<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 December 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 February 9, 1999 there were 103,254,043 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
<PAGE> 2
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Index Page
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets, December 31, 1998
and September 30, 1998 (unaudited) 2
Consolidated Statements of Income for the three months
ended December 31, 1998 and 1997 (unaudited) 3
Consolidated Statements of Shareholders' Equity for the year ended
September 30, 1998 and the three months ended December 31, 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the three months ended
December 31, 1998 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 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 23
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27
SIGNATURES 28
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................ $ 21,750 $ 23,891
Accounts receivable (less allowance for doubtful
receivables of $6,158 and $5,693, respectively) ................................ 182,247 192,657
Inventories (note 2) ............................................................. 176,560 165,793
Deferred income taxes ............................................................ 25,478 30,305
Net assets held for sale (note 8) ................................................ 50,649 51,562
Prepaid expenses and other current assets ........................................ 18,679 17,429
----------- -----------
Total current assets ........................................................ 475,363 481,637
----------- -----------
Property, plant and equipment net of accumulated depreciation
of $192,318 and $178,048, respectively ......................................... 227,140 222,758
Intangible assets .................................................................. 854,815 817,058
Deferred income taxes .............................................................. 14,718 15,242
Other assets ....................................................................... 6,451 8,848
----------- -----------
Total assets ................................................................ $ 1,578,487 $ 1,545,543
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................. $ 45,233 $ 49,713
Current portion of long-term debt ................................................ 40,316 39,396
Income taxes payable ............................................................. 14,451 20,195
Accrued payroll and employee benefits ............................................ 31,427 39,950
Restructuring reserve (note 6) ................................................... 6,373 7,609
Reserve for discontinued operations .............................................. 3,574 12,201
Deferred income taxes ............................................................ 10,128 9,072
Other current liabilities ........................................................ 34,387 37,785
----------- -----------
Total current liabilities .................................................... 185,889 215,921
----------- -----------
Long-term debt ..................................................................... 828,347 790,089
Deferred income taxes .............................................................. 49,570 50,564
Other liabilities .................................................................. 12,863 13,912
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 103,155,459 and 102,902,496 shares, respectively ................ 1,032 1,029
Equity Rights, 50 rights at $1.09 per right ..................................... - -
Additional paid-in capital ....................................................... 237,731 234,069
Retained earnings ................................................................ 284,507 260,647
Cumulative foreign currency translation adjustment ............................... (21,452) (20,688)
Treasury common stock, 220 shares at cost ........................................ - -
----------- -----------
Total shareholders' equity .................................................. 501,818 475,057
----------- -----------
Total liabilities and shareholders' equity .................................. $ 1,578,487 $ 1,545,543
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 4
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Net sales ...................................................................... $ 248,330 $ 214,820
Cost of sales:
Cost of product sold ........................................................ 122,562 103,183
Depreciation of purchase accounting adjustments ............................. 167 165
--------- ---------
Total cost of sales ............................................................ 122,729 103,348
--------- ---------
Gross profit ................................................................... 125,601 111,472
Selling, general and administrative expenses ................................... 62,771 57,810
Merger, transaction and integration expenses (note 7) ......................... 2,691 -
Depreciation and amortization of purchase
accounting adjustments ........................................................ 7,260 6,077
--------- ---------
Operating income ............................................................... 52,879 47,585
--------- ---------
Other income (expense):
Interest expense ............................................................ (14,116) (13,275)
Amortization of deferred financing fees ..................................... (80) (53)
Other, net .................................................................. 242 (57)
--------- ---------
Income before income taxes and discontinued
operations .................................................................... 38,925 34,200
Income taxes ................................................................... 15,604 13,386
--------- ---------
Income from continuing operations .............................................. 23,321 20,814
Income from discontinued operations (net of income tax
of $385 and $780) (note 8) .................................................... 539 1,132
--------- ---------
Net income ..................................................................... $ 23,860 $ 21,946
========= =========
Basic earnings per common share from continuing
operations .................................................................... $ .23 $ .20
Discontinued operations ........................................................ -- .02
--------- ---------
Basic earnings per share ....................................................... $ .23 $ .22
========= =========
Diluted earnings per common share from continuing
operations .................................................................... $ .22 $ .20
Discontinued operations ........................................................ .01 .01
--------- ---------
Diluted earnings per common share .............................................. $ .23 $ .21
========= =========
</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, 1998
AND THE THREE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON EQUITY PAID-IN RETAINED
STOCK RIGHTS CAPITAL EARNINGS
--------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at September 30, 1997 ........................ $ 1,014 $ - $ 212,664 $ 189,965
Shares issued in connection
with the exercise of 1,445,760
stock options ........................................ 15 - 12,970 -
Conversion of 200 equity rights to 872
shares of common stock ............................... - - - (1)
Tax benefits related to stock options ................. - - 7,291 -
Dividends paid by "A" Company
prior to the merger ................................. - - 314 (479)
Dividends paid by Pinnacle Products of
Wisconsin prior to the merger ....................... - - - (4,682)
Shares issued related to a deferred
compensation plan of "A" Company .................... - - 830 -
Net income (Unaudited) ................................ - - - 75,844
Cumulative foreign currency
translation adjustment ............................... - - - -
--------- ----- --------- ---------
Balance at September 30, 1998 ......................... $ 1,029 $ - $ 234,069 $ 260,647
========= ===== ========= =========
Shares issued in connection
with the exercise of 252,963
stock options ........................................ 3 - 2,233 -
Tax benefits related to stock options ................. - - 1,429 -
Net income (Unaudited) ................................ - - - 23,860
Cumulative foreign currency
translation adjustment ............................... - - - -
--------- ----- --------- ---------
Balance at December 31, 1998 .......................... $ 1,032 $ - $ 237,731 $ 284,507
========= ===== ========= =========
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY TREASURY TOTAL
TRANSLATION COMMON SHAREHOLDERS'
ADJUSTMENT STOCK EQUITY
---------- -------- -------------
<S> <C> <C> <C>
Balance at September 30, 1997 ............................. $ (24,981) $ (1) $ 378,661
Shares issued in connection
with the exercise of 1,445,760
stock options ............................................. - - 12,985
Conversion of 200 equity rights to 872
shares of common stock .................................... - 1 -
Tax benefits related to stock options ...................... - - 7,291
Dividends paid by "A" Company
prior to the merger ...................................... - - (165)
Dividends paid by Pinnacle Products of
Wisconsin prior to the merger ............................ - - (4,682)
Shares issued related to a deferred
compensation plan of "A" Company ......................... - - 830
Net income (Unaudited) ..................................... - - 75,844
Cumulative foreign currency
translation adjustment .................................... 4,293 - 4,293
--------- --------- ---------
Balance at September 30, 1998 .............................. $ (20,688) $ - $ 475,057
========= ========= =========
Shares issued in connection
with the exercise of 252,963
stock options ............................................. - - 2,236
Tax benefits related to stock options ...................... - - 1,429
Net income (Unaudited) ..................................... - - 23,860
Cumulative foreign currency
translation adjustment .................................... (764) - (764)
--------- --------- ---------
Balance at December 31, 1998 ............................... $ (21,452) $ - $ 501,818
========= ========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 6
SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................................................. $ 23,860 $ 21,946
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ........................................................................... 8,542 7,488
Amortization ........................................................................... 7,292 6,104
Provision for losses on doubtful accounts .............................................. 294 (95)
Inventory provisions ................................................................... 313 (629)
Deferred income taxes .................................................................. (5,413) 92
Changes in assets and liabilities:
Decrease in accounts receivable ........................................................ 14,484 2,937
Increase in inventories ................................................................ (7,413) (8,419)
Decrease (increase) in prepaid expenses and other current assets ....................... 3,306 (5,587)
Increase (decrease) in accounts payable ................................................ (6,156) 635
Increase (decrease) in income taxes payable ............................................ (4,628) 2,751
Decrease in accrued payroll and employee benefits ...................................... (9,580) (6,334)
Decrease in reserve for discontinued operations ........................................ (8,627) -
Decrease in restructuring reserve ...................................................... (1,236) -
Increase in other current liabilities .................................................. 2,802 2,901
Net change in other assets and liabilities ............................................. 644 10,763
-------- --------
Net cash provided by operating activities .............................................. 18,484 34,553
Cash flows from investing activities:
Capital expenditures ................................................................... (6,007) (9,221)
Proceeds from sales of property, plant, and equipment .................................. 115 1,729
Net payments for businesses acquired ................................................... (54,059) (53,287)
-------- --------
Net cash used in investing activities ................................................. (59,951) (60,779)
Cash flows from financing activities:
Increase in the revolving credit facility ............................................... 48,000 40,400
Principal payments on long-term debt .................................................... (10,602) (9,608)
Proceeds from the exercise of common stock options ...................................... 2,236 2,870
Deferred financing fees ................................................................. (5) -
Other ................................................................................... 1,634 (3,580)
-------- --------
Net cash provided by financing activities .............................................. 41,263 30,082
Effect of exchange rate changes on cash .................................................. (1,937) (755)
Net increase (decrease) in cash and cash equivalents ..................................... (2,141) 3,101
Cash and cash equivalents at beginning of year ........................................... 23,891 18,003
-------- --------
Cash and cash equivalents at end of period ............................................... $ 21,750 $ 21,104
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ................................................ $ 15,019 $ 14,076
Cash paid during the period for income taxes ............................................ 14,446 6,924
Capital lease obligations incurred ...................................................... 145 165
</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 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 three month period ended December 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
Certain amounts from the three month period ended December 31, 1997, as
originally reported, have been reclassified to conform with the three month
period ended December 31, 1998 presentation.
All prior period data has been adjusted to reflect the results of LRS
Acquisition Corp. ("LRS"), the parent of "A" Company Orthodontics (`"A"
Company'), and Pinnacle Products of Wisconsin, Inc. ("Pinnacle"), which
merged with subsidiaries of the Company on April 9, 1998 and October 29,
1998, respectively. The results of LRS and Pinnacle, each of whose merger
was accounted for as a pooling of interests, were combined with the
Company's previously reported results as if the mergers occurred as of the
beginning of all reported periods.
In addition, all prior period data has been adjusted to reflect the
reclassification of the businesses of Nalge Process Technologies Group,
Inc. ("NPT") to discontinued operations. (See note 8)
2. Inventories at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Raw materials $ 53,577
Work-in-process 32,903
Finished goods 96,432
LIFO Reserve (6,352)
--------
$176,560
</TABLE>
3. Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130").
SFAS 130 requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of
income.
6
<PAGE> 8
Comprehensive income and the components of comprehensive income (loss) for
the three-month periods ended December 31, 1998 and 1997 are as follows:
(In thousands)
<TABLE>
<CAPTION>
Three months ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Net income $ 23,860 $21,946
Other comprehensive income (loss)
Foreign currency translation (764) (134)
-------- -------
Comprehensive income $ 23,096 $21,812
======== =======
</TABLE>
4. Acquisitions completed in the first quarter of fiscal 1999 are as follows:
(a) On October 2, 1998, a subsidiary of Sybron Laboratory Products
Corporation ("SLPC") purchased Invitro Scientific Products, Inc.
("IVSP"), which is located in St. Louis, Missouri and produces roller
bottles and packaging containers used in biological production
facilities to manufacture vaccines, pharmaceuticals, and other
reagents. IVSP's annual sales are approximately $5 million.
(b) On October 13, 1998, SLPC acquired the stock of Corning Samco
Corporation ("Samco"), which is located in San Fernando, California.
Samco is a leading manufacturer of disposable plastic products used to
store and transfer small amounts of liquids in the laboratory. The two
major products are transfer pipettes and specimen containers. Samco
had net sales of approximately $23 million in calendar year 1997.
(c) On October 29, 1998, Sybron completed the merger of Pinnacle Products
of Wisconsin, Inc. ("Pinnacle") and a subsidiary of Sybron formed for
that purpose (the "Pinnacle Merger") and a related purchase of real
estate used in Pinnacle's operations. Pinnacle is a manufacturer of
dental disposal infection control products with annual sales of
approximately $12 million.
Under the terms of the merger agreement and the related real estate
purchase agreement the Pinnacle shareholder and the owners of the
purchased real estate received 1,897,418 shares of the Company's
common stock (valued at approximately $46.0 million based on the
Company's closing price on October 29, 1998) for all of the
outstanding shares of Pinnacle 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 has been restated to include the
financial results of Pinnacle.
7
<PAGE> 9
Results of the Company and Pinnacle before and after giving effect to
the Pinnacle Merger are as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
December 31, 1998 December 31, 1997
----------------- -----------------
(Unaudited)
(In thousands)
<S> <C> <C>
Total net sales:
The Company $244,802 $211,801
Pinnacle 3,528 3,019
-------- --------
The Company, giving effect to the merger $248,330 $214,820
======== ========
Net income:
The Company $ 22,719 $ 21,204
Pinnacle (i) 1,141 742
-------- -------
The Company, giving effect to the merger $ 23,860 $ 21,946
======== ========
- --------------------
</TABLE>
(i) Prior to the merger, Pinnacle was an S corporation and,
therefore, income tax expense was not reflected in its historical net
income. A Pro forma adjustment to net income of $0.5 million is
reflected in the three month period ended December 31, 1997.
(d) On November 2, 1998, a subsidiary of SLPC purchased certain assets of
the Pacofin Intersep Filtration Products business from Pacofin Ltd.
The business, located in Wokingham, England and to be consolidated
with Nalge Nunc International operations, produces ultra filtration
products. Intersep's annual sales are approximately $0.9 million.
Acquisitions completed after the first quarter of fiscal 1999 are as
follows:
(a) On January 5, 1999, a subsidiary of SLPC acquired the assets of
Scientific Resources, Inc. ("SRI"), a producer and distributor of
chromatography supplies located in Eatontown, New Jersey. SRI's
principal products are vials, caps and septa, and disposable products
used mainly in gas chromatography and high pressure liquid
chromatography applications. SRI sells mainly to analytical chemistry
laboratories in the pharmaceutical, environmental, chemical, food,
forensic, academic and energy industries. Annual sales are
approximately $4.5 million.
(b) On January 6, 1999, a subsidiary of SLPC acquired certain operating
assets of Rascher & Betzold, Inc., a manufacturer of high
precision-grade hydrometers, thermometers and scientific glassware
located in Chicago, Illinois. Annual sales are approximately $0.1
million.
8
<PAGE> 10
(c) On January 6, 1999, a subsidiary of SLPC acquired the assets of
Laboratory Devices, Inc. ("LDI"), a manufacturer of melting point
apparatus and other constant temperature laboratory equipment. LDI's
annual sales are approximately $1.0 million.
(d) On January 7, 1999, a subsidiary of SLPC acquired the HistoScreen(R)
and HistoGel(TM) product lines of Perk Scientific. These products,
with annual sales of approximately $1.0 million, are used for handling
small tissue specimens during histology processing.
(e) On January 22, 1999, SLPC acquired Molecular BioProducts, Inc.
("MBP"), located in San Diego, California. MBP is one of the leading
manufacturers of disposable liquid handling products used in molecular
biology and life science markets. MBP's annual sales are approximately
$19.0 million.
(f) On February 3, 1999, a subsidiary of SLPC acquired Stahmer, Weston &
Co., Inc. ("Stahmer Weston") located in Portsmouth, New Hampshire.
Stahmer Weston produces a line of hand care products for health care
workers and a line of specimen container products. Annual sales are
approximately $3.0 million.
All of the acquisitions, except for the merger with Pinnacle, were made for
cash and are being accounted for as purchases with the results of the
acquired entity being included in the Company's financial statements from
the date of the acquisition.
5. On January 30, 1998 the Company 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.
6. In June 1998, the Company recorded a restructuring charge of $24.0 million
($16.7 million after tax or $.16 per share on a diluted basis) for the
rationalization of certain acquired companies, combination of certain
production facilities, movement of certain customer service and marketing
functions, and the exiting of several product lines. The restructuring
charge has been classified as components of cost of sales ($6.4 million),
selling, general and administrative expenses ($16.9 million) and income tax
expense ($0.7 million). Principal items included in the reserve were
severance and termination costs for approximately 165 notified employees
(primarily production, sales and marketing personnel) (approximately $8.4
million), the non-cash write-off of certain fixed assets and inventory
associated with exited product lines (approximately $8.7 million), the non
cash write-off of goodwill associated with discontinued product lines
(approximately $2.1 million), remaining lease payments and shut down costs
on exited facilities and other contractual obligations (approximately $2.0
million), a statutory tax penalty (approximately $0.7 million), and other
related restructuring costs (approximately $2.1 million). As of December
31, 1998, the Company has made cash payments of approximately $5.9 million
and has written off approximately $11.4 million of fixed assets, inventory,
goodwill and other miscellaneous items relating to the restructuring
reserve. Because the operations of NPT were reclassified into discontinued
operations, in December 1998, approximately $0.4 million of the
restructuring reserve (the portion associated with NPT) was
9
<PAGE> 11
reclassified to discontinued operations. The remaining amount of
approximately $6.3 million relates to obligations the majority of which
will be paid in the next nine months. Remaining obligations at December 31,
1998 include approximately $4.0 million of severance and termination costs
to notified employees, approximately $0.7 million for a statutory tax
penalty, approximately $0.5 million for contractual obligations,
approximately $0.6 million for statutory obligations and $0.5 million for
other related restructuring costs.
7. In the quarter ended December 31, 1998, the Company incurred approximately
$2.7 million ($1.6 million after tax or $.02 per share on a diluted basis)
of costs associated with the Pinnacle Merger and the integration of "A"
Company, a subsidiary of LRS. Approximately $2.0 million of these charges
were related to the Pinnacle Merger and were adjustments to the
consideration paid. The remaining $0.7 million related to ongoing merger
and integration expenses associated with the LRS Merger. The Company
expects to incur an estimated additional $0.6 million before taxes in both
the second and third quarters of fiscal 1999.
8. On January 22, 1999, Sybron announced plans to conclude negotiations to
sell NPT, and on February 10, 1999, announced Nalge Nunc International
Corporation had signed an agreement to sell NPT to Norton Performance
Plastics Corporation. Completion of the sale is subject to obtaining
necessary governmental approvals. As set forth in footnote 1 above, all
prior period data has been adjusted to reflect the reclassification of NPT
to discontinued operations.
Sales from NPT were $ 10.3 million and $ 12.8 million in the quarters ended
December 31, 1998 and 1997, respectively. Certain expenses have been
allocated to discontinued operations including interest expense which was
allocated based upon the historical purchase prices and cash flows of the
companies comprising NPT.
The components of net assets of discontinued operations included in the
Consolidated Balance Sheets at September 30 and December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Cash $ 341 $ 317
Net account receivables 8,402 8,977
Net inventories 10,250 10,152
Other current assets 233 158
Intangible assets 33,377 33,607
Property plant and equipment - net 3,013 2,930
Current portion of long term debt (29) (25)
Accounts payable (2,619) (2,339)
Accrued liabilities (1,017) (1,012)
Deferred income taxes- net (1,298) (1,195)
Long term debt (4) (8)
-------- --------
$ 50,649 $ 51,562
======== =========
</TABLE>
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The subsidiaries of the Company are leading manufacturers of
value-added products for the laboratory and professional dental and orthodontic
markets in the United States and abroad. The laboratory businesses are grouped
under Sybron Laboratory Products Corporation ("SLPC"), and the dental and
orthodontic businesses are grouped under Sybron Dental Specialties, Inc.
("SDS"). Their major product categories and their primary subsidiaries in each
category are as follows:
SLPC
Labware and Life Sciences Diagnostics and Microbiology
Nalge Nunc International Corporation Applied Biotech, Inc.
National Scientific Company CASCO-NERL Diagnostics Corporation
Nunc A/S Diagnostic Reagents, Inc.
Nalge (Europe), Ltd. Alexon-Trend, Inc.
Molecular BioProducts, Inc. Remel Inc.
Clinical and Industrial Technologies Laboratory Equipment
Erie Scientific Company Barnstead Thermolyne Corporation
Chase Scientific Glass, Inc. Lab-Line Instruments, Inc.
The Naugatuck Glass Company
Richard-Allan Scientific Company
Samco Scientific Corporation
Gerhard Menzel Glasbearbeitungswerk
GmbH & Co. K.G.
SDS
Professional Dental Orthodontics
Kerr Corporation Ormco Corporation
Beavers Dental Company Pinnacle Products, Inc
Metrex Research Corporation Allesee Orthodontic Appliances, Inc.
Over the past several years the Company has been pursuing a growth
strategy designed to increase sales and enhance operating margins. Elements of
that strategy include emphasis on acquisitions, product line extensions, new
product introductions and international growth.
11
<PAGE> 13
When we use the terms "we" or "our" in this report, we are referring to
Sybron International Corporation and its subsidiaries. Our fiscal year ends on
September 30.
Our results for the first quarter of fiscal 1999 contain charges
relating to integration charges associated with the merger with LRS Acquisition
Corp. ("LRS") (the "LRS Merger"), the parent of "A" Company, and transaction
costs associated with the merger with Pinnacle Products of Wisconsin, Inc.
("Pinnacle") (the "Pinnacle Merger"). In addition, because the LRS and Pinnacle
Mergers are each accounted for as a pooling of interests, all prior period data
have been adjusted to reflect the historical results of LRS, "A" Company and
Pinnacle as if the Mergers took place on the first day of the reporting period.
In addition, as a result of management's decision to sell Nalge Process
Technologies Group, Inc. ("NPT"), historical financial data relating to NPT have
been reclassified to discontinued operations.
All results referred to below include the adjustments to the historical
results for the pooling of interest transactions and the discontinued operation,
unless otherwise specifically noted.
Both our sales and operating income for the quarter ended December 31,
1998 grew over the corresponding prior year period. Net sales for the quarter
ended December 31, 1998 increased by 15.6% over the corresponding fiscal 1998
period. Operating income for the quarter before merger, transaction and
integration related expenses increased by 16.8% over the corresponding fiscal
1998 period.
Sales growth in the quarter ended December 31, 1998 was strong both
domestically and internationally. Domestic and international sales increased by
17.0% and by 12.7%, respectively, over the corresponding fiscal 1998 period.
Acquisitions aided sales growth significantly during the quarter
accounting for $24.0 million and $8.9 million of the domestic and international
sales increase, respectively. This quarter showed internal growth of 4.1% prior
to adjustments for the pooling of interest transactions.
We continue to maintain an active program of developing and marketing
new products and product line extensions, as well as pursuing growth through
acquisitions. We completed four acquisitions in the first quarter of fiscal 1999
and six in the second fiscal quarter through February 3, 1999. (See Note 4 to
the Unaudited Consolidated Financial Statements.)
Our results of operations include goodwill amortization, other
amortization, and depreciation. These non-cash charges totaled $15.8 million and
$13.6 million for the quarters ended December 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 $71.6 million and $61.1 million for the quarters ended
December 31, 1998 and 1997, respectively. EBITDA represents, for any relevant
period, net income from continuing operations plus (i) interest expense, (ii)
provision for income taxes, (iii) acquisition related expenses and (iv)
depreciation and amortization, all determined on a consolidated basis and in
accordance with generally accepted accounting principles.
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<PAGE> 14
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. Two of these options were sold in the third quarter
of fiscal 1998 for $0.4 million. The remaining options expired worthless in the
fourth quarter of 1998. These options were designed to protect the Company from
potential detrimental effects of currency movements associated with the U.S.
dollar versus the German mark and the French franc as compared to the third and
fourth quarters of 1997. In October 1998, we again decided to employ a series of
foreign currency options with a U.S. dollar notional amount of approximately
$45.7 million at a cost of approximately $0.3 million. These options are
designed to protect the Company from potential detrimental effects of currency
movements associated with the U.S. dollar versus the German mark, French franc,
Swiss franc, and Japanese yen in the second, third and fourth quarters of fiscal
1999.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1998 COMPARED TO THE QUARTER ENDED DECEMBER 31, 1997
NET SALES. Net sales for the three months ended December 31, 1998 were
$248.3 million, an increase of $33.5 million (15.6%) from net sales of $214.8
million for the corresponding three months ended December 31, 1997. Sales in the
laboratory segment were $156.4 million for the three months ended December 31,
1998, an increase of 25.9% from the corresponding 1998 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 $27.9
million), (ii) price increases (approximately $1.7 million), (iii) increased
volume from sales of existing products (approximately $1.6 million), (iv)
increased volume from sales of new products (approximately $1.1 million) and (v)
favorable foreign currency impacts (approximately $0.8 million). Increased sales
in the laboratory segment were partially offset by an unfavorable product mix
(approximately $0.8 million). In the dental segment, net sales were $91.9
million for the three months ended December 31, 1998, an increase of 1.5% from
the corresponding fiscal 1998 period. Increased sales in the dental segment
resulted primarily from (i) sales of products of acquired companies, net of
discontinued product lines (approximately $3.3 million) and (ii) increased
volume from
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<PAGE> 15
sales of new products (approximately $0.4 million). Increased sales in the
dental segment were partially offset by reduced volume from sales of existing
products (approximately $2.3 million).
GROSS PROFIT. Gross profit for the three months ended December 31, 1998
was $125.6 million, an increase of 12.7% from gross profit of $111.5 million for
the corresponding fiscal 1998 period. Gross profit in the laboratory segment was
$73.6 million (47.1% of net segment sales), an increase of 24.8% from gross
profit of $59.0 million (47.5% of net segment sales) during the corresponding
fiscal 1998 period. Gross profit in the laboratory segment increased primarily
as a result of (i) the effects of acquired companies (approximately $12.9
million), (ii) price increases (approximately $1.7 million) and (iii) increased
volume (approximately $1.3 million). Increased gross profit in the laboratory
segment was partially offset by (i) increased manufacturing overhead
(approximately $0.9 million) and (ii) an unfavorable product mix (approximately
$0.5 million). In the dental segment, gross profit was $52.0 million (56.5% of
net segment sales) for the three months ended December 31, 1998, a decrease of
1.0% from gross profit of $52.5 million (57.9% of net segment sales) during the
corresponding fiscal 1998 period. The changes in gross profit in the dental
segment resulted primarily from (i) the effects of acquired companies
(approximately $1.6 million), (ii) decreased manufacturing overhead
(approximately $1.2 million) and (iii) an improved product mix (approximately
$0.3 million). Increased gross profit was offset by (i) inventory adjustments
(approximately $2.2 million), (ii) reduced volume (approximately $1.1 million)
and (iii) unfavorable foreign currency impacts (approximately $0.3 million).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses prior to merger, transaction and integration expenses
for the three months ended December 31, 1998 were $70.0 million (28.2% of net
sales) as compared to $63.9 million (29.7% of net sales) in the corresponding
fiscal 1998 period. General and administrative expenses at the corporate level,
including amortization of purchase accounting adjustments and goodwill
associated with acquisitions, were $5.7 million, representing an increase of
8.6% from $5.2 million in the corresponding fiscal 1998 period. The increase at
the corporate level was primarily due to increased professional service
expenses. Selling, general and administrative expenses at the subsidiary level,
including amortization of intangibles, were $64.4 million (25.9% of net sales),
representing an increase of 9.7% from $58.7 million (27.3% of net sales) in the
corresponding fiscal 1998 period. Increases at the subsidiary level were
primarily due to (i) expenses related to newly acquired businesses
(approximately $5.3 million), (ii) increased general and administrative expenses
(approximately $1.2 million), (iii) increased amortization of intangible assets
related to acquired businesses (approximately $1.2 million) and (iv) increased
research and development expenditures (approximately $0.4 million), partially
offset by (i) a reduction in marketing expense (approximately $1.9 million) and
(ii) favorable foreign currency impacts (approximately $0.5 million).
MERGER, TRANSACTION AND INTEGRATION EXPENSES. During the first quarter
of fiscal 1999, the Company incurred merger, transaction and integration
expenses of approximately $2.7 million. These charges consisted of transaction
expenses associated with the Pinnacle Merger (approximately $2.1 million) and
ongoing integration costs associated with the LRS Merger (approximately $0.6
million). The Company expects to incur an additional $0.6 million in each of the
second and third quarters of fiscal 1999 related to integration expenses
associated with the LRS Merger.
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<PAGE> 16
OPERATING INCOME. Operating income before merger, transaction and
integration expenses was $55.6 million (22.4% of net sales) for the three months
ended December 31, 1998 compared to $47.6 million (22.2% of net sales) in the
corresponding fiscal 1998 period. Operating income in the laboratory segment was
$34.9 million (22.3% of net segment sales) compared to $27.7 million (22.3% of
net segment sales) in the corresponding fiscal 1998 period. Operating income in
the dental segment was $20.6 million (22.4% of net segment sales) compared to
$19.9 million (21.9% of net segment sales) in the corresponding fiscal 1998
period.
INTEREST EXPENSE. Interest expense was $14.1 million for the three
months ended December 31, 1998 compared to $13.3 million in the corresponding
fiscal 1998 period. This increase resulted from a higher debt balance primarily
from our acquisition activity. Interest expense for the three months ended
December 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 $2.2 million when compared to
the fiscal 1998 period primarily as a result of increased earnings.
NET INCOME FROM CONTINUING OPERATIONS. As a result of the foregoing, we
had net income of $23.3 million for the three months ended December 31, 1998
compared to $20.8 million in the corresponding fiscal 1998 period.
DISCONTINUED OPERATIONS. On January 22, 1999, Sybron announced plans to
conclude negotiations to sell NPT, and on February 10, 1999, announced Nalge
Nunc International Corporation had signed an agreement to sell NPT to Norton
Performance Plastics Corporation. Completion of the sale is subject to obtaining
necessary governmental approvals. As a result of this action, the operations of
NPT have been classified as a discontinued operation and the results have been
reclassified in the financial statements as if NPT had been discontinued on the
first day of the reporting periods. Income from discontinued operations was $0.5
million for the first quarter of fiscal 1999, a decrease of $0.6 million from
the corresponding fiscal 1998 quarter. Based upon the December 31, 1998 balance
sheet of NPT, it is expected that upon consummation of the sale of NPT,
approximately $50.6 million of net assets related to NPT will be removed from
the Company's balance sheet. Proceeds from the sale will be applied to
outstanding debt. In addition, upon consummation of the transaction the Company
expects to report a gain on the sale of NPT in the consolidated statement of
income.
NET INCOME. As a result of the foregoing, we had net income of $23.9
million for the three months ended December 31, 1998 compared to $21.9 million
in the corresponding fiscal 1998 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 $2.2 million when
compared to the prior year three month period. This increase was primarily due
to the amortization of intangible assets and depreciation of property, plant and
equipment related to acquired companies.
LIQUIDITY AND CAPITAL RESOURCES
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<PAGE> 17
As a result of a 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. After
restatement for the LRS and Pinnacle Mergers, goodwill and intangible assets
increased by approximately $45.0 million in the first quarter of fiscal 1999,
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, payments to be made in
connection with our June 1998 restructuring, and the periodic expansion of
physical facilities. It is currently our intent to pursue our acquisition
strategy. If acquisitions continue at our historical pace, of which there can be
no assurance, we may require financing beyond the capacity of our Credit
Facilities (as defined below). In addition, certain acquisitions previously
completed contain "earnout provisions" requiring further payments in the future
if certain financial results are achieved by the acquired companies. With
respect to the restructuring charge of approximately $24.0 million which was
recorded in June, 1998, of which approximately $12.6 million represents cash
expenditures, as of December 31, 1998, we have made cash payments of
approximately $5.9 million and reclassified approximately $0.4 million to
discontinued operations. Approximately $6.4 million remains to be paid over the
next twelve months.
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 credit agreement (as amended, 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 option
for us in setting interest rates. On April 25, 1997, we entered into the Second
Amended and Restated Credit Agreement (the "Second Amendment"). The Second
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<PAGE> 18
Amendment was 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 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 borrowings (as defined below) remained in
place. On July 1, 1998, we completed the First Amendment to the Second Amended
Credit Agreement (the "Additional Amendment"). The Additional Amendment provided
for an increase in the Term Loan Facility of $100 million. On July 1, 1998, we
used the $100 million of proceeds from the Additional Amendment to pay $100
million of existing debt balances under the Revolving Credit Facility. The
Additional Amendment also provides us with the ability to use proceeds from the
issuance of additional unsecured indebtedness of up to $300 million to pay
amounts outstanding under the Revolving Credit Facility without reducing our
ability to borrow under the Revolving Credit Facility in the future.
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 Consolidated Adjusted Operating Profit (as defined), 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) in the first quarter of
fiscal 1999 was 6.4% and the average interest rate on the Revolving Credit
Facility in the first quarter of fiscal 1999 was 6.1%.
As a result of the terms of the Credit Agreement, 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
December 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 first quarter of fiscal 1999, the LIBOR
Margin was .75%. The swap agreement rates and durations are as follows:
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SWAP AGREEMENT SWAP AGREEMENT
EXPIRATION DATE NOTIONAL AMOUNT DATE RATE
- --------------- --------------- ---- ----
August 13, 1999 $50 million August 13, 1993 5.540%
June 8, 2002 $50 million December 8, 1995 5.500%
February 7, 2001 $50 million August 7, 1997 5.910%
August 7, 2001 $50 million August 7, 1997 5.897%
September 10, 2001 $50 million December 8, 1995 5.623%
July 31, 2002 $75 million May 7, 1997 6.385%
July 31, 2002 $50 million October 23, 1998 4.733%
Also as part of the permanent financing for the Acquisition, on
December 22, 1988, we entered into the sale and leaseback of what were our
principal domestic facilities at that time (the "Sale/Leaseback"). In January
1999, the annual obligation under the Sale/Leaseback increased from $3.3 million
to $3.6 million, payable monthly. On the fifth anniversary of the leases and
every five years thereafter (including renewal terms), the rent will be
increased by the percentage equal to 75% of the percentage increase in the
Consumer Price Index over the preceding five years. The percentage increase to
the rent in any five-year period is capped at 15%. The next adjustment will
occur on January 1, 2004.
We intend to fund our acquisitions, working capital requirements,
capital expenditure requirements, principal and interest payments, obligations
under the Sale/Leaseback, restructuring expenditures, other liabilities and
periodic expansion of facilities, to the extent available, with funds provided
by operations and short-term borrowings under the Revolving Credit Facility. To
the extent that funds are not available from those sources, particularly with
respect to our acquisition strategy, we 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 December 31, 1998,
there was approximately $104.4 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 fiscal 1997, $35.0 million due in fiscal 1998 and $8.75 million
of the $36.25 million due in fiscal 1999. Remaining annual payments for fiscal
years 1999-2002 are due as follows: $27.5 million, $42.5 million, $53.75 million
and $223.75 million. When NPT is sold, the net proceeds of the sale will be used
to retire debt outstanding under the Term Loan Facility. Upon receipt, up to $60
million of net sale proceeds will be used to repay the most current principal
amounts due under the Term Loan Facility. Any additional net sale proceeds will
be applied equally to the first remaining (after application of the $60 million
referred to above) and the last principal payments due under the Term Loan
Facility.
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
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<PAGE> 20
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.
YEAR 2000
Historically, certain computer programs were written using two digits
rather than four to identify the applicable year. Accordingly, software used by
the Company and others with whom it does business may be unable to interpret
dates in the calendar year 2000. This situation, commonly referred to as the
Year 2000 ("Y2K") issue, could result in computer failures or miscalculations,
causing disruption of normal business activities. The Y2K issue could arise at
any point in our supply, manufacturing, distribution, administration,
information, accounting and financial systems. Incomplete or untimely resolution
of the Y2K issue by the Company, key suppliers, customers and other parties,
could have a material adverse effect on the Company's results of operations,
financial condition and cash flow.
We are addressing the Y2K issue with a corporate-wide initiative sponsored
by Sybron's Vice President-Finance and Chief Financial Officer and its Vice
President-General Counsel and Secretary, and led at the subsidiary level by the
Executive Vice President and Chief Financial officer at SLPC and the Vice
President and Chief Information Officer at SDS. The four main phases of the
initiative include (1) identification of affected mission critical software
utilized by both information and non-information technology systems, (2)
assessment of the risk associated with such affected software and development of
a plan for modifying or replacing the software, (3) implementation of solutions
under the plan, and (4) testing of the solutions. The initiative also includes
communication with our significant suppliers, vendors and customers to determine
the extent to which we are vulnerable to any failures by them to address the Y2K
issue. The program contemplates the development of contingency plans where
needed to deal with Company systems and third party issues.
We have completed approximately 95% of the identification, risk-assessment
and plan development phases of our initiative with respect to our internal
systems. We recognize that because of the nature of the Year 2000 problem, work
in these areas will continue until the Year 2000. Our work in these phases has
included both information technology ("IT") and non-information technology,
("non-IT") systems. The IT systems include accounting, financial, budgeting,
invoicing and other business systems. Non-IT systems include manufacturing
production lines and equipment, elevators, heating, ventilation and air
conditioning systems, and telephone systems.
We are approximately 80% along in our implementation phase. In most cases,
we are upgrading existing software to versions which are Y2K compliant. In other
cases entire software platforms are being replaced with more current, compliant
systems, internally developed software is being reprogrammed, and hardware is
being replaced.
The testing phase has begun and will be ongoing as systems are remediated
or replaced. We have completed approximately 65-70% of the testing required for
systems that have been remediated or replaced to date. Our efforts in this phase
include testing by end users and determination by appropriate
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<PAGE> 21
local Y2K project managers that the remediated or replaced systems are Y2K
compliant. In those cases where testing cannot be conducted by Company
personnel, as in the case of certain imbedded logic components, we rely on
vendor certifications.
The Company and each of its subsidiaries have project schedules which
include the task of corresponding with critical vendors, customers, suppliers
and other third parties to inquire about their Y2K readiness. The Company, and
most of its subsidiaries, are well along in this process. Although responses to
date indicate that some third parties probably will not be Y2K compliant, no
material issues in this regard have been identified. However, it is too early in
this process to complete our assessment of the third party risk.
Our Year 2000 initiative contemplates the development of contingency plans
as we test our software solutions and complete our risk assessments with respect
to third parties. Our contingency plans are in development and we have not
completed a comprehensive analysis of the operational problems and costs
(including loss of revenue) that would be reasonably likely to result from the
failure by the Company or critical third parties to achieve Y2K compliance on a
timely basis. A contingency plan has not yet been developed for dealing with our
most reasonably likely worst case scenarios, and such scenarios have not yet
been clearly identified. However, based on the information we have to date we
believe the most reasonably likely worst case scenarios for our businesses would
be the failure of an important supplier to be able to deliver required
materials, parts or products, or the failure of a significant distributor to be
able to get the Company's products to customers. We contemplate the development
of contingency plans to deal with these potential problems as they are
identified. For example, if it appears that a critical vendor will not be Y2K
compliant, we may establish alternative sourcing, build inventory, or identify a
substitute product or material. If a critical distributor appears it will not be
Y2K compliant, we will have to develop plans for alternate distribution.
Our goal continues to be to substantially complete all phases of our
initiative by March 31, 1999 with respect to our core businesses, including the
development of plans for contingencies identified by then. We expect the need to
implement any contingency plan will occur, if at all, after March 1999. We also
expect to have to continue to develop contingency plans for Y2K issues arising
after that time. For example, our March 1999 goal for core businesses does not
encompass recently acquired businesses or businesses we acquire in the future
pursuant to our acquisition program. Separate and appropriate goals will be set
for acquired businesses as acquisitions are completed.
The historical and estimated future costs to the Company of Y2K compliance
are contained in the following table. The primary components of the reported
costs are external consulting and hardware and software upgrades. We do not
separately track internal costs of the Y2K initiative. Internal costs are
principally payroll costs of employees involved in the initiative. Also, the
reported costs do not include costs related to manufacturing equipment for SDS
because, although SDS has identified the equipment that may require remediation,
the cost of such remediation has not yet been determined. Our Year 2000
remediation efforts are funded from the Company's cash flow and from borrowings
under the Revolving Credit Facility. The Company has not deferred any
significant information technology projects due to its Year 2000 efforts.
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<TABLE>
<CAPTION>
Fiscal
Year 2000 Fiscal 1999
(in thousands) 1998 1st Qtr. Last 9 months (est.)
-------------- ---- -------- --------------------
<S> <C> <C> <C>
Capital Costs............................... $1,657 $138 $ 968
Expenses.................................... 914 98 322
------ ---- ------
Total....................................... $2,571 $236 $1,290
====== ==== ======
</TABLE>
The foregoing statements about our goals for substantial completion of
our Y2K initiative with respect to our core businesses, and the foregoing
estimates of our Y2K costs are forward looking statements. These statements and
estimates are based upon management's best estimates, which were derived using
numerous assumptions regarding future events, including the continued
availability of certain resources, third-party remediation plans, and other
factors. There can be no assurance that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in Y2K issues, the ability to identify, assess, remediate and test all relevant
computer codes and embedded technology, the indirect impact of third parties
with whom we do business and who do not mitigate their Y2K compliance problems,
and similar uncertainties.
EUROPEAN ECONOMIC MONETARY UNIT
On January 1, 1999, eleven of the European Union countries (including four
countries in which we have operations) adopted the Euro as their single
currency. At that time, a fixed exchange rate was established between the Euro
and the individual countries' existing currencies (the "legacy currencies"). The
Euro trades on currency exchanges and is available for non-cash transactions.
Following the introduction of the Euro, the legacy currencies will remain legal
tender in the participating countries during a transition period from January 1,
1999 through January 1, 2002. Beginning on January 1, 2002, the European Central
Bank will issue Euro-denominated bills and coins for use in cash transactions.
On or before July 1, 2002, the participating countries will withdraw all legacy
bills and coins and use the Euro as their legal currency.
Our operating units located in European countries affected by the Euro
conversion intend to keep their books in their respective legacy currencies
through a portion of the transition period. At this time, we do not expect
reasonably foreseeable consequences of the Euro conversion to have a material
adverse effect on our business operations or financial condition.
CAUTIONARY FACTORS
This report contains various forward-looking statements concerning our
prospects that are based on the current expectations and beliefs of management.
Forward-looking statements may also be made by us from time to time in other
reports and documents as well as oral presentations. When used in written
documents or oral statements, the words "anticipate", "believe", "estimate",
"expect", "objective" and similar expressions are intended to identify
forward-looking statements. The statements contained herein and such future
statements involve or may involve certain assumptions, risks and uncertainties,
many of which are beyond our control, that could cause our actual results and
performance to differ materially
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<PAGE> 23
from what is expected. In addition to the assumptions and other factors
referenced specifically in connection with such statements, the following
factors could impact our business and financial prospects:
- Factors affecting our international operations, including relevant
foreign currency exchange rates, which can affect the cost to produce
our products or the ability to sell our products in foreign markets,
and the value in U.S. dollars of sales made in foreign currencies.
Other factors include our ability to obtain effective hedges against
fluctuations in currency exchange rates; foreign trade, monetary and
fiscal policies; laws, regulations and other activities of foreign
governments, agencies and similar organizations; and risks associated
with having major manufacturing facilities located in countries, such
as Mexico, Hungary and Italy, which have historically been less stable
than the United States in several respects, including fiscal and
political stability; and risks associated with the recent economic
downturn in Japan, Russia, other Asian countries and Latin America.
- 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.
- 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
22
<PAGE> 24
regulations, reclassification of our products into categories subject
to more stringent requirements, or the withdrawal of the approval
needed to sell one or more of our products.
- Factors affecting the economy generally, including a rise in interest
rates, the financial and business conditions of our customers and the
demand for customers' products and services that utilize Company
products.
- Factors relating to the impact of changing public and private health
care budgets which could affect demand for or pricing of our products.
- Factors affecting our financial performance or condition, including
tax legislation, unanticipated restrictions on our ability to transfer
funds from our subsidiaries and changes in applicable accounting
principles or environmental laws and regulations.
- The cost and other effects of claims involving our products and other
legal and administrative proceedings, including the expense of
investigating, litigating and settling any claims.
- Factors affecting our ability to produce products on a competitive
basis, including the availability of raw materials at reasonable
prices.
- Unanticipated technological developments that result in competitive
disadvantages and create the potential for impairment of our existing
assets.
- 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, and
unforeseen consequences of the Year 2000 problem.
- Factors affecting our operations in European countries related to the
conversion from local legacy currencies to the Euro.
- Other business and investment considerations that may be disclosed
from time to time in our Securities and Exchange Commission filings or
in other publicly available written documents.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
RISK MANAGEMENT
We are exposed to market risk from changes in foreign currency exchange
rates and interest rates. To reduce our risk from these foreign currency rate
and interest rate fluctuations, we
23
<PAGE> 25
occasionally enter into various hedging transactions. We do not anticipate
material changes to our primary market risks other than fluctuations in
magnitude from increased or decreased foreign currency denominated business
activity or floating rate debt levels. We do not use financial instruments for
trading purposes and are not a party to any leveraged derivatives.
FOREIGN EXCHANGE
We have, from time to time, used foreign currency options to hedge our
exposure from adverse changes in foreign currency rates. Our foreign currency
exposure exists primarily in the French Franc, German Mark, Swiss Franc and the
Japanese Yen values versus the U.S. dollar. Hedging is accomplished by the use
of foreign currency options, and the gain or loss on these options is used to
offset gains or losses in the foreign currencies to which they pertain. Hedges
of anticipated transactions are accomplished with options that expire on or near
the maturity date of the anticipated transactions. In October, 1998 we entered
into twelve foreign currency options to hedge our exposure to each of the
aforementioned currencies. These options have a notional value of $45.7 million
and were purchased at a cost of $0.3 million which, at December 31, 1998,
approximates fair market value. These options are designed to protect us from
potential detrimental effects of a strengthening U.S. dollar in our second,
third and fourth quarters of fiscal 1999.
In fiscal 1999, we expect our exposure from our primary foreign
currencies to approximate the following:
<TABLE>
<CAPTION>
ESTIMATED
EXPOSURE DENOMINATED ESTIMATED
IN THE RESPECTIVE EXPOSURE
CURRENCY FOREIGN CURRENCY IN U.S. DOLLARS
- -------- ---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
French Franc (FRF) 157,453 FRF $25,712
German Mark (DEM) 26,450 DEM $14,171
Swiss Franc (CHF) 19,396 CHF $12,887
Japanese Yen (JPY) 886,358 JPY $ 6,754
</TABLE>
As a result of these anticipated exposures, we have entered into a
series of options expiring at the end of the second, third and fourth quarters
of fiscal 1999 to protect ourselves from possible detrimental effects of foreign
currency fluctuations as compared to the second, third and fourth quarters of
1998. We accomplished this by taking approximately one-fourth of the exposure in
each of the foreign currencies listed above and purchasing a put option on that
currency (giving us the right but not the obligation to sell the foreign
currency at a predetermined rate). We purchase put options on the foreign
currencies at amounts approximately equal to our quarterly exposure. These
options expire on a quarterly basis, at an exchange rate approximately equal to
the prior year's corresponding quarter's actual exchange rate. In October 1998,
we acquired the following put options:
24
<PAGE> 26
<TABLE>
<CAPTION>
NOTIONAL OPTION STRIKE
CURRENCY AMOUNT(a) EXPIRATION DATE PRICE PRICE(b)
- -------- --------- --------------- ----- --------
(IN THOUSANDS, EXCEPT STRIKE PRICES)
<S> <C> <C> <C> <C>
FRF 40,000 March 26, 1999 $22 6.00
FRF 40,000 June 28, 1999 $40 6.00
FRF 40,000 September 28, 1999 $69 5.95
DEM 6,500 March 26, 1999 $ 9 1.80
DEM 6,500 June 28, 1999 $17 1.80
DEM 6,500 September 28, 1999 $24 1.80
CHF 4,800 March 26, 1999 $11 1.46
CHF 4,800 June 28, 1999 $12 1.49
CHF 4,800 September 28, 1999 $21 1.48
JPY 220,000 March 30, 1999 $39 128.00
JPY 220,000 June 30, 1999 $28 134.00
JPY 220,000 September 30, 1999 $21 140.00
</TABLE>
- -------------
(a) Amounts expressed in units of foreign currency
(b) Amounts expressed in foreign currency per U.S. dollar
Our exposure in terms of these options is limited to the purchase
price. As an example, using the French Franc contract due to expire at June 28,
1999:
<TABLE>
<CAPTION>
FRF EXCHANGE GAIN/(LOSS) GAIN/(LOSS) NET GAIN/
RATE ON OPTION (a) FROM PRIOR YEAR RATE (b) LOSS
---- ------------- ------------------------ ----
(IN THOUSANDS, EXCEPT EXCHANGE RATE)
<C> <C> <C> <C>
5.5 $ (40) $ 606 $ 566
6.0 (40) 0 (40)
6.5 472 (512) (40)
</TABLE>
- --------------
(a) Calculated as (notional amount/strike price) - (notional
amount/exchange rate) - premium paid, with losses limited to the
premium paid on the contract.
(b) Calculated as (notional amount/exchange rate) - (notional amount/strike
price).
INTEREST RATES
We use interest rate swaps to reduce our exposure to interest rate
movements. Our net exposure to interest rate risk consists of floating rate
instruments whose interest rates are determined by the London Interbank Offer
Rate ("LIBOR"). Interest rate risk management is accomplished by the use of
swaps to create fixed debt amounts by resetting LIBOR loans concurrently with
the rates applying to the swap agreements. At December 31, 1998, we had floating
rate debt of approximately $840.5 million of which a total of $375 million was
swapped to fixed rates. The net interest rate paid by us is approximately equal
to the sum of the swap agreement rate plus the applicable LIBOR Margin.
25
<PAGE> 27
During the first quarter of fiscal 1999, the LIBOR Margin was .75%. The swap
agreement rates and durations as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
SWAP AGREEMENT SWAP AGREEMENT
EXPIRATION DATE NOTIONAL AMOUNT DATE RATE
- --------------- --------------- ---- ----
<S> <C> <C> <C>
August 13, 1999 $50 million August 13, 1993 5.540%
June 8, 2002 $50 million December 8, 1995 5.500%
February 7, 2001 $50 million August 7, 1997 5.910%
August 7, 2001 $50 million August 7, 1997 5.897%
September 10, 2001 $50 million December 8, 1995 5.623%
July 31, 2002 $75 million May 7, 1997 6.385%
July 31, 2002 $50 million October 23,1998 4.733%
</TABLE>
As a result of our interest rate swaps from variable to floating rates
we are able to reduce our risk as follows:
<TABLE>
<CAPTION>
IMPACT OF A 1%
INTEREST RATE EXPOSURE CHANGE IN LIBOR
---------------------- ---------------
<S> <C> <C>
Without Swaps: $840.5 million $8.405 million
With Swaps: $465.5 million $4.655 million
</TABLE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 29, 1998, the Company issued 1,897,418 shares of its Common
Stock, $.01 par value, in connection with the Pinnacle Merger and a related
purchase of real estate used in Pinnacle's operations. The former shareholder of
Pinnacle, Thomas A. Lansing, and the owners of the real estate, Thomas A.
Lansing and Karen A. Lansing, who represented themselves to be sophisticated
investors, were issued 1,846,957 and 50,461 shares of the Company's Common
Stock, respectively. 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 4(c) to the notes to
the Unaudited Financial Statements contained in Item 1, Part I herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Quorum
The Company, a Wisconsin corporation, held its Annual Meeting of
Shareholders on January 27, 1999. A quorum was present at the Annual Meeting,
with 90,687,722 shares out of a total of 103,142,635 shares entitled to cast
votes represented in person or by proxy at the meeting.
Proposal Number 1: To Elect Three Directors to Serve as Class I Directors
Until the 2002 Annual Meeting of Shareholders and
Until Their Respective Successors are Duly Elected
and Qualified.
26
<PAGE> 28
The shareholders voted to elect Don H. Davis, Jr., Richard W. Vieser, and
Christopher L. Doerr to serve as Class I directors until the 2002 Annual Meeting
of Shareholders and until their respective successors are duly elected and
qualified. The results of the vote are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Mr. Davis Mr. Vieser Mr. Doerr
For 90,264,703 90,245,787 90,264,903
Withheld From 423,019 441,935 422,819
</TABLE>
The terms of office as directors of Thomas O. Hicks, Robert B. Haas,
Kenneth F. Yontz, Joe L. Roby and William U. Parfet continued after the meeting.
Proposal Number 2: To Consider and Vote upon a Proposal to Approve the
Sybron International Corporation 1999 Outside
Directors' Stock Option Plan.
The shareholders voted to approve the Sybron International Corporation
1999 Outside Directors' Stock Option Plan (the "Plan"). The results of the vote
are as follows:
<TABLE>
<CAPTION>
<S> <C>
For 84,222,512
Against 5,989,550
Abstentions 475,660
Broker Non-Votes 0
</TABLE>
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.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYBRON INTERNATIONAL CORPORATION
--------------------------------
(Registrant)
Date February 16, 1999 /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.
28
<PAGE> 30
SYBRON INTERNATIONAL CORPORATION
(THE "REGISTRANT")
(COMMISSION FILE NO. 1-11091)
EXHIBIT INDEX
TO
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
<S> <C> <C>
4.1 Consent No. 1, dated November 13,
1998 to the Second Amended and
Restated Credit Agreement, dated
August 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),
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 X
27.1 Financial Data Schedule X
27.2 Restated Financial Data Schedule (three X
month period ended December 31, 1997)
</TABLE>
<PAGE> 1
EXHIBIT 4.1
CONSENT NO. 1, dated as of November 13, 1998 (this "Consent"),
under the Second Amended and Restated Credit Agreement, dated as of April 25,
1997 (the "Credit Agreement"), among Sybron International Corporation, a
Wisconsin corporation (the "Parent"), Ormco Corporation, a Delaware corporation
("Ormco"), Kerr Corporation, a Delaware corporation ("Kerr"), Nalge Nunc
International Corporation, a Delaware corporation ("NNI"), Erie Scientific
Company, a Delaware corporation ("Erie"), Barnstead Thermolyne Corporation, a
Delaware corporation ("Barnstead"; Ormco, Kerr, NNI, Erie and Barnstead are
collectively referred to herein as the "Subsidiary Borrowers"), the several
banks and other financial institutions from time to time parties thereto (the
"Lenders"), Chase Securities, Inc., as Arranger, and The Chase Manhattan Bank, a
New York banking corporation, as administrative agent for the Lenders thereunder
(in such capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make, and have made, certain loans and other extensions of credit to
the Parent and the Subsidiary Borrowers; and
WHEREAS, the Parent and the Subsidiary Borrowers have
requested that the Administrative Agent and the Lenders consent to matters
regarding certain provisions of the Credit Agreement; and
WHEREAS, the Administrative Agent and the Lenders are willing
to agree to such request on the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
I. Defined Terms. Terms defined in the Credit Agreement and used
herein shall have the meanings given to them in the Credit Agreement.
II. Consent. (a) The Administrative Agent and the Lenders hereby
consent, notwithstanding the provisions of Section 7.6 of the Credit Agreement,
to the proposed sale of Nalge Process Technologies Group, Inc. ("NPT") as
described on Annex 1 hereto, and that the Net Proceeds of such sale of NPT shall
not be counted towards the $25,000,000 limit on asset sales and other
dispositions set forth in subsection 7.6(e), provided that 100% of the Net
Proceeds of the sale of NPT shall be applied to the prepayment of the Term Loans
as provided in paragraph (b) below, and provided, further that no Default or
Event of Default shall have occurred and be continuing at the time of such sale.
<PAGE> 2
(b) Notwithstanding the provisions of Section 2.15(c) of the Credit
Agreement, so long as no Default or Event of Default has occurred and is
continuing or would result herefrom, the Company shall be entitled to apply up
to $60,000,000 of the Net Proceeds of the sale of NPT to the outstanding
installments of principal with respect to Term Loans scheduled to be paid
pursuant to subsection 2.12 immediately succeeding the date of such prepayment,
provided that 100% of any Net Proceeds therefrom in excess of $60,000,000 shall
be applied as set forth in Section 2.15(c).
III. Conditions to Effectiveness. This Consent shall become
effective on the date (the "Consent Effective Date") on which (i) the Parent,
the Subsidiary Borrowers, the Administrative Agent and the Majority Lenders
shall have executed and delivered to the Administrative Agent this Consent and
(ii) the Parent shall have paid to the Administrative Agent and the Lenders
consenting hereto the fees specified elsewhere with respect to this Consent.
IV. General
1. Representation and Warranties. To induce the Administrative
Agent and the Lenders parties hereto to grant this Consent, the Parent and the
Subsidiary Borrowers hereby represent and warrant to the Administrative Agent
and all of the Lenders as of the Consent Effective Date that the representations
and warranties made by the Loan Parties in the Loan Documents are true and
correct in all material respects on and as of the Consent Effective Date, before
and after giving effect to the effectiveness of this Consent, as if made on and
as of the Consent Effective Date and no Default or Event of Default shall have
occurred and be continuing.
2. Payment of Expenses. The Parent and the Subsidiary Borrowers
agree to pay or reimburse the Administrative Agent for all of its out-of-pocket
costs and reasonable expenses incurred in connection with this Consent, any
other documents prepared in connection herewith and the transactions
contemplated hereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent.
3. Continuing Effect of Credit Agreement. Except for this
Consent, the Credit Agreement is and shall remain in full force and effect. This
Consent shall be a Loan Document.
4. GOVERNING LAW. THIS CONSENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
5. Counterparts. This Consent may be executed by one or more of
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. This Consent may be delivered by facsimile transmission of the
relevant signature pages hereof.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Consent to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
SYBRON INTERNATIONAL CORPORATION
By: s/ John Buono
------------------------------
Title: Assistant Treasurer
ORMCO CORPORATION
By: s/ John Buono
------------------------------
Title: Assistant Treasurer
KERR CORPORATION
By: s/ John Buono
------------------------------
Title: Assistant Treasurer
NALGE NUNC INTERNATIONAL
CORPORATION
By: s/ John Buono
------------------------------
Title: Assistant Treasurer
ERIE SCIENTIFIC COMPANY
By: s/ John Buono
------------------------------
Title: Assistant Treasurer
<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 THREE MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 21,750
<SECURITIES> 0
<RECEIVABLES> 182,247
<ALLOWANCES> 6,158
<INVENTORY> 176,560
<CURRENT-ASSETS> 475,363
<PP&E> 227,140
<DEPRECIATION> 192,318
<TOTAL-ASSETS> 1,578,487
<CURRENT-LIABILITIES> 185,889
<BONDS> 828,347
0
0
<COMMON> 1,032
<OTHER-SE> 500,786
<TOTAL-LIABILITY-AND-EQUITY> 1,578,487
<SALES> 248,330
<TOTAL-REVENUES> 248,330
<CGS> 122,729
<TOTAL-COSTS> 72,722
<OTHER-EXPENSES> (162)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,116
<INCOME-PRETAX> 38,925
<INCOME-TAX> 15,604
<INCOME-CONTINUING> 23,321
<DISCONTINUED> 539
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,860
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</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 THREE MONTHS ENDED DECEMBER 31, 1997, AS RESTATED TO REFLECT THE MERGERS
OF LRS ACQUISITION CORP. AND PINNACLE PRODUCTS OF WISCONSIN, INC., WHICH ARE
ACCOUNTED FOR AS POOLING OF INTERESTS AND THE RECLASSIFICATION OF NALGE PROCESS
TECHNOLOGIES GROUP, INC. TO DISCONTINUED OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 21,104
<SECURITIES> 0
<RECEIVABLES> 168,773
<ALLOWANCES> 4,416
<INVENTORY> 157,074
<CURRENT-ASSETS> 433,661
<PP&E> 203,430
<DEPRECIATION> 160,519
<TOTAL-ASSETS> 1,327,957
<CURRENT-LIABILITIES> 156,016
<BONDS> 705,981
0
0
<COMMON> 1,017
<OTHER-SE> 403,562
<TOTAL-LIABILITY-AND-EQUITY> 1,327,957
<SALES> 214,820
<TOTAL-REVENUES> 214,820
<CGS> 103,348
<TOTAL-COSTS> 63,887
<OTHER-EXPENSES> 110
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,275
<INCOME-PRETAX> 34,200
<INCOME-TAX> 13,386
<INCOME-CONTINUING> 20,814
<DISCONTINUED> 1,132
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,946
<EPS-PRIMARY> .22<F1>
<EPS-DILUTED> .21<F1>
<FN>
<F1>See notes to unaudited consolidated financial statements. (As adjusted for the
two for one stock split effective February 20, 1998. Financial Data Schedules
prior to December 31, 1996 have not been restated to reflect the stock split.)
</FN>
</TABLE>
