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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2001
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11091
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APOGENT TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Wisconsin 22-2849508
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
48 Congress Street, Portsmouth, New Hampshire 03801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(603) 433-6131
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $0.01 per share New York Stock Exchange
Preferred Stock Purchase Rights (associated with
the Common Stock) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant, based upon the closing sale price of the registrant's Common
Stock on December 7, 2001 as reported on the New York Stock Exchange, was
approximately $2,443,339,000. Shares of Common Stock held by each executive
officer and director and by each person known to beneficially own more than 5%
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
At December 7, 2001, there were 106,129,455 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on January 28, 2002 have been incorporated by
reference into Part III of this Form 10-K.
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APOGENT TECHNOLOGIES INC.
TABLE OF CONTENTS
TO
2001 ANNUAL REPORT ON FORM 10-K
Item Page
---- ----
PART I
1 Business.......................................................... 1
2 Properties........................................................ 9
3 Legal Proceedings................................................. 10
4 Submissions of Matters to a Vote of Security Holders.............. 11
PART II
Market for Registrant's Common Equity and Related Shareholder
5 Matters........................................................... 13
6 Selected Financial Data........................................... 14
Management's Discussion and Analysis of Financial Condition and
7 Results of Operations............................................. 15
7A Quantitative and Qualitative Disclosures About Market Risk........ 32
8 Financial Statements and Supplementary Data....................... 34
Changes in and Disagreements With Accountants on Accounting and
9 Financial Disclosure.............................................. 78
PART III
10 Directors and Executive Officers of the Registrant................ 78
11 Executive Compensation............................................ 78
12 Security Ownership of Certain Beneficial Owners and Management.... 78
13 Certain Relationships and Related Transactions.................... 78
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 79
Signatures........................................................ 80
PART I
ITEM 1. Business
General
Apogent Technologies Inc. is a Wisconsin corporation, incorporated in 1993
to be the successor by merger in January 1994 to Sybron Corporation, a
Delaware corporation. The merger was accomplished to change the Company's
corporate domicile from Delaware to Wisconsin. The Company changed its name
from Sybron International Corporation to Apogent Technologies Inc. in January
2001.
On December 11, 2000, the Company spun off its dental business (the "Spin-
Off") by way of a pro rata distribution to its shareholders of all the
outstanding common stock and related preferred stock purchase rights of Sybron
Dental Specialties, Inc. ("SDS"). As a result of the Spin-Off, SDS became an
independent public company operating what was the Company's dental business.
Apogent continues to operate its clinical diagnostics, labware and life
sciences, and laboratory equipment businesses, as described herein.
During the fourth quarter of 2001, Apogent changed its reporting business
segments by combining its former clinical and industrial segment with its
former diagnostics and microbiology segment to form the clinical diagnostics
business segment. This change aligns the Company's financial reporting with
its operational activity. All historical financial information for the years
ended September 30, 2000 and 1999 has been restated to reflect this new
business segment.
When we use the terms "Company," "Apogent," "we," or "our" in this Annual
Report, we are referring to Apogent Technologies Inc. and its subsidiaries and
their respective predecessors, without the dental business. Our fiscal year
ends on September 30. All references to a particular year mean the fiscal year
ended September 30 of that year, unless we indicate otherwise. As a result of
the Spin-Off, SDS has been accounted for as a discontinued operation. In
addition, on March 31, 1999, the Company sold Nalge Process Technologies
Group, Inc. ("NPT") (the "NPT Sale"). NPT has also been accounted for as a
discontinued operation. All data, unless otherwise indicated, has been
restated to reflect the Spin-Off and the NPT Sale.
Forward-Looking Statements
The description of our businesses included in this Item 1, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7, and other portions of this Annual Report contain statements that could
be deemed to be forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Those statements concern, among
other things, our intent, belief, or current expectations with respect to our
operating and growth strategies, our capital expenditures, financing or other
matters, regulatory matters pertaining to us specifically and the industry in
general, industry trends, competition, risks attendant to foreign operations,
reliance on key distributors and large OEM customers, litigation,
environmental matters, and other factors affecting our financial condition or
results of operations. Such forward-looking statements involve certain risks
and uncertainties, many of which are beyond our control and could cause actual
results to differ materially from those contemplated in the forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in connection with such
statements as well as those described in the section entitled "Cautionary
Factors" in Item 7 of this Annual Report.
Business Segments
Apogent is a leading developer and manufacturer of products for the labware
and life sciences, clinical diagnostics, and laboratory equipment industries.
We are organized into three business segments to serve our customers in each
of these industries. Our subsidiaries manufacture most of these products in
approximately 80 facilities. We have over 120 facilities worldwide. Our
customers comprise distributors, pharmaceutical and
1
biotechnology companies, clinical and research laboratories, OEMs, and others.
Approximately 74% of our net sales are generated from sales transactions with
customers within the U.S. and the remainder is generated internationally,
mostly from Europe and Japan.
The end-users of our products generally comprise scientists and lab
technicians in the fields of life science research, clinical diagnostics, and
basic scientific research. These individuals typically work in laboratories at
pharmaceutical companies, hospitals, scientific research organizations, and
academic and government institutions. Life science research laboratories focus
on the discovery and development of new drugs, including the identification of
new drug targets, the discovery of new drug candidates, the development of
these candidates, and subsequent toxicology and efficacy testing. This sector
has experienced significant growth as pharmaceutical companies, biotechnology
companies, and academic institutions increase their research and development
efforts in order to develop new drugs.
Clinical Diagnostics Segment
Our clinical diagnostics business segment manufactures and sells products
primarily to clinical and commercial laboratories and to scientific research
and industrial customers. These products are used in a number of diagnostic
applications--specimen collection, specimen transportation, drug testing,
therapeutic drug monitoring, infectious disease detection, pregnancy testing,
glucose tolerance testing, clinical diagnostic liquid standards, precision
temperature measurement, anatomical pathology (histology and cytology) and
immunohistochemistry, with an emphasis on cancer applications, among others.
Products include:
. microscope slides, cover glass, glass tubes and vials;
. stains and reagents;
. histology and immunochemistry instrumentation;
. diagnostic test kits;
. culture media;
. diagnostic reagents;
. other products used in detecting causes of various infections or
diseases;
. thin glass for watch crystals, cosmetic mirrors, precision and coated
glass used in various optic applications; and
. precision thin film optical coating equipment.
Our primary U.S. and foreign subsidiaries in this business segment include:
Applied Biotech, Inc.
Chase Scientific Glass, Inc.
Erie Electroverre S.A.
Erie Scientific Company
Gerhard Menzel Glasbearbeitungswerk GmbH & Co. K.G.
Microgenics Corporation
Microm International GmbH
The Naugatuck Glass Company
Remel Inc.
Richard-Allan Scientific Company
Samco Scientific Corporation
This segment accounted for approximately 49% of our consolidated net sales
in 2001 and 48% in each of 2000 and 1999. For the fiscal years 2001, 2000, and
1999, net sales for this segment grew 15%, 21%, and 39%, respectively,
compared to the prior year.
2
Labware and Life Sciences Segment
Our labware and life sciences business segment manufactures and sells
products to the research and clinical life sciences industries. Applications
of these products include general everyday laboratory uses as well as
genomics, proteomics, high-throughput screening for drug discovery,
combinatorial chemistry, cell culture, filtration, and liquid handling.
Products in this business segment include:
. reusable plastic and glass products (e.g., bottles, carboys, graduated
ware, beakers and flasks);
. disposable plastic and glass products;
. products for critical packaging applications;
. environmental and safety containers;
. autosampler vials and seals used in chromatography analysis; and
. applications of cell culture, filtration, molecular biology,
cryopreservation, immunology, electrophoresis, liquid handling,
genomics, and high-throughput screening for pharmaceutical drug
discovery.
Our primary U.S. and foreign subsidiaries in this business segment include:
Advanced Biotechnologies Ltd.
BioRobotics Group Limited
Genevac Limited
Matrix Technologies Corporation
Molecular BioProducts, Inc.
Nalge Nunc International Corporation
Nalge Nunc International K.K.
National Scientific Company
Nunc A/S
Robbins Scientific Corporation
During fiscal 2001, we entered into a sales and marketing joint venture
with Kimble Glass, Inc. that involves reusable, disposable and specialty
glassware for the laboratory.
This segment accounted for approximately 41%, 40%, and 38% of our
consolidated net sales in 2001, 2000, and 1999, respectively, with sales
growing 15%, 29%, and 17%.
Laboratory Equipment Segment
Our laboratory equipment business segment manufactures basic laboratory
equipment needed by medical, pharmaceutical, and scientific laboratories.
Applications of these products include heating, cooling, shaking, stirring,
mixing, and temperature control as well as water purification and production.
The products include:
. heating, stirring and temperature control apparatus such as hot plates,
stirrers, shakers, heating tapes, muffle furnaces, incubators, dri-
baths, bench top sterilizers, and cryogenic storage apparatus;
. systems for producing ultra pure water;
. bottle top dispensers, positive displacement micropipettors, and small
mixers used in biomolecular research;
. constant temperature equipment including refrigerators/freezers, ovens,
water baths, and environmental chambers; and
. furnaces and fluorometers, spectrophotometers, and strip chart
recorders.
3
Our primary U.S. and foreign subsidiaries in the laboratory equipment
segment include:
Barnstead Thermolyne Corporation
Electrothermal Engineering, Ltd.
Lab-Line Instruments, Inc.
This segment accounted for approximately 11%, 12%, and 15% of our
consolidated net sales in 2001, 2000, and 1999, respectively. For the fiscal
years 2001 and 1999 net sales grew 4% and 25%, respectively, and declined 1%
in 2000.
Certain Financial Information
The following table sets forth our net sales by segment.
Years Ended September 30,
--------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Clinical Diagnostics............................. $477,233 $413,565 $342,529
Labware and Life Sciences........................ 400,823 347,437 268,788
Laboratory Equipment............................. 106,409 102,573 103,720
-------- -------- --------
Total Net Sales................................ $984,465 $863,575 $715,037
======== ======== ========
We have included other financial information about our business segments
and foreign operations in Note 15 to our consolidated financial statements
included in this Annual Report, and such information is incorporated herein by
reference.
New Products
During fiscal 2001, we introduced a number of new products that contributed
approximately $28 million in net sales. No single new product or group of
related products was material to our business or any one of our business
segments.
Growth Strategy
Our goal is to consistently grow our worldwide market presence, net sales,
earnings, and cash flows. Annual revenue growth in fiscal 2001 was $121
million, or 14% over the prior year. Key elements of our strategy continue to
be:
Develop Profitable New Products. We consistently strive to develop and
introduce new products that contribute to sales, earnings, and cash flows.
These products include new offerings and improvements of our currently
marketed products. We are especially focused on developing new products for
our life sciences research and clinical diagnostics customers.
Make Strategic Acquisitions. Our acquisition program is focused on adding
complementary products and technologies that enhance our market position. Our
operating subsidiaries generally have been able to use their existing channels
to market our acquired products. We have a rigorous process of candidate
identification, due diligence, and integration designed to mitigate
acquisition risk. Acquired businesses are converted to our standard financial
reporting system. In most cases, we retain the senior management of acquired
businesses and have an integration plan and budget in place at the time the
acquisition closes.
Increase Penetration of Existing and New Customers. We seek to leverage our
strong market presence and excellent customer and distributor relationships
into increased sales to current customers and sales to new customers. We
believe that our large and growing product offering is conducive to cross-
selling products to
4
existing customers. This broad product offering is also conducive to
negotiating favorable terms with our distributors.
Improve Operating Efficiencies. We are focused on improving our operating
efficiencies through vertical integration, streamlined manufacturing
techniques, better product sourcing, and the sharing of technology across our
Company. We believe that our focus on efficiencies improves our gross margins
while maintaining or improving the quality of our products and increasing
customer satisfaction.
Sales, Marketing and Distribution
We estimate that there are more than 150,000 industrial, academic,
clinical, governmental, pharmaceutical, and biotechnology laboratories that
are existing and potential customers for our products. Our products reach
these customers in several ways. Our laboratory equipment business segment
sells primarily through distributors. Products from our labware and life
sciences business segment are also sold primarily through distributors,
although some of our businesses in this segment, such as Matrix Technologies
and Robbins Scientific, have direct sales forces and sell directly to end-
users. Sales from our clinical diagnostics businesses are made both directly
and through distribution, depending on the type of product and/or the type of
end-user. For example, Richard-Allan and Microm International sell directly to
end-users, the microbiology products of our Remel subsidiary are primarily
sold directly to end-users, and the drugs of abuse testing products of
Microgenics are primarily sold to OEMs of clinical chemistry analyzers. Most
of our subsidiaries maintain their own sales forces, whether they sell
directly to end-users, through distribution, or otherwise.
During fiscal 2001, several companies within our labware and life sciences
business segment have coordinated their sales and marketing efforts under the
"Apogent Discoveries" name. Working together, they warehouse their products
together in Europe and the U.S. and sell (and cross-sell) products directly to
a shared customer base. Additionally, during fiscal 2001, the Company entered
into a sales and marketing joint venture with Kimble Glass, Inc. that involves
reusable, disposable and specialty glassware for the laboratory.
From time to time, the Company's net sales performance has been affected by
short-term volatility in demand from distributors. The Company has also
experienced volatility in demand when distributors merge or consolidate, when
distributors do not manage their inventories to end-user demand and when
distributors otherwise experience softness in sales or make alternate sourcing
decisions.
Our major distributors offer a wide variety of supplies, apparatus and
instruments for the laboratory, primarily through catalogs and through e-
commerce web sites. End-users rely heavily on these catalogs and web sites in
identifying suitable products and making purchase decisions, and the
prominence of and the number of product items listed for a particular vendor
are critical marketing variables. We believe the number of our products
offered by the major distributors is among the highest of any of our
competitors. Also, the major distributors often have contracts with large end-
users or purchasing organizations to supply such users or organizations with a
broad array of laboratory products and supplies. We believe that our ability
to manufacture and supply a broad range of products can help distributors be
more efficient in these situations.
Our three major distributors (primarily domestic), Fisher Scientific, VWR
Scientific, and Allegiance Healthcare Corporation, accounted in the aggregate
for approximately 21% of our clinical diagnostic segment sales, 32% of our
labware and life sciences segment sales, and 41% of our laboratory equipment
segment sales in 2001. The loss of any one of these major laboratory
distributors could have a material adverse effect on our business. Only a few
of our subsidiaries have written contractual relationships with these
distributors. However, our subsidiaries have long-standing relationships with
them or their predecessors.
Our subsidiaries private label for and sell products to a number of
original equipment manufacturers. These OEM relationships are most prevalent
in our clinical diagnostics segment, although subsidiaries in our other
segments also enter into OEM and private label relationships as opportunities
arise. Volatility in demand can
5
arise if the OEM's fail to manage inventories to end-user demand, discontinue
product lines or switch business to other manufacturers.
Domestic and International
Our U.S. subsidiaries had approximately 76% of our assets as of September
30, 2001 and generated approximately 95% of our income from continuing
operations for the fiscal year ended September 30, 2001, with the balance
attributable to our foreign subsidiaries. In addition to an extensive
distributor network, our subsidiaries maintain sales offices and manufacturing
plants in many international locations. Foreign sales offices are located in
the United Kingdom, Japan, Germany, Spain, Hong Kong, Australia, and
Switzerland. International manufacturing facilities are located in Denmark,
Germany, Switzerland, Hungary, the United Kingdom, Hong Kong, Mexico, and
Puerto Rico.
Domestic and international sales of our products by business segment are as
follows:
Fiscal Year Ended
September 30,
--------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Clinical Diagnostics
Domestic....................................... $381,599 $331,570 $284,585
International.................................. 95,634 81,995 57,944
-------- -------- --------
Total........................................ $477,233 $413,565 $342,529
======== ======== ========
Labware and Life Sciences:
Domestic....................................... $263,546 $233,597 $176,649
International.................................. 137,277 113,840 92,139
-------- -------- --------
Total........................................ $400,823 $347,437 $268,788
======== ======== ========
Laboratory Equipment:
Domestic....................................... $ 82,163 $ 79,004 $ 82,685
International.................................. 24,246 23,569 21,035
-------- -------- --------
Total........................................ $106,409 $102,573 $103,720
======== ======== ========
We have included other financial information about our business segments
and foreign operations in Note 15 to our consolidated financial statements
included in this Annual Report, and such information is incorporated herein by
reference.
Research and Development
We have a number of research and development programs in our various
business segments. We spent approximately $20.9 million, $18.3 million, and
$12.6 million on research and development in 2001, 2000, and 1999,
respectively, focused primarily on product development.
Our research and development expenditures by business segment are as
follows:
Fiscal Year Ended
September 30,
-----------------------
2001 2000 1999
------- ------- -------
(in thousands)
Clinical Diagnostics................................. $ 8,157 $ 8,234 $ 5,983
Labware and Life Sciences............................ 8,785 6,964 4,265
Laboratory Equipment................................. 3,916 3,104 2,314
------- ------- -------
Total............................................ $20,858 $18,302 $12,562
======= ======= =======
6
Backlog
Our total backlog of orders at September 30, 2001, 2000, and 1999 was
approximately $35.9 million, $38.5 million, and $31.1 million, respectively.
Our backlog by business segment is as follows:
Fiscal Year Ended
September 30,
-----------------------
2001 2000 1999
------- ------- -------
(in thousands)
Clinical Diagnostics................................ $15,760 $11,739 $10,951
Labware and Life Sciences........................... 15,589 20,685 15,908
Laboratory Equipment................................ 4,517 6,097 4,261
------- ------- -------
Total............................................. $35,866 $38,521 $31,120
======= ======= =======
Seasonality
None of our business segments are seasonal to a material extent.
Markets; Competition
Our products serve a large number of markets worldwide in which there are
numerous competitors. We strive to achieve a leading market share in every
market in which we compete, and we believe that our size and breadth of
products offered as well as our relationships with our customers provide us
with competitive advantages relative to many of our small and mid-sized
competitors. The strategies outlined under "Growth Strategy" above are key to
our ability to stay competitive, although there can be no assurance that we
will not encounter increased competition in the future.
We have significant competitors in each of our business segments. Our
competitors include product manufacturers, private label resellers, and
product distributors, a number of whom have substantially greater financial
and other resources than ours. Product price, product quality, product brand
recognition, customer service, breadth of product lines, and convenience for
customers are relevant factors to achieving and maintaining our competitive
position. Our principal competitors in the labware and life sciences business
segment include (among others) Corning Incorporated, Millipore Corporation,
Becton Dickinson, and Greiner Holding AG. Principal competitors in the
clinical diagnostics business segment include (among others) Shandon (a
subsidiary of Thermo Electron Corporation), Leica Microsystems, Sakura
Finetek, Knittel Glaser, Surgipath Medical Industries, Inc., Sigma-Aldrich
Company, Copan Diagnostics Company, Elkay Products, Inc., Becton Dickinson,
Meridian Diagnostics, Dade Behring, Roche Diagnostics, Quidel Corporation,
Biokit S.A., Dyno Particles AS, and Princeton Biomeditech Corporation.
Principal competitors in the laboratory equipment business segment include
(among others) Fisher Scientific, Corning Incorporated, Millipore Corporation,
New Brunswick Scientific Company, Inc.
Employees
We employed approximately 6,400 people at September 30, 2001, including
approximately 4,700 in the U.S. and 1,700 in the rest of the world.
Approximately 350 of our U.S. employees are covered by collective bargaining
agreements. Many of our non-management employees in Europe are subject to
national labor contracts, which are negotiated from time to time at the
national level between the national labor union and an employees' council.
Once national contracts are set, further negotiation may take place at the
local level. Such negotiations may affect local operations. Our Danish
subsidiary, Nunc A/S, was closed during the third quarter of 1998 for nine
days as the result of the first national strike in Denmark since 1985. After
the national strike was settled, Nunc A/S non-management employees struck for
two days over local issues. All issues were resolved in a new contract with an
original term ending in March 2000, which was then extended to March 2002.
7
Government Regulation
Medical Devices. Certain of our products are medical devices that are
subject to regulation by the FDA and by the counterpart agencies of the
foreign countries where our products are sold. Some of the regulatory
requirements of these foreign countries are more stringent than those
applicable in the United States. Pursuant to the Federal Food, Drug, and
Cosmetic Act (the "FDCA"), the FDA regulates virtually all phases of the
manufacture, sale, and distribution of medical devices, including their
introduction into interstate commerce and their advertising, labeling,
packaging, marketing, distribution, and recordkeeping. Pursuant to the FDCA
and FDA regulations, certain facilities of our operating subsidiaries are
registered with the FDA as medical device manufacturing establishments, and
many of our products are regulated as Class I or Class II medical devices. The
FDA regularly inspects these facilities and operations.
Environmental, Health and Safety. Our operations entail a number of
environmentally sensitive production processes. Compliance with environmental
laws and regulations, along with regulations relating to workplace safety, is
a priority in our businesses. Our domestic facilities are subject to federal,
state, and local laws and regulations concerning, among other things, solid
and hazardous waste disposal, air emissions, and wastewater discharge. Our
foreign facilities are subject to local laws and regulations regarding the
environment. Our operations are also subject to regulation relating to
workplace safety, both in the United States and abroad. Violations of any of
these laws or regulations or the release of toxic or hazardous materials used
in our operations into the environment could expose us to significant
liability. Similarly, third party lawsuits relating to environmental and
workplace safety issues could result in substantial liability.
Patents, Trademarks and Licenses
Our products are sold under a variety of trademarks and trade names. We own
or license all of the trademarks and trade names we believe to be material to
the operation of our businesses, including the NALGE(R), NALGENE(R), NUNC(TM),
SUPERFROST(R), COLORFROST(R), THERMOLYNE(R), BARNSTEAD(R), REMEL(R), RICHARD-
ALLAN SCIENTIFIC(TM), ART(R), LAB-LINE(R), ABgene(R), KIMAX(R), and KIMBLE(R)
trademarks, each of which we believe to have widespread name brand recognition
in its respective field and all of which we intend to continue to protect. We
also own various patents, employ various patented processes, and from time to
time acquire licenses from owners of patents. In addition to trade secret,
copyright, patent and trademark laws, we rely upon a combination of non-
disclosure and other contractual agreements to protect our intellectual
property rights. Except for the trademarks referred to above, we do not
believe any single patent, trademark, or license is material to the operations
of our business as a whole.
Raw Materials
We purchase a wide range of raw materials and supplies from a number of
suppliers, and except with respect to our supply of white glass, we do not
rely on sole sources to any material extent. All of our white glass comes from
a single source, our Electroverre, SA facility in Switzerland. In the event
that Electroverre could not continue to supply the necessary white glass, we
would have to seek alternative sources which could have a material effect on
our clinical diagnostics business segment. We do not foresee any significant
difficulty in obtaining necessary materials or supplies.
Risks Attendant to Foreign Operations
We conduct our businesses in numerous foreign countries and as a result are
subject to risks of fluctuations in exchange rates of various foreign
currencies and other risks associated with foreign trade. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--International Operations" and Item 7A, "Quantitative and
Qualitative Disclosures About Market Risk--Foreign Exchange" for further
information concerning the possible effects of foreign currency fluctuations
and currency hedges intended to mitigate their impact.
8
ITEM 2. Properties
We currently lease or own over 3.4 million square feet worldwide.
Typically, each of our subsidiaries maintains its own manufacturing, research
and development, warehouse, and office space.
The following table sets forth information regarding our principal
properties by business segment. Properties with less than 20,000 square feet
of building space have been omitted from this table.
Subsidiary/location of facility Building space and use Owned or leased
------------------------------- ---------------------- ---------------
Labware and Life Sciences
300,000 sq.
ft./manufacturing,
Penfield, New York warehouse and office leased
26,000 sq.
ft./manufacturing,
New Castle, Delaware warehouse and office leased
21,000 sq. ft./warehouse
Wiesbaden, Germany and office leased
103,000 sq.
ft./manufacturing,
Naperville, Illinois warehouse and office owned
151,000 sq.
ft./manufacturing,
Roskilde, Denmark warehouse and office owned
Ichikawa, Japan 38,000 sq. ft./warehouse leased
44,000 sq.
ft./manufacturing,
Hudson, New Hampshire warehouse and office leased
Otay, California 29,000 sq. ft./warehouse leased
38,000 sq. ft./office and
Duluth, Georgia warehouse leased
25,000 sq.
ft./manufacturing,
Tijuana, Mexico warehouse and office leased
74,000 sq.
ft./manufacturing and
San Diego, California office leased
24,000 sq. ft./warehouse
Hereford, England and office leased
27,000 sq.
ft./manufacturing,
Portsmouth, New Hampshire warehouse and office leased
70,000 sq.
ft./manufacturing and
Sunnyvale, California office leased
45,000 sq.
ft./manufacturing, office
Surrey, England and warehouse leased
49,000 sq.
ft./manufacturing, office
Epsom, England and warehouse leased
Clinical Diagnostics
220,000 sq.
ft./manufacturing,
Rockwood, Tennessee warehouse and office owned
151,000 sq.
ft./manufacturing,
Portsmouth, New Hampshire warehouse and office leased
40,000 sq.
ft./manufacturing,
Braunschweig, Germany warehouse and office owned
200,000 sq.
ft./manufacturing,
Romont, Switzerland warehouse and office owned
23,000 sq.
ft./manufacturing,
Aguadilla, Puerto Rico warehouse and office leased
80,000 sq.
ft./manufacturing,
Naugatuck, Connecticut warehouse and office owned
28,000 sq.
ft./manufacturing,
Budapest, Hungary warehouse and office owned
77,000 sq.
ft./manufacturing,
San Fernando, California warehouse and office owned
22,000 sq.
ft./manufacturing,
Meiningen, Germany warehouse and office owned
30,000 sq.
ft./manufacturing,
Holtsville, New York warehouse and office owned
21,000 sq.
ft./manufacturing and
Baltimore, Maryland office leased
32,000 sq.
ft./manufacturing,
Wayne, New Jersey warehouse and office leased
116,000 sq.
ft./manufacturing,
Kalamazoo, Michigan warehouse and office leased
36,000 sq.
ft./manufacturing,
Plymouth, Massachusetts warehouse and office leased
49,000sq.
ft./manufacturing,
Indianapolis, Indiana warehouse and R & D leased
116,000 sq.
ft./manufacturing and
Lenexa, Kansas office owned
63,000 sq. ft./warehouse
Lenexa, Kansas and office leased
24,000 sq.
ft./manufacturing and
Lake Charles, Louisiana office owned
25,000 sq.
ft./manufacturing,
Ramsey, Minnesota warehouse and office leased
67,000 sq.
ft./manufacturing,
San Diego, California warehouse, office and labs leased
109,000 sq.
ft./manufacturing,
Fremont, California warehouse and office leased
26,000 sq.
ft/manufacturing,
Austin, Texas warehouse and office leased
69,000 sq.
ft./manufacturing,
East Providence, Rhode Island warehouse and office leased
24,000 sq.
Walldorf, Germany ft./manufacturing leased
20,000 sq.
Barcelona, Spain ft./manufacturing leased
41,000
sq.ft./manufacturing and
Lake Forest, California office owned
Laboratory Equipment
190,000 sq.
ft./manufacturing and
Dubuque, Iowa office leased
117,000 sq.
ft./manufacturing and
Melrose Park, Illinois office owned
20,000 sq.
West Paterson, New Jersey ft./manufacturing leased
29,000 sq.
ft./manufacturing,
Southend-on-Sea, England warehouse and office leased
Apogent Corporate
Headquarters
Portsmouth, New Hampshire 24,000 sq. ft./office leased
9
We consider our plants and equipment to be well maintained and suitable for
their purposes. We have, from time to time, expanded and will continue to
expand our facilities as the need arises. We expect to fund such expansions
through internally generated funds or borrowings under our credit facilities
described in Note 7 to our consolidated financial statements contained in Item
8 of this Annual Report. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
ITEM 3. Legal Proceedings
A subsidiary of Apogent has been identified as a potentially responsible
party ("PRP") at the Aqua-Tech site in South Carolina (the "Aqua-Tech Site")
with respect to a previously owned facility. An action has been conducted at
the Aqua-Tech Site for the removal of surface contaminants under the
supervision of the Environmental Protection Agency ("EPA") under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"). Our total contribution to date has been approximately
$49,000. The site has been placed by the EPA on the federal National Priority
List under CERCLA, which is a prerequisite to any federally-mandated
requirement for long-term remedial work at the site under CERCLA, such as
would be involved in soil and groundwater remediation. We are participating
with a PRP group composed of approximately 100 parties in an agreement with
the EPA to undertake a remedial investigation and feasibility study, which
will be used by the EPA to determine what remedy, if any, should be required
at the site. A draft remedial investigation was submitted to the EPA in August
1999, and a draft baseline risk assessment was submitted in October 1999.
After review of the draft remedial investigation, the EPA requested and
obtained additional sampling work from the PRP group. The final remedial
investigation was submitted in 2000, and the feasibility study is expected to
be completed in 2002. Because the study, which involves extensive testing to
characterize the existence, extent and nature of any contamination in order to
determine potential remedies, has not yet been completed, an estimate of our
potential liability cannot be made. Our share of waste allegedly sent to the
site is reportedly not more than 1% of the total waste sent; therefore, even
though CERCLA does provide for joint and several liability, we believe that
any ultimate liability will not have a material adverse effect on our results
of operations or financial condition.
Applied Biotech, Inc. ("ABI"), a subsidiary in our clinical diagnostics
business segment, manufactures and supplies immunoassay pregnancy tests to
Warner Lambert Co. (now part of Pfizer Inc.). Warner Lambert sells the tests
to retailers who sell them over the counter to consumers. ABI supplies the
product to Warner Lambert pursuant to a supply agreement which Warner Lambert
claims requires ABI to defend and indemnify Warner Lambert with respect to any
liability arising out of claims that the product infringes any patents held by
third parties. On January 8, 1999, Conopco, Inc. d/b/a Unipath Diagnostics
Company filed a lawsuit against Warner Lambert in the U.S. District Court for
the District of New Jersey. Conopco claims in the suit that the Warner Lambert
pregnancy test supplied by ABI infringes certain patents owned by Conopco. ABI
agreed to defend the lawsuit on behalf of Warner Lambert. In November 2000,
the U.S. District Court granted a motion for summary judgment in favor of
Warner Lambert and ABI, ruling that ABI's product does not infringe on the
Conopco patents. Although Conopco has appealed the court's ruling, we believe
the resolution of this lawsuit will not have a material adverse effect on our
results of operations or financial condition. Additionally, another third
party has contacted Warner Lambert regarding patents it holds which may apply
to the Warner Lambert pregnancy test. Thus, Warner Lambert or ABI may in the
future be subject to additional lawsuits by third parties for patent
infringement with respect to these products. ABI believes it has meritorious
defenses to these patents and will vigorously defend any such lawsuits against
it, if brought.
The Company or its subsidiaries are at any one time parties to a number of
lawsuits or subject to claims arising out of our respective operations, or the
operation of businesses divested in the 1980's for which certain subsidiaries
may continue to have legal or contractual liability, including product
liability, patent and trademark or other intellectual property infringement,
contractual liability, workplace safety, and environmental claims and cases,
some of which involve claims for substantial damages. We are vigorously
defending lawsuits and other claims against us. Based upon the insurance
available under our insurance program and the potential for liability with
respect to the claims that are uninsured, we believe that any liabilities
which might reasonably result from
10
any of the pending cases and claims would not have a material adverse effect
on our results of operations or financial condition. However, there can be no
assurance that litigation having such a material adverse effect will not arise
in the future. See Note 13 to our consolidated financial statements contained
in Item 8 of this Annual Report and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Cautionary
Factors."
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
Set forth below is a complete list of the names, ages, positions and
offices of our executive officers. All executive officers hold office at the
pleasure of the Board of Directors.
Name Age Positions
---- --- ---------
Kenneth F. Yontz........ 57 Chairman of the Board
Frank H. Jellinek,
Jr. ................... 56 President and Chief Executive Officer
Jeffrey C. Leathe....... 45 Executive Vice President--Finance, Chief Financial Officer and Treasurer
Michael K. Bresson...... 43 Executive Vice President--General Counsel and Secretary
Robert N. Griffin....... 62 Vice President, Regulatory Affairs and Quality Assurance
Gary J. Marmontello..... 56 Vice President, Human Resources
Verner Andersen......... 45 Group President, Labware and Life Sciences
Mark F. Stuppy.......... 47 Group President, Clinical Consumables
Stephen K. Wiatt........ 56 Group President, Industrial Glass Operations
Peter Scheu............. 36 Group President, Clinical Diagnostics
Duncan R. Ross.......... 44 Group President, Laboratory Equipment
Yuh-geng Tsay........... 55 Group President, Immunoassay Diagnostics
The following sets forth the principal occupations of the executive
officers for the periods specified, as well as directorships of public
companies.
Mr. Yontz. Chairman of the Board since December 1987; President and Chief
Executive Officer of the Company from 1987 to 2000; Director of Viasystems
Group, Inc.; Chairman of the Board of Sybron Dental Specialties, Inc.
Mr. Jellinek. Director, President and Chief Executive Officer since
December 2000; Director, President and Chief Executive Officer of Sybron
Laboratory Products Corporation ("SLP") from 1998 to 2000; President of Erie
Scientific Company ("Erie") from 1975 to 1998; has from time to time held
general management responsibilities for various businesses of Apogent's
predecessor.
Mr. Leathe. Executive Vice President--Finance, Chief Financial Officer and
Treasurer since December 2000; Executive Vice President--Chief Financial
Officer, and Treasurer of SLP from 1998 to 2000; Vice President, Chief
Financial Officer, and Treasurer of Erie from 1990 to 1998.
Mr. Bresson. Executive Vice President--General Counsel and Secretary since
December 2000; Group Counsel of SLP from 1998 to 2000; Partner at the law firm
of Quarles & Brady LLP from 1990 to 1998.
Mr. Griffin. Vice President, Regulatory Affairs and Quality Assurance since
December 2000; Vice President, Regulatory Affairs of SLP from 1998 to 2000;
Director of Quality and Safety at Erie from prior to 1996 to 1998.
11
Mr. Marmontello. Vice President, Human Resources since December 2000; Vice
President, Human Resources of SLP from 1997 to 2000; Associate Director for
the University System of New Hampshire prior to joining SLP.
Mr. Andersen. Group President, Labware and Life Sciences since December
2000; SLP Group President, Labware and Life Sciences from 1999 to 2000;
President of Nalge Nunc International Corporation ("NNI") from 1998 to 1999;
Vice President/General Manager of North American Operations of NNI from 1995
to 1998.
Mr. Stuppy. Group President, Clinical Consumables since April 2001;
President of Erie since January 2001; Executive Vice President, Sales and
Marketing, Clinical Products from 2000 to 2001; Executive Vice President of
Sales & Marketing at SLP from 1998 to 2000; Vice President of Marketing at
Erie from 1986 to 1998.
Mr. Wiatt. Group President, Industrial Glass Operations since April 2001;
Executive Vice President, Worldwide Glass Operations from 2000 to 2001;
Executive Vice President, Worldwide Glass Operations of SLP from 1998 to 2000;
Vice President of Manufacturing at Erie from 1978 to 1998.
Mr. Scheu. Group President, Clinical Diagnostics since September 2001;
President of Richard-Allan Scientific Company ("Richard-Allan") from 1997 to
2001; Executive Vice President of Richard-Allan from 1995 to 1997.
Mr. Ross. Group President, Laboratory Equipment since September 2001;
President of Barnstead Thermolyne Corporation ("B/T") since October 2000;
Executive Vice President-Diagnostics of Sysmex Corporation of America from
1998 to 2000; Vice President, Sales and Marketing of Sysmex from prior to 1996
until 1998.
Dr. Tsay. Group President, Immunoassay Diagnostics since December 2000;
President of Microgenics Corporation since September 1999; President of
Diagnostic Reagents, Inc. ("DRI") from 1991 to 1999.
SLP, Erie, NNI, Richard-Allan, B/T, Microgenics Corporation, and DRI are
subsidiaries of the Company.
12
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since our inception, we have not paid any cash dividends on our Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" in Item 7 of this
Annual Report, and Note 8 to our consolidated financial statements contained
in Item 8 of this Annual Report for a description of certain restrictions on
our ability to pay cash dividends. Subject to such limitations, any future
cash dividends will be at the discretion of our Board of Directors and will
depend upon, among other factors, our earnings, financial condition and other
requirements. We have no current intention to pay cash dividends on our Common
Stock.
Based upon record ownership as of December 7, 2001, the number of holders
of our Common Stock is 365.
Our Common Stock trades on the NYSE under the symbol "AOT" ("SYB" prior to
the Spin-Off). The market information set forth below for our two most recent
fiscal years is based on NYSE sales prices and no adjustment has been made to
reflect the distribution of SDS in which one share of SDS Common Stock (and
the associated preferred stock purchase right) was distributed for each three
shares of the Company's Common Stock held of record as of November 30, 2000.
Our Common Stock began to trade regular way post-distribution on December 12,
2000.
Common Stock
---------------
High Low
------- -------
(in dollars)
Fiscal Year and Quarter
2000
1st Quarter.............................................. $27.813 $20.668
2nd Quarter.............................................. 29.313 21.375
3rd Quarter.............................................. 33.063 16.375
4th Quarter.............................................. 25.875 19.063
2001
1st Quarter through December 11, 2000*................... $29.125 $18.952
1st Quarter beginning December 12, 2000*................. 24.438 18.625
2nd Quarter.............................................. 22.050 17.875
3rd Quarter.............................................. 25.800 18.950
4th Quarter.............................................. 25.400 21.350
- --------
* Our Spin-Off of SDS was completed on December 11, 2000, and our Common Stock
began to trade regularly following the Spin-Off on December 12, 2000.
Accordingly, market prices before the Spin-Off are not necessarily
comparable to those after the Spin-Off.
Private Offering of Convertible Contingent Debt Securities.
On October 10, 2001, we issued and sold, in a private placement, $300
million of our 2.25% Senior Convertible Contingent Debt Securities ("CODES")
due 2021. The CODES have an interest rate of 2.25% (subject to adjustment) and
also pay contingent interest under certain circumstances. The CODES are
convertible, subject to certain conditions, into Apogent Common Stock at a
conversion rate of 32.7955 shares of Common Stock per $1,000 principal amount
of CODES, subject to adjustment in certain circumstances. This is equivalent
to a conversion price of approximately $30.49 per share. The CODES are
guaranteed by our material U.S. subsidiaries.
The CODES were sold to Lehman Brothers Inc., Credit Suisse First Boston
Corporation, Banc of America Securities LLC, ABN AMRO Rothschild LLC and UBS
Warburg LLC as "accredited investors" within the meaning of Rule 501 under the
Securities Act of 1933, in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act for transactions by an issuer
not involving any public offering, and were offered and sold by the initial
purchasers to "qualified institutional buyers" in reliance on Rule 144A under
the Securities Act. Pursuant to a resale registration rights agreement entered
into in connection with the private
13
offering, Apogent has agreed to file one or more shelf registration statements
to permit the registered resale of the CODES, the guarantees and the Common
Stock issuable upon conversion of the CODES.
The aggregate offering price of the CODES was $300 million, 100% of the
principal amount thereof. The purchase price paid to Apogent by the initial
purchasers was the initial offering price less an underwriting discount of
$7.5 million, 2.5% of the principal amount of the CODES.
The net proceeds from the sale of the CODES were used to repay borrowings
under the revolving credit facility under our bank credit agreement dated as
of December 1, 2000, and for other general corporate purposes.
ITEM 6. Selected Financial Data
The following table sets forth selected consolidated financial information
for the five years in the period ended September 30, 2001. The consolidated
data presented herein reflects the classification of the Company's former SDS
subsidiary and its affiliates and the Company's former NPT subsidiary as
discontinued operations. This selected financial information should be read in
conjunction with our consolidated financial statements and the notes thereto
contained in Item 8 of this Annual Report.
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- --------
(in thousands, except for per share data)
Statement of Income
Data:
Net sales............... $ 984,465 $ 863,575 $ 715,037 $ 557,762 $439,940
Income from continuing
operations............. 109,871 86,724 77,411 52,122 47,045
Discontinued
operations............. (11,824)(b) 41,597(b) 47,965(b) 23,921(c) 41,493(b)
Income before
extraordinary items.... 98,047 128,321 125,376 76,043 88,538
Extraordinary items..... (2,106)(a) -- 17,171(d) -- (404)(a)
Net income.............. 95,941 128,321 142,547 76,043 88,134
Earnings per share:
Basic earnings per
common share from
continuing operations.. 1.04 .83(e) .75 .51(e) .47
Discontinued
operations............. (.11) .40 .46 .23 .41
Extraordinary items..... (.02) -- .17 -- --
Basic earnings per
common share........... .91 1.23(e) 1.38 .74(e) .88
Diluted earnings per
common share from
continuing operations.. 1.02 .81(e) .73 .49(e) .45
Discontinued
operations............. (.11) .39 .45 .23 .40
Extraordinary items..... (.02) -- .16 -- --
Diluted earnings per
common share........... .89 1.20(e) 1.34 .72(e) .85
As of September 30,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- --------
(in thousands)
Balance Sheet Data:
Net assets of
discontinued
operations............. $ -- $ 152,970 $ 155,595 $ 129,508 $104,800
Total assets............ 1,835,138 1,792,364 1,539,975 1,227,852 975,084
Loans and advances from
SDS.................... -- 77,762 56,777 29,088 55,176
Long-term debt.......... 657,430 683,736 599,198 541,914 416,740
Shareholders' equity.... 838,490 749,516 625,344 475,244 378,649
- -------
(a) Amount resulted from the refinancing of our debt. See Note 8 to our
consolidated financial statements contained in Item 8 of this Annual
Report.
(b) Amounts resulted from the operations of NPT of $4,698 and $121 in 1997 and
1999, respectively, which was sold on March 31, 1999, and the operations
of SDS and its affiliates of $36,795, $47,844 and $41,597 in 1997, 1999,
and 2000, respectively, which became an unaffiliated company on December
11, 2000 as a result of the Spin-Off. For 2001, the Company included a net
loss of $11,824 from discontinued operations. The net loss included
transaction expenses related to the Spin-Off of $12,462. See Note 5 to our
consolidated financial statements contained in Item 8 of this Annual
Report.
14
(c) Amount includes an expense of $7,750 from the settlement of environmental
litigation relating to a facility which was sold in 1983 as part of a
discontinued operation, income of $3,848 from the operations of NPT, sold
on March 31, 1999, and $27,823 from the operations of SDS and its
affiliates, spun off on December 11, 2000.
(d) Amount represents gain on the March 31, 1999 sale of NPT.
(e) Includes a reduction for restructuring charges of $.05 and $.07 per basic
and diluted common share in 1998 and 2000, respectively. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" below, and Note 12 to our consolidated financial statements
contained in Item 8 of this Annual Report.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
We are a leading manufacturer and provider of value-added products under
three business segments--labware and life sciences, clinical diagnostics, and
laboratory equipment. Our fiscal year ends on September 30. We encourage you
to review our consolidated financial statements, including the notes thereto,
copies of which are included herein.
On December 11, 2000, Apogent, then known as Sybron International
Corporation, completed the Spin-Off ("Spin-Off") of its dental business as a
separate publicly traded company. The Spin-Off was effected by way of a pro
rata distribution of all the outstanding common stock and related preferred
stock purchase rights of Sybron Dental Specialties, Inc. ("SDS") to Apogent's
shareholders. SDS is now an independent public company operating what was
Sybron's dental business. As a result of the Spin-Off, all historical
financial data relating to the operations of SDS and its affiliates have been
classified as discontinued operations.
Results of Operations
Year Ended September 30, 2001 Compared to the Year Ended September 30, 2000
Net Sales
Fiscal Fiscal Dollar Percent
2001 2000 Change Change
-------- -------- -------- -------
(in thousands)
Net Sales
Clinical Diagnostics.................... $477,233 $413,565 $ 63,668 15.4%
Labware and Life Sciences............... 400,823 347,437 53,386 15.4%
Laboratory Equipment.................... 106,409 102,573 3,836 3.7%
-------- -------- --------
Total Net Sales....................... $984,465 $863,575 $120,890 14.0%
======== ======== ========
Overall Company. Net sales for the year ended September 30, 2001 increased
by $120.9 million or 14% over fiscal 2000.
Clinical Diagnostics. Increased net sales in the clinical diagnostics
segment resulted primarily from: (a) net sales of products of acquired
companies (approximately $44.6 million), (b) increased net sales of existing
products (approximately $18.4 million), and (c) increased net sales of new
products developed by us (approximately $6.2 million). Net sales were
partially reduced by: (a) foreign currency fluctuations (approximately $3.2
million) and (b) price decreases (approximately $2.3 million.).
Labware and Life Sciences. Increased net sales in the labware and life
sciences segment resulted primarily from: (a) net sales of products of
acquired companies (approximately $26.8 million), (b) increased net sales of
new products developed by us (approximately $17.6 million), (c) increased net
sales of existing products (approximately $9.7 million), and (d) price
increases (approximately $5.7 million). Net sales were partially reduced by
foreign currency fluctuations (approximately $6.4 million).
15
Laboratory Equipment. Increased net sales in the laboratory equipment
segment resulted primarily from: (a) increased net sales of new products
developed by us (approximately $3.9 million) and (b) price increases
(approximately $2.3 million). Net sales were partially reduced by: (a) foreign
currency fluctuations (approximately $0.5 million) and (b) decreased net sales
of existing products (approximately $2.0 million).
Gross Profit
Fiscal Percent Fiscal Percent Dollar Percent
2001 of Sales 2000 of Sales Change Change
-------- -------- -------- -------- ------- -------
(in thousands)
Gross Profit
Clinical Diagnostics.. $228,009 47.8% $199,571 48.3% $28,438 14.2%
Labware and Life
Sciences............. 205,079 51.2% 179,019 51.5% 26,060 14.6%
Laboratory Equipment.. 45,188 42.5% 43,540 42.4% 1,648 3.8%
-------- -------- -------
Total Gross Profit.. $478,276 48.6% $422,130 48.9% $56,146 13.3%
======== ======== =======
Overall Company. Gross profit for the year ended September 30, 2001
increased by $56.1 million or 13.3% over fiscal 2000.
Clinical Diagnostics. Increased gross profit in the clinical diagnostics
segment resulted primarily from: (a) the effects of acquired companies
(approximately $20.3 million), (b) product mix (approximately $9.9 million),
(c) the effects of new products (approximately $3.3 million), (d) increased
volume (approximately $3.6 million), and (e) the 2000 Special Charges (which
is defined below under the heading "Special Charges") (approximately $2.4
million). Gross profit was partially reduced by: (a) inventory adjustments
(approximately $4.1 million), (b) increased manufacturing overhead
(approximately $3.6 million), (c) price decreases (approximately $2.3
million), and (d) foreign currency fluctuations (approximately $1.1 million).
Labware and Life Sciences. Increased gross profit in the labware and life
sciences segment resulted primarily from: (a) the effects of acquired
companies (approximately $12.3 million), (b) the effects of new products
(approximately $9.5 million), (c) price increases (approximately $5.8
million), (d) product mix (approximately $3.8 million), (e) increased volume
(approximately $1.0 million), and (f) the 2000 Special Charges (approximately
$1.8 million). Gross profit was partially reduced by: (a) foreign currency
fluctuations (approximately $3.7 million), (b) increased manufacturing
overhead (approximately $4.0 million), and (c) inventory adjustments
(approximately $0.6 million).
Laboratory Equipment. Increased gross profit in the laboratory equipment
segment resulted primarily from: (a) price increases (approximately $2.4
million), (b) the effects of new products (approximately $1.7 million), (c)
product mix (approximately $0.1 million), and (d) the 2000 Special Charges
(approximately $0.1 million). Gross profit was partially reduced by: (a)
inventory adjustments (approximately $1.0 million), (b) decreased volume
(approximately $0.9 million), (c) increased manufacturing overhead
(approximately $0.6 million), and (d) foreign currency fluctuations
(approximately $0.2 million).
Selling, General and Administrative Expenses
Fiscal Fiscal Dollar Percent
2001 2000 Change Change
-------- -------- ------- -------
(in thousands)
Selling, General and Administrative
Expenses
Clinical Diagnostics................. $109,566 $ 96,706 $12,860 13.3 %
Labware and Life Sciences............ 114,685 100,365 14,320 14.3 %
Laboratory Equipment................. 23,045 22,316 729 3.3 %
-------- -------- -------
Subtotal........................... 247,296 219,387 27,909 12.7 %
Corporate Office..................... 6,264 9,754 (3,490) (35.8)%
-------- -------- -------
Total Selling, General and
Administrative Expenses........... $253,560 $229,141 $24,419 10.7 %
======== ======== =======
Overall Company. Selling, general and administrative expenses for the year
ended September 30, 2001 increased by $24.4 million or 10.7% from fiscal 2000.
16
Clinical Diagnostics. Increased selling, general and administrative
expenses in the clinical diagnostics segment resulted primarily from: (a)
acquired businesses (approximately $4.5 million), (b) marketing expenses
(approximately $6.2 million), (c) general and administrative expenses
(approximately $2.4 million), and (d) increased amortization of intangibles
primarily as a result of acquisitions (approximately $3.2 million). Selling,
general and administrative expenses were partially reduced by: (a) foreign
currency fluctuations (approximately $0.7 million), (b) research and
development expenses (approximately $0.6 million), and (c) the 2000 Special
Charges (approximately $2.2 million).
Labware and Life Sciences. Increased selling, general and administrative
expenses in the labware and life sciences segment resulted primarily from: (a)
acquired businesses (approximately $11.9 million), (b) general and
administrative expenses (approximately $2.2 million), (c) increased
amortization of intangibles primarily as a result of acquisitions
(approximately $0.9 million), (d) marketing expenses (approximately $0.6
million), and (e) research and development expense (approximately $0.5
million). Selling, general and administrative expenses were partially reduced
by: (a) foreign currency fluctuations (approximately $0.3 million) and (b) the
2000 Special Charges (approximately $1.5 million).
Laboratory Equipment. Increased selling, general and administrative
expenses in the laboratory equipment segment resulted primarily from: (a)
general and administrative expenses (approximately $0.5 million) and
(b) research and development expenses (approximately $0.9 million). Selling,
general and administrative expenses were partially reduced by: (a) foreign
currency fluctuations (approximately $0.1 million) and (b) the 2000 Special
Charges (approximately $0.6 million).
Corporate Office. Decreased general and administrative expenses at the
corporate office resulted primarily from: (a) the 2000 Special Charges
(approximately $1.7 million) and (b) a decrease in expenses as a result of the
closure of our Milwaukee, Wisconsin corporate office (approximately $1.6
million).
Special Charges
Results for the year ended September 30, 2001 include a charge of
approximately $0.6 million ($0.4 million after tax) relating to adjustments
made to the 2000 restructuring accrual, consisting of additional severance.
This charge is included in the corporate office selling, general and
administrative expenses.
Operating Income
Fiscal Fiscal Dollar Percent
2001 2000 Change Change
-------- -------- ------- -------
(in thousands)
Operating Income
Clinical Diagnostics.................. $118,446 $102,506 $15,940 15.6 %
Labware and Life Sciences............. 90,388 79,095 11,293 14.3 %
Laboratory Equipment.................. 22,146 21,142 1,004 4.7 %
-------- -------- -------
Subtotal............................ 230,980 202,743 28,237 13.9 %
Corporate Office...................... (6,264) (9,754) 3,490 (35.8)%
-------- -------- -------
Total Operating Income.............. $224,716 $192,989 $31,727 16.4 %
======== ======== =======
As a result of the foregoing, operating income for the year ended September
30, 2001 increased by $31.7 million or 16.4% over fiscal 2000.
Interest Expense
Interest expense was $48.7 million for 2001 and 2000.
17
Other Income
Other income for 2001 was $5.3 million, an increase of $4.0 million over
2000. The increase resulted primarily from the gain on the sale of assets of
$4.1 million during the second quarter of fiscal 2001.
Income Taxes
Taxes on income from continuing operations for 2001 were $70.9 million, an
increase of $13.3 million from 2000. The increase resulted primarily from
increased taxable earnings.
Income from Continuing Operations Before Extraordinary Items
As a result of the foregoing, for 2001, income from continuing operations
was $109.9 million as compared to $86.7 million in 2000.
Discontinued Operations
Losses from discontinued operations were $11.8 million (net of income taxes
of $0.4 million) for 2001, as compared to income of $41.6 million (net of
income tax of $28.3 million) in 2000. The 2001 loss from discontinued
operations resulted from transaction expenses relating to the Spin-Off of
approximately $12.4 million offset by the operating results of SDS (through
December 11, 2000) of $0.6 million.
Extraordinary Items
As a result of the December 2000 debt refinancing and the April 2001
issuance of our 8% Senior Notes due 2011, we wrote off deferred financing
costs of approximately $3.5 million that related to prior debt agreements.
This was recorded as an extraordinary item of $2.1 million, net of income
taxes.
Net Income
As a result of the foregoing, we had net income of $95.9 million for 2001,
as compared to net income of $128.3 million for 2000.
Depreciation and Amortization
Depreciation and amortization expense is allocated among cost of sales,
selling, general and administrative expenses, and other expense. Depreciation
expense and amortization expense increased $11.5 million for 2001 due to
additional depreciation and amortization from goodwill and intangibles
recorded from the various acquisitions as well as routine operating capital
expenditures.
Impact of Recently Issued Accounting Standards
In July 2001, the FASB issued Statement No. 141, "Business Combinations"
and Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce
may not be accounted for separately. Statement 142 will require that goodwill
and intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually. Statement 142 will also
require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to the estimated residual values, and
reviewed for impairment.
18
We were required to adopt the provisions of Statement 141 effective July 1,
2001, and elected to adopt Statement 142 effective October 1, 2001.
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-Statement 142
accounting literature. Goodwill and intangible assets acquired in a business
combination completed before July 1, 2001 continued to be amortized prior to
the adoption of Statement 142.
At September 30, 2001, we had unamortized goodwill and unamortized
identifiable intangible assets in the amount of $950.9 million and $189.5
million, respectively, all of which is subject to the transition provisions of
Statements 141 and 142. At this time it is not practical to estimate the
impact of the adoption of both statements on us. However, any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in our statement of earnings.
On August 16, 2001, FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations. The standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
The standard will apply to the Company effective October 1, 2002. The Company
is currently reviewing the impact of this provision.
On October 3, 2001, FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, that replaced FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of. The primary objectives of this project were to
develop one accounting model, based on the framework established in Statement
121, for long-lived assets to be disposed of by sale and to address
significant implementation issues. The accounting model for long-lived assets
to be disposed of by sale applies to all long-lived assets, including
discontinued operations, and replaces the provisions of APB Opinion No. 30,
Reporting Results of Operations-Reporting the Effects of Disposal of a Segment
of a Business, for the disposal of segments of a business. Statement 144
requires that those long-lived assets be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. The provisions of Statement 144
will apply to the Company effective October 1, 2002. The Company is currently
reviewing the impact of these provisions.
Year Ended September 30, 2000 Compared to the Year Ended September 30, 1999
Net Sales
Fiscal Fiscal Dollar Percent
2000 1999 Change Change
-------- -------- -------- -------
(in thousands)
Net Sales
Clinical Diagnostics.................. $413,565 $342,529 $ 71,036 20.7 %
Labware and Life Sciences............. 347,437 268,788 78,649 29.3 %
Laboratory Equipment.................. 102,573 103,720 (1,147) (1.1)%
-------- -------- --------
Total Net Sales..................... $863,575 $715,037 $148,538 20.8 %
======== ======== ========
Overall Company. Net sales for the year ended September 30, 2000 increased
by $148.5 million or 20.8% from 1999.
Clinical Diagnostics. Increased net sales in the clinical diagnostics
segment resulted primarily from: (a) net sales of products of acquired
companies (approximately $60.1 million), (b) price increases (approximately
19
$6.3 million), (c) increased net sales of existing products (approximately
$3.9 million), and (d) increased net sales of new products developed by us
(approximately $3.9 million). Increased net sales were partially offset by
foreign currency fluctuations (approximately $3.1 million).
Labware and Life Sciences. Increased net sales in the labware and life
sciences segment resulted primarily from: (a) net sales of products of
acquired companies (approximately $65.4 million), (b) increased net sales of
existing products (approximately $8.9 million), (c) increased net sales of new
products developed by us (approximately $4.1 million), and (d) price increases
(approximately $3.0 million). Increased net sales were partially offset by
foreign currency fluctuations (approximately $2.7 million).
Laboratory Equipment. Decreased net sales in the laboratory equipment
segment resulted primarily from: (a) decreased net sales of existing products
(approximately $4.4 million) and (b) foreign currency fluctuations
(approximately $0.2 million). Decreased net sales were partially offset by:
(a) net sales of new products developed by us (approximately $2.1 million),
(b) price increases (approximately $1.1 million), and (c) net sales of
products of acquired companies (approximately $0.1 million).
Gross Profit
Fiscal Percent Fiscal Percent Dollar Percent
2000 of Sales 1999 of Sales Change Change
-------- -------- -------- -------- ------- -------
(in thousands)
Gross Profit
Clinical Diagnostics.. $199,571 48.3% $160,357 46.8% $39,214 24.5 %
Labware and Life
Sciences............. 179,019 51.5% 136,018 50.6% 43,001 31.6 %
Laboratory Equipment.. 43,540 42.4% 45,583 43.9% (2,043) (4.5)%
-------- -------- -------
Total Gross Profit.. $422,130 48.9% $341,958 47.8% $80,172 23.4 %
======== ======== =======
Overall Company. Gross profit for the year ended September 30, 2000
increased by $80.2 million or 23.4% from 1999.
Clinical Diagnostics. Increased gross profit in the clinical diagnostics
segment resulted primarily from: (a) the effects of acquired companies
(approximately $31.2 million), (b) a favorable product mix (approximately $7.4
million), (c) price increases (approximately $6.3 million), (d) increased
volume (approximately $1.3 million), and (e) inventory adjustments
(approximately $0.4 million). Gross profit was partially reduced by:
(a) increased manufacturing overhead (approximately $7.3 million), (b) foreign
currency fluctuations (approximately $0.6 million), and (c) the 2000 Special
Charges (approximately $2.4 million).
Labware and Life Sciences. Increased gross profit in the labware and life
sciences segment resulted primarily from: (a) the effects of acquired
companies (approximately $36.2 million), (b) increased volume (approximately
$7.2 million), (c) a favorable product mix (approximately $4.6 million), (d)
price increases (approximately $3.0 million), (e) foreign currency
fluctuations (approximately $1.0 million), and (f) inventory adjustments
(approximately $1.1 million). Gross profit was partially reduced by: (a)
increased manufacturing overhead (approximately $7.8 million) and (b) the 2000
Special Charges (approximately $1.8 million).
Laboratory Equipment. Increased gross profit in the laboratory equipment
segment resulted primarily from: (a) price increases (approximately $1.1
million), (b) a favorable product mix (approximately $0.5 million), and (c)
the effects of acquired companies (approximately $0.2 million). Gross profit
was partially reduced by: (a) reduced volume (approximately $1.2 million), (b)
increased manufacturing overhead (approximately $0.1 million), (c) the 2000
Special Charges (approximately $0.1 million), and (d) foreign currency
fluctuations (approximately $0.1 million).
20
Selling, General and Administrative Expenses
Fiscal Fiscal Dollar Percent
2000 1999 Change Change
-------- -------- ------- -------
(in thousands)
Selling, General and Administrative Expenses
Clinical Diagnostics....................... $ 96,706 $ 75,030 $21,676 28.9%
Labware and Life Sciences.................. 100,365 68,600 31,765 46.3%
Laboratory Equipment....................... 22,316 21,950 366 1.7%
-------- -------- -------
Subtotal................................. 219,387 165,580 53,807 32.5%
Corporate Office........................... 9,754 7,252 2,502 34.5%
-------- -------- -------
Total Selling, General and Administrative
Expenses................................ $229,141 $172,832 $56,309 32.6%
======== ======== =======
Overall Company. Selling, general and administrative expenses for the year
ended September 30, 2000 increased by $56.3 million or 32.6% from 1999.
Clinical Diagnostics. Increased selling, general and administrative
expenses in the clinical diagnostics segment resulted primarily from: (a)
acquired businesses (approximately $13.0 million), (b) increased marketing
expenses (approximately $4.4 million), (c) increased amortization of
intangibles primarily as a result of acquisitions (approximately $5.6
million), and (d) the 2000 Special Charges (approximately $2.2 million).
Selling, general and administrative expenses were partially reduced by: (a) a
reduction in general and administrative expenses (approximately $2.3 million),
(b) favorable foreign currency fluctuations (approximately $0.8 million), and
(c) decreased research and development expenses (approximately $0.6 million).
Labware and Life Sciences. Increased selling, general and administrative
expenses in the labware and life sciences segment resulted primarily from: (a)
acquired businesses (approximately $19.9 million), (b) increased amortization
of intangibles primarily as a result of acquisitions (approximately $6.2
million), (c) increased marketing expenses (approximately $4.3 million), (d)
the 2000 Special Charges (approximately $1.3 million), and (e) increased
general and administrative expenses (approximately $1.2 million). Selling,
general and administrative expenses were partially reduced by favorable
foreign currency fluctuations (approximately $1.2 million).
Laboratory Equipment. Increased selling, general and administrative
expenses in the laboratory equipment segment resulted primarily from: (a)
acquired businesses (approximately $0.5 million), (b) the 2000 Special Charges
(approximately $0.5 million), (c) increased research and development expenses
(approximately $0.3 million), and (d) increased amortization of intangibles
primarily as a result of acquisitions (approximately $0.2 million). Selling,
general and administrative expenses were partially reduced by: (a) decreased
marketing expenses (approximately $0.8 million) and (b) decreased general and
administrative expenses (approximately $0.2 million).
Corporate Office. Increased general and administrative expenses at the
corporate office resulted primarily from: (a) the 2000 Special Charges
(approximately $1.7 million), (b) a decrease in expenses charged to SDS as a
result of a decrease in domestic sales at SDS in proportion to the domestic
sales of Apogent (approximately $1.3 million), and (c) an increase in legal
and professional fees (approximately $0.3 million). Selling, general and
administrative expenses were partially reduced by a reduction in employee
compensation and benefits (approximately $0.8 million).
Special Charges
Our results for 2000 include charges of approximately $11.3 million ($7.5
million after tax) with respect to the restructuring of various parts of our
business. These charges relate primarily to restructured staffing
(approximately $5.5 million), operating location rationalization
(approximately $2.7 million), product rationalization (approximately $2.1
million), and a tax expense from the restructuring of our U.K. operations
21
(approximately $1.0 million). Of these charges approximately $7.4 million will
be cash expenditures. Through September 30, 2001, approximately $5.9 million
has been paid. These charges are referred to as the "2000 Special Charges."
The actions related to the 2000 Special Charges are expected to eliminate
annual costs of approximately $6.6 million. Savings were projected to result
from: (a) reduced salaries and related expenses as a result of consolidating
our CASCO operations with our Microgenics operation, a reduction of workforce
at NNI Naperville facility, and the elimination of corporate personnel in
Milwaukee (approximately $5.6 million); (b) the consolidation of several
facilities, including those of CASCO, NNI Biotech, and Naperville
(approximately $0.8 million); and (c) the elimination of product lines that
were either duplicative or no longer meet management's profitability
expectations (approximately $0.2 million). We do not anticipate, and have not
experienced to date, significant offsets to savings in either increased
expenses or reduced revenues.
Our results for 1999 include a charge of approximately $0.3 million ($0.2
million after tax) relating to adjustments made to the 1998 restructuring
reserve, consisting of additional severance. This charge is referred to herein
as the "1999 Special Charge." All historical financial data relating to SDS
and its affiliates and NPT, which was sold in 1999, have been classified as
discontinued operations.
Operating Income
Fiscal Fiscal Dollar Percent
2000 1999 Change Change
-------- -------- ------- -------
(in thousands)
Operating Income
Clinical Diagnostics................. $102,506 $ 87,587 $14,919 17.0 %
Labware and Life Sciences............ 79,095 67,404 11,691 17.3 %
Laboratory Equipment................. 21,142 21,387 (245) (1.1)%
-------- -------- -------
Subtotal........................... 202,743 176,378 26,365 14.9 %
Corporate Office..................... (9,754) (7,252) (2,502) 34.5 %
-------- -------- -------
Total Operating Income............. $192,989 $169,126 $23,863 14.1 %
======== ======== =======
As a result of the foregoing, operating income in 2000 increased by 14.1%
or $23.9 million over operating income in 1999.
Interest Expense
Interest expense was $48.7 million in 2000, an increase of $8.6 million
from 1999. The increase resulted from higher average debt balances resulting
primarily from funding acquisitions and increased interest rates in 2000.
Income Taxes
Taxes on income from continuing operations were $57.6 million, an increase
of $7.6 million from 1999. The increase resulted primarily from increased
taxable earnings.
Income From Continuing Operations Before Extraordinary Item
As a result of the foregoing we had net income from continuing operations
of $86.7 million in 2000, as compared to $77.4 million in 1999.
Discontinued Operations
Income from discontinued operations was $41.6 million in 2000, a decrease
of $6.4 million from income of $48.0 million in 1999. The decrease in income
from discontinued operations resulted primarily from restructuring charges
incurred at SDS in 2000 of approximately $5.9 million, net of tax.
22
Extraordinary Item
Income from an extraordinary item decreased by $17.2 million and related to
a non-recurring gain on the sale of NPT in 1999.
Net Income
As a result of the foregoing, we had net income of $128.3 million in 2000,
as compared to net income of $142.5 million in 1999.
Depreciation and Amortization
Depreciation and amortization expense is allocated among cost of sales,
selling, general and administrative expenses, and other expense. Depreciation
and amortization increased $17.6 million in 2000 due to additional
depreciation and amortization from the step-up of assets and goodwill recorded
from the various acquisitions as well as routine operating capital
expenditures.
2001 Acquisitions
We maintain an active program of developing and marketing both new products
and product line extensions. We believe that new product introductions are
important to the ability of our operating subsidiaries to maintain their
competitive positions. We have also pursued numerous acquisition
opportunities. Acquisitions completed in 2001 were as follows:
Approximate
Annual Sales Prior Acquisition
Company to Acquisition Date Description
------- ------------------ ----------- -----------
(in thousands)
Clinical Diagnostics
Vacuum Process Technology, $ 3,977 November 2000 Designer and
Inc........................ manufacturer of
precision film optical
coating equipment used
to manufacture optically
motivated product for a
variety of markets.
Disposable Glass Culture $ 5,800 April 2001 Disposable glass culture
Tube Business of tubes used in a variety
Kimble Glass Inc........... of general laboratory
applications, including
blood collection, blood
banking, urinalysis and
certain cell culture
procedures.
Innovative Diagnostics, $ 1,300 July 2001 Distributor of clinical
Inc......................... chemistry controls.
Medtek Diagnostics LLC...... $ 220 July 2001 Latex agglutination
product line.
Disposable Glass Pasteur $ 2,000 August 2001 Disposable glass Pasteur
Pipette and Perfume Sampler pipette and perfume
Vial Product Line of Kimble sampler product lines.
Glass, Inc.................
Daniel Mirror Company....... $ 6,800 September 2001 Manufacturer of
specialized "cut to
order" mirrors.
Labware and Life Sciences
BioRobotics Group Limited... $10,500 March 2001 Designer and
manufacturer of
automated
instrumentation
solutions used in
functional genomics.
23
Approximate
Annual Sales Prior Acquisition
Company to Acquisition Date Description
------- ------------------ ----------- -----------
(in thousands)
Advanced Biotechnologies $21,500 April 2001 Manufacturer of a
Limited.................... comprehensive range of
molecular biology
reagents and special
plastic consumables for
the life sciences
market.
Mosaic Technologies, Inc.... $ 1,400 July 2001 Developer and
manufacturer of solid
phase DNA amplification
technology.
Chromotography Vial Product $ 7,200 August 2001 Chromatography vial
Line of Kimble Glass, product line including
Inc........................ vial inserts and
accessories.
Special Charges
Our results for 2001 include a charge of approximately $0.6 million ($0.4
million after tax) relating to adjustments made to the 2000 restructuring
reserve (discussed below), consisting of additional severance. All historical
financial data relating to SDS and its affiliates have been reclassified to
discontinued operations.
Our results for 2000 include charges of approximately $11.3 million ($7.5
million after tax) with respect to the restructuring of various parts of our
business. These charges relate primarily to restructured staffing
(approximately $5.5 million), operating location rationalization
(approximately $2.7 million), product rationalization (approximately $2.1
million), and a tax expense from the restructuring of our U.K. operations
(approximately $1.0 million). These charges are referred to as the "2000
Special Charges." Savings were projected to result from: (a) reduced salaries
and related expenses as a result of consolidating our CASCO operations with
our Microgenics operation, a reduction of workforce at NNI's Naperville
facility, and the elimination of corporate personnel in Milwaukee
(approximately $5.6 million); (b) the consolidation of several facilities,
including those of CASCO, NNI Biotech, and Naperville (approximately $0.8
million); and (c) the elimination of product lines that are either duplicative
or no longer meet management's profitability expectations (approximately $0.2
million). We do not anticipate, and have not experienced to date, significant
offsets to savings in either increased expenses or reduced revenues.
Our results for 1999 include a charge of approximately $0.3 million ($0.2
million after tax) relating to adjustments made to the 1998 restructuring
reserve, consisting of additional severance. This charge is referred to herein
as the "1999 Special Charge." All historical financial data relating to SDS
and its affiliates and NPT, which was sold in 1999, have been classified as
discontinued operations.
Our results for 1998 contain charges with respect to the restructuring of
our laboratory group. These charges are collectively referred to herein as the
"1998 Special Charges," and together with the 1999 Special Charge and the 2000
Special Charges, are referred to as the "Special Charges."
The 1998 Special Charges totaled $8.5 million ($5.4 million after tax) and
consisted of items relating to the realignment of our laboratory subsidiaries
under Sybron Laboratory Products Corporation ("SLP"). This restructuring
charge consisted primarily of severance expenditures associated with the
consolidation of certain functions, the restructuring of sales and marketing
activities, and costs associated with exiting certain product lines. In 1999,
an additional $0.3 million was added to this reserve as an adjustment to
original severance estimates. We expect no additional adjustments to this
reserve. Approximately $3.9 million of these charges are cash expenditures of
which $1.0 million was paid in 1998, $2.0 was paid in 1999, $0.7 million was
paid in 2000, and the remaining $0.2 million was paid in 2001.
24
These actions eliminated annual costs of approximately $5.3 million. The
savings at SLP were revised from the original estimate of $6.1 million to
eliminate savings associated with the discontinued operations of NPT. Savings
at SLP were projected to result from: (a) reduced salaries and related
expenses associated with the elimination of duplicative sales, marketing and
administrative personnel at Nalge Nunc International (approximately $2.5
million); (b) reduced salaries and related expenses from consolidating sales,
marketing and administrative personnel at Remel Inc. and Alexon Trend
(approximately $1.2 million); (c) reduced salaries and related expenses
associated with eliminating duplicative sales personnel due to product line
consolidation at Owl Separation Systems, Inc. (approximately $0.7 million);
(d) reduced salaries and related expenses associated with eliminating
duplicative sales, information systems and marketing personnel at Barnstead
Thermolyne Corporation (approximately $0.5 million); and (e) reduced salaries
and related expenses associated with eliminating duplicative sales and
administrative functions at other SLP locations (approximately $0.4 million).
The Company has achieved actual savings in line with these expectations. We
do not anticipate, and have not experienced to date, significant offsets to
savings in either increased expenses or reduced revenues.
Activity related to the 2000 Special Charges and its components are as
follows:
Fixed Lease Shut down
Severance Inventory Assets Commitments Costs Tax
(a) (b) (b) (c) (c) (d) Other Total
--------- --------- ------ ----------- --------- ------ ----- -------
(in thousands)
2000 Restructuring
charge................. $5,500 $2,100 $1,000 $500 $300 $1,000 $900 $11,300
2000 Cash payments...... 1,100 -- -- -- -- -- -- 1,100
2000 Non-cash charges... -- 2,100 1,000 -- -- -- 800 3,900
------ ------ ------ ---- ---- ------ ---- -------
September 30, 2000
balance................ $4,400 $ -- $ -- $500 $300 $1,000 $100 $ 6,300
Adjustments (e)......... 600 600
2001 Cash payments...... 3,800 -- -- 200 200 1,000 -- 5,200
2001 Non-cash charges... -- -- 100 -- 100 200
------ ------ ------ ---- ---- ------ ---- -------
September 30, 2001
balance................ $1,200 $ -- $ -- $300 $ -- $ -- $ -- $ 1,500
====== ====== ====== ==== ==== ====== ==== =======
- --------
(a) Amount represents severance and termination costs for 151 terminated
employees (primarily sales, marketing and corporate personnel). As of
September 30, 2001, all employees had been terminated as a result of the
restructuring plan.
(b) Amount represents write-offs of inventory and fixed assets associated with
discontinued product lines.
(c) Amount represents lease payments and shut down costs on exited facilities.
(d) Amount represents income tax expense associated with the restructuring of
our U.K. operations.
(e) Amount represents an increase in the severance costs for 16 employees
(primarily corporate personnel).
These employees are included in the total 151 terminated employees
referenced above.
The Company expects to make future cash payments of approximately $1,500 in
fiscal 2002 and beyond.
25
Activity related to the 1998 Special Charges since June 30, 1998 and its
components are as follows:
Lease Inventory Fixed
Severance Payments Write-off Assets Goodwill
(a) (b) (c) (c) (d) Total
--------- -------- --------- ------ -------- ------
(in thousands)
1998 Restructuring
Charge................... $3,400 $200 $1,800 $1,000 $2,100 $8,500
1998 Cash Payments........ 900 100 -- -- -- 1,000
1998 Non-Cash Charges..... -- -- 1,800 1,000 2,100 4,900
------ ---- ------ ------ ------ ------
September 30, 1998
balance.................. $2,500 $100 $ -- $ -- $ -- $2,600
1999 Cash Payments........ 1,900 100 -- -- -- 2,000
Adjustments (a)........... 300 -- -- -- -- 300
------ ---- ------ ------ ------ ------
September 30, 1999
balance.................. $ 900 $ -- $ -- $ -- $ -- $ 900
2000 Cash Payments........ 700 -- -- -- -- 700
------ ---- ------ ------ ------ ------
September 30, 2000
balance.................. $ 200 $ -- $ -- $ -- $ -- $ 200
2001 Cash payments........ 200 -- -- -- -- 200
------ ---- ------ ------ ------ ------
September 30, 2001
balance.................. $ -- $ -- $ -- $ -- $ -- $ --
====== ==== ====== ====== ====== ======
- --------
(a) Amount represents severance and termination costs for approximately 65
terminated employees (primarily sales and marketing personnel). As of
September 30, 2001, all employees had been terminated as a result of the
restructuring plan. An adjustment of approximately $ 300 was made in the
third quarter of fiscal 1999 to adjust the accrual primarily representing
under accruals for anticipated costs associated with outplacement
services, accrued fringe benefits, and severance associated with employees
who were previously notified of termination. No additional employees will
be terminated under this restructuring plan.
(b) Amount represents lease payments on exited facilities.
(c) Amount represents write-offs of inventory and fixed assets associated with
discontinued product lines.
(d) Amount represents goodwill associated with exited product lines.
Inflation
We do not believe that inflation has had a material impact on net sales or
income during any of the periods presented above. There can be no assurance,
however, that our business will not be affected by inflation in the future.
International Operations
Our U.S. subsidiaries have approximately 76% of our assets and generated
approximately 95% of our income from continuing operations for the fiscal year
ended September 30, 2001, with the balance attributable to our foreign
subsidiaries. Portions of our sales, income and cash flows from both domestic
and foreign subsidiaries are derived internationally. The financial position
and the results of operations from substantially all of our international
operations, other than most U.S. export sales, are measured using the local
currency of the countries in which such operations are conducted and are then
translated into U.S. dollars. While the reported income of foreign
subsidiaries will be impacted by a weakening or strengthening of the U.S.
dollar in relation to a particular local currency, the effects of foreign
currency fluctuations are partially mitigated by the fact that manufacturing
costs and other expenses of foreign subsidiaries are generally incurred in the
same currencies in which sales are generated. Such effects of foreign currency
fluctuations are also mitigated by the fact that such subsidiaries' operations
are conducted in numerous foreign countries and, therefore, in numerous
foreign currencies. In addition, our U.S. export sales may be impacted by
foreign currency fluctuations relative to the value of the U.S. dollar as
foreign customers may adjust their level of purchases upward or downward
according to the weakness or strength of their respective currencies versus
the U.S. dollar.
26
From time to time we may employ currency hedges to mitigate the effect of
foreign currency fluctuations. If currency hedges are not employed, we may be
exposed to earnings volatility as a result of foreign currency fluctuations.
Two foreign currency hedges aggregating $33.6 million were in place as of
September 30, 2001.
The following table sets forth our domestic sales and sales outside the
United States in fiscal 2001, 2000, and 1999, respectively.
2001 2000 1999
-------- -------- --------
(in thousands)
Domestic net sales................................ $727,310 $643,188 $543,846
International net sales........................... 257,155 220,387 171,191
-------- -------- --------
Total net sales................................. $984,465 $863,575 $715,037
======== ======== ========
Liquidity and Capital Resources
As a result of the acquisition of our predecessor in 1987 and the
acquisitions we completed since 1987, we have increased the carrying value of
certain tangible and intangible assets consistent with accounting principles
generally accepted in the United States. Accordingly, our results of
operations include a significant level of non-cash expenses related to the
depreciation of fixed assets and the amortization of intangible assets,
including goodwill. Goodwill and intangible assets, net of amortization,
increased by approximately $132 million in 2001, primarily as a result of
continued acquisition activity.
Our capital requirements arise principally from indebtedness incurred in
connection with the permanent financing for the 1987 acquisition and our
subsequent refinancings, our obligation to pay rent under the Sale/Leaseback
facility (as defined herein), our working capital needs, primarily related to
inventory and accounts receivable, our capital expenditures, primarily related
to purchases of machinery and molds, the purchase of various businesses and
product lines in execution of our acquisition strategy, and the periodic
expansion of physical facilities. It is currently our intent to continue to
pursue our acquisition strategy.
Approximately $182.2 million of cash was generated from operating
activities in 2001, an increase of $65.6 million or 56.3% from 2000. Non-cash
depreciation and amortization charged against net income increased
approximately $11.5 million for 2001. The cash outflow resulting from the net
change in working capital, net of the effects of acquisitions and
divestitures, was $9.5 million for 2001, or an increase in cash flow of
$37.6 million, as compared to $47.1 million in cash outflow for 2000. These
changes are set forth in detail in the Consolidated Statements of Cash Flows.
Although working capital decreased in 2001, the increase in certain working
capital accounts throughout 2001 is attributable to the higher level of
busin