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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM
---------------------------- TO
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COMMISSION FILE NUMBER 1-10920.
FISHER SCIENTIFIC INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 02-0451017
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
LIBERTY LANE, HAMPTON, NH 03842
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(603) 926-5911
Securities registered pursuant to Section 12(b) of the Act:
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------------- ------------------------
<S> <C>
Common Stock, par value New York Stock Exchange
$.01 per share
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 13, 1998 was approximately $50,782,384.
The number of shares of Common Stock outstanding as of March 13, 1998 was
$7,197,729.
Documents Incorporated by Reference: Portions of registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held May 12, 1998 are
incorporated by reference into Part III.
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ITEM 1. BUSINESS
INTRODUCTION
Fisher Scientific International Inc. ("Fisher" or the "Company") is a world
leader in serving science, providing more than 245,000 products and services to
research, healthcare, industrial, educational and government customers in 145
countries. The Company serves as a one-stop source for the scientific and
laboratory needs of its customers, supplying a broad product offering of leading
brands of instruments, research chemicals, clinical consumables, diagnostics,
laboratory workstations and other laboratory supplies. The Company provides
integrated supply services for the procurement of maintenance, repair and
operating ("MRO") products and other basic supplies, and also develops and
markets software for electronic commerce. Fisher was founded in 1991, although
the business conducted by its principal operating subsidiary, Fisher Scientific
Company L.L.C., has been in continuous operation since 1902 and traces its roots
to 1851. Fisher's principal executive offices are located at Liberty Lane,
Hampton, New Hampshire 03842, and its telephone number is (603) 926-5911.
Pursuant to the Second Amended and Restated Agreement and Plan of Merger
amending an Agreement and Plan of Merger dated August 7, 1997 (as amended, the
"Merger Agreement") dated as of November 14, 1997, between the Company and FSI
Merger Corp. ("FSI"), a Delaware corporation formed by Thomas H. Lee Company
("THL"), providing for the merger of FSI with and into Fisher and the
recapitalization of Fisher (collectively, "the Transaction"), which Transaction
was consummated on January 21, 1998, approximately 87% of the fully diluted
common stock of Fisher was converted into the right to receive $48.25 per share
in cash (approximately $955.0 million in the aggregate) pursuant to an election
process that provided stockholders the right to elect for each share of Fisher
Common Stock held, subject to proration, either $48.25 in cash or to retain one
share of stock in the recapitalized company. Pursuant to the Merger Agreement,
vesting of all outstanding options accelerated. See Note 2 to Financial
Statements.
THE INDUSTRY
Fisher's market consists of five principal sectors: (i) scientific research
and development activities conducted by biotechnology, pharmaceutical, chemical,
environmental and other entities; (ii) hospitals and physicians' offices that
perform diagnostic tests on patients, (iii) commercial and national reference
laboratories; (iv) educational activities in research institutions, medical
schools, universities, colleges, elementary and secondary schools; and (v) users
of MRO materials and occupational health and safety products in production and
other activities.
The Company's largest market is the scientific research supply market.
According to a recent study conducted by the Laboratory Products Association,
sales to the scientific research supply market were estimated to be
approximately $5 billion during 1997. The scientific research market is
primarily impacted by the level of applicable scientific and technology related
research and development ("R&D") spending in the U.S. The National Science
Foundation estimates that non-defense related R&D expenditures increased from
$44 billion in 1980 to over $130 billion in 1995, representing a compound annual
growth rate of approximately 7.5%. In addition to this growth,
non-defense-related R&D expenditures have typically not been subject to cyclical
swings, having not experienced a year-over-year decline since 1960 (when the
National Science Foundation began publishing such data).
The Company's second-largest market is the U.S. clinical laboratory testing
market. A recent study by MarketData Enterprises Inc. estimated that the U.S.
clinical laboratory testing market totaled approximately $30 billion in 1997, up
from approximately $27 billion in 1993. Based on these overall spending levels,
management estimates that the clinical testing equipment and supply market, the
market the Company competes in, totals approximately $6 billion. The Company's
third-largest market, safety supply, which is a subset of the $225 billion MRO
market, is estimated to be approximately $7 billion. This market is currently
highly fragmented, but there has been a recent trend towards consolidation of
suppliers of safety products.
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The markets in which the Company competes are typically characterized by
high transaction volume (units) with relatively small average order prices. As a
result, customers in these markets incur relatively high average procurement
costs per order. The Company believes that as end users consolidate their vendor
base and/or outsource their procurement functions to reduce costs, manufacturer
use of distribution and demand for the Company's distribution and third party
procurement services, including demand for the Company's electronic ordering
technology, will increase. By leveraging the Company's distribution and
technological capabilities as well as its national sales force, manufacturers
and end users can reduce the cost of procurement for an expanding list of
products.
Over the last few years, the trend toward fewer suppliers has resulted in
consolidation of the fragmented scientific distribution market. Consolidation
benefits larger distributors by presenting them with the opportunity to leverage
large distribution infrastructures over higher sales volume and more customers.
The mergers of Fisher with CMS and VWR Scientific Products Corporation with
Baxter Industrial are illustrative of this trend. These same trends exist in
most international markets.
PRODUCTS AND SERVICES
Fisher currently has over 245,000 products available for delivery from its
electronic and other order-entry systems and is continuously expanding and
refining its product offerings to provide its customers with a complete array of
laboratory and clinical testing supplies. In addition to supplying leading
brands of instruments, supplies and equipment, Fisher offers research chemicals,
clinical consumables, instruments, diagnostics, and laboratory workstations of
its own manufacture.
FISHER PRODUCTS. Fisher's product portfolio is comprised of proprietary
products as well as sourced products. Proprietary offerings consist of
self-manufactured products and products sold through exclusive distribution
agreements. Management estimates that proprietary products accounted for
approximately 40% of total sales in fiscal 1997. Consumable products, such as
laboratory supplies and specialty chemicals, represented approximately 75% of
the Company's total sales in fiscal 1997.
SALES AND CUSTOMER SERVICE PROFESSIONALS. In order to reduce the complexity
of today's scientific research and clinical testing product offerings, Fisher
provides customer support through a worldwide sales and customer service
network. Fisher's direct sales force consists of over 1,000 account
representatives and product/systems sales specialists worldwide. Most of the
members of Fisher's direct sales force have scientific or medical backgrounds,
which enable them to provide technical assistance to the end users of Fisher
products. In addition to performing traditional selling functions, these
representatives provide the basis for a market-driven development program for
new products and services by identifying customer needs and utilizing the
Company's accumulated technical expertise to translate those needs into new
services or products, which may be manufactured by either Fisher or its
suppliers. In addition, Fisher's customer service organization includes over
1,000 representatives worldwide. These customer service representatives,
supported by a scientific and technical staff, respond to end-user product or
application questions and assist Fisher's customers with efficient order entry
and order expediting. In response to customers' efforts to improve purchasing
efficiencies, Fisher has developed the computerized order-entry systems
described in "Electronic Commerce" below.
ELECTRONIC COMMERCE. In an effort to meet its customers' desire to improve
purchasing efficiencies, the Company expanded its role as an industry leader in
the development and deployment of electronic commerce solutions through the
formation of Fisher Technology Group ("FTG"). This business unit was established
to commercialize software and related services developed by Fisher.
Organizations are utilizing these offerings to implement advanced
supply-chain-management techniques that enable procurement to be automated for
improved service at lower total cost. These Internet, intranet and client/server
solutions are an extension of FTG's historical inventory management and
procurement systems. The applications contain full graphics and text display,
and provide search, retrieval, order-management and transaction-processing
functions. CORNERSTONE allows buyers and suppliers to create public or private
web sites to
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support their business-to-business transactions. PROCURENET
(www.procurenet.com), a public mall owned and operated by FTG, utilizes the
CORNERSTONE architecture to provide the general commercial community access to
the electronic storefronts of its supplier tenants. More than 300,000 products
are currently available on PROCURENET. SUPPLYLINK provides the same capability
in a client/server environment.
FISHER CATALOG. The FISHER CATALOG has been published for over 90 years and
is a standard reference for the scientific community worldwide. In addition, the
Company publishes the CMS/FISHER HEALTHCARE CATALOG, the FISHER CHEMICAL
CATALOG, the FISHER SCIENCE EDUCATION catalog, as well as several international
catalogs in nine different languages. In 1995, Fisher established an Internet
site (Fishersci.com), which currently features the FISHER CATALOG, the FISHER
CHEMICAL CATALOG, the FISHER SAFETY CATALOG, the ACROS ORGANICS CATALOG OF FINE
CHEMICALS and the CMS/FISHER HEALTHCARE CATALOG, as well as other product,
safety and general information, all in electronic form for quick and easy
access. More than 100,000 items and over 25,000 images representing 6,000
catalog pages can be browsed. New products are continuously added, making the
Fisher suite of catalogs a dynamic library, one of the most complete and
up-to-date sources of laboratory and safety products available. Fisher customers
now have the ability to place their orders electronically through an intuitive,
integrated and easy-to-use process. Fisher also continues to publish over a
dozen international catalogs to support its growing worldwide presence. More
than one million copies of the Company's various catalogs are produced
biannually, with supplements tailored to specific market segments such as
biotechnology, research chemicals, educational materials and occupational health
and safety.
DISTRIBUTION
The Company's distribution network comprises 32 locations in the U.S.,
including a national distribution center in Somerville, New Jersey, four
regional centers (New Jersey, California, Illinois and Georgia) and twenty-seven
local facilities throughout the United States. The Company also has two
distribution centers in Canada and one each in Germany, France, England,
Belgium, Singapore, Korea, Malaysia, Mexico and Australia. Through its worldwide
distribution networks, the Company distributes an average of 20,000 items every
business day, with products accounting for more than 90% of total sales in
fiscal 1997 shipped to customers within 24 hours of being ordered.
MANUFACTURING
The Company operates principal manufacturing facilities in Fair Lawn,
Somerville and Swedesboro, New Jersey; Two Rivers, Wisconsin; Indiana and
Pittsburgh, Pennsylvania; Huntersville, North Carolina; Loughborough, United
Kingdom; Geel, Belgium; Rochester, New York; and Mountain Home, Arkansas.
Products manufactured include research, bulk and organic chemical, laboratory
equipment, laboratory fumehoods, wood, plastic and metal laboratory workstations
and furniture, computer local area network "LAN" cabinets, scientific glassware
and plastic labware, and diagnostic and educational materials. More than
one-half of these products are sold directly to end users, other dealers and
distributors with the balance sold through the Company's distribution network.
The Company's manufacturing customers range from small start-up operations
to large national corporations and government agencies. The Company's
manufacturing operations are not dependent on any single customer and are
operated on a "stand alone" basis to complement the Company's distribution
organization by providing the Company's sales representatives with a full range
of value added service and product offerings and to position the Company as a
one-stop source for all of the customer's scientific research and laboratory
needs.
SUPPLIERS
The Company distributes laboratory instruments, supplies and equipment
obtained from over 3,200 vendors. Vendors generally offer these products to
distributors on substantially similar terms. Although
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certain products are available from only a limited number of vendors, Fisher
does not anticipate that it will be unable to purchase any of the products it
distributes. The Company's largest supplier represented approximately 11% of
1997 sales.
COMPETITION
The Company operates in a highly competitive market. The Company competes
primarily with a wide range of suppliers and manufacturers that sell their own
products directly to end users. The Company also competes with other
distributors, such as VWR Scientific Products Corporation in the scientific
research market and Allegiance Corporation in the clinical market. The principal
means of competition in the markets the Company serves are systems capabilities,
breadth and exclusivity of product offerings, price and service. The Company
believes that it competes effectively in these areas through the FISHER CATALOG,
electronic procurement systems, integrated supply capabilities, and
international logistics and distribution capabilities.
TRADEMARKS AND PATENTS
Fisher owns or licenses a number of patents and patent applications that are
important to its businesses. Fisher has more than 200 registered and
unregistered service marks and trademarks for its products and services. Some of
its more significant marks include CORNERSTONE, FISHER RIMS, PROCURENET,
SUPPLYLINK, UNIKIX, WEBKIX, ACCUMET, ACROS, BIOCHEMICAL SCIENCES, CHEMALERT,
CHEMGUARD, CMS, CURTIN MATHESON SCIENTIFIC, ENVIROWARE, FISHER, FISHERBIOTECH,
FISHERBRAND, FISHER DIAGNOSTICS, FISHER HEALTHCARE, FISHER SAFETY, FISHER
SCIENTIFIC, GASTRAK, HAMILTON, HISTOPREP, ISOTEMP, MARATHON, MICROPROBE, OPTIMA,
PACIFIC HEMOSTASIS, and VALUTRAK. Registered trademarks generally can have
perpetual life, provided they are renewed on a timely basis and continue to be
used properly as trademarks, subject to the rights of third parties to seek
cancellation of the marks.
CUSTOMERS, SEASONALITY AND BACKLOG
Fisher's sales are not materially dependent upon any single customer or any
few customers. No single customer of the Company represented more than 5% of
1997 sales. The Company's customers range in size from start-up companies,
hospital purchasing consortiums, and government agencies to nationally and
internationally recognized scientific research, medical and educational
institutions. Fisher's sales are generally related to applicable R&D spending
and to clinical testing practices and are therefore not seasonal to any
significant extent. In addition, no material portion of Fisher's business is
subject to renegotiation of profits or termination at the election of the United
States Government. Because Fisher's products are, in most cases, sold for
immediate shipment, there are no significant backlogs.
ENVIRONMENTAL MATTERS
Some of Fisher's operations involve the handling, manufacture or use of
substances that are classified as toxic or hazardous substances within the
meaning of applicable environmental laws. Consequently, some risk of
environmental and other damage is inherent in particular operations and products
of Fisher, as it is with other companies engaged in similar businesses, and
there can be no assurance that material damage will not occur or be discovered
to have occurred or be determined to be material in the future. The Company is
currently involved in various stages of investigation and remediation relative
to environmental protection matters.
The Company's Fair Lawn and Somerville, New Jersey facilities are the
subject of administrative consent orders, issued pursuant to New Jersey's
Environmental Clean-Up and Responsibility Act ("ECRA") (now called the
Industrial Site Recovery Act ("ISRA")), in connection with prior transfers of a
controlling interest in the Company, which require that certain remediation and
other activities be undertaken at these sites. The Fair Lawn facility is also
part of a site listed on the "Superfund" National
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Priority List under the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"). Fisher has also
been notified that it is among the potentially responsible parties under CERCLA
or similar state laws for the costs of investigating and/or remediating
contamination caused by hazardous materials at certain other sites. The
Company's non-Superfund liabilities for environmental matters are principally
related to compliance with ECRA/ISRA administrative consent orders and other
environmental regulatory requirements such as the Clean Air Act, the Clean Water
Act and other generally applicable requirements.
The potential costs related to environmental matters and the possible impact
on future operations are difficult to predict given the uncertainties regarding
the extent of the required cleanup, the complexity and interpretation of
applicable laws and regulations, the varying costs of alternative cleanup
methods and the extent of the Company's responsibility. However, such costs
could be material. Accruals for environmental liabilities are recorded, based on
current interpretations of environmental laws and regulations, when it is
probable that a liability has been incurred and the amount of such liability can
be reasonably estimated. Estimates are established based upon reports prepared
by environmental specialists, management's knowledge to date and its experience
with the foregoing environmental matters, and include potential costs for
investigation, remediation, operation and maintenance of cleanup sites and
related capital expenditures. Accrued liabilities for environmental matters were
$35.1 million and $37.6 million at December 31, 1997 and 1996, respectively.
Although these amounts do not include third-party recoveries, certain sites may
be subject to indemnification. The Company has accounted for environmental
liabilities in accordance with Accounting Standards Statement of Position 96-1,
"Environmental Remediation Liabilities", which addresses accounting and
reporting for environmental remediation liabilities. Management believes this
accrual is adequate for the environmental liabilities expected to be incurred,
and, as a result, believes that the ultimate liability incurred with respect to
environmental matters will not have a material adverse effect on the Company's
financial statements or results of operations. However, future events, such as
changes in existing laws and regulations, changes in agency direction or
enforcement policies or changes in the conduct of Fisher's operations, may give
rise to additional compliance costs which could have a material adverse effect
on the Company's financial statements.
Fisher spent approximately $2.3 million and $2.2 million during the years
ended December 31, 1997 and 1996, respectively, on remediation and related
environmental monitoring and compliance. Amounts expensed for environmental
matters, including compliance costs under the existing administrative consent
orders, installation and operation of groundwater treatment systems and other
planned expenses, are expected to average between $2 million and $3 million per
year. See "Cautionary Factors Regarding Forward-Looking Statements".
EMPLOYEES
As of December 31, 1997, Fisher had approximately 6,800 full-time employees.
Fisher considers relations with its employees to be satisfactory. Fisher has
several labor contracts, none of which are considered material to its business
as a whole. From time to time, union actions have been threatened or taken.
However, management does not believe such actions have had, or will have a
material adverse effect on the financial statements of the Company or on the
Company's ability to serve its customers.
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For information regarding foreign and domestic operations and export sales,
see Note 20 of Notes to Financial Statements, which is incorporated herein by
reference.
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EXECUTIVE OFFICERS OF FISHER
Set forth below is information with respect to each executive officer of
Fisher:
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<CAPTION>
NAME AND TITLE AGE BUSINESS EXPERIENCE
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<S> <C> <C>
Paul M. Montrone...................... 56 Chairman of the Board since March 1998 and President,
Chairman of the Board Chief Executive Officer and Director of Fisher since prior
President and Chief Executive Officer to 1993. President of General Chemical Group Inc.
("General Chemical") (manufacturing) from prior to 1993 to
1994 and Chairman of the Board of General Chemical since
1994. Vice Chairman of the Board of Abex Inc. ("Abex")
(aerospace products and services) from prior to 1993 to
1995. Member of the Board of Directors of Waste
Management, Inc.
Paul M. Meister....................... 45 Vice Chairman of the Board and Executive Vice President
Vice Chairman of the Board since March 1998 and Senior Vice President and Chief
Executive Vice President and Financial Officer of Fisher since prior to 1993. Senior
Chief Financial Officer Vice President of Abex from prior to 1993 to 1995. Member
of the Board of Directors of M&F Worldwide Corporation,
General Chemical, Minerals Technologies, Inc. and
Wheelabrator Technologies Inc.
Joseph P. Bolduc...................... 54 Vice President and Chief Information Officer of Fisher
Vice President -- Chief since October 1996. President of Fisher Technology Group
Information Officer Inc. from October 1996 to December 1997. Regional
Consulting Manager of Oracle Corporation (computer
software) from 1995 to October 1996. Corporate Vice
President of Spiegel, Inc. (catalog merchandiser/retailer)
from prior to 1993 to 1995.
Denis N. Maiorani..................... 49 President of Fisher Scientific Worldwide Inc., a
President -- Fisher Scientific subsidiary of Fisher, since July 1996. President of Fisher
Worldwide Inc. Scientific Europe Limited from January 1996 to July 1996.
Consultant to Fisher from 1995 to January 1996. President
of Robertson-Ceco Corporation (building-components
manufacturer) from prior to 1993 to 1995.
Kevin P. Clark........................ 35 Vice President and Treasurer of Fisher since September
Vice President -- Treasurer 1997, and Assistant Treasurer of Fisher from 1995 to 1997.
Treasurer of Federal-Mogul Corporation (automotive
components) from 1994 to 1995. Manager of Corporate
Finance of Chrysler Financial Corporation from prior to
1993 to 1993.
Todd M. DuChene....................... 34 Vice President, General Counsel and Secretary of Fisher
Vice President -- General Counsel and since November 1996. Senior Vice President, Secretary and
Secretary General Counsel of OfficeMax, Inc. (retailer) from March
1995 to November 1996 and Vice President, General Counsel
and Assistant Secretary from January 1994 to March 1995.
Associate at Baker & Hostetler (law firm) from prior to
1993 to January 1994.
</TABLE>
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ITEM 2. PROPERTIES
Fisher's principal executive offices are located in Hampton, New Hampshire.
Fisher believes that its property and equipment are generally well maintained,
in good operating condition and adequate for its present needs. The inability to
renew any short-term real property lease by Fisher or any of its subsidiaries
would not have a material adverse effect on Fisher's financial statements.
The following table identifies Fisher's principal facilities, which are
owned in fee unless otherwise indicated:
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U.S. LOGISTICS FACILITIES
Santa Clara, California (a) Florence, Kentucky
Denver, Colorado (a) Agawam, Massachusetts
Delmar (Newark), Delaware Houston, Texas
Suwanee, Georgia (a) Tustin, California
Itasca, Illinois (a) Somerville, New Jersey
Wood Dale, Illinois (a) Hanover Park, Illinois
Dallas (Plano), Texas Springfield, New Jersey
St. Louis, Missouri Raleigh, North Carolina
NON-U.S. FACILITIES
Geel, Belgium Offices, Logistics and Manufacturing
Center
Edmonton, Alberta, Canada Offices and Logistics Center
Whitby, Ontario, Canada Logistics Center
Nepean, Ontario, Canada Offices
Markham, Ontario, Canada (a) Offices and Data Center
Maurepas, France Offices and Logistics Center
Kamen, Germany (a) Logistics Center
Kuala Lumpur, Malaysia (b) Offices and Logistics Center
Monterrey, Mexico Offices and Logistics Center
Singapore (a) Offices and Logistics Center
Loughborough, United Kingdom Offices, Logistics and Manufacturing
Center
Cayey, Puerto Rico Offices and Logistics Center
Zoetermeer, Netherlands Manufacturing and Logistics Center
Schwerte, Germany Manufacturing and Logistics Center
OTHER PROPERTIES
Hampton, New Hampshire (a) Corporate Offices
Fair Lawn, New Jersey Manufacturing
Rochester, New York Manufacturing
Pittsburgh, Pennsylvania (a) Offices, Data Center and Manufacturing
Two Rivers, Wisconsin Offices and Manufacturing Center
Indiana, Pennsylvania Manufacturing
Swedesboro, New Jersey (a) Manufacturing
Huntersville, North Carolina (a) Manufacturing
Somerville, New Jersey Manufacturing
Mountain Home, Arkansas Manufacturing
</TABLE>
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(a) Leased
(b) One property owned, three leased
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ITEM 3. LEGAL PROCEEDINGS
There are various lawsuits and claims pending against Fisher and certain of
its subsidiaries. In the opinion of Fisher's management, the Company's ultimate
liability with respect to these matters, if any, will not have a material
adverse effect on Fisher's results of operations and financial condition. The
Company is currently subject to two shareholder suits, each of which purports to
be a class action, STEINER V. FISHER SCIENTIFIC INTERNATIONAL INC. ET. AL.,
Court of Chancery of the State of Delaware, New Castle County, Civil Action
15730 and JACOB V. FISHER SCIENTIFIC INTERNATIONAL INC., ET. AL., Court of
Chancery of the State of Delaware, New Castle County, Civil Action 15743NC. In
each case the complaints allege that the then Board of Directors of the Company
breached its fiduciary duties to shareholders by implementing a "poison pill"
and failing to facilitate the unsolicited proposal (the "Trinity Proposal") made
by Trinity I Fund, L.P. ("Trinity"), an investment fund affiliated with members
of the Bass family of Texas, that contemplated a recapitalization of Fisher in
which stockholders who surrendered their shares would receive $47 to $48 in cash
per share or, in the alternative, a cash merger transaction in which the
Company's stockholders would receive the same consideration, or to seek other
interested bidders and by conduct designed to prevent a change of control of the
Company. The plaintiff in each action requests, among other things, an order
certifying a class action, enjoining the use of defensive tactics in a manner
inconsistent with maximizing shareholder value and requiring that the then Board
of Directors of the Company create an active auction for the Company. In
addition to damages the suits seek attorneys fees and expenses. Because the then
Board of Directors of the Company, contrary to the allegations contained in the
shareholders suits listed above, did in fact conduct an auction for the Company
and did seek to find potential buyers for the Company, which resulted in a
change of control transaction having a value to shareholders greater than that
of the Trinity Proposal, the Shareholder suits are believed to be without merit
and unlikely to have a material adverse effect on the Company's financial
condition or results of operations.
The Company is subject to the jurisdiction of various regulatory agencies
including, among others, the United States Food and Drug Administration and the
Agency for International Development. Various governmental agencies conduct
investigations from time to time to examine matters relating to the Company's
operations. Some of the Company's operations involve and have involved the
handling, manufacture or use of substances that are classified as toxic or
hazardous substances within the meaning of applicable environmental laws.
Consequently, some risk of environmental and other damage is inherent in
particular operations and products of the Company as it is with other companies
engaged in similar businesses, and there can be no assurance that material
damage will not occur or be discovered to have occurred or be determined to be
material in the future. The Company is currently involved in various stages of
investigation and remediation relative to environmental protection matters. See
"Management's Discussion and Analysis of Financial Results of Operations and
Financial Condition--Environmental Matters". The Company's management believes
that such investigations and expenditures in connection therewith, individually
and in the aggregate, will not have a material adverse effect upon the Company's
results of operations and financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Fisher common stock ("Common Stock") is listed on the New York Stock
Exchange (the "NYSE") under the trading symbol FSH. The following table sets
forth the high and low closing sale prices of the Common Stock, as reported by
the NYSE for each of the quarterly periods listed:
<TABLE>
<CAPTION>
DIVIDENDS
PAID PER
HIGH LOW SHARE
----------- ---------- ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
First Quarter............................................................ 381/4 337/8 $ 0.02
Second Quarter........................................................... 411/4 361/2 $ 0.02
Third Quarter............................................................ 421/4 351/4 $ 0.02
Fourth Quarter........................................................... 471/8 395/8 $ 0.02
YEAR ENDED DECEMBER 31, 1997
First Quarter............................................................ 47 421/4 $ 0.02
Second Quarter........................................................... 471/2 351/2 $ 0.02
Third Quarter............................................................ 507/8 455/16 $ 0.02
Fourth Quarter........................................................... 48 443/8 --
YEAR ENDED DECEMBER 31, 1998
First Quarter (through March 18, 1998)................................... 801/16 473/4 --
</TABLE>
HOLDERS
As of March 18, 1998, there were approximately 75 holders of record of the
Common Stock.
DIVIDENDS
On January 21, 1998, in connection with the Transaction, the Company and
certain of its subsidiaries entered into a Credit Agreement which restricts the
Company's ability to pay cash dividends. Accordingly, the Company does not
anticipate paying cash dividends on its Common Stock at any time in the future.
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ITEM 6. SELECTED FINANCIAL DATA
This summary of selected financial data for the five years in the period
ended December 31, 1997 should be read in conjunction with the Financial
Statements presented elsewhere herein. See Notes 1 and 3 to Financial Statements
for a further discussion of the basis of presentation, principles of
consolidation and defined terms.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------
1997 1996 1995(g) 1994 1993
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales........................................... $ 2,175.3 $ 2,144.4 $ 1,435.8 $ 1,126.7 $ 978.4
Gross profit(a)................................. 591.7 578.5 386.9 318.9 292.7
Selling, general and administrative
expense(b)..................................... 518.8 483.9 334.4 255.0 232.0
Restructuring and other charges(c).............. 51.8 -- 34.3 -- --
Income from operations.......................... 21.1 94.6 18.2 63.9 60.7
Interest expense................................ 23.0 27.1 15.0 9.0 7.9
Income tax provision............................ 25.4 30.8 1.1 27.0 25.2
Net income (loss)(d)............................ (30.5) 36.8 3.2 35.7 32.6
SHARE DATA:
Earnings (loss) per common share(e):
Basic......................................... $ (1.50) $ 2.01 $ 0.20 $ 2.23 $ 2.04
Diluted....................................... (1.50) 1.90 0.20 2.18 2.00
Weighted average shares outstanding:
Basic......................................... 20.3 18.3 16.2 16.0 16.0
Diluted....................................... 20.3 20.5 16.2 16.4 16.3
Dividends declared per common share............. $ 0.06 $ 0.08 $ 0.08 $ 0.08 $ 0.08
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................. $ 237.5 $ 259.8 $ 284.0 $ 162.8 $ 162.4
Total assets.................................... 1,176.5 1,262.7 1,270.5 722.5 673.8
Long-term debt(f)............................... 267.8 281.5 446.3 128.4 128.1
Stockholders' equity(f)......................... 347.1 386.2 226.0 218.6 181.2
</TABLE>
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(a) Gross profit in 1997 was negatively affected by $6.7 million of costs
related to adjustments of certain inventory reserves due to changes in
estimates, costs attributable to the impact of the strike by employees of
United Parcel Service who are members of the International Brotherhood of
Teamsters (the "UPS strike") and the integration of Curtin Matheson
Scientific ("CMS") into Fisher. Gross profit in 1995 and 1996 includes $1.2
million of costs in each year associated with the revaluation of CMS and
Fisons Scientific Equipment ("FSE") acquired inventory.
(b) Selling, general and administrative expense in 1997, 1996 and 1995 included
nonrecurring and redundant costs of $29.8 million, $18.2 million and $14.5
million, respectively, associated with the implementation of the 1995
Restructuring Plan discussed below, the integration of CMS into Fisher, and,
in 1997, software write-offs and other information system-related charges
associated with the Company's implementation of new global computer systems,
direct costs resulting from the UPS strike, and management retention
payments primarily related to the Transaction.
(c) During the fourth quarter of 1997, Fisher recorded $51.8 million ($47.0
million, net of tax) of restructuring and other charges. These charges
related to the closure of additional logistics and customer-service centers
and related asset write-offs in the United States, personnel reductions in
the United States and internationally, and the write-off of goodwill related
to certain international operations.
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During the third quarter of 1995, Fisher recorded a $34.3 million ($20.3
million, net of tax) restructuring charge. The charge is primarily related
to the elimination and in some cases relocation of certain administrative
functions, a sales force reorganization, and the global consolidation of
certain domestic and international logistics and customer service facilities
and systems.
See Note 19 to Financial Statements.
(d) Net income (loss) in 1997, 1996 and 1995 includes the costs discussed in
(a), (b) and (c) above as well as $5.0 million of other expense in 1997
related to the Board's review of strategic alternatives and a loss on the
sale of a non-strategic business, $2.8 million of gains realized in 1997
related to the sale of non-core assets, and $1.5 million of gains realized
in 1996 related primarily to the restructuring and integration plans.
(e) In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 establishes new
standards for computing and presenting earnings per share. Earnings per
share for all years presented have been restated to comply with this
statement.
(f) In 1996, the Company issued a notice of redemption for its $125 million
step-up convertible subordinated notes due 2003. Approximately 97%, or
$121.6 million, of the notes were converted into 3,463,154 shares of the
Company's Common Stock and the remaining notes were redeemed by the Company.
The conversion of the debt and associated accrued interest and subsequent
redemption resulted in an increase in stockholders' equity and a reduction
in long-term debt of approximately $125 million. In addition, the
Transaction, which was consummated on January 21, 1998, resulted in an
increase in long-term debt of $582.2 million and a decrease in stockholders'
equity of $702.7 million. See Note 2 to the Financial Statements.
(g) On October 17, 1995, Fisher acquired CMS and Fisons Scientific Equipment
("FSE") from Fisons plc. The operations of CMS and FSE have been included in
Fisher's financial statements from the date of acquisition. See Note 4 to
Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
Fisher Scientific International Inc. ("Fisher" or the "Company") was formed
in September 1991. The Company's operations are conducted by wholly-owned and
majority-owned subsidiaries, joint ventures, equity interests and agents,
located in North and South America, Europe, the Far East, the Middle East and
Africa. The Company's activities relate principally to one business segment;
scientific and clinical products. This includes operations engaged in the
supply, marketing, service and manufacture of scientific, clinical, educational
and occupational health and safety products, and maintenance, repair and
operating ("MRO") materials.
Pursuant to the Second Amended and Restated Agreement and Plan of Merger
amending an Agreement and Plan of Merger dated August 7, 1997 (as amended, the
"Merger Agreement") dated as of November 14, 1997, between the Company and FSI
Merger Corp. ("FSI"), a Delaware corporation formed by Thomas H. Lee Company
("THL"), providing for the merger of FSI with and into Fisher and the
recapitalization of Fisher (collectively, "the Transaction"), which Transaction
was consummated on January 21, 1998, approximately 87% of the fully diluted
common stock of Fisher was converted into the right to receive $48.25 per share
in cash (approximately $955.0 million in the aggregate) pursuant to an election
process that provided stockholders the right to elect for each share of Fisher
Common Stock held, subject to proration, either $48.25 in cash or to retain one
share of stock in the recapitalized company. Pursuant to the Merger Agreement,
vesting of all outstanding options accelerated. See Note 2 to Financial
Statements.
On October 17, 1995, Fisher acquired the principal businesses of the
laboratory supplies division of Fisons plc. ("Fisons") in a transaction
accounted for as a purchase. The Company purchased the outstanding stock of
Curtin Matheson Scientific Inc. ("CMS"), headquartered in Houston, Texas, and
substantially all of the net assets of Fisons Scientific Equipment ("FSE"), a
division of Fisons with headquarters in Loughborough, United Kingdom. CMS is a
supplier of diagnostic test kits, equipment and laboratory supplies to
integrated health care organizations, managed care organizations, national and
independent reference laboratories, and physicians' office laboratories where
human specimens are tested for subsequent diagnosis, as well as a supplier to
the scientific research community. FSE is a leading supplier of laboratory
products in the United Kingdom and also serves markets throughout Europe,
Africa, the Middle East and the Far East. The Company intends to use these
businesses to expand its operations in the clinical laboratory market, enhance
its position in the North American scientific research laboratory market and
complement its international growth strategy. During 1997, 1996 and 1995, Fisher
made certain smaller acquisitions of laboratory products distributors and other
businesses. All acquisitions have been accounted for as purchases; operations of
the companies and businesses acquired have been included in Fisher's
consolidated financial statements from their respective dates of acquisition.
See Note 4 to Financial Statements.
RESULTS OF OPERATIONS
1997 AS COMPARED WITH 1996
SALES
Sales for the year ended December 31, 1997 increased 1.4% to $2,175.3
million from $2,144.4 million for the comparable period in 1996. Sales growth in
Fisher's historical North American operations and the inclusion of sales of
operations acquired in the fourth quarter of 1996 (UniKix Technologies and a
laboratory products distributor in Mexico) were partially offset by a decrease
in sales to the U.S. clinical
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laboratory market and the impact of the strike by employees of United Parcel
Service ("UPS") who are members of the International Brotherhood of Teamsters
(the "UPS strike"), which occurred in August 1997.
As a national distributor, Fisher utilizes the services of UPS for a
significant portion of its domestic shipments. Fisher is one of UPS's largest
customers in terms of annual revenue to the shipper. The UPS strike
significantly reduced sales for the third and fourth quarters of 1997 and
increased operating costs. The Company anticipates a gradual recovery in sales
levels during 1998.
GROSS PROFIT
Fisher's gross profit for the year ended December 31, 1997 increased 2.3% to
$591.7 million from $578.5 million for the comparable period in 1996, primarily
as a result of volume. Gross profit as a percent of sales increased to 27.2% for
the year ended December 31, 1997 from 27.0% for the comparable period in 1996.
Gross profit in 1997 was negatively affected by $6.7 million of costs related to
adjustments to certain inventory reserves due to changes in estimates, direct
costs resulting from the UPS strike and the integration of CMS into Fisher.
Gross profit in 1996 includes $1.2 million of costs associated with the
revaluation of CMS and FSE acquired inventory.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the year ended December 31,
1997 increased 7.2% to $518.8 million from $483.9 million for the comparable
period in 1996. Selling, general and administrative expense in both periods
includes nonrecurring and redundant costs associated with the implementation of
the 1995 Plan (defined below), the integration of CMS into Fisher, and, in 1997,
software write-offs and other information system-related charges associated with
the Company's implementation of new global computer systems, direct costs
resulting from the UPS strike, and management retention payments related
primarily to the Transaction. Nonrecurring integration and restructuring-related
costs include costs resulting from the temporary duplication of operations,
relocation of inventories and employees, hiring and training new employees, and
other one-time and redundant costs, which will be eliminated as the integration
and restructuring plans are completed. These costs are recognized as incurred.
For the year ended December 31, 1997, approximately $29.8 million of such
nonrecurring costs were included in selling, general and administrative expense
compared with $18.2 million for the corresponding periods in 1996.
Excluding nonrecurring costs, selling, general and administrative expense as
a percentage of sales was 22.5% for 1997 compared with 21.7% for 1996. This
increase is primarily due to lower than expected sales volume without a
corresponding decrease in expense. The Company has taken and is continuing to
take actions to improve efficiencies and reduce this expense as a percent of
sales.
Operations outside the United States continue to have significantly higher
selling, general and administrative expense as a percentage of sales as compared
with that of Fisher's domestic operations. These higher costs are being incurred
as part of a plan to develop an integrated worldwide supply capability, the
benefit of which has not been fully realized.
RESTRUCTURING AND OTHER CHARGES
Following the execution of the Merger Agreement, during the fourth quarter
of 1997 in conjunction with the annual business planning process, the Company
evaluated its business strategy for both its domestic and international
operations and, as a result, adopted the 1997 restructuring plan (the "1997
Plan") and recorded restructuring and other charges of $51.8 million. The
charges include costs associated with the closure of additional logistics and
customer-service centers and related asset write-offs in the United States and
internationally, the write-off of goodwill related to certain international
operations and the write-off of systems-related assets. Implementation of the
1997 Plan is expected to be completed and the related accruals substantially
expended by the end of 1999.
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<PAGE>
INCOME FROM OPERATIONS
Income from operations for the year ended December 31, 1997 decreased to
$21.1 million from $94.6 million for the comparable period in 1996 primarily due
to the 1997 restructuring and other nonrecurring charges and the increased
selling, general and administrative expense discussed above. Income from
operations as a percent of sales decreased to 1.0% for the year ended December
31, 1997, compared with 4.4% for the same period in 1996.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1997 decreased to $23.0
million from $27.1 million for the comparable period in 1996. The decrease
principally reflects a reduction in interest expense as a result of the June
1996 conversion and redemption of the Company's $125 million step-up convertible
notes. See "Liquidity and Capital Resources" below.
OTHER (INCOME) EXPENSE, NET
Other (income) expense, net for the year ended December 31, 1997 decreased
to $3.2 million of expense from $0.1 million of income for the comparable period
in 1996. The increase in expense for the year was primarily due to foreign
exchange losses, $5.0 million of fees and expenses related to the Board of
Directors' review of strategic alternatives and a loss on the sale of a
non-strategic business, offset by $2.8 million of gains on sales of non-core
assets.
INCOME TAX PROVISION
The income tax provision was $25.4 million for the year ended December 31,
1997 compared with $30.8 million for the comparable period in 1996. The
effective income tax rate for 1997 increased significantly compared with 45.5%
for the corresponding period in 1996. The increased rate is a result of foreign
losses for which no tax benefits are currently being provided, write-off of
previously recognized foreign tax benefits, and nondeductible fees and expenses
incurred in connection with the Board's review of strategic alternatives.
NET INCOME (LOSS)
Net income (loss) for the year ended December 31, 1997 decreased to $30.5
million of loss from $36.8 million of income for the comparable period in 1996.
These changes are due to the factors discussed above.
1996 AS COMPARED WITH 1995
SALES
Sales for the year ended December 31, 1996 increased 49% to $2,144.4 million
from $1,435.8 million for the comparable period in 1995. The sales increase
primarily reflects sales of CMS and FSE, acquired in October 1995, as well as
growth in North American distribution.
GROSS PROFIT
Fisher's gross profit for the year ended December 31, 1996 increased 50% to
$578.5 million from $386.9 million for the comparable period in 1995. The
increase in gross profit is attributable primarily to the aforementioned sales
growth.
Gross profit as a percent of sales was 27.0% for the year ended December 31,
1996 and remained consistent with that of the same period in 1995. Lower gross
margins associated with recently acquired businesses were offset by improvements
in gross margins of Fisher's historical North American operations.
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<PAGE>
Both 1996 and 1995 include $1.2 million of costs associated with the revaluation
of CMS and FSE acquired inventory.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the year ended December 31,
1996 increased 45% to $483.9 million from $334.4 million for the comparable
period in 1995. The increase reflects the inclusion of selling, general and
administrative expenses of recently acquired businesses, growth in base North
American distribution operations, nonrecurring costs to integrate CMS into
Fisher and nonrecurring costs associated with the implementation of the
restructuring plan that began in the third quarter of 1995 (see "Restructuring
Charge" below).
Operations outside of the United States continue to have significantly
higher selling, general and administrative expense as a percentage of sales as
compared with that of Fisher's domestic operations. These higher costs are being
incurred as part of a plan to develop an integrated worldwide supply capability,
the benefit of which has not been fully realized.
RESTRUCTURING CHARGE
In the third quarter of 1995, the Company recorded a pretax restructuring
charge of $34.3 million. The 1995 restructuring plan (the "1995 Plan"), which
anticipated the integration of the former Fisons businesses, including CMS, with
the Company, included the elimination and in some cases relocation of certain
administrative functions, reorganization of the research sales force, and the
consolidation and relocation of certain logistics and customer service systems
and locations throughout the world.
Certain costs resulting from the temporary duplication of operations,
relocation of inventories, relocation of employees, hiring and training new
employees, other start-up costs and redundant costs, which will be eliminated as
the 1995 Plan is implemented, were not included in the restructuring charge and
are recognized as incurred. Approximately $18.2 million and $14.5 million of
such charges have been recorded in 1996 and 1995, respectively, and are included
in selling, general and administrative expense.
INCOME FROM OPERATIONS
Income from operations for the year ended December 31, 1996 increased to
$94.6 million, compared with $18.2 million for the corresponding period in 1995.
The increase reflects the effect of the restructuring charge of $34.3 million
recorded in 1995 as well as the factors discussed above. The Company's
operations outside of North America were not profitable, primarily as a result
of costs associated with the continued development of the Company's worldwide
supply capability and up-front infrastructure costs as discussed above in
"Selling, General and Administrative Expense".
INTEREST EXPENSE
Interest expense of $27.1 million in 1996 increased by $12.1 million from
the 1995 level. The increase principally reflects interest related to borrowings
used to finance the acquisition of CMS and FSE in the fourth quarter of 1995,
partially offset by the June 1996 conversion and redemption of the Company's
$125 million step-up convertible notes.
NET INCOME
Net income for the year ended December 31, 1996 increased to $36.8 million
from $3.2 million for the comparable period in 1995 as a result of the factors
discussed above.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1997, the Company's operations generated
$46.1 million of cash compared with $49.0 million in 1996. This decrease in cash
provided by operating activities primarily reflects a decrease in net income
adjusted for noncash items, partially offset by an increase in cash flows from
changes in working capital. The net increase in cash provided by receivables,
inventories and payables is due to the Company's overall effort to reduce
working capital which had increased during the integration of CMS into Fisher in
1996. Other assets and liabilities reduced operating cash flows by $22.5 million
compared with $5.3 million in 1996 primarily due to the increased effect of
foreign currency translation in 1997 and increased payments to software service
vendors related to the implementation of new global computer systems in 1997.
The Company's operating working capital (defined as receivables plus
inventories less accounts payable and accrued liabilities) decreased to $185.7
million at December 31, 1997 from $194.2 million at December 31, 1996. This
decrease is primarily due to net decreases in receivables, inventories and
payables discussed above. Excluding the effect, if any, of future acquisitions
and anticipated temporary inventory duplications as the Company completes the
consolidation and relocation of certain of its logistical facilities in North
America, the Company's working capital requirements are not anticipated to
increase in 1998.
During the year ended December 31, 1997, the Company used $50.7 million of
cash for investing activities compared with $42.0 million for the same period in
1996. The increase in cash used for investing activities is primarily
attributable to capital expenditures partially offset by proceeds from the sale
of property, plant and equipment. During the years ended December 31, 1997 and
1996, the Company made capital expenditures of $59.2 million and $40.7 million,
respectively. The increase is due to the Company's investments in logistical
facilities in North America and the Far East and global computer systems. The
Company implemented a project to upgrade and, in some cases, to remediate global
computer systems, which it plans to complete in 1999. This project is expected
to result in approximately $35 million of additional spending in 1998 and 1999,
which the Company plans to fund with cash from operations and borrowings. The
change in proceeds from the sale of property, plant and equipment is due to the
receipt of proceeds from the sale of non-core fixed assets. The increase in
other investing activities relates to the funding of a trust associated with the
Company's pension plans. See Note 16 to the Financial Statements. Capital
expenditures in 1998 are expected to show a similar increase over 1997 as the
Company continues its consolidation and relocation of logistical facilities in
North America and its global computer systems project. The Company's investing
activities were primarily funded by the Company's cash on hand and cash provided
by operating activities.
Cash used in financing activities was $1.9 million in 1997 compared with
$46.0 million in 1996. This change is due to $7.4 million in net long-term debt
payments in 1997 compared with $52.4 million in 1996. See "Debt" below. In 1997
and 1996 financing activities included approximately $96 million and $25
million, respectively, of long-term debt proceeds from and $105 million and $74
million, respectively, of long-term debt repayments of Fisher's bank credit
facilities.
The Company intends to continue to pursue acquisitions of complementary
businesses that will enhance growth and profitability. The Company currently has
no commitment, understanding or arrangement relating to any material
acquisitions.
Fisher expects that 1998 cash flows from operations, together with cash on
hand and funds available under the new debt financing arrangement (discussed
below) entered into as part of the Transaction, will be sufficient to meet
ongoing operating and capital expenditure requirements.
DEBT
At December 31, 1997, the Company had $100.6 million outstanding under the
Credit Facilities, $60.0 million of which is denominated in U.S. dollars and the
remainder in British Pounds. Borrowings under the Credit Facilities were repaid
on the date of the Transaction. On December 31, 1997, $173.5 million was
available under the Credit Facilities as a revolving line of credit and for
letters of credit. The Company is
16
<PAGE>
required to pay a commitment fee based on certain of the Company's coverage
ratios. At December 31, 1997, the rate was 0.2% per annum on the unused portion
of the Credit Facilities. All borrowings under the Credit Facilities bore
interest, at the Company's option, at either the Bank's Base Rate or at LIBOR
plus a margin, based on certain of the Company's coverage ratios. At December
31, 1997, the rate was approximately 6.87%. The estimated fair value of these
borrowings at December 31, 1997 approximates the net carrying value. The Company
also has outstanding $150.0 million aggregate principal amount of 7 1/8% Notes
due December 15, 2005, which were sold on December 18, 1995 at a price to the
public equal to 99.184% of principal bringing the effective interest rate to
7.5%. The estimated fair market value of the 7 1/8% Notes at December 31, 1997,
based on quotes from bond traders making a market in the Notes, was
approximately $138.8 million.
In connection with the Transaction, effective January 21, 1998, Fisher
entered into new debt financing arrangements, consisting of $469.2 million of
senior bank financing (the "New Credit Facility"), a $150 million receivables
securitization facility (the "Receivables Securitization") and $400 million of
9% Senior Subordinated Notes due 2008 (the "9% Notes"). The full proceeds of the
9% Notes, together with a portion of the proceeds of the New Credit Facility,
were used to finance the conversion into cash of the shares of Fisher Common
Stock then outstanding which were not retained by existing stockholders and
employees, to refinance $107.8 million of indebtedness of the Company
outstanding on the date of the Transaction and to pay related fees and expenses
of the Transaction. In addition, the New Credit Facility will be used to provide
for the Company's working capital requirements.
The New Credit Facility consists of (i) a $294.2 million term loan facility
(the "Term Facility") consisting of a (a) $125.0 million tranche A term loan
("Tranche A"), (b) $100.0 million tranche B term loan ("Tranche B") and (c)
$69.2 million tranche C term loan ("Tranche C"); and (ii) a $175.0 million
revolving credit facility (the "Revolving Facility" and, together with the Term
Facility, the "Senior Facilities"). Borrowings under the Term Facility bear
interest at a rate equal to, at the Company's option, the following: Tranche A,
LIBOR plus 2.25% or Prime Rate plus 1.25%; Tranche B, LIBOR plus 2.50% or Prime
Rate plus 1.50%; and Tranche C, LIBOR plus 2.75% or Prime Rate plus 1.75%.
Borrowings made under the Revolving Facility bear interest at a rate equal to,
at the Company's option, LIBOR plus 2.25%, or the Prime Rate plus 1.25%;
provided that (i) pound sterling borrowings under Tranche A bear interest at
LIBOR for sterling deposits plus 2.25%, (ii) Canadian dollar borrowings under
Tranche A bear interest at the borrower's option at the Canadian Prime Rate plus
1.25% or a B/A rate determined in accordance with the provisions of the New
Credit Facility and (iii) negotiated foreign currency loans issued under the
Revolving Credit Facility will bear interest at the rates to be negotiated. The
Company will also pay to the lenders a commitment fee equal to .50% per annum of
the undrawn portion of each lender's commitment from time to time. The LIBOR and
Prime Rate margins and the commitment fees are subject to reductions, based on
various tests of Fisher's financial performance. The Term Facilities have the
following maturity periods from the date of inception: Tranche A--6 years,
Tranche B--7 years and Tranche C--7.75 years. The Revolving Facility expires six
years from the date of inception.
The obligations of Fisher and the subsidiary borrowers under the New Credit
Facility are secured by substantially all assets of the Company and its material
domestic subsidiaries, a pledge of the stock of all domestic subsidiaries, and a
pledge of 65% of the stock of material foreign subsidiaries which are direct
subsidiaries of the Company or one of its material domestic subsidiaries.
Obligations of each foreign subsidiary borrower are secured by a pledge of 100%
of the shares of such borrower. The obligations of Fisher and the subsidiary
borrowers are further guaranteed by Fisher and each material domestic subsidiary
of Fisher.
The New Credit Facility contains covenants of the Company and the subsidiary
borrowers, including, without limitation, restrictions on (i) indebtedness, (ii)
the sale of assets, (iii) mergers, acquisitions and other business combinations,
(iv) restrictions on the payment of cash dividends to shareholders, and (v)
various financial covenants. The financial covenants include requirements to
maintain certain levels of interest coverage, debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA") and minimum EBITDA and to limit
capital expenditures. In addition to the mandatory repayment schedule
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<PAGE>
discussed below, loans under the Term Facility are required to be prepaid with
50% of excess cash flow (as defined in the New Credit Facility and subject to
certain limits as specified therein) and certain equity issuances of the
Company, and 100% of net-cash proceeds of certain asset sales, certain insurance
and condemnation proceeds and certain debt issuances of the Company. The
mandatory repayment schedule of the Term Facility, over the next five years and
thereafter is as follows: $0.0 million in 1998, $6.0 million in 1999, $17.0
million in 2000, $22.0 million in 2001, $37.0 million in 2002 and $212.2 million
in years subsequent to 2002.
The Receivable Securitization relates to the sale, on a revolving basis, of
certain of the Company's accounts receivable to a bankruptcy remote subsidiary
of the Company which entered into an agreement to transfer, on a revolving
basis, an undivided percentage ownership interest in a designated pool of
accounts receivable up to a maximum amount based on a defined calculated
percentage of the outstanding accounts receivable balance. The facility has a
maturity of five years and the effective interest rate is approximately LIBOR
plus 50 basis points.
The 9% Notes will mature on February 1, 2008 with interest payable
semiannually in arrears on February 1 and August 1 of each year commencing
August 1, 1998. The 9% Notes are unsecured senior subordinated obligations of
the Company, subordinated in right of payment to all existing and future senior
indebtedness and rank PARI PASSU in light of payment with all other existing and
future senior subordinated indebtedness of the Company.
The 9% Notes are redeemable at the option of the Company at any time after
February 1, 2003 at an initial redemption price of 104.5%, declining ratably to
par on or after February 1, 2006. In addition, on or prior to February 1, 2001,
the Company may redeem up to 40% of the original principal amount of the 9%
Notes at a redemption price of 109% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of redemption with the net cash
proceeds of one or more public equity offerings, provided that at least 60% of
the aggregate principal amount of the 9% Notes originally issued remain
outstanding immediately after the occurrence of such redemption. Upon a Change
of Control Triggering Event (as defined in the Indenture under which the 9%
Notes are issued), the Company will be required to make an offer to purchase all
outstanding 9% Notes at 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase.
The Indenture under which the 9% Notes are issued contains covenants that
restrict, among other things, (i) the ability of the Company and its
subsidiaries to incur additional indebtedness, (ii) pay dividends or make
certain other restricted payments, (iii) merge or consolidate with any other
person, and (iv) other various covenants which are customary for transactions of
this type.
RESTRUCTURING PLANS
Following execution of the Merger Agreement during the fourth quarter of
1997 and in conjunction with the annual business planning process, the Company
evaluated its business strategy for both its domestic and international
operations, and, as a result, adopted the 1997 Plan and recorded restructuring
and other charges of $51.8 million. The charges include costs associated with
the closure of additional logistics and customer-service centers and related
asset write-offs in the United States and internationally, the write-off of
goodwill related to certain international operations and the write-off of
systems-related assets. The restructuring and other charges consist of $38.3
million related to noncash asset impairments, $9.1 million of accruals for
employee separation arrangements and $4.4 million of exit costs.
As previously noted, in 1995 the Company recorded a pretax restructuring
charge of $34.3 million, of which approximately $18 million consisted of noncash
charges and approximately $16 million consisted of accrued cash charges related
to separation arrangements and exit costs related to consolidation efforts.
Implementation of the 1995 Plan is expected to be completed in conjunction with
the 1997 Plan. Fisher expects cash expenditures in 1998 related to these plans
to approximate $11 million, which will be paid from available funds. Cash
expenditures in 1997 and 1996 were approximately $2 million and $7 million,
respectively. Certain costs resulting from the temporary duplication of certain
operations, relocation of
18
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inventory, relocation of employees, hiring and training new employees, other
start-up costs and redundant costs, which are expected to be eliminated as the
Plan is implemented, are not included in the restructuring charge and were
recognized in income from operations as incurred. Upon completion of the Plans
and the integration of CMS into Fisher, the Company expects an improvement in
annual pretax profitability of approximately $25 million. See "Cautionary
Factors Regarding Forward-Looking Statements".
During the third quarter of 1991, Fisher recorded a pretax $20.0 million
restructuring charge relating primarily to improving operations of its North
American distribution system through consolidation and expansion of certain
facilities. This plan is substantially complete and the related accruals
remaining of $2.6 million will be substantially expended by the end of 1998.
ENVIRONMENTAL MATTERS
Some of Fisher's operations involve and have involved the handling,
manufacture or use of substances that are classified as toxic or hazardous
substances within the meaning of applicable environmental laws. Consequently,
some risk of environmental and other damage is inherent in particular operations
and products of Fisher, as it is with other companies engaged in similar
businesses, and there can be no assurance that material damage will not occur or
be discovered to have occurred or be determined to be material in the future.
The Company is currently involved in various stages of investigation and
remediation relative to environmental protection matters.
The Company's Fair Lawn and Somerville, New Jersey facilities are the
subject of administrative consent orders, issued pursuant to New Jersey's
Environmental Clean-Up and Responsibility Act ("ECRA") (now called the
Industrial Site Recovery Act ("ISRA")), in connection with prior transfers of a
controlling interest in the Company, which require that certain remediation and
other activities be undertaken at these sites. The Fair Lawn facility is also
part of a site listed on the "Superfund" National Priority List under the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"). Fisher has also been notified that it is among the
potentially responsible parties under CERCLA or similar state laws for the costs
of investigating and/or remediating contamination caused by hazardous materials
at certain other sites. The Company's non-Superfund liabilities for
environmental matters are principally related to compliance with ECRA/ISRA
administrative consent orders and other environmental regulatory requirements
such as the Clean Air Act, the Clean Water Act and other generally applicable
requirements.
The potential costs related to environmental matters and the possible impact
on future operations are difficult to predict given the uncertainties regarding
the extent of the required cleanup, the complexity and interpretation of
applicable laws and regulations, the varying costs of alternative cleanup
methods and the extent of the Company's responsibility. However, such costs
could be material. Accruals for environmental liabilities are recorded, based on
current interpretations of environmental laws and regulations, when it is
probable that a liability has been incurred and the amount of such liability can
be reasonably estimated. Estimates are established based upon reports prepared
by environmental specialists, management's knowledge to date and its experience
with the foregoing environmental matters, and include potential costs for
investigation, remediation, operation and maintenance of cleanup sites and
related capital expenditures. Accrued liabilities for environmental matters were
$35.1 million and $37.6 million at December 31, 1997 and 1996, respectively.
Although these amounts do not include third-party recoveries, certain sites may
be subject to indemnification. The Company has accounted for environmental
liabilities in accordance with Accounting Standards Statement of Position 96-1,
"Environmental Remediation Liabilities," which addresses accounting and
reporting for environmental remediation liabilities. Management believes this
accrual is adequate for the environmental liabilities expected to be incurred
and, as a result, believes that the ultimate liability incurred with respect to
environmental matters will not have a material adverse effect on the Company's
financial statements or results of operations. However, future events, such as
changes in existing laws and regulations, changes in agency direction or
enforcement policies, or changes in the conduct of Fisher's operations, may give
rise to additional compliance costs which could have a material adverse effect
on the Company's financial statements.
19
<PAGE>
FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash in banks,
investments in marketable securities, accounts receivable and debt. In addition,
the Company has forward currency contracts that hedge certain firm commitments.
See Notes 3 and 6 of Notes to Financial Statements for additional information.
DIVIDENDS
The Company paid a quarterly cash dividend of $.02 per share for the first
three quarterly periods of fiscal 1997 and each of the quarterly periods of
1996. On January 21, 1998, in connection with the Transaction, the Company and
certain of its subsidiaries entered into a Credit Agreement which restricts the
Company's ability to pay cash dividends. Accordingly, the Company does not
anticipate paying cash dividends on its Common Stock at any time in the future.
FINANCIAL CONDITION
At December 31, 1997, current assets decreased $60.4 million from December
31, 1996, with reductions in cash and cash equivalents of $6.5 million, accounts
receivable of $19.5 million, inventories of $32.2 million and other current
assets of $2.2 million. The decrease in cash and cash equivalents is primarily
due to repayments on the Company's bank credit facility. The decrease in
accounts receivable and inventories is primarily due to the Company's overall
efforts to reduce working capital which had increased during the integration of
CMS into Fisher in 1996.
Current liabilities decreased by $38.1 million primarily due to a decrease
of $34.7 million in accounts payable related to the Company's overall effort to
reduce working capital discussed above. Long-term assets decreased by $25.8
million, primarily due to asset write-offs related to the 1997 restructuring
plan which were partially offset by capital expenditures. Long-term debt
decreased by $13.7 million, primarily due to repayments of the Credit Facility.
Stockholders' equity decreased by $39.1 million primarily due to the Company's
net loss and the change in the currency translation adjustment.
CAUTIONARY FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K, in future filings by the Company with
the Securities and Exchange Commission (the "Commission"), in the Company's
press releases, and in oral statements made by or with the approval of an
authorized executive officer of the Company constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 (the "Act") and releases issued by the commission. These
statements concern the beliefs or current expectations of the Company or its
management with respect to the Company's operating and growth strategies,
financing, regulatory matters, industry trends, competition, risks associated
with foreign operations, reliance on suppliers, environmental matters and legal
proceedings and other factors affecting the Company's financial condition or
results of operations. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that are beyond the Company's control,
and could cause the actual results, performance or achievements of the Company
to differ materially from those contemplated, projected, estimated or budgeted
in or expressed or implied by the forward-looking statements. These factors
include: general economic and business conditions; industry trends; overseas
expansion; the loss of major customers or suppliers; the timing of orders
received from customers; cost and availability of raw materials; changes in
business strategy or development plans; availability and quality of management;
and availability, terms and deployment of capital. Special attention should be
paid to the forward-looking statements including, but not limited to, statements
relating to (i) the Company's ability to execute its post-merger business
strategy, (ii) the Company's ability to obtain sufficient resources to finance
its working capital and capital expenditure needs and provide for its known
obligations, (iii) industry sales growth and the ability of the Company to make
acquisitions, and (iv) the impact of environmental regulation on the Company's
20
<PAGE>
operations. The following factors should also be considered carefully in
evaluating such forward-looking statements:
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As a result of the Transaction, the Company is highly leveraged, with
indebtedness that is very substantial in relation to its shareholders' equity.
After giving pro forma effect to the Transaction as of December 31, 1997, the
Company's aggregate outstanding indebtedness would have been $869.7 million and
the Company's shareholders' equity would have been a deficit of $355.6 million.
The Company's high degree of leverage could have important consequences to
stockholders, including but not limited to the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired in the
future; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations and other
purposes, including investments in research and development and capital
spending, (iii) the Company may be substantially more leveraged than certain of
its competitors, which may place the Company at a competitive disadvantage; (iv)
the Company may be hindered in its ability to adjust rapidly to changing market
conditions; and (v) the Company's substantial degree of leverage could make it
more vulnerable in the event of a downturn in general economic conditions or its
business or changing market conditions and regulations.
The Company's ability to repay or to refinance its obligations with respect
to its indebtedness will depend on its future financial and operating
performance, which, in turn, will be subject to prevailing economic and
competitive conditions and to certain financial, business, legislative,
regulatory and other factors, many of which are beyond the Company's control.
These factors could include operating difficulties, increased operating costs,
product pricing pressures, the response of competitors, regulatory developments,
and delays in implementing strategic projects. The Company's ability to meet its
debt service and other obligations may depend in significant part on the extent
to which the Company can implement successfully its business strategy. There can
be no assurance that the Company will be able to implement its strategy fully or
that the anticipated results of its strategy will be realized.
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, or seek to obtain additional equity capital,
or to refinance or restructure its debt. There can be no assurance that the
Company's cash flow and capital resources will be sufficient for payment of
principal of, and premium, if any, and interest on, its indebtedness in the
future, or that any such alternative measures would be successful or would
permit the Company to meet its scheduled debt service obligations. In addition,
because the Company's obligations under the New Credit Facility will bear
interest at floating rates, an increase in interest rates could adversely
affect, among other things, the Company's ability to meet its debt service
obligations. The Company has entered into certain interest protection
arrangements following the Transaction with respect to a portion of its
indebtedness under the New Credit Facility that has placed a cap on the interest
rates payable thereon.
RESTRICTIVE COVENANTS
The New Credit Facility and the 9% Notes contains a number of covenants that
will significantly restrict the operations of the Company and its ability to
make certain types of aquisitions. In addition, the Company is required to
comply with specified financial ratios and tests, including maximum leverage
ratios and minimum EBITDA to cash interest expense ratios, and certain of these
ratios and tests are more restrictive in future years. There can be no assurance
that the Company will be able to comply with such covenants or restrictions in
the future. The Company's ability to comply with such covenants and other
restrictions may be affected by events beyond its control, including prevailing
economic, financial and
21
<PAGE>
industry conditions. The breach of any such covenants or restrictions could
result in a default under the New Credit Facility that would permit the lenders
thereunder to declare all amounts outstanding thereunder to be immediately due
and payable, together with accrued and unpaid interest, and terminate their
commitments to make further extensions of credit thereunder.
DIFFICULTY IN EXECUTING BUSINESS STRATEGY
The business strategy that has been developed by the Company is based on the
Company's current and historical operations and the operations of other
companies in the scientific services industries. The Company's current business
strategy is based, in part, on the Company's ability to capitalize on benefits
expected to result from various acquisitions and investments made by the Company
over the last few fiscal years, including the acquisitions of CMS and FSE,
investments to expand the Company's international operations and continued
investment in FTG. Although partially completed, there can be no assurance that
the Company will be able to successfully complete the integration of CMS into
its operations, or that such integration, when complete, will generate expected
efficiencies and cost savings. In addition, the Company's consolidated
international operations and FTG each incurred net losses in fiscal 1997 and are
currently operating at a loss. If the Company is unable to improve the sales and
profitability of its international business and of FTG, the Company's financial
condition and results of operations may be materially adversely affected. After
the Transaction, the Company's management may decide to alter or discontinue
certain parts of the business strategy described herein and may adopt
alternative or additional strategies. In addition, there can be no assurance
that such a strategy, if implemented, will be successful or will improve
operating results. Moreover, there can be no assurance that the successful
implementation of such a strategy will result in improved operating results.
Further, other conditions may exist, such as increased competition, or an
economic downturn, which may offset any improved operating results that are
attributable to such a strategy.
DEPENDENCE ON INFORMATION SYSTEMS; SYSTEMS CONVERSION; YEAR 2000 ISSUE
The Company's business is dependent in part on its information systems.
These systems play an integral role in: tracking product offerings (including
pricing and availability); processing and shipping customer orders; warehouse
operations; purchasing; inventory management; financial reporting; and other
operational functions. The Company is currently in the process of implementing a
project whereby many of its present computer systems, including its order entry,
purchasing and financial systems will be replaced. This conversion is expected
to occur over the next two years. There can be no assurance that the Company
will not experience unanticipated delays, complications and expenses in
implementing, integrating and operating such systems. Failure to successfully
complete the conversion of the Company's current computer system on a timely
basis or failures with respect to the Company's systems generally could result
in operational and financial disruptions and could also lead to cost overruns.
The Company is dealing with "year 2000" issues. Year 2000 issues exist when
dates in computer systems are recorded using two digits (rather than four) and
are then used for arithmetic operations, comparisons or sorting. A two-digit
date recording may recognize a date using "00" as 1900 rather than 2000, which
could cause the Company's computer systems to perform inaccurate computations.
The Company's year 2000 issues related not only to its own systems but also to
those of its customers and suppliers. It is anticipated that the Company's
program to enhance its systems capabilities described above, and other year 2000
activities of the Company with respect to systems not being replaced, will
resolve the year 2000 issue with respect to the Company's internal systems.
Although management believes its program to address year 2000 issues is
adequate, there is no guarantee that the program is in fact adequate or that the
systems replacements and modifications will be completed on time. Even if the
Company's year 2000 conversion is completed, the failure of the Company's
suppliers and customers to address the year 2000 issue could result in
disruption or significantly impact the Company. See Note 15 to Financial
Statements.
22
<PAGE>
DEPENDENCE ON CORPORATE RESEARCH AND DEVELOPMENT SPENDING
The Company's customers include corporations active in scientific or
technological research, healthcare, industrial, safety and other markets, both
in the U.S. and internationally. The research and development budgets and
activities of these companies have a significant effect on the demand for
products manufactured and/or distributed by the Company. Such policies are based
on a variety of factors, including the need to develop new products, competition
and availability of resources. Although scientific and technology-related
research and development spending in the U.S. historically has not been subject
to cyclical swings, no assurance can be made that this trend will continue. In
addition, as the Company continues to expand its international operations, the
research and development spending levels in other global markets will become
increasingly important. A decrease in research and development spending by the
Company's customers could have a material adverse effect on the Company's
results of operations.
HEALTHCARE REFORM; COST CONTAINMENT
The Company's sales to the U.S. clinical laboratory market have historically
been significant. The trend towards managed care, together with efforts to
reform the healthcare delivery system in the U.S., has resulted in increased
pressure on healthcare providers and other participants in the healthcare
industry to reduce costs. To the extent that the Company's customers in the
healthcare industry seek to address the need to contain costs by limiting the
number of clinical tests being performed, the Company's results of operations
could be materially and adversely affected.
CONTROL OF THE COMPANY
As a result of the Transaction, certain affiliates of THL ("THL Entities"),
Chase Equity Associates, L.P. ("Chase Equity"), Merrill Lynch & Co. ("Merrill
Lynch") and DLJ Merchant Banking Partners II, L.P. and certain of its affiliates
("DLJMB" and, together with the THL Entities, Chase Equity and Merrill Lynch,
the "Equity Investors") own 78.4% of the issued and outstanding Fisher Common
Stock, with the THL Entities owning 50.2% of such outstanding stock.
Accordingly, the Equity Investors control the Company and have the power to
elect a majority of its directors, appoint new management and approve any action
requiring the approval of the holders of recapitalized Fisher Common Stock,
including adopting amendments to the Company's certificate of incorporation and
approving mergers or sales of substantially all of the Company's assets. In
connection with the Transaction, the Equity Investors and certain members of
management entered into an Investor's Agreement dated January 21, 1998 (the
"Investor's Agreement"). The Investor's Agreement provides that the Board of
Directors of the Company will comprise at least 10, but not more than 11
directors, seven of whom will be appointed by the THL Entities, one of whom will
be appointed by DLJMB, one of whom will be Mr. Paul M. Montrone and one of whom
will be Mr. Paul M. Meister. The directors elected pursuant to the Investor's
Agreement will have the authority to make decisions affecting the capital
structure of the Company, including the issuance of additional capital stock,
the implementation of stock repurchase programs and the declaration of
dividends. There can be no assurance that the interests of the Equity Investors
will not conflict with the interests of the other shareholders.
COMPETITION
The Company operates in a market which is highly competitive. The Company's
competitors include other distributors as well as a large number of suppliers
and manufacturers that sell their own products directly to end users. Some of
these competitors are larger and may have greater resources than the Company.
There has been a recent trend toward consolidation in the industry which could
result in the Company's competitors that provide distribution services becoming
larger. In addition, potential competitors in the future could include suppliers
and manufacturers that currently rely on one or more third party distributors to
distribute their products. There can be no assurance that market competition,
both
23
<PAGE>
international and domestic, will not have a material adverse effect on the
Company's financial condition and results of operations.
RELIANCE ON THIRD-PARTY PACKAGE DELIVERY SERVICES
Virtually all of the Company's products are shipped to customers by
independent package delivery companies. The Company does not own or maintain a
fleet of transportation vehicles dedicated to the delivery of its products. The
principal independent delivery service used by the Company is UPS, which shipped
products accounting for over sixty percent of the Company's U.S. shipments in
fiscal 1997. Other carriers used by the Company include national and regional
trucking firms, overnight courier services and the United States Postal Service.
A major work stoppage or other series of events that would make such carriers
unavailable to the Company could have a significant adverse effect upon the
Company's ability to conduct its business.
FISHER SALES GROWTH
The Company's ability to implement its business strategy will depend on
numerous factors, many of which are beyond the control of the Company. Much of
the Company's recent sales growth was the result of acquisitions, including the
acquisitions of CMS and FSE in October 1995. Future growth will be largely
dependent on growth in the overall market for instruments, supplies and
equipment, and environmental testing, life sciences, worker safety and emerging
testing techniques and the ability of the Company to make acquisitions. There
can be no assurance that such growth will occur or that suitable acquisition
candidates will be available or that any acquisition will be successful.
ENVIRONMENTAL REGULATION
Some of the Company's operations involve and have involved the handling,
manufacture or use of many substances that are classified as toxic or hazardous
substances within the meaning of applicable environmental and other laws. Some
risk of environmental and other damage or hazard is inherent in particular
operations and products manufactured, sold or distributed by the Company. There
can be no assurance that damage, hazard or loss will not occur. To a large
extent, such damage is uninsured. The Company continually monitors and reviews
its procedures and policies for compliance with existing law and the cost of
compliance with existing environmental laws is not expected to have a material
adverse effect on the Company's earnings, liquidity or competitive position.
However, future events, including changes in existing laws and regulations may
give rise to additional costs which are currently unintended and unforeseen and
which could have a material adverse effect on the Company's financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company depends heavily on the services of its senior management,
including Paul M. Montrone, the Company's Chairman, President and Chief
Executive Officer, and Paul M. Meister, the Company's Vice Chairman, Executive
Vice President and Chief Financial Officer. The loss of any member of the
Company's senior management, including Mr. Montrone or Mr. Meister, could have a
material adverse effect on the Company. In addition, certain members of
management have entered into employment agreements with Fisher in connection
with the Transaction.
INTERNATIONAL OPERATIONS
The Company conducts international operations through a variety of wholly
owned subsidiaries, majority-owned subsidiaries, joint ventures, equity
interests and agents located in North and South America, Europe, the Far East,
the Middle East and Africa. The Company is also exploring the possibility of
expansion into other international markets as well. There is no guarantee that
the Company will
24
<PAGE>
maintain significant operations internationally or that any such operations will
be successful. Any international operations established by the Company will be
subject to risks similar to those affecting its North American operations in
addition to a number of other risks, including lack of complete operating
control, lack of local business experience, foreign currency fluctuations,
difficulty in enforcing intellectual property rights, language and other
cultural barriers and political and economic instability.
EXCHANGE RATE FLUCTUATIONS
The majority of the Company's revenues and expenses are denominated in U.S.
dollars, although the Company owns properties and conducts operations in
non-U.S. facilities including Canada, France, Mexico, Belgium, Germany, the
Netherlands, Singapore, Malaysia, Switzerland and the United Kingdom.
Accordingly, fluctuations in the exchange rate between the U.S. dollar and the
respective currencies of the aforementioned countries could have an adverse
effect on the Company.
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128
establishes new standards for computing and presenting earnings per share. The
Company adopted SFAS No. 128 in the fourth quarter of 1997 and has restated all
prior periods to comply with this new pronouncement. The effect of the change on
earnings per share was not significant.
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130) and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS No.
131), which are required to be adopted by Fisher in its fiscal 1998 financial
statements. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements and requires
companies to disclose comprehensive income as part of the basic financial
statements. SFAS No. 131 establishes standards for reporting information on
operating segments in financial statements. Fisher is currently reviewing the
impact SFAS No. 131 may have on additional disclosure, if any, in its financial
statements.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities", which addresses
accounting and reporting for environmental remediation liabilities. The
implementation of SOP 96-1 during 1997 did not have a material effect on the
Company's financial statements.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FISHER SCIENTIFIC INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Independent Auditors' Report............................................................................... 27
Statements of Operations for the years ended December 31, 1997, 1996 and 1995.............................. 28
Balance Sheets at December 31, 1997 and 1996............................................................... 29
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995.............................. 30
Statements of Changes in Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995......................................................................... 31
Notes to Financial Statements.............................................................................. 32
</TABLE>
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Fisher Scientific International Inc.:
We have audited the accompanying balance sheets of Fisher Scientific
International Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related statements of operations, cash flows, and changes in stockholders'
equity for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Fisher Scientific International Inc. and
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 18, 1998
(March 9, 1998 as to Note 2)
27
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Sales.......................................................................... $ 2,175.3 $ 2,144.4 $ 1,435.8
Cost of sales.................................................................. 1,583.6 1,565.9 1,048.9
Selling, general and administrative expense.................................... 518.8 483.9 334.4
Restructuring and other charges................................................ 51.8 -- 34.3
--------- --------- ---------
Income from operations......................................................... 21.1 94.6 18.2
Interest expense............................................................... 23.0 27.1 15.0
Other (income) expense, net.................................................... 3.2 (0.1) (1.1)
--------- --------- ---------
(Loss) income before income taxes.............................................. (5.1) 67.6 4.3
Income tax provision........................................................... 25.4 30.8 1.1
--------- --------- ---------
Net (loss) income.............................................................. $ (30.5) $ 36.8 $ 3.2
--------- --------- ---------
--------- --------- ---------
Net (loss) income per common share:
Basic........................................................................ $ (1.50) $ 2.01 $ 0.20
--------- --------- ---------
--------- --------- ---------
Diluted...................................................................... (1.50) 1.90 0.20
--------- --------- ---------
--------- --------- ---------
</TABLE>
See the accompanying notes to financial statements.
28
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
------------ --------------------
<S> <C> <C> <C>
1997 1997 1996
------------ --------- ---------
<CAPTION>
(UNAUDITED)
(NOTE 2)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 25.9 $ 18.2 $ 24.7
Receivables, net.......................................................... 147.1 297.1 316.6
Inventories............................................................... 223.8 223.8 256.0
Other current assets...................................................... 53.3 53.3 55.5
------------ --------- ---------
Total current assets.................................................. 450.1 592.4 652.8
Property, plant and equipment, net.......................................... 223.6 223.6 209.5
Goodwill.................................................................... 251.4 251.4 292.7
Other assets................................................................ 141.8 109.1 107.7
------------ --------- ---------
Total assets.......................................................... $ 1,066.9 $ 1,176.5 $ 1,262.7
------------ --------- ---------
------------ --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................................... $ 19.7 $ 19.7 $ 14.6
Accounts payable.......................................................... 199.8 199.8 234.5
Accrued and other current liabilities..................................... 107.5 135.4 143.9
------------ --------- ---------
Total current liabilities............................................. 327.0 354.9 393.0
Long-term debt.............................................................. 850.0 267.8 281.5
Other liabilities........................................................... 245.5 206.7 202.0
------------ --------- ---------
Total liabilities..................................................... 1,422.5 829.4 876.5
------------ --------- ---------
Commitments and contingencies (Note 15)
Stockholders' equity (deficit):
Preferred stock ($.01 par value; 15,000,000 shares authorized, none
outstanding)............................................................ -- -- --
Common stock ($.01 par value; 50,000,000 shares authorized; 8,004,787,
20,356,764 and 20,131,498 shares issued and outstanding at pro forma
December 31, 1997, December 31, 1997 and 1996, respectively)............ 0.1 0.2 0.2
Capital in excess of par value............................................ 305.3 278.9 270.7
Retained earnings (deficit)............................................... (603.5 ) 96.7 128.4
Other..................................................................... (57.5 ) (28.7) (13.1)
------------ --------- ---------
Total stockholders' equity (deficit).................................. (355.6 ) 347.1 386.2
------------ --------- ---------
Total liabilities and stockholders' equity (deficit).................. $ 1,066.9 $ 1,176.5 $ 1,262.7
------------ --------- ---------
------------ --------- ---------
</TABLE>
See the accompanying notes to financial statements.
29
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................................ $ (30.5) $ 36.8 $ 3.2
Adjustments to reconcile net (loss) income to cash provided by operating
activities:
Restructuring and other charges, net of cash expended.......................... 51.6 -- 32.5
Depreciation and amortization.................................................. 47.0 44.6 28.9
Loss (gain) on sale of property, plant and equipment, and write-off of
assets....................................................................... 0.9 (3.0) --
Gain on sale of business and investments....................................... (0.7) -- --
Deferred income taxes.......................................................... (1.3) 12.3 (13.1)
Changes in working capital:
Receivables, net............................................................... 22.0 (22.3) (0.1)
Inventories.................................................................... 32.0 (13.7) (20.6)
Other current assets........................................................... 4.1 9.4 (4.7)
Accounts payable............................................................... (41.7) 12.3 53.5
Accrued and other current liabilities.......................................... (14.8) (22.1) (12.6)
Other assets and liabilities..................................................... (22.5) (5.3) (12.1)
--------- --------- ---------
Cash provided by operating activities........................................ 46.1 49.0 54.9
--------- --------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired............................................... (11.6) (10.4) (326.6)
Capital expenditures............................................................. (59.2) (40.7) (24.6)
Proceeds from sale of property, plant and equipment.............................. 19.1 6.9 --
Marketable securities proceeds and maturities.................................... 7.8 3.0 21.3
Other............................................................................ (6.8) (0.8) (2.9)
--------- --------- ---------
Cash used in investing activities............................................ (50.7) (42.0) (332.8)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from stock options exercised............................................ 6.7 7.9 3.3
Dividends paid................................................................... (1.2) (1.5) (1.3)
Long-term debt proceeds.......................................................... 107.3 29.8 457.2
Long-term debt payments.......................................................... (114.7) (82.2) (154.5)
--------- --------- ---------
Cash (used in) provided by financing activities.............................. (1.9) (46.0) 304.7
--------- --------- ---------
Net change in cash and cash equivalents............................................ (6.5) (39.0) 26.8
Cash and cash equivalents--beginning of year....................................... 24.7 63.7 36.9
--------- --------- ---------
Cash and cash equivalents--end of year............................................. $ 18.2 $ 24.7 $ 63.7
--------- --------- ---------
--------- --------- ---------
Supplemental Cash Flow Information:
Cash paid during the year for:
Income taxes................................................................... $ 19.6 $ 10.7 $ 12.7
--------- --------- ---------
--------- --------- ---------
Interest....................................................................... $ 23.0 $ 27.7 $ 10.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
See the accompanying notes to financial statements.
30
<PAGE>
FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON MARKETABLE
CAPITAL IN SECURITIES FOREIGN SHARES MINIMUM
COMMON EXCESS OF RETAINED AVAILABLE CURRENCY HELD IN PENSION
STOCK PAR VALUE EARNINGS FOR SALE TRANSLATION TRUST LIABILITY
------------- ----------- ----------- ----------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994... $ 0.2 $ 130.7 $ 91.2 $ (0.7) $ (2.8) $ -- $ --
Net income................. -- -- 3.2 -- -- -- --
Proceeds from stock
options.................. -- 3.3 -- -- -- -- --
Tax benefit from exercise
of stock options......... -- 1.5 -- -- -- -- --
Dividends ($0.08 per
share)................... -- -- (1.3) -- -- -- --
Change in unrealized gain
(loss) on marketable
securities available for
sale, net................ -- -- -- 0.7 -- -- --
--- ----------- ----------- ----- ------ ----- -----
Balance, December 31, 1995... 0.2 135.5 93.1 -- (2.8) -- --
Net income................. -- -- 36.8 -- -- -- --
Proceeds from stock
options.................. -- 7.9 -- -- -- -- --
Tax benefit from exercise
of stock options......... -- 1.9 -- -- -- -- --
Dividends ($0.08 per
share)................... -- -- (1.5) -- -- -- --
Conversion of Convertible
Subordinated Notes....... -- 125.4 -- -- -- -- --
Shares held in trust....... -- -- -- -- -- (6.0) --
Currency translation
adjustment............... -- -- -- -- (4.3) -- --
--- ----------- ----------- ----- ------ ----- -----
Balance, December 31, 1996... 0.2 270.7 128.4 -- (7.1) (6.0) --
Net loss................... -- -- (30.5) -- -- -- --
Proceeds from stock
options.................. -- 6.7 -- -- -- -- --
Tax benefit from exercise
of stock options......... -- 1.5 -- -- -- -- --
Dividends ($0.06 per
share)................... -- -- (1.2) -- -- -- --
Shares held in trust....... -- -- -- -- -- (0.1) --
Currency translation
adjustment............... -- -- -- -- (14.5) -- --
Minimum pension
liability................ -- -- -- -- -- -- (1.0)
--- ----------- ----------- ----- ------ ----- -----
Balance, December 31, 1997... $ 0.2 $ 278.9 $ 96.7 $ -- $ (21.6) $ (6.1) $ (1.0)
--- ----------- ----------- ----- ------ ----- -----
--- ----------- ----------- ----- ------ ----- -----
<CAPTION>
TOTAL
---------
<S> <C>
Balance, December 31, 1994... $ 218.6
Net income................. 3.2
Proceeds from stock
options.................. 3.3
Tax benefit from exercise
of stock options......... 1.5
Dividends ($0.08 per
share)................... (1.3)
Change in unrealized gain
(loss) on marketable
securities available for
sale, net................ 0.7
---------
Balance, December 31, 1995... 226.0
Net income................. 36.8
Proceeds from stock
options.................. 7.9
Tax benefit from exercise
of stock options......... 1.9
Dividends ($0.08 per
share)................... (1.5)
Conversion of Convertible
Subordinated Notes....... 125.4
Shares held in trust....... (6.0)
Currency translation
adjustment............... (4.3)
---------
Balance, December 31, 1996... 386.2
Net loss................... (30.5)
Proceeds from stock
options.................. 6.7
Tax benefit from exercise
of stock options......... 1.5
Dividends ($0.06 per
share)................... (1.2)
Shares held in trust....... (0.1)
Currency translation
adjustment............... (14.5)
Minimum pension
liability................ (1.0)
---------
Balance, December 31, 1997... $ 347.1
---------
---------
</TABLE>
See the accompanying notes to financial statements.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- FORMATION AND BACKGROUND
Fisher Scientific International Inc. ("Fisher" or the "Company") was formed
in September 1991. The Company's operations are conducted by wholly owned and
majority-owned subsidiaries, joint ventures, equity interests and agents,
located in North and South America, Europe, the Far East, the Middle East and
Africa. The Company's activities relate principally to one business segment;
scientific and clinical products. This includes operations engaged in the
supply, marketing, service and manufacture of scientific, clinical, educational,
occupational health and safety products. Other activities include strategic
procurement services.
Fisher provides more than 245,000 products and services to research, health
care, industrial, educational and governmental markets in 145 countries. The
Company serves scientists engaged in biomedical, biotechnology, pharmaceutical,
chemical and other fields of research and development, and is a supplier to
clinical laboratories, hospitals, health care alliances, physicians' offices,
environmental testing centers, remediation companies, quality-control
laboratories and many other customers. Fisher also represents customers as a
third-party purchaser and integrator of suppliers of hundreds of thousands of
scientific products, maintenance, repair and operating ("MRO") materials and
other supplies. The Company's largest supplier represents approximately 11% of
1997 sales.
NOTE 2 -- SUBSEQUENT EVENT -- RECAPITALIZATION AND MERGER
Pursuant to the Second Amended and Restated Agreement and Plan of Merger
amending an Agreement and Plan of Merger dated August 7, 1997 (as amended, the
"Merger Agreement") dated as of November 14, 1997, between the Company and FSI
Merger Corp. ("FSI"), a Delaware corporation formed by Thomas H. Lee Company
("THL"), providing for the merger of FSI with and into Fisher and the
recapitalization of Fisher (collectively, "the Transaction"), which Transaction
was consummated on January 21, 1998, approximately 87% of the fully diluted
common stock of Fisher was converted into the right to receive $48.25 per share
in cash (approximately $955.0 million in the aggregate) pursuant to an election
process that provided stockholders the right to elect for each share of Fisher
Common Stock held, subject to proration, either $48.25 in cash or to retain one
share of stock in the recapitalized company. Pursuant to the Merger Agreement,
vesting of all outstanding options accelerated.
The Transaction has been accounted for as a recapitalization which will have
no impact on the historical basis of assets and liabilities. The unaudited pro
forma balance sheet reflects the following adjustments related to the
Transaction as if it occurred on December 31, 1997: (i) excess cash at closing,
(ii) $150.0 million of proceeds and the corresponding decrease in accounts
receivable pursuant to a securitization of accounts receivable (see Note 13),
(iii) capitalization of transaction-related deferred financing fees in other
assets, (iv) an accrual for loss on sale of accounts receivable and income tax
accrual adjustments to accrued and other current liabilities primarily related
to the tax benefits applicable to the exercise of employee stock options on the
date of the Transaction, (v) additional long-term debt of $694.2 million net of
repayment of debt outstanding of $112.0 million (see Note 13), (vi) adjustments
to other liabilities related to obligations to employees for Fisher shares held
in trust and compensatory options granted to certain executives and (vii)
stockholders' equity adjustments reflecting the repurchase of common stock and
conversion of options to cash of $955.0 million, the equity contribution by FSI
of $303.0 million, fees and expenses related to the Transaction of $33.8 and
other adjustments associated with (ii) through (vi) above. The unaudited pro
forma balance sheet data for December 31, 1997 does not purport to indicate
balance sheet data as of any future date.
Subsequent to the Transaction, on March 9, 1998 the Company's Board of
Directors declared a five-for-one stock split on the Company's common stock.
Four additional shares will be issued for each share of common stock held by
shareholders of record as of the close of business on March 19, 1998. New shares
will be distributed on April 1, 1998.
32
<PAGE>
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The financial statements contain the accounts
of the Company and all majority-owned subsidiaries. Intercompany accounts and
transactions are eliminated.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to their current presentation.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS -- Cash equivalents consist
primarily of highly liquid investments with insignificant interest rate risk and
original maturities of three months or less at the date of acquisition. Similar
investments with original maturities beyond three months are considered
short-term marketable securities.
INVENTORIES -- Inventories are valued at the lower of cost or market, cost
being determined principally by the last-in, first-out ("LIFO") method for
inventories of Fisher Scientific Company L.L.C., and by the first-in, first-out
("FIFO") method for all other subsidiaries.
OTHER CURRENT ASSETS -- Other current assets primarily consist of deferred
income taxes of $43.7 million and $41.6 million at December 31, 1997 and 1996,
respectively.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is recorded
at cost and is generally depreciated based upon the following estimated useful
lives: buildings and improvements 5 to 33 years, machinery and equipment 3 to 12
years, and office furniture and equipment 3 to 10 years. For financial statement
purposes, depreciation is computed principally using the straight-line method.
For tax purposes, depreciation is generally computed by accelerated methods
based on allowable useful lives.
GOODWILL -- Goodwill is being amortized for financial statement purposes on
a straight-line basis over 25 to 40 years. The amounts presented are net of
accumulated amortization of $50.5 million and $44.0 million at December 31, 1997
and 1996, respectively.
INTANGIBLE ASSETS -- Intangible assets are being amortized on a
straight-line basis over their estimated useful lives, ranging up to 20 years,
are included in Other Assets and are stated net of accumulated amortization of
$12.1 million and $8.6 million at December 31, 1997 and 1996, respectively.
During 1997, 1996 and 1995, the Company amortized $3.5 million, $2.9 million,
and $2.8 million, respectively, of intangible assets.
IMPAIRMENT OF LONG-LIVED ASSETS -- Impairment losses are recorded on
long-lived assets used in operations when indicators of impairment are present
and the anticipated undiscounted operating cash flow generated by those assets
are less than the assets' carrying value. During 1997, the Company recorded an
impairment loss of $38.3 million. See Note 19.
REVENUE RECOGNITION -- The Company recognizes revenue from product sales at
the time products are shipped.
INCOME TAXES -- Deferred income taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities, using
expected rates in effect in the years in which the differences are expected to
reverse.
DEFERRED DEBT ISSUE COSTS -- Deferred debt issue costs of $3.3 million and
$4.0 million at December 31, 1997 and 1996, respectively, relate to the
Company's 7 1/8% Notes and Credit Facility debt. Deferred debt issue costs are
included in Other Assets and are amortized using the effective interest rate
method over the term of the related debt. During 1997, 1996 and 1995, the
Company amortized $0.7 million, $0.7 million and $2.2 million, respectively, of
capitalized debt costs.
33
<PAGE>
ENVIRONMENTAL accruals are recorded based on current interpretations of
environmental laws and regulations when it is probable that a liability has been
incurred and the amount of such liability can be reasonably estimated. These
amounts do not include third-party recoveries. See Note 15 for additional
information.
OTHER (INCOME) EXPENSE, NET represents interest income on cash and cash
equivalents and other non-operating income and expense items, including income
resulting from the Company's inactive insurance subsidiary.
FOREIGN CURRENCY TRANSLATION -- Assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars using year-end exchange
rates. Revenues and expenses of foreign subsidiaries are translated at the
average exchange rates in effect during the year. Adjustments resulting from
financial statement translations are included in a separate component of
stockholders' equity. Gains and losses resulting from foreign currency
transactions are reported on the income statement line item "other
(income)expense, net," when recognized.
FINANCIAL INSTRUMENTS -- The Company enters into forward currency contracts
to hedge exposure to fluctuations in foreign currency rates. Gains and losses on
the Company's forward currency contracts generally offset gains and losses on
certain firm commitments of the Company. Gains and losses on these positions are
deferred and included in the basis of the transaction when it is completed. At
December 31, 1997 the outstanding forward currency contracts all mature within
twelve months. Cash flows from forward currency contracts accounted for as
hedges are classified in the Statement of Cash Flows in the same category as the
item being hedged or on a basis consistent with the nature of the instrument.
EARNINGS PER SHARE -- In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 128 ("SFAS
No. 128"), "Earnings per Share" which establishes standards for computing and
presenting earnings per share. The new standard replaces the presentation of
primary earnings per share prescribed by Accounting Principles Board Opinion No.
15 ("APB 15"), "Earnings per Share" with a presentation of basic earnings per
share and also requires dual presentation of basic and diluted earnings per
share on the face of the statement of operations for all entities with complex
capital structures. Basic earnings per share excludes dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share
is computed similarly to fully-diluted earnings per share pursuant to APB 15.
The Company adopted SFAS No. 128 in the fourth quarter of fiscal 1997 and has
restated all prior periods in its financial statements. The following is a
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computation for the years ended December 31, 1997, 1996 and
1995 (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net Income (Loss)..................................................... $ (30.5) $ 36.8 $ 3.2
Average Shares of Common Stock Outstanding............................ 20.3 18.3 16.2
--------- --------- ---------
Basic Earnings (Loss) Per Share....................................... $ (1.50) $ 2.01 $ 0.20
--------- --------- ---------
--------- --------- ---------
DILUTED EARNINGS PER SHARE:
Net Income (Loss)..................................................... $ (30.5) $ 36.8 $ 3.2
Interest Expense of Convertible Subordinated Notes, Net of Tax........ -- 2.1 --
--------- --------- ---------
(30.5) 38.9 3.2
Average Shares of Common Stock Outstanding............................ 20.3 18.3 16.2
EFFECTIVE OF DILUTIVE SECURITIES:
Convertible Subordinated Notes...................................... -- 1.7 --
Common Stock Equivalents............................................ -- 0.5 --
--------- --------- ---------
Total Shares Used in Diluted Earnings Per Share
Calculation......................................................... 20.3 20.5 16.2
--------- --------- ---------
--------- --------- ---------
Diluted Earnings (Loss) Per Share..................................... $ (1.50) $ 1.90 $ 0.20
--------- --------- ---------
--------- --------- ---------
</TABLE>
34
<PAGE>
Options to purchase 50,000, 65,000 and 504,000 shares of Common Stock were
outstanding as of December 31, 1997, 1996 and 1995, respectively, but were not
included in the computation of diluted earnings per share because the option's
exercise price was greater than the average market price.
During 1995 the Company had convertible subordinated notes outstanding which
were convertible into 3,600,000 shares of Common Stock, but were not included in
the computation of diluted earnings per share because they were anti-dilutive.
Additionally, during 1997 and 1995 the Company had common stock equivalents of
600,000 and 200,000, respectively, that were excluded from the diluted earnings
per share calculation as inclusion would have been anti-dilutive.
ACCOUNTING PRONOUNCEMENTS -- During 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130) and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS No. 131) which
are required to be adopted by Fisher in its fiscal 1998 financial statements.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements and requires companies to
disclose comprehensive income as part of the basic financial statements. SFAS
No. 131 establishes standards for reporting information on operating segments in
financial statements. Fisher is currently reviewing the impact SFAS No. 131 may
have on additional disclosure, if any, in its financial statements.
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities", which addresses
accounting and reporting for environmental remediation liabilities. The
implementation of SOP 96-1 during 1997 did not have a material effect on the
Company's financial statements.
NOTE 4 -- ACQUISITIONS
During 1997, the Company made several small acquisitions including the
acquisition of two laboratory products distributors; Switzerland (Winiger) and
Malaysia (CW Medical). The Company also acquired the remaining 50% interest in
its laboratory products distributor joint venture in Korea during 1997. These
acquisitions were accounted for as purchases; operations of the companies and
businesses acquired have been included in the accompanying financial statements
from their respective dates of acquisition. These acquisitions are not material
to the Company's financial statements. During 1996, the Company made several
small acquisitions, including the acquisition of a transaction-processing
software company in the United States, (UniKix Technologies (formerly a division
of Bull H.N. Information Systems, Inc.)), and a majority interest in a
laboratory products distributor in Mexico. The Company also completed the
acquisition of the remaining minority interests in its laboratory product
distributor subsidiaries in Germany. These acquisitions were accounted for as
purchases and are not material to the Company's financial statements.
In October 1995, Fisher purchased the principal businesses of the laboratory
supplies division of Fisons plc. ("Fisons"), a company organized under the laws
of England. The total consideration, after final purchase price adjustments, was
$304 million, including $295 million in cash and the assumption of $9 million of
certain external debt relating to the acquired businesses. The purchase included
the acquisition of all of the issued and outstanding shares of Curtin Matheson
Scientific Inc. ("CMS"), a corporation headquartered in Houston, Texas, and the
goodwill and substantially all of the net assets of Fisons Scientific Equipment
("FSE"), a division of Fisons, with headquarters in Loughborough, United
Kingdom.
35
<PAGE>
The following unaudited pro forma financial information presents the
consolidated results of operations as if the acquisitions of CMS and FSE had
occurred at the beginning of the period presented (in millions, except per share
amounts).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Sales........................................................................... $ 2,046.9
Net income...................................................................... 1.1
Earnings per common share:
Basic......................................................................... $ 0.07
Diluted....................................................................... 0.07
</TABLE>
The pro forma financial information includes the results of CMS and FSE
combined with the Company's historical results (including the 1995 restructuring
charge described in Note 19), the effects of the purchase accounting allocations
and adjustments to interest expense to reflect borrowings to finance the
acquisitions described in Note 13. The pro forma financial information does not
purport to present what the Company's results of operations would actually have
been had the acquisition of CMS and FSE occurred on the assumed date, nor does
it project the Company's results of operations for any future period.
The Company's balance sheet at December 31, 1996 includes the estimated fair
value of assets and liabilities acquired in connection with the acquisitions of
CMS and FSE and other smaller companies. The allocation of the purchase price of
CMS and FSE included liabilities for estimated costs to terminate acquired
leases in order to consolidate logistics facilities and to sever and relocate
employees related to acquired logistics, customer service information services
and administrative functions, which amounted to approximately 8% of the total
consideration, after final purchase price adjustments. During 1997 and 1996,
approximately $4 million, and $5 million, respectively, of severance and $1
million and $2 million in 1997 and 1996, respectively, of other exit costs were
paid and charged against these liabilities. These actions are expected to be
substantially completed by the end of 1999. The goodwill related to the
acquisitions of CMS and FSE is being amortized over 40 years.
The excess of the purchase price over the fair value of all net assets
acquired in 1997 and 1996 was approximately $10 million and $32 million
(including approximately $18 million related to finalizing the purchase price
allocation for the 1995 CMS and FSE acquisition), respectively, and is being
amortized over 25 to 40 years.
NOTE 5 -- STOCKHOLDERS' EQUITY
Fisher's authorized capital stock consists of 50,000,000 shares of Common
Stock, par value $.01 per share, of which 20,356,764, 20,131,498, and 16,257,349
shares were outstanding at December 31, 1997, 1996, and 1995, respectively, and
15,000,000 shares of Preferred Stock, par value $.01 per share (the "Fisher
Preferred Stock"), none of which were outstanding at the above dates. After the
Transaction, the Company's authorized capital stock consists of 45,817,625
shares of Common Stock, par value $.01 per share, 4,182,375 shares of non-voting
Common Stock, par value $.01 per share and 15,000,000 shares of Preferred Stock,
par value $.01 per share, of which 7,197,729 shares of Common Stock and 807,058
shares of non-voting Common Stock shares were outstanding at January 21, 1998.
Of the total 8,004,787 shares of Common Stock, 750,901 represents shares owned
by employees as a result of the conversion of stock options and 228,857
represents shares retained by management pursuant to the stock election process.
In addition, warrants to purchase 516,663 shares of Common Stock at $48.25 per
share were issued as part of the Transaction.
The Fisher Preferred Stock and the Common Stock are each issuable in one or
more series or classes, any or all of which may have such voting powers, full or
limited, or no voting powers, and such
36
<PAGE>
designations, preferences and related participating, optional or other special
rights and qualifications, limitations or restrictions thereof, as are set forth
in the Restated Certificate of Incorporation of Fisher or any amendment thereto,
or in the resolution or resolutions providing for the issue of such stock
adopted by Fisher's Board of Directors, which is expressly authorized to set
such terms for any such issue.
On June 9, 1997, the Board of Directors of Fisher declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of common
stock ("Common Stock") of the Company. The dividend was payable on June 19, 1997
to stockholders of record on that date. The description of all terms of the
Rights are set forth in a Rights Agreement between the Company and ChaseMellon
Shareholder Services, L.L.C. as amended by the First Amendment to the Rights
Agreement (the "Rights Agreement"). Until the occurrence of a Distribution Date
(as defined in the Rights Agreement), the Rights will be evidenced by the Common
Stock certificates and may be transferred only with the Common Stock. Each
Right, when exercisable, entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock, without par value (the "Preferred Shares"), of the Company at a price of
$190 per one one-hundredth of a Preferred Share, subject to adjustment. There
are 500,000 authorized shares of Series A Junior Preferred Stock. When issued,
each Preferred Share is entitled to an aggregate dividend of 100 times the
dividend declared per share of Common Stock. Additionally, in the event of
liquidation, the holders of the Preferred Shares will be entitled to an
aggregate payment of 100 times the payment made per share of Common Stock. Each
Preferred Share will also have 100 votes. In the event of a transaction in which
Common Stock is exchanged, each Preferred Share will be entitled to receive 100
times the amount received per share of Common Stock.
The Rights will expire on June 8, 2007 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
or exchanged by the Company.
NOTE 6 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash in banks,
investments in marketable securities, receivables and debt. In addition, the
Company has forward currency contracts that hedge certain firm commitments and
balance sheet exposures.
The carrying amounts for cash and cash equivalents, receivables and
short-term debt approximate fair value due to the short-term nature of these
instruments. The fair value of marketable securities at December 31, 1997 based
on quoted market prices was $3.0 million which approximates the carrying value.
The marketable securities portfolio is held-to-maturity and consists principally
of U.S. government securities maturing in 2004. The carrying and fair values of
long-term debt were $267.8 million and $257.6 million, respectively, at December
31, 1997 and $281.5 million and $280.9 million, respectively, at December 31,
1996. The fair value of the long-term fixed rate debt was estimated based on
current quotes from bond traders making a market in the debt instrument. The
fair value of debt with variable rates approximates the net carrying value. The
Company has off-balance sheet standby letters of credit with a notional amount
of $33.7 million with no unrealized gain or loss at December 31, 1997.
None of the Company's financial instruments represent a concentration of
credit risk because the Company deals with a variety of major banks worldwide,
and its accounts receivable are spread among a number of major customers and
geographic areas. None of the Company's off-balance-sheet financial instruments
would result in a significant loss to the Company if the other party failed to
perform according to the terms of its agreement, as any such loss would
generally be limited to the unrealized gain in any contract.
37
<PAGE>
NOTE 7 -- INCOME TAXES
The domestic and foreign components of income (loss) before income taxes are
as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic........................................................... $ 44.4 $ 69.2 $ 18.4
Foreign............................................................ (49.5) (1.6) (14.1)
--------- --------- ---------
(Loss) income before income taxes.................................. $ (5.1) $ 67.6 $ 4.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of the income tax provision (benefit) are as follows (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current income tax expense:
Federal........................................................... $ 16.8 $ 11.6 $ 8.2
State............................................................. 5.9 5.8 4.2
Foreign........................................................... 4.0 1.1 1.8
--------- --------- ---------
Total current................................................... 26.7 18.5 14.2
--------- --------- ---------
Deferred income tax expenses (benefit):
Federal........................................................... (2.5) 11.8 (4.4)
State............................................................. (0.3) 1.1 (2.4)
Foreign........................................................... 1.5 (0.6) (6.3)
--------- --------- ---------
Total deferred.................................................. (1.3) 12.3 (13.1)
--------- --------- ---------
Total income tax provision.......................................... $ 25.4 $ 30.8 $ 1.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
The principal items accounting for the differences in taxes on income (loss)
computed at the applicable U.S. statutory rate and as recorded are as follows
(in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Taxes computed at statutory rate..................................... $ (1.8) $ 23.7 $ 1.5
Foreign taxes over U.S. rate and foreign losses not tax benefitted... 21.4 1.8 1.0
State income taxes (net of federal benefit).......................... 3.6 4.5 1.2
Increase in valuation allowance...................................... 2.4 -- --
Utilization of loss carryforwards.................................... -- -- (2.8)
Other................................................................ (0.2) 0.8 0.2
--------- --------- ---------
Income tax provision................................................. $ 25.4 $ 30.8 $ 1.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
The 1995 income tax provision includes a $2.8 million tax benefit for the
utilization of certain domestic net operating loss carryforwards that were
previously not considered realizable.
38
<PAGE>
The tax effects of temporary items that gave rise to significant portions of
the deferred tax accounts are as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits costs other than pensions................................................. $ 38.0 $ 34.2
Environmental accruals............................................................................ 13.6 14.1
Operating loss and tax credit carry forwards...................................................... 28.5 20.4
Goodwill writeoff................................................................................. 8.0 --
Accrued employee benefits......................................................................... 5.8 12.2
Restructuring accruals............................................................................ 9.4 6.4
Other items not deductible until paid............................................................. 48.1 43.8
------ ------
Gross deferred tax assets......................................................................... 151.4 131.1
Less valuation allowance.......................................................................... (31.4) (11.8)
------ ------
$120.0 $119.3
------ ------
------ ------
Deferred tax liabilities:
Goodwill.......................................................................................... $ 15.8 $ 21.1
Property, plant and equipment..................................................................... 11.5 7.1
Other............................................................................................. 11.9 8.3
------ ------
$ 39.2 $ 36.5
------ ------
------ ------
</TABLE>
The deferred tax asset includes the benefit of net operating loss
carryforwards subject to appropriate valuation allowances. The Company evaluates
the tax benefits of operating loss carryforwards on an ongoing basis taking into
consideration such factors as the future reversals of existing taxable temporary
differences, projected future operating results, the available carryforward
period and other circumstances. At December 31, 1997, the Company had
accumulated foreign net operating loss carryforwards for tax purposes of
approximately $73 million. These net operating losses expire as follows (in
millions):
<TABLE>
<S> <C>
1998................................................................. $ 2.0
1999................................................................. 2.4
2000................................................................. 1.2
2001................................................................. 1.1
2002................................................................. 3.6
No Expiration........................................................ 62.7
---------
$ 73.0
---------
---------
</TABLE>
Statement of Financial Accounting Standards No. 109 requires that deferred
tax assets be reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be realized. The
increase in the valuation allowance in 1997 is due to increases in foreign net
operating losses and the goodwill write-offs for which tax benefits are not
expected to be realized. At December 31, 1997 and 1996, $2.3 million and $3.1
million, respectively, relates to deferred tax assets applicable to net
operating loss carryforwards of acquired companies (subsequent recognition of
tax benefits, if any, will result in a reduction of goodwill).
At December 31, 1997, the Company had not recognized a deferred tax
liability on approximately $18 million of undistributed earnings of foreign
subsidiaries as these earnings are considered to be permanently reinvested.
These earnings could become subject to additional tax if they were remitted as
dividends
39
<PAGE>
or if the Company should sell its stock in the subsidiaries. The amount of
additional tax on these earnings has not been determined.
See Note 18 for a description of the Tax Sharing Agreement entered into by
the Company.
NOTE 8 -- RECEIVABLES
The following is a summary of receivables at December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Trade and other receivables................................................ $ 320.9 $ 337.4
Allowance for doubtful accounts............................................ (23.8) (20.8)
--------- ---------
$ 297.1 $ 316.6
--------- ---------
--------- ---------
</TABLE>
Provisions for doubtful accounts were $5.5 million, $4.4 million and $3.0
million and write-offs were $3.6 million, $1.6 million and $1.7 million for the
years ending December 31, 1997, 1996 and 1995, respectively. Allowances of
companies acquired at their acquisition date were $1.1 million and $4.7 million
in 1997 and 1996, respectively.
NOTE 9 -- INVENTORIES
The following is a summary of inventories by major category at December 31
(in millions):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw materials.............................................................. $ 17.5 $ 11.2
Work in process............................................................ 3.2 3.0
Finished products.......................................................... 203.1 241.8
--------- ---------
$ 223.8 $ 256.0
--------- ---------
--------- ---------
</TABLE>
Inventories valued using the LIFO method amounted to $169.6 million at
December 31, 1997 and $195.2 million at December 31, 1996, which were below
estimated replacement cost by approximately $28.8 million and $26.9 million for
the years ended December 31, 1997 and 1996, respectively.
NOTE 10 -- PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment by major class
of asset at December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land, buildings and improvements........................................... $ 154.9 $ 145.7
Machinery, equipment and other............................................. 159.1 181.8
--------- ---------
314.0 327.5
Accumulated depreciation................................................... (90.4) (118.0)
--------- ---------
$ 223.6 $ 209.5
--------- ---------
--------- ---------
</TABLE>
40
<PAGE>
NOTE 11 -- OTHER ASSETS
The following is a summary of other assets at December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Marketable securities...................................................... $ 3.0 $ 11.4
Deferred income taxes...................................................... 37.1 41.7
Intangible assets.......................................................... 23.0 24.0
Other...................................................................... 46.0 30.6
--------- ---------
$ 109.1 $ 107.7
--------- ---------
--------- ---------
</TABLE>
NOTE 12 -- ACCRUED AND OTHER CURRENT LIABILITIES
The following is a summary of accrued and other current liabilities at
December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Wages and benefits......................................................... $ 29.3 $ 36.2
Other...................................................................... 106.1 107.7
--------- ---------
$ 135.4 $ 143.9
--------- ---------
--------- ---------
</TABLE>
NOTE 13 -- DEBT
The following is a summary of debt and other obligations at December 31 (in
millions):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Credit Facilities.......................................................... $ 100.6 $ 116.8
7 1/8% Notes (net of a discount of $1.0 million and $1.1 million in 1997
and 1996, respectively)................................................... 149.0 148.9
Other...................................................................... 37.9 30.4
Less current portion of long-term debt..................................... (19.7) (14.6)
--------- ---------
Long-term debt............................................................. $ 267.8 $ 281.5
--------- ---------
--------- ---------
</TABLE>
At December 31, 1997, the Company had $100.6 million outstanding under the
Credit Facilities, $60.0 million of which is denominated in U.S. dollars and the
remainder in British Pounds. Borrowings under the Credit Facilities were repaid
on the date of the Transaction. On December 31, 1997, $173.5 million was
available under the Credit Facilities as a revolving line of credit and for
letters of credit. The Company is required to pay a commitment fee based on
certain of the Company's coverage ratios. At December 31, 1997, the rate was
0.2% per annum on the unused portion of the Credit Facilities. All borrowings
under the Credit Facilities bore interest, at the Company's option, at either
the Bank's Base Rate or at LIBOR plus a margin, based on certain of the
Company's coverage ratios. At December 31, 1997, the rate was approximately
6.87%. The Credit Facilities contain certain affirmative and negative covenants
including: (i) restrictions on acquisitions, mergers, consolidations and sales
of certain assets by the Company, (ii) restrictions on the Company's ability to
enter into transactions with affiliates, (iii) restrictions on the Company's
ability to incur additional indebtedness and to make certain loans, advances and
investments; and (iv) requirements to maintain certain levels of net worth,
interest coverage and debt to earnings before interest, taxes, depreciation and
amortization. Under the Credit Facilities, the Company was prohibited from
paying dividends at December 31, 1997, as certain financial ratios (as defined)
were not achieved.
The Company also has outstanding $150.0 million aggregate principal amount
of 7 1/8% Notes due December 15, 2005, which were sold on December 18, 1995 at a
price to the public equal to 99.184% of principal bringing the effective
interest rate to 7.5%. The estimated fair market value of the 7 1/8% Notes
41
<PAGE>
at December 31, 1997, based on quotes from bond traders making a market in the
Notes, was approximately $138.8 million.
In connection with the Transaction, (See Note 2), effective January 21,
1998, Fisher entered into new debt financing arrangements, consisting of $469.2
million of senior bank financing (the "New Credit Facility"), a $150 million
receivable securitization facility (the "Receivables Securitization") and $400
million of 9% Senior Subordinated Notes due 2008 (the "9% Notes"). The full
proceeds of the 9% Notes, together with a portion of the proceeds of the New
Credit Facility were used to finance the conversion into cash of the shares of
Fisher Common Stock then outstanding which were not retained by existing
stockholders and employees, to refinance $107.8 million of indebtedness of the
Company outstanding on the date of the Transaction and to pay related fees and
expenses of the Transaction. In addition, the New Credit Facility will be used
to provide for the Company's working capital requirements.
The New Credit Facility consists of (i) a $294.2 million term loan facility
(the "Term Facility") consisting of a (a) $125.0 million tranche A term loan
("Tranche A"), (b) $100.0 million tranche B term loan ("Tranche B") and (c)
$69.2 million tranche C term loan ("Tranche C"); and (ii) a $175.0 million
revolving credit facility (the "Revolving Facility"). Borrowings under the Term
Facility bear interest at a rate equal to, at the Company's option, the
following: Tranche A, LIBOR plus 2.25% or Prime Rate plus 1.25%; Tranche B,
LIBOR plus 2.50% or Prime Rate plus 1.50%; and Tranche C, LIBOR plus 2.75% or
Prime Rate plus 1.75%. Borrowings made under the Revolving Facility bear
interest at a rate equal to, at the Company's option, LIBOR plus 2.25%, or the
Prime Rate plus 1.25%. The Company will also pay to the lenders a commitment fee
equal to .50% per annum of the undrawn portion of each lender's commitment from
time to time. The LIBOR and Prime Rate margins and the commitment fees are
subject to reductions, based on various tests of Fisher's financial performance.
The Term Facilities have the following maturity periods from the date of
inception: Tranche A--6 years, Tranche B--7 years and Tranche C--7.75 years. The
Revolving Facility expires six years from the date of inception.
The obligations of Fisher and the subsidiary borrowers under the New Credit
Facility are secured by substantially all assets of the Company and its material
domestic subsidiaries, a pledge of the stock of all domestic subsidiaries, and a
pledge of 65% of the stock of material foreign subsidiaries which are direct
subsidiaries of the Company or one of its material domestic subsidiaries.
Obligations of each foreign subsidiary borrower are secured by a pledge of 100%
of the shares of such borrower. The obligations of Fisher and the subsidiary
borrowers are further guaranteed by Fisher and each material domestic subsidiary
of Fisher.
The New Credit Facility contains covenants of the Company and the subsidiary
borrowers, including, without limitation, restrictions on (i) indebtedness, (ii)
the sale of assets, (iii) mergers, acquisitions and other business combinations,
(iv) restrictions on the payment of cash dividends to shareholders, and (v)
various financial covenants. The financial covenants include requirements to
maintain certain levels of interest coverage, debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA") and minimum EBITDA and to limit
capital expenditures. In addition to the mandatory repayment schedule discussed
below, loans under the Term Facility are required to be prepaid with 50% of
excess cash flow (as defined in the New Credit Facility and subject to certain
limits as specified therein) and certain equity issuances of the Company, and
100% of net-cash proceeds of certain asset sales, certain insurance and
condemnation proceeds and certain debt issuances of the Company. The mandatory
repayment schedule of the Term Facility, over the next five years and thereafter
is as follows: $0.0 million in 1998, $6.0 million in 1999, $17.0 million in
2000, $22.0 million in 2001, $37.0 million in 2002 and $212.2 million in years
subsequent to 2002.
The Receivable Securitization relates to the sale, on a revolving basis, of
certain of the Company's accounts receivable to a bankruptcy remote subsidiary
of the Company which entered into an agreement to transfer, on a revolving
basis, an undivided percentage ownership interest in a designated pool of
accounts receivable up to a maximum amount based on a defined calculated
percentage of the outstanding accounts
42
<PAGE>
receivable balance. The facility has a maturity of five years and the effective
interest rate is approximately LIBOR plus 50 basis points.
The 9% Notes will mature on February 1, 2008 with interest payable
semiannually in arrears on February 1 and August 1, of each year commencing
August 1, 1998. The 9% Notes are unsecured senior subordinated obligations of
the Company, subordinated in right of payment to all existing and future senior
indebtedness and rank PARI PASSU in light of payment with all other existing and
future senior subordinated indebtedness of the Company.
The 9% Notes are redeemable at the option of the Company at any time after
February 1, 2003 at an initial redemption price of 104.5%, declining ratably to
par on or after February 1, 2006. In addition, on or prior to February 1, 2001,
the Company may redeem up to 40% of the original principal amount of the 9%
Notes at a redemption price of 109% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of redemption with the net cash
proceeds of one or more public equity offerings, provided that at least 60% of
the aggregate principal amount of the 9% Notes originally issued remain
outstanding immediately after the occurrence of such redemption. Upon a Change
of Control Triggering Event (as defined in the Indenture under which the 9%
Notes are issued), the Company will be required to make an offer to purchase all
outstanding 9% Notes at 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase.
The Indenture under which the 9% Notes are issued contains covenants that
restrict, among other things, (i) the ability of the Company and its
subsidiaries to incur additional indebtedness, (ii) pay dividends or make
certain other restricted payments, (iii) merge or consolidate with any other
person, and (iv) other various covenants which are customary for transactions of
this type.
NOTE 14 -- OTHER LIABILITIES
The following is a summary of other liabilities at December 31 (in
millions):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Postretirement benefit costs other than pensions........................... $ 74.7 $ 77.1
Insurance.................................................................. 11.2 12.5
Environmental.............................................................. 32.3 34.7
Other...................................................................... 88.5 77.7
--------- ---------
$ 206.7 $ 202.0
--------- ---------
--------- ---------
</TABLE>
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
The following is a summary of annual future minimum lease and rental
commitments under operating leases as of December 31, 1997 (in millions):
<TABLE>
<S> <C>
1998................................................................. $ 19.3
1999................................................................. 15.0
2000................................................................. 11.2
2001................................................................. 7.9
2002................................................................. 5.7
Thereafter........................................................... 23.0
---------
Net minimum lease payments........................................... $ 82.1
---------
---------
</TABLE>
Total rental expense included in the accompanying income statements amounted to
$18.7 million in 1997, $16.9 million in 1996, and $10.5 million in 1995.
43
<PAGE>
There are various lawsuits and claims pending against the Company involving
contract, product liability and other issues. In addition, the Company has
assumed certain insurance liabilities, including liabilities related to an
inactive insurance subsidiary, primarily related to certain historical
businesses of its former parent, including those related to workers'
compensation, employers', automobile, general and product liability. In view of
the Company's financial condition and the accruals established for related
matters, based on management's knowledge to date, management does not believe
that the ultimate liability, if any, related to these matters will have a
material adverse effect on the Company's financial condition or results of
operations.
The Company is currently involved in various stages of investigation and
remediation relative to environmental protection matters. The potential costs
related to environmental matters and the possible impact on future operations
are difficult to predict given the uncertainties regarding the extent of the
required cleanup, the complexity and interpretation of applicable laws and
regulations, the varying costs of alternative cleanup methods and the extent of
the Company's responsibility. Accruals for environmental liabilities are
recorded, based on current interpretations of environmental laws and
regulations, when it is probable that a liability has been incurred and the
amount of such liability can be reasonably estimated. Estimates are established
based upon reports prepared by environmental specialists, management's knowledge
to date and its experience with the foregoing environmental matters, and include
potential costs for investigation, remediation, operation and maintenance of
cleanup sites and related capital expenditures. Accrued liabilities for
environmental matters were $35.1 million and $37.6 million at December 31, 1997
and 1996, respectively. Although these amounts do not include third-party
recoveries, certain sites may be subject to indemnification. The Company has
accounted for environmental liabilities in accordance with Accounting Standards
Statement of Position 96-1, "Environmental Remediation Liabilities," which
addresses accounting and reporting for environmental remediation liabilities.
Management believes this accrual is adequate for the environmental liabilities
expected to be incurred and, as a result, believes that the ultimate liability
incurred with respect to environmental matters will not have a material adverse
effect on the Company's financial condition or results of operations. However,
future events, such as changes in existing laws and regulations, changes in
agency direction or enforcement policies or changes in the conduct of Fisher's
operations, may give rise to additional compliance costs which could have a
material adverse effect on the Company's financial condition or results of
operations.
The Company is dealing with "year 2000" issues at a number of its operating
units. Year 2000 issues exist when dates in computer systems are recorded using
two digits (rather than four) and are then used for arithmetic operations,
comparisons or sorting. A two-digit date recording may recognize a date using
"00" as 1900 rather than 2000, which could cause the Company's computer systems
to perform inaccurate computations. The Company's year 2000 issues relate not
only to its own systems but also to those of its customers and suppliers. It is
anticipated that the Company's program to enhance its systems capabilities,
which calls for the replacement of many of its present computer systems,
including its order entry, purchasing and financial systems, and other year 2000
activities of the Company with respect to systems not being replaced, will
resolve the year 2000 issue with respect to the Company's internal systems and
that such activities will result in approximately $35 million of aggregate
spending in 1998 and 1999. Although management believes its program to address
year 2000 issues is adequate, there is no guarantee that the program is in fact
adequate or that the systems replacements and modifications will be completed on
time. Even if the Company's year 2000 conversion is completed, the failure of
the Company's suppliers and customers to address the year 2000 issue could
result in disruption or significantly impact the Company.
At December 31, 1997, the Company had letters of credit outstanding totaling
$33.7 million, which primarily represent guarantees with respect to various
insurance activities as well as performance letters of credit issued in the
normal course of business. Approximately $8.4 million of the insurance related
letters of credit relate to the Company's inactive insurance subsidiary and are
collateralized by the cash and marketable securities of such subsidiary.
44
<PAGE>
NOTE 16 -- RETIREMENT BENEFITS
DEFINED BENEFIT PENSION PLANS
The Company has defined benefit pension plans available to substantially all
employees that are either fully paid for by the Company or provide for mandatory
employee contributions as a condition of participation. Effective July 1, 1997,
the Company amended the U.S. plans to change the current pension benefit formula
to reflect that of a cash balance account. Under the new cash balance account, a
participating employee's annual postretirement pension benefit is determined by
the employee's credited service and average annual earnings during the
employee's service with the Company, or predecessors of the Company. The
Company's funding policy is to contribute annually the statutorily required
minimum amount as actuarially determined.
The net periodic pension cost (income) of these plans included the following
components for the years ended December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost.......................................................... $ 6.5 $ 6.2 $ 2.8
Interest cost on projected benefit obligation......................... 12.3 11.5 9.6
Actual (return) loss on assets........................................ (41.7) (16.8) (29.3)
Net amortization and deferral......................................... 24.6 1.8 16.3
--------- --------- ---------
Net periodic pension cost (income).................................... $ 1.7 $ 2.7 $ (0.6)
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1996, certain of the Company's defined benefit plans with deficits
(plan assets less than the projected benefit obligation) totaling $6.4 million
as of December 31, 1995 were merged into a plan with a surplus (plan assets in
excess of the projected benefit obligation) of $23.9 million as of December 31,
1995. The funded status at December 31, 1997 and 1996 for all defined benefit
plans was as follows (in millions):
<TABLE>
<CAPTION>
1997 PLANS WITH 1996 PLANS WITH
-------------------- --------------------
SURPLUS DEFICIT SURPLUS DEFICIT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of vested benefit
obligation........................................... $ (157.2) $ (8.3) $ (127.6) $ (3.9)
--------- --------- --------- ---------
--------- --------- --------- ---------
Accumulated benefit obligation........................ (164.1) (9.2) (137.7) (4.4)
--------- --------- --------- ---------
--------- --------- --------- ---------
Projected benefit obligation.......................... (169.5) (12.8) (157.1) (7.8)
Plan assets at fair value............................. 211.9 1.1 179.6 1.1
--------- --------- --------- ---------
Plan assets in excess of (less than) projected benefit
obligation........................................... $ 42.4 $ (11.7) $ 22.5 $ (6.7)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
45
<PAGE>
Certain changes in the items shown above are not recognized as they occur,
but are amortized systematically over subsequent periods. Unrecognized amounts
still to be amortized and the amounts included in the balance sheet of the
Company at December 31, 1997 and 1996 appear below (in millions):
<TABLE>
<CAPTION>
1997 PLANS WITH 1996 PLANS WITH
---------------------- ----------------------
<S> <C> <C> <C> <C>
SURPLUS DEFICIT SURPLUS DEFICIT
----------- --------- ----------- ---------
Plan assets in excess of (less than) projected benefit
obligation............................................. $ 42.4 $ (11.7) $ 22.5 $ (6.7)
Unrecognized transition asset........................... (3.8) (0.2) (4.9) (0.2)
Unrecognized prior service cost......................... (10.5) 2.1 0.4 0.6
Unrecognized net (gain) loss............................ (21.7) 4.9 (13.2) 2.9
Additional minimum liability............................ -- (3.8) -- --
----- --------- ----- ---------
Prepaid (accrued) pension cost.......................... $ 6.4 $ (8.7) $ 4.8 $ (3.4)
----- --------- ----- ---------
----- --------- ----- ---------
</TABLE>
The Company has established a separate trust intended to cover the 1997 Plan
deficit. At December 31, 1997 the assets held by the trust were approximately
$8.2 million and are recorded within other assets.
The development of the net periodic pension cost and the projected benefit
obligation was based upon the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----- -----
<S> <C> <C> <C>
Discount rate............................................................ 7.25% 7.5% 7.5%
Average rate of increase in employee compensation........................ 4.5% 4.5% 4.5%
Expected long-term rate of return on assets.............................. 9.75% 9.0% 9.0%
</TABLE>
The date used to measure plan assets and liabilities was October 31 in each
year. Plan assets are invested primarily in stocks, bonds, short-term securities
and cash equivalents.
DEFINED CONTRIBUTION PLAN
The Company maintains a defined contribution savings and profit sharing plan
(the "Plan"). The Plan allows eligible employees to participate after six months
and 500 hours of service. Participants may elect to contribute between 1% and
15% of their annual compensation as defined in the Plan. The Company is
obligated to contribute an amount equal to 25% of each employee's basic
contribution, as defined, and may, at the discretion of the Company, contribute
additional amounts. Through June 30, 1997, certain employees participated in a
Company sponsored retirement account in lieu of a defined benefit pension plan.
Generally, the Company made a contribution equal to a certain percentage of a
participating employee's annual salary into the defined contribution plan.
Effective July 1, 1997, the Company amended the Plan for consistency among all
Fisher employees. As a result, future contributions to the retirement account
were eliminated and the assets of the Curtis Matheson Scientific Savings
Incentive Plan were merged into the Plan. For the years ended December 31, 1997,
1996 and 1995 the Company's contributions to the Plan were $3.2 million, $5.0
million and $3.0 million, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company, generally at its own discretion, provides a postretirement
health care program that is administered by the Company to employees who elect
to and are eligible to participate . Fisher funds a portion of the costs of this
program on a self-insured and insured-premium basis and, for the years ended
December 31, 1997, 1996 and 1995, made premium payments totaling $1.5 million,
$1.4 million and $1.1
46
<PAGE>
million, respectively. The funded status of the Company's postretirement
programs was as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................... $ 15.2 $ 14.5
Fully eligible active plan participants.................................... 8.8 7.7
Other active plan participants............................................. 10.3 9.6
--------- ---------
34.3 31.8
Plan assets at fair value.................................................... -- 0.2
--------- ---------
Accumulated postretirement benefit obligation in excess
of plan assets............................................................. 34.3 31.6
Prior service benefit........................................................ 16.0 18.1
Unrecognized net gain from past experience different from that assumed and
from assumption changes.................................................... 25.4 28.4
--------- ---------
Accrued postretirement benefit costs other than pensions..................... $ 75.7 $ 78.1
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement health care benefit obligation income includes
the following components for the years ended December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost attributed to service during the period.................. $ 0.8 $ 0.7 $ 0.9
Interest cost on accumulated postretirement health care benefit
obligation.......................................................... 2.3 2.2 1.9
Net amortization and deferral......................................... (4.1) (4.1) (4.0)
--------- --------- ---------
Net periodic postretirement health care benefit obligations income.... $ (1.0) $ (1.2) $ (1.2)
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1993, the Company amended certain of its existing postretirement health
care programs creating an unrecognized prior service benefit. The unrecognized
prior service benefit is being amortized over approximately 13 years, providing
a $2 million credit to postretirement costs in 1997, 1996 and 1995.
The weighted average discount rate used in determining the accumulated
postretirement health care benefit obligation was 7.25% for December 31, 1997,
and 7.5% for both December 31, 1996 and December 31, 1995. An 8.8% annual rate
of increase in per capita cost of covered health care benefits was assumed for
1997 which decreases to 7.2% for 2000 and thereafter. Because of limitations on
the Company's contributions under the amended health care program, changes in
the health care trend rate assumption do not have a significant effect on the
amounts reported. To illustrate, a change in the assumed health care cost trend
rate by 1 percentage point effective January 1997 would change the accumulated
postretirement benefit obligation as of December 31, 1997 by approximately $2.1
million and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year ended December 31, 1997 by
approximately $0.3 million.
NOTE 17 -- STOCK AND OTHER PLANS
STOCK PLAN
At December 31, 1997, Fisher has three stock option plans, the 1991 Stock
Plan, as amended, (the "1991 Plan"), the 1995 Operating Unit Stock Plan ("OUSP")
and the 1997 Equity-Based Incentive Plan (the "1997 Plan"). Following adoption
of the 1997 Plan by the shareholders on May 13, 1997, all of the stock available
for award under the 1991 Plan was incorporated into the 1997 Plan and made
subject to the terms of the 1997 Plan. Outstanding awards under the 1991 Plan
remained subject to the terms of the 1991 Plan. Fisher may grant options for up
to 4,604,000 shares of stock under the 1991 Plan and the 1997 Plan and 1,500,000
shares of stock under the OUSP to officers, employees and other individuals who
provide services to Fisher. Under these plans, the Company granted options of
3,134,238 shares and 1,262,153
47
<PAGE>
shares, respectively, through December 31, 1997. Outstanding options under these
stock plans were granted at 100% of market value on the date of grant. The 1991
Plan, the 1997 Plan and the OUSP options have a ten-year term, vest after three
years and expire 90 days after the last day of an employee's employment; 12
months if the employee retires. In 1995, the Compensation Committee granted
stock options to executives as part of a new program, the Equity Ownership
Program ("EOP"), designed to encourage Fisher executives to make significant,
long-term personal investments in Fisher Common Stock. Under the EOP, certain
senior corporate executives made commitments in 1995 to purchase approximately
200,000 shares of Fisher Common Stock during 1996, and were granted options on a
matching basis in 1995; that is, a specified number of options were awarded for
each share the executive committed to purchase during the period. This purchase
commitment was fulfilled in 1996. The EOP options were granted at the market
price of the Common Stock on the date of the purchase commitments, and vest over
a three-year period. Shares purchased by the executives in satisfaction of the
purchase commitment must be held for the applicable vesting period covering the
related option. The EOP requires full financing by the executive without Company
loans or guarantees. In addition, other participants were offered the
opportunity to receive options under the EOP upon their purchase of shares of
Fisher Common Stock. In light of the considerable changes to the Company's
business and organization during 1995, the equity-based components of the
Incentive Compensation Plan was terminated; options held by substantially all
participants in respect of the performance period covering 1996 were
surrendered, and the Compensation Committee will not establish any objectives
under the Incentive Compensation Plan in the future. Certain 1995 grants under
the EOP and OUSP were conditional upon the cancellation of certain existing non-
vested options held by the executive or employee. For purposes of the following
tables all such cancellations are presumed to have occurred at December 31,
1995.
A summary of the status of the Company's stock option plans at December 31,
1997, 1996 and 1995 and changes during the years then ended is presented in the
table:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE (000) PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year... 3,630 $ 31.44 3,552 $ 28.93 2,473 $ 24.72
Granted(1)......................... 474 38.98 694 37.48 2,243 32.66
Exercised.......................... (229) 29.00 (405) 19.28 (218) 15.29
Canceled/Expired/Forfeited(2)...... (361) 44.97 (211) 32.44 (946) 29.92
----- ----- -----
Outstanding at end of year......... 3,514 $ 32.23 3,630 $ 31.44 3,552 $ 28.93
----- ----- -----
----- ----- -----
Exercisable at end of year......... 1,835 $ 29.90 1,237 $ 26.94 938 $ 18.82
Weighted average fair value of
options granted.................. $ 11.52 $ 9.87 $ 10.73
</TABLE>
- ------------
(1) 1995 includes 1,084,000 shares granted under the EOP in consideration of
participants' commitments to purchase shares of Fisher Common Stock.
(2) 1995 includes options issued under the Incentive Compensation Plan in
respect to the performance plan covering 1996 that were surrendered in
connection with the termination of such plan.
Pursuant to the Merger Agreement, the vesting of all options accelerated on
the date of the Transaction. Of the 3,514,000 options outstanding at December
31, 1997, approximately 1,344,000 were converted to cash and the remainder were
converted to Common Stock. When options were converted the Company recorded
compensation expense of approximately $56 million as employees did not exercise
the options with cash but rather received cash or shares equal to the product of
(x) the total number of shares of the Company's Common Stock subject to option
and (y) the excess of $48.25 over the exercise price per share of the Company's
Common Stock subject to such option, subject to any required withholdings of
taxes. In connection with the Transaction, the Company adopted the 1998 Equity
Incentive Plan ("1998
48
<PAGE>
Plan"), under which up to 10,000,000 (post split) shares of Fisher Common Stock
are reserved for issuance. Awards under the 1998 Plan may be made in the form of
options (whether incentive or otherwise), stock appreciation rights, restricted
stock, dividend equivalents and other stock-based awards. Pursuant to the
Transaction, the Company granted options to purchase 2,643,220 shares of Common
Stock having a ten-year term and vesting on a pro rata basis over 5 years. The
options have an exercise price equal to $48.25, the fair market value of a share
of Fisher Common Stock on the date of grant. The Company also granted options to
purchase 1,904,000 shares of Common Stock having a ten-year term and vesting
nine years from the date of grant, unless sooner vested upon the achievement of
certain performance targets and other factors. These options have an exercise
price equal to $96.50 per share. In addition, the Company granted to two
executives, options to purchase 2,583,300 shares of Common Stock having a
ten-year term and vesting nine years from the date of grant, unless sooner
vested upon the achievement of certain performance targets or unless "put" to
the Company by the executive or "called" by the Company in accordance with their
terms. The total "put"/"call" right is limited to $10 million (plus interest)
and was issued in exchange for a three-year non-compete pursuant to which the
executives will agree not to participate in the scientific instrument or
clinical research laboratory business in the United States. The Company recorded
$10 million of compensation expense related to this "put"/"call" right in
January 1998.
RESTRICTED UNIT PLAN
Pursuant to the restricted unit plan of Fisher, each non-employee director
of the Company received a one-time grant of 5,000 units upon becoming a director
of the Company. The units represent the right to receive an equivalent number of
shares of Common Stock upon separation from service as a member of the Board of
Directors, subject to certain restrictions. The units are subject to certain
transfer restrictions for a specified period during which the director has the
right to receive dividends. The units vest 25% for each year of service.
Unvested units are generally forfeited if the director ceases to be a
non-employee director prior to the end of the restricted period. During 1996 and
1991, 5,000 and 20,000 units, respectively, were granted under the restricted
unit plan. Pursuant to the Merger Agreement, the vesting of all units
accelerated and the units were converted to cash.
SFAS 123 PRO FORMA DISCLOSURES
Had compensation cost for options granted subsequent to January 1, 1995 been
based upon fair value determined under SFAS No. 123, the Company's 1997, 1996
and 1995 net income (loss) would have been ($35.9) million, $31.7 million and
$3.0 million, respectively, with basic earnings (loss) per share of ($1.77),
$1.73 and $0.18 and diluted earnings (loss) per share of ($1.77), $1.66 and
$0.18. The fair value of each option grant is estimated on the date of grant
using a binomial option pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995: risk-free interest rates of
approximately 6.5%, 6.5% and 5.5% for the 1991 Plan options and 6.3%, 6.0% and
6.0% for the OUSP options; an annual dividend of $0.08 per share; expected lives
of 7 years for the 1991 Plan options and 3 years for the OUSP options and
expected volatility of 25% for grants in 1995 and 1996, and 30% for grants in
1997. Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
NOTE 18 -- TAX SHARING AGREEMENT
Fisher and its former parent are parties to a Tax Sharing Agreement that
provides for (i) the payment of taxes for periods during which Fisher and its
former parent were included in the same consolidated, combined or unitary group
for federal, state or local income tax purposes, (ii) the allocation of the
responsibility for the filing of tax returns, (iii) the cooperation of the
parties in realizing certain tax benefits, (iv) the conduct of tax audits and
(v) various related matters. The Company paid approximately $1.4 million
pursuant to this agreement in 1995.
49
<PAGE>
NOTE 19 -- RESTRUCTURING AND OTHER CHARGES
Following the execution of the Merger Agreement during the fourth quarter of
1997 in conjunction with the annual business planning process, the Company
evaluated its business strategy for both its domestic and international
operations, and, as a result, adopted the 1997 Plan and recorded restructuring
and other charges of $51.8 million. The charges include costs associated with
the closure of additional logistics and customer-service centers and related
asset write-offs in the United States and internationally and the impairment of
goodwill and property, plant and equipment related to certain international
operations and the impairment of systems-related assets. The restructuring and
other charges consist of $38.3 million related to noncash asset impairments,
$9.1 million of accruals for employee separation arrangements and $4.4 million
of exit costs.
Asset impairments include $31.5 million of goodwill and $1.3 million of
property, plant and equipment related to the Company's international operations.
The remaining amounts relate to facilities to be closed under the U.S.
restructuring plan and to system-related assets. The charge for employee
separation arrangements accrues for the termination and other severance costs
associated with the approximately 520 salaried and hourly employees who have
been or will be severed as a result of the 1997 Plan. Approximately 20 employees
were terminated as of December 31, 1997. The exit costs consist principally of
future rent, net of estimated sublease rentals, and other costs related to
leased facilities which as a result of the 1997 Plan will be closed prior to the
contractual termination date of the leases.
In the third quarter of 1995, the Company adopted a restructuring plan aimed
at improving the efficiency and reducing the costs of its global logistics,
customer service and administrative functions (the "1995 Plan"). As a result,
the Company recorded a restructuring charge of $34.3 million. The 1995 Plan,
which anticipated the integration of the former Fisons businesses, including
CMS, with the Company, included the elimination and in some cases relocation of
certain administrative functions, reorganization of the research sales force and
the consolidation and relocation of certain logistics and customer service
systems and locations throughout the world. Implementation of the 1995 Plan is
expected to be completed in conjunction with the 1997 Plan. The restructuring
charge consisted of $18.2 million related to noncash asset impairments, $12.0
million of employee separation arrangements and $4.1 million of exit costs.
Asset impairments were recorded primarily for certain owned facilities which
were closed and sold in 1996. The net book value of each facility has been
adjusted to its estimated fair market value less costs to sell. The charge for
employee separation arrangements accrues for the termination and other severance
costs associated with the approximately 300 salaried and hourly employees
severed as a result of the 1995 Plan, all of which were terminated prior to
December 31, 1997. The exit costs were recorded primarily to accrue for future
rent, net of estimated sublease rentals, and other costs related to leased
facilities that as a result of the 1995 Plan will be closed prior to the
contractual termination date of the leases.
50
<PAGE>
The following table summarizes the recorded accruals and impairments related
to the 1997 Plan and 1995 Plan (in millions):
<TABLE>
<CAPTION>
EMPLOYEE
SEPARATIONS
ASSET AND OTHER
IMPAIRMENTS EXIT COSTS TOTAL
------------- ------------- ---------
<S> <C> <C> <C>
1995 PLAN
Restructuring charge..................................... $ 18.2 $ 16.1 $ 34.3
Cash payments............................................ -- (1.8) (1.8)
Noncash items............................................ (18.2) (0.3) (18.5)
------ ----- ---------
Balance as of December 31, 1995.......................... -- 14.0 14.0
Adjustments.............................................. 0.8 (0.8) --
Cash payments............................................ -- (6.5) (6.5)
Noncash items............................................ (0.8) -- (0.8)
------ ----- ---------
Balance as of December 31, 1996.......................... -- 6.7 6.7
Cash payments............................................ -- (1.9) (1.9)
------ ----- ---------
Balance as of December 31, 1997.......................... $ -- $ 4.8 $ 4.8
------ ----- ---------
------ ----- ---------
1997 PLAN
Restructuring and other charges.......................... $ 38.3 $ 13.5 $ 51.8
Cash payments............................................ -- (0.2) (0.2)
Noncash items............................................ (38.3) -- (38.3)
------ ----- ---------
Balance as of December 31, 1997.......................... $ -- $ 13.3 $ 13.3
------ ----- ---------
------ ----- ---------
</TABLE>
The 1995 Plan and 1997 Plan also include opening new logistics facilities
and relocating certain customer service and administrative functions. In
accordance with Financial Accounting Standards Board Emerging Issues Task Force
Issue 94-3, "Liability Recognition for Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)", certain costs resulting from the
relocation of inventories, relocation of employees, hiring and training new
employees, and costs resulting from the temporary duplication of certain
operations have not been included in the restructuring charge and are recognized
as incurred.
During the third quarter of 1991, Fisher recorded a $20.0 million
restructuring charge relating primarily to improving operations of its North
American distribution system through consolidation and expansion of certain
facilities. This plan is substantially complete and the remaining $2.6 million
of accruals will be substantially expended by the end of 1998.
The Company's restructuring liabilities are evaluated quarterly, taking into
consideration restructuring activity to date and the status of the restructuring
plans.
51
<PAGE>
NOTE 20 -- GEOGRAPHICAL FINANCIAL INFORMATION
The Company's operations are conducted in one business segment. Selected
geographical financial information for the years ended December 31, 1997, 1996
and 1995 is shown below (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net Sales
Domestic................................................. $ 1,784.7 $ 1,777.0 $ 1,153.4
Europe................................................... 269.7 265.1 179.5
Other International...................................... 120.9 102.3 102.9
--------- --------- ---------
$ 2,175.3 $ 2,144.4 $ 1,435.8
--------- --------- ---------
--------- --------- ---------
Income (loss) from Operations:
Domestic(1).............................................. $ 70.8 $ 100.2 $ 34.0
Europe(1)................................................ (38.3) (6.2) (13.6)
Other International(1)................................... (11.4) 0.6 (2.2)
--------- --------- ---------
$ 21.1 $ 94.6 $ 18.2
--------- --------- ---------
--------- --------- ---------
Identifiable Assets
Domestic................................................. $ 814.0 $ 851.8 $ 850.4
Europe................................................... 230.6 277.4 275.1
Other International...................................... 68.7 65.6 51.2
Corporate and Other...................................... 63.2 67.9 93.8
--------- --------- ---------
$ 1,176.5 $ 1,262.7 $ 1,270.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------
(1) Income (loss) from operations includes restructuring and other charges in
domestic, Europe and other international operations of $10.4 million, $31.3
million and $10.1 million, respectively, in 1997 and $33.0 million, $1.3
million and $0.0, respectively, in 1995.
Income from operations is revenue less related costs and direct and
allocated expenses. Identifiable corporate and other assets consist principally
of cash, marketable securities, and the assets of the Company's inactive
insurance subsidiary. Intercompany sales and transfers between segments were not
material for the years ended December 31, 1997, 1996 or 1995.
NOTE 21 -- UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of quarterly financial information for 1997 and
1996 (in millions, except per share amounts):
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales.......................................................... $ 526.7 $ 542.6 $ 554.8 $ 551.2 $ 2,175.3
Gross profit................................................... 146.3 148.5 153.0 143.9 591.7
Net income (loss)(a)........................................... 11.0 9.6 3.9 (55.0) (30.5)
Earnings (loss) per common shares:
Basic........................................................ $ 0.54 $ 0.48 $ 0.19 $ (2.70) $ (1.50)
Diluted...................................................... 0.53 0.47 0.18 (2.70) (1.50)
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales.......................................................... $ 516.0 $ 532.2 $ 541.0 $ 555.2 $ 2,144.4
Gross profit................................................... 135.6 142.9 146.4 153.6 578.5
Net income..................................................... 4.5 8.4 11.5 12.4 36.8
Earnings per common shares:
Basic........................................................ $ 0.27 $ 0.51 $ 0.58 $ 0.62 $ 2.01
Diluted...................................................... 0.27 0.46 0.56 0.60 1.90
</TABLE>
- ------------
NOTE: Amounts may not add due to rounding.
(a) During the fourth quarter of 1997, Fisher recorded $51.8 million ($47.0
million, net of tax) of restructuring and other charges. See Note 19.
52
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS. The information appearing in Fisher's Proxy Statement for its
Annual Meeting of Stockholders to be held on May 12, 1998 (the "Proxy
Statement") under the caption "Nomination and Election of Directors", page 5, is
incorporated herein by reference.
EXECUTIVE OFFICERS. Information in answer to this Item appears under the
caption "Executive Officers of Fisher" in Item 1 of this Annual Report.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The information
appearing in the Proxy Statement under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance", page 6, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Proxy Statement under the caption
"Compensation of Directors and Executive Officers," pages 7 through 10, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management", pages 3 and 4, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Proxy Statement under the caption "Certain
Transactions and Other Matters", pages 13 and 14, is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)(1)FINANCIAL STATEMENTS. The Index to Financial Statements of the
Company appears at page 26 of this Annual Report.
(2) SCHEDULES. Financial statement schedules are listed under Item 14(d)
in this Annual Report.
53
<PAGE>
(3) EXHIBITS. Exhibits 10.4 through 10.14 constitute all of the
management contracts and compensation plans and
arrangements of the Company required to be filed as
exhibits to this Annual Report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ---------
<C> <S> <C>
2.1 -- Second Amended and Restated Agreement and Plan of Merger, as
amended, dated as of November 14, 1997 by and between the Company
and FSI Merger Corp. (2).
3.1 -- Certificate of Designations of Series A Junior Participating
Preferred Stock, dated June 9, 1997 (3).
3.2 -- Restated Certificate of Incorporation of the Company. (6)
3.3 -- Bylaws of the Company. (10)
4.1 -- Certificate of Designations of Series A Junior Participating
Preferred Stock, dated June 9, 1997 (see Exhibit 3.1)
4.2 -- Rights Agreement dated as of June 9, 1997, between the Company and
ChaseMellon Shareholder Services L.L.C. as Rights Agreement, which
included the form of Right Certificate as Exhibit A and the Summary
of Rights to Purchase Common Stock as Exhibit B. (3)
4.3 -- First Amendment to Rights Agreement dated as of August 7, 1997
between the Company and ChaseMellon Shareholder Services L.L.C. (4)
4.4 -- Specimen Certificate of Common Stock, $.01 par value per share, of
the Company. (7)
4.5 -- Restated Certificate of Incorporation of the Company (see Exhibit
3.2).
4.6 -- Bylaws of the Company (see Exhibit 3.3).
4.7 -- Senior Debt Securities Indenture dated as of December 18, 1995
between the Company and Mellon Bank, N.A., as Trustee (6)
10.1 -- Amended and Restated Employment Agreement dated January 21, 1998
between the Company and Paul M. Montrone.*
10.2 -- Amended and Restated Employment Agreement dated January 21, 1998
between the Company and Paul M. Meister.*
10.3 -- Rights Agreement dated as of June 9, 1997, between the Company and
ChaseMellon Shareholder Services L.L.C. as Rights Agreement, which
includes the form of Right Certificate as Exhibit A and the Summary
of Rights to Purchase Common Stock as Exhibit B (see Exhibit 4.2).
10.4 -- First Amendment to Rights Agreement dated as of August 7, 1997
between the Company and ChaseMellon Shareholder Services L.L.C. (see
Exhibit 4.3).
10.5 -- Second Amended and Restated Agreement and Plan of Merger, dated as
of November 14, 1997, as amended, by and between the Company and FSI
Merger Corp. (see Exhibit 2.1).
10.6 -- Credit Agreement among Fisher, Certain Subsidiaries of Fisher,
Various Lending Institutions, the Chase Manhattan Bank, as
Administration Agent, The Chase Manhattan Bank of Canada, as
Administration Agent, Chase Manhattan International Limited, as U.K.
Administration Agent, Merrill Lynch Capital Corporation, as
Syndication Agent and DLJ Capital Funding, Inc., as Documentation
Agent dated as of January 21, 1998. (5)
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ---------
<C> <S> <C>
10.7 -- Indenture dated as of January 21, 1998 between Fisher and Sate
Street Bank and Trust Company, as Trustee relating to the 9% Senior
Subordinated Notes due 2008. (5)
10.8 -- Registration Right Agreement dated as of January 21, 1998 among
Fisher and Merrill Lynch, Pierce, Fenner and Smith Incorporated,
Chase Securities Inc. and Donaldson, Lafkin and Jenrette Securities
Corporation.*
10.9 -- Restated Environmental Matters Agreement, dated as of February 26,
1986, as amended and restated as of July 28, 1989, among
Allied-Signal Inc., The Henley Group, Inc., The Wheelabrator Group
Inc., New Hampshire Oak, Inc. and Fisher Scientific Group Inc. (7)
10.10 -- Amended and Restated Credit Agreement dated as of February 12, 1996,
amending and restating the Term Loan and Revolving Credit Agreement,
dated as of October 16, 1995 among Fisher Scientific International
Inc., Certain Commercial Lending Institutions and Toronto Dominion
(Texas), Inc. (8)
10.11 -- Amendment No. 1 dated February 12, 1996 to the Term Loan Agreement
dated October 16, 1995 among Fisher Scientific International Inc.,
Fisher Scientific U.K. Limited, Certain Commercial Lending
Institutions and The Toronto Dominion Bank. (8)
10.12 -- 1991 Stock Plan for Executive Employees of Fisher Scientific
International Inc. and its Subsidiaries. (9)
10.13 -- Fisher Scientific International Inc. Retirement Plan. (10)
10.14 -- Fisher Scientific International Inc. Savings and Profit Sharing
Plan. (10)
10.15 -- Fisher Scientific International Inc. Incentive Compensation Plan.
(8)
10.16 -- Restricted Unit Plan for Non-Employee Directors of Fisher Scientific
International Inc. (10)
10.17 -- Fisher Scientific International Inc. Deferred Compensation Plan for
Non-Employee Directors. (10)
10.18 -- Retirement Plan for Non-Employee Directors of Fisher Scientific
International Inc. (10)
10.19 -- Fisher Scientific International Inc. Long-Term Incentive Plan. (9)
10.20 -- 1995 Operating Unit Stock Plan. (8)
10.21 -- Fisher Scientific International Inc. Equity-Based Award Plan.*
10.22 -- Fisher Scientific International Inc. 1998 Equity and Incentive Plan.
(2)
21.1 -- List of Subsidiaries of the Company.*
23.1 -- Consent of DELOITTE & TOUCHE LLP.*
27.1 -- Financial Data Schedule-Fiscal Year Ended 1997.*
27.2 -- Financial Data Schedule-Quarters 1, 2, 3 of 1997.*
27.3 -- Financial Data Schedule-Fiscal Year Ended 1996 and Quarters 1, 2, 3
of 1996.*
</TABLE>
- ------------
* Filed herewith
(1) Included as an Annex to the Company's Proxy Statement/Prospectus
included in the Company's Registration Statement on Form S-4
(Registration No. 333-92777) filed with the Securities and Exchange
Commission on December 19, 1997 and amended on February 28, 1998.
55
<PAGE>
(2) Included as an exhibit to the Company's Registration Statement on Form
S-4 (Registration No. 333-42777) filed with the Securities and Exchange
Commission on December 19, 1997 and amended on February 2, 1998 and
incorporated herein by reference.
(3) Included as an exhibit to the Company's Registration Statement on Form
8-A filed with the Securities and Exchange Commission on June 9, 1997 and
incorporated herein by reference.
(4) Included as an exhibit to the Company's current report on Form 8-K dated
August 7, 1997 filed with the Securities and Exchange Commission on
August 8, 1997 and incorporated herein by reference.
(5) Included as an exhibit to the Company's current report on Form 8-K
(Registration No. 001-10920) dated January 21, 1998 filed with the
Securities and Exchange Commission on February 5, 1998 and incorporated
herein by reference.
(6) Included as an exhibit to the Company's Registration Statement on Form
S-3 (Registration No. 33-99884) filed with the Securities and Exchange
Commission on November 30, 1995 and incorporated herein by reference.
(7) Included in an exhibit to the Company's Registration Statement on Form
S-1 (Registration No. 33-43505) filed with the Securities and Exchange
Commission on October 23, 1991 and incorporated herein by reference.
(8) Included in an exhibit to the Company's Form 10-K for the year ended
December 31, 1995, filed with the Securities and Exchange Commission on
March 21, 1996 and incorporated herein by reference.
(9) Included in an exhibit to the Company's Form 10-K for the year ended
December 31, 1994, filed with the Securities and Exchange Commission on
March 24, 1995 and incorporated herein by reference.
(10) Included in an exhibit to the Company's Form 10-K for the year ended
December 31, 1992, filed with the Securities and Exchange Commission on
March 24, 1993 and incorporated herein by reference.
(b) REPORTS ON FORM 8-K: The Company did not file any Current Reports on
Form 8-K during the last quarter of the period covered by this report.
(c) EXHIBITS. The following exhibits are filed with this annual report:
<TABLE>
<C> <S> <C> <C>
21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of DELOITTE & TOUCHE LLP.
27.1 -- Financial Data Schedule.
</TABLE>
(d) FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules have been omitted since the information
required to be submitted has been included in the financial statements and
related notes or because they are either not applicable or not required under
the rules of Regulation S-X.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FISHER SCIENTIFIC INTERNATIONAL INC.
By: /s/ TODD M. DUCHENE
------------------------------------
Todd M. DuChene
VICE PRESIDENT-GENERAL COUNSEL AND
SECRETARY
Date: March , 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------------- ---------------------------------------------- -----------------
<S> <C> <C>
/s/ PAUL M. MONTRONE Chairman of the Board, President, Chief March 19, 1998
- ------------------------------------ Executive Officer and Director (Principal
Paul M. Montrone Executive Officer)
/s/ PAUL M. MEISTER Vice Chairman of the Board, Executive Vice March 19, 1998
- ------------------------------------ President, Chief Financial Officer and
Paul M. Meister Director (Principal Financial and Accounting
Officer)
/s/ MITCHELL J. BLUTT, M.D. Director March 19, 1998
- ------------------------------------
Mitchell J. Blutt, M.D.
/s/ ROBERT A. DAY Director March 19, 1998
- ------------------------------------
Robert A. Day
/s/ ANTHONY J. DINOVI Director March 19, 1998
- ------------------------------------
Anthony J. DiNovi
/s/ MICHAEL D. DINGMAN Director March 19, 1998
- ------------------------------------
Michael D. Dingman
/s/ DAVID V. HARKINS Director March 19, 1998
- ------------------------------------
David V. Harkins
/s/ SCOTT M. SPERLING Director March 19, 1998
- ------------------------------------
Scott M. Sperling
/s/ KENT R. WELDON Director March 19, 1998
- ------------------------------------
Kent R. Weldon
</TABLE>
57
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM 10-K
---------------
FISHER SCIENTIFIC INTERNATIONAL INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 21.1
FISHER SCIENTIFIC INTERNATIONAL INC.
WORLDWIDE SUBSIDIARY LIST
<TABLE>
<CAPTION>
Percentage State/Country
Ownership Incorporation
------------- -------------------
<S> <C> <C>
Fisher Scientific Company L.L.C. 100 Delaware
Fisher Scientific Limited 100 Canada
Fisher Hamilton Inc. 100 Delaware
Fisher Scientific GmbH 100 Germany
Kuhn + Bayer GmbH 100 Germany
Fisher Scientific of the Netherlands B.V. 100 Netherlands
Fisher Scientific B.V. 100 Netherlands
Fisher Scientific Worldwide Inc. 100 Delaware
Acros Organics N.V. 100 Belgium
Resco Trade N.V. 100 Belgium
Fisher Chimica N.V. 100 Belgium
Fisher Scientific Holding Company 100 Delaware
Fisher Scientific Holding U.K., Limited 100 United Kingdom
Fisher Scientific U.K., Limited 100 United Kingdom
Orme Scientific Limited 100 United Kingdom
Fisher Scientific Holdings France S.A. 100 France
Fisher Scientific S.A. 100 France
Fisher Technology Group Inc. 100 Delaware
Strategic Procurement Services Holdings Inc. 100 Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-46728, 33-86830, 333-07391, 333-18563 and 333-28789 of Fisher Scientific
International Inc. on Forms S-8 of our report dated February 18, 1998 (March 9,
1998 as to Note 2) appearing in this Annual Report on Form 10-K of Fisher
Scientific International Inc. for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
New York, New York
March 19, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1997 AND THE INCOME STATEMENT FOR THE YEAR ENDED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 297
<ALLOWANCES> 0
<INVENTORY> 224
<CURRENT-ASSETS> 592
<PP&E> 224
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,177
<CURRENT-LIABILITIES> 355
<BONDS> 268
0
0
<COMMON> 0
<OTHER-SE> 347
<TOTAL-LIABILITY-AND-EQUITY> 1,177
<SALES> 2,175
<TOTAL-REVENUES> 2,175
<CGS> 1,584
<TOTAL-COSTS> 1,584
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> (5)
<INCOME-TAX> 25
<INCOME-CONTINUING> (30)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30)
<EPS-PRIMARY> (1.50)
<EPS-DILUTED> (1.50)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS
OF SEPTEMBER 30, JUNE 30, MARCH 31, 1997, AND THE INCOME STATEMENTS FOR THE
NINE, SIX, AND THREE ENDED SEPTEMBER 30, JUNE 30, AND MARCH 31 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 30 16 16
<SECURITIES> 0 0 0
<RECEIVABLES> 323 317 321
<ALLOWANCES> 0 0 0
<INVENTORY> 244 246 261
<CURRENT-ASSETS> 653 649 646
<PP&E> 223 213 225
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 1,280 1,260 1,273
<CURRENT-LIABILITIES> 402 364 372
<BONDS> 274 296 305
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 406 406 398
<TOTAL-LIABILITY-AND-EQUITY> 1,280 1,260 1,273
<SALES> 1,624 1,069 527
<TOTAL-REVENUES> 1,624 1,069 527
<CGS> 1,176 775 380
<TOTAL-COSTS> 1,176 775 380
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 18 12 6
<INCOME-PRETAX> 48 38 20
<INCOME-TAX> 23 18 9
<INCOME-CONTINUING> 25 21 11
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 25 21 11
<EPS-PRIMARY> 1.21 1.02 .54
<EPS-DILUTED> 1.18 0.99 .53
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AS OF DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 1996 AND THE INCOME
STATEMENT FOR THE TWELVE, NINE, SIX AND THREE MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, JUNE 30, AND MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 25 14 17 19
<SECURITIES> 0 0 0 0
<RECEIVABLES> 317 321 295 315
<ALLOWANCES> 0 0 0 13
<INVENTORY> 256 237 241 237
<CURRENT-ASSETS> 653 635 614 623
<PP&E> 210 209 204 326
<DEPRECIATION> 0 0 0 120
<TOTAL-ASSETS> 1,263 1,224 1,204 1,215
<CURRENT-LIABILITIES> 393 377 349 356
<BONDS> 282 277 287 421
0 0 0 0
0 0 0 0
<COMMON> 0 0 0 0
<OTHER-SE> 386 375 366 233
<TOTAL-LIABILITY-AND-EQUITY> 1,263 1,224 1,204 1,215
<SALES> 2,144 1,589 1,048 516
<TOTAL-REVENUES> 2,144 1,589 1,048 516
<CGS> 1,566 1,164 770 380
<TOTAL-COSTS> 1,566 1,164 770 380
<OTHER-EXPENSES> 0 0 1 1
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 27 22 16 9
<INCOME-PRETAX> 68 45 24 8
<INCOME-TAX> 31 20 11 4
<INCOME-CONTINUING> 37 24 13 5
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 37 24 13 5
<EPS-PRIMARY> 2.01 1.38 0.78 0.27
<EPS-DILUTED> 1.90 1.30 0.74 0.27
</TABLE>
