<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 June 30, 1997
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
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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
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(Address of principal executive offices) (Zip Code)
(414) 274-6600
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(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 August 7, 1997 there were 48,058,803 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Index Page
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets, June 30, 1997 (unaudited)
and September 30, 1996 2
Consolidated Statements of Income, for the three months ended
June 30, 1997 (unaudited) and 1996 (unaudited) and the
nine months ended June 30, 1997 (unaudited) and 1996
(unaudited) 3
Consolidated Statements of Shareholders' Equity for the
nine months ended June 30, 1997 (unaudited) and the
year ended September 30, 1996 4
Consolidated Statements of Cash Flows, for the nine months ended
June 30, 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 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 2. CHANGES IN SECURITIES 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
</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
June 30, September 30,
1997 1996
----------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................... $ 16,091 $ 10,874
Accounts receivable (less allowance for doubtful
receivables of $2,765 and $2,429) .............................. 157,733 127,849
Inventories (note 2) ............................................ 151,061 120,317
Deferred income taxes ........................................... 14,544 11,588
Prepaid expenses and other current assets ....................... 18,982 12,012
---------- --------
Total current assets ......................................... 358,411 282,640
---------- --------
Property, plant and equipment net of depreciation of $144,157
and $123,429 .................................................... 186,542 170,151
Intangible assets ................................................ 650,009 502,079
Deferred income taxes ............................................ 16,342 12,563
Other assets ..................................................... 5,453 7,180
---------- --------
Total assets ................................................. $1,216,757 $974,613
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 35,633 $ 30,398
Current portion of long-term debt ............................... 42,437 40,603
Income taxes payable ............................................ 9,181 7,636
Accrued payroll and employee benefits ........................... 32,779 29,824
Deferred income taxes ........................................... 4,378 2,542
Other current liabilities ....................................... 25,948 27,764
---------- --------
Total current liabilities ..................................... 150,356 138,767
---------- --------
Long-term debt ................................................... 668,091 481,037
Deferred income taxes ............................................ 51,589 55,686
Other liabilities ................................................ 9,716 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 47,737,601 and 46,924,588 shares, respectively .. 477 469
Equity Rights; 698 rights at $1.09 per right .................... 1 1
Additional paid-in capital ...................................... 186,368 179,954
Retained earnings ............................................... 171,203 111,845
Cumulative foreign currency translation adjustment .............. (21,043) (9,189)
Treasury common stock, 1,528 shares at cost ..................... (1) (1)
---------- --------
Total shareholders' equity ................................... 337,005 283,079
---------- --------
Total liabilities and shareholders' equity ................... $1,216,757 $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 Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .......................................... $ 209,764 $ 171,096 $ 571,676 $ 488,809
Cost of sales:
Cost of product sold ............................. 101,203 84,657 280,588 243,216
Restructuring charge ............................. - - - 2,223
Depreciation of purchase accounting
adjustments .................................... 954 961 2,869 2,885
---------- ---------- --------- ---------
Total cost of sales ................................ 102,157 85,618 283,457 248,324
---------- ---------- --------- ---------
Gross profit ....................................... 107,607 85,478 288,219 240,485
Selling, general and administrative expenses ....... 53,242 42,571 143,832 124,196
Restructuring charge ............................... - - - 5,307
Depreciation and amortization of purchase
accounting adjustments ........................... 6,177 4,858 15,797 14,425
---------- ---------- --------- ---------
Operating income ................................... 48,188 38,049 128,590 96,557
---------- ---------- --------- ---------
Other income (expense):
Interest expense. ................................ (11,960) (8,771) (30,333) (26,036)
Amortization of deferred financing fees .......... (58) (71) (200) (214)
Other, net ....................................... (49) (102) (351) (186)
---------- ---------- --------- ---------
Income before income taxes and extraordinary
item ............................................. 36,121 29,105 97,706 70,121
Income taxes ....................................... 14,331 12,000 38,891 30,754
---------- ---------- --------- ---------
Income before extraordinary item ................... 21,790 17,105 58,815 39,367
Extraordinary item - Write-off of unamortized
deferred financing fees (net of income tax benefits
of $413) ......................................... (673) - (673) -
---------- ---------- --------- ---------
Net income ......................................... $ 21,117 $ 17,105 $ 58,142 $ 39,367
========== ========== ========= =========
Earnings per common share:
Income before extraordinary item ................. $.44 $.36 $1.19 $.82
Extraordinary item ............................... (.01) - (.01) -
---------- ---------- --------- ---------
Net Income ....................................... $.43 $.36 $1.18 $.82
========== ========== ========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1996
AND FOR THE NINE MONTHS ENDED JUNE 30, 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 289,395
stock options ....................... 3 - 4,738 - - - - 4,741
Tax benefits related to stock
options .............................. - - 1,681 - - - - 1,681
Shares issued in connection with
National Scientific
Company transaction ................. 5 - (5) 2,818 - - - 2,818
Dividends paid by National
Scientific Company prior to
completion of the transaction ....... - - - (1,602) - - - (1,602)
Net income (Unaudited) ............... - - - 58,142 - - - 58,142
Cumulative foreign currency
translation adjustment .............. - - - - (11,854) - - (11,854)
---- ---- -------- -------- --------- ---- ----- --------
Balance at June 30, 1997
(Unaudited) ......................... $477 $1 $186,368 $171,203 $ (21,043) $ (1) $ - $337,005
==== ==== ======== ======== ========= ==== ===== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 58,142 $ 39,367
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ....................................................... 20,679 18,889
Amortization ....................................................... 15,763 14,412
Provision for losses on doubtful accounts .......................... 298 361
Inventory provisions ............................................... 1,672 1,582
Deferred income taxes .............................................. (8,996) (9,572)
Extraordinary item ................................................. 673 -
Changes in assets and liabilities:
Increase in accounts receivable .................................... (18,976) (4,235)
Increase in inventories ............................................ (21,670) (8,107)
Increase in prepaid expenses and other current assets .............. (6,075) (2,753)
(Decrease) increase in accounts payable ............................ 2,988 (1,058)
Decrease in income taxes payable ................................... (3,500) (15,975)
(Decrease) increase in accrued payroll and employee benefits ....... (31) 566
Decrease in other current liabilities (4,885) (2,954)
Net change in other assets and liabilities ......................... 8,995 (452)
--------- ---------
Total adjustments ................................................ (13,065) (9,296)
--------- ---------
Net cash provided by operating activities .......................... 45,077 30,071
Cash flows from investing activities:
Capital expenditures ............................................... (22,327) (18,852)
Proceeds from sales of property, plant, and equipment .............. 307 3,618
Net payments for businesses acquired ............................... (207,149) (43,369)
--------- ---------
Net cash used in investing activities ............................ (229,169) (58,603)
Cash flows from financing activities:
Increase in the revolving credit facility ........................ 154,900 52,800
Proceeds from long-term debt ..................................... 53,087 -
Principal payments on long-term debt ............................. (18,309) (26,624)
Refinancing costs ................................................ (1,188) -
Proceeds from the exercise of common stock options ............... 4,741 4,938
Other ............................................................ (1,894) -
--------- ---------
Net cash provided by financing activities ........................ 191,337 31,114
Effect of exchange rate changes on cash .......................... (2,028) (1,249)
Net increase in cash and cash equivalents ........................ 5,217 1,333
Cash and cash equivalents at beginning of year ................... 10,874 9,243
--------- ---------
Cash and cash equivalents at end of period ....................... $ 16,091 $ 10,576
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ......................... $ 29,492 $ 33,007
Cash paid during the period for income taxes ..................... 40,521 32,244
Capital lease obligations incurred ............................... 1,104 879
</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 nine month period ended June 30, 1997 are not necessarily indicative
of the results to be expected for the full year. Certain amounts from the
nine month period ended June 30, 1996, as originally reported, have been
reclassified to conform with the nine month period ended June 30, 1997
presentation.
2. Inventories at June 30, 1997 consist of the following:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Raw materials $ 81,981
Work-in-process 27,581
Finished goods 46,577
LIFO Reserve (5,078)
--------
$151,061
========
</TABLE>
3. The following acquisitions were completed since March 31, 1997:
(a) On April 9, 1997, a subsidiary of Erie Scientific Company ("Erie")
completed the acquisition of Alexon Biomedical, Inc. ("Alexon").
Alexon is a manufacturer of diagnostic test kits for intestinal
infections. Annual sales revenues of Alexon are approximately $10
million. Erie has combined the sales and marketing activities of
Alexon with those of Trend Scientific, Inc., acquired by Erie on
January 6, 1997, and is in the process of consolidating Alexon's
manufacturing operations with Trend's.
(b) On April 25, 1997, Remel, Inc. ("Remel"), a subsidiary of Erie,
acquired all outstanding partnership interests, and equity interests
of certain related entities, of Remel Limited Partnership, 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 revenues for the year ending
September 30, 1997, are expected to be approximately $63.3 million.
(c) On April 30, 1997, Nalge Nunc International Corporation ("Nalge
Nunc International") entered into a joint venture with the owner of
the Japanese distributor of NNI's NUNC(R) 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.
6
<PAGE> 8
(d) On May 23, 1997, Sybron International Corporation (the "Company")
completed the merger of National Scientific Company ("National") with
a subsidiary of the Company formed for this purpose (the "Merger")
and a related purchase of real estate used in National's operations.
National is a manufacturer of supplies for the laboratory industry
with an extensive line of autosampler vials, seals and accessories for
chromatography analysis. National's annual sales are approximately
$10 million.
Under the terms of the merger agreement and the related real estate
purchase agreement, National shareholders received 523,618 shares of
the Company's common stock (valued at approximately $18.1 million
based on the Company's closing price on May 23, 1997) for all of the
outstanding shares of National and the purchased real estate.
The Merger was structured as a tax-free reorganization and has been
accounted for as a pooling of interests. Accordingly, the Company's
historical financial information, beginning October 1, 1996, has been
restated to include National's financial results. The results of
National prior to fiscal 1997 were considered immaterial to the
Company and are not included in the accompanying 1996 presentation.
Results of the Company and National before and after giving effect to
the Merger are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
(In thousands)
Total net sales:
The Company $208,697 $565,557
National 1,067 6,119
-------- --------
The Company, giving effect to the Merger $209,764 $571,676
======== ========
Net income:
The Company $ 20,999 $ 57,585
National (i) 118 557
-------- --------
The Company, giving effect to the Merger $ 21,117 $ 58,142
======== ========
</TABLE>
(i) Prior to the Merger, National was an S corporation and
therefore, income tax expense was not reflected in its historical
net income. Proforma adjustments to net income of $78 thousand
and $371 thousand are reflected in the three and nine month
periods ended June 30, 1997, respectively.
(e) On June 16, 1997, a subsidiary of Erie, CASCO Standards, Inc.
("CASCO") completed the acquisition of the assets of Drug
Screening Systems, Inc. ("DSSI"), a manufacturer
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of on-site drug screening products based in Blackwood, New Jersey.
The business and related assets have been transferred to CASCO's
Portland, Maine facilities for consolidation with existing
capabilities. Annual sales revenues at DSSI are approximately $2
million.
(f) On July 1, 1997, Remel completed the acquisition of
Carr-Scarborough Microbiologicals, Inc. ("CSM"). CSM is a
manufacturer of high-quality medical diagnostic products used to
detect bacteria and fungi involved in infections. CSM's annual
revenues are approximately $9 million. CSM will be consolidated into
Remel's existing facilities.
(g) On July 21, 1997, New England Reagent Laboratory, Inc. ("NERL"), a
subsidiary of Erie, acquired the assets of Integrated Separation
Systems ("ISS"), a manufacturer of electrophoresis gels, reagents,
equipment and related accessories. The business and related assets
will be relocated to an existing NERL facility. ISS's annual sales
are approximately $2.3 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.
5. 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 (as defined later herein). The Term
Loan Facility (as defined later herein) 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 (as defined
later herein) 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 $466.3 million of previously
existing LIBOR (as defined later herein) and ABR loans (as defined later
herein) (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 later herein) borrowings
remained in place. In connection with the Second Amendment, the Company
wrote off previously incurred deferred financing fees, net of tax, of $673
thousand.
8
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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 the Company for the quarter and nine
month periods ended June 30, 1997 (the third quarter and year to date of fiscal
1997, respectively) grew over the corresponding prior year periods. Net sales
for the quarter and year to date ended June 30, 1997 increased by 22.6% and
17.0%, respectively, over the corresponding fiscal 1996 periods. Sales growth
in the third quarter of fiscal 1997 was strong both domestically and
internationally with increases of 30.4% and 9.1%, respectively, over the 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 15.4%. Acquisitions aided sales growth
in the quarter ended June 30, 1997, accounting for $27.6 million and $4.3
million of the domestic and international sales increases, respectively. The
Company's internal growth was 4.0%, negatively influenced by the strengthened
U.S. dollar. Without currency effects, internal growth was approximately 6.3%.
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 five acquisitions in the third quarter of
fiscal 1997 and two more in July 1997. (See note 3 of the Notes 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 $13.1
million and $11.0 million for the quarters ended June 30, 1997 and 1996,
respectively, and $36.4 million and $33.3 million for the nine months ended
June 30, 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 $61.2 million and $48.9 million for the quarters ended June 30,
1997 and 1996, respectively, and $164.5 million and $137.7 million for the
first nine months of fiscal years 1997 and 1996, respectively. EBITDA
represents, for any relevant period, net income before the extraordinary item
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 then translated into U.S.
dollars. While the reported income of foreign subsidiaries will be impacted by
a weakening or strengthening of the U.S. dollar in relation to a particular
local currency, the effects of foreign currency fluctuations are partially
mitigated by the fact that manufacturing costs and other expenses of foreign
subsidiaries are generally incurred in the same currencies in which sales are
generated. Such effects of foreign currency fluctuations are also mitigated by
the fact that such subsidiaries' operations are conducted in numerous foreign
countries and, therefore, in numerous
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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. 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.
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" or "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 access 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 negotiating a voluntary clean-up agreement ("VCA") with
the New York Department of Environmental Conservation (the "NYDEC"), pursuant
to which CE will undertake additional investigation to further characterize the
amount, location and type of onsite and offsite contamination relating to the
Site. It is anticipated that, upon completion of the investigation, CE and
NYDEC will negotiate clean up goals which according to the VCA is to be done by
November 30, 1997, for onsite contamination, and by January 31, 1998 for
offsite contamination. Also according to the VCA, CE will submit an approved
remedial work plan to the NYDEC by March 1, 1998. Previously CE presented a
proposal to the NYDEC which included clean up goals and remedial approaches for
mercury and Trichloroethylene ("TCE") at the Site. The NYDEC responded by
stating it needed additional investigations performed before it would comment
on CE's proposed cleanup goals. Although the investigation under the
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<PAGE> 12
VCA will include testing to further characterize mercury and TCE contamination
at the Site, it will also address other types of potential contamination.
Because contamination with respect to the Site has not been adequately
characterized, and potential remedies cannot at this point be adequately
evaluated, the Company cannot estimate the cost of the soil and groundwater
clean-up claims.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1997 COMPARED TO THE QUARTER ENDED JUNE 30, 1996
NET SALES. Net sales for the three months ended June 30, 1997 were $209.8
million, an increase of $38.7 million (22.6%) from net sales of $171.1 million
for the corresponding three months ended June 30, 1996. Sales in the
laboratory segment were $132.7 million for the three months ended June 30,
1997, an increase of 31.0% from the corresponding 1996 fiscal period. Increased
sales in the laboratory segment resulted primarily from (i) sales of products
of acquired companies (approximately $29.2 million), (ii) increased volume from
sales of new products at Erie (approximately $1.2 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 Barnstead
Thermolyne Corporation ("Barnstead/Thermolyne") (approximately $1.1 million;
primarily sales from its NCAT Asphalt Furnace and STERILEMAX(TM) line of
sterilization products) and at Nalge Nunc International (approximately $0.2
million; primarily sales from its line of Bio-Media packaging and safety
products), (iii) increased volume from sales of existing products at Nalge Nunc
International (approximately $2.8 million), and (iv) price increases at
Barnstead/Thermolyne (approximately $0.8 million), at Erie (approximately $0.7
million) and at Nalge Nunc International (approximately $0.3 million).
Increased sales in the laboratory segment were partially offset by (i) reduced
volume from sales of existing products at Barnstead/Thermolyne (approximately
$2.3 million) and at Erie (approximately $0.5 million) and (ii) unfavorable
foreign currency impacts at Erie (approximately $1.3 million) and at Nalge Nunc
International (approximately $0.9 million). In the dental segment, net sales
were $77.0 million for the three months ended June 30, 1997, an increase of
10.4% from the corresponding fiscal 1996 period. Increased sales in the dental
segment resulted primarily from (i) increased volume from sales of existing
products (approximately $4.8 million), (ii) sales of products of acquired
companies (approximately $2.9 million), and (iii) increased volume from sales of
new products (approximately $2.0 million; primarily sales from the OPTIBOND
SOLO(TM) product line and sales of CANTILEVER BITE JUMPER(TM) kits). Increased
sales in the dental segment were partially offset by unfavorable foreign
currency impacts (approximately $2.4 million).
GROSS PROFIT. Gross profit for the third quarter of fiscal 1997 was
$107.6 million, an increase of 25.9% from gross profit of $85.5 million for the
corresponding fiscal 1996 period. Gross profit in the laboratory segment was
$63.0 million (47.4% of net segment sales) in the third quarter of fiscal 1997,
an increase of 34.9% from gross profit of $46.7 million (46.1% 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 $14.0 million), (ii) increased volume at
Erie (approximately $2.5 million) and at Nalge Nunc International
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<PAGE> 13
(approximately $2.4 million), and (iii) an improved product mix at Erie
(approximately $1.7 million). Increased gross profit was partially offset by (i)
unfavorable overhead application at Erie (approximately $2.0 million) and at
Nalge Nunc International (approximately $0.5 million), (ii) unfavorable foreign
currency impacts at Nalge Nunc International (approximately $0.6 million)
and at Erie (approximately $0.5 million) and (iv) price reductions at Erie
(approximately $0.8 million). In the dental segment, gross profit was $44.6
million (57.9% of net segment sales) in the third quarter of fiscal 1997, an
increase of 15.1% from gross profit of $38.8 million (55.6% of net segment
sales) during the corresponding fiscal 1996 period. Increased gross profit in
the dental segment resulted primarily from (i) increased volume (approximately
$6.8 million) and (ii) the effects of acquired companies (approximately $1.3
million), partially offset by unfavorable foreign currency impacts
(approximately $2.3 million).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the third quarter of fiscal 1997 were $59.4 million
(28.3% of net sales) as compared to $47.4 million (27.7% 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 $6.5 million in the third quarter
of fiscal 1997, representing an increase of 7.6% from $6.0 million in the
corresponding fiscal 1996 period. Increases at the corporate level were
primarily due to an increase in general and administrative expense
(approximately $0.7 million) partially offset by 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
$52.9 million (25.2% of net sales), representing an increase of 27.9% from
$41.4 million (24.2% of net sales) in the corresponding fiscal 1996 period.
Increases at the subsidiary level were primarily due to (i) expenses related to
newly acquired businesses (approximately $5.5 million), (ii) increased
marketing expense (approximately $1.8 million), (iii) increased amortization of
intangible assets related to acquired businesses (approximately $1.6 million),
(iv) increased general and administrative expense (approximately $1.4 million)
and (v) unfavorable foreign currency impacts (approximately $1.4 million).
OPERATING INCOME. As a result of the foregoing, operating income was
$48.2 million (23.0% of net sales) in the third quarter of fiscal 1997 compared
to $38.0 million (22.2% of net sales) in the corresponding fiscal 1996 period.
Operating income in the laboratory segment was $30.9 million (23.3% of net
segment sales) in the third quarter of fiscal 1997 compared to $23.1 million
(22.8% of net segment sales) in the corresponding fiscal 1996 period.
Operating income in the dental segment was $17.3 million (22.5% of net segment
sales) in the third quarter of fiscal 1997 compared to $14.9 million (21.4% of
net segment sales) in the corresponding fiscal 1996 period.
INTEREST EXPENSE. Interest expense was $12.0 million in the third 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
June 30, 1997 and 1996 included additional non-cash interest expense of $0.3
million resulting from the adoption of SFAS No. 106.
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<PAGE> 14
INCOME TAXES. Taxes on income increased $2.3 million in the third quarter
of fiscal 1997, primarily as a result of increased earnings.
NET INCOME. As a result of the foregoing, the Company had net income,
before the extraordinary item as described below, of $21.8 million in the third
quarter of fiscal 1997 compared to $17.1 million in the corresponding 1996
period.
EXTRAORDINARY ITEM. In connection with the April 1997 refinancing (see
Liquidity and Capital Resources), the Company wrote off as an extraordinary
item approximately $1.1 million ($0.7 million after tax) of unamortized
deferred financing fees.
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 $2.1 million when
compared to the prior year quarter. This increase was primarily due to the
amortization of intangible assets and depreciation of property, plant and
equipment related to acquired companies partially offset by a reduction in
amortization expense of certain intangible assets that became fully amortized
in the prior fiscal year.
NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 1996
NET SALES. Net sales for the nine months ended June 30, 1997 were $571.7
million, an increase of $82.9 million (17.0%) from net sales of $488.8 million
for the corresponding nine months ended June 30, 1996. Sales in the laboratory
segment were $347.4 million for the nine months ended June 30, 1997, an
increase of 22.0% from the corresponding 1996 period. Increased sales in the
laboratory segment resulted primarily from (i) sales of products of acquired
companies (approximately $57.9 million), (ii) increased volume from sales of
existing products at Nalge Nunc International (approximately $3.5 million) and
at Erie (approximately $2.2 million), (iii) increased volume from sales of new
products at Barnstead/Thermolyne (approximately $1.7 million; primarily sales
from its NCAT Asphalt Furnace and STERILEMAX(TM) sterilization line of
products), at Erie (approximately $1.6 million; primarily sales from the Daiichi
line of electrophoresis devices and consumables, BURST-PAK(TM) Sequencing gels,
and sales from the Standard Stain line) and at Nalge Nunc International
(approximately $0.8 million; primarily their line of Bio-Media packaging and
safety products), and (iv) price increases at Barnstead/Thermolyne
(approximately $2.2), at Nalge Nunc International (approximately $1.3 million)
and at Erie (approximately $0.4 million). Increased sales in the laboratory
segment were partially offset by (i) reduced volume from sales of existing
products at Barnstead/Thermolyne (approximately $4.3 million) and (ii)
unfavorable foreign currency impacts at Nalge Nunc International (approximately
$2.4 million) and at Erie (approximately $2.1 million). In the dental segment,
net sales were $224.3 million for the nine months ended June 30, 1997, an
increase of 9.9% from the corresponding 1996 period. Increased sales in the
dental segment resulted primarily from (i) increased volume from sales of
existing products (approximately $12.8 million), (ii) sales of products of
acquired companies (approximately $9.2 million) and (iii) increased volume from
sales of new products (approximately $4.2 million; primarily sales from the
OPTIBOND SOLO(TM)
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<PAGE> 15
product line and sales of CANTILEVER BITE JUMPER(TM) kits). Increased sales
were partially offset by unfavorable foreign currency impacts (approximately
$6.0 million).
GROSS PROFIT. Gross profit for the nine months ended June 30, 1997 was
$288.2 million, an increase of 18.8% from gross profit, before the
restructuring charge discussed below, of $242.7 million for the corresponding
fiscal 1996 period. Gross profit in the laboratory segment was $161.6 million
(46.5% of net segment sales) for the nine months ended June 30, 1997, an
increase of 24.1% from gross profit of $130.2 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 $26.1 million), (ii) increased volume at
Nalge Nunc International (approximately $5.2 million) and at Erie
(approximately $3.8 million), (iii) an improved product mix at Erie
(approximately $1.2 million), (iv) inventory adjustments at Erie (approximately
$0.4 million) and (v) reduced material costs at Nalge Nunc International
(approximately $0.3 million). Increased gross profit was partially offset by
(i) unfavorable overhead application at Erie (approximately $2.5 million) and
at Nalge Nunc International (approximately $0.5 million), (ii) unfavorable
foreign currency impacts at Nalge Nunc International (approximately $1.5
million) and (iii) price reductions at Erie (approximately $1.0 million). In
the dental segment, gross profit was $126.7 million (56.5% of net segment
sales) for the nine months ended June 30, 1997, an increase of 12.5% from gross
profit of $112.6 million (55.1% of net segment sales) during the corresponding
fiscal 1996 period. Increased gross profit in the dental segment resulted
primarily from (i) increased volume (approximately $13.8 million) and (ii) the
effects of acquired companies (approximately $4.5 million), partially offset by
unfavorable foreign currency impacts (approximately $4.3 million).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the nine months ended June 30, 1997 were $159.6
million (27.9% of net sales) as compared to $138.6 million (28.4% 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 $17.7 million for
the nine months ended June 30, 1997, representing a decrease of 1.9% from $18.1
million in the corresponding fiscal 1996 period. The overall decrease at the
corporate level was primarily due to a reduction in amortization expense of
certain intangible assets that became fully amortized in the prior fiscal year
(approximately $0.7 million) partially offset by an increase in general and
administrative expense (approximately $0.4 million). Selling, general and
administrative expenses at the subsidiary level, including amortization of
intangibles, were $141.9 million (24.8% of net sales), representing an increase
of 17.7% from $120.5 million (24.7% of net sales) in the corresponding fiscal
1996 period. Increases at the subsidiary level were primarily due to (i)
expenses related to newly acquired businesses (approximately $10.4 million),
(ii) increased marketing expense (approximately $4.7 million), (iii) increased
general and administrative expense (approximately $2.6 million), (iv)
unfavorable foreign currency impacts (approximately $2.1 million) and (iv)
increased amortization of intangible assets as a result of acquisitions
(approximately $1.6 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
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<PAGE> 16
acquired companies, combination of certain production facilities, movement of
certain customer service and marketing functions and the exiting of several
product lines. Approximately $7.0 million was charged against this reserve as
of June 30, 1997. At June 30, 1997, approximately $1.3 million of the
established liability remains to be expended and is recorded in other current
liabilities. The Company expects to charge approximately $0.3 million against
the reserve in the last quarter of fiscal 1997 and the remaining $1.0 million
some time thereafter. Principal items 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 $0.6 million).
OPERATING INCOME. As a result of the foregoing, operating income was
$128.6 million (22.5% of net sales) for the nine months ended June 30, 1997
compared to, before the restructuring charge discussed above, $104.1 million
(21.3% of net sales) in the corresponding fiscal 1996 period. Operating income
in the laboratory segment was $79.4 million (22.8% of net segment sales) for
the nine months ended June 30, 1997 compared to $62.6 million (22.0% of net
segment sales) in the corresponding fiscal 1996 period. Operating income in
the dental segment was $49.2 million (21.9% of net segment sales) for the nine
months ended June 30, 1997 compared to $41.5 million (20.3% of net segment
sales) in the corresponding fiscal 1996 period.
INTEREST EXPENSE. Interest expense was $30.3 million for the nine months
ended June 30, 1997 compared to $26.0 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 nine month periods
ended June 30, 1997 and 1996 included additional non-cash interest expense of
$0.9 million resulting from the adoption of SFAS No. 106.
INCOME TAXES. Taxes on income increased $8.1 million for the nine month
period ended June 30, 1997, primarily as a result of increased earnings.
NET INCOME. As a result of the foregoing, the Company had net income,
before the extraordinary item discussed below, of $58.8 million for the nine
months ended June 30, 1997 compared to, before the restructuring charge
discussed above, $47.6 million in the corresponding 1996 period.
EXTRAORDINARY ITEM. In connection with the April 1997 refinancing (see
Liquidity and Capital Resources), the Company wrote off as an extraordinary
item approximately $1.1 million ($0.7 million after tax) of unamortized
deferred financing fees.
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 $3.1 million (9.4%)
for the nine months ended June 30, 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
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<PAGE> 17
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 approximately $148.6 million and
approximately $161.0 million in the three and nine months ended June 30, 1997,
respectively, primarily as a result of the acquisition of Remel. 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
and the periodic expansion of physical facilities. 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 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.
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 acquisition 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
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<PAGE> 18
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 "First Amendment"), the capacity of the Revolving
Credit Facility was increased to $300 million, and a competitive bid process
was established as an additional option 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 $466.3 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.
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 operating 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 the
third quarter and year to date of fiscal 1997, the average interest rates on
the Term Loan Facility (inclusive of the swap agreements described below) were
6.6% and 6.3%, respectively, and the average interest rates on the Revolving
Credit Facility for the quarter and year to date ended June 30, 1997 were 6.7%
and 6.4%, respectively.
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, prior to June 30, 1997, entered into six interest
rate swap agreements, aggregating a notional amount of $325 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 third quarter of fiscal 1997, the LIBOR Margin was
.75%. The swap agreement rates and durations are as follows:
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<PAGE> 19
<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%
May 7, 2001 ............. $75 million May 7, 1997 6.5875%
September 10, 2001 ...... $50 million December 8, 1995 5.623%
On August 7, 1997 the Company entered into two additional swap agreements:
August 9, 1999 .......... $50 million August 7, 1997 6.077%
August 9, 1999 .......... $50 million August 7, 1997 6.077%
</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 June 30,
1997, there was $220.0 million of available credit under the Revolving Credit
Facility. Under the Term Loan Facility on July 31, 1997 the Company began to
repay principal in 21 consecutive quarterly installments by paying the $8.75
million due in fiscal 1997. Annual payments, commencing in fiscal 1998, are
due as follows: $35 million, $36.25 million, $42.5 million, $53.75 million and
$123.75 million.
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
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<PAGE> 20
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 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
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<PAGE> 21
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.
- 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.
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<PAGE> 22
- 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 DISCLOSURES 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 and with Item 1, "Legal Proceedings",
in Part II of the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997.
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.
ITEM 2. CHANGES IN SECURITIES
Information concerning the Company's Amended and Restated Credit
agreement, dated as of July 31, 1995, with the Chase Manhattan 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.
21
<PAGE> 23
On May 23, 1997, the Company issued 523,618 shares of its Common Stock,
$.01 par value, in connection with the merger of National Scientific Company
("National") with a subsidiary of the Company formed for this purpose and a
related purchase of real estate used in National's operations. The shares were
issued to the former shareholders of National, Barney and Barbara Siegel, both
of whom represented themselves to be sophisticated investors, in the amount of
261,809 shares each. The shares were issued without registration under the
Securities Act of 1933, as amended (the "Act"), pursuant to the exemption from
registration provided by Section 4(2) of the Act. See note 3(d) of the Notes
to the Unaudited Consolidated Financial Statements contained in Item 1, Part I
hereof.
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:
A Form 8-K, dated April 25, 1997 and filed with the Securities and
Exchange Commission on May 12, 1997, describing, in Item 2 thereof the
completion of the acquisition by the Company of Remel Limited
Partnership.
22
<PAGE> 24
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 August 14, 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.
23
<PAGE> 25
SYBRON INTERNATIONAL CORPORATION
(THE "REGISTRANT")
(COMMISSION FILE NO. 1-11091)
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 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> 26
<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 Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary:
Net income before extraordinary item $ 21,790 $ 17,105 $ 58,815 $ 39,367
Extraordinary item (673) - (673) -
--------- --------- --------- ---------
Net income $ 21,117 $ 17,105 $ 58,142 $ 39,367
========= ========= ========= =========
Shares
Weighted average Common shares ............................ 47,701 46,805 47,617 46,681
Common equivalent shares .................................. 1,760 1,304 1,681 1,119
--------- --------- --------- ---------
49,461 48,109 49,298 47,800
========= ========= ========= =========
Primary earnings to share:
Primary earnings per share before extraordinary item....... $.44 $.36 $1.19 $.82
Extraordinary item ........................................ (.01) - (.01) -
--------- --------- --------- ---------
Primary earnings per share ................................ $.43 $.36 $1.18 $.82
========= ========= ========= =========
</TABLE>
EI-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from unaudited consolidated
financial statements of Sybron International Corporation for the nine months
ended June 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 16,091
<SECURITIES> 0
<RECEIVABLES> 157,733
<ALLOWANCES> 2,765
<INVENTORY> 151,061
<CURRENT-ASSETS> 358,411
<PP&E> 186,542
<DEPRECIATION> 144,157
<TOTAL-ASSETS> 1,216,757
<CURRENT-LIABILITIES> 150,356
<BONDS> 668,091
0
0
<COMMON> 477
<OTHER-SE> 336,528
<TOTAL-LIABILITY-AND-EQUITY> 1,216,757
<SALES> 571,676
<TOTAL-REVENUES> 571,676
<CGS> 283,457
<TOTAL-COSTS> 159,629
<OTHER-EXPENSES> 551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,333
<INCOME-PRETAX> 97,706
<INCOME-TAX> 38,891
<INCOME-CONTINUING> 58,815
<DISCONTINUED> 0
<EXTRAORDINARY> 673
<CHANGES> 0
<NET-INCOME> 58,142
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
