratory segment was $21.2 million (21.0% of net segment sales) in the first quarter of fiscal 1997 compared to $17.5 million (20.6% of net segment sales) in the corresponding fiscal 1996 period. Operating income in the dental 10 12 segment was $14.3 million (20.3% of net segment sales) in the first quarter of fiscal 1997 compared to $11.8 million (19.1% of net segment sales) in the corresponding fiscal 1996 period. INTEREST EXPENSE. Interest expense was $9.2 million in the first quarter of fiscal 1997 compared to $8.8 million in the corresponding fiscal 1996 period. The increase resulted from a higher debt balance primarily from the Company's acquisition activity. Interest expense during the quarters ended December 31, 1996 and 1995 included additional non-cash interest expense of $0.3 million resulting from the adoption of SFAS No. 106. INCOME TAXES. Taxes on income increased $2.1 million in the first quarter of fiscal 1997, primarily as a result of increased earnings. NET INCOME. As a result of the foregoing, the Company had net income of $15.4 million in the first quarter of fiscal 1997 compared to $11.7 million in the corresponding 1996 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 by $1.0 million (9.8%) in the first quarter of fiscal 1997 when compared to the corresponding fiscal 1996 period. This increase is primarily due to increased amortization of intangible assets and depreciation of property, plant and equipment related to acquired companies. LIQUIDITY AND CAPITAL RESOURCES As a result of the leveraged buyout in 1987 of a company known at the time as Sybron Corporation ("the Acquisition"), subsequent adoption of SFAS 109 and the acquisitions completed since 1987, the Company increased the carrying value of certain tangible and intangible assets consistent with generally accepted accounting principles. Also, as a result of the permanent financing effected in August 1988 for the Acquisition, the Company incurred approximately $372 million of debt. Accordingly, the Company's results of operations include a significant level of non-cash expenses related to the depreciation of fixed assets and the amortization of intangible assets, including goodwill. Goodwill and intangible assets increased by $3.7 million in the three months ended December 31, 1996 as a result of acquisitions. The Company believes, therefore, that EBITDA represents the more appropriate measure of the Company's ability to internally fund its capital requirements. The Company's capital requirements arise principally from indebtedness incurred in connection with the permanent financing for the Acquisition and its subsequent refinancings, the Company's working capital needs, primarily related to inventory and accounts receivable, the Company's capital expenditures, primarily related to purchases of machinery and molds, the purchase of various businesses and product lines in execution of the Company's acquisition strategy, the periodic expansion of physical facilities and, in the short term, payments related to the restructuring charge (as described above). In addition, in the event the Company should be held liable for CE's claims in the CE Litigation (described above), liability for which the Company denies, the Company could require capital to satisfy such liabilities, depending upon their magnitude. With respect to the restructuring charge, as of December 31, 1996, the 11 13 Company has paid approximately $2.9 million and charged an additional $2.6 million to inventory and fixed assets. The Company intends to expend an additional $2.5 million by the end of fiscal 1997 and $0.3 million over the remaining terms of exited facilities leases and severance agreements. With respect to acquisitions, it is currently the Company's intent to continue to pursue its acquisition strategy. If acquisitions are to continue at the Company's historical pace, the Company will require financing beyond the capacity of its existing 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 statement contained in the immediately preceding paragraph concerning the Company's intent to continue to pursue its acquisition strategy is a forward-looking statement. The Company's ability to continue its acquisition strategy is subject to a number of uncertainties, including, but not limited to, its ability to raise capital beyond the capacity of its existing Credit Facilities and the availability of suitable acquisitions candidates at reasonable prices. See "Cautionary Factors" below. On July 31, 1995, the Company and its domestic subsidiaries entered into a new credit agreement (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 "Term Loan Facility"), and a revolving credit facility of $250 million (the "Revolving Credit Facility") (collectively the "Credit Facilities"). On the same day, the Company and its subsidiaries borrowed $300 million under the Term Loan Facility and approximately $122.5 million was borrowed 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 the Company's previous credit facilities (the "Previous Credit Facilities"). The remaining borrowed funds of approximately $264.0 million were used to repay outstanding amounts, including accrued interest, under the Company's 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 "Amendment"), the capacity of the Revolving Credit Facility was increased to $300 million, and a competitive bid process was established as an additional option to the Company in setting interest rates. Payment of principal and interest with respect to the Credit Facilities and the Sale/Leaseback (as defined later herein) are anticipated to be the Company's largest use of funds in the future. The Credit Facilities provide for an annual interest rate, at the option of the Company, 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%, or (b) the London interbank offered rate ("LIBOR") plus 1/2% to 1% (the "LIBOR Margin") depending upon the level of certain financial ratios, or (c) with respect to the Revolving Credit Facility, the rate set by the competitive bid process among the parties to the Revolving Credit Facility established in the Amendment. In the first quarter of 1997, the average interest rates on the Term Loan Facility (inclusive of the swap agreements described below) and the Revolving Credit Facility were 6.2% and 6.4%, respectively. 12 14 As a result of the terms of the Credit Agreement and the agreement governing the Previous Credit Facilities, the Company is sensitive to a rise in interest rates. In order to reduce its sensitivity to interest rate increases, the Company entered into five interest rate swap agreements, aggregating a notional amount of $250 million, to hedge against a rise in interest rates. The net interest rate paid by the Company is approximately equal to the sum of the swap agreement rate plus the applicable LIBOR Margin. During the first quarter of fiscal 1997, the LIBOR Margin was .75%. The swap agreement rates and duration are as follows: SWAP AGREEMENT SWAP AGREEMENT EXPIRATION DATE NOTIONAL AMOUNT DATE RATE --------------------- --------------- ----------------- -------------- December 15, 1997 ... $50 million December 16, 1996 5.64% July 7, 1998 ........ $50 million July 7, 1993 5.17% August 13, 1999 ..... $50 million August 13, 1993 5.54% September 8, 2000 ... $50 million December 8, 1995 5.56% September 10, 2001 .. $50 million December 8, 1995 5.623%
Also as part of the permanent financing for the Acquisition, on December 22, 1988, the Company entered into the sale and leaseback of its principal domestic facilities (the "Sale/Leaseback"). In January 1994, the annual obligation under the Sale/Leaseback increased from $2.9 million to $3.3 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 not occur until January 1, 1999. The Company intends to fund its 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, particularly with respect to the Company's acquisition strategy, the Company will have to raise additional capital. As set forth above, the Revolving Credit Facility will provide up to $300 million in available credit. As of December 31, 1996, there was $61.6 million of available credit under the Revolving Credit Facility. Under the Term Loan Facility, on October 31, 1995 the Company began to repay principal in 28 consecutive quarterly installments; $35 million was paid in fiscal 1996. Through December 31, 1996, the Company has paid $8.75 million of the $35 million obligation due in fiscal 1997. Annual payments are due as follows: $35 million, $40 million, $40 million, $50 million, $50 million, and $50 million in fiscal years 1997 through 2002, respectively. The Credit Agreement contains numerous financial and operating covenants, including, among other things, restrictions on investments; requirements that the Company maintain certain 13 15 financial ratios; restrictions on the ability of the Company and its subsidiaries to incur indebtedness or to create or permit liens, to make capital expenditures, or to pay cash dividends in excess of $50.0 million plus 50% of the defined consolidated net income of the Company for each fiscal quarter ending after June 30, 1995, less any dividends paid after June 22, 1994; restrictions on annual capital expenditures to amounts ranging from $36.0 million to $40.0 million during the remaining term of the Credit Agreement; and limitations on incurrence of additional indebtedness. The Credit Agreement permits the Company to make acquisitions provided the Company continues to satisfy all financial covenants upon any such acquisition. The ability of the Company to meet its debt service requirements and to comply with such covenants is dependent upon the Company's future performance, which is subject to financial, economic, competitive and other factors affecting the Company, many of which are beyond its control. CAUTIONARY FACTORS This report contains various forward-looking statements concerning the Company's prospects that are based on the current expectations and beliefs of management. Forward-looking statements may also be made by the Company from time to time in other reports and documents as well as oral presentations. When used in written documents or oral statements, the words "anticipate", "believe", "estimate", "expect", "objective" and similar expressions are intended to identify forward-looking statements. The statements contained herein and such future statements involve or may involve certain assumptions, risks and uncertainties, many of which are beyond the Company's control, that could cause the Company's 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 the business and financial prospects of the Company: - Factors affecting the Company's international operations, including relevant foreign currency exchange rates, which can affect the cost to produce the Company's products or the ability to sell the Company's products in foreign markets, and the value in United States dollars of sales made in foreign currencies. Other factors include the Company's 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. - Factors affecting the Company's ability to continue pursuing its current acquisition strategy, including the Company's ability to raise capital beyond the capacity of its existing Credit Facilities or to use the Company's stock for acquisitions, the cost of the capital required to effect the Company's acquisition strategy, the availability of suitable acquisition candidates at reasonable prices, the ability of the Company to realize the synergies expected to result from acquisitions, and the ability of existing Company 14 16 personnel to efficiently handle increased transactional responsibilities resulting from acquisitions. - Factors affecting the Company's ability to profitably distribute and sell its products, including any changes in the Company's business relationships with its principal distributors, primarily in the laboratory segment, competitive factors such as the entrance of additional competitors into the Company's 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 operations. - Factors affecting the Company's ability to hire and retain competent employees, including unionization of the Company's non-union employees and changes in relationships with the Company's unionized employees. - The risk of strikes or other labor disputes at those locations which are unionized which could affect the Company's operations. - Factors affecting the Company's ability to continue manufacturing and selling those of its 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 the Company's products into categories subject to more stringent requirements, or the withdrawal of the approval needed to sell one or more of the Company's products. - Factors affecting the economy generally, including the financial and business conditions of the Company's 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 the Company's products. - Factors affecting the Company's financial performance or condition, including tax legislation, unanticipated restrictions on the Company's ability to transfer funds from its subsidiaries and changes in applicable accounting principles or environmental laws and regulations. 15 17 - The cost and other effects of claims involving the Company's products and other legal and administrative proceedings, including the expense of investigating, litigating and settling any claims. - Factors affecting the Company's 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 existing assets. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Quorum The Company, a Wisconsin corporation, held its Annual Meeting of Shareholders on January 22, 1997. Under Wisconsin law, a majority of the votes entitled to be cast by shares entitled to vote, represented in person or by proxy, constitutes a quorum at the Annual Meeting. Abstentions and broker non-votes are counted for determining the presence or absence of a quorum. A quorum was present at the Annual Meeting, with 42,163,677 shares out of a total of 46,989,194 shares entitled to cast votes represented in person or by proxy at the meeting. Proposal Number 1: To Elect Two Directors to Serve as Class II Directors Until the 2000 Annual Meeting of Shareholders and Until Their Respective Successors are Duly Elected and Qualified. The shareholders voted to elect Thomas O. Hicks and Robert B. Haas to serve as Class II directors until the 2000 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified. The results of the vote are as follows:
MR. HICKS MR. HAAS ---------- ---------- For 42,116,885 42,116,885 Withheld From 46,792 46,792 Abstentions 0 0 Broker Non-Votes 0 0
Under Wisconsin law, directors are elected by a plurality of the votes cast by shares entitled to vote in the election of directors. "Plurality" means that the individuals who receive the largest 16 18 number of votes are elected as directors up to the maximum number of directors to be chosen in the election. Any shares not voted, whether by withheld authority, broker non-vote or otherwise, have no effect in the election of directors except to the extent that the failure to vote for an individual results in another individual receiving a larger number of votes. Accordingly, the above referenced results indicate that each of Messrs. Hicks and Haas received a plurality of the votes cast by shares present in person or by proxy at the meeting and entitled to vote on the election of directors. The terms of office as directors of Don H. Davis Jr., Richard W. Vieser, Kenneth F. Yontz and Joe L. Roby continued after the meeting. Proposal Number 2: To Amend the Sybron International Corporation Senior Executive Incentive Compensation Plan. The shareholders voted to approve a proposal to amend the Sybron International Corporation Senior Executive Incentive Compensation Plan (the "Incentive Plan") to: (1) clarify that a participant's salary grade for purposes of calculating an award pursuant to the Incentive Plan is the participant's salary grade at the end of the plan year; and (2) limit the actual award which may be paid to any Incentive Plan participant during any plan year to a maximum of $2.8 million. The results of the vote are as follows: For 41,543,201 Against 547,367 Abstentions 73,109 Broker Non-Votes 0
Under Wisconsin law, the affirmative vote of a majority of the votes cast thereon is required for the approval of Proposal Number 2. Because neither abstentions nor broker non-votes are considered votes cast, neither has an effect on the voting for the proposal. Accordingly, the above referenced results indicate the proposal to amend the Company's Incentive Plan received the affirmative vote of 41,543,201 shares, constituting 98.7% of the 42,090,568 votes cast thereon at the meeting. 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. 17 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYBRON INTERNATIONAL CORPORATION -------------------------------- (Registrant) Date February 13, 1997 /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. 18 20 SYBRON INTERNATIONAL CORPORATION (COMMISSION FILE NO. 1-11091) EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996 INCORPORATED EXHIBIT HEREIN BY FILED NUMBER DESCRIPTION REFERENCE TO HEREWITH 11 Statement re Computation of Per Share X Earnings 27 Financial Data Schedule X 19 EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) Three Months Ended December 31, 1996 1995 ---- ---- Primary: Net income ........................ $15,403 $11,722 ====== ====== Shares Weighted average Common shares .. 46,980 46,552 Common equivalent shares ........ 1,641 930 ------ ------ 48,621 47,482 ====== ====== Primary earnings per share ...... $ .32 $ .25 ====== ======
20 EX-27 3 FDS
5 This schedule contains summary financial information extracted from the unaudited consolidated financial statements of Sybron International Corporation for the three months ended December 31, 1996 and qualified in its entirety by reference to such financial statements. 1,000 4-MOS SEP-30-1996 OCT-01-1996 DEC-31-1996 21,800 0 122,618 2,360 123,757 293,737 170,024 129,854 990,047 137,528 478,673 0 0 471 303,207 990,047 171,496 171,496 86,580 49,378 224 0 9,151 26,163 10,760 15,403 0 0 0 15,403 .32 .32
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