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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
------------------
Commission file number: 01-10920
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Fisher Scientific International Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Delaware 02-0451017
- ---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Liberty Lane
Hampton, New Hampshire 03842
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 926-5911
--------------
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 [ ].
The number of shares of Common Stock outstanding at November 6, 1998 was
40,034,150.
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FISHER SCIENTIFIC INTERNATIONAL INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Page No.
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Part I - Financial Information:
Item 1 - Financial Statements:
Introduction to the Financial Statements....................... 3
Statements of Operations -
Three and Nine Months Ended September 30, 1998 and 1997........ 4
Balance Sheets -
September 30, 1998 and December 31, 1997....................... 5
Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997.................. 6
Notes to Financial Statements.................................. 7
Item 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition............................. 15
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K.............................. 23
SIGNATURE ................................................................. 24
EXHIBIT INDEX ............................................................. 26
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FISHER SCIENTIFIC INTERNATIONAL INC.
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTRODUCTION TO THE FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by
Fisher Scientific International Inc. ("Fisher" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
December 31, 1997 balance sheet is the balance sheet included in the audited
financial statements as shown in the Company's 1997 Annual Report on Form 10-K.
The Company believes that the disclosures are adequate to make the information
presented not misleading when read in conjunction with the financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
The financial information presented herein reflects all adjustments
(consisting only of normal-recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The results for interim periods are not necessarily
indicative of the results to be expected for the full year.
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FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
1998 1997 1998 1997
------ ------ -------- --------
<S> <C> <C> <C> <C>
Sales $592.8 $554.8 $1,716.6 $1,624.1
Cost of sales 425.6 401.8 1,240.2 1,176.3
Selling, general and administrative expense 130.2 133.7 386.0 382.6
Transaction-related costs -- -- 71.0 --
------ ------ -------- --------
Income from operations 37.0 19.3 19.4 65.2
Interest expense 20.8 5.4 67.3 17.6
Other (income) expense, net 0.2 4.6 (3.0) 0.1
------ ------ -------- --------
Income (loss) before income taxes 16.0 9.3 (44.9) 47.5
Income tax (benefit) provision 9.3 5.4 (12.1) 23.0
------ ------ -------- --------
Net income (loss) $ 6.7 $ 3.9 $ (32.8) $ 24.5
====== ====== ======== ========
Earnings (loss) per common share:
Basic $ 0.17 $ .04 $ (0.82) $ 0.24
====== ====== ======== ========
Diluted $ 0.16 $ .04 $ (0.82) $ 0.23
====== ====== ======== ========
</TABLE>
See the accompanying notes to financial statements.
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FISHER SCIENTIFIC INTERNATIONAL INC.
BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22.2 $ 18.2
Receivables, net 161.9 297.1
Inventories 214.5 223.8
Other current assets 57.7 53.3
-------- --------
Total current assets 456.3 592.4
Property, plant and equipment, net 242.4 223.6
Goodwill 306.4 251.4
Other assets 158.4 109.1
-------- --------
$1,163.5 $1,176.5
======== ========
LIABILITIES AND STOCKHOLERS' (DEFICIT) EQUITY
Current liabilities
Short-term debt $ 40.6 $ 19.7
Accounts payable 236.3 199.8
Accrued and other current liabilities 159.8 135.4
-------- --------
Total current liabilities 436.7 354.9
Long-term debt 825.0 267.8
Other liabilities 210.3 206.7
-------- --------
Total liabilities 1,472.0 829.4
-------- --------
Commitments and Contingencies
Stockholders' (deficit) equity:
Preferred stock -- --
Common stock 0.4 0.2
Capital in excess of par value 313.3 278.9
Retained (deficit) earnings (601.5) 96.7
Accumulated other comprehensive income (20.7) (22.6)
Other -- (6.1)
-------- --------
Total stockholders' (deficit) equity (308.5) 347.1
-------- --------
$1,163.5 $ 1,176.5
======== =========
</TABLE>
See the accompanying notes to financial statements.
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FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1998 1997
------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (32.8) $ 24.5
Adjustments to reconcile net income (loss) to
cash provided (used) by operating activities:
Transaction-related costs, net of cash expended 70.5 --
Depreciation and amortization 40.4 34.2
Deferred income taxes (19.4) 3.6
Changes in working capital:
Receivables, net (25.2) (4.5)
Inventories 12.2 13.0
Payables, accrued and other current liabilities 53.3 (10.1)
Other working capital changes (3.6) 1.3
Other assets and liabilities (6.4) (21.8)
------- ------
Cash provided by operating activities 89.0 40.2
------- ------
Cash flows from investing activities:
Acquisitions, net of cash acquired (68.7) (8.8)
Capital expenditures (43.7) (49.3)
Proceeds from sale of property, plant and equipment 1.6 18.4
Other investing activities -- (5.9)
------- ------
Cash used in investing activities (110.8) (45.6)
------- ------
Cash flows from financing activities:
Common stock repurchased and conversion of stock to cash (955.1) --
Proceeds from common stock sold to FSI 303.0 --
Transaction-related fees and expenses (66.2) --
Proceeds from accounts receivable securitization, net 168.2 --
Proceeds from long-term debt 736.3 98.3
Payments of long-term debt (160.9) (92.0)
Proceeds from stock options exercised -- 5.7
Dividends paid -- (1.2)
Proceeds from the sale of common stock 0.5 --
------- ------
Cash provided by financing activities 25.8 10.8
------- ------
Net change in cash and cash equivalents 4.0 5.4
Cash and cash equivalents - beginning of period 18.2 24.7
------- ------
Cash and cash equivalents - end of period $ 22.2 $ 30.1
======= ======
</TABLE>
See the accompanying notes to financial statements.
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FISHER SCIENTIFIC INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - RECAPITALIZATION AND MERGER
Pursuant to the Second Amended and Restated Agreement and Plan of Merger
dated November 14, 1997 (as amended, the "Merger Agreement") 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
shares of common stock of Fisher were converted into the right to receive $9.65
per share in cash (approximately $955 million in the aggregate) pursuant to an
election process that provided stockholders the right to elect, subject to
proration, for each share of Fisher common stock held, either $9.65 in cash or
to retain one share of common stock, $.01 par value ("Common Stock"), in the
recapitalized company. Pursuant to the Merger Agreement, vesting of all
outstanding options accelerated.
In connection with the Transaction, the Company recorded $71.0 million of
expenses consisting primarily of non-cash compensation expense relating to the
conversion of employee stock options, the implementation of certain executive
employment agreements and the grant of options to certain executives in
accordance with the terms of the Transaction (see Note 7).
On March 9, 1998, Fisher's Board of Directors declared a five-for-one stock
split on the Company's Common Stock. As a result of the stock split, four
additional shares of Common Stock were issued for each share of Common Stock
held by the shareholders of record as of the close of business on March 19,
1998. All references in this report to the number of shares and per-share
amounts have been restated as appropriate to give effect to the stock split.
NOTE 2 - ACCOUNTING POLICIES AND PRONOUNCEMENTS
Interest-Rate Swap Agreements - The Company enters into interest-rate swap
agreements in order to manage its exposure to interest-rate fluctuations. The
Company does not hold or issue financial instruments for trading or speculative
purposes. Net-interest differentials to be paid or received are included in
interest expense.
Reclassification - Certain prior year amounts have been reclassified to
conform to their current presentation.
Accounting Pronouncements - During 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130), and Statement of Financial Accounting
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Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS No. 131). 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. 130 was adopted during the first
quarter of 1998. SFAS No. 131 establishes standards for reporting information on
operating segments in financial statements. The Company is required to adopt
SFAS No. 131 in the fourth quarter of 1998 and is currently reviewing the impact
it may have on additional disclosure, if any, in its financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits" (SFAS No. 132). SFAS No. 132 addresses
disclosures only and supersedes the disclosure requirements in SFAS No. 87
"Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" and SFAS No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Company is required to adopt SFAS No. 132 in
the fourth quarter of 1998 and is currently reviewing the impact it may have on
additional disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activity," which will be effective for the fiscal years beginning
January 1, 2000. Management has not yet determined the impact that the adoption
of this statement may have on the Company's financial statements.
During 1998, the Accounting Standards Executive Committee of the AICPA
(AcSEC) released Statement of Position 98-1 (SOP 98-1) "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use," and Statement of
Position 98-5 (SOP 98-5) "Reporting on the Cost of Start-Up Activities." SOP
98-1 requires the capitalization of certain costs related to the development of
software for internal use, and SOP 98-5 requires entities to expense, as
incurred, costs associated with start-up activities. The Company is essentially
complying with these new standards and therefore does not expect their
implementation to have a material effect on the Company's financial statements.
NOTE 3 - ACQUISITIONS
In August of 1998, the Company acquired the net assets of Systems
Manufacturing Corporation, a manufacturer of local area network ("LAN")
furniture and command bridges ("the acquisition") for $58 million in cash.
During the nine months ended September 30, 1998 the Company also made three
smaller acquisitions with an aggregate purchase price of approximately $11
million in cash. These included a laboratory products distributor in the United
States (Applied Scientific Corporation), a majority interest in a laboratory
products distributor in Hong Kong (Union Lab Supplies Limited) and a majority
interest in a software and services company (SourceSYS, Inc.) These acquisitions
were accounted for as purchases.
The Company's September 30, 1998 balance sheet includes estimates of fair
market value of assets and liabilities acquired in connection with these
acquisitions. The excess of the purchase price over the fair value of net assets
acquired reflects certain estimates based upon preliminary studies; final
allocation of the purchase price will be made after appraisals, valuations and
other studies relating to the acquired assets and liabilities are completed. The
excess of the purchase price over the estimated fair value of all net assets
acquired in these transactions was approximately $62 million. These
acquisitions are not material to the Company's financial position or results of
operations.
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NOTE 4 - INVENTORIES
The following is a summary of inventories by major category (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Raw material $ 18.3 $ 17.5
Work in process 4.3 3.2
Finished products 191.9 203.1
------ ------
Total $214.5 $223.8
====== ======
</TABLE>
NOTE 5 - OTHER ASSETS
At September 30, 1998, other assets includes $29.0 million of net deferred
financing fees relating to costs incurred in conjunction with the new debt
facilities entered into during the first quarter of 1998, and a deferred tax
asset of $58.2 million. The Company's deferred tax asset at December 31, 1997
was $37.1 million.
NOTE 6 - DEBT
The following is a summary of debt and other obligations (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
9% Senior Subordinated Notes $400.0 $ --
New Credit Facility 279.7 --
Prior Credit Facility -- 100.6
7 1/8% Notes (net of a discount
of $1.0 million at September
30, 1998 and December 31, 1997) 149.0 149.0
Other 36.9 37.9
Less current portion of long-term debt (40.6) (19.7)
------ ------
Total $825.0 $267.8
====== ======
</TABLE>
On January 21, 1998, in connection with the Transaction, Fisher entered
into new debt financing arrangements, providing for up to $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 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 common stock then outstanding
that were not retained by existing stockholders and employees, to refinance
$107.8 million of indebtedness 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
and future acquisitions, if any.
In March, the Company paid down $40.0 million of borrowings under the New
Credit
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Facility, funded by $20 million of proceeds from the sale of accounts receivable
under the Receivables Securitization, increasing that facility limit to $170
million, and $20 million of cash generated by operations. As of September 30,
1998, the New Credit Facility consisted of (i) a $254.7 million term loan
facility (the "Term Facility") consisting of a (a) $108.5 million tranche A term
loan ("Tranche A"), (b) $86.4 million tranche B term loan ("Tranche B") and (c)
$59.8 million tranche C term loan ("Tranche C"); and (ii) a $175.0 million
revolving credit facility (the "Revolving Facility") of which $25.0 million is
outstanding as of September 30, 1998. Of the $254.7 million outstanding under
the Term Facility, $204.9 million is denominated in U.S. dollars, $37.6 million
is denominated in British pounds and $12.2 million is denominated in Canadian
dollars. 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 upon certain changes in the
leverage ratio. 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. On
January 21, 1998, the Company executed two interest- rate swap agreements with a
counterparty exchanging its floating-rate obligation on $120 million notional
principal amount for a fixed-rate payment obligation of 5.6425% per annum
through January 23, 2001 and on $250 million notional principal amount for a
fixed- rate payment obligation of 5.7375% per annum through January 23, 2003. In
the unlikely event that the counterparty fails to meet the terms of the
interest-rate swap agreement, the Company's exposure is limited to the
interest-rate differential on the notional amount at each quarterly settlement
period over the life of the agreements. The Company does not anticipate
non-performance by the counterparty. The fair values of interest-rate swap
agreements are the estimated amounts that the Company would receive or (pay) to
terminate the agreements at the reporting date, taking into account current
interest rates, the market expectation for future interest rates and the current
creditworthiness of the counterparty. The fair value of these interest-rate swap
agreements as of September 30, 1998, based upon quoted market prices, was
($10.9) million.
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) minority investments, (v) the payment of cash
dividends to shareholders, and (vi) various financial
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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. The Company is in compliance with all covenants at September 30,
1998. 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, $5.2 million in 1999, $14.7 million in
2000, $19.0 million in 2001, $32.0 million in 2002 and $183.8 million in years
subsequent to 2002.
The Receivables Securitization relates to the sale, on a revolving basis,
of certain of the accounts receivable of Fisher Scientific Company, L.L.C., a
Delaware limited liability corporation ("FSC"), to a bankruptcy remote
subsidiary of FSC that 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. As of September 30,
1998, the Company sold $168.2 million under the Receivables Securitization. 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 remains
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, (iv) minority investments, and (v) other various covenants that are
customary for transactions of this type.
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NOTE 7 - STOCKHOLDERS' (DEFICIT) EQUITY
The following is a summary of the changes in stockholders' (deficit) equity
for the period ended September 30, 1998. Total comprehensive income components
included in stockholders' (deficit) equity include any changes in equity during
a period that are not the result of transactions with the Company's
stockholders.
<TABLE>
<CAPTION>
SHARES ACCUMULATED
CAPITAL IN SHARES TO BE RETAINED OTHER SUBTOTAL
COMMON EXCESS OF HELD IN DISTRIBUTED EARNINGS COMPREHENSIVE COMPREHENSIVE
STOCK PAR VALUE TRUST FROM TRUST (DEFICIT) INCOME TOTAL INCOME
------ ---------- ------- ----------- --------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ 0.2 $ 278.9 $ (6.1) $ -- $ 96.7 $(22.6) $ 347.1
Comprehensive income:
Net loss -- -- -- -- (32.8) -- (32.8) $(32.8)
Foreign currency translation
adjustments -- -- -- -- -- 1.9 1.9 1.9
------
Subtotal-comprehensive income -- -- -- -- -- -- -- $(30.9)
======
Five-for-one stock split 0.3 (0.3) -- -- -- -- --
Common stock issued -- 0.5 -- -- -- -- 0.5
Change in market value of common shares
held in trust -- -- (21.0) -- -- -- (21.0)
Reversal of changes in market value of
common stock held in trust -- -- 25.3 -- -- -- 25.3
Reclass from other liabilities -- -- -- 30.3 -- -- 30.3
Transaction-related activity:
Common stock repurchased and conversion
of options to cash (0.2) (268.7) -- -- (686.2) -- (955.1)
Shares deposited in trust -- -- (28.5) -- -- -- (28.5)
Equity contribution by FSI 0.1 302.9 -- -- -- -- 303.0
Proceeds from stock options -- -- -- -- 55.7 -- 55.7
Recapitalization fees and expenses -- -- -- -- (34.9) -- (34.9)
----- ------- ------ ----- ------- ------ -------
Balance, September 30, 1998 $ 0.4 $ 313.3 $(30.3) $30.3 $(601.5) $(20.7) $(308.5)
===== ======= ====== ===== ======= ====== =======
</TABLE>
In July 1998, the Emerging Issues Task Force issued bulletin No. 97-14
("EITF 97-14"). In order to comply with the guidance set forth in EITF 97-14,
the Company reduced other liabilities and stockholders' equity (shares held in
trust) by approximately $25.3 million to eliminate the impact of the previous
practice of adjusting shares held in trust to market value. Also, the amount
representing the cash exercise price for shares placed in the trust
(approximately $30.3 million) previously included in other liabilities, was
reclassified to shareholders' equity.
After the Transaction, the Company's authorized capital stock consisted of
50,000,000 shares of Common Stock, par value $.01 per share, and 15,000,000
shares of Preferred Stock, par value $.01 per share, of which 35,988,645 shares
of Common Stock and 4,035,290 shares of non-voting Common Stock shares were
outstanding at January 21, 1998. As of September 30, 1998, the Company's
authorized capital stock consisted of 100,000,000 shares of Common Stock, par
value $.01 per share, and 15,000,000 shares of Preferred Stock, par value $.01
per share, of which 35,998,860 shares of Common Stock and 4,035,290 shares of
non-voting Common Stock were outstanding. Of the total 40,034,150 shares of
Common Stock, 3,714,720 represents shares owned by employees and 1,194,285
represents shares retained by management pursuant to the stock election process.
In addition, warrants to purchase 2,583,315 shares of Common Stock at $9.65 per
share were issued as part of the Transaction.
Pursuant to the Merger Agreement, the vesting of all options accelerated on
the date of the Transaction. Of the 17,570,000 options outstanding at December
31, 1997, approximately 6,720,000 were converted to cash and the remainder were
converted to Fisher Common Stock. When the options were converted, the Company
recorded
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compensation expense of approximately $56 million to reflect the "cashless"
conversion of the options into cash or common stock having a value on the date
of the Transaction equal to the product of (x) the excess of $9.65 over the
exercise price per share of Fisher Common Stock subject to such option, and (y)
the total number of shares of Fisher Common Stock subject to option, subject to
any required tax withholdings. In connection with the Transaction, the Company
adopted the 1998 Equity Incentive Plan ("1998 Plan"), under which up to
10,000,000 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 3,621,757 shares of Fisher 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 $9.65, the fair market value of a share of Fisher Common Stock on
the date of grant. The Company also granted options to purchase 1,812,000 shares
of Fisher 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 $19.30
per share. In addition, the Company granted to certain executives, options to
purchase 516,665 shares of Fisher 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 agreement pursuant to which the
executives 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.
NOTE 8 - EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computation for the three and nine months
ended September 30, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net Income (Loss) $ 6.7 $ 3.9 $(32.8) $ 24.5
===== ====== ====== ======
Average Shares of Common Stock Outstanding 40.0 101.7 40.0 101.3
===== ====== ====== ======
Basic Earnings (Loss) Per Share $0.17 $ 0.4 $(0.82) $ 0.24
===== ====== ====== ======
DILUTED EARNINGS PER SHARE:
Net Income (Loss) $ 6.7 $ 3.9 $(32.8) $ 24.5
===== ====== ====== ======
Average Shares of Common Stock Outstanding 40.0 101.7 40.0 101.3
Common Stock Equivalents (a) 1.2 3.4 -- 3.0
----- ------ ------ ------
Total Shares Used in Diluted Earnings Per Share
Calculation 41.2 105.1 40.0 104.3
===== ====== ====== ======
Diluted Earnings (Loss) Per Share $0.16 $ 0.4 $(0.82) $ 0.23
===== ====== ====== ======
</TABLE>
(a) For the three and nine months ended September 30, 1998, the Company had
options and warrants outstanding to purchase 3.4 million and 9.9 million
shares, respectively, that could potentially dilute basic earnings per
share that were excluded from the diluted earnings per share computation
because to do so would have been antidilutive.
13
<PAGE> 14
Earnings (loss) per share and weighted average common shares outstanding
for the three and nine months ended September 30, 1998 are based on the
Company's recapitalized structure and reflect the five-for-one stock split
declared on March 9, 1998. Earnings (loss) per share for the three and nine
months ended September 30, 1997 are based on the Company's capital structure at
that time (prior to the recapitalization) and have been restated to reflect the
aforementioned stock split.
NOTE 9 - RELATED PARTIES
The Company paid a one-time transaction fee aggregating $20 million and
will pay an aggregate annual management fee of $1 million to two affiliates of
THL. In exchange for the transaction fee, THL and its affiliates provided equity
commitments for the Transaction, arranged additional equity financing, arranged
the Transaction debt financing and structured and negotiated the Transaction. In
return for the annual management fee, THL, and certain of its affiliates, will
provide consulting and management advisory services. Additionally, in connection
with the Transaction and the related debt financings, the Company paid its other
equity investors (excluding management) one-time fees aggregating approximately
$35 million.
One of the Company's equity investors is a financial institution that
provides financing to the Company at terms that are considered to be at
arm's-length.
14
<PAGE> 15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference include those factors discussed in the section entitled
"Management's Discussion and Analysis of Results of Operations and Financial
Condition - Cautionary Factors Regarding Forward-Looking Statements" contained
in the Company's Form 10-K for the year ended December 31, 1997.
RECAPITALIZATION AND MERGER
Pursuant to the Second Amended and Restated Agreement and Plan of Merger
dated November 14, 1997 (as amended, the "Merger Agreement") 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
shares of common stock of Fisher were converted into the right to receive $9.65
per share in cash (approximately $955 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 $9.65 in cash or to
retain one share of common stock, $.01 par value ("Common Stock"), in the
recapitalized company. Pursuant to the Merger Agreement, vesting of all
outstanding options accelerated.
On March 9, 1998, Fisher's Board of Directors declared a five-for-one stock
split on the Company's Common Stock. As a result of the stock split, four
additional shares of Common Stock were issued for each share of Common Stock
held by the shareholders of record as of the close of business on March 19,
1998. All references in this report to the number of shares and per share
amounts have been restated as appropriate to give effect to the stock split.
RESULTS OF OPERATIONS
SALES
Sales for the three and nine months ended September 30, 1998 increased 6.8%
and 5.7% to $592.8 million and $1,716.6 million, respectively, from $554.8
million and $1,624.1 million for the comparable periods in 1997, primarily due
to growth in domestic operations and lower sales in 1997 attributable to the
August 1997 United Parcel Service of America, Inc. ("UPS") Strike.
15
<PAGE> 16
GROSS PROFIT
Fisher's gross profit for the three and nine month periods ended September
30, 1998 increased 9.3% and 6.4% to $167.2 million and $476.4 million,
respectively, from $153.0 million and $447.8 million for the comparable periods
in 1997, primarily as a result of increased volume. Gross profit as a percent of
sales increased to 28.2% for the three months ended September 30, 1998, from
27.6% for the same period in 1997 and increased by 0.2% to 27.8% for the nine
months ended September 30, 1998 as compared to the same period in the prior
year. The increase in gross profit for the three and nine month periods ended
September 30, 1998 largely reflects improvements in gross margins of Fisher's
domestic operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the three month period
ended September 30, 1998 decreased 2.6% to $130.2 million from $133.7 million
for the comparable period in 1997, primarily as a result of a decrease in
nonrecurring cost due to the UPS strike in 1997 and system-related changes in
1997. Selling, general and administrative expense for the nine month period
ended September 30, 1998 increased 0.9% to $386.0 million from $382.6 million
for the comparable period in 1997 primarily as a result of increased sales
volume partially offset by the aforementioned decrease in nonrecurring costs.
Selling, general and administrative expense in both periods includes
nonrecurring costs associated with the implementation of the restructuring plan
that began in the third quarter of 1995 as well as costs to integrate Curtin
Matheson Scientific ("CMS"), acquired in October 1995, into Fisher. The periods
ended September 30, 1997 also include information system-related charges
associated with the Company's implementation of new global computer systems and
direct costs resulting from the UPS strike. Additionally, the periods ended
September 30, 1998 include nonrecurring costs associated with the implementation
of the 1997 Restructuring Plan. Certain 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 restructuring plans are completed, are recognized as incurred.
For the three and nine month periods ended September 30, 1998, $1.7 million and
$5.8 million of such costs were included in selling, general and administrative
expense, compared with $10.2 million and $18.5 million for the corresponding
periods in 1997. Excluding such costs, selling, general and administrative
expense as a percentage of sales was 21.7% and 22.1% for the three and nine
months ended September 30, 1998 compared with 22.3% and 22.4% for the same
periods in 1997.
Operations outside of the United States have 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. As a result of
increased revenues and restructuring actions taken to date, selling, general and
administrative expense as a percentage of sales for operations outside of the
United States has improved.
TRANSACTION-RELATED COSTS
In connection with the Transaction, the Company recorded $71.0 million of
expenses consisting primarily of non-cash compensation expense relating to the
conversion of employee stock options, the implementation of certain executive
severance agreements and the grant of options to certain executives in
accordance with the terms of the Transaction.
16
<PAGE> 17
INCOME FROM OPERATIONS
Income from operations for the three months ended September 30, 1998
increased to $37.0 million from $19.3 million for the corresponding period in
1997. Income from operations decreased to $19.4 million for the nine months
ended September 30, 1998, compared with $65.2 million for the corresponding
period in 1997. Income from operations, excluding Transaction-related costs and
the aforementioned nonrecurring costs, as a percent of sales was 5.6% and 5.2%
for the nine months ended September 30, 1998 and September 30, 1997,
respectively.
INTEREST EXPENSE
Interest expense increased to $20.8 million and $67.3 million for the three
and nine month periods ended September 30, 1998 from $5.4 million and $17.6
million for the comparable periods in 1997. The increase is the result of
additional indebtedness resulting from the Transaction as well as $6.9 million
of charges, incurred during the first quarter of 1998, related to the
consummation of the Transaction, including one-time bank commitment fees, the
write-off of unamortized financing costs related to long-term debt refinanced
and the loss on the sale of accounts receivable (discussed below).
OTHER (INCOME) EXPENSE, NET
Other (income) expense, net for the three and nine month periods ended
September 30, 1998 decreased to $0.2 million of expense and increased to $3.0
million of income, respectively, from $4.6 million and $0.1 million of expense
for the comparable periods in 1997. The decrease in expense for the quarter was
primarily due to $3.6 million of fees and expenses related to the Board of
Directors' review of strategic alternatives in 1997, which did not recur in
1998. The increase in income for the nine month period is due to increased
interest income resulting from the timing of cash received from the Transaction.
INCOME TAX (BENEFIT) PROVISION
The income tax provision for the three months ended September 30, 1998 was
$9.3 million compared to $5.4 million for the corresponding period in 1997. The
effective tax rate for the nine months ended September 30, 1998 was a 26.9% tax
benefit compared with a 48.4% tax charge for the corresponding period in 1997.
Excluding the $71.0 million of Transaction-related costs, the effective income
tax rate for the nine months ended September 30, 1998 was 59.6%. The increase in
the effective tax rate from the prior year is primarily related to the reduction
in domestic pretax income due to the additional interest expense incurred as a
result of the Transaction and foreign losses for which no tax benefit is
recorded.
NET INCOME (LOSS)
Net income (loss) for the three and nine months ended September 30, 1998
increased to income of $6.7 million and decreased to a loss of $32.8 million,
respectively, from income of $3.9 million and $24.5 million for the comparable
periods in 1997, as a result of the factors discussed above.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1998, the Company's operations
generated $89.0 million of cash compared with $40.2 million for the same period
in 1997. This increase in cash provided by operating activities primarily
reflects an increase in cash flows from changes in working capital and other
assets and liabilities. The increase in cash flows from changes in working
capital is due primarily to an increase in cash provided by payables, accruals
and other current liabilities partially offset by a decrease in cash provided by
receivables. The payables and accruals change is primarily due to the timing of
accounts payable payments, reduced payments of accrued compensation amounts and
increased accrued interest as a result of the Transaction. Other assets and
liabilities reduced operating cash flows by $6.4 million in 1998 compared with
$21.8 million in 1997 primarily due to an unusually high balance at September
30, 1997, attributable 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 ($19.7)
million at September 30, 1998 from $185.7 million at December 31, 1997. The
decrease is due principally to decreases in accounts receivable and inventories
and increases in accounts payable and accrued liabilities. The decrease in
accounts receivable is primarily the result of the sale of receivables under a
receivables securitization, discussed below. Inventory decreased principally due
to the ongoing consolidation of logistical facilities. The increases in accounts
payable and accrued liabilities are principally attributable to the timing of
payments and accrued interest associated with the new debt resulting from the
Transaction.
Currently, the Company is evaluating a number of potential acquisitions in
the United States and Europe and implementing the planned consolidation and
relocation of its logistical facilities in North America. While there is no
guarantee that any of these potential acquisitions will be consummated or that
the Company's consolidation and relocation activities will occur, one or more
acquisitions and implementation of the Company's relocation activities could
have a material impact on the Company's working capital requirements throughout
the remainder of 1998. As a result, the Company is considering the issuance of
additional senior unsecured indebtedness or expanding its existing credit
facilities to make available additional working capital financing in the event
that these acquisitions occur. The inability of the Company to obtain additional
working capital financing would not have a material impact on the Company's
current operations or planned relocation and consolidation activities.
During the nine months ended September 30, 1998, the Company used $110.8
million of cash for investing activities compared with $45.6 million for the
same period in 1997. The increase in cash used for investing activities is
primarily due to increases in acquisition spending offset by decreases in
capital expenditures. During the last nine months the Company has completed four
acquisitions for an aggregate purchase price of $68.7 million. The acquisitions
were funded with cash flow from operations and through borrowings of $25 million
under the Company's $175 million Revolving Facility. For the nine months ended
September 30, 1998 and 1997, the Company had capital expenditures of $43.7
million and $49.3 million, respectively. This decrease in capital expenditures
is primarily due to timing. The Company anticipates its 1998 annual capital
expenditures will exceed total 1997 expenditures as it continues its
consolidation and relocation of logistics facilities in North America and its
project to upgrade global computer systems. The Company is in the process of
obtaining approximately $9 million of long term debt financing relating to its
new warehouse in Hanover Park, Illinois.
During the nine months ended September 30, 1998, the Company's financing
activities provided $25.8 million compared with $10.8 million for the same
period in 1997. This change is primarily due to an increase of $737.3 million in
net long-term debt proceeds, including proceeds from the Receivables
Securitization (discussed below), attributable to the Transaction. In connection
with the Transaction, effective January 21, 1998, Fisher entered into new debt
financing arrangements, providing for $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,
18
<PAGE> 19
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 that 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 and future acquisitions, if any. The interest rates
and maturity dates of the New Credit Facility, the Receivables Securitization
and the 9% Notes are described in Note 6 to Financial Statements.
On January 21, 1998, the Company executed two interest rate swap agreements
exchanging its floating-rate obligation on $120 million notional principal
amount for a fixed-rate payment obligation of 5.6425% per annum through January
23, 2001 and $250 million notional principal amount for a fixed- rate payment
obligation of 5.7375% per annum through January 23, 2003. The fair value of
these interest-rate swap agreements as of September 30, 1998, based upon quoted
market prices, was ($10.9) million.
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) minority investments, (v) the payment of cash
dividends to shareholders, and (vi) 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 limitations on capital expenditures. In
addition to the mandatory repayment schedule discussed in Note 6 to Financial
Statements, 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 Receivables Securitization relates to the sale, on a revolving basis,
of certain of the accounts receivables of Fisher Scientific Company L.L.C., a
Delaware limited liability corporation ("FSC"), to a bankruptcy remote
subsidiary of FSC that 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. As of September 30,
1998, the Company sold $168.2 million under the Receivable Securitization.
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
19
<PAGE> 20
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 remains 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, (iv) minority investments, and (v) other various covenants which are
customary for transactions of this type.
Fisher expects that cash flows from operations, together with cash and cash
equivalents on hand and funds available under existing credit facilities, will
be sufficient to meet ongoing operating and capital expenditure requirements.
EUROPEAN ECONOMIC AND MONETARY UNION
The Company conducts business in many of the 11 countries which have agreed
to join the European Economic and Monetary Union (the "EMU") and, among other
things, adopt a single currency called the Euro. On January 1, 1999, a
three-year transition period for the Euro will begin and the conversion rates
between the Euro and the national currencies will be fixed. Business enterprises
have the option of switching to the single currency at any time prior to January
1, 2002. In connection with the upgrade of its management information systems,
the Company is incorporating the necessary changes to allow it to conduct
business in Euros and the national currencies during the transition period and
entirely in Euros thereafter. The Company is not able to accurately estimate or
segregate the costs relating to the conversion to the Euro, but management does
not believe that such costs are material. The Company does not anticipate that
the conversion to the Euro will have a material impact on its future results of
operation.
DEPENDENCE ON INFORMATION SYSTEMS; SYSTEMS CONVERSION; YEAR 2000 ISSUE
The Company's business is dependent in large part on its information
systems. These systems play an integral role in: tracking product offerings
(including pricing and availability); processing and shipping more than 20,000
items per day; warehouse operations; purchasing from more than 3,000 vendors;
inventory management; financial reporting; and other operational functions.
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.
Based upon assessments of each of the Company's business units and the
information systems supporting those operations, the Company has begun
implementing a program having the following major elements and a target
completion date no later than December 31, 1999:
First, the applications and other software supporting each business unit
has been inventoried and analyzed and then planned for either: (a) confirmation
as Year 2000 compliant, (b) upgrade to a Year 2000 compliant version, (c)
remediation to become Year 2000 compliant or (d) replacement by other software
which provides Year 2000 compliance and other benefits. For example, certain of
the financial applications supporting the U.S. distribution business have been
(or by December 31, 1999 will be) replaced by Oracle software; most of the
remaining software supporting the U.S. distribution businesses has been
remediated.
The primary methods of assuring Year 2000 compliance for core business
systems are: (a) remediation for the U.S., Canadian and U.K. distribution
systems, (b) replacement by new Year 2000 and Euro compliant software for the
other European businesses, (c)
20
<PAGE> 21
upgrade to Year 2000 versions for certain manufacturing businesses and (d)
replacement by new Year 2000 software for the remaining manufacturing businesses
and overseas distribution businesses.
Second, the Company has initiated programs to assure Year 2000 compliance
for the equipment and software licenses that it currently markets to customers
and to obtain and transmit to customers information about the equipment and
software licenses which customers may have purchased in the past. Various units
of the Company are also assisting customers in developing plans to replace or
upgrade any non-compliant equipment or software, especially in laboratories,
whether or not the products were acquired from the Company.
Third, the Company has initiated programs to identify those suppliers whose
own systems could lead to delays or interruptions in supply, either because of
Year 2000 non-compliance or because of systems upgrades or replacements to avoid
Year 2000 issues. The Company is developing contingency plans during the fourth
quarter of 1998 and first quarter of 1999, including adjustments in inventory
levels and order lead times for products provided by vendors who have not
provided adequate assurances, to ameliorate any resultant delays or
interruptions and to prevent or reduce any adverse effect on fill rates to the
Company's customers.
Fourth, with particular regard to Electronic Data Interchange ("EDI"), the
Company has developed plans to work with trading partners, including both
suppliers and customers, to either work around the requirement for six digit
date fields in the prior EDI standards or to migrate, with the trading partner,
to ANSI version 4010, which employs eight digit date fields. By mid-1999, the
Company will be in a position to accept either six or eight digit date fields in
its EDI dealings with customers, suppliers and other EDI trading partners.
Fifth, the Company is implementing a project involving testing with
available test software personal computers and associated software at various
Company locations, followed by upgrade or replacement where appropriate. In
addition, the Company is implementing projects which include inventory,
identification, assessment (through vendor contacts, testing or both), planning,
implementation (replacement, repair or upgrade) and testing of manufacturing
equipment, environmental control equipment, elevators, security systems,
telecommunications software and equipment and similar purchased equipment,
software and systems. While this portion of the overall program is targeted for
completion by June 30, 1999, it is currently anticipated that a limited amount
of this activity would remain incomplete until later in 1999.
With regard to financial cost, implementation of the program has resulted
in and will continue to result in significant time expenditure by Company
personnel and outside software and equipment providers and some expenditures for
equipment and software upgrades and replacements. Because many of these efforts
have been designed to achieve other functional or systems improvements, in
addition to Year 2000 compliance, and are being carried out by operational
personnel within each business unit, it is difficult to allocate particular
funding levels solely to the Year 2000 compliance activities. In general,
however, the Company has spent $2.2 million in operating expenses and $23.0
million in capital expenditures on Year 2000 activities to date and estimates
incurring an additional $4.5 million in operating expenses and $14.5 million in
capital expenditures to complete its Year 2000 programs.
21
<PAGE> 22
Although the Company believes that its present remediation and replacement
programs will adequately address the Year 2000 issues with respect to its
internal systems, there can be no assurance that the Company's belief is correct
or that its present assessment is in fact accurate. There can be no assurance
that the remediation and replacement programs will be completed prior to the
Year 2000 or that if completed prior to the Year 2000 that disruption will not
occur. In addition, there can be no assurance that the Company's vendors,
suppliers and the myriad of other financial, transportation, utility and other
service providers will successfully resolve their own Year 2000 issues in a
manner which avoids significant impact to the Company. The Company has received
written assurances from many of its suppliers and other providers acknowledging
the Year 2000 issues and stating their present intention to be compliant. The
Company has not received assurances from all of its suppliers and other
providers and there is no guarantee that one or more key suppliers and other
providers will not fail to become compliant in time to avoid a disruption to the
Company's business which, in spite of the Company's contingency plans, would
have a significant adverse impact on the Company. Because of the complexity of
the Company's systems, the number of transactions processed and the number of
third parties with whom the Company interacts, certain failures of the Company
or its suppliers, vendors and other service providers to completely overcome the
Year 2000 issue could result in substantial and material impact on the Company's
business, operations and financial results.
The Company's forecasted costs and timing for completion of its Year 2000
programs are based on its best estimates, which in turn are based on numerous
assumptions of future events, including the continued availability and cost of
necessary personnel and other resources, third party modification plans, and
other factors. However, the Company cannot be certain that these estimates will
be achieved and actual results could differ materially from these estimates.
22
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
23
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FISHER SCIENTIFIC INTERNATIONAL INC.
Date: November 10, 1998 /s/ PAUL M. MEISTER
----------------- --------------------------------------------
PAUL M. MEISTER
Vice Chairman of the Board,
Executive Vice President - Chief Financial
Officer and Director
24
<PAGE> 25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FISHER SCIENTIFIC INTERNATIONAL INC.
EXHIBITS
TO
FORM 10-Q
for the quarter ended September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
25
<PAGE> 26
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
---------- -----------------------
27 Financial Data Schedule
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1998 AND THE INCOME STATEMENTS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 22,200
<SECURITIES> 0
<RECEIVABLES> 161,900
<ALLOWANCES> 0
<INVENTORY> 214,500
<CURRENT-ASSETS> 456,300
<PP&E> 242,400
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,163,500
<CURRENT-LIABILITIES> 436,700
<BONDS> 0
0
0
<COMMON> 400
<OTHER-SE> (308,500)
<TOTAL-LIABILITY-AND-EQUITY> 1,163,500
<SALES> 1,716,600
<TOTAL-REVENUES> 1,716,600
<CGS> 1,240,200
<TOTAL-COSTS> 1,240,200
<OTHER-EXPENSES> 386,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,300
<INCOME-PRETAX> (44,900)
<INCOME-TAX> (12,100)
<INCOME-CONTINUING> (32,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,800)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
