<PAGE> 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, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number: 1-11091
SYBRON INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Wisconsin 22-2849508
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(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
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(Registrant's telephone number, including area code)
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(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 7, 1997 there were 47,160,983 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
Index Page
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets, March 31, 1997 (unaudited)
and September 30, 1996 2
Consolidated Statements of Income, for the three months ended
March 31, 1997 (unaudited) and 1996 (unaudited) and the
six months ended March 31, 1997 (unaudited) and 1996
(unaudited) 3
Consolidated Statements of Shareholders' Equity for the
six months ended March 31, 1997 (unaudited) and the
year ended September 30, 1996 4
Consolidated Statements of Cash Flows, for the six months ended
March 31, 1997 (unaudited) and 1996 (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 2. CHANGES IN SECURITIES 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 22
</TABLE>
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
March 31, September 30,
1997 1996
-------------- -------------
<S> <C> <C>
(Unaudited)
Current assets:
Cash and cash equivalents ....................................... $ 15,489 $ 10,874
Accounts receivable (less allowance for doubtful
receivables of $2,486 and $2,429) .............................. 133,600 127,849
Inventories (note 2) ............................................ 133,634 120,317
Deferred income taxes ........................................... 12,682 11,588
Prepaid expenses and other current assets ....................... 16,349 12,012
-------------- -------------
Total current assets ......................................... 311,754 282,640
-------------- -------------
Property, plant and equipment net of depreciation of $129,971
and $123,429 .................................................... 171,830 170,151
Intangible assets ................................................ 503,780 502,079
Deferred income taxes ............................................ 15,917 12,563
Other assets ..................................................... 4,875 7,180
-------------- -------------
Total assets ................................................. $ 1,008,156 $ 974,613
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 28,692 $ 30,398
Current portion of long-term debt ............................... 41,326 40,603
Income taxes payable ............................................ 2,556 7,636
Accrued payroll and employee benefits ........................... 25,918 29,824
Deferred income taxes ........................................... 4,023 2,542
Other current liabilities ....................................... 21,083 27,764
-------------- -------------
Total current liabilities ..................................... 123,598 138,767
-------------- -------------
Long-term debt ................................................... 506,032 481,037
Deferred income taxes ............................................ 52,344 55,686
Other liabilities ................................................ 12,255 16,044
Commitments and contingent liabilities:
Shareholders' equity:
Preferred Stock, $.01 par value; authorized 20,000,000 shares - -
Common Stock, $.01 par value; authorized 110,000,000
shares, issued 47,151,110 and 46,924,588 shares, respectively .. 471 469
Equity Rights; 698 rights at $1.09 per right .................... 1 1
Additional paid-in capital ...................................... 185,277 179,954
Retained earnings ............................................... 147,998 111,845
Cumulative foreign currency translation adjustment .............. (19,819) (9,189)
Treasury common stock, 1,528 shares at cost ..................... (1) (1)
-------------- -------------
Total shareholders' equity ................................... 313,927 283,079
-------------- -------------
Total liabilities and shareholders' equity ................... $ 1,008,156 $ 974,613
============== =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ..................................... $185,901 $170,851 $357,397 $317,713
Cost of sales:
Cost of product sold ........................ 91,243 85,510 176,863 158,559
Restructuring charge ........................ - 2,223 - 2,223
Depreciation of purchase accounting
adjustments ............................... 955 961 1,915 1,924
----------- --------- -------- --------
Total cost of sales ........................... 92,198 88,694 178,778 162,706
----------- --------- -------- --------
Gross profit .................................. 93,703 82,157 178,619 155,007
Selling, general and administrative expenses .. 44,826 42,833 89,441 81,625
Restructuring charge .......................... - 5,307 - 5,307
Depreciation and amortization of purchase
accounting adjustments ...................... 4,857 4,840 9,620 9,567
----------- --------- -------- --------
Operating income .............................. 44,020 29,177 79,558 58,508
----------- --------- -------- --------
Other income (expense):
Interest expense. ........................... (9,222) (8,495) (18,373) (17,265)
Amortization of deferred financing fees ..... (70) (72) (142) (143)
Other, net .................................. (178) 10 (330) (84)
----------- --------- -------- --------
Income before income taxes .................... 34,550 20,620 60,713 41,016
Income taxes .................................. 13,800 10,080 24,560 18,754
----------- --------- -------- --------
Net income .................................... $20,750 $10,540 $36,153 $22,262
=========== ========= ======== ========
Earnings per common share ..................... $.43 $.22 $.74 $.47
==== ==== ==== ====
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1996
AND FOR THE SIX MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
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
------ ------ ---------- -------- ----------- -------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 227,396
stock options ................ 2 - 3,642 - - - - 3,644
Tax benefits related to stock
options ...................... - - 1,681 - - - - 1,681
Net income (Unaudited) ........ - - - 36,153 - - - 36,153
Cumulative foreign currency
translation adjustment ....... - - - - (10,630) - - (10,630)
------ ------ ---------- -------- ----------- -------- ------ --------
Balance at March 31, 1997
(Unaudited) .................. $471 $1 $185,277 $147,998 $ (19,819) $ (1) $ - $313,927
====== ====== ========== ======== =========== ======== ====== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $36,153 $22,262
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ....................................................... 13,761 12,754
Amortization ....................................................... 9,592 9,556
Provision for losses on doubtful accounts .......................... 272 238
Inventory provisions ............................................... 1,656 829
Deferred income taxes .............................................. (6,309) (7,750)
Changes in assets and liabilities:
Increase in accounts receivable .................................... (3,550) (2,949)
Increase in inventories ............................................ (13,559) (4,112)
Increase in prepaid expenses and other current assets .............. (5,838) (3,572)
Decrease in accounts payable ....................................... (3,014) (2,234)
Decrease in income taxes payable ................................... (8,824) (17,278)
Decrease in accrued payroll and employee benefits .................. (3,920) (2,646)
Increase (decrease) in restructuring reserve ....................... (1,135) 5,311
Decrease in other current liabilities (3,517) (4,034)
Net change in other assets and liabilities ......................... (2,364) (4,905)
--------- --------
Total adjustments ................................................ (26,749) (20,792)
--------- --------
Net cash provided by operating activities .......................... 9,404 1,470
Cash flows from investing activities:
Capital expenditures ............................................... (13,688) (10,464)
Proceeds from sales of property, plant, and equipment .............. 264 555
Net payments for businesses acquired ............................... (18,480) (42,121)
--------- --------
Net cash used in investing activities .............................. (31,904) (52,030)
Cash flows from financing activities:
Increase in the revolving credit facility .......................... 44,600 69,400
Principal payments on long-term debt ............................... (18,184) (18,316)
Proceeds from the exercise of common stock options ................. 3,644 2,985
Other .............................................................. (1,516) 892
--------- --------
Net cash provided by financing activities .......................... 28,544 54,961
Effect of exchange rate changes on cash ............................. (1,430) (703)
Net increase in cash and cash equivalents ........................... 4,614 3,698
Cash and cash equivalents at beginning of year ...................... 10,875 9,243
--------- --------
Cash and cash equivalents at end of period .......................... $15,489 $12,941
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ........................... $17,019 $24,787
Cash paid during the period for income taxes ....................... 29,428 22,118
Capital lease obligations incurred ................................. 818 478
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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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 six month period ended March 31, 1997 are not necessarily indicative
of the results to be expected for the full year. Certain amounts from the
six month period ended March 31, 1996, as originally reported, have been
reclassified to conform with the six month period ended March 31, 1997
presentation.
2. Inventories at March 31, 1997 consist of the following:
<TABLE>
<S> <C>
(In thousands)
Raw materials $62,178
Work-in-process 29,131
Finished goods 47,977
LIFO Reserve (5,652)
--------
$133,634
========
</TABLE>
3. On January 6, 1997, the Company's subsidiary Richard-Allan Scientific
Company ("Richard-Allan") acquired the stock of Trend Scientific, Inc.
("Trend"), a manufacturer of diagnostic testing systems for microbiology
laboratories. Trend's annual sales were approximately $2.5 million in
1996. Certain of Trend's operations have been consolidated with those of
Richard-Allan.
On February 7, 1997, a subsidiary of Sybron Dental Specialties, Inc.
("SDS") purchased the assets of Precision Rotary Instruments ("PRI"), a
manufacturer of carbide and diamond dental burs located in Bridgewater
Corners, Vermont. PRI's annual sales revenues were approximately $4.4
million in 1996. SDS plans to combine PRI's production with existing SDS
operations.
On March 31, 1997, a subsidiary of Barnstead Thermolyne Corporation
("Barnstead/Thermolyne") purchased the bench top sterilizer business of
Getinge/Castle, Inc. located in Rancho Dominguez, California. Annual sales
revenues of the business were approximately $10 million in 1996.
Barnstead/Thermolyne plans to relocate all production activities to its
existing facility in Dubuque, Iowa.
On April 9, 1997, a subsidiary of Erie Scientific Company ("Erie")
completed the acquisition of Alexon Biomedical, Inc. ("Alexon"). Located
in Sunnyvale, California, Alexon manufactures diagnostic test kits for
intestinal infections. Sales revenues for the year ended December 31, 1996
were approximately $5.6 million and, while Erie expects to continue with
some activities in Sunnyvale, sales, marketing and some other
responsibilities will be combined with the remaining operations of Trend.
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On April 25, 1997, a subsidiary of Erie acquired all outstanding
partnership interests and equity interests of certain related entities of
Remel Limited Partnership ("Remel"), a manufacturer and distributor of an
extensive range of diagnostic products, for $121.6 million in cash, plus
assumption of debt of approximately $35 million. Remel's sales revenue for
the year ending September 30, 1997 is expected to be approximately $63.3
million.
On April 30, 1997, Nalge Nunc International Corporation ("NNI") entered
into a joint venture with the owner of the Japanese distributor of
NNI's NUNC product line, Nippon InterMed K.K. ("NIKK"), by acquiring 75% of
the outstanding stock of NIKK. The seller of the stock, Mr. Miura,
retained a 25% ownership interest, and is president of the company which
has been renamed Nalge Nunc International K.K. ("NNIKK"). NNIKK's sales in
the first year of joint operation are expected to be approximately $10
million.
4. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share" ("EPS"). SFAS 128 replaces the requirement for a
presentation of primary EPS with a presentation of basic EPS and requires
presentation of both basic and diluted EPS on the face of the statement of
income for all entities with complex capital structures. SFAS 128 is
effective for financial statements issued for periods ending after
December 15, 1997 and requires restatement of all prior period EPS data
presented. The adoption of this statement is not expected to materially
affect either future or prior period EPS.
7
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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 and six month periods ended March 31, 1997 (the
second quarter and year to date of fiscal 1997) grew over the corresponding
prior year periods. Net sales for the quarter and year to date ended March 31,
1997 increased by 8.8% and 12.5%, respectively, over the corresponding fiscal
1996 periods. Sales growth in the second quarter of fiscal 1997 was stronger
domestically than internationally, with an increase of 14.2% domestically and
flat international sales compared to 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 5.8%. Acquisitions aided sales growth in the quarter
ended March 31, 1997, accounting for $12.2 million and $0.8 million of the
domestic and international sales increases, respectively. The Company's
internal growth of 1.2% was negatively influenced by the strengthened U.S.
dollar. Without the effects of the stronger U.S. dollar, internal growth was
approximately 3.4%. Management continues to maintain an active program of
growth through the development and marketing of both new products and product
line extensions, as well as acquisitions. The Company completed three
acquisitions in the second quarter of fiscal 1997 and three more in April 1997.
(See note 3 to the unaudited consolidated financial statements).
The results of operations of the Company reflect goodwill amortization,
other amortization, and depreciation. These non-cash charges totaled $11.6
million for the quarters ended March 31, 1997 and 1996, respectively, and $23.4
million and $22.3 million for the six months ended March 31, 1997 and 1996,
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 $55.4
million and $48.3 million for the quarters ended March 31, 1997 and 1996,
respectively, and $102.4 million and $88.1 million for the first six months of
fiscal years 1997 and 1996, respectively. EBITDA represents, for any relevant
period, net income plus (i) interest expense, (ii) provision for income taxes,
(iii) depreciation, (iv) amortization and (v) in fiscal 1996, the restructuring
charge, described below, 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 the 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 manufacturing costs and other expenses of foreign subsidiaries
that 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
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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. 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 potentially
exposed to earnings volatility as a result of foreign currency fluctuations.
The Company has decided not to employ foreign currency hedges at this time.
As previously reported, 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. The Company has provided notice
of CE's claims to its third party liability insurance carriers. To date, the
carriers have denied coverage.
CE is currently attempting to negotiate a voluntary clean-up agreement
with the New York Department of Environmental Conservation (the "NYDEC"), and
has presented a proposal to the NYDEC which includes clean up goals and
remedial approaches for mercury and Trichloroethylene ("TCE") at the Site.
CE's estimate of the costs to remediate mercury and TCE on site, assuming its
proposed goals and remedies are accepted by the NYDEC, range from $4 million to
$11 million. There is no assurance, however, that the NYDEC will agree to CE's
proposed clean up goals or remedies for these contaminants. In any case, the
Company believes CE's estimates are not reliable because contamination at the
site has not been adequately characterized, and remedies adequately evaluated,
to allow for meaningful cost estimates, regardless of the clean-up goals or
remedies assumed. In response to CE's proposal, the NYDEC has requested that
CE undertake additional investigation to further characterize the
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amount, location and type of contamination at the Site, and has indicated to
CE that any proposed clean up plan would be considered after the additional
investigation is completed. The NYDEC has also indicated to CE that it is
considering listing the Rochester Site as a New York inactive hazardous waste
site, and has indicated that it wants to address issues in addition to the
mercury and TCE on site, including the potential for offsite impacts of mercury
and TCE, the assessment of risks associated with onsite and offsite impacts, and
the presence of any other contaminants on site. Accordingly, the Company cannot
at this time estimate the cost of the soil and groundwater clean-up claims.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 COMPARED TO THE QUARTER ENDED MARCH 31, 1996
NET SALES. Net sales for the three months ended March 31, 1997 were
$185.9 million, an increase of $15.1 million (8.8%) from net sales of $170.9
million for the corresponding three months ended March 31, 1996. Sales in the
laboratory segment were $109.3 million for the three months ended March 31,
1997, an increase of 11.0% from the corresponding 1996 fiscal period.
Increased sales in the laboratory segment resulted primarily from (i) sales of
products of acquired companies (approximately $10.3 million), (ii) increased
volume from sales of existing products at Erie (approximately $1.6 million),
(iii) price increases at Barnstead/Thermolyne (approximately $0.7 million) and
at Nalge Nunc International (approximately $0.5 million) and (iv) increased
volume from sales of new products at Barnstead/Thermolyne (approximately $0.4
million; primarily sales from its NCAT Asphalt Furnace and STERILEMAX
sterilization product lines) and at Nalge Nunc International (approximately
$0.3 million; primarily its line of Bio-Media packaging and safety products).
Increased sales in the laboratory segment were partially offset by (i)
unfavorable foreign currency impacts at Nalge Nunc International (approximately
$1.0 million) and at Erie (approximately $0.6 million), (ii) reduced volume
from sales of existing products at Barnstead/Thermolyne (approximately $1.1
million) and (iii) price reductions at Erie (approximately $0.3 million). In
the dental segment, net sales were $76.6 million for the three months ended
March 31, 1997, an increase of 5.8% from the corresponding fiscal 1996 period.
Increased sales in the dental segment resulted primarily from (i) sales of
products of acquired companies (approximately $3.4 million), (ii) increased
volume from sales of new products (approximately $1.8 million; primarily sales
from the OPTIBOND SOLO product line and sales of CANTILEVER BITE JUMPER kits)
and (iii) increased volume from sales of existing products (approximately $1.3
million). Increased sales were partially offset by unfavorable foreign
currency impacts (approximately $2.3 million).
GROSS PROFIT. Gross profit for the second quarter of fiscal 1997 was
$93.7 million, an increase of 11.0% from gross profit, before the restructuring
charge discussed below, of $84.4 million for the corresponding fiscal 1996
period. Gross profit in the laboratory segment was $51.1 million (46.7% of net
segment sales) in the second quarter of fiscal 1997, an increase of 13.6% from
gross profit, before the restructuring charge discussed below, of $45.0 million
(45.7% 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 $4.6
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million), (ii) an improved product mix at Nalge Nunc International
(approximately $1.0 million) and at Erie (approximately $0.6 million), (iii)
favorable foreign currency impacts at Nalge Nunc International (approximately
$0.3 million) and at Erie (approximately $0.3 million) and (iv) increased
volume at Erie (approximately $0.4 million). Increased gross profit was
partially offset by (i) increased material costs at Nalge Nunc International
(approximately $0.4 million) and at Erie (approximately $0.2 million) and (ii)
price reductions at Erie (approximately $0.2 million). In the dental segment,
gross profit was $42.6 million (55.7% of net segment sales) in the second
quarter of fiscal 1997, an increase of 8.1% from gross profit, before the
restructuring charge discussed below, of $39.4 million (54.4% of net segment
sales) during the corresponding fiscal 1996 period. Increased gross profit in
the dental segment resulted primarily from (i) increased volume (approximately
$2.6 million) and (ii) the effects of acquired companies (approximately $1.7
million), partially offset by unfavorable foreign currency impacts
(approximately $1.1 million).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the second quarter of fiscal 1997 were $49.7
million (26.7% of net sales) as compared to $47.7 million (27.9% 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
second quarter of fiscal 1997, representing a decrease of 12.3% from $6.4
million in the corresponding fiscal 1996 period. Decreases at the corporate
level were primarily due to a reduction in general and administrative expense
(approximately $0.5 million) and a reduction in amortization expense of certain
intangible assets that became fully amortized in the prior fiscal year
(approximately $0.2 million). Selling, general and administrative expenses at
the subsidiary level, including amortization of intangibles, were $44.1 million
(23.7% of sales), representing an increase of 6.8% from $41.3 million (24.2% of
sales) in the corresponding fiscal 1996 period. Increases at the subsidiary
level were primarily due to (i) unfavorable foreign currency impacts
(approximately $1.4 million), (ii) expenses related to newly acquired
businesses (approximately $1.2 million) and (iii) increased marketing expense
(approximately $0.3 million). Increased selling, general and administrative
expenses were partially offset by a reduction in research and development
expenditures (approximately $0.4 million).
RESTRUCTURING CHARGE. In March of 1996, the Company recorded a
restructuring charge of $8.3 million ($6.1 million after-tax or $0.13 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. Approximately
$6.6 million was charged against this reserve as of March 31, 1997. At March
31, 1997, approximately $1.7 million remains to be expended and is recorded in
other current liabilities. The Company expects to charge approximately $1.5
million against this reserve in fiscal 1997. Principal items included in the
reserve were 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
11
<PAGE> 13
million annually, before income taxes. The realization of most of the savings
began in fiscal 1997.
OPERATING INCOME. As a result of the foregoing, operating income was
$44.0 million (23.7% of net sales) in the second quarter of fiscal 1997
compared to, before the restructuring charge discussed above, $36.7 million
(21.5% of net sales) in the corresponding fiscal 1996 period. Operating income
in the laboratory segment was $26.4 million (24.2% of net segment sales) in the
second quarter of fiscal 1997 compared to $21.9 million (22.3% of net segment
sales) in the corresponding fiscal 1996 period. Operating income in the dental
segment was $17.6 million (23.0% of net segment sales) in the second quarter of
fiscal 1997 compared to ,before the restructuring charge discussed above, $14.8
million (20.4% of net segment sales) in the corresponding fiscal 1996 period.
INTEREST EXPENSE. Interest expense was $9.2 million in the second quarter
of fiscal 1997 compared to $8.5 million in the corresponding fiscal 1996
period. The increase resulted from a higher debt balance primarily as a result
of the Company's acquisition activity. Interest expense during the quarters
ended March 31, 1997 and 1996 included additional non-cash interest expense of
$0.3 million resulting from the adoption of SFAS No. 106.
INCOME TAXES. Taxes on income increased $3.7 million in the second
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
$20.8 million in the second quarter of fiscal 1997 compared to $10.5 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 remained constant when compared
to the corresponding 1996 period. Any increase during the second quarter of
fiscal 1997 due to the amortization of intangible assets and depreciation of
property, plant and equipment related to acquired companies was offset by a
reduction in amortization expense of certain intangible assets that became
fully amortized in the prior fiscal year.
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 1996
NET SALES. Net sales for the six months ended March 31, 1997 were $357.4
million, an increase of $39.7 million (12.5%) from net sales of $317.7 million
for the corresponding six months ended March 31, 1996. Sales in the laboratory
segment were $210.1 million for the six months ended March 31, 1997, an
increase of 14.6% from the corresponding 1996 fiscal period. Increased sales
in the laboratory segment resulted primarily from (i) sales of products of
acquired companies (approximately $24.7 million), (ii) increased volume from
sales of existing products at Erie (approximately $2.6 million) and at Nalge
Nunc International (approximately $0.2 million), (iii) price increases at
Barnstead/Thermolyne (approximately $1.5 million) and at Nalge Nunc
International (approximately $1.0 million), and (iv) increased volume from
sales of new products at Barnstead/Thermolyne (approximately $0.6 million;
primarily sales from its NCAT Asphalt
12
<PAGE> 14
Furnace and STERILEMAX(TM) sterilization product lines) at Nalge Nunc
International (approximately $0.6 million; primarily its line of Bio-Media
packaging and safety products) and at Erie (approximately $0.4 million;
primarily sales from the Daiichi line of electrophoresis devices and
consumables, BURST-PAK Sequencing gels, and sales from the Standard Stain line).
Increased sales in the laboratory segment were partially offset by (i)
unfavorable foreign currency impacts at Nalge Nunc International (approximately
$1.5 million) and at Erie (approximately $0.8 million), (ii) reduced volume from
sales of existing products at Barnstead/Thermolyne (approximately $2.0 million)
and (iii) reduced prices at Erie (approximately $0.3 million). In the dental
segment, net sales were $147.3 million for the six months ended March 31, 1997,
an increase of 9.6% from the corresponding fiscal 1996 period. Increased sales
in the dental segment resulted primarily from (i) increased volume from sales of
existing products (approximately $8.0 million), (ii) sales of products of
acquired companies (approximately $6.3 million) and (iii) increased volume from
sales of new products (approximately $2.2 million; primarily sales from the
OPTIBOND SOLO product line and sales of CANTILEVER BITE JUMPER kits). Increased
sales were partially offset by unfavorable foreign currency impacts
(approximately $3.6 million).
GROSS PROFIT. Gross profit for the first six months of fiscal 1997 was
$178.6 million, an increase of 13.6% from gross profit, before the
restructuring charge discussed below, of $157.2 million for the corresponding
fiscal 1996 period. Gross profit in the laboratory segment was $96.6 million
(46.0% of net segment sales) for the first six months of fiscal 1997, an
increase of 15.7% from gross profit, before the restructuring charge discussed
below, of $83.5 million (45.5% 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 $10.6
million), (ii) an improved product mix at Nalge Nunc International
(approximately $2.4 million) and (iii) increased volume at Erie (approximately
$1.4 million). Increased gross profit was partially offset by (i) increased
material costs at Nalge Nunc International (approximately $0.7 million) and at
Erie (approximately $0.2 million) and (ii) an unfavorable product mix at Erie
(approximately $0.5 million). In the dental segment, gross profit was $82.0
million (55.7% of net segment sales) for the first six months of fiscal 1997,
an increase of 11.2% from gross profit, before the restructuring charge
discussed below, of $73.8 million (54.9% of net segment sales) during the
corresponding fiscal 1996 period. Increased gross profit in the dental segment
resulted primarily from (i) increased volume (approximately $7.0 million) and
(ii) the effects of acquired companies (approximately $3.2 million), partially
offset by unfavorable foreign currency impacts (approximately $2.0 million).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first six months of fiscal 1997 were $99.1
million (27.7% of net sales) as compared to $91.2 million (28.7% 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 $11.2 million for
the first six months of fiscal 1997, representing a decrease of 5.8% from $11.9
million in the corresponding fiscal 1996 period. Decreases at the corporate
level were primarily due to a reduction in general and administrative expense
(approximately $0.2 million) and a reduction in amortization expense of certain
intangible assets that became fully amortized in the prior fiscal year
(approximately $0.5
13
<PAGE> 15
million). Selling, general and administrative expenses at
the subsidiary level, including amortization of intangibles, were $87.8 million
(24.6% of sales), representing an increase of 10.8% from $79.3 million (24.9%
of sales) in the corresponding fiscal 1996 period. Increases at the subsidiary
level were primarily due to (i) expenses related to newly acquired businesses
(approximately $3.7 million), (ii) increased marketing expense (approximately
$2.8 million), (iii) unfavorable foreign currency impacts (approximately $0.8
million), (iv) increased amortization of intangible assets as a result of
acquisitions (approximately $0.5 million), (v) increased general and
administrative expense (approximately $0.4 million) and (vi) increased research
and development expenses (approximately $0.3 million).
RESTRUCTURING CHARGE. In March of 1996, the Company recorded a
restructuring charge of $8.3 million ($6.1 million after-tax or $0.13 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. Approximately
$6.6 million was charged against this reserve as of March 31, 1997. At March
31, 1997, approximately $1.7 million remains to be expended and is recorded in
other current liabilities. The Company expects to charge approximately $1.5
million against this reserve in fiscal 1997. Principal items included in the
reserve were 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.
OPERATING INCOME. As a result of the foregoing, operating income was
$79.6 million (22.3% of net sales) for the first six months of fiscal 1997
compared to, before the restructuring charge discussed above, $66.0 million
(20.8% of net sales) in the corresponding fiscal 1996 period. Operating income
in the laboratory segment was $47.6 million (22.7% of net segment sales) for
the first six months of fiscal 1997 compared to, before the restructuring
charge discussed above, $39.4 million (21.5% of net segment sales) in the
corresponding fiscal 1996 period. Operating income in the dental segment was
$31.9 million (21.7% of net segment sales) for the first six months of fiscal
1997 compared to, before the restructuring charge discussed above, $26.6
million (19.8% of net segment sales) in the corresponding fiscal 1996 period.
INTEREST EXPENSE. Interest expense was $18.4 million for the first six
months of fiscal 1997 compared to $17.3 million in the corresponding fiscal
1996 period. The increase resulted from a higher debt balance primarily as a
result of the Company's acquisition activity. Interest expense during the six
month periods ended March 31, 1997 and 1996 included additional non-cash
interest expense of $0.6 million resulting from the adoption of SFAS No. 106.
INCOME TAXES. Taxes on income increased $5.8 million for the first six
months of fiscal 1997, primarily as a result of increased earnings.
14
<PAGE> 16
NET INCOME. As a result of the foregoing, the Company had net income of
$36.2 million for the first six months of fiscal 1997 compared to $22.3 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 (4.7%)
for the first six months 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 offset by a reduction in amortization expense of certain
intangible assets that became fully amortized in the prior fiscal year.
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 $8.7 million and $12.4 million in the three
and six months ended March 31, 1997, respectively, 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 March 31, 1997, the
Company has paid approximately $4.1 million and charged an additional $2.5
million to inventory and fixed assets. The Company intends to expend an
additional $1.5 million by the end of fiscal 1997 and $0.2 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 continue at the Company's
historical pace, the Company may require financing beyond the capacity of its
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.
15
<PAGE> 17
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 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 (as amended from time to time, 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 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. On April 25, 1997, the Company entered into a second amendment
to the Credit Agreement (the "Second Amendment"). The Second Amendment is an
expansion of the Credit Facilities. The 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, the Company borrowed a total of
$622.9 million under the Credit Facilities. The proceeds were used to repay
$466.4 million of previously existing LIBOR (as defined below) and 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 which includes both the purchase price and payment of assumed debt. The
$72 million of CAF (as defined below) borrowings remained in place. On April
25, 1997 the Company had approximately $205.0 million available under the Credit
Facilities.
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 ("ABR"), (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 7/8% (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 First Amendment ("CAF"). In both the second
quarter and year to date of fiscal 1997, the average interest rates on the Term
Loan Facility (inclusive of the swap
16
<PAGE> 18
agreements described below) was 6.2% and the average interest rate on the
Revolving Credit Facility for both the quarter and year to date ended March 31,
1997 was 6.3%.
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,
prior to December 31, 1996 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 second quarter of fiscal 1997, the LIBOR Margin was
.75%. The swap agreement rates and durations are as follows:
<TABLE>
<CAPTION>
SWAP AGREEMENT SWAP AGREEMENT
EXPIRATION DATE NOTIONAL AMOUNT DATE RATE
- --------------------- --------------------- --------------------- --------------
<S> <C> <C> <C>
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%
</TABLE>
On May 7, 1997 the Company entered into a sixth swap agreement:
<TABLE>
<S> <C> <C> <C>
May 7, 2001 ......... $75 million May 7, 1997 6.5875%
</TABLE>
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, after the Second Amendment, the Revolving Credit
Facility will provide up to $600 million in available credit. As of April 30,
1997, there was $202.2 million of available credit under the Revolving Credit
Facility. Under the Term Loan Facility, as restored to $300 million by the
Second Amendment, on July 31, 1997 the Company will begin to repay
17
<PAGE> 19
principal in 21 consecutive quarterly installments. Annual payments are due as
follows: $8.75 million in fiscal 1997; $35 million, $36.25 million, $42.5
million, $53.75 million, and $123.75 million in fiscal years 1998 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 financial ratios; restrictions on the ability of
the Company and its subsidiaries to incur indebtedness or to create or permit
liens 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; 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. The Second Amendment deleted from the Credit
Agreement certain restrictions on the Company's ability to make capital
expenditures formerly contained therein.
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.
18
<PAGE> 20
- 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 personnel to efficiently handle increased
transitional 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.
19
<PAGE> 21
- 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.
- 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following information should be read in conjunction with Item 3,
"Legal Proceedings", in Part I of the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996.
On May 2, 1996, Combustion Engineering, Inc. ("CE"), a subsidiary of
ABB Asea Brown Boveri Ltd. ("ABB"), commenced legal proceedings (the "CE
Litigation") against the Company with respect to the former Taylor Instruments
facility in Rochester, New York (the "Rochester Site"), a discontinued
operation. The CE Litigation, brought in the New York Supreme Court, Monroe
County, New York, relates to the previously reported claims ABB has made for
reimbursement to it of expenses associated with the remediation of alleged
environmental contamination at the Rochester Site. The Rochester Site was sold
to CE in 1983 by the predecessor of a subsidiary of the Company.
See Part I, Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - General" herein for additional
information regarding the CE litigation, which information is incorporated
herein by reference.
20
<PAGE> 22
ITEM 2. CHANGES IN SECURITIES
Information concerning the Company's Amended and Restated Credit
Agreement, dated as of July 31, 1995, with Chemical Bank and other lenders, as
amended by the First Amendment thereto, dated as of July 9, 1996, and the
Second Amendment thereto dated as of April 25, 1997, including the financial
and operating covenants contained therein (which, among other things, place
limitations upon the payment of dividends), is incorporated in response to this
item by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" in Item
2 of Part I hereof.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Information concerning the Company's Annual Meeting of Shareholders held
on January 22, 1997 has been previously reported in Item 4, "Submission of
Matters to a Vote of Security Holders", in Part II of the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 1996.
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, a Form 8-K dated April 25, 1997, was
filed on May 12, 1997, describing in Item 2 thereof the completion
of the acquisition by the Company of Remel Limited Partnership.
21
<PAGE> 23
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, 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.
22
<PAGE> 24
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, 1997
<TABLE>
<CAPTION>
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
<S> <C> <C> <C>
2.1 Purchase Agreement, dated as of Exhibit 2.1 to the
March 14, 1997 (the "Purchase Registrant's Current
Agreement"), by and among the Report on Form 8-K
owners of the partnership interests dated April 25, 1997
in Remel Limited Partnership (the "4/25/97 8-K")
("Remel"), Remel Acquisition Co.
("Buyer"), Riverside Partners, Inc.
and the other parties identified
therein, relating to the purchase by
Buyer of all of the partnership
interests, limited liability company
interests and capital stock of Remel
and the other entities whose
businesses were acquired by Buyer
pursuant to the Purchase Agreement
(including the Registrant's guaranty
of the obligations of Buyer under
the Purchase Agreement).
2.2 Escrow Agreement dated as of April 25, Exhibit 2.2 to the
1997 by and among Riverside 4/25/97 8-K
Partners, Inc., Remel Acquisition Co.
and State Street Bank and Trust
Company, as escrow agent.
4.1 Second Amended and Restated Exhibit 4.1 to the
Credit Agreement, dated as of 4/25/97 8-K
April 25, 1997, constituting the
Second Amendment to the Amended
and Restated Credit Agreement, dated
as of July 31, 1995 (as amended,
supplemented or otherwise modified
from time to time, the "Credit
Agreement"), among the Registrant
and certain of its subsidiaries, the
several Lenders from time to time
parties thereto, Chase Securities Inc.,
as Arranger, and The Chase Manhattan
Bank, as Administrative Agent for the
Lenders.
</TABLE>
EI-1
<PAGE> 25
<TABLE>
<CAPTION>
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
<S> <C> <C> <C>
4.2 Form of Revolving Credit Note, Exhibit 4.2 to the
dated as of April 25, 1997, executed 4/25/97 8-K
pursuant to the Credit Agreement.
4.3 Form of Term Note, dated as of Exhibit 4.3 to the
April 25, 1997, executed pursuant 4/25/97 8-K
to the Credit Agreement.
4.4 Form of Swing Line Note, dated Exhibit 4.4 to the
as of April 25, 1997, executed 4/25/97 8-K
pursuant to the Credit Agreement.
4.5 Form of CAF Advance Note, Exhibit 4.5 to the
dated as of April 25, 1997, executed 4/25/97 8-K
pursuant to the Credit Agreement.
4.6 Form of Second Amended and Exhibit 4.6 to the
Restated Parent Pledge Agreement, 4/25/97 8-K
dated as of April 25, 1997, executed
pursuant to the Credit Agreement.
4.7 Form of Second Amended and Exhibit 4.7 to the
Restated Subsidiaries Guarantee, 4/25/97 8-K
dated as of April 25, 1997, executed
pursuant to the Credit Agreement.
4.8 Form of Second Amended and Exhibit 4.8 to the
Restated Subsidiaries Pledge 4/25/97 8-K
Agreement, dated as of April 25,
1997, executed pursuant to the
Credit Agreement.
11 Statement re Computation of Per Share X
Earnings
27 Financial Data Schedule X
</TABLE>
EI-2
<PAGE> 1
EXHIBIT 11
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ----- ---- ----
<S> <C> <C> <C> <C>
Primary:
Net income $20,750 $10,540 $36,153 $22,262
========= ========= ======== ========
Shares
Weighted average Common shares .. 47,124 46,687 47,052 46,619
Common equivalent shares ........ 1,642 1,125 1,641 1,027
--------- --------- -------- --------
48,766 47,812 48,693 47,646
========= ========= ======== ========
Primary earnings per share ...... $.43 $.22 $.74 $.47
==== ==== ==== ====
</TABLE>
EI-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SYBRON INTERNATIONAL CORPORATION
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 15,489
<SECURITIES> 0
<RECEIVABLES> 133,600
<ALLOWANCES> 2,486
<INVENTORY> 133,634
<CURRENT-ASSETS> 311,754
<PP&E> 171,830
<DEPRECIATION> 129,971
<TOTAL-ASSETS> 1,008,156
<CURRENT-LIABILITIES> 123,598
<BONDS> 506,032
0
0
<COMMON> 471
<OTHER-SE> 313,456
<TOTAL-LIABILITY-AND-EQUITY> 1,008,156
<SALES> 357,397
<TOTAL-REVENUES> 357,397
<CGS> 178,778
<TOTAL-COSTS> 99,061
<OTHER-EXPENSES> 472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,373
<INCOME-PRETAX> 60,713
<INCOME-TAX> 24,560
<INCOME-CONTINUING> 36,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,153
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>