<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER: 01-10920
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.)
ONE LIBERTY LANE, HAMPTON, NEW HAMPSHIRE 03842
(Address of principal executive offices) (Zip Code)
</TABLE>
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 10, 1999 was
40,050,940.
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<PAGE> 2
FISHER SCIENTIFIC INTERNATIONAL INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I -- FINANCIAL INFORMATION:
Item 1 -- Financial Statements:
Introduction to the Financial Statements............... 3
Statement of Operations -- Three and Nine Months Ended
September 30, 1999 and 1998........................... 4
Balance Sheet -- September 30, 1999 and December 31,
1998.................................................. 5
Statement of Cash Flows -- Nine Months Ended September
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
Item 2 -- Management's Discussion and Analysis of Results of
Operations and Financial Condition................ 12
Item 3 -- Quantitative and Qualitative Disclosures about
Market Risk....................................... 18
PART II -- OTHER INFORMATION:
Item 6 -- Exhibits and Reports on Form 8-K.................. 19
SIGNATURE................................................... 20
EXHIBIT INDEX............................................... 22
</TABLE>
2
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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, 1998 balance sheet is the balance sheet included in the audited
financial statements as shown in the Company's 1998 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, 1998.
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.
3
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FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Sales................................................... $631.6 $576.4 $1,848.0 $1,674.6
Cost of sales........................................... 453.0 412.1 1,320.4 1,205.5
Selling, general and administrative expense............. 133.6 124.7 402.6 369.5
Transaction-related costs............................... -- -- -- 71.0
Loss from operations to be disposed of.................. 0.5 2.6 11.3 9.2
------ ------ -------- --------
Income from operations.................................. 44.5 37.0 113.7 19.4
Interest expense........................................ 26.4 20.8 79.2 67.3
Other (income) expense, net............................. (3.3) 0.2 (8.6) (3.0)
------ ------ -------- --------
Income (loss) before income taxes....................... 21.4 16.0 43.1 (44.9)
Income tax provision (benefit).......................... 13.0 9.3 25.6 (12.1)
------ ------ -------- --------
Net income (loss)....................................... $ 8.4 $ 6.7 $ 17.5 $ (32.8)
====== ====== ======== ========
Earnings (loss) per common share:
Basic................................................... $ 0.21 $ 0.17 $ 0.44 $ (0.82)
====== ====== ======== ========
Diluted................................................. $ 0.20 $ 0.16 $ 0.41 $ (0.82)
====== ====== ======== ========
</TABLE>
See the accompanying notes to financial statements.
4
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FISHER SCIENTIFIC INTERNATIONAL INC.
BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 33.9 $ 65.6
Receivables, net....................................... 253.3 205.6
Inventories............................................ 225.7 220.9
Other current assets................................... 70.1 69.0
-------- --------
Total current assets.............................. 583.0 561.1
Property, plant and equipment, net.......................... 246.2 246.0
Goodwill.................................................... 378.4 385.9
Other assets................................................ 164.8 149.9
Net assets from operations to be disposed of................ -- 14.7
-------- --------
$1,372.4 $1,357.6
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term debt........................................ $ 36.7 $ 19.7
Accounts payable....................................... 281.4 246.3
Accrued and other current liabilities.................. 167.2 187.2
-------- --------
Total current liabilities......................... 485.3 453.2
Long-term debt.............................................. 1,018.6 1,022.0
Other liabilities........................................... 194.5 207.1
-------- --------
Total liabilities................................. 1,698.4 1,682.3
-------- --------
Commitments and contingencies............................... -- --
Stockholders' deficit:
Preferred stock........................................ -- --
Common stock........................................... 0.4 0.4
Capital in excess of par value......................... 315.0 313.3
Accumulated deficit.................................... (600.5) (618.2)
Accumulated other comprehensive loss................... (40.4) (19.7)
Treasury stock......................................... (0.5) (0.5)
-------- --------
Total stockholders' deficit....................... (326.0) (324.7)
-------- --------
$1,372.4 $1,357.6
======== ========
</TABLE>
See the accompanying notes to financial statements.
5
<PAGE> 6
FISHER SCIENTIFIC INTERNATIONAL INC.
STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1999 1998
------ --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $17.5 $ (32.8)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Transaction-related costs, net of cash expended... -- 70.5
Depreciation and amortization..................... 46.5 38.3
(Gain) loss on sale of property, plant and
equipment and write-off of assets................ (4.1) 1.2
Deferred income taxes............................. 3.3 (19.9)
Changes in working capital:
Receivables, net............................. (24.1) (24.0)
Inventories.................................. (2.6) 12.4
Payables, accrued and other current
liabilities................................. 2.7 50.7
Other working capital changes................ (1.0) (3.4)
Net cash flow from operations to be disposed of... 2.6 3.7
Other assets and liabilities...................... (12.7) (7.3)
----- -------
Cash provided by operating activities........ 28.1 89.4
----- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired..................... (34.4) (68.7)
Capital expenditures................................... (29.5) (43.7)
Proceeds from sale of property, plant and equipment.... 10.7 1.6
Other investing activities............................. (1.0) --
----- -------
Cash used in investing activities............ (54.2) (110.8)
----- -------
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)
Changes in amounts sold under the accounts receivable
securitization, net................................... (17.5) 168.2
Proceeds from long-term debt........................... 18.0 736.3
Payments of long-term debt............................. (6.4) (160.9)
Common stock issued.................................... 0.3 0.5
----- -------
Cash provided by (used in) financing
activities.................................. (5.6) 25.8
----- -------
Net change in cash and cash equivalents..................... (31.7) 4.4
Cash and cash equivalents -- beginning of period............ 65.6 17.6
----- -------
Cash and cash equivalents -- end of period.................. $33.9 $ 22.0
===== =======
</TABLE>
See the accompanying notes to financial statements.
6
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FISHER SCIENTIFIC INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF BUSINESS AND RESULTS OF OPERATIONS
Fisher Scientific International Inc. ("Fisher" or the "Company") was formed
in September 1991. The Company's operations are conducted throughout North and
South America, Europe, the Far East, the Middle East and Africa through one or
more subsidiaries, joint ventures, agents and dealers. The Company is managed in
three business segments: domestic distribution, international distribution, and
laboratory workstations. The domestic and international distribution segments
engage in the supply, marketing, service and manufacture of scientific,
clinical, educational, occupational health and safety products. The laboratory
workstations segment manufactures and sells laboratory workstations and computer
(LAN) furniture. In December 1998, the Company's Board of Directors approved a
plan to dispose of the Company's technology business segment through (i) a spin
off (the "Spinoff") of the Company's procurement outsourcing and supply chain
management technology business (the "ProcureNet Business") and (ii) the sale of
the UniKix Technology software business (see Note 5 to the financial
statements). The ProcureNet Business was distributed to Fisher's stockholders on
April 15, 1999 and the UniKix Technology software business was sold on July 22,
1999.
Certain prior year amounts have been reclassified to conform to their
current presentation.
RESTRUCTURING AND OTHER CHARGES
During the fourth quarter of 1998 the Company adopted a restructuring plan
and recorded $26.5 million of restructuring and other charges related to the
Company's domestic and international distribution segments (the "1998
Restructuring Plan"). The 1998 Restructuring Plan included international asset
impairment charges attributable to the economic slowdown in the Far East,
write-offs of information systems due to a change in management's global
information system strategy and employee separation and other exit costs due to
a restructuring in the U.S. and Europe of the Company's management team and
selected components of its sales force. These charges consisted of $13.6 million
related to noncash asset impairments, $12.0 million of accruals for employee
separation arrangements and $0.9 million of exit costs. The 1998 Restructuring
Plan continues to proceed and is expected to be completed and the related
accruals substantially expended by the end of 1999.
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 and recorded restructuring and other charges of $51.8
million. The charges included costs associated with the closure of logistics and
customer-service centers and related asset write-offs in the United States and
internationally, 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 consisted 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. The 1997
Restructuring Plan continues to proceed as planned and is expected to be
substantially completed and the related accruals expended by the end of 2000.
NOTE 2 -- RECAPITALIZATION AND MERGER
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 the Second
Amended and Restated Agreement and Plan of Merger dated as of November 14, 1997,
amending an Agreement and Plan of Merger dated August 7, 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"). The Transaction established an election process that provided
stockholders the right to elect, subject to proration, for each share of Fisher
common stock held,
7
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FISHER SCIENTIFIC INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
either $9.65 in cash or to retain one share of common stock, $.01 par value
("Common Stock"), in the recapitalized company. Vesting of all outstanding
options accelerated.
As part of the Transaction, the Company recorded $71.0 million of expenses
consisting primarily of noncash 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.
On March 9, 1998, Fisher's Board of Directors declared a five-for-one stock
split of 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 3 -- ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which will be effective for the Company for fiscal
years beginning January 1, 2001. Management does not anticipate that the
adoption of this statement will have a material effect on the Company's
financial statements.
NOTE 4 -- ACQUISITIONS
In December 1998, Fisher purchased for $106 million (net of cash acquired)
approximately 90% of Bioblock Scientific S.A. ("Bioblock"), a leading
distributor of scientific and laboratory instrumentation in France. In January
1999, the Company acquired the remaining Bioblock shares for an additional $14
million, bringing Fisher's total ownership position to 100%.
In January 1999, the Company acquired Columbia Diagnostics Inc., a
Virginia-based provider of laboratory products and supplies to the healthcare
industry, which is included in the domestic distribution segment, and Structured
Computer Systems ("SCS"), a Connecticut-based provider of procurement and
materials management solutions to businesses, which is included in the
ProcureNet Business of the technology segment. Fisher recorded a $5.2 million
write-off for in-process research and development costs related to the
acquisition of SCS. Net cash consideration paid for acquisitions during 1999 was
approximately $34 million.
The Company's September 30, 1999 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 1999 transactions was approximately $21 million. The 1999
acquisitions are not material to the Company's financial position or results of
operations.
NOTE 5 -- OPERATIONS TO BE DISPOSED OF
In December 1998, the Company's Board of Directors approved a plan to
dispose of the Company's technology business segment through (i) a spin off (the
"Spinoff") of the Company's procurement outsourcing and supply chain management
technology business (the "ProcureNet Business") and (ii) the sale of the UniKix
Technology software business. Following the Spinoff, which was consummated on
April 15, 1999, the Company and ProcureNet began to operate as separate,
stand-alone companies. As part of the Spinoff, the Company and ProcureNet
entered into a transitional services agreement pursuant to which Fisher provides
ProcureNet with certain management and other administrative services and
ProcureNet continues to provide Fisher and its customers with third-party
procurement and electronic commerce support and services.
8
<PAGE> 9
FISHER SCIENTIFIC INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the first quarter of 1999, ProcureNet entered into debt obligations to
Fisher totaling $19 million. These notes bear interest at an annual rate of 9%
and are due and payable on December 31, 2007. Subsequent to the Spinoff, the
Company fulfilled its credit commitment to ProcureNet by providing an additional
$3 million in loans on terms similar to the existing notes.
In July 1999, the Company completed the sale of UniKix for cash proceeds of
approximately $5 million. A gain on the sale of $2.5 million was recognized and
is included in other (income) expense, net.
Revenues, operating costs and expenses, assets and liabilities, and cash
flows of the technology segment have been excluded from their respective
captions in the Statement of Operations, Balance Sheet, and Statement of Cash
Flows. These items have been reported as "loss from operations to be disposed
of," "net assets from operations to be disposed of," and "net cash flows from
operations to be disposed of."
Summarized financial information for the technology segment, which includes
the results of operations of ProcureNet through April 15, 1999 and UniKix
through July 22, 1999, is set forth below (in millions, except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------
1999 1998 1999 1998
------------- ------------ ------ ------
<S> <C> <C> <C> <C>
Net sales........................... $0.2 $16.3 $21.1 $42.0
Operating loss...................... (0.5) (2.6) (11.3) (9.2)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C> <C> <C>
Current assets...................... $ -- $12.2
Current liabilities................. -- 10.1
Total assets........................ $ -- $24.6
Total liabilities................... -- 9.9
---- -----
Net assets from operations to
be disposed of............... $ -- $14.7
==== =====
</TABLE>
The operating loss for the nine months ended September 30, 1999 includes a
$5.2 million write-off for in-process research and development costs related to
the acquisition of SCS.
NOTE 6 -- INVENTORIES
The following is a summary of inventories by major category (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C> <C> <C>
Raw material............ $ 20.1 $ 19.5
Work in process......... 3.2 3.7
Finished products....... 202.4 197.7
------ ------
Total................... $225.7 $220.9
====== ======
</TABLE>
9
<PAGE> 10
FISHER SCIENTIFIC INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- COMPREHENSIVE INCOME AND STOCKHOLDERS' DEFICIT
The following is a summary of comprehensive income (loss) for the three and
nine months ended September 30, 1999 and 1998 (in millions). Comprehensive
income (loss) components included in stockholders' deficit include any changes
in equity during a period that are not the result of transactions with the
Company's stockholders.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss)................................... $ 8.4 $6.7 $17.5 $(32.8)
Foreign currency translation adjustment............. (11.7) 2.9 (20.7) 1.9
------ ---- ----- ------
Comprehensive income (loss)......................... $ (3.3) $9.6 $(3.2) $(30.9)
====== ==== ===== ======
</TABLE>
Effective March 29, 1999 certain equity investors exchanged 9,000,000
shares of common stock for the same amount of non-voting common stock.
NOTE 8 -- EARNINGS PER SHARE
The following is a reconciliation of the shares used in the computation of
basic and diluted earnings (loss) per share for the three and nine months ended
September 30, 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Average shares of common stock outstanding used in
the computation of basic earnings (loss) per
share............................................. 40.1 40.0 40.0 40.0
Common stock equivalents (a)........................ 2.5 1.2 2.5 --
---- ---- ---- ----
Shares used in the computation of diluted earnings
(loss) per share.................................. 42.6 41.2 42.5 40.0
==== ==== ==== ====
</TABLE>
- ---------------
(a) The amount of outstanding antidilutive common stock options and warrants
excluded from the computation of diluted earnings per share for the three
months ended September 30, 1999 and 1998 was 0.7 million and 3.4 million,
respectively. The weighted average amount of outstanding antidilutive common
stock options and warrants excluded from the computation of diluted earnings
(loss) per share for the nine months ended September 30, 1999 and 1998 was
2.0 million and 9.9 million, respectively.
NOTE 9 -- SEGMENT INFORMATION
Selected business segment financial information for the three and nine
months ended September 30, 1999 and 1998 is shown below (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales
Domestic distribution........................... $504.5 $475.8 $1,470.2 $1,379.6
International distribution...................... 115.5 100.3 347.6 293.3
Laboratory workstations......................... 47.0 39.0 134.7 108.5
Eliminations.................................... (35.4) (38.7) (104.5) (106.8)
------ ------ -------- --------
Total...................................... $631.6 $576.4 $1,848.0 $1,674.6
====== ====== ======== ========
</TABLE>
10
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FISHER SCIENTIFIC INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income (loss) from operations
Domestic distribution........................... $34.8 $35.2 $101.2 $87.5
International distribution...................... 2.6 (0.9) 2.6 (2.8)
Laboratory workstations......................... 7.3 6.2 20.6 15.1
Technology...................................... (0.5) (2.6) (11.3) (9.2)
Transaction-related costs....................... -- -- -- (71.0)
Eliminations.................................... 0.3 (0.9) 0.6 (0.2)
----- ----- ------ -----
Total...................................... $44.5 $37.0 $113.7 $19.4
===== ===== ====== =====
</TABLE>
Income (loss) from operations is revenue less related costs and direct and
allocated expenses. Intercompany sales and transfers between segments were not
material for the three and nine months ended September 30, 1999 and 1998.
11
<PAGE> 12
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 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, 1998.
RECAPITALIZATION AND MERGER
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 the Second
Amended and Restated Agreement and Plan of Merger dated as of November 14, 1997,
amending an Agreement and Plan of Merger dated August 7, 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"). The Transaction established 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. Vesting of all
outstanding options accelerated.
On March 9, 1998, Fisher's Board of Directors declared a five-for-one stock
split of 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
The following table sets forth the Company's sales and income (loss) from
operations by segment for the three and nine months ended September 30, 1999 and
1998 (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Sales
Domestic distribution........................... $504.5 $475.8 $1,470.2 $1,379.6
International distribution...................... 115.5 100.3 347.6 293.3
Laboratory workstations......................... 47.0 39.0 134.7 108.5
Eliminations.................................... (35.4) (38.7) (104.5) (106.8)
------ ------ -------- --------
Total...................................... $631.6 $576.4 $1,848.0 $1,674.6
====== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
------ ------ ------ -----
<S> <C> <C> <C> <C>
Income (loss) from operations
Domestic distribution........................... $34.8 $35.2 $101.2 $87.5
International distribution...................... 2.6 (0.9) 2.6 (2.8)
Laboratory workstations......................... 7.3 6.2 20.6 15.1
Technology...................................... (0.5) (2.6) (11.3) (9.2)
Transaction-related costs....................... -- -- -- (71.0)
Eliminations.................................... 0.3 (0.9) 0.6 (0.2)
----- ----- ------ -----
Total...................................... $44.5 $37.0 $113.7 $19.4
===== ===== ====== =====
</TABLE>
12
<PAGE> 13
Sales
Sales for the three and nine months ended September 30, 1999 increased 9.6%
and 10.4% to $631.6 million and $1,848.0 million, respectively, from $576.4
million and $1,674.6 million for the comparable periods in 1998. Sales growth in
the domestic distribution and laboratory workstation segments in 1999 was
primarily due to internal sales growth as well as inclusion of sales of
companies acquired in the second half of 1998 and the first quarter of 1999.
Sales growth in the international distribution segment was predominantly due to
inclusion of sales of companies acquired.
Gross Profit
Fisher's gross profit for the three and nine months ended September 30,
1999 increased 8.7% and 12.5% to $178.6 million and $527.6 million,
respectively, from $164.3 million and $469.1 million for the comparable periods
in 1998, primarily as a result of increased sales volume. Gross profit as a
percent of sales decreased to 28.3% for the three months ended September 30,
1999, from 28.5% for the comparable period in 1998. The reduction in gross
profit as a percent of sales is primarily the result of a change in the mix of
products sold. Gross profit as a percent of sales increased to 28.5% for the
nine months ended September 30, 1999 from 28.0% for the comparable period in
1998. The increase in gross profit as a percent of sales for the nine month
period largely reflects the higher margins of businesses acquired in the second
half of 1998 and first quarter of 1999.
Selling, General and Administrative Expense
Selling, general and administrative expense for the three and nine months
ended September 30, 1999 increased 7.1% and 9.0% to $133.6 million and $402.6
million, respectively, from $124.7 million and $369.5 million for the comparable
periods in 1998. The increase in selling, general and administrative expense in
1999 is primarily due to the selling, general and administrative expense of
companies acquired during the second half of 1998 and the first quarter of 1999
and increased sales volume. Selling, general and administrative expense in both
periods includes nonrecurring costs associated with the temporary duplication of
operations, relocation of inventories and employees, hiring and training new
employees, and other non-recurring costs. For the three and nine months ended
September 30, 1999, $0.9 million and $2.1 million, respectively, of such costs
were included in selling, general and administrative expense, compared with $1.7
million and $4.9 million for the corresponding periods in 1998. Excluding such
costs, selling, general and administrative expense as a percentage of sales was
21.0% and 21.7% for the three and nine months ended September 30, 1999 and 21.3%
and 21.8% for the comparable periods in 1998, respectively.
The international distribution segment continues to have significantly
higher selling, general and administrative expenses as a percentage of sales as
compared with Fisher's domestic distribution segment. 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.
Transaction-Related Costs
During the first quarter of 1998, the Company recorded $71.0 million of
expenses consisting primarily of noncash 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.
Loss From Operations to be Disposed of
In December 1998, the Company's Board of Directors approved a plan to
dispose of the Company's technology business segment through (i) a spin off (the
"Spinoff") of the Company's procurement outsourcing and supply chain management
technology business (the "ProcureNet Business") and (ii) the sale of the UniKix
Technology software business. These transactions were completed through the
distribution to Fisher stockholders of the ProcureNet Business in April 1999 and
the sale of the UniKix Technology software business on July 22, 1999. The
results of operations of this segment are reported separately in the statement
of
13
<PAGE> 14
operations. Loss from operations to be disposed of decreased to $0.5 million for
the three months ended September 30, 1999 from $2.6 million in the comparable
period in 1998. The decrease was primarily due to the 1999 period including only
22 days of operating results for the UniKix Technology business. Loss from
operations to be disposed of increased to $11.3 million for the nine months
ended September 30, 1999 from $9.2 million in the comparable period in 1998. The
increase was primarily a result of a $5.2 million write-off of in-process
research and development costs associated with an acquisition made during the
first quarter of 1999, offset in part by the inclusion of $0.9 million of
one-time asset write-offs in 1998 and a decrease in the operating losses of the
ProcureNet Business and the UniKix Technology software business for the period
due to their disposition in April and July of 1999, respectively.
Other (income) Expense, Net
Other (income) expense for the three and nine months ended September 30,
1999 increased to $3.3 million and $8.6 million of income, respectively, from
$0.2 million of expense and $3.0 million of income for the comparable periods in
1998. The increase in income in 1999 was primarily due to a gain on the sale of
the UniKix Technology software business and gains from the sales of property,
plant and equipment associated with the Company's consolidation plans.
Income From Operations
Income from operations for the three and nine months ended September 30,
1999 increased to $44.5 million and $113.7 million, respectively, from $37.0
million and $19.4 million for the corresponding periods in 1998 due to the
factors discussed above. Excluding nonrecurring and Transaction-related costs of
$7.3 million and $76.8 million in the nine months ended September 30, 1999 and
1998, respectively, operating income was $121.0 million and $96.2 million,
respectively.
Interest Expense
Interest expense increased to $26.4 million and $79.2 million for the three
and nine months ended September 30, 1999, respectively, from $20.8 million and
$67.3 million for the comparable periods in 1998. The increase is the result of
a full nine months of interest expense in 1999 resulting from the January 21,
1998 Transaction and additional indebtedness resulting from the $200 million 9%
Senior Subordinated Notes issued in November 1998, both partially offset by
one-time charges in the first quarter of 1998 related to the consummation of the
Transaction.
Income Tax Provision (Benefit)
The income tax provision (benefit) for the three and nine months ended
September 30, 1999 was $13.0 million and $25.6 million, respectively, compared
with $9.3 million and ($12.1) million for the corresponding periods in 1998. The
effective income tax rate for the three and nine months ended September 30, 1999
was 60.7% and 59.4%, respectively, compared with 58.1% and 26.9% for the
corresponding periods in 1998. Excluding the $71.0 million of
Transaction-related costs in 1998, of which a portion was not deductible, the
effective income tax rates for the periods were comparable.
Net Income (Loss)
Net income (loss) for the three and nine months ended September 30, 1999
increased to $8.4 million and $17.5 million, respectively, from $6.7 million and
($32.8) million for the comparable periods in 1998, due to the factors discussed
above.
Liquidity and Capital Resources
During the nine months ended September 30, 1999, the Company's operations
provided $28.1 million of cash compared with $89.4 million of cash for the same
period in 1998. This change in cash generated by operating activities is
primarily due to an increase in working capital during the nine months ended
September 30, 1999 compared to a decrease in working capital for the comparable
period in 1998. Operating
14
<PAGE> 15
working capital (defined as receivables plus inventories less accounts payable
and accrued liabilities), after adjusting for the impact of receivables sold
under the accounts receivable securitization facility, increased by $24.0 during
the nine months ended September 30, 1999 compared with a decrease of $39.1
million during the comparable period in 1998. The change in the working capital
for the respective periods was primarily due to a $12.4 million reduction in
inventory combined with a $50.7 million increase in current liabilities during
the 1998 period compared with a $2.6 million and $2.7 million increase in
inventory and current liabilities, respectively, during the 1999 period. The
change in cash flow from current liabilities from the 1998 period to the 1999
period was primarily caused by a $18 million decrease in accrued interest due to
the timing of scheduled interest payments as the Transaction occurred in January
1998 and a decrease of $18 million in accrued salaries and benefits primarily as
a result of the Company paying minimal bonuses in 1998 (for the 1997 year) and
the timing of certain commission and benefit payments.
Currently, the Company is evaluating a number of potential acquisitions.
While there is no guarantee that any of these potential acquisitions will be
consummated, one or more acquisitions could have a material effect on the
Company's working capital requirements throughout the remainder of 1999 and
2000.
During the nine months ended September 30, 1999, the Company used $54.2
million of cash for investing activities compared with $110.8 million for the
same period in 1998. The decrease in cash used for investing activities is
primarily due to decreases in acquisition spending. During 1999, the Company
completed two acquisitions and acquired the remaining shares of Bioblock for an
aggregate net purchase price of $34.4 million. The acquisitions were funded with
cash on hand and through the sale of receivables under a receivables
securitization facility. For the nine months ended September 30, 1999 and 1998,
the Company had capital expenditures of $29.5 million and $43.7 million,
respectively. The Company anticipates its 1999 annual capital expenditures will
continue to be lower than 1998 capital expenditures largely due to reduced
spending on global information systems in 1999.
During the nine months ended September 30, 1999, the Company's financing
activities used $5.6 million of cash compared with providing $25.8 million of
cash for the same period in 1998. Financing activities in the nine months ended
September 30, 1998 primarily related to the Transaction described in Note 2 to
the Financial Statements. Financing activities in the nine months ended
September 30, 1999 primarily related to incremental borrowings at various
domestic and international entities, offset by a reduction in the amount of
receivables sold under the accounts receivable securitization.
The Company 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 that 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 began and the conversion rates between
the Euro and the national currencies were 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 has incorporated 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 statements in the following section include "Year 2000 readiness
disclosure" within the meaning of Year 2000 Information and Readiness Disclosure
Act.
15
<PAGE> 16
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 implemented 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
have been inventoried and analyzed and either: (a) confirmed as Year 2000
compliant, (b) upgraded to a Year 2000 compliant version, (c) remediated to
become Year 2000 compliant or (d) replaced by other software which provided Year
2000 compliance and other benefits. For example, certain of the financial
applications supporting the U.S. distribution business have been replaced by
Oracle software; the remaining software supporting the U.S. distribution
businesses has been remediated, tested by software professionals and end users,
and implemented in regular business operations. These steps (including testing)
have been completed for the Company's core U.S. business and most of its
businesses outside of the United States.
The primary methods of assuring Year 2000 compliance for core business
systems were: (a) remediation for the U.S., Canadian, U.K., Japanese, and Hong
Kong distribution systems, (b) replacement by new Year 2000 and Euro compliant
software for the other European businesses, (c) 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 implemented 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 noncompliant equipment or software, especially in laboratories,
whether or not the products were acquired from the Company.
Third, the Company has implemented 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 the necessity of extensive
systems upgrades or replacements to avoid Year 2000 issues. The Company is
addressing such system changes by suppliers, where appropriate, by adjusting
inventory levels and order lead times to reduce any delays or interruptions of
product supply to the Company's customers and has developed similar contingency
plans, on a supplier-specific basis, to assure availability of products from
suppliers making future systems changes or not providing adequate assurances of
readiness to fill orders at the beginning of 2000, and in order 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 implemented 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 data fields. The Company has
implemented ANSI Version 4010 with many of its customers and suppliers and has
tested and validated with other customers and suppliers that early EDI versions
in use with such customers and suppliers, will function properly through the
date change, using windowing to interpret the six digit date field.
Fifth, the Company has tested with available test software, personal
computers and associated software at various Company locations, and has upgraded
or replaced where appropriate. In addition, the Company has inventoried,
assessed, tested and upgraded, where appropriate, manufacturing equipment,
environmental
16
<PAGE> 17
control equipment, elevators, security systems, telecommunications software and
equipment and similar purchased equipment, software and systems.
While the Company does not anticipate internal Year 2000 issues, it
understands that it often represents only one link in the supply chain from
manufacturer of products to users of the products. Therefore, the Company has
developed and is prepared to implement a variety of contingency plans to handle
non-compliance issues with suppliers, customers, EDI backup systems, facilities
and transportation.
The Company has also conferred with many of its larger customers concerning
any significant changes to their ordering patterns at the end of 1999 and
beginning of 2000 and determined, where appropriate, what minor changes in the
Company's overall inventory planning and/or manufacturing planning may be needed
to accommodate those changes.
With regard to financial cost, implementation of the program has resulted
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 have been 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 approximately
$7 million in operating expenses and approximately $35 million in capital
expenditures on Year 2000 activities to date and estimates incurring an
additional $1.5 million in operating expenses and $2.5 million in capital
expenditures to complete its Year 2000 programs.
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 on 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 a 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.
The preceding "Year 2000 Readiness Disclosure" contains various
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 and the Section 27A Securities Act of 1933. These
forward-looking statements represent the Company's beliefs or expectations
regarding future events. When used in the "Year 2000 Readiness Disclosure," the
words "believes," "expects," "estimates," and similar expressions are intended
to identify forward-looking statements. Forward-looking statements include,
without limitation, the Company's expectations as to when it will complete the
modification and testing phases of its Year 2000 project plans as well as its
Year 2000 contingency plans; its estimated cost of achieving Year 2000
readiness; and the Company's belief that its internal systems will be Year 2000
compliant in a timely manner. All forward-looking statements involve a number of
risks and uncertainties that could cause the actual results to differ materially
from the projected results. Factors that may cause these differences include,
17
<PAGE> 18
but are not limited to, the availability of qualified personnel and other
information technology resources; the ability to identify and remediate all date
sensitive lines of computer code or to replace embedded computer chips in
affected systems or equipment; and the actions of governmental agencies or other
third parties with respect to Year 2000 problems.
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary interest rate exposures relate to its cash, fixed and
variable rate debt and interest rate swaps. The potential loss in fair values is
based on an immediate change in the net present values of the Company's interest
rate sensitive exposures resulting from a 10% change in interest rates. The
potential loss in cash flows and earnings is based on the change in the net
interest income/expense over a one-year period due to an immediate 10% change in
rates. A hypothetical 10% change in interest rates does not have a material
effect on the fair values, cash flows or earnings of the Company.
The Company's primary currency rate exposures are to its foreign
denominated debt, intercompany debt, cash and foreign currency forward exchange
contracts. The potential loss in fair values is based on an immediate change in
the U.S. dollar equivalent balances of the Company's currency exposures due to a
10% shift in exchange rates. The potential loss in cash flows and earnings is
based on the change in cash flow and earnings over a one-year period resulting
from an immediate 10% change in currency exchange rates. A hypothetical 10%
change in the currency exchange rates does not have a material effect on the
fair values, cash flows or earnings of the Company.
18
<PAGE> 19
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
19
<PAGE> 20
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.
/s/ PAUL M. MEISTER
------------------------------------
PAUL M. MEISTER
VICE CHAIRMAN OF THE BOARD,
EXECUTIVE VICE PRESIDENT -- CHIEF
FINANCIAL
OFFICER AND DIRECTOR
Date: November 12, 1999.
20
<PAGE> 21
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1999 AND THE INCOME STATEMENT FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 34
<SECURITIES> 0
<RECEIVABLES> 253
<ALLOWANCES> 0
<INVENTORY> 226
<CURRENT-ASSETS> 583
<PP&E> 246
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,372
<CURRENT-LIABILITIES> 485
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (326)
<TOTAL-LIABILITY-AND-EQUITY> 1,372
<SALES> 1,848
<TOTAL-REVENUES> 1,848
<CGS> 1,320
<TOTAL-COSTS> 1,320
<OTHER-EXPENSES> 403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 43
<INCOME-TAX> 26
<INCOME-CONTINUING> 18
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.41
</TABLE>
