<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, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from_______to_______
Commission File Number: 1-11091
SYBRON INTERNATIONAL CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 22-2849508
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(414) 274-6600
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
At May 8, 1998 there were 100,646,786 shares of the Registrant's Common
Stock, par value $0.01 per share, outstanding. The number of outstanding shares
has been adjusted to reflect a two-for-one stock split in the form of a 100
percent stock dividend (one share of Common Stock for each outstanding share of
Common Stock), distributed on February 20, 1998 to shareholders of record at the
close of business on February 12, 1998.
<PAGE> 2
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
Index Page
- -------------------------------------------------------- ----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets, March 31, 1998 (unaudited)
and September 30, 1997 2
Consolidated Statements of Income, for the three and six months
ended March 31, 1998 (unaudited) and 1997 (unaudited) 3
Consolidated Statements of Shareholders' Equity for the year
ended September 30, 1997 and the six months ended
March 31, 1998 (unaudited) 4
Consolidated Statements of Cash Flows, for the six months
ended March 31, 1998 (unaudited) and 1997 (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 DISCLOSURES ABOUT MARKET RISK 19
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................. $ 21,792 $ 17,155
Accounts receivable (less allowance for doubtful
receivables of $3,644 and $3,312) ................................... 176,718 165,907
Inventories (note 2) .................................................. 155,963 144,217
Deferred income taxes ................................................. 19,140 16,629
Prepaid expenses and other current assets ............................. 19,099 15,880
----------- -----------
Total current assets ............................................. 392,712 359,788
----------- -----------
Property, plant and equipment net of depreciation of $161,317
and $139,792 ......................................................... 194,597 190,291
Intangible assets ....................................................... 718,573 647,567
Deferred income taxes ................................................... 15,650 16,468
Other assets ............................................................ 6,248 7,397
----------- -----------
Total assets ..................................................... $ 1,327,780 $ 1,221,511
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 40,292 $ 41,184
Current portion of long-term debt ..................................... 36,885 37,252
Income taxes payable .................................................. 4,258 954
Accrued payroll and employee benefits ................................. 30,943 34,466
Deferred income taxes ................................................. 7,176 4,794
Other current liabilities ............................................. 22,633 25,630
----------- -----------
Total current liabilities ......................................... 142,187 144,280
----------- -----------
Long-term debt .......................................................... 701,254 645,733
Deferred income taxes ................................................... 50,106 51,761
Other liabilities ....................................................... 11,009 12,781
Commitments and contingent liabilities:
Shareholders' equity:
Preferred Stock, $.01 par value; authorized 20,000,000 shares ......... - -
Common Stock, $.01 par value; authorized 250,000,000
shares, issued 97,465,096 and 96,346,056 shares, respectively ....... 974 963
Equity Rights, 50 and 250 rights at $1.09 per right respectively ...... - -
Additional paid-in capital ............................................ 213,428 197,799
Retained earnings ..................................................... 237,802 193,713
Cumulative foreign currency translation adjustment .................... (28,980) (25,518)
Treasury common stock, 220 and 1,090 shares at cost
respectively ........................................................ - (1)
----------- -----------
Total shareholders' equity ....................................... 423,224 366,956
----------- -----------
Total liabilities and shareholders' equity ....................... $ 1,327,780 $ 1,221,511
=========== ===========
</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,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ......................................... $ 226,064 $ 188,254 $ 436,191 $ 361,912
Cost of sales:
Cost of product sold ........................... 109,640 92,566 213,743 179,385
Depreciation of purchase accounting adjustments. 165 955 330 1,915
--------- --------- --------- ---------
Total cost of sales ............................... 109,805 93,521 214,073 181,300
--------- --------- --------- ---------
Gross profit ...................................... 116,259 94,733 222,118 180,612
Selling, general and administrative expenses ...... 55,658 45,277 109,818 90,590
Depreciation and amortization of purchase
accounting adjustments ........................... 6,369 4,857 12,397 9,620
--------- --------- --------- ---------
Operating income .................................. 54,232 44,599 99,903 80,402
--------- --------- --------- ---------
Other income (expense):
Interest expense ............................... (13,176) (9,222) (26,168) (18,373)
Amortization of deferred financing fees ........ (55) (70) (108) (142)
Other, net ..................................... (40) (160) (102) (302)
--------- --------- --------- ---------
Income before income taxes ........................ 40,961 35,147 73,525 61,585
Income taxes ...................................... 16,205 13,800 29,434 24,560
--------- --------- --------- ---------
Net income ........................................ $ 24,756 $ 21,347 $ 44,091 $ 37,025
========= ========= ========= =========
Basic earnings per common share ................... $ .26 $ .22 $ .46 $ .39
========= ========= ========= =========
Diluted earnings per common share ................. $ .25 $ .22 $ .44 $ .38
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 5
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1997
AND THE SIX MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY TREASURY TOTAL
COMMON EQUITY PAID-IN RETAINED TRANSLATION COMMON SHAREHOLDERS'
STOCK RIGHTS CAPITAL EARNINGS ADJUSTMENT STOCK EQUITY
----- ------ ---------- --------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 ......... $938 $ 1 $ 179,954 $ 111,378 $ (9,189) $(3) $ 283,079
Shares issued in connection with
the exercise of 1,451,392 stock options. 15 - 11,465 (8) - - 11,472
Conversion of 448 equity rights to 1,960
shares of common stock ................. - (1) - (1) - 2 -
Tax benefits related to stock options ... - - 6,385 - - - 6,385
1,047,236 shares of common stock issued
in connection with National Scientific
Company Merger ......................... 10 - (5) 2,745 - - 2,750
Dividends paid by National Scientific
Company prior to the merger ............ - - - (1,604) - - (1,604)
Net income .............................. - - - 81,203 - - 81,203
Cumulative foreign currency
translation adjustment ................. - - - - (16,329) - (16,329)
---- --- --------- --------- -------- --- ---------
Balance at September 30, 1997 ........... $963 $ - $ 197,799 $ 193,713 $(25,518) $(1) $ 366,956
==== === ========= ========= ======== === =========
Shares issued in connection
with the exercise of 1,119,040
stock options .......................... 11 - 9,461 (1) - - 9,471
Conversion of 200 equity rights to 872
shares of common stock ................. - - - (1) - 1 -
Tax benefits related to stock options ... - - 6,168 - - - 6,168
Net income (Unaudited) .................. - - - 44,091 - - 44,091
Cumulative foreign currency
translation adjustment ................. - - - - (3,462) - (3,462)
---- --- --------- --------- -------- --- ---------
Balance at March 31, 1998
(Unaudited) ............................ $974 $ - $ 213,428 $ 237,802 $(28,980) $ - $ 423,224
==== === ========= ========= ======== === =========
</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>
Six Months Ended
March 31,
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 44,091 $ 37,025
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ....................................................... 14,600 13,761
Amortization ....................................................... 12,487 9,592
Provision for losses on doubtful accounts .......................... 382 272
Inventory provisions ............................................... 335 1,656
Deferred income taxes .............................................. 925 (6,309)
Changes in assets and liabilities:
Increase in accounts receivable .................................... (5,958) (3,550)
Increase in inventories ............................................ (8,212) (13,559)
Increase in prepaid expenses and other current assets .............. (4,807) (5,838)
Decrease in accounts payable ....................................... (2,370) (3,014)
Increase (decrease) in income taxes payable ........................ 3,083 (8,824)
Decrease in accrued payroll and employee benefits .................. (4,944) (3,920)
Decrease in other current liabilities .............................. (672) (4,652)
Net change in other assets and liabilities ......................... 7,273 (2,131)
--------- --------
Net cash provided by operating activities .......................... 56,213 10,509
Cash flows from investing activities:
Capital expenditures ............................................... (17,598) (13,688)
Proceeds from sales of property, plant, and equipment .............. 2,570 264
Net payments for businesses acquired ............................... (99,554) (18,480)
--------- --------
Net cash used in investing activities ............................. (114,582) (31,904)
Cash flows from financing activities:
Increase in the revolving credit facility ........................... 74,000 44,600
Principal payments on long-term debt ................................ (18,022) (18,184)
Proceeds from the exercise of common stock options .................. 9,472 3,644
Other ............................................................... (1,078) (1,516)
--------- --------
Net cash provided by financing activities .......................... 64,372 28,544
Effect of exchange rate changes on cash .............................. (1,366) (1,430)
Net increase in cash and cash equivalents ............................ 4,637 5,719
Cash and cash equivalents at beginning of year ....................... 17,155 10,874
--------- --------
Cash and cash equivalents at end of period ........................... $ 21,792 $ 16,593
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ............................ $ 25,010 $ 17,019
Cash paid during the period for income taxes ........................ 18,233 29,428
Capital lease obligations incurred .................................. 254 818
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 7
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. In these financial statements, the terms "Company" or "Sybron" mean Sybron
International Corporation and its subsidiaries on a consolidated basis. In
the opinion of management, all adjustments which are necessary for a fair
statement of the results for the interim periods presented have been
included. All such adjustments were of a normal recurring nature. The
results for the six month period ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full year. Certain amounts
from the three and six month periods ended March 31, 1997, as originally
reported, have been reclassified to conform with the three and six month
periods ended March 31, 1998 presentation.
The results for the three and six months ended March 31, 1997 have been
adjusted to reflect the results of National Scientific Company. The results
of National Scientific Company, which were accounted for as a pooling of
interests, were combined with the Company's previously reported results as
if the merger occurred on October 1, 1996.
2. Inventories at March 31, 1998 consist of the following:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Raw materials $ 49,583
Work-in-process 27,917
Finished goods 82,715
LIFO Reserve (4,252)
---------
$ 155,963
=========
</TABLE>
3. Acquisitions completed in the second quarter of fiscal 1998 are as follows:
(a) On January 2, 1998, Erie Scientific International Corporation ("Erie")
completed the acquisition of Diagnostic Reagents, Inc. ("DRI"). DRI
manufactures and sells immunoassay reagents principally for
drugs-of-abuse testing. Annual sales of DRI are approximately $10
million.
(b) On January 27, 1998, Erie completed the acquisition of the assets of
Cel-Line Associates, Inc. ("Cel-Line"), a manufacturer of printed
microscope slides. Annual sales of Cel-Line are approximately $1.7
million.
(c) On February 16, 1998, Metrex Research Corporation, a subsidiary of
Sybron Dental Specialties, Inc., completed the acquisition of Viro
Research International, Inc. ("Viro"), a company engaged in the sale of
skin antisepsis products. Annual sales of Viro are approximately $3.7
million.
6
<PAGE> 8
Acquisitions completed after the second quarter of fiscal 1998 are as
follows:
(a) On April 2, 1998, Erie completed the acquisition of Criterion Sciences
("Criterion"), a manufacturer of hematology stains, reagents and other
solutions used for laboratory analysis and testing. Criterion's annual
sales are approximately $6.0 million.
(b) On April 3, 1998, Erie completed the acquisition of Custom Laboratories
("Custom"), a manufacturer of a glucose tolerance test beverage.
Custom's annual sales are approximately $1.6 million.
(c) On April 9, 1998, Sybron completed the merger of LRS Acquisition Corp.,
the parent of "A" Company Orthodontics, and a subsidiary of Sybron
International Corporation formed for that purpose. "A" Company is a
manufacturer and developer of orthodontic products, supplying
orthodontic professionals with brackets, archwires, and related
products. For the year ended December 31, 1997, "A" Company generated
net sales of approximately $45.0 million.
(d) On April 13, 1998, Remel Inc., a subsidiary of Erie, acquired DiMed
Corporation ("DiMed"). DiMed is a manufacturer and distributor of
culture media products. DiMed's annual sales are approximately $1.7
million.
4. In the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share"
("EPS"). SFAS 128 replaces the requirement for a presentation of primary
and fully diluted EPS with a presentation of basic and diluted EPS, both of
which are required to be presented on the face of the statement of income
for all entities with complex capital structures. SFAS 128 was 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 January 30, 1998 we announced a two-for-one stock split in the form of a
100 percent stock dividend (one share of stock for each outstanding share
of stock), which was distributed on February 20, 1998, to shareholders of
record at the close of business on February 12, 1998. The financial results
for all periods presented have been restated to reflect this change.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The subsidiaries of Sybron International Corporation are leading
manufacturers of value-added products for the laboratory and professional dental
and orthodontic markets in the United States and abroad. Sybron's laboratory
subsidiaries provide plastic labware, microscope slides, disposable diagnostic
products, consumables, temperature control apparatus and water purification
systems to industrial, academic, clinical, governmental and biotechnology
laboratories. Sybron's dental and orthodontic subsidiaries provide a diversified
line of consumable products to dentists and orthodontic appliances and related
products to orthodontists. We have been pursuing a growth strategy designed to
increase sales and enhance operating margins. Elements of that strategy include
emphasis on acquisitions, product line extensions, new product introductions and
international growth.
When we use the terms "Company", "Sybron", "we" or "our", we are
referring to Sybron International Corporation and its subsidiaries. Our fiscal
year ends on September 30.
Both our sales and operating income for the quarter and the six months
ended March 31, 1998 grew over the corresponding prior year periods. Net sales
for the quarter and six months ended March 31, 1998 increased by 20.1% and
20.5%, respectively, over the corresponding fiscal 1997 periods. Operating
income for the quarter and six months increased by 21.6% and 24.3%, respectively
over the corresponding fiscal 1997 periods.
Sales growth in the quarter and six months ended March 31, 1998 was
strong both domestically and internationally. Domestic and international sales
increased by 24.0% and 12.5%, respectively for the quarter, and by 25.2% and
11.6%, respectively for the six months, over the corresponding fiscal 1997
periods. International sales were negatively impacted by the strengthening of
the U.S. dollar and economic weakness in the Asian region. If currency effects
were removed from sales, the international increase over 1997 would have been
17.1% for the quarter and 17.7% for the six month period ended March 31, 1998.
Sales to the Asian region decreased by approximately $2.0 million and $1.2
million for the quarter and six month periods ended March 31, 1998,
respectively, when compared to the corresponding fiscal 1997 periods.
Acquisitions aided sales growth significantly in both the quarter and
six month periods, accounting for $29.3 million and $7.4 million of the domestic
and international sales increases in the quarter, and $55.3 million and $12.6
million for the six month period, respectively. Our internal growth was 0.6% for
the quarter and 1.7% for the six months. Internal growth was negatively impacted
by the strengthened U.S. dollar, weak sales in the Asian region, and distributor
inventory re-balancing primarily impacting Barnstead/Thermolyne on the
laboratory side of the business and Kerr on the dental side of the business.
Without currency effects, internal growth was approximately 2.2% and 3.8% for
the quarter and six month periods ended March 31, 1998. While
Barnstead/Thermolyne was negatively impacted this quarter by inventory
re-balancing at its major distributor, Fisher Scientific, end user purchases of
Barnstead/Thermolyne
8
<PAGE> 10
products exceeded levels purchased by Fisher Scientific. In the case of Kerr,
two of its large distributors, Henry Schein, Inc. and Sullivan Dental Products,
Inc. merged in November, 1997. Consolidation of inventories by the merged
companies negatively affected Kerr's sales in the second quarter, and is
expected to continue to negatively impact Kerr's sales into the first quarter of
fiscal 1999. Sales of Kerr's products to end users by the distributors, however,
continue to grow and exceed levels being purchased by our distributors.
We continue to maintain an active program of developing and marketing
both new products and product line extensions, as well as pursuing growth
through acquisitions. We completed three acquisitions in the second quarter of
fiscal 1998 and four more in April 1998. (See Note 3 of the Notes to the
Unaudited Consolidated Financial Statements).
On April 20, 1998, we announced the realignment of our laboratory
subsidiaries under one group to be called Sybron Laboratory Products. This
organization will be headed by Frank H. Jellinek, Jr. who previously headed up
the Erie Scientific International group of companies. We expect this realignment
to give our laboratory subsidiaries the opportunity to more effectively address
the laboratory markets with their broad range of products. In connection with
this change and the changes being made after the merger with LRS Acquisition
Corp. ("LRS") on April 9, 1998, we expect to record a restructuring charge in
our third fiscal quarter of 1998. In addition, in our third fiscal quarter we
expect to record a pretax charge in the range of $9 million to $11 million with
respect to the transaction costs incurred in our merger with LRS. Most of these
transaction costs represented part of the purchase consideration, thereby
resulting in a reduction to the number of shares of Sybron stock issued in the
merger.
The Company has conducted a review of its computer systems to identify
the systems that use only two digits to identify a year in the date field and
thus are not Year 2000 compliant. Plans are in place to complete system upgrades
or reprogram, as appropriate, noncompliant systems by the end of March 1999. The
Company also is in the process of communicating with vendors, suppliers and
customers to identify any potential Year 2000 issues for the Company. Based on
the information developed by the Company to date, we expect to incur total
expenses of approximately $1.0 million to modify certain computer systems to
make them Year 2000 compliant. We expect most of these expenses to be incurred
in fiscal 1998. We continue to evaluate other appropriate courses of corrective
action, including the replacement of certain systems at an estimated cost of
$2.0 million which would be capitalized and amortized over the systems' useful
lives.
Our results of operations include goodwill amortization, other
amortization, and depreciation. These non-cash charges totaled $13.7 million and
$11.6 million for the quarters ended March 31, 1998 and 1997, respectively and
$27.1 million and $23.4 million for the six month periods ended March 31, 1998
and 1997, respectively. Our earnings before interest, taxes, depreciation and
amortization ("EBITDA") which, as discussed below in "Liquidity and Capital
Resources", we believe is the appropriate measure of our ability to internally
fund our liquidity requirements, amounted to $67.9 million and $56.0 million for
the quarters ended March 31, 1998 and 1997, respectively, and $126.8 million and
$103.3 million for the six months ended March
9
<PAGE> 11
31, 1998 and 1997, respectively. EBITDA represents, for any relevant period, net
income plus (i) interest expense, (ii) provision for income taxes, and (iii)
depreciation and amortization, all determined on a consolidated basis and in
accordance with generally accepted accounting principles.
Substantial portions of our sales, income and cash flows are derived
internationally. The financial position and the results of operations from
substantially all of our international operations, other than most U.S. export
sales, are measured using the local currency of the countries in which such
operations are conducted and are then translated into U.S. dollars. While the
reported income of foreign subsidiaries will be impacted by a weakening or
strengthening of the U.S. dollar in relation to a particular local currency, the
effects of foreign currency fluctuations are partially mitigated by the fact
that manufacturing costs and other expenses of foreign subsidiaries are
generally incurred in the same currencies in which sales are generated. Such
effects of foreign currency fluctuations are also mitigated by the fact that
such subsidiaries' operations are conducted in numerous foreign countries and,
therefore, in numerous foreign currencies. In addition, our U.S. export sales
may be impacted by foreign currency fluctuations relative to the value of the
U.S. dollar as foreign customers may adjust their level of purchases upward or
downward according to the weakness or strength of their respective currencies
versus the U.S. dollar.
From time to time, we may employ currency hedges to mitigate the impact
of foreign currency fluctuations. If currency hedges are not employed, we may be
exposed to earnings volatility as a result of foreign currency fluctuations. In
October 1997, we decided to employ a series of foreign currency options with a
U.S. dollar notional amount of approximately $13.6 million at a cost of
approximately $0.4 million. These options expire in the third and fourth
quarters of fiscal 1998 and are designed to protect Sybron from potential
detrimental effects of currency movements associated with the U.S. dollar versus
the German mark and the French franc as compared to the third and fourth
quarters of fiscal 1997.
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 facility in Rochester, New York (the "Rochester Site" or
"Site"), a discontinued operation. CE's complaint seeks indemnification from the
Company with respect to the cost to remediate certain environmental
contamination at the Rochester Site. The CE Litigation has not yet advanced
beyond the filing of the complaint. CE entered into a voluntary cleanup
agreement ("VCA") concerning the Site with the New York State Department of
Environmental Conservation ("NYSDEC") and is in the process of negotiation with
NYSDEC to establish cleanup goals and remedial methods for the Site. Because
cleanup goals and remedial methods have not yet been established, and because
the extent of the Company's liability, if any, is uncertain, the Company cannot
estimate with any reasonable certainty the cost to it of CE's claims. The
Company has provided notice to its third party liability insurance carriers. To
date, the carriers have denied coverage.
10
<PAGE> 12
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1998 COMPARED TO THE QUARTER ENDED MARCH 31, 1997
NET SALES. Net sales for the three months ended March 31, 1998 were
$226.1 million, an increase of $37.8 million (20.1%) from net sales of $188.3
million for the three months ended March 31, 1997. Sales in the laboratory
segment were $146.8 million for the three months ended March 31, 1998, an
increase of 31.4% from the corresponding 1997 fiscal period. Increased sales in
the laboratory segment resulted primarily from (i) sales of products of acquired
companies, net of a divested product line (approximately $33.8 million), (ii)
increased volume from sales of new products (approximately $1.0 million), (iii)
increased volume from sales of existing products (approximately $0.9 million)
and (iv) price increases (approximately $0.9 million). Increased sales in the
laboratory segment were partially offset by unfavorable foreign currency impacts
(approximately $1.5 million). In the dental segment, net sales were $79.3
million for the three months ended March 31, 1998, an increase of 3.5% from the
corresponding fiscal 1997 period. Increased sales in the dental segment resulted
primarily from (i) sales of products of acquired companies (approximately $2.9
million), (ii) increased volume from sales of existing products (approximately
$0.9 million) and (iii) increased volume from sales of new products
(approximately $0.5 million). Increased sales in the dental segment were
partially offset by unfavorable foreign currency impacts (approximately $1.6
million).
GROSS PROFIT. Gross profit for the second quarter of fiscal 1998 was
$116.3 million, an increase of 22.7% from gross profit of $94.7 million for the
corresponding fiscal 1997 period. Gross profit in the laboratory segment was
$70.6 million (48.1% of net segment sales) in the second quarter of fiscal 1998,
an increase of 35.5% from gross profit of $52.1 million (46.7% of net segment
sales) during the corresponding fiscal 1997 period. Gross profit in the
laboratory segment increased primarily as a result of (i) the effects of
acquired companies (approximately $17.4 million), (ii) price increases
(approximately $0.9 million), (iii) increased volume (approximately $0.8
million) and (iv) a reduction in depreciation expense of certain assets that
became fully depreciated in the prior fiscal year (approximately $0.5 million).
Increased gross profit in the laboratory segment was partially offset by (i) an
unfavorable product mix (approximately $0.3 million), (ii) an unfavorable
foreign currency impact (approximately $0.3 million) and (iii) unfavorable
overhead application (approximately $0.3 million). In the dental segment, gross
profit was $45.7 million (57.6% of net segment sales) in the second quarter of
fiscal 1998, an increase of 7.1% from gross profit of $42.6 million (55.7% of
net segment sales) during the corresponding fiscal 1997 period. Increased gross
profit in the dental segment resulted primarily from (i) the effects of acquired
companies (approximately $1.4 million), (ii) increased volume (approximately
$0.8 million), (iii) favorable overhead application (approximately $0.8
million), (iv) inventory factors (approximately $0.3 million) and (v) a
reduction in depreciation expense of certain assets that became fully
depreciated in the prior fiscal year (approximately $0.3 million), partially
offset by unfavorable foreign currency impacts (approximately $0.6 million).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the second quarter of fiscal 1998 were $62.0 million
(27.4% of net sales) as compared
11
<PAGE> 13
to $50.1 million (26.6% of net sales) in the corresponding fiscal 1997 period.
General and administrative expenses at the corporate level, including
amortization of purchase accounting adjustments and goodwill associated with
acquisitions, were $5.2 million in the second quarter of fiscal 1998,
representing a decrease of 7.8% from $5.6 million in the corresponding fiscal
1997 period. The decrease at the corporate level was primarily due to a
reduction in depreciation and amortization expense of certain tangible and
intangible assets that became fully amortized and depreciated in the prior
fiscal year. Selling, general and administrative expenses at the subsidiary
level, including amortization of intangibles, were $56.9 million (25.1% of net
sales), representing an increase of 27.7% from $44.5 million (23.7% of net
sales) in the corresponding fiscal 1997 period. Increases at the subsidiary
level were primarily due to (i) expenses related to newly acquired businesses
(approximately $8.7 million), (ii) increased amortization of intangible assets
related to acquired businesses (approximately $2.0 million), (iii) increased
general and administrative expense (approximately $1.9 million), (iv) increased
marketing expense (approximately $0.6 million) and (v) increased research and
development (approximately $0.5 million) partially offset by favorable foreign
currency impacts (approximately $1.4 million).
OPERATING INCOME. As a result of the foregoing, operating income was
$54.2 million (24.0% of net sales) in the second quarter of fiscal 1998 compared
to $44.6 million (23.7% of net sales) in the corresponding fiscal 1997 period.
Operating income in the laboratory segment was $35.8 million (24.4% of net
segment sales) in the second quarter of fiscal 1998 compared to $27.0 million
(24.2% of net segment sales) in the corresponding fiscal 1997 period. Operating
income in the dental segment was $18.4 million (23.2% of net segment sales) in
the second quarter of fiscal 1998 compared to $17.6 million (23.0% of net
segment sales) in the corresponding fiscal 1997 period.
INTEREST EXPENSE. Interest expense was $13.2 million in the second
quarter of fiscal 1998 compared to $9.2 million in the corresponding fiscal 1997
period. The increase resulted from a higher debt balance primarily from our
acquisition activity. Interest expense during the quarters ended March 31, 1998
and 1997 included additional non-cash interest expense of $0.3 million resulting
from the adoption of SFAS No. 106.
INCOME TAXES. Taxes on income increased $2.4 million in the second
quarter of fiscal 1998, primarily as a result of increased earnings.
NET INCOME. As a result of the foregoing, Sybron had net income of
$24.8 million in the second quarter of fiscal 1998 compared to $21.3 million in
the corresponding fiscal 1997 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 $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 reduction in
depreciation and amortization expense of certain tangible and intangible assets
that became fully amortized and depreciated in the prior fiscal year.
12
<PAGE> 14
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 1997
NET SALES. Net sales for the six months ended March 31, 1998 were
$436.2 million, an increase of $74.3 million (20.5%) from net sales of $361.9
million for the corresponding six months ended March 31, 1997. Sales in the
laboratory segment were $283.9 million for the six months ended March 31, 1997,
an increase of 32.3% from the corresponding 1997 fiscal period. Increased sales
in the laboratory segment resulted primarily from (i) sales of products of
acquired companies, net of a divested product line (approximately $64.4
million), (ii) increased volume from sales of existing products (approximately
$4.7 million), (iii) increased volume from sales of new products (approximately
$1.7 million) and (iv) price increases (approximately $1.7 million). Increased
sales in the laboratory segment were partially offset by unfavorable foreign
currency impacts (approximately $3.2 million). In the dental segment, net sales
were $152.3 million for the six months ended March 31, 1998, an increase of 3.4%
from the corresponding fiscal 1997 period. Increased sales in the dental segment
resulted primarily from (i) increased volume from sales of existing products
(approximately $4.5 million), (ii) sales of products of acquired companies
(approximately $4.2 million) and (iii) increased volume from sales of new
products (approximately $0.8 million). Increased sales in the dental segment
were partially offset by unfavorable foreign currency impacts (approximately
$4.4 million).
GROSS PROFIT. Gross profit for the first six months of fiscal 1998 was
$222.1 million, an increase of 23.0% from gross profit of $180.6 million for the
corresponding fiscal 1997 period. Gross profit in the laboratory segment was
$134.7 million (47.4% of net segment sales) in the first six months of fiscal
1998, an increase of 36.6% from gross profit of $98.6 million (45.9% of net
segment sales) during the corresponding fiscal 1997 period. Gross profit in the
laboratory segment increased primarily as a result of (i) the effects of
acquired companies (approximately $32.3 million), (ii) increased volume
(approximately $3.2 million), (iii) price increases (approximately $1.7
million), (iv) a reduction in depreciation expense of certain assets that became
fully depreciated in the prior fiscal year (approximately $0.9 million) and (v)
favorable overhead application (approximately $0.4 million). Increased gross
profit in the laboratory segment was partially offset by (i) an unfavorable
foreign currency impact (approximately $1.5 million) and (ii) an unfavorable
product mix (approximately $0.8 million). In the dental segment, gross profit
was $87.4 million (57.4% of net segment sales) in the first six months of fiscal
1998, an increase of 6.6% from gross profit of $82.0 million (55.7% of net
segment sales) during the corresponding fiscal 1997 period. Increased gross
profit in the dental segment resulted primarily from (i) increased volume
(approximately $2.7 million), (ii) the effects of acquired companies
(approximately $1.9 million), (iii) inventory factors (approximately $1.6
million), (iv) improved overhead application (approximately $0.8 million) and
(v) a reduction in depreciation expense of certain assets that became fully
depreciated in the prior fiscal year (approximately $0.7 million) partially
offset by unfavorable foreign currency impacts (approximately $2.3 million).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first six months of fiscal 1998 were $122.2
million (28.0% of net sales) as compared to $100.2 million (27.7% of net sales)
in the corresponding fiscal 1997 period. General
13
<PAGE> 15
and administrative expenses at the corporate level, including amortization of
purchase accounting adjustments and goodwill associated with acquisitions, were
$10.4 million representing a decrease of 7.5% from $11.2 million in the
corresponding fiscal 1997 period. The decrease at the corporate level was
primarily due to a reduction in depreciation and amortization expense of certain
tangible and intangible assets that became fully amortized and depreciated in
the prior fiscal year. Selling, general and administrative expenses at the
subsidiary level, including amortization of intangibles, were $111.8 million
(25.6% of net sales), representing an increase of 25.7% from $89.0 million
(24.6% of net sales) in the corresponding fiscal 1997 period. Increases at the
subsidiary level were primarily due to (i) expenses related to newly acquired
businesses (approximately $15.6 million), (ii) increased amortization of
intangible assets related to acquired businesses (approximately $3.8 million),
(iii) increased general and administrative expense (approximately $3.0 million),
(iv) increased marketing expense (approximately $2.5 million) and (v) increased
research and development expenditures (approximately $0.3 million) partially
offset by favorable foreign currency impacts (approximately $2.3 million).
OPERATING INCOME. As a result of the foregoing, operating income was
$99.9 million (22.9% of net sales) for the first six months of fiscal 1998
compared to $80.4 million (22.2% of net sales) in the corresponding fiscal 1997
period. Operating income in the laboratory segment was $65.8 million (23.2% of
net segment sales) compared to $48.4 million (22.6% of net segment sales) in the
corresponding fiscal 1997 period. Operating income in the dental segment was
$34.1 million (22.4% of net segment sales) compared to $32.0 million (21.7% of
net segment sales) in the corresponding fiscal 1997 period.
INTEREST EXPENSE. Interest expense was $26.2 million for the six months
ended March 31, 1998 compared to $18.4 million in the corresponding fiscal 1997
period. The increase resulted from a higher debt balance primarily from our
acquisition activity. Interest expense for the six months ended March 31, 1998
and 1997 included additional non-cash interest expense of $0.6 million resulting
from the adoption of SFAS No. 106.
INCOME TAXES. Taxes on income increased $4.9 million for the first six
months of fiscal 1998, primarily as a result of increased earnings.
NET INCOME. As a result of the foregoing, Sybron had net income of
$44.1 million in the first quarter of fiscal 1998 compared to $37.0 million in
the corresponding fiscal 1997 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense is
allocated among cost of sales, selling, general and administrative expenses and
other expense. Depreciation and amortization increased $3.7 million when
compared to the prior year six month period. 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 reduction in
depreciation and amortization expense of certain tangible and intangible assets
that became fully amortized and depreciated in the prior fiscal year.
14
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
As a result of the 1987 leveraged buyout transaction ("the
Acquisition") and the acquisitions we completed since 1987, we have increased
the carrying value of certain tangible and intangible assets consistent with
generally accepted accounting principles. Accordingly, our results of operations
include a significant level of non-cash expenses related to the depreciation of
fixed assets and the amortization of intangible assets, including goodwill.
Goodwill and intangible assets increased by approximately $40.8 million and
$78.1 million in the second quarter and year to date, respectively, primarily as
a result of continued acquisition activity. We believe, therefore, that EBITDA
represents the more appropriate measure of our ability to internally fund our
capital requirements.
Our capital requirements arise principally from indebtedness incurred
in connection with the permanent financing for the Acquisition and our
subsequent refinancings, our working capital needs, primarily related to
inventory and accounts receivable, our capital expenditures, primarily related
to purchases of machinery and molds, the purchase of various businesses and
product lines in execution of our acquisition strategy and the periodic
expansion of physical facilities. In addition, in the event we should be held
liable for CE's claims in the CE Litigation (described above), liability for
which we deny, we could require capital to satisfy such liabilities, depending
upon their magnitude. It is currently our intent to continue to pursue our
acquisition strategy. If acquisitions continue at our historical pace, of which
there can be no assurance, we may require financing beyond the capacity of our
Credit Facilities (as defined below). In addition, certain acquisitions
previously completed contain "earnout provisions" requiring further payments in
the future if certain financial results are achieved by the acquired companies.
The statement contained in the immediately preceding paragraph
concerning our intent to continue to pursue our acquisition strategy is a
forward-looking statement. Our ability to continue our acquisition strategy is
subject to a number of uncertainties, including, but not limited to, our ability
to raise capital beyond the capacity of our Credit Facilities and the
availability of suitable acquisition candidates at reasonable prices. See
"Cautionary Factors" below.
On July 31, 1995, we 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, we borrowed $300 million under the Term Loan Facility and approximately
$122.5 million under the Revolving Credit Facility. Approximately $158.5 million
of the borrowed funds were used to finance the acquisition of the Nunc group of
companies (approximately $9.1 million of the acquisition price for Nunc was
borrowed under our previous credit facilities). The remaining borrowed funds of
approximately $264.0 million were used to repay outstanding amounts, including
accrued interest, under our previous credit facilities and to pay certain fees
in connection with such refinancing. On July 9, 1996, under the First Amendment
to the Credit Agreement (the "First Amendment"), the capacity of the Revolving
Credit Facility was increased to $300 million, and a competitive bid process was
established as an additional
15
<PAGE> 17
option for us in setting interest rates. On April 25, 1997, we 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, we 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 Limited Partnership 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) is anticipated to be our
largest use of operating funds in the future. The Credit Facilities provide for
an annual interest rate, at our option, equal to (a) the higher of (i) the rate
from time to time publicly announced by Chase in New York City as its prime
rate, (ii) the federal funds rate plus 1/2 of 1%, and (iii) the base CD rate
plus 1%, (collectively referred to as "ABR") or (b) the London interbank offered
rate ("LIBOR") plus 1/2% to 7/8% (the "LIBOR Margin") depending upon the ratio
of our total debt to EBITDA , 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"). The
average interest rate on the Term Loan Facility (inclusive of the swap
agreements described below) for both the quarter and six months ended March 31,
1998 was 6.7% and the average interest rate on the Revolving Credit Facility for
the quarter and six months ended March 31, 1998 was 6.6%.
As a result of the terms of the Credit Agreement and our agreement
governing the previous credit facilities, we are sensitive to a rise in interest
rates. In order to reduce our sensitivity to interest rate increases, from time
to time, we enter into interest rate swap agreements. At March 31, 1998, swap
agreements aggregating a notional amount of $375 million were in place to hedge
against a rise in interest rates. The net interest rate paid by us is
approximately equal to the sum of the swap agreement rate plus the applicable
LIBOR Margin. During the second quarter and year to date fiscal 1998, 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>
July 7, 1998................ $50 million July 7, 1993 5.17%
August 9, 1999.............. $50 million August 7, 1997 6.077%
August 13, 1999............. $50 million August 13, 1993 5.54%
September 8, 2000........... $50 million December 8, 1995 5.56%
February 7, 2001............ $50 million August 7, 1997 5.91%
May 7, 2001................. $75 million May 7, 1997 6.5875%
</TABLE>
16
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
September 10, 2001.......... $50 million December 8, 1995 5.623%
</TABLE>
Also as part of the permanent financing for the Acquisition, on
December 22, 1988, we entered into the sale and leaseback of our 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.
We intend to fund our acquisitions, working capital requirements,
capital expenditure requirements, principal and interest payments, obligations
under the Sale/Leaseback, restructuring expenditures, other liabilities and
periodic expansion of facilities, to the extent available, with funds provided
by operations and short-term borrowings under the Revolving Credit Facility. To
the extent that funds are not available, particularly with respect to our
acquisition strategy, we intend to raise additional capital.
As set forth above, after the Second Amendment, the Revolving Credit
Facility provides up to $600 million in available credit. At March 31, 1998,
there was $155.5 million of available credit under the Revolving Credit
Facility. Under the Term Loan Facility, on July 31, 1997 we began to repay
principal in 21 consecutive quarterly installments by paying the $8.75 million
due in 1997 and $8.75 million due in each of the first and second quarters of
fiscal 1998. Annual payments, in the remainder of fiscal 1998 and succeeding
fiscal years, are due as follows: $17.5 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 we maintain certain financial ratios; restrictions on our
ability to incur indebtedness or to create or permit liens or to pay cash
dividends in excess of $50.0 million plus 50% of our consolidated net income for
each fiscal quarter ending after June 30, 1995, less any dividends paid after
June 22, 1994; and limitations on incurrence of additional indebtedness. The
Credit Agreement permits us to make acquisitions provided we continue to satisfy
all financial covenants upon any such acquisition. Our ability to meet our debt
service requirements and to comply with such covenants is dependent upon our
future performance, which is subject to financial, economic, competitive and
other factors affecting us, many of which are beyond our control.
CAUTIONARY FACTORS
This report contains various forward-looking statements concerning our
prospects that are based on the current expectations and beliefs of management.
Forward-looking statements may also be made by us from time to time in other
reports and documents as well as oral presentations. When used in written
documents or oral statements, the words "anticipate", "believe", "estimate",
"expect", "objective" and similar expressions are intended to identify
forward-
17
<PAGE> 19
looking statements. The statements contained herein and such future
statements involve or may involve certain assumptions, risks and uncertainties,
many of which are beyond our control, that could cause our actual results and
performance to differ materially from what is expected. In addition to the
assumptions and other factors referenced specifically in connection with such
statements, the following factors could impact our business and financial
prospects:
- Factors affecting our international operations, including relevant
foreign currency exchange rates, which can affect the cost to produce
our products or the ability to sell our products in foreign markets,
and the value in U.S. dollars of sales made in foreign currencies.
Other factors include our ability to obtain effective hedges against
fluctuations in currency exchange rates; foreign trade, monetary and
fiscal policies; laws, regulations and other activities of foreign
governments, agencies and similar organizations; and risks associated
with having major manufacturing facilities located in countries, such
as Mexico, Hungary and Italy, which have historically been less stable
than the United States in several respects, including fiscal and
political stability.
- Factors affecting our ability to continue pursuing our current
acquisition strategy, including our ability to raise capital beyond the
capacity of our existing Credit Facilities or to use our stock for
acquisitions, the cost of the capital required to effect our
acquisition strategy, the availability of suitable acquisition
candidates at reasonable prices, our ability to realize the synergies
expected to result from acquisitions, and the ability of our existing
personnel to efficiently handle increased transitional responsibilities
resulting from acquisitions.
- Factors affecting our ability to profitably distribute and sell
our products, including any changes in our business relationships with
our principal distributors, primarily in the laboratory segment,
competitive factors such as the entrance of additional competitors into
our markets, pricing and technological competition, and risks
associated with the development and marketing of new products in order
to remain competitive by keeping pace with advancing dental,
orthodontic and laboratory technologies.
- With respect to Erie, factors affecting its Erie Electroverre S.A.
subsidiary's ability to manufacture the glass used by Erie's worldwide
manufacturing operations, including delays encountered in connection
with the periodic rebuild of the sheet glass furnace and furnace
malfunctions at a time when inventory levels are not sufficient to
sustain Erie's flat glass operations.
- Factors affecting our ability to hire and retain competent
employees, including unionization of our non-union employees and
changes in relationships with our unionized employees.
- The risk of strikes or other labor disputes at those locations
which are unionized which could affect our operations.
18
<PAGE> 20
- Factors affecting our ability to continue manufacturing and
selling those of our products that are subject to regulation by the
United States Food and Drug Administration or other domestic or foreign
governments or agencies, including the promulgation of stricter laws or
regulations, reclassification of our products into categories subject
to more stringent requirements, or the withdrawal of the approval
needed to sell one or more of our products.
- Factors affecting the economy generally, including a rise in
interest rates, the financial and business conditions of our customers
and the demand for customers' products and services that utilize
Company products.
- Factors relating to the impact of changing public and private
health care budgets which could affect demand for or pricing of our
products.
- Factors affecting our financial performance or condition,
including tax legislation, unanticipated restrictions on our ability to
transfer funds from our subsidiaries and changes in applicable
accounting principles or environmental laws and regulations.
- The cost and other effects of claims involving our products and
other legal and administrative proceedings, including the expense of
investigating, litigating and settling any claims.
- Factors affecting our ability to produce products on a competitive
basis, including the availability of raw materials at reasonable
prices.
- Unanticipated technological developments that result in
competitive disadvantages and create the potential for impairment of
existing assets.
- Unanticipated developments while implementing the modifications
necessary to mitigate Year 2000 compliance problems, including the
availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, the indirect impacts of
third parties with whom we do business and who do not mitigate their
Year 2000 compliance problems, and similar uncertainties.
We undertake 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
19
<PAGE> 21
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.
20
<PAGE> 22
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, 1998 /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.
21
<PAGE> 23
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, 1998
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
2.1 Agreement and Plan of Exhibit 2.1 to the
Reorganization, dated as of Registrant's
January 23, 1998, by and Registration Statement
among Sybron International on Form S-4
Corporation, Normandy (No. 333-47795)
Acquisition Co., LRS
Acquisition Corp. ("LRS")
and Liberty Partners
Holdings 5, L.L.C.
3.1 Restated Articles of Exhibit 4.1 to the
Incorporation of the Registrant's
Registrant Registration Statement
on Form S-8
(File No. 333-47015)
10.1 Amended and Restated Exhibit A to the
1993 Long-Term Registrant's Proxy
Incentive Plan Statement dated
December 23, 1997 for
its Annual Meeting of
Shareholders on
January 30, 1998
27.1 Financial Data Schedule X
27.2 Restated Financial Data X
Schedule (six month
period ended March 31,
1997)
EI-1
<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, 1998 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-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 21,792
<SECURITIES> 0
<RECEIVABLES> 176,718
<ALLOWANCES> 3,644
<INVENTORY> 155,963
<CURRENT-ASSETS> 392,712
<PP&E> 194,597
<DEPRECIATION> 161,317
<TOTAL-ASSETS> 1,327,780
<CURRENT-LIABILITIES> 142,187
<BONDS> 701,254
0
0
<COMMON> 974
<OTHER-SE> 422,250
<TOTAL-LIABILITY-AND-EQUITY> 1,327,780
<SALES> 436,191
<TOTAL-REVENUES> 436,191
<CGS> 214,073
<TOTAL-COSTS> 122,215
<OTHER-EXPENSES> 210
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,168
<INCOME-PRETAX> 73,525
<INCOME-TAX> 29,434
<INCOME-CONTINUING> 44,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,091
<EPS-PRIMARY> .46<F1>
<EPS-DILUTED> .44<F1>
<FN>
<F1>As adjusted for the two-for-one stock split effective February 20, 1998.
Prior Financial Data Schedules other than that for the period ended December
31, 1997 have not been restated to reflect the stock split.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SYBRON INTERNATIONAL CORPORATION
FOR THE SIX MONTHS ENDED MARCH 31, 1997, AS RESTATED TO REFLECT THE ADOPTION OF
SFAS NO. 128 AND THE MERGER OF NATIONAL SCIENTIFIC COMPANY ACCOUNTED FOR AS A
POOLING OF INTERESTS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,593
<SECURITIES> 0
<RECEIVABLES> 134,910
<ALLOWANCES> 2,486
<INVENTORY> 134,533
<CURRENT-ASSETS> 315,099
<PP&E> 171,870
<DEPRECIATION> 130,207
<TOTAL-ASSETS> 1,011,541
<CURRENT-LIABILITIES> 124,023
<BONDS> 506,032
0
0
<COMMON> 954
<OTHER-SE> 315,939
<TOTAL-LIABILITY-AND-EQUITY> 1,011,541
<SALES> 361,912
<TOTAL-REVENUES> 361,912
<CGS> 181,300
<TOTAL-COSTS> 100,210
<OTHER-EXPENSES> 444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,373
<INCOME-PRETAX> 61,585
<INCOME-TAX> 24,560
<INCOME-CONTINUING> 37,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,025
<EPS-PRIMARY> .39<F1>
<EPS-DILUTED> .38<F1>
<FN>
<F1>As adjusted for the two-for-one stock split effective February 20, 1998.
Prior Financial Data Schedules have not been restated to reflect the stock
split.
</FN>
</TABLE>
