<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, 1999
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, 2000, there were 104,098,999 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Index Page
- -------------------------------------------- ----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets, December 31, 1999 (unaudited)
and September 30, 1999 2
Consolidated Statements of Income for the three months
ended December 31, 1999 (unaudited) and 1998 (unaudited) 3
Consolidated Statements of Shareholders' Equity for the year
ended September 30, 1999 and the three months ended
December 31, 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended December 31, 1999 (unaudited) and 1998 (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 28
Part II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 31
Signatures 32
</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)
<TABLE>
<CAPTION>
ASSETS
December 31, September 30,
1999 1999
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 22,003 $ 18,491
Accounts receivable (less allowance for doubtful
receivables of $5,202 and $5,676, respectively)............... 230,480 231,506
Inventories (note 2)............................................ 218,809 203,202
Deferred income taxes........................................... 22,265 23,339
Prepaid expenses and other current assets....................... 20,809 15,419
---------- ----------
Total current assets....................................... 514,366 491,957
Available for sale security....................................... 47,620 50,900
Property, plant and equipment, net of accumulated depreciation
of $225,583 and $212,995, respectively........................ 248,872 245,247
Intangible assets................................................. 1,101,332 1,028,081
Deferred income taxes............................................. 13,012 13,623
Other assets...................................................... 10,036 13,109
---------- ----------
Total assets............................................... $1,935,238 $1,842,917
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 57,211 $ 62,418
Current portion of long-term debt............................... 7,724 8,962
Income taxes payable............................................ 31,957 23,490
Accrued payroll and employee benefits........................... 37,010 49,006
Restructuring reserve (note 4).................................. 1,800 2,332
Reserve for discontinued operations (note 6).................... 3,480 6,141
Deferred income taxes........................................... 3,326 3,251
Other current liabilities....................................... 33,675 36,349
---------- ----------
Total current liabilities................................... 176,183 191,949
---------- ----------
Long-term debt.................................................... 963,471 875,254
Securities lending agreement...................................... 47,620 50,461
Deferred income taxes............................................. 86,862 84,527
Other liabilities................................................. 13,882 15,382
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 104,026,205 and 104,023,697 shares, respectively....... 1,040 1,040
Equity Rights, 50 rights at $1.09 per right..................... - -
Additional paid-in capital...................................... 251,282 251,251
Retained earnings............................................... 433,804 403,380
Accumulated other comprehensive income.......................... (38,906) (30,327)
Treasury common stock, 220 shares at cost ...................... - -
---------- ----------
Total shareholders' equity................................. 647,220 625,344
---------- ----------
Total liabilities and shareholders' equity................. $1,935,238 $1,842,917
========== ==========
</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,
1999 1998
-------- --------
<S> <C> <C>
Net sales.............................................. $298,247 $248,330
Cost of sales:
Cost of product sold................................ 143,896 122,562
Depreciation of purchase accounting adjustments..... 161 167
-------- --------
Total cost of sales.................................... 144,057 122,729
-------- --------
Gross profit........................................... 154,190 125,601
Selling, general and administrative expenses........... 74,962 62,771
Merger, transaction and integration expenses (note 5).. - 2,691
Depreciation and amortization of purchase
accounting adjustments................................ 10,543 7,260
-------- --------
Total selling, general and administrative expenses..... 85,505 72,722
-------- --------
Operating income....................................... 68,685 52,879
Other income (expense):
Interest expense.................................... (17,923) (14,116)
Amortization of deferred financing fees............. (178) (80)
Other, net.......................................... (44) 242
--------- ---------
Income before income taxes and discontinued
operations............................................ 50,540 38,925
Income taxes........................................... 20,116 15,604
--------- ---------
Income from continuing operations...................... 30,424 23,321
Discontinued operations: Income from discontinued
operations (net of income taxes of $385) (note 6)... - 539
--------- ---------
Net income............................................. $ 30,424 $ 23,860
========= =========
Basic earnings per common share from continuing
operations............................................ $ .29 $ .23
Discontinued operations................................ - -
--------- ---------
Basic earnings per common share........................ $ .29 $ .23
========= =========
Diluted earnings per common share from continuing
operations............................................ $ .29 $ .22
Discontinued operations................................ - .01
--------- ---------
Diluted earnings per common share...................... $ .29 $ .23
========= =========
</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, 1999
AND THE THREE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK CAPITAL EARNINGS INCOME EQUITY
------ ---------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998........... $1,029 $234,070 $260,833 $(20,688) $475,244
Comprehensive income:
Net income............................ - - 142,547 - 142,547
Translation adjustment................ - - - (9,905) (9,905)
Unrealized gain on security available
for sale............................ - - - 266 266
------ -------- -------- -------- --------
Total comprehensive income.............. - - 142,547 (9,639) 132,908
Shares issued in connection with the
exercise of 1,121,421 stock options... 11 10,680 - - 10,691
Tax benefits related to stock options... - 6,501 - - 6,501
------ -------- -------- -------- --------
Balance at September 30, 1999........... 1,040 251,251 403,380 (30,327) 625,344
Comprehensive income:
Net income............................ - - 30,424 - 30,424
Translation adjustment................ - - - (6,608) (6,608)
Unrealized loss on security available
for sale............................. - - - (1,971) (1,971)
------ -------- -------- -------- --------
Total comprehensive income.............. - - 30,424 (8,579) 21,845
Shares issued in connection with the
exercise of 2,508 stock options........ - 31 - - 31
------ -------- -------- -------- --------
Balance at December 31, 1999 ........... $1,040 $251,282 $433,804 $(38,906) $647,220
====== ======== ======== ======== ========
</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,
1999 1998
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 30,424 $ 23,860
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................................. 10,187 8,542
Amortization............................................................. 10,611 7,292
Provision for losses on doubtful accounts................................ (310) 294
Inventory provisions..................................................... 831 313
Deferred income taxes.................................................... 4,095 (5,413)
Changes in assets and liabilities, net of effects of businesses
acquired:
Decrease in accounts receivable.......................................... 6,100 14,484
Increase in inventories.................................................. (9,086) (7,413)
(Increase) decrease in prepaid expenses and other current assets......... (4,946) 3,306
Decrease in accounts payable............................................. (6,258) (6,156)
Increase (decrease) in income taxes payable.............................. 9,591 (4,628)
Decrease in accrued payroll and employee benefits........................ (11,652) (9,580)
Decrease in restructuring reserve........................................ (532) (1,236)
Decrease in reserve for discontinued operations.......................... (2,661) (8,627)
Increase (decrease) in other current liabilities........................ (7,986) 2,802
Net change in other assets and liabilities............................... (6,943) 644
---------- ----------
Net cash provided by operating activities................................ 21,465 18,484
Cash flows from investing activities:
Capital expenditures..................................................... (7,970) (6,007)
Proceeds from sales of property, plant, and equipment.................... 443 115
Payments for businesses acquired......................................... (92,709) (54,059)
---------- ----------
Net cash used in investing activities.................................... (100,236) (59,951)
Cash flows from financing activities:
Proceeds - revolving credit facility..................................... 206,800 127,700
Principal payments - revolving credit facility........................... (116,200) (79,700)
Principal payments on long-term debt..................................... (1,139) (10,602)
Refund of collateral under securities lending agreement.................. (2,841) -
Proceeds from the exercise of common stock options....................... 31 2,236
Deferred financing fees.................................................. (169) (5)
Other.................................................................... (2,525) 1,634
---------- ----------
Net cash provided from financing activities.............................. 83,957 41,263
Effect of exchange rate changes on cash and cash equivalents............... (1,674) (1,937)
Net increase (decrease) in cash and cash equivalents....................... 3,512 (2,141)
Cash and cash equivalents at beginning of year............................. 18,491 23,891
---------- ----------
Cash and cash equivalents at end of period................................. $ 22,003 $ 21,750
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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SYBRON INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1999 1998
---------- ----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.................................. $ 17,557 $ 15,019
========== ==========
Cash paid during the period for income taxes.............................. $ 8,396 $ 14,446
========== ==========
Capital lease obligations incurred........................................ $ 43 $ 145
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 8
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. Except as described in note 5 below, all such adjustments were of
a normal recurring nature. The results for the three month period ended
December 31, 1999 are not necessarily indicative of the results to be
expected for the full year.
2. Inventories at December 31, 1999 and September 30, 1999 consist of the
following:
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
-------- --------
<S> <C> <C>
Raw materials $ 81,226 $ 67,541
Work-in-process 39,864 39,439
Finished goods 108,337 106,010
Excess and obsolescence reserves (7,819) (7,091)
LIFO reserve (2,799) (2,697)
-------- --------
$218,809 $203,202
======== ========
</TABLE>
3. In the first quarter of fiscal 2000, the Company completed three
acquisitions for cash. The aggregate purchase price of the acquisitions, net
of cash acquired, (none of which individually or aggregated was significant)
was approximately $91.9 million. There are no future purchase price
adjustments due to earnout provisions from any of these three transactions.
All three of these acquisitions have been accounted for as purchases. The
results of these acquisitions were included as of the date they were
acquired. The total goodwill and intangibles for the acquired companies was
approximately $82.0 million and will be amortized over 20 to 30 years.
Descriptions of the acquired companies are as follows:
(a) On October 7, 1999, the Company acquired Robbins Scientific Corporation
("Robbins"), a manufacturer of biomedical products used in certain
types of high throughput screening, molecular biology, chemical
synthesis and tissue typing. Robbins' line of products include
microdispensers and automated dispensing machines with specialty
pipette tips for robotic workstations, plastic plates, tubes, storage
tools and hybridization incubators, gel loaders and water baths,
organic synthesis systems, filtration blocks and covers, trays, and
syringe dispensers. Robbins' revenues in 1999 were approximately $19.6
million. Robbins is included in the Company's Labware and Life Sciences
business segment.
(b) On October 13, 1999, the Company acquired Microm Laborgerate GmbH
("Microm"), a leading manufacturer of histology laboratory
instrumentation headquartered in Walldorf, Germany. Microm's products
include microtome and cryostat machines used in tissue sectioning, as
well as automatic slide stainers, tissue processors, cover slippers and
cassettes used in routine histology and cytology applications. Microm's
sales in 1999 were approximately $20.7 million. Microm is included in
the Company's Clinical and Industrial business segment.
7
<PAGE> 9
(c) On December 13, 1999 the Company acquired Professional Positioners,
Inc. ("Pro"), a manufacturer of orthodontic retainers and positioners.
Pro's products range from functional orthopedic devices used at the
beginning of orthodontic treatment to retainers and positioners which
are used to hold teeth in the final occlusion after treatment. Pro's
sales revenues in 1999 were approximately $5.4 million. Pro is included
in the Company's Orthodontics business segment.
Two acquisitions were completed for cash after the first fiscal quarter of
2000 and will be accounted for as purchases. The aggregate purchase price
was not significant either individually or aggregated. There are no future
purchase price adjustments due to earnout provisions from either of these
transactions. The results of these acquisitions will be included as of the
date they were acquired. The total goodwill for the acquired companies is
currently being assessed. Descriptions of the acquired companies are as
follows:
(a) On February 1, 2000, the Company acquired the Versi-Dry(R) product line
from National Packaging Services Corporation ("NPS") located in Green
Bay, Wisconsin. The Versi-Dry(R) product is an absorbent pad used in
research and industrial laboratories and is designed to absorb and
contain chemicals and other spillage occurring in the laboratory. Sales
revenues in 1999 were approximately $2.5 million. The Versi-Dry(R)
product line will be included in the Labware and Life Sciences business
segment.
(b) On February 4, 2000, the Company acquired Sun International ("Sun"), a
leading supplier of consumables for high-pressure liquid chromatography
(HPLC), gas chromatography (GC) and high throughput screening (HTS)
applications. In addition to autosampler vials, inserts and closures,
Sun recently introduced their PLATE+(TM) and MICROMAT(TM) product line
for high throughput screening in the biotechnology and pharmaceutical
markets. Sales revenues in 1999 were approximately $5.8 million. Sun
will be included in the Labware and Life Sciences business segment.
4. In June 1998, the Company recorded a restructuring charge of approximately
$24 million (approximately $16.7 million after tax or $.16 per share on a
diluted basis) for the rationalization of certain acquired companies,
combination of certain duplicate production facilities, movement of certain
customer service and marketing functions, and the exiting of several product
lines. The restructuring charge was originally classified as components of
cost of sales (approximately $6.4 million relating to the write-off of
inventory discussed below), selling, general and administrative expenses
(approximately $16.9 million) and income tax expense (approximately $0.7
million). Upon reclassifying Nalge Process Technologies Group, Inc. ("NPT")
to a discontinued operation in December 1998, approximately $0.3 million and
$0.6 million were reclassified from cost of sales and selling, general and
administrative expenses to discontinued operations.
8
<PAGE> 10
Restructuring activity since June 30, 1998 and its components are as
follows:
<TABLE>
<CAPTION>
SEVERANCE LEASE SHUT-DOWN INVENTORY FIXED CONTRACTUAL
--------- ----- --------- --------- ----- -----------
(A) PAYMENTS COSTS(B) WRITE-OFF ASSETS TAX(D) GOODWILL(E) OBLIGATIONS
--- -------- --------- --------- ------ ------ ----------- ----------- OTHER TOTAL
(B) (C) (C) (F) ----- -----
--- --- --- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Restructuring
charge $ 8,500 $ 400 $ 500 $ 6,400 $ 2,300 $ 700 $ 2,100 $ 1,000 $ 2,100 $24,000
1998 cash
payments 3,300 100 100 -- -- -- -- 400 700 4,600
1998 non-cash
charges -- -- -- 6,400 2,300 -- 2,100 -- 600 11,400
------- ----- ----- ------- ------- ----- ------- ------- ------- -------
September 30,
1998 balance $ 5,200 $ 300 $ 400 $ -- $ -- $ 700 $ -- $ 600 $ 800 $ 8,000
1999 cash
payments 3,400 300 400 -- -- -- -- 300 400 4,800
Adjustments (a) 900 -- -- -- -- -- -- -- -- 900
------- ----- ----- ------- ------- ----- ------- ------- ------- -------
September 30,
1999 balance $ 900 $ -- $ -- $ -- $ -- $ 700 $ -- $ 300 $ 400 $ 2,300
2000 cash
payments 300 -- -- -- -- -- -- 100 100 500
------- ----- ----- ------ ------- ----- ------- ------- ------- -------
December 31,
1999 balance $ 600 $ -- $ -- $ -- $ -- $ 700 $ -- $ 200 $ 300 $ 1,800
======= ===== ===== ====== ======= ===== ======= ======= ======= =======
</TABLE>
- -----------------
(a) Amount represents severance and termination costs for approximately 165
terminated employees (primarily sales and marketing personnel). As of
December 31, 1999, 154 employees have been terminated as a result of the
restructuring plan. Payments will continue to certain employees previously
terminated under this restructuring plan. An adjustment of approximately
$900 was made in the third quarter of fiscal 1999 to adjust the accrual
primarily representing over accruals for anticipated costs associated with
outplacement services, accrued fringe benefits, and severance associated
with employees who were previously notified of termination and subsequently
filled other Company positions. No additional employees will be terminated
under this restructuring plan.
(b) Amount represents lease payments and shutdown costs on exited facilities.
(c) Amount represents write-offs of inventory and fixed assets associated with
discontinued product lines.
(d) Amount represents a statutory tax relating to assets transferred from an
exited sales facility in Switzerland.
(e) Amount represents goodwill associated with exited product lines at Sybron
Laboratory Products Corporation ("SLP").
(f) Amount represents certain terminated contractual obligations primarily
associated with Sybron Dental Specialties, Inc.
The Company expects to make future cash payments of approximately $700 in
the remainder of fiscal 2000 and approximately $1,100 in fiscal 2001 and
beyond.
5. For the three months ended December 31, 1998, the Company incurred
approximately $2.7 million ($1.7 million after tax or $.02 per share on a
diluted basis) of costs associated with the October 29, 1998 merger with
Pinnacle Products of Wisconsin, Inc. ("Pinnacle") (the "Pinnacle Merger")
and the integration of "A" Company Orthodontics (`"A" Company'), a
subsidiary of LRS Acquisition Corp. ("LRS"), with SDS. LRS was merged with a
subsidiary of the Company on April 9, 1998 (the "LRS Merger"). Both
transactions were accounted for as poolings of interests. The costs
associated with the Pinnacle Merger and the integration of "A" Company were
primarily from Pinnacle Merger non-shareholder compensation (approximately
$2.0 million), and costs related to miscellaneous expenses primarily related
to completing the "A" Company integration including customer announcements,
professional fees, and relocation expenses (approximately $0.7 million). The
Company does not anticipate incurring any further merger, transaction and
integration expenses associated with the LRS and Pinnacle Mergers.
9
<PAGE> 11
6. On March 31, 1999, the Company completed the sale of NPT. The results of
NPT in the fiscal 1999 period are classified as discontinued operations. In
addition, in the first quarter of fiscal 2000, the Company refunded
approximately $2.6 million of previously accrued purchase price adjustments
to the purchaser. The Company does not anticipate any additional
adjustments to the purchase price.
7. The Company's operating subsidiaries are engaged in the manufacture and
sale of laboratory and dental products in the United States and other
countries. Laboratory products are categorized in the business segments of
a) Labware and Life Sciences, b) Clinical and Industrial, c) Diagnostics
and Microbiology and d) Laboratory Equipment. Dental products are
categorized in the business segments of a) Professional Dental, b)
Orthodontics and c) Infection Control Products.
Information on these business segments is summarized on the following page:
10
<PAGE> 12
<TABLE>
<CAPTION>
LABWARE CLINICAL DIAGNOSTICS
AND LIFE AND AND LABORATORY TOTAL PROFESSIONAL
SCIENCES INDUSTRIAL MICROBIOLOGY EQUIPMENT ELIMINATIONS SLP DENTAL
-------- ---------- ------------ ---------- ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED 12/31/98
Revenues:
External customer........... $ 54,647 $ 40,270 $ 36,849 $ 24,647 $ -- $ 156,413 $ 45,111
Intersegment................ 262 1,468 94 177 (1,867) 134 140
Total revenues............ 54,909 41,738 36,943 24,824 (1,867) 156,547 45,251
Gross profit.................. 27,770 16,604 19,058 10,188 -- 73,620 24,607
Selling, general and admin.... 15,063 7,148 9,903 5,407 -- 37,521 16,305
Operating income.............. 12,707 9,456 9,155 4,781 -- 36,099 8,302
THREE MONTHS ENDED 12/31/99
Revenues:
External customer........... 79,898 51,911 50,616 22,458 -- 204,883 47,605
Intersegment................ 353 1,558 102 214 (2,099) 128 146
Total revenues............ 80,251 53,469 50,718 22,672 (2,099) 205,011 47,751
Gross profit.................. 40,857 21,646 27,999 9,589 -- 100,091 26,244
Selling, general and admin.... 23,205 8,947 14,840 5,070 -- 52,062 13,215
Operating income.............. 17,652 12,699 13,159 4,519 -- 48,029 13,029
Segment Assets................ 536,467 292,752 425,096 129,444 -- 1,383,759 178,560
</TABLE>
<TABLE>
<CAPTION>
INFECTION
CONTROL TOTAL
ORTHODONTICS PRODUCTS ELIMINATIONS SDS OTHER(A) TOTAL
------------ --------- ------------ ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED 12/31/98
Revenues:
External customer........... $ 41,414 $ 5,392 $ -- $ 91,917 $ -- $ 248,330
Intersegment................ 1,125 -- (1,265) -- (134) --
Total revenues............ 42,539 5,392 (1,265) 91,917 (134) 248,330
Gross profit.................. 24,429 2,945 -- 51,981 -- 125,601
Selling, general and admin.... 14,195 2,226 -- 32,726 2,475 72,722
Operating income.............. 10,234 719 -- 19,255 (2,475) 52,879
THREE MONTHS ENDED 12/31/99
Revenues:
External customer........... 40,061 5,698 -- 93,364 -- 298,247
Intersegment................ 598 -- (744) -- (128) --
Total revenues............ 40,659 5,698 (744) 93,364 (128) 298,247
Gross profit.................. 24,926 2,929 -- 54,099 -- 154,190
Selling, general and admin.... 14,792 2,349 -- 30,356 3,087 85,505
Operating income.............. 10,134 580 -- 23,743 (3,087) 68,685
Segment Assets................ 188,464 54,672 -- 421,696 129,783 1,935,238
</TABLE>
- -----------
(a) Includes the elimination of intergroup and corporate office activity.
11
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The subsidiaries of Sybron are leading manufacturers of value-added products
for the Labware and Life Sciences, Clinical and Industrial, Diagnostics and
Microbiology, Laboratory Equipment, Professional Dental, Orthodontics and
Infection Control Products markets in the United States and abroad. Our Labware
and Life Sciences, Clinical and Industrial, Diagnostics and Microbiology and
Laboratory Equipment business segments are grouped under Sybron Laboratory
Products Corporation ("SLP"), and our Professional Dental, Orthodontics and
Infection Control Products business segments are grouped under Sybron Dental
Specialties, Inc. ("SDS"). SLP and SDS are both first-tier wholly owned
subsidiaries of Sybron. The primary subsidiaries in each of our business
segments are as follows:
SLP
Labware and Life Sciences Clinical and Industrial
- ------------------------- -----------------------
Matrix Technologies Corporation Erie Scientific Company
Nalge Nunc International Corporation Chase Scientific Glass, Inc.
National Scientific Company The Naugatuck Glass Company
Nunc A/S Richard-Allan Scientific Company
Molecular BioProducts, Inc. Samco Scientific Corporation
Robbins Scientific Corporation Microm Laborgerate GmbH
Gerhard Menzel Glasbearbeitungswerk
GmbH & Co. K.G.
Diagnostics and Microbiology Laboratory Equipment
- ---------------------------- --------------------
Applied Biotech, Inc. Barnstead Thermolyne Corporation
Microgenics Corporation Lab-Line Instruments, Inc.
Alexon-Trend, Inc.
Remel Inc.
SDS
Professional Dental Orthodontics
- ------------------- ------------
Kerr Corporation Ormco Corporation
Beavers Dental Company Ormodent Group
Infection Control Products
- --------------------------
Metrex Research Corporation
Alden Scientific, 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, international growth and rationalization of existing
businesses and product lines.
12
<PAGE> 14
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 and, accordingly, all references to quarters refer to the Company's
fiscal quarters. The quarters ended December 31, 1998 and 1999, refer to the
Company's first fiscal quarters of 1999 and 2000, respectively.
Our results for the three months ended December 31, 1998 include
approximately $2.7 million of charges relating to integration costs 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") (collectively, the "1999
Special Charges").
Both our sales and operating income for the quarter ended December 31,
1999 grew over the corresponding prior year period. Net sales for the first
quarter of fiscal 2000 increased by 20.1% over the corresponding fiscal 1999
period. Operating income for the first quarter of fiscal 2000 increased by 29.9%
over the corresponding fiscal 1999 period. Excluding the 1999 Special Charges,
operating income for the first quarter of fiscal 2000 increased by 23.6% over
the corresponding fiscal 1999 period.
Sales growth in the quarter was strong both domestically and
internationally. Domestic and international sales increased by 22.0% and by
15.9%, respectively, over the corresponding fiscal 1999 quarter. International
sales growth was negatively impacted by the strengthening of the U.S. dollar.
Without the negative currency effects, international sales growth would have
been 20.4% over the corresponding fiscal 1999 period.
Sales growth for the quarter in our dental businesses was negatively
impacted by a backlog build-up in curing lights attributable to a vendor
component shortage as well as soft orthodontic sales. Although there was general
softness in our orthodontic sales, the problem was particularly acute in
Germany, our largest European market for orthodontics, where we suffered a
decline in business resulting from year-end reimbursement cuts by the government
to orthodontic practitioners. Sales growth in our laboratory business was
negatively impacted by a decline in sales in our laboratory equipment business.
Although we are taking steps to address these issues, there can be no assurance
that these conditions will not continue to have a negative impact on our
results.
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 three acquisitions in the first quarter of fiscal
2000. (See Note 3 to the Unaudited Consolidated Financial Statements.)
Our results of operations include goodwill amortization, other
amortization, and depreciation. These non-cash charges totaled $20.8 million and
$15.8 million for the quarters ended December 31, 1999 and 1998, respectively.
Because our operating results reflect significant depreciation and amortization
expense largely associated with stepped-up assets, goodwill and other
intangibles from our acquisition program and the leveraged buyout in 1987 of a
company known at that time as Sybron Corporation (the "Acquisition"), we believe
our "Adjusted EBITDA" is a useful measure of our ability to internally fund our
liquidity requirements. "Adjusted EBITDA" (while not a measure under generally
accepted accounting principles ("GAAP"), and not a substitute for GAAP measured
earnings or cash flows or an indication of operating performance or a measure of
liquidity) represents, for any relevant period, net income from continuing
operations plus (i) interest expense, (ii) provision for income taxes, (iii) the
1999 Special Charges and (iv) depreciation and amortization, all determined on a
consolidated basis and
13
<PAGE> 15
in accordance with GAAP. Our "Adjusted EBITDA" amounted to $89.3 million and
$71.6 million for the quarters ended December 31, 1999 and 1998, respectively.
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 1998, we 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 were 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. These options were sold
or expired worthless in their respective quarters of fiscal 1999 at a net gain
of $1.1 million. In November 1999, we again decided to employ a series of
foreign currency options with a U.S. dollar notional amount of approximately
$47.6 million at a cost of approximately $1.2 million. These options are
designed to protect the Company from potential detrimental effects of currency
movements associated with the U.S. dollar verses the Euro, Danish krone and
Japanese yen in the second, third and fourth quarters of fiscal 2000 as compared
to the second, third and fourth quarters of fiscal 1999.
14
<PAGE> 16
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1999
COMPARED TO THE QUARTER ENDED DECEMBER 31, 1998
NET SALES.
<TABLE>
<CAPTION>
FISCAL FISCAL DOLLAR PERCENT
NET SALES: (IN THOUSANDS) 1999 2000 CHANGE CHANGE
- ------------------------- --------- -------- -------- -------
<S> <C> <C> <C> <C>
SLP:
Labware and Life Sciences $ 54,647 $ 79,898 $ 25,251 46.2 %
Clinical and Industrial 40,270 51,911 11,641 28.9 %
Diagnostics and Microbiology 36,849 50,616 13,767 37.4 %
Laboratory Equipment 24,647 22,458 (2,189) (8.9)%
--------- -------- -------- ----
Subtotal SLP 156,413 204,883 48,470 31.0 %
SDS:
Professional Dental 45,111 47,605 2,494 5.5 %
Orthodontics 41,414 40,061 (1,353) (3.3)%
Infection Control Products 5,392 5,698 306 5.7 %
--------- -------- -------- ----
Subtotal SDS 91,917 93,364 1,447 1.6 %
--------- -------- -------- ----
Total Net Sales $ 248,330 $298,247 $ 49,917 20.1 %
========= ======== ======== ====
</TABLE>
Overall Company. Net sales for the first quarter of fiscal 2000, ended
December 31, 1999 increased by $49.9 million or 20.1% from the corresponding
fiscal 1999 quarter. Net sales at SLP increased by $48.5 million in the first
quarter of fiscal 2000, an increase of 31.0% from SLP's net sales in the
corresponding fiscal 1999 quarter. Net sales at SDS increased by $1.4 million in
the first quarter of fiscal 2000, an increase of 1.6% from SDS's net sales in
the corresponding fiscal 1999 quarter.
Labware and Life Sciences. Increased net sales in the Labware and Life
Sciences segment resulted primarily from: (a) net sales of products of acquired
companies (approximately $19.2 million), (b) increased net sales of existing
products (approximately $6.0 million), (c) increased net sales of new products
(approximately $0.4 million) and (d) price increases (approximately $0.3
million). Increased net sales were partially offset by unfavorable foreign
currency fluctuations (approximately $0.6 million).
Clinical and Industrial. Increased net sales in the Clinical and Industrial
segment resulted primarily from: (a) net sales of products of acquired companies
(approximately $8.1 million), (b) increased net sales of existing products
(approximately $2.7 million) and (c) price increases (approximately $1.4
million). Increased net sales were partially offset by unfavorable foreign
currency fluctuations (approximately $0.6 million).
Diagnostics and Microbiology. Increased net sales in the Diagnostics and
Microbiology segment resulted primarily from: (a) net sales of products of
acquired companies net of discontinued products (approximately $10.3 million),
(b) increased net sales of existing products (approximately $3.5 million) and
(c) increased net sales of new products (approximately $0.4 million). Increased
net sales were partially offset by price decreases (approximately $0.4 million).
Laboratory Equipment. Decreased net sales in the Laboratory Equipment
segment resulted primarily from decreased net sales of existing products
primarily related to the constant temperature business, ovens and incubators
(approximately $3.3 million). This business is expected to continue to undergo
15
<PAGE> 17
pressure due to the large number of competing companies in the marketplace.
Decreased net sales were partially offset by: (a) net sales of products of
acquired companies (approximately $0.5 million), (b) increased net sales of new
products (approximately $0.4 million) and (c) price increases (approximately
$0.2 million).
Professional Dental. Increased net sales in the Professional Dental segment
resulted primarily from increased net sales of new products (approximately $4.6
million). New products sales were hampered by a backlog build-up in a new curing
light attributable to a vendor component shortage. Increased net sales were
partially offset by: (a) decreased net sales of existing products (approximately
$0.9 million), (b) unfavorable foreign currency fluctuations (approximately $0.7
million) and (c) discontinued product lines (approximately $0.5 million).
Orthodontics. Decreased net sales in the Orthodontics segment resulted
primarily from: (a) decreased net sales of existing products (approximately $1.8
million) primarily related to soft orthodontic sales in Germany where doctors
suffered some year end reimbursement cuts by the government and (b) unfavorable
foreign currency fluctuations (approximately $1.0 million). Although the Company
is taking steps to address the softness in orthodontic sales, there is no
assurance that these conditions will not continue to have a negative impact on
our results. Decreased net sales were partially offset by: (a) increased net
sales of new products (approximately $0.9 million) and (b) increased net sales
of products of acquired companies net of discontinued products (approximately
$0.5 million).
Infection Control Products. Increased net sales in the Infection Control
Products segment resulted primarily from net sales of products of acquired
companies (approximately $1.0 million) partially offset by decreased net sales
of existing products due to dealer consolidations and product life cycle
maturities (approximately $0.7 million).
<TABLE>
<CAPTION>
GROSS PROFIT.
FISCAL PERCENT OF FISCAL PERCENT OF DOLLAR PERCENT
GROSS PROFIT: (IN THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE
- ---------------------------- ----------- ------ ---------- ----- --------- ------
SLP:
<S> <C> <C> <C> <C> <C> <C>
Labware and Life Sciences $ 27,770 50.8% $ 40,857 51.1% $ 13,087 47.1 %
Clinical and Industrial 16,604 41.2% 21,646 41.7% 5,042 30.4 %
Diagnostics and Microbiology 19,058 51.7% 27,999 55.3% 8,941 46.9 %
Laboratory Equipment 10,188 41.3% 9,589 42.7% (599) (5.9)%
--------- ---- ---------- ---- --------- ----
Subtotal SLP 73,620 47.1% 100,091 48.9% 26,471 36.0 %
SDS:
Professional Dental 24,607 54.5% 26,244 55.1% 1,637 6.7 %
Orthodontics 24,429 59.0% 24,926 62.2% 497 2.0 %
Infection Control Products 2,945 54.6% 2,929 51.4% (16) (0.5)%
--------- ---- ---------- ---- --------- ----
Subtotal SDS 51,981 56.6% 54,099 57.9% 2,118 4.1 %
--------- ---- ---------- ---- --------- ----
Total Gross Profit $ 125,601 50.6% $ 154,190 51.7% $ 28,589 22.8 %
========= ==== ========== ==== ========= ====
</TABLE>
Overall Company. Gross profit for the quarter ended December 31, 1999
increased by $28.6 million or 22.8% from the corresponding fiscal 1999 period.
Gross profit at SLP increased by $26.5 million in the first quarter of fiscal
2000, an increase of 36.0% from SLP's gross profit in the corresponding fiscal
1999 quarter. Gross profit at SDS increased by $2.1 million in the first quarter
of fiscal 2000, an increase of 4.1% from SDS's gross profit in the corresponding
fiscal 1999 quarter.
Labware and Life Sciences. Increased gross profit in the Labware and Life
Sciences segment resulted
16
<PAGE> 18
primarily from: (a) the effects of acquired companies (approximately $9.9
million), (b) increased volume (approximately $2.9 million), (c) inventory
valuation adjustments (approximately $0.6 million), (d) a favorable product mix
(approximately $0.5 million) and (e) price increases (approximately $0.3
million). Increased gross profit was partially offset by increased manufacturing
overhead (approximately $1.1 million).
Clinical and Industrial. Increased gross profit in the Clinical and
Industrial segment resulted primarily from: (a) the effects of acquired
companies (approximately $4.1 million), (b) an improved product mix
(approximately $1.5 million), (c) price increases (approximately $1.3 million)
and (d) increased volume (approximately $0.6 million). Increased gross profit
was partially offset by: (a) increased manufacturing overhead (approximately
$2.4 million) and (b) inventory valuation adjustments (approximately $0.1
million).
Diagnostics and Microbiology. Increased gross profit in the Diagnostics and
Microbiology segment resulted primarily from: (a) the effects of acquired
companies net of discontinued product lines (approximately $7.2 million), (b)
increased volume (approximately $1.6 million), (c) a favorable product mix
(approximately $1.2 million) and (d) inventory valuation adjustments
(approximately $0.8 million). Increased gross profit was partially offset by:
(a) increased manufacturing overhead (approximately $1.5 million) and (b) price
decreases (approximately $0.4 million).
Laboratory Equipment. Decreased gross profit in the Laboratory Equipment
segment resulted primarily from: (a) reduced volume (approximately $1.2 million)
and (b) inventory valuation adjustments (approximately $0.2 million). Decreased
gross profit was partially offset by: (a) the effects of acquired companies
(approximately $0.3 million), (b) decreased manufacturing overhead
(approximately $0.3 million) and (c) price increases (approximately $0.2
million).
Professional Dental. Increased gross profit in the Professional Dental
segment resulted primarily from: (a) increased volume (approximately $2.3
million) and (b) a favorable product mix (approximately $0.7 million). Increased
gross profit was partially offset by: (a) inventory valuation adjustments
(approximately $0.6 million), (b) discontinued product lines (approximately $0.3
million), (c) increased manufacturing overhead (approximately $0.3 million) and
(d) unfavorable foreign currency fluctuations (approximately $0.2 million).
Orthodontics. Increased gross profit in the Orthodontics segment resulted
primarily from: (a) a favorable product mix (approximately $2.5 million) and (b)
the effects of acquired companies net of discontinued product lines
(approximately $0.2 million). Increased gross profit was partially offset by:
(a) unfavorable foreign currency fluctuations (approximately $1.0 million), (b)
decreased volume (approximately $0.6 million), (c) increased manufacturing
overhead (approximately $0.4 million) and (d) inventory valuation adjustments
(approximately $0.2 million).
Infection Control Products. Gross profit in the Infection Control Products
segment was essentially flat and resulted primarily from: (a) the effects of
acquired companies (approximately $0.6 million) and (b) an improved product mix
(approximately $0.3 million), offset by (a) increased manufacturing overhead
(approximately $0.5 million) and (b) decreased volume (approximately $0.4
million).
17
<PAGE> 19
<TABLE>
<CAPTION>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
SELLING GENERAL AND
ADMINISTRATIVE EXPENSES: (IN PERCENT OF PERCENT OF DOLLAR PERCENT
THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE
- ----------------------------- ------- ----- ---------- ----- ------- ------
SLP:
<S> <C> <C> <C> <C> <C> <C>
Labware and Life Sciences $ 15,063 27.6% $ 23,205 29.0% $ 8,142 54.1%
Clinical and Industrial 7,148 17.8% 8,947 17.2% 1,799 25.2%
Diagnostics and Microbiology 9,903 26.9% 14,840 29.3% 4,937 49.9%
Laboratory Equipment 5,407 21.9% 5,070 22.6% (337) (6.2)%
--------- ---- ---------- ---- ------- ----
Subtotal SLP 37,521 24.0% 52,062 25.4% 14,541 38.8%
SDS:
Professional Dental 16,305 36.1% 13,215 27.8% (3,090) (19.0)%
Orthodontics 14,195 34.3% 14,792 36.9% 597 4.2%
Infection Control Products 2,226 41.3% 2,349 41.2% 123 5.5%
--------- ---- ---------- ---- ------- ---
Subtotal SDS 32,726 35.6% 30,356 32.5% (2,370) (7.2)%
Corporate Office 2,475 N/A 3,087 N/A 612 24.7%
--------- ---- ---------- ---- ------- ----
Total Selling General and
Administrative Expenses $ 72,722 29.3% $ 85,505 28.7% $12,783 17.6%
========= ==== ========== ==== ======= ====
</TABLE>
Overall Company. Selling, general and administrative expenses for the
quarter ended December 31, 1999 increased by $12.8 million or 17.6% from the
corresponding fiscal 1999 quarter. Selling, general and administrative expenses
at SLP increased by $14.5 million in the first quarter of fiscal 2000, an
increase of 38.8% from SLP's corresponding fiscal 1999 quarter. Selling, general
and administrative expenses at SDS decreased by $2.4 million in the first
quarter of fiscal 2000, a decrease of 7.2% from SDS's corresponding fiscal 1999
quarter. Selling, general and administrative expenses at the corporate office
increased by $0.6 million in the first quarter of fiscal 1999, an increase of
24.7% from the corporate office's corresponding fiscal 1999 quarter.
Labware and Life Sciences. Increased selling, general and administrative
expenses in the Labware and Life Sciences segment resulted primarily from: (a)
increased selling, general and administrative expenses as a result of acquired
businesses (approximately $5.6 million), (b) increased amortization of
intangibles primarily as a result of acquisitions (approximately $1.3 million),
(c) increased marketing expenses (approximately $1.0 million) and (d) increased
general and administrative expenses (approximately $0.4 million). Increased
selling, general and administrative expenses were partially offset by favorable
foreign currency fluctuations (approximately $0.2 million).
Clinical and Industrial. Increased selling, general and administrative
expenses in the Clinical and Industrial segment resulted primarily from: (a)
increased selling, general and administrative expenses as a result of acquired
businesses (approximately $1.5 million), (b) increased marketing expenses
(approximately $0.4 million) and (c) increased amortization of intangibles
primarily as a result of acquisitions (approximately $0.3 million). Increased
selling, general and administrative expenses were partially offset by: (a)
decreased general and administrative expenses (approximately $0.3 million) and
(b) favorable foreign currency fluctuations (approximately $0.1 million)
Diagnostics and Microbiology. Increased selling, general and administrative
expenses in the Diagnostics and Microbiology segment resulted primarily from:
(a) increased selling, general and administrative expenses as a result of
acquired businesses (approximately $2.7 million), (b) increased amortization of
intangibles primarily as a result of acquisitions (approximately $1.2 million),
(c) increased marketing expenses (approximately $1.2 million) and (d) increased
research and development expense (approximately $0.1 million). Increased
selling, general and administrative expenses were
18
<PAGE> 20
partially offset by decreased general and administrative expenses (approximately
$0.3 million).
Laboratory Equipment. Decreased selling, general and administrative expenses
in the Laboratory Equipment segment resulted primarily from: (a) decreased
marketing expenses (approximately $0.4 million) and (b) decreased general and
administrative expenses (approximately $0.1 million). Decreased selling, general
and administrative expenses were partially offset by: (a) increased selling,
general and administrative expenses as a result of acquired businesses
(approximately $0.1 million) and (b) increased amortization of intangibles
primarily as a result of acquisitions (approximately $0.1 million).
Professional Dental. Decreased selling, general and administrative expenses
in the Professional Dental segment resulted primarily from: (a) the
non-recurring 1999 Special Charges (approximately $2.0 million), (b) decreased
selling and marketing expenses (approximately $0.6 million), (c) reduced general
and administrative expenses (approximately $0.3 million) and (d) decreased
research and development expenses (approximately ($0.2 million).
Orthodontics. Increased selling, general and administrative expenses in the
Orthodontics segment resulted primarily from: (a) increased general and
administrative expenses (approximately $0.9 million), (b) increased selling,
general and administrative expenses as a result of acquired companies
(approximately $0.2 million), (c) increased amortization of intangibles
primarily as a result of acquisitions (approximately $0.2 million) and (d)
unfavorable foreign currency fluctuations (approximately $0.1 million).
Increased selling, general and administrative expenses in the Orthodontics
segment were partially offset by (a) the non-recurring 1999 Special Charges
(approximately $0.7 million) and (b) decreased research and development expenses
(approximately $0.1 million).
Infection Control Products. Increased selling, general and administrative
expenses in the Infection Control Products segment resulted primarily from: (a)
increased selling, general and administrative expenses as a result of acquired
companies (approximately $0.1 million), (b) amortization of intangibles
primarily from acquired businesses (approximately $0.1 million) and (c)
increased general and administrative expenses (approximately $0.1 million).
Increased selling, general and administrative expenses were partially offset by
decreased selling and marketing expenses (approximately $0.2 million).
Corporate Office. Increased selling, general and administrative expenses at
the corporate office resulted primarily from: (a) an increase in legal expense
and professional fees (approximately $0.6 million).
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<PAGE> 21
<TABLE>
<CAPTION>
OPERATING INCOME.
PERCENT OF PERCENT OF DOLLAR PERCENT
OPERATING INCOME: (IN THOUSANDS) 1999 SALES 2000 SALES CHANGE CHANGE
- -------------------------------- --------- ----- -------- ----- -------- ------
SLP:
<S> <C> <C> <C> <C> <C> <C>
Labware and Life Sciences $ 12,707 23.3% $ 17,652 22.1% $ 4,945 38.9%
Clinical and Industrial 9,456 23.5% 12,699 24.5% 3,243 34.3%
Diagnostics and Microbiology 9,155 24.8% 13,159 26.0% 4,004 43.7%
Laboratory Equipment 4,781 19.4% 4,519 20.1% (262) (5.5)%
--------- ---- -------- ---- ------- -----
Subtotal SLP 36,099 23.1% 48,029 23.4% 11,930 33.0%
SDS:
Professional Dental 8,302 18.4% 13,029 27.4% 4,727 56.9%
Orthodontics 10,234 24.7% 10,134 25.3% (100) (1.0)%
Infection Control Products 719 13.3% 580 10.2% (139) (19.3)%
--------- ---- -------- ---- ------- -----
Subtotal SDS 19,255 20.9% 23,743 25.4% 4,488 23.3%
Corporate Office (2,475) N/A (3,087) N/A (612) 24.7%
--------- ---- -------- ---- ------- -----
Total Operating Income $ 52,879 21.3% $ 68,685 23.0% $15,806 29.9%
========= ==== ======== ==== ======= =====
</TABLE>
As a result of the foregoing, operating income in the first quarter of
fiscal 2000 increased by 29.9% or $15.8 million over operating income in the
corresponding quarter of fiscal 1999.
INTEREST EXPENSE.
Interest expense was $17.9 million in the first quarter of fiscal 2000, an
increase of $3.8 million from the corresponding fiscal 1999 quarter. The
increase resulted from a higher average debt balance in 2000, resulting
primarily from funding acquisitions (partially offset by the application of
proceeds from the sale of Nalge Process Technologies Group, Inc. ("NPT") in
March 1999) and an increase in average interest rates primarily due from the
addition of a Term B Loan in July 1999.
INCOME TAXES.
Taxes on income from continuing operations in the first quarter of fiscal
2000 were $20.1 million, an increase of $4.5 million from the corresponding 1999
quarter. The increase resulted primarily from increased taxable earnings.
INCOME FROM CONTINUING OPERATIONS.
As a result of the foregoing we had net income from continuing operations of
$30.4 million in the first quarter of fiscal 2000, as compared to $23.3 million
in the corresponding 1999 period.
DISCONTINUED OPERATIONS.
Income from discontinued operations was $0.5 million in the first quarter of
fiscal 1999. The 1999 discontinued operations resulted from the operating
results of NPT. On March 31, 1999 Sybron completed the sale of NPT to Norton
Performance Plastics Corporation, a subsidiary of Saint-Gobain-France. Net
proceeds from the sale, net of $1.9 million of selling expenses and a reduction
to the original purchase price of approximately $2.6 million, amounted to $83.2
million. The proceeds of the sale net of tax and expenses were used to repay
approximately $67.9 million of debt under the Company's credit facilities.
20
<PAGE> 22
NET INCOME.
As a result of the foregoing, we had net income of $30.4 million in the
first quarter of fiscal 2000, as compared to net income of $23.9 million in the
corresponding 1999 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 $5.0 million in the first quarter of fiscal 2000 due to
additional depreciation and amortization from the step-up of assets, goodwill
and intangibles recorded from the various acquisitions as well as routine
operating capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the acquisition of Sybron's predecessor in 1987 and the
acquisitions we completed since 1987, we have increased the carrying value of
certain tangible and intangible assets consistent with generally accepted
accounting principles. Accordingly, our results of operations include a
significant level of non-cash expenses related to the depreciation of fixed
assets and the amortization of intangible assets, including goodwill. Goodwill
and other intangible assets increased by approximately $84.2 million in the
first quarter of fiscal 2000, primarily as a result of continued acquisition
activity. We believe, therefore, that Adjusted 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 1987 acquisition and our
subsequent refinancings, our obligation to pay rent under the Sale/Leaseback
facility (as defined later herein), our working capital needs, primarily related
to inventory and accounts receivable, our capital expenditures, primarily
related to purchases of machinery and molds, the purchase of various businesses
and product lines in execution of our acquisition strategy and the periodic
expansion of physical facilities. 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.
The preceding statement about 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 or use of stock for acquisitions, the cost of 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. See "Cautionary Factors" below.
Approximately $21.5 million of cash was generated from operating activities
in the first quarter of fiscal 2000, an increase of $3.0 million or 16.1%, from
the corresponding 1999 period. Increased cash flow from operating activities
resulted primarily from an increase in Adjusted EBITDA (approximately $17.7
million), a decrease in taxes paid (approximately $6.1 million) partially offset
by increases in
21
<PAGE> 23
other net assets (approximately $18.3 million) and an increase in interest paid
(approximately $2.5 million). Approximately $100.2 million of cash was used in
investing activities in the first quarter of fiscal 2000, an increase of $40.3
million, or 67.2%, from the corresponding 1999 period. Increased investing
activities resulted primarily from an increase in acquisitions (approximately
$38.6 million), increased capital expenditures (approximately $2.0 million)
partially offset by an increase in the proceeds from sales of property plant and
equipment (approximately $0.3 million). Approximately $84.0 million of cash was
provided from financing activities, primarily from the Company's existing Credit
Facilities (approximately $90.6 million), partially offset by a refund of
collateral under a securities loan agreement (approximately $2.8 million), and
repayments of other financing sources (approximately $3.8 million). With respect
to the 1998 restructuring charge of approximately $24.0 million, of which
approximately $11.7 million represents cash expenditures, as of December 31,
1999, we have made cash payments of approximately $9.9 million. The Company
expects to make future cash payments of approximately $0.7 million in fiscal
2000 and approximately $1.1 million in fiscal 2001 and beyond.
On July 31, 1995, we entered into a credit agreement (as amended to date,
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 "Tranche A Term Loan Facility"), and a revolving credit
facility of $250 million (the "Revolving Credit Facility"). On the same day, we
borrowed $300 million under the Tranche A 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 Amendment was an expansion of the credit
facilities. The Tranche A 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 Eurodollar Rate and Tranche A 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 Tranche A 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 provided us with the ability to use proceeds from the
issuance of additional unsecured, subordinated 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. On July 29, 1999, we entered into the Third Amended and Restated Credit
Agreement (the "Third Amendment") and borrowed an additional $300 million under
a new term loan facility (the "Tranche B Term Loan Facility"). On July 29, 1999,
we used the $300 million of proceeds
22
<PAGE> 24
from the Tranche B Term Loan Facility (after a reduction for fees of
approximately $1.6 million) to repay $298.4 million of outstanding amounts under
the Revolving Credit Facility.
Payment of principal and interest with respect to the credit facilities and
the Sale/Leaseback (as defined later herein) are anticipated to be our largest
use of operating funds in the future. The Tranche A Term Loan Facility and
Revolving Credit Facility 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 "Tranche
A ABR") or (b) the adjusted interbank offered rate for eurodollar deposits
("Eurodollar Rate") plus 1/2% to 7/8% (the "Tranche A Eurodollar Rate Margin")
depending upon the ratio of our total debt to Consolidated Adjusted Operating
Profit (as defined in the Third Amendment), or (c) with respect to certain
advances under Revolving Credit Facility, the rate set by the competitive bid
process among the parties to the Revolving Credit Facility ("CAF"). The Tranche
B Term Loan Facility provides 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 plus 1% to 1 1/4%, (ii) the federal funds
rate plus of 1 1/2% to 1 3/4%, and (iii) the base CD rate plus 2% to 2 1/4%,
depending upon the ratio of our total debt to Consolidated Adjusted Operating
Profit or (b) the Eurodollar Rate plus 2% to 2 1/4% depending upon the ratio of
our total debt to Consolidated Adjusted Operating Profit. The average interest
rate on the Tranche A Term Loan Facility (inclusive of the swap agreements
described below) in the first quarter of fiscal 2000 was 6.3%. The average
interest rate on the Tranche B Term Loan Facility in the first quarter of fiscal
2000 was 7.7%. The average interest rate on the Revolving Credit Facility in the
first quarter of fiscal 2000 was 6.5%.
As a result of the terms of our credit facilities, we are sensitive to a
rise in interest rates. A rise in interest rates would result in increased
interest expense on our outstanding debt. In order to reduce our sensitivity to
interest rate increases, from time to time we enter into interest rate swap
agreements. As of December 31, 1999, the Company has eight interest rate swaps
outstanding aggregating a notional amount of $383.5 million. Under the terms of
the swap agreements, the Company is required to pay a fixed rate amount equal to
the swap agreement rate listed below. In exchange for the payment of the fixed
rate amount, the Company receives a floating rate amount equal to the
three-month LIBOR rate in effect on the date of the swap agreements and the
subsequent reset dates. For each of the swap agreements the rate resets on each
quarterly anniversary of the swap agreement date until the swap expiration date.
The net interest rate paid by the Company is approximately equal to the sum of
the swap agreement rate plus the applicable Eurodollar Rate Margin. In the first
quarter of fiscal 2000, the Tranche A and Revolver Eurodollar Rate Margins were
.75%. The Tranche B Eurodollar Margin, which became applicable on July 29, 1999,
was 2.0%. The swap agreement rates and durations as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
EXPIRATION DATE NOTIONAL AMOUNT SWAP AGREEMENT DATE SWAP AGREEMENT RATE
--------------- --------------- ------------------- -------------------
<S> <C> <C> <C>
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 5.900%
September 10, 2001 $50 million December 8, 1995 5.623%
December 31, 2001 $8.5 million March 24, 1999 5.500%
July 31, 2002 $75 million May 7, 1997 6.385%
July 31, 2002 $50 million October 23, 1998 4.733%
October 1, 2002 $50 million October 1, 1999 6.260%
</TABLE>
23
<PAGE> 25
Also as part of the permanent financing for the acquisition of Sybron's
predecessor in 1987, 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 would have to raise additional capital.
The Revolving Credit Facility provides up to $600 million in available
credit. At December 31, 1999, there was approximately $224.6 million of
available credit under the Revolving Credit Facility. Under the Tranche A 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, during the first half of fiscal 1999, $17.5
million of the $36.25 million due in fiscal 1999. On March 31, 1999, as a result
of the sale of NPT, the Company received approximately $87.7 million
(approximately $86.0 million net of fees and expenses). The net proceeds were
subsequently reduced in October 1999 by approximately $2.8 million relating to a
reduction in the purchase price of approximately $2.6 million and additional
fees of $0.2 million. Net proceeds of the sale, after a reduction for estimated
applicable income taxes, were required to be used to repay amounts owed by the
Company under the Tranche A Term Loan Facility. On March 31, 1999, the Company
paid principal of approximately $67.9 million due under the Tranche A Term Loan
Facility. The following table shows how the payments were applied, and the
resulting revised schedule of principal payments under the Tranche A Term Loan
Facility.
<TABLE>
<CAPTION>
PAYMENTS PREVIOUSLY PRINCIPAL DUE
APPLIED FROM SCHEDULED AFTER APPLICATION
NPT SALE PRINCIPAL OF NPT PROCEEDS
-------- --------- ---------------
<S> <C> <C> <C>
(IN MILLIONS)
Payments previously due in fiscal 1999 $ 18.75 $ 18.75 $ -
Payments due in 2000 42.50 42.50 -
Payments due in 2001 1.29 53.75 52.46
Payments due in 2002 5.37 223.75 218.38
------- -------- --------
Total $ 67.91 $ 338.75 $ 270.84
======= ======== ========
</TABLE>
In addition, under the terms of the Tranche B Term Loan Facility, the
Company will be required to repay principal in consecutive quarterly
installments beginning on January 31, 2000 as follows: $0.75 million due in
fiscal 2000, $1.0 million due in fiscal 2001, $1.0 million due in fiscal 2002,
$120.25 million due in fiscal 2003 and $177 million due in fiscal 2004, with the
final payment due on July 31, 2004. To secure the repayment of borrowings under
the Credit Agreement, the Company has pledged to Chase, as collateral agent for
the lenders, all of the capital stock of the Company's principal domestic
24
<PAGE> 26
subsidiaries and 65% of the capital stock of its principal foreign subsidiaries
(excluding capital stock not owned by the Company directly or indirectly, and
also excluding certain immaterial subsidiaries), and certain intra-company
promissory notes issued in connection with the acquisition of Nunc.
The Credit Agreement contains numerous financial and operating covenants,
including, among other things, restrictions on investments; requirements that we
maintain certain financial ratios; restrictions on our ability to incur
indebtedness or to create or permit liens or to pay cash dividends in excess of
$50.0 million plus 50% of our consolidated net income for each fiscal quarter
ending after June 30, 1995, less any dividends paid after June 22, 1994; and
limitations on incurrence of additional indebtedness. The Credit Agreement
permits us to make acquisitions provided we continue to satisfy all 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
We did not experience any significant malfunctions or errors in our
information or non-information technology systems when the date changed from
1999 to 2000, and we have not experienced any significant problems with our
suppliers' or customers' ability to function as a result of the date change.
Because it is possible that the full impact of the date change has not been
fully recognized, we will continue to monitor our Y2K situation, particularly
through additional key dates such as February 29, 2000. We believe, however,
that any potential problems are likely to be minor, short-term, and correctable.
From the beginning of fiscal 1998 through the first quarter of fiscal
2000, the Company incurred approximately $3.0 million in capital costs and
approximately $1.5 million in expenses for Y2K readiness matters. The primary
components of these costs were external consulting and hardware and software
upgrades. We did not separately track internal costs (primarily payroll costs of
employees) of our initiative.
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.
25
<PAGE> 27
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 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 economic downturns
in other countries.
- - 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.
- - Our reliance on major independent distributors for a substantial
portion of our sales subjects our sales performance to volatility in
demand if distributor inventories get out of balance with end user
demand. This can happen when distributors merge or consolidate, or when
inventories are not managed to end-user demand.
- - 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.
26
<PAGE> 28
- - 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
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.
- - 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.
27
<PAGE> 29
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 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 Euro, Danish Krone 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 November 1999 we entered into nine
foreign currency options to hedge our exposure to each of the aforementioned
currencies.
In 2000, 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>
Euro (EUR) 42,000 EUR $44,520
Danish Krone (DKK) 87,400 DKK 12,485
Japanese Yen (JPY) 800,000 JPY 7,619
</TABLE>
As a result of these anticipated exposures, we entered into a series of
options expiring at the end of the second, third and fourth quarters of 2000 to
protect ourselves from possible detrimental effects of foreign currency
fluctuations. 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 purchased put options on the
foreign currencies at amounts approximately equal to our quarterly exposure. The
EUR and DKK options expire on a quarterly basis, at an exchange rate
approximately equal to the spot exchange rate at the date of purchase for each
of the respective currencies. The JPY options expire on a quarterly basis at an
exchange rate approximately equal to the prior year's respective quarters actual
exchange rate. In November 1999, we acquired the following put options:
28
<PAGE> 30
<TABLE>
<CAPTION>
NOTIONAL OPTION STRIKE
CURRENCY AMOUNT(A) EXPIRATION DATE PRICE PRICE(B)
-------- --------- --------------- ----- --------
(In thousands, except strike prices)
<S> <C> <C> <C> <C>
EUR 10,500 March 29, 2000 $ 250 .9524
EUR 10,500 June 28, 2000 297 .9524
EUR 10,500 September 26, 2000 329 .9524
DKK 21,850 March 29, 2000 88 7.00
DKK 21,850 June 28, 2000 103 7.00
DKK 21,850 September 26, 2000 114 7.00
JPY 200,000 March 29, 2000 9 116.00
JPY 200,000 June 28, 2000 10 120.00
JPY 200,000 September 26, 2000 24 115.00
</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. To
illustrate this, the following example, uses the Euro contract due to expire at
September 26, 2000.
<TABLE>
<CAPTION>
EUR EXCHANGE GAIN/(LOSS) GAIN/(LOSS)
RATE ON OPTION (A) FROM PRIOR YEAR RATE (B) NET GAIN/(LOSS)
------------ ------------- ------------------------ ---------------
(IN THOUSANDS, EXCEPT EXCHANGE RATE)
<S> <C> <C> <C>
.90 $ (329) $ 659 $ 330
.95 (329) 45 (284)
1.0 196 (507) (311)
</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/prior year
exchange rate of .9539).
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 Eurodollar Rate. Interest
rate risk management is accomplished by the use of swaps to create fixed
interest rate debt by resetting Eurodollar Rate loans concurrently with the
rates applying to the swap agreements. At December 31, 1999 we had floating rate
debt of approximately $943.2 million of which a total of $383.5 million was
swapped to fixed rates. The net interest rate paid by the Company is
approximately equal to the sum of the swap agreement rate plus the applicable
Eurodollar Rate Margin. In the first quarter of fiscal 2000, the Tranche A and
Revolver Eurodollar Rate Margins were .75%. The Tranche B Eurodollar Margin,
which became applicable on July 29, 1999, was 2.0%. The swap agreement rates and
durations as of September 30, 1999 are as follows:
29
<PAGE> 31
<TABLE>
<CAPTION>
EXPIRATION DATE NOTIONAL AMOUNT SWAP AGREEMENT DATE SWAP AGREEMENT RATE
--------------- --------------- ------------------- -------------------
<S> <C> <C> <C>
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 5.900%
September 10, 2001 $50 million December 8, 1995 5.623%
December 31, 2001 $8.5 million March 24, 1999 5.500%
July 31, 2002 $75 million May 7, 1997 6.385%
July 31, 2002 $50 million October 23, 1998 4.733%
October 1, 2002 $50 million October 1, 1999 6.260%
</TABLE>
In addition to the aforementioned swaps, on September 29, 1999, the Company
entered into a repurchase agreement in which we purchased a United States
Treasury Bond ("Treasury") with a par value of $50 million, an interest rate of
6.15% and a maturity date of August 15, 2029. Concurrent with the purchase of
the Treasury, the Company lent the security to an unrelated third party for a
period of 23 years. In exchange for the loaned Treasury, the Company has
received collateral equal to the market value of the Treasury on the date of the
loan, and adjusted on a weekly basis. For a period of five years the Company is
obligated to pay a rebate on the loaned collateral at an annual fixed rate of
6.478% and is entitled to receive a fee for the loan of the security at a
floating rate equal to LIBOR minus .75%. Thereafter, the Company is required to
pay the unrelated third party a collateral fee equal to the one-week general
collateral rate of interest (as determined weekly in good faith by the unrelated
third party, provided that such rate shall not exceed the federal funds rate in
effect as of the day of determination plus .25%).
The model below quantifies the Company's sensitivity to interest rate
movements as determined by the Eurodollar Rate and the effect of the interest
rate swaps which reduce that risk. The model assumes a) a base Eurodollar Rate
of 6.00% (the "Eurodollar Base Rate") which approximates the December 31, 1999
three month Eurodollar Rate, b) the Company's floating rate debt is equal to
it's December 31, 1999 floating rate debt balance of $943.8 million, c) the
Company pays interest on floating rate debt equal to the Eurodollar Rate + 75
basis points, d) the Company has interest rate swaps (including the repurchase
agreement) with a notional amount of $433.5 million (equal to the notional
amount of the Company's interest rate swaps at December 31, 1999), and e) the
Eurodollar Rate varies by 10% of the Base Rate.
<TABLE>
<CAPTION>
INTEREST EXPENSE INCREASE FROM A 10% INTEREST EXPENSE DECREASE FROM A 10%
INTEREST RATE EXPOSURE INCREASE IN THE EURODOLLAR BASE RATE DECREASE IN THE EURODOLLAR BASE RATE
- ---------------------- ------------------------------------ ------------------------------------
<S> <C> <C>
Without interest rate swaps: $5.7 million ($5.7 million)
With interest rate swaps: $3.1 million ($3.1 million)
</TABLE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Quorum
The Company, a Wisconsin corporation, held its Annual Meeting of
Shareholders on February 2, 2000. A quorum was present at the Annual Meeting,
with 94,984,653 shares out of a total of 104,026,205 shares entitled to cast
votes represented in person or by proxy at the meeting.
30
<PAGE> 32
Proposal Number 1: To Elect Two Directors to Serve as Class II Directors
Until the 2003 Annual Meeting of Shareholders and Until
Their Respective Successors are Duly Elected and
Qualified.
The shareholders voted to elect Thomas O. Hicks and Robert B. Haas to serve
as Class II directors until the 2003 Annual Meeting of Shareholders and until
their respective successors are duly elected and qualified. The results of the
vote are as follows:
Mr. Hicks Mr. Haas
For 78,436,131 93,863,224
Withheld From 16,548,522 1,121,429
The terms of office as directors of Kenneth F. Yontz, Joe L. Roby, William
U. Parfet, Christopher L. Doerr, Don H. Davis, Jr. and Richard W. Vieser
continued after the meeting.
Proposal Number 2: To Reapprove the Sybron International Corporation Senior
Executive Incentive Compensation Plan, as Amended, as
Required by Section 162(m) of the Internal Revenue Code.
The shareholders voted to reapprove the Sybron International Corporation
Senior Executive Incentive Compensation Plan. The results of the vote are as
follows:
For 92,889,440
Against 2,024,333
Abstentions 70,880
Broker Non-Votes 0
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.
31
<PAGE> 33
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 14, 2000 /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.
32
<PAGE> 34
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, 1999
<TABLE>
<CAPTION>
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
<S> <C> <C> <C>
3 Bylaws of Sybron International X
Corporation, Adopted December 10, 1993
and Amended as of December 22, 1999
27 Financial Data Schedule X
</TABLE>
EI-1
<PAGE> 1
BYLAWS
OF
SYBRON INTERNATIONAL CORPORATION
ADOPTED DECEMBER 10, 1993
AND AMENDED AS OF DECEMBER 22, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I Offices; Records
<S> <C> <C>
1.01. Principal and Business Offices...........................................................................1
1.02. Registered Office and Registered Agent...................................................................1
1.03. Corporate Records........................................................................................1
ARTICLE II Shareholders
2.01. Annual Meeting...........................................................................................1
2.02. Special Meetings.........................................................................................2
2.03. Place of Meeting.........................................................................................2
2.04. Notices to Shareholders..................................................................................2
(a) Required Notice................................................................................2
(b) Adjourned Meeting..............................................................................2
(c) Waiver of Notice..............................................................................2
(d) Contents of Notice...........................................................................2
(e) Fundamental Transactions.......................................................................3
2.05. Fixing of Record Date....................................................................................3
2.06. Shareholder List.........................................................................................3
2.07. Quorum and Voting Requirements...........................................................................3
2.08. Conduct of Meetings......................................................................................4
2.09. Proxies..................................................................................................4
2.10. Voting of Shares.........................................................................................4
2.11. Notice of Shareholder Nomination(s) and/or Proposal(s)...................................................5
ARTICLE III Board of Directors
3.01. General Powers and Number................................................................................6
3.02. Election, Removal, Tenure and Qualifications.............................................................6
3.03. Regular Meetings........................................................................................7
3.04. Special Meetings.......................................................................................7
3.05. Meetings By Telephone or Other Communication Technology..................................................7
3.06. Notice of Meetings.....................................................................................7
3.07. Quorum...................................................................................................7
3.08. Manner of Acting.........................................................................................8
3.09. Conduct of Meetings......................................................................................8
3.10. Vacancies................................................................................................8
3.11. Compensation.............................................................................................8
3.12. Presumption of Assent....................................................................................8
3.13. Committees...............................................................................................8
ARTICLE IV Officers
4.01. Appointment..............................................................................................9
4.02. Resignation and Removal..................................................................................9
4.03. Vacancies................................................................................................9
4.04. Chairperson of the Board.................................................................................9
4.05. Chief Executive Officer..................................................................................9
4.06. President................................................................................................9
4.07. Vice Presidents.........................................................................................10
4.08. Secretary...............................................................................................10
4.09. Treasurer...............................................................................................10
4.10. Assistants and Acting Officers..........................................................................10
4.11. Bonding.................................................................................................10
</TABLE>
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<TABLE>
<S> <C> <C>
4.12. Salaries................................................................................................11
ARTICLE V Certificates for Shares and Their Transfer
5.01. Certificates for Shares.................................................................................11
5.02. Signature by Former Officers............................................................................11
5.03. Transfer of Shares......................................................................................11
5.04. Restrictions on Transfer................................................................................11
5.05. Lost, Destroyed or Stolen Certificates..................................................................11
5.06. Consideration for Shares................................................................................12
5.07. Stock Regulations.......................................................................................12
ARTICLE VI Waiver of Notice
6.01. Shareholder Written Waiver............................................................................12
6.02. Shareholder Waiver by Attendance........................................................................12
6.03. Director Written Waiver.................................................................................12
6.04. Director Waiver by Attendance...........................................................................12
ARTICLE VII Action Without Meetings
7.01. Shareholder Action Without Meeting......................................................................12
7.02. Director Action Without Meeting.........................................................................13
ARTICLE VIII Indemnification
8.01. Indemnification for Successful Defense..................................................................13
8.02. Other Indemnification...................................................................................13
8.03. Written Request.........................................................................................14
8.04. Nonduplication..........................................................................................14
8.05. Determination of Right to Indemnification...............................................................14
8.06. Advance of Expenses.....................................................................................15
8.07. Nonexclusivity..........................................................................................15
8.08. Court-Ordered Indemnification...........................................................................15
8.09. Indemnification and Allowance of Expenses of Employes and Agents........................................16
8.10. Insurance...............................................................................................16
8.11. Securities Law Claims...................................................................................16
8.12. Liberal Construction...................................................................................16
8.13. Definitions Applicable to this Article..................................................................16
ARTICLE IX Miscellaneous
9.01. Seal....................................................................................................17
9.02. Fiscal Year.............................................................................................17
ARTICLE X Amendments
10.01. By Shareholders.........................................................................................17
10.02. By Directors............................................................................................18
10.03. Implied Amendments......................................................................................18
</TABLE>
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ARTICLE I
OFFICES; RECORDS
1.01. Principal and Business Offices. The corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02. Registered Office and Registered Agent. The registered office of
the corporation required by the Wisconsin Business Corporation Law to be
maintained in the State of Wisconsin may be, but need not be, identical with the
principal office in the State of Wisconsin. The address of the registered office
may be changed from time to time by any officer or by the registered agent. The
office of the registered agent of the corporation shall be identical to such
registered office.
1.03. Corporate Records. The following documents and records shall be
kept at the corporation's principal office or at such other reasonable location
as may be specified by the corporation:
(a) Minutes of shareholders' and Board of Directors'
meetings and any written notices thereof.
(b) Records of actions taken by the shareholders or
directors without a meeting.
(c) Records of actions taken by committees of the Board of
Directors.
(d) Accounting records.
(e) Records of its shareholders.
(f) Current Bylaws.
(g) Written waivers of notice by shareholders or directors
(if any).
(h) Written consents by shareholders or directors for
actions without a meeting (if any).
(i) Voting trust agreements (if any).
(j) Stock transfer agreements to which the corporation is
a party or of which it has notice (if any).
(k) Consents by shareholders and directors to receive
notice via electronic transmission (if any).
ARTICLE II
SHAREHOLDERS
2.01. Annual Meeting. The annual meeting of the shareholders shall be
held on such date and at such time in each fiscal year as may be fixed by or
under the authority of the Board of Directors for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting is a legal holiday in the State
of Wisconsin, such meeting shall be held on the next succeeding business day. If
the election of directors is not held on the day designated herein, or fixed as
herein provided, for any annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a meeting of the shareholders as soon thereafter as may be convenient.
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2.02. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Chairperson of the Board, if there is one, or pursuant to a resolution
adopted by a majority of the members of the Board of Directors. If and as
required by the Wisconsin Business Corporation Law, a special meeting shall be
called upon written demand describing one or more purposes for which it is to be
held by holders of shares with at least 10% of the votes entitled to be cast on
any issue proposed to be considered at the meeting. The purpose or purposes of
any special meeting shall be described in the notice required by Section 2.04 of
these Bylaws.
2.03. Place of Meeting. The Board of Directors may designate any place,
either within or without the State of Wisconsin, as the place of meeting for any
annual meeting or any special meeting. If no designation is made, the place of
meeting shall be the principal office of the corporation but any meeting may be
adjourned to reconvene at any place designated by vote of a majority of the
shares represented thereat.
2.04. Notices to Shareholders.
(a) Required Notice. Written notice stating the place, day
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) days nor more than sixty (60) days before the date of the meeting (unless a
different time is provided by law or the Articles of Incorporation), by or at
the direction of the Chairperson of the Board, if there is one, the President or
the Secretary, to each shareholder entitled to vote at such meeting or, for the
fundamental transactions described in subsections (e)(1) to (4) below (for which
the Wisconsin Business Corporation Law requires that notice be given to
shareholders not entitled to vote), to all shareholders. For purposes of this
Section 2.04, notice by "electronic transmission" (as defined in the Wisconsin
Business Corporation Law) is written notice. Written notice is effective:
(1) When mailed, if mailed postpaid and
addressed to the shareholder's address shown
in the corporation's current record of
shareholders.
(2) When electronically transmitted to the
shareholder in a manner authorized by the
shareholder.
At least twenty (20) days' notice shall be provided if the purpose, or
one of the purposes, of the meeting is to consider a plan of merger or share
exchange for which shareholder approval is required by law, or the sale, lease,
exchange or other disposition of all or substantially all of the corporation's
property, with or without good will, otherwise than in the usual and regular
course of business.
(b) Adjourned Meeting. Except as provided in the next
sentence, if any shareholder meeting is adjourned to a different date, time, or
place, notice need not be given of the new date, time, and place, if the new
date, time, and place is announced at the meeting before adjournment. If a new
record date for the adjourned meeting is or must be fixed, then notice must be
given pursuant to the requirements of paragraph (a) of this Section 2.04, to
those persons who are shareholders as of the new record date.
(c) Waiver of Notice. A shareholder may waive notice in
accordance with Article VI of these Bylaws.
(d) Contents of Notice. The notice of each special
shareholder meeting shall include a description of the purpose or purposes for
which the meeting is called. Except as otherwise provided in subsection (e) of
this Section 2.04, in the Articles of Incorporation, or in the Wisconsin
Business Corporation Law, the notice of an annual shareholder meeting need not
include a description of the purpose or purposes for which the meeting is
called.
(e) Fundamental Transactions. If a purpose of any
shareholder meeting is to consider either: (1) a proposed amendment to the
Articles of Incorporation (including any restated articles); (2) a plan of
merger or share exchange for which shareholder approval is required by law; (3)
the sale, lease, exchange or other disposition of all or substantially all of
the corporation's property, with or without good will, otherwise than in the
usual and regular course of business; (4) the dissolution of the corporation; or
(5) the removal of a director, the notice must so state and in cases
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(1), (2) and (3) above must be accompanied by, respectively, a copy or summary
of the: (1) proposed articles of amendment or a copy of the restated articles
that identifies any amendment or other change; (2) proposed plan of merger or
share exchange; or (3) proposed transaction for disposition of all or
substantially all of the corporation's property. If the proposed corporate
action creates dissenters' rights, the notice must state that shareholders and
beneficial shareholders are or may be entitled to assert dissenters' rights, and
must be accompanied by a copy of Sections 180.1301 to 180.1331 of the Wisconsin
Business Corporation Law.
2.05. Fixing of Record Date. The Board of Directors may fix in advance
a date as the record date for one or more voting groups for any determination of
shareholders entitled to notice of a shareholders' meeting, to demand a special
meeting, to vote, or to take any other action, such date in any case to be not
more than seventy (70) days prior to the meeting or action requiring such
determination of shareholders, and may fix the record date for determining
shareholders entitled to a share dividend or distribution. If no record date is
fixed for the determination of shareholders entitled to demand a shareholder
meeting, to notice of or to vote at a meeting of shareholders, or to consent to
action without a meeting, (a) the close of business on the day before the
corporation receives the first written demand for a shareholder meeting, (b) the
close of business on the day before the first notice of the meeting is mailed or
otherwise delivered to shareholders, or (c) the close of business on the day
before the first written consent to shareholder action without a meeting is
received by the corporation, as the case may be, shall be the record date for
the determination of shareholders. If no record date is fixed for the
determination of shareholders entitled to receive a share dividend or
distribution (other than a distribution involving a purchase, redemption or
other acquisition of the corporation's shares), the close of business on the day
on which the resolution of the Board of Directors is adopted declaring the
dividend or distribution shall be the record date. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall be applied to any adjournment
thereof unless the Board of Directors fixes a new record date and except as
otherwise required by law. A new record date must be set if a meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting.
2.06. Shareholder List. The officer or agent having charge of the stock
transfer books for shares of the corporation shall, before each meeting of
shareholders, make a complete record of the shareholders entitled to notice of
such meeting, arranged by class or series of shares and showing the address of
and the number of shares held by each shareholder. The shareholder list shall be
available at the meeting and may be inspected by any shareholder or his or her
agent or attorney at any time during the meeting or any adjournment. Any
shareholder or his or her agent or attorney may inspect the shareholder list
beginning two (2) business days after the notice of the meeting is given and
continuing to the date of the meeting, at the corporation's principal office or
at a place identified in the meeting notice in the city where the meeting will
be held and, subject to Section 180.1602(2)(b)3. to 5. of the Wisconsin Business
Corporation Law, may copy the list, during regular business hours and at his or
her expense, during the period that it is available for inspection hereunder.
The original stock transfer books and nominee certificates on file with the
corporation (if any) shall be prima facie evidence as to who are the
shareholders entitled to inspect the shareholder list or to vote at any meeting
of shareholders. Failure to comply with the requirements of this section shall
not affect the validity of any action taken at such meeting.
2.07. Quorum and Voting Requirements. Except as otherwise provided in
the Articles of Incorporation or the Wisconsin Business Corporation Law, a
majority of the votes entitled to be cast by shares entitled to vote as a
separate voting group on a matter, represented in person or by proxy, shall
constitute a quorum of that voting group for action on that matter at a meeting
of shareholders. If a quorum shall not be present or represented at any meeting
of the shareholders, the shareholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. If a quorum
exists, action on a matter, other than the election of directors, by a voting
group is approved if the votes cast within the voting group favoring the action
exceed the votes cast opposing the action unless a greater number of affirmative
votes is required by the Wisconsin Business Corporation Law or the Articles of
Incorporation. If the Articles of Incorporation or the Wisconsin Business
Corporation Law provide for voting by two (2) or more voting groups on a matter,
action on that matter is taken only when voted upon by each of those voting
groups counted separately. Action may be taken by one (1) voting group on a
matter even though no action is taken by another voting group entitled to vote
on the matter. Once a share is represented for any purpose at a meeting, other
than for the purpose of objecting to holding the meeting or
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transacting business at the meeting, it is considered present for purposes of
determining whether a quorum exists for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
meeting.
2.08. Conduct of Meetings. The Chairperson of the Board, or if there is
none, or in his or her absence, the Chief Executive Officer, and in the Chief
Executive Officer's absence, the President, and in the President's absence, a
Vice President, in the order provided under Section 4.07 of these Bylaws, and in
their absence, any person chosen by the shareholders present shall call the
meeting of the shareholders to order and shall act as chairperson of the
meeting, and the Secretary shall act as secretary of all meetings of the
shareholders, but, in the absence of the Secretary, the presiding officer may
appoint any other person to act as secretary of the meeting.
2.09. Proxies. At all meetings of shareholders, a shareholder entitled
to vote may vote in person or by proxy appointed as provided in the Wisconsin
Business Corporation Law. The means by which a shareholder or the shareholder's
authorized officer, director, employee, agent or attorney-in-fact may authorize
another person to act for the shareholder by appointing the person as proxy
include:
(a) Appointment of a proxy in writing by signing or
causing the shareholder's signature to be affixed to
an appointment form by any reasonable means,
including, but not limited to, by facsimile
signature.
(b) Appointment of a proxy by transmitting or authorizing
the transmission of an electronic transmission of the
appointment to the person who will be appointed as
proxy or to a proxy solicitation firm, proxy support
service organization or like agent authorized to
receive the transmission by the person who will be
appointed as proxy. Every electronic transmission
shall contain, or be accompanied by, information that
can be used to reasonably determine that the
shareholder transmitted or authorized the
transmission of the electronic transmission. Any
person charged with determining whether a shareholder
transmitted or authorized the transmission of the
electronic transmission shall specify the information
upon which the determination is made.
An appointment of a proxy is effective when a signed appointment form
or an electronic transmission of the appointment is received by the inspector of
election or the officer or agent of the corporation authorized to tabulate
votes. An appointment is valid for 11 months unless a different period is
expressly provided in the appointment. An appointment of a proxy is revocable
unless the appointment form or electronic transmission states that it is
irrevocable and the appointment is coupled with an interest. The presence of a
shareholder who has made an effective proxy appointment shall not of itself
constitute a revocation. The Board of Directors shall have the power and
authority to make rules that are not inconsistent with the Wisconsin Business
Corporation Law as to the validity and sufficiency of proxy appointments.
2.10. Voting of Shares. Each outstanding share shall be entitled to one
(1) vote on each matter submitted to a vote at a meeting of shareholders, except
to the extent that the voting rights of the shares are enlarged, limited or
denied by the Articles of Incorporation or the Wisconsin Business Corporation
Law. Shares owned directly or indirectly by another corporation are not entitled
to vote if this corporation owns, directly or indirectly, sufficient shares to
elect a majority of the directors of such other corporation. However, the prior
sentence shall not limit the power of the corporation to vote any shares,
including its own shares, held by it in a fiduciary capacity. Redeemable shares
are not entitled to vote after notice of redemption is mailed to the holders and
a sum sufficient to redeem the shares has been deposited with a bank, trust
company, or other financial institution under an irrevocable obligation to pay
the holders the redemption price on surrender of the shares.
2.11. Notice of Shareholder Nomination(s) and/or Proposal(s). Except
with respect to nomination(s) or proposal(s) adopted or recommended by the Board
of Directors for inclusion in the corporation's proxy statement for its annual
meeting, a shareholder entitled to vote at an annual meeting may nominate a
person or persons for election as director(s) or propose action(s) to be taken
at the meeting only if written notice of any shareholder nomination(s) and/or
proposal(s) to be considered for a vote at an annual meeting of shareholders is
delivered to the Secretary of the
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corporation personally or mailed by Certified Mail-Return Receipt Requested and
received at the principal business office of the corporation not less than sixty
(60) days nor more than ninety (90) days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the meeting is changed by more than thirty (30) days from such
anniversary date, notice by the shareholder (to be timely received) must be
received no later than the close of business on the tenth day following the
earlier of the day on which notice of the date of the meeting was mailed or
public disclosure of the meeting date was made; and provided further that,
notwithstanding the notice requirements contained herein, notice of any
shareholder nomination(s) and/or proposal(s) shall be deemed timely received by
the corporation for purposes of this Section 2.11 if such nomination(s) and/or
proposal(s) are delivered to the corporation in a timely fashion in order to be
considered for inclusion in the corporation's proxy material relating to the
meeting in accordance with the applicable proxy rules of the Securities and
Exchange Commission. With respect to shareholder nomination(s) for the election
of directors, each such notice shall set forth: (a) the name and address of the
shareholder who intends to make the nomination(s) and of the person or persons
to be nominated; (b) a representation that the shareholder is a holder of record
or a beneficial holder of stock of the corporation entitled to vote at such
meeting (including the number of shares the shareholder owns and the length of
time the shares have been held) and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (c) a
description of all relationships, arrangements and understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission
(whether or not such rules are applicable) had each nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the written consent
of each nominee to serve as a director of the corporation if so elected, with
such written consent attached thereto. With respect to shareholder proposal(s)
for action(s) to be taken at an annual meeting of shareholders, the notice shall
clearly set forth: (a) the name and address of the shareholder who intends to
make the proposal(s); (b) a representation that the shareholder is a holder of
record or a beneficial holder of the stock of the corporation entitled to vote
at the meeting (including the number of shares the shareholder owns and the
length of time the shares have been held) and intends to appear in person or by
proxy to make the proposal(s) specified in the notice; (c) the proposal(s) and a
brief supporting statement of such proposal(s); (d) any material interest of
such shareholder in the proposal(s); and (e) such other information regarding
the proposal(s) as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission
(whether or not such rules are applicable).
Except with respect to nomination(s) or proposal(s) adopted or
recommended by the Board of Directors for inclusion in the notice to
shareholders for a special meeting of shareholders, a shareholder entitled to
vote at a special meeting may nominate a person or persons for election as
director(s) and/or propose action(s) to be taken at a special meeting only if
written notice of any shareholder nomination(s) and/or proposal(s) to be
considered for a vote at a special meeting is delivered to the Secretary of the
Corporation personally or mailed by Certified Mail-Return Receipt Requested and
received at the principal business office of the corporation not later than the
close of business on the tenth day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure of the meeting
date was made. Only business within the purposes described in the notice to
shareholders of the special meeting may be considered at the special meeting.
All other notice requirements regarding shareholder nomination(s) and/or
proposal(s) applicable to annual meetings also apply to nomination(s) and/or
proposal(s) for special meetings.
The chairperson of the meeting may refuse to acknowledge the
nomination(s) and/or proposal(s) of any person made without compliance with the
foregoing procedures. This section shall not affect the corporation's rights or
responsibilities with respect to its proxies or proxy statement for any meeting.
Notwithstanding the foregoing provisions of this Section 2.11 of these Bylaws, a
shareholder shall also comply with all applicable requirements of law, including
without limitation the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder, with respect to the matters set forth herein.
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ARTICLE III
BOARD OF DIRECTORS
3.01. General Powers and Number. As provided in the Articles of
Incorporation, all corporate powers shall be exercised by or under the authority
of, and the business and affairs of the corporation shall be managed under the
direction of, its Board of Directors. The number of directors of the corporation
shall be no less than six and no more than nine (plus such number of directors
as may be elected from time to time pursuant to the terms of any preferred stock
that may be issued and outstanding from time to time), as determined by the
Board of Directors. The directors of the corporation shall be divided into three
classes ("Class I", "Class II" and "Class III"), as nearly equal in number as
possible, as determined by the Board of Directors. The term of office of the
Class III directors shall expire at the 1995 annual meeting of shareholders, the
term of office of the Class I directors shall expire at the 1996 annual meeting
of shareholders and the term of office of the Class II directors shall expire at
the 1997 annual meeting of shareholders, with each director to hold office until
his or her successor shall have been duly elected and qualified. At each annual
meeting of shareholders, directors elected to succeed those directors whose
terms then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of shareholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Articles of Incorporation or the resolution or resolutions adopted
by the Board of Directors pursuant to the Articles of Incorporation and
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Bylaw unless expressly provided by such terms.
3.02. Election, Removal, Tenure and Qualifications. Unless action is
taken without a meeting under Section 7.01 of these Bylaws, directors shall be
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a shareholders meeting at which a quorum is present; i.e., the
individuals with the largest number of votes in favor of their election are
elected as directors up to the maximum number of directors to be chosen in the
election. Votes against a candidate are not given legal effect and are not
counted as votes cast in an election of directors. In the event two (2) or more
persons tie for the last vacancy to be filled, a run-off vote shall be taken
from among the candidates receiving the tie vote. Each director shall hold
office until the annual meeting of shareholders at which his or her term expires
and until the director's successor shall have been elected or there is a
decrease in the number of directors, or until his or her prior death,
resignation or removal. If cumulative voting for directors is not authorized by
the Articles of Incorporation, any director or directors may be removed from
office by the shareholders by the affirmative vote of a majority of the votes
entitled to be cast in an election of directors, taken at a meeting of
shareholders called for that purpose (unless action is taken without a meeting
under Section 7.01 of these Bylaws), provided that the meeting notice states
that the purpose, or one of the purposes, of the meeting is removal of the
director. As provided in the Articles of Incorporation, the removal may be made
only for cause. If a director is elected by a voting group of shareholders, only
the shareholders of that voting group may participate in the vote to remove that
director. A director may resign at any time by delivering a written resignation
to the Board of Directors, to the Chairperson of the Board (if there is one), or
to the corporation through the Secretary or otherwise. Directors need not be
residents of the State of Wisconsin or shareholders of the corporation.
3.03. Regular Meetings. A regular meeting of the Board of Directors
shall be held, without notice other than this Bylaw, immediately after the
annual meeting of shareholders, and each adjourned session thereof, for the
purpose of electing officers and for the transaction of such other business as
may come before the meeting. The place of such regular meeting shall be the same
as the place of the meeting of shareholders which precedes it, or such other
suitable place as may be announced at such meeting of shareholders. The Board of
Directors and any committee may provide, by resolution, the time and place,
either within or without the State of Wisconsin, for the holding of additional
regular meetings without notice other than such resolution.
3.04. Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the Chairperson of the Board, if there is one,
the President or any two (2) directors. Special meetings of any committee
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may be called by or at the request of the foregoing persons or the chairperson
of the committee. The persons calling any special meeting of the Board of
Directors or committee may fix any place, either within or without the State of
Wisconsin, as the place for holding any special meeting called by them, and if
no other place is fixed the place of meeting shall be the principal office of
the corporation in the State of Wisconsin.
3.05. Meetings By Telephone or Other Communication Technology.
(a) Any or all directors may participate in a regular or
special meeting or in a committee meeting of the Board of Directors by, or
conduct the meeting through the use of, telephone or any other means of
communication by which either: (i) all participating directors may
simultaneously hear each other during the meeting, or (ii) all communication
during the meeting is immediately transmitted to each participating director,
and each participating director is able to immediately send messages to all
other participating directors.
(b) If a meeting will be conducted through the use of any
means described in paragraph (a), all participating directors shall be informed
that a meeting is taking place at which official business may be transacted. A
director participating in a meeting by any means described in paragraph (a) is
deemed to be present in person at the meeting.
3.06. Notice of Meetings. Except as otherwise provided in the Articles
of Incorporation or the Wisconsin Business Corporation Law, notice of the date,
time and place of any special meeting of the Board of Directors and of any
special meeting of a committee of the Board shall be given orally or in writing
to each director or committee member at least 48 hours prior to the meeting,
except that notice by mail shall be given at least 72 hours prior to the
meeting. For purposes of this Section 3.06, notice by electronic transmission is
written notice. The notice need not describe the purpose of the meeting. Notice
may be communicated in person; by mail or other method of delivery (meaning any
method of delivery used in conventional commercial practice, including delivery
by hand, mail, commercial delivery and "electronic transmission", as defined in
the Wisconsin Business Corporation Law); by telephone, including voice mail,
answering machine or answering service; or by any other electronic means. Oral
notice is effective when communicated. Written notice is effective as follows:
if delivered in person or by commercial delivery, when received; if given by
mail, when deposited, postage prepaid, in the United States mail addressed to
the director at his or her business or home address (or such other address as
the director may have designated in writing filed with the Secretary); if given
by facsimile, at the time transmitted to a facsimile number at any address
designated above; if given by telegraph, when delivered to the telegraph
company; and if given by electronic transmission, when electronically
transmitted to the director in a manner authorized by the director.
3.07. Quorum. Except as otherwise provided by the Wisconsin Business
Corporation Law, a majority of the number of directors constituting the Board of
Directors as determined pursuant to Section 3.01 shall constitute a quorum of
the Board of Directors. Except as otherwise provided by the Wisconsin Business
Corporation Law, a majority of the number of directors appointed to serve on a
committee shall constitute a quorum of the committee. If a quorum shall not be
present at any meeting of the Board of Directors or a Committee thereof, the
directors present thereat may adjourn the meeting from time to time without
notice other than announcement at the meeting, until a quorum shall be present.
3.08. Manner of Acting. Except as otherwise provided by the Wisconsin
Business Corporation Law or the Articles of Incorporation, the affirmative vote
of a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors or any committee thereof.
3.09. Conduct of Meetings. The Chairperson of the Board, or if there is
none, or in his or her absence, the Chief Executive Officer, and in the Chief
Executive Officer's absence, the President, and in the President's absence, a
Vice President in the order provided under Section 4.07 of these Bylaws, and in
their absence, any director chosen by the directors present, shall call a
meeting of the Board of Directors to order and shall chair the meeting. The
Secretary of the corporation shall act as secretary of all meetings of the Board
of Directors, but in the absence of the Secretary, the presiding officer may
appoint any assistant secretary or any director or other person present to act
as secretary of the meeting.
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3.10. Vacancies. As provided in the Articles of Incorporation, any
vacancy occurring in the Board of Directors, including a vacancy created by an
increase in the number of directors, shall be filled only by the affirmative
vote of a majority of the directors then in office, even if such majority is
less than a quorum of the Board of Directors, or by a sole remaining director.
If the vacant office was held by a director elected by a voting group of
shareholders, only the remaining directors elected by that voting group may vote
to fill the vacancy. If no director entitled to fill the vacancy remains in
office, such vacancy may be filled by the voting group of shareholders entitled
to elect such director. Any director elected to fill a vacancy shall serve until
the next election of the class for which such director shall have been chosen. A
vacancy that will occur at a specific later date (because of a resignation
effective at a later date or otherwise) may be filled before the vacancy occurs,
but the new director may not take office until the vacancy occurs.
3.11. Compensation. The Board of Directors, irrespective of any
personal interest of any of its members, may fix the compensation of directors.
Nothing contained herein shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
3.12. Presumption of Assent. A director who is present and is announced
as present at a meeting of the Board of Directors or a committee thereof at
which action on any corporate matter is taken shall be presumed to have assented
to the action taken unless (i) the director objects at the beginning of the
meeting or promptly upon his or her arrival to holding the meeting or
transacting business at the meeting, or (ii) the director's dissent or
abstention from the action taken is entered in the minutes of the meeting, or
(iii) the director delivers his or her written dissent or abstention to the
presiding officer of the meeting before the adjournment thereof or to the
corporation immediately after the adjournment of the meeting. Such right to
dissent or abstain shall not apply to a director who voted in favor of such
action.
3.13. Committees. Unless the Articles of Incorporation otherwise
provide, the Board of Directors, by resolution adopted by the affirmative vote
of a majority of all the directors then in office, may create one (1) or more
committees, each committee to consist of two (2) or more directors as members,
which to the extent provided in the resolution as initially adopted, and as
thereafter supplemented or amended by further resolution adopted by a like vote,
may exercise the authority of the Board of Directors, except that no committee
may: (a) authorize distributions; (b) approve or propose to shareholders action
that the Wisconsin Business Corporation Law requires be approved by
shareholders; (c) fill vacancies on the Board of Directors or any of its
committees, except that the Board of Directors may provide by resolution that
any vacancies on a committee shall be filled by the affirmative vote of a
majority of the remaining committee members; (d) amend the Articles of
Incorporation; (e) adopt, amend or repeal Bylaws; (f) approve a plan of merger
not requiring shareholder approval; (g) authorize or approve reacquisition of
shares, except according to a formula or method prescribed by the Board of
Directors; or (h) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares, except within limits prescribed by
the Board of Directors. The Board of Directors may elect one or more of its
members as alternate members of any such committee who may take the place of any
absent member or members at any meeting of such committee, upon request by the
Chairperson of the Board, if there is one, the President or upon request by the
chairperson of such meeting. Each such committee shall fix its own rules
(consistent with the Wisconsin Business Corporation Law, the Articles of
Incorporation and these Bylaws) governing the conduct of its activities and
shall make such reports to the Board of Directors of its activities as the Board
of Directors may request. Unless otherwise provided by the Board of Directors in
creating a committee, a committee may employ counsel, accountants and other
consultants to assist it in the exercise of authority. The creation of a
committee, delegation of authority to a committee or action by a committee does
not relieve the Board of Directors or any of its members of any responsibility
imposed on the Board of Directors or its members by law.
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ARTICLE IV
OFFICERS
4.01. Appointment. The principal officers shall include any one or more
of a Chairperson of the Board, a Chief Executive Officer, a President, one or
more Vice Presidents (the number and designations to be determined by the Board
of Directors), a Secretary, and a Treasurer, and may include such other
officers, if any, as may be deemed necessary by the Board of Directors, each of
whom shall be appointed by the Board of Directors. Any two or more offices may
be held by the same person.
4.02. Resignation and Removal. An officer shall hold office until he or
she resigns, dies, is removed hereunder, or a different person is appointed to
the office. An officer may resign at any time by delivering an appropriate
written notice to the corporation. The resignation is effective when the notice
is delivered, unless the notice specifies a later effective date and the
corporation accepts the later effective date. Any officer may be removed by the
Board of Directors with or without cause and notwithstanding the contract
rights, if any, of the person removed. Except as provided in the preceding
sentence, the resignation or removal is subject to any remedies provided by any
contract between the officer and the corporation or otherwise provided by law.
Appointment shall not of itself create contract rights.
4.03. Vacancies. A vacancy in any office because of death, resignation,
removal or otherwise, shall be filled by the Board of Directors. If a
resignation is effective at a later date, the Board of Directors may fill the
vacancy before the effective date if the Board of Directors provides that the
successor may not take office until the effective date.
4.04. Chairperson of the Board. The Board of Directors may at its
discretion appoint a Chairperson of the Board. The Chairperson of the Board, if
there is one, shall preside at all meetings of the shareholders and Board of
Directors, and shall carry out such other duties as directed by the Board of
Directors.
4.05. Chief Executive Officer. The Chief Executive Officer shall have,
subject only to the Board of Directors and any executive committee, overall
responsibility for managing and supervising the business and affairs of the
corporation and shall see that all orders and resolutions of the Board of
Directors and the executive committee, if any, are carried into effect. The
Chief Executive Officer shall have all powers and duties of supervision and
management usually vested in the general manager of a corporation, including the
supervision and direction of all other officers of the corporation and the power
to appoint and discharge agents and employes.
4.06. President. The President shall be the chief operating officer
and, subject to the control and direction of the Board of Directors and the
Chief Executive Officer, shall in general supervise and control all of the
business and affairs of the corporation. He or she shall, in the absence of the
Chairperson of the Board and the Chief Executive Officer (if appointed), preside
at all meetings of the shareholders and of the Board of Directors. The President
shall have authority, subject to such rules as may be prescribed by the Board of
Directors and the Chief Executive Officer, to appoint such agents and employees
of the corporation as he or she shall deem necessary, to prescribe their powers,
duties and compensation, and to delegate authority to them. Such agents and
employes shall hold office at the discretion of the President. The President
shall have authority to sign, execute and acknowledge, on behalf of the
corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases,
reports and all other documents or instruments necessary or proper to be
executed in the course of the corporation's regular business, or which shall be
authorized by resolution of the Board of Directors; and, except as otherwise
provided by law or directed by the Board of Directors or the Chief Executive
Officer, the President may authorize any Vice President or other officer or
agent of the corporation to sign, execute and acknowledge such documents or
instruments in his or her place and stead. In general he or she shall perform
all duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors or the Chief Executive Officer from time to
time.
4.07. Vice Presidents. In the absence of the President, or in the event
of the President's death, inability or refusal to act, or in the event for any
reason it shall be impracticable for the President to act personally, a Vice
President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of their appointment) shall perform the
duties of the
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President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Any Vice President may sign, with the
Secretary or Assistant Secretary, certificates for shares of the corporation;
and shall perform such other duties and have such authority as from time to time
may be delegated or assigned to him or her by the Chief Executive Officer,
President or Board of Directors. The execution of any instrument of the
corporation by any Vice President shall be conclusive evidence, as to third
parties, of the Vice President's authority to act in the stead of the President.
4.08. Secretary. The Secretary shall: (a) keep (or cause to be kept)
regular minutes of all meetings of the shareholders, the Board of Directors and
any committees of the Board of Directors in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation, if any, and see that the
seal of the corporation, if any, is affixed to all documents which are
authorized to be executed on behalf of the corporation under its seal; (d) keep
or arrange for the keeping of a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder; (e)
sign with the President, or a Vice President, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the corporation; and (g) in general perform all duties incident to the office of
Secretary and have such other duties and exercise such authority as from time to
time may be delegated or assigned to him or her by the Chief Executive Officer,
President or Board of Directors.
4.09. Treasurer. If the Board of Directors appoints a Treasurer, the
Treasurer shall: (a) have charge and custody of and be responsible for all funds
and securities of the corporation; (b) receive and give receipts for moneys due
and payable to the corporation from any source whatsoever, and deposit all such
moneys in the name of the corporation in such banks, trust companies or other
depositories as shall be selected by the corporation; and (c) in general perform
all of the duties incident to the office of Treasurer and have such other duties
and exercise such other authority as from time to time may be delegated or
assigned to him or her by the Chief Executive Officer, President or Board of
Directors.
4.10. Assistants and Acting Officers. The Board of Directors, Chief
Executive Officer and President shall have the power to appoint any person to
act as assistant to any officer, or as agent for the corporation in the
officer's stead, or to perform the duties of such officer whenever for any
reason it is impracticable for such officer to act personally, and such
assistant or acting officer or other agent so appointed by the Board of
Directors, Chief Executive Officer or President shall have the power to perform
all the duties of the office to which that person is so appointed to be
assistant, or as to which he or she is so appointed to act, except as such power
may be otherwise defined or restricted by the Board of Directors, the Chief
Executive Officer or the President.
4.11. Bonding. If required by the Board of Directors, all or certain of
the officers shall give the corporation a bond, in such form, in such sum, and
with such surety or sureties as shall be satisfactory to the Board, for the
faithful performance of the duties of their office and for the restoration to
the corporation, in case of their death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in their possession or under their control belonging to the corporation.
4.12. Salaries. The salaries of the principal officers shall be fixed
from time to time by the Board of Directors or by a duly authorized committee
thereof, and no officer shall be prevented from receiving such salary by reason
of the fact that such officer is also a director of the corporation.
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ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
5.01. Certificates for Shares. All shares of this corporation shall be
represented by certificates unless determined otherwise by the Board of
Directors in accordance with Section 180.0626 of the Wisconsin Business
Corporation Law (or any successor provision). Certificates representing shares
of the corporation shall be in such form, consistent with law, as shall be
determined by the Board of Directors. At a minimum, a share certificate shall
state on its face the name of the corporation and that it is organized under the
laws of the State of Wisconsin, the name of the person to whom issued, and the
number and class of shares and the designation of the series, if any, that the
certificate represents. If the corporation is authorized to issue different
classes of shares or different series within a class, the front or back of the
certificate must contain either (a) a summary of the designations, relative
rights, preferences and limitations applicable to each class, and the variations
in the rights, preferences and limitations determined for each series and the
authority of the Board of Directors to determine variations for future series,
or (b) a conspicuous statement that the corporation will furnish the shareholder
the information described in clause (a) on request, in writing and without
charge. Such certificates shall be signed, either manually or in facsimile, by
the Chief Executive Officer, President or a Vice President and by the Secretary
or an Assistant Secretary and may be sealed with the seal of the corporation or
a facsimile thereof. All certificates for shares shall be consecutively numbered
or otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except as provided
in Section 5.05.
5.02. Signature by Former Officers. If an officer or assistant officer,
who has signed or whose facsimile signature has been placed upon any certificate
for shares, has ceased to be such officer or assistant officer before such
certificate is issued, the certificate may be issued by the corporation with the
same effect as if that person were still an officer or assistant officer at the
date of its issue.
5.03. Transfer of Shares. Prior to due presentment of a certificate for
shares for registration of transfer, and unless the corporation has established
a procedure by which a beneficial owner of shares held by a nominee is to be
recognized by the corporation as the shareholder, the corporation may treat the
registered owner of such shares as the person exclusively entitled to vote, to
receive notifications and otherwise to have and exercise all the rights and
power of an owner. The corporation may require reasonable assurance that all
transfer endorsements are genuine and effective and in compliance with all
regulations prescribed by or under the authority of the Board of Directors.
5.04. Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction upon the transfer of such shares imposed by the corporation or
imposed by any agreement of which the corporation has written notice.
5.05. Lost, Destroyed or Stolen Certificates. Where the owner claims
that his or her certificate for shares has been lost, destroyed or wrongfully
taken, a new certificate shall be issued in place thereof if the owner (a) so
requests before the corporation has notice that such shares have been acquired
by a bona fide purchaser, and (b) if required by the corporation, files with the
corporation a sufficient indemnity bond, and (c) satisfies such other reasonable
requirements as may be prescribed by or under the authority of the Board of
Directors.
5.06. Consideration for Shares. The shares of the corporation may be
issued for such consideration as shall be fixed from time to time and determined
to be adequate by the Board of Directors, provided that any shares having a par
value shall not be issued for a consideration less than the par value thereof.
The consideration may consist of any tangible or intangible property or benefit
to the corporation, including cash, promissory notes, services performed,
contracts for services to be performed, or other securities of the corporation.
When the corporation receives the consideration for which the Board of Directors
authorized the issuance of shares, such shares shall be deemed to be fully paid
and nonassessable by the corporation.
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5.07. Stock Regulations. The Board of Directors shall have the power
and authority to make all such rules and regulations not inconsistent with the
statutes of the State of Wisconsin as it may deem expedient concerning the
issue, transfer and registration of certificates representing shares of the
corporation, including the appointment or designation of one or more stock
transfer agents and one or more registrars.
ARTICLE VI
WAIVER OF NOTICE
6.01. Shareholder Written Waiver. A shareholder may waive any notice
required by the Wisconsin Business Corporation Law, the Articles of
Incorporation or these Bylaws before or after the date and time stated in the
notice. The waiver shall be in writing and signed by the shareholder entitled to
the notice, shall contain the same information that would have been required in
the notice under the Wisconsin Business Corporation Law except that the time and
place of meeting need not be stated, and shall be delivered to the corporation
for inclusion in the corporate records.
6.02. Shareholder Waiver by Attendance. A shareholder's attendance at a
meeting, in person or by proxy, waives objection to both of the following:
(a) Lack of notice or defective notice of the meeting,
unless the shareholder at the beginning of the meeting or promptly upon arrival
objects to holding the meeting or transacting business at the meeting.
(b) Consideration of a particular matter at the meeting
that is not within the purpose described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
6.03. Director Written Waiver. A director may waive any notice required
by the Wisconsin Business Corporation Law, the Articles of Incorporation or the
Bylaws before or after the date and time stated in the notice. The waiver shall
be in writing, signed by the director entitled to the notice and retained by the
corporation.
6.04. Director Waiver by Attendance. A director's attendance at or
participation in a meeting of the Board of Directors or any committee thereof
waives any required notice to him or her of the meeting unless the director at
the beginning of the meeting or promptly upon his or her arrival objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
ARTICLE VII
ACTION WITHOUT MEETINGS
7.01. Shareholder Action Without Meeting. Action required or permitted
by the Wisconsin Business Corporation Law to be taken at a shareholders' meeting
may be taken without a meeting (a) by all shareholders entitled to vote on the
action, or (b) if the Articles of Incorporation so provide (and except with
respect to an election of directors for which shareholders may vote
cumulatively), by shareholders who would be entitled to vote at a meeting shares
with voting power sufficient to cast not less than the minimum number (or, in
the case of voting by voting groups, the minimum numbers) of votes that would be
necessary to authorize or take the action at a meeting at which all shares
entitled to vote were present and voted. The action must be evidenced by one or
more written consents describing the action taken, signed by the shareholders
consenting thereto and delivered to the corporation for inclusion in its
corporate records. A consent hereunder has the effect of a meeting vote and may
be described as such in any document. The Wisconsin Business Corporation Law
requires that notice of the action be given to certain shareholders and
specifies the effective date thereof and the record date in respect thereto.
7.02. Director Action Without Meeting. Unless the Articles of
Incorporation provide otherwise, action required or permitted by the Wisconsin
Business Corporation Law to be taken at a Board of Directors meeting or
committee meeting may be taken without a meeting if the action is taken by all
members of the Board or committee. The action shall be evidenced by one or more
written consents describing the action taken, signed by each director and
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retained by the corporation. Action taken hereunder is effective when the last
director signs the consent, unless the consent specifies a different effective
date. A consent signed hereunder has the effect of a unanimous vote taken at a
meeting at which all directors or committee members were present, and may be
described as such in any document.
ARTICLE VIII
INDEMNIFICATION
8.01. Indemnification for Successful Defense. Within twenty (20)
days after receipt of a written request pursuant to Section 8.03, the
corporation shall indemnify a director or officer, to the extent he or she has
been successful on the merits or otherwise in the defense of a proceeding, for
all reasonable expenses incurred in the proceeding if the director or officer
was a party because he or she is a director or officer of the corporation.
8.02. Other Indemnification.
(a) In cases not included under Section 8.01, the
corporation shall indemnify a director or officer against all liabilities and
expenses incurred by the director or officer in a proceeding to which the
director or officer was a party because he or she is a director or officer of
the corporation, unless liability was incurred because the director or officer
breached or failed to perform a duty he or she owes to the corporation and the
breach or failure to perform constitutes any of the following:
(1) A willful failure to deal fairly with the
corporation or its shareholders in connection with a matter in which the
director or officer has a material conflict of interest.
(2) A violation of criminal law, unless the
director or officer had reasonable cause to believe that his or her conduct was
lawful or no reasonable cause to believe that his or her conduct was unlawful.
(3) A transaction from which the director or
officer derived an improper personal profit.
(4) Willful misconduct.
(b) Determination of whether indemnification is required
under this Section shall be made pursuant to Section 8.05.
(c) The termination of a proceeding by judgment, order,
settlement or conviction, or upon a plea of no contest or an equivalent plea,
does not, by itself, create a presumption that indemnification of the director
or officer is not required under this Section.
8.03. Written Request. A director or officer who seeks
indemnification under Sections 8.01 or 8.02 shall make a written request to the
corporation.
8.04. Nonduplication. The corporation shall not indemnify a director
or officer under Sections 8.01 or 8.02 if the director or officer has previously
received indemnification or allowance of expenses from any person, including the
corporation, in connection with the same proceeding. However, the director or
officer has no duty to look to any other person for indemnification.
8.05. Determination of Right to Indemnification.
(a) Unless otherwise provided by the Articles of
Incorporation or by written agreement between the director or officer and the
corporation, the director or officer seeking indemnification under Section 8.02
shall select one of the following means for determining his or her right to
indemnification:
(1) By a majority vote of a quorum of the
Board of Directors consisting of directors not at the time parties to the same
or related proceedings. If a quorum of disinterested directors cannot be
obtained, by
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majority vote of a committee duly appointed by the Board of Directors and
consisting solely of two (2) or more directors who are not at the time parties
to the same or related proceedings. Directors who are parties to the same or
related proceedings may participate in the designation of members of the
committee.
(2) By independent legal counsel selected by a
quorum of the Board of Directors or its committee in the manner prescribed in
sub. (1) or, if unable to obtain such a quorum or committee, by a majority vote
of the full Board of Directors, including directors who are parties to the same
or related proceedings.
(3) By a panel of three (3) arbitrators
consisting of one arbitrator selected by those directors entitled under sub. (2)
to select independent legal counsel, one arbitrator selected by the director or
officer seeking indemnification and one arbitrator selected by the two (2)
arbitrators previously selected.
(4) By an affirmative vote of shares
represented at a meeting of shareholders at which a quorum of the voting group
entitled to vote thereon is present. Shares owned by, or voted under the control
of, persons who are at the time parties to the same or related proceedings,
whether as plaintiffs or defendants or in any other capacity, may not be voted
in making the determination.
(5) By a court under Section 8.08.
(6) By any other method provided for in any
additional right to indemnification permitted under Section 8.07.
(b) In any determination under (a), the burden of proof
is on the corporation to prove by clear and convincing evidence that
indemnification under Section 8.02 should not be allowed.
(c) A written determination as to a director's or
officer's indemnification under Section 8.02 shall be submitted to both the
corporation and the director or officer within sixty (60) days of the selection
made under (a).
(d) If it is determined that indemnification is required
under Section 8.02, the corporation shall pay all liabilities and expenses not
prohibited by Section 8.04 within ten (10) days after receipt of the written
determination under (c). The corporation shall also pay all expenses incurred by
the director or officer in the determination process under (a).
8.06. Advance of Expenses. Within ten (10) days after receipt of a
written request by a director or officer who is a party to a proceeding, the
corporation shall pay or reimburse his or her reasonable expenses as incurred if
the director or officer provides the corporation with all of the following:
(1) A written affirmation of his or her good faith
belief that he or she has not breached or failed to perform his or her duties to
the corporation.
(2) A written undertaking, executed personally or on his
or her behalf, to repay the allowance to the extent that it is ultimately
determined under Section 8.05 that indemnification under Section 8.02 is not
required and that indemnification is not ordered by a court under Section
8.08(b)(2). The undertaking under this subsection shall be an unlimited general
obligation of the director or officer and may be accepted without reference to
his or her ability to repay the allowance. The undertaking may be secured or
unsecured.
8.07. Nonexclusivity.
(a) Except as provided in (b), Sections 8.01, 8.02 and
8.06 do not preclude any additional right to indemnification or allowance of
expenses that a director or officer may have under any of the following:
(1) The Articles of Incorporation.
(2) A written agreement between the director or
officer and the corporation.
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(3) A resolution of the Board of Directors.
(4) A resolution, after notice, adopted by a
majority vote of all of the corporation's voting shares then issued and
outstanding.
(b) Regardless of the existence of an additional right
under (a), the corporation shall not indemnify a director or officer, or permit
a director or officer to retain any allowance of expenses, unless it is
determined by or on behalf of the corporation that the director or officer did
not breach or fail to perform a duty he or she owes to the corporation which
constitutes conduct under Section 8.02(a)(1), (2), (3) or (4). A director or
officer who is a party to the same or related proceeding for which
indemnification or an allowance of expenses is sought may not participate in a
determination under this subsection.
(c) Sections 8.01 to 8.14 do not affect the
corporation's power to pay or reimburse expenses incurred by a director or
officer in any of the following circumstances:
(1) As a witness in a proceeding to which he or
she is not a party.
(2) As a plaintiff or petitioner in a proceeding
because he or she is or was an employe, agent, director or officer of the
corporation.
8.08. Court-Ordered Indemnification.
(a) Except as provided otherwise by written agreement
between the director or officer and the corporation, a director or officer who
is a party to a proceeding may apply for indemnification to the court conducting
the proceeding or to another court of competent jurisdiction. Application shall
be made for an initial determination by the court under Section 8.05(a)(5) or
for review by the court of an adverse determination under Section 8.05(a) (1),
(2), (3), (4) or (6). After receipt of an application, the court shall give any
notice it considers necessary.
(b) The court shall order indemnification if it
determines any of the following:
(1) That the director or officer is entitled to
indemnification under Sections 8.01 or 8.02.
(2) That the director or officer is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, regardless of whether indemnification is required under Section
8.02.
(c) If the court determines under (b) that the director
or officer is entitled to indemnification, the corporation shall pay the
director's or officer's expenses incurred to obtain the court-ordered
indemnification.
8.09. Indemnification and Allowance of Expenses of Employes and
Agents. The corporation shall indemnify an employe of the corporation who is not
a director or officer of the corporation, to the extent that he or she has been
successful on the merits or otherwise in defense of a proceeding, for all
reasonable expenses incurred in the proceeding if the employe was a party
because he or she was an employe of the corporation. In addition, the
corporation may indemnify and allow reasonable expenses of an employe or agent
who is not a director or officer of the corporation to the extent provided by
the Articles of Incorporation or these Bylaws, by general or specific action of
the Board of Directors or by contract.
8.10. Insurance. The corporation may purchase and maintain insurance on
behalf of an individual who is an employe, agent, director or officer of the
corporation against liability asserted against or incurred by the individual in
his or her capacity as an employe, agent, director or officer, regardless of
whether the corporation is required or authorized to indemnify or allow expenses
to the individual against the same liability under Sections 8.01, 8.02, 8.06,
8.07 and 8.09.
15
<PAGE> 19
8.11. Securities Law Claims.
(a) Pursuant to the public policy of the State of
Wisconsin, the corporation shall provide indemnification and allowance of
expenses and may insure for any liability incurred in connection with a
proceeding involving securities regulation described under (b) to the extent
required or permitted under Sections 8.01 to 8.10.
(b) Sections 8.01 to 8.10 apply, to the extent applicable
to any other proceeding, to any proceeding involving a federal or state statute,
rule or regulation regulating the offer, sale or purchase of securities,
securities brokers or dealers, or investment companies or investment advisers.
8.12. Liberal Construction. In order for the corporation to obtain
and retain qualified directors, officers and employes, the foregoing provisions
shall be liberally administered in order to afford maximum indemnification of
directors, officers and, where Section 8.09 of these Bylaws applies, employes.
The indemnification above provided for shall be granted in all applicable cases
unless to do so would clearly contravene law, controlling precedent or public
policy.
8.13. Definitions Applicable to this Article. For purposes of this
Article:
(a) "Affiliate" shall include, without limitation, any
corporation, partnership, joint venture, employe benefit plan, trust or other
enterprise that directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the corporation.
(b) "Corporation" means this corporation and any domestic
or foreign predecessor of this corporation where the predecessor corporation's
existence ceased upon the consummation of a merger or other transaction.
(c) "Director or officer" means any of the following:
(1) An individual who is or was a director or
officer of this corporation.
(2) An individual who, while a director or
officer of this corporation, is or was serving at the corporation's request as
a director, officer, partner, trustee, member of any governing or decision-
making committee, employe or agent of another corporation or foreign
corporation, partnership, joint venture, trust or other enterprise.
(3) An individual who, while a director or
officer of this corporation, is or was serving an employe benefit plan because
his or her duties to the corporation also impose duties on, or otherwise involve
services by, the person to the plan or to participants in or beneficiaries of
the plan.
(4) Unless the context requires otherwise, the
estate or personal representative of a director or officer.
For purposes of this Article, it shall be conclusively presumed that
any director or officer serving as a director, officer, partner, trustee, member
of any governing or decision-making committee, employe or agent of an affiliate
shall be so serving at the request of the corporation.
(d) "Expenses" include fees, costs, charges,
disbursements, attorney fees and other expenses incurred in connection with a
proceeding.
(e) "Liability" includes the obligation to pay a judgment,
settlement, penalty, assessment, forfeiture or fine, including an excise tax
assessed with respect to an employe benefit plan, and reasonable expenses.
16
<PAGE> 20
(f) "Party" includes an individual who was or is, or who
is threatened to be made, a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending or
completed civil, criminal, administrative or investigative action, suit,
arbitration or other proceeding, whether formal or informal, which involves
foreign, federal, state or local law and which is brought by or in the right of
the corporation or by any other person.
ARTICLE IX
MISCELLANEOUS
9.01. Seal. The Board of Directors may provide a corporate seal
which may be circular in form and have inscribed thereon the name of the
corporation and the state of incorporation and the words "Corporate Seal." The
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise. Any officer of the corporation shall have the
authority to affix the seal to any document requiring it.
9.02. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE X
AMENDMENTS
10.01. By Shareholders. As provided in the Articles of Incorporation,
these Bylaws may be altered, amended or repealed and new Bylaws may be adopted
by the shareholders by the affirmative vote of the holders of at least
two-thirds (2/3) of the votes entitled to be cast thereon at any annual or
special meeting of shareholders of the corporation. If authorized by the
Articles of Incorporation, the shareholders may adopt or amend a Bylaw that
fixes a greater or lower quorum requirement or a greater voting requirement for
shareholders or voting groups of shareholders than otherwise is provided in the
Wisconsin Business Corporation Law. The adoption or amendment of a Bylaw that
adds, changes or deletes a greater or lower quorum requirement or a greater
voting requirement for shareholders must meet the same quorum requirement and be
adopted by the same vote and voting groups required to take action under the
quorum and voting requirement then in effect.
10.02. By Directors. Except as the Articles of Incorporation
may otherwise provide, these Bylaws may also be amended or repealed and new
Bylaws may be adopted by the Board of Directors by the vote provided in Section
3.08, but (a) no Bylaw adopted by the shareholders shall be amended, repealed or
readopted by the Board of Directors if the Bylaw so adopted so provides and (b)
a Bylaw adopted or amended by the shareholders that fixes a greater or lower
quorum requirement or a greater voting requirement for the Board of Directors
than otherwise is provided in the Wisconsin Business Corporation Law may not be
amended or repealed by the Board of Directors unless the Bylaw expressly
provides that it may be amended or repealed by a specified vote of the Board of
Directors. Action by the Board of Directors to adopt or amend a Bylaw that
changes the quorum or voting requirement for the Board of Directors must meet
the same quorum requirement and be adopted by the same vote required to take
action under the quorum and voting requirement then in effect, unless a
different voting requirement is specified as provided by the preceding sentence.
A Bylaw that fixes a greater or lower quorum requirement or a greater voting
requirement for shareholders or voting groups of shareholders than otherwise is
provided in the Wisconsin Business Corporation Law may not be adopted, amended
or repealed by the Board of Directors.
10.03. Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
Bylaws then in effect but is taken or authorized by a vote that would be
sufficient to amend the Bylaws so that the Bylaws would be consistent with such
action, shall be given the same effect as though the Bylaws had been temporarily
amended or suspended so far, but only so far, as is necessary to permit the
specific action so taken or authorized.
17
<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, 1999 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-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 22,003
<SECURITIES> 0
<RECEIVABLES> 230,480
<ALLOWANCES> 5,202
<INVENTORY> 218,809
<CURRENT-ASSETS> 514,366
<PP&E> 248,872
<DEPRECIATION> 225,583
<TOTAL-ASSETS> 1,935,238
<CURRENT-LIABILITIES> 176,183
<BONDS> 963,471
0
0
<COMMON> 1,040
<OTHER-SE> 646,180
<TOTAL-LIABILITY-AND-EQUITY> 1,935,238
<SALES> 298,247
<TOTAL-REVENUES> 298,247
<CGS> 144,057
<TOTAL-COSTS> 85,505
<OTHER-EXPENSES> 222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,923
<INCOME-PRETAX> 50,540
<INCOME-TAX> 20,116
<INCOME-CONTINUING> 30,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,424
<EPS-BASIC> .29
<EPS-DILUTED> .29
</TABLE>
