-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B6oAA7Qh76c/DNHAVhwl9zAkTmvJVBFxi/QpaqYE1u2VrRb4UdHS75AvX/6QeILI H69gglXur/DbNPzUP3DSpQ== 0000950115-96-001144.txt : 19960816 0000950115-96-001144.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950115-96-001144 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BETZDEARBORN INC CENTRAL INDEX KEY: 0000011884 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 231503731 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11558 FILM NUMBER: 96613595 BUSINESS ADDRESS: STREET 1: 4636 SOMERTON RD CITY: TREVOSE STATE: PA ZIP: 19053 BUSINESS PHONE: 2153553300 MAIL ADDRESS: STREET 1: 4636 SOMERTON ROAD CITY: TREVOSE STATE: PA ZIP: 19053 FORMER COMPANY: FORMER CONFORMED NAME: BETZ LABORATORIES INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------------------------- QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------------------- For Quarter Ended June 30, 1996 Commission File Number: 0-2085 BETZDEARBORN INC. ----------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1503731 ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4636 Somerton Road, Trevose, PA 19053 ------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 355-3300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months [or for such shorter period that the registrant was required to file such report(s)], and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 27,776,601 Common Shares outstanding as of August 8, 1996. BETZDEARBORN INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- Net Sales $ 210,091 $ 188,896 $ 409,563 $ 366,830 Operating Costs and Expenses: Cost of products sold 80,818 68,592 157,694 131,669 Selling, research and administrative expenses 93,032 88,702 183,910 173,307 --------- --------- --------- --------- 173,850 157,294 341,604 304,976 OPERATING EARNINGS 36,241 31,602 67,959 61,854 Other Income (Expense): Investment and other income (820) 1,196 (535) 1,708 Interest expense (522) (87) (1,040) (126) --------- --------- --------- --------- (1,342) 1,109 (1,575) 1,582 --------- --------- --------- --------- EARNINGS BEFORE INCOME TAXES 34,899 32,711 66,384 63,436 Income Taxes 12,563 12,757 24,370 24,740 --------- --------- --------- --------- NET EARNINGS $ 22,336 $ 19,954 $ 42,014 $ 38,696 ========= ========= ========= ========= Net earnings per Common Share: Primary $ .75 $ .67 $ 1.41 $ 1.30 ========= ========= ========= ========= Fully diluted $ .71 $ .64 $ 1.33 $ 1.23 ========= ========= ========= ========= Cash dividends declared per Common Share $ .37 $ .37 $ .74 $ .73 ========= ========= ========= ========= Average number of Common Shares: Primary 27,953 27,863 27,889 27,944 ========= ========= ========= ========= Fully diluted 30,669 30,654 30,673 30,720 ========= ========= ========= =========
See notes to consolidated financial statements. BETZDEARBORN INC. Consolidated Balance Sheets (In thousands)
ASSETS June 30, 1996 December 31, 1995 ------------- ----------------- CURRENT ASSETS Cash and cash equivalents $ 31,785 $ 13,919 Trade accounts receivable, less allowances: 1996--$7,201; 1995--$2,886 234,889 146,404 Inventories: Finished products and goods purchased for resale 50,031 25,675 Raw materials 48,877 25,608 ----------- ----------- 98,908 51,283 Prepaid expenses and other 38,904 40,535 ----------- ----------- TOTAL CURRENT ASSETS 404,486 252,141 PROPERTY, PLANT AND EQUIPMENT-- at cost Buildings 238,919 190,308 Machinery and equipment 556,113 439,764 Allowance for depreciation (deduction) (426,101) (336,578) ----------- ----------- 368,931 293,494 Land 31,066 27,792 Construction in progress 25,158 12,528 ----------- ----------- 425,155 333,814 OTHER ASSETS Unallocated purchase price of the Dearborn business 476,414 0 Investments and other 16,397 13,037 Intangibles -- at cost, less amortization: 1996 -- $4,118; 1995 -- $3,544 31,688 31,476 ----------- ----------- 524,499 44,513 ----------- ----------- $ 1,354,140 $ 630,468 =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 1996 December 31, 1995 ------------- ----------------- CURRENT LIABILITIES Trade accounts payable $ 56,533 $ 39,220 Payroll and related taxes 15,852 26,681 Notes payable 8,822 18,488 Accrued expenses 60,363 35,971 Income taxes 11,019 13,244 Dividends payable 10,271 10,232 Current portion of long-term debt 1,000 1,000 ----------- ----------- TOTAL CURRENT LIABILITIES 163,860 144,836 LONG-TERM DEBT--less portion classified as current 768,932 95,500 LONG-TERM LIABILITIES Income taxes 23,057 20,475 Employee benefit plans 29,887 19,451 Other 7,099 7,207 ----------- ----------- 60,043 47,133 SHAREHOLDERS' EQUITY Preferred Shares -- Authorized - 1,000,000 shares, $.10 par value, voting Series A ESOP Convertible, 8% Cumulative, stated at aggregate liquidation preference; Issued: 1996 -- 485,253 shares; 1995 -- 487,903 shares 96,922 97,581 Guarantee of related ESOP debt (90,698) (91,406) ----------- ----------- 6,224 6,175 Common Shareholders' Equity Common Shares -- Authorized - 90,000,000 shares, $.10 par value; Issued (including treasury shares): 1996 -- 33,640,636 shares; 1995 -- 33,643,981 shares 3,364 3,364 Capital in excess of par value of shares 84,331 82,613 Retained earnings 463,697 446,111 Cost of Common Shares in treasury: 1996 -- 5,881,246 shares; 1995 -- 5,990,825 shares (195,777) (198,157) Unearned compensation (4,873) (3,327) Foreign currency translation adjustments 4,339 6,220 ----------- ----------- COMMON SHAREHOLDERS' EQUITY 355,081 336,824 ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 361,305 342,999 ----------- ----------- $ 1,354,140 $ 630,468 =========== ===========
BETZDEARBORN INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended June 30, 1996 1995 ---- ---- OPERATING ACTIVITIES Net earnings $ 42,014 $ 38,696 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 27,829 24,387 Compensation and employee benefit plans 4,774 5,805 Other, net 105 (232) Changes in operating assets and liabilities, net of Dearborn Business acquisition: Accounts receivable (18,036) (9,894) Inventories 197 (5,395) Prepaid expenses and other 8,121 2,407 Accounts payable and accrued expenses (12,111) (8,035) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 52,893 47,739 INVESTING ACTIVITIES Expenditures for property, plant and equipment (28,166) (27,853) Proceeds from sales of long-term assets 947 1,114 Purchases of businesses and long-term investments (7,022) (15,514) Purchase of the Dearborn Business, net of cash equivalents acquired (540,437) -- Other, net 177 (326) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (574,501) (42,579) FINANCING ACTIVITIES Net borrowings classified as long-term under credit facilities 574,432 -- Dividends paid (24,369) (23,944) Proceeds from issuance of common shares, including treasury shares 883 242 Purchase of treasury shares -- (8,622) Principal payments on ESOP debt (1,000) (1,000) Net short-term borrowings (9,687) -- --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 540,259 (33,324) Effect of exchange rate changes on cash (785) 1,631 --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17,866 (26,533) Cash and Cash Equivalents at Beginning of Year 13,919 43,926 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,785 $ 17,393 ========= =========
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of consolidated financial position, consolidated results of operations and consolidated cash flows in conformity with generally accepted accounting principles. The foregoing consolidated financial statements do include all adjustments, consisting only of normal recurring accruals which, in the opinion of management, are necessary for a fair statement of the results of the interim periods. Note 2 - Common Shares Reserved for Stock Plans At June 30, 1996, 4,388,714 and 568,426 Common Shares were reserved for possible issuance pursuant to the exercise of stock options and grants under the Company's Stock Option and Incentive Plans, respectively. Further, 2,713,000 Common Shares were reserved and kept available for possible conversion of the Series A ESOP Convertible preferred stock. Note 3 - Dearborn Business Acquisition On June 28, 1996, pursuant to the previously announced Grace Dearborn Worldwide Purchase and Sale Agreement (the "Agreement"), the Company acquired (the "Acquisition") the Dearborn business unit (the "Dearborn Business") of W.R. Grace & Co.-Conn. ("Grace") for $630.0 million, subject to certain adjustments. The Dearborn Business is a global supplier of industrial water and process treatment chemicals with 1995 net revenues of $395.9 million. The Acquisition is financed by a $750 million Credit Agreement (the "Credit Agreement") among the Company and a syndicate of banks (See Note 4). Immediately following the Acquisition, the Company changed its name from Betz Laboratories, Inc. to BetzDearborn Inc. The Acquisition is accounted for using the purchase method of accounting and, accordingly, the purchase price will be allocated to the assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities at the date of acquisition. Due to the timing of the closing date, the Company is unable to complete an initial allocation of purchase price at this time. Accordingly, the Company's Consolidated Balance Sheet at June 30, 1996 includes the unaudited historical accounts of the Dearborn Business as of the acquisition date, adjusted only for certain known elements of purchase accounting. The remaining excess purchase price at June 30, 1996 is classified as "Unallocated Purchase Price of the Dearborn Business" on the Company's consolidated balance sheet and will be allocated to assets acquired and liabilities assumed under the Agreement, based on the results of appraisals, finalization of the purchase price as a result of a closing date audit and other analyses, which the Company has arranged to obtain and generally are in process. The other analyses include, but are not limited to, actuarial studies of employee benefit plans, the income tax effects of the Acquisition, analyses of operations to identify assets for disposition and the evaluation of staffing requirements necessary to meet future business needs. The excess of the purchase price over the fair value of the net tangible and identified intan- gible assets acquired will be recorded as goodwill, which will be amortized on a straight-line basis over 40 years. The following summarizes the impact of the Acquisition and the Credit Agreement on the Company's financial statements at June 30, 1996: (in millions) ------------- Cash paid to Grace $536.4 Note payable to Grace 100.0 June 28, 1996 estimated working capital adjustment 9.7 Professional fees and other transaction costs paid or accrued 6.5 ------ Total 652.6 Less Net Assets in Historical Dearborn at closing 176.2 ------ Unallocated Purchase Price in Balance Sheet $476.4 ====== The $536.4 million payment to Grace for the purchase of the Dearborn Business represents the cash paid at closing. Grace also received a $100 million promissory note from the Company (see Note 4). The total of the cash paid plus the promissory note is $636.4 million, which represents the $630 million purchase price plus a $6.4 million purchase price adjustment. The adjustment is due to a December 31, 1995 working capital adjustment in accordance with the terms of the Agreement. The cash paid to Grace will be further adjusted for changes in working capital as set forth in the Dearborn Business June 28, 1996 Statement of Net Assets, which is estimated above to be $9.7 million, subject to final audit. The Acquisition had no material impact on the Consolidated Statement of Operations for the six months ended June 30, 1996. The following unaudited pro forma information is intended to show the results of operations as if the Acquisition had occurred on January 1, 1995 after giving effect to certain adjustments, including the increased amortization of goodwill and other identified intangible assets, additional interest expense on incremental Acquisition indebtedness and the related income tax effects of these adjustments: Six Months Ended June 30, 1996 1995 ---- ---- Net Sales $ 609.7 $ 559.2 Net Earnings $ 25.7 $ 21.3 Net Earnings per Common Share: Primary $ .83 $ .68 Fully Diluted $ .80 $ .66 The unaudited pro forma results of operations are based on preliminary assumptions regarding the allocation of purchase price and Dearborn Business operating results, which could change significantly for the reasons described in paragraph two of this note. The unaudited pro forma results are not indicative of the results that would have occurred had the Acquisition actually been consummated on January 1, 1995, and are not intended to be a projection of future results or trends. Note 4 - Debt Prior to the consummation of the Acquisition the Company entered into a Revolving Credit Agreement with a syndicate of banks. The Credit Agreement provides for a five-year unsecured revolving credit facility in an amount of $750 million that reduces to $550 million after two years. The commitments made under the Credit Agreement expire in July 2001 (except for the partial mandatory reduction in the maximum amount of the banks' commitments on June 28, 1998 to $550 million). The Agreement requires the Company, among other things, to maintain certain financial ratios and meet certain net worth and indebtedness tests. To finance the Acquisition and for other purposes, the Company borrowed approximately $574 million under the Credit Agreement, and used an additional $100 million of the revolver to obtain a Letter of Credit securing a $100 million promissory note payable to Grace, with a variable interest rate equal to the London Interbank Offered Rate plus 10 basis points. The unused credit available under this facility at June 30, 1996 was approximately $76 million. Borrowings under the Credit Agreement, at the Company's option, are at a composite of three banks' base rates or the London Interbank Offered Rate, plus a margin. Margin pricing is dependent on the Company's selected pricing option of either a specific financial ratio test or the Company's public debt rating. The weighted-average interest rate as of June 30, 1996 was 5.9%. The Company pays a facility fee based on the total commitment of funds provided by the banks. The Company utilizes interest rate swaps to manage its interest rate exposures and its mix of fixed and floating interest rates. Interest rate swap agreements involve the exchange of fixed and floating rate interest payments periodically over the life of the agreement without the exchange of underlying principal amounts (the notional amount). The differential to be paid or received, on a periodic basis, will be accrued as interest rates change and recognized over the lives of the agreements as an adjustment to interest expense. During the 1996 second quarter, the Company executed a series of interest rate swap agreements of variable for fixed rates, for varying amounts, with maturities ranging from one to five years, for the maximum notional amount of $400 million. The Company has designated the series of swaps as hedges of future interest rate exposure on its variable rate debt outstanding. The series of swaps will hedge no more than the aggregate amount of variable rate debt outstanding. The Company may also designate individual swaps included in this series as both a hedge against interest rate exposure and a hedge of the fair value of future fixed rate term debt replacing outstanding variable rate debt. In the event future fixed rate term debt is issued, the Company intends to terminate the designated swaps and amortize the gain or loss on such termination over the remainder of the hedged period. In the event fixed rate debt is not issued for the entire remaining hedged period, a portion of the termination gain or loss will be included in net earnings. The Company is exposed to credit loss in the event of nonperformance by the counterparties to its interest rate swap agreements. The counterparties to the interest rate swaps are substantial and creditworthy multinational commercial banks or other financial institutions which are recognized by market makers. Consequently, the Company does not anticipate nonperformance by the counterparties. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS Acquisition of the Dearborn Business On June 28, 1996, pursuant to the previously announced Grace Dearborn Worldwide Purchase and Sale Agreement, the Company acquired the Dearborn business unit of W.R. Grace & Co.-Conn. for $630.0 million, subject to certain adjustments (see Note 3). The Dearborn Business is a global supplier of industrial water and process treatment chemicals with 1995 net revenues of $395.9 million, approximately 75% of which were recorded by operations outside the United States. The Acquisition is financed by a $750 million Credit Agreement among the Company and a syndicate of banks dated as of June 20, 1996 (See Note 4). Immediately following the Acquisition, the Company changed its name from Betz Laboratories, Inc. to BetzDearborn Inc. The acquisition combines the second and third largest global suppliers of engineered programs and advanced specialty chemical treatments for water, wastewater and process systems operating in a wide variety of industrial, commercial, and institutional applications. The Company consists of four global business units: o BetzDearborn Water Management Group, providing water treatment programs to industrial, commercial and institutional establishments and headquartered in Horsham, Pennsylvania; o BetzDearborn Paper Process Group, providing process treatment programs to the pulp and paper industry and headquartered in Jacksonville, Florida; o BetzDearborn Hydrocarbon Process Group, providing process treatment programs to the refining, petrochemical and steel industries and headquartered in The Woodlands, Texas; and o BetzDearborn Metals Process Group, serving the metals and plastics finishing industries and headquartered in Horsham, Pennsylvania. These global business units will be responsible for technology, research and development, sales and marketing, and they will be supported by regional centers in Asia-Pacific, Europe, Latin America, Canada and the United States. The Company anticipates that a significant portion of the Unallocated Purchase Price of the Dearborn Business will be allocated to intangible assets which will substantially increase amortization expense over a period not to exceed 40 years. Portions of the purchase price will also be allocated to property, plant and equipment which will increase the Company's depreciation expense over the remaining useful lives of the acquired assets. Appraisals, finalization of the purchase price and other analyses, which are currently in process, are necessary to complete the purchase accounting for the Dearborn Business (see Note 3). In addition, the Acquisition financing will result in a large increase in interest expense. Consequently, the Company anticipates that the impact of the Acquisition on the Consolidated Statements of Op- erations over the next twelve months will result in approximately a 50% increase in net sales, but net earnings and primary and fully diluted earnings per Common Share are anticipated to be lower than results reported for the last twelve months. As plans are determined and implemented throughout 1996, the Company will incur additional costs to integrate the two businesses and dispose of excess assets and operations. A portion of the anticipated integration and restructuring costs will further reduce net earnings in 1996 and a portion will increase goodwill from this acquisition. Second Quarter Results of Operations Second quarter 1996 net sales increased $21.2 million from $188.9 million to $210.1 million. This 11% increase was approximately composed of a 6% increase in volume-mix, a 4% increase attributable to sales from subsidiaries acquired after the first quarter of 1995, a 1% increase in selling prices which was mostly offset by changes in the value of foreign currencies relative to the U.S. dollar and a 1% increase due to the inclusion of certain freight revenues in 1996 second quarter net sales. Net earnings increased $2.3 million, or 12%, from $20.0 million to $22.3 million. Primary earnings per Common Share increased 12% from $.67 to $.75, while fully diluted earnings per Common Share increased 11% from $.64 to $.71. Net sales for the six month period ending June 30, 1996 increased 12% from $366.8 million to $409.6 million. The percentage increase in sales was approximately comprised of a 6% increase in volume-mix, a 1% increase in selling prices, a 4% increase resulting from acquisitions made in 1995 and a 1% increase due to the inclusion of certain freight revenues in 1996. Operating earnings rose 10% from $61.9 million to $68.0 million. Net earnings increased 9% from $38.7 million to $42.0 million. Primary and fully diluted earnings per Common Share both increased 8% from $1.30 to $1.41 and from $1.23 to $1.33, respectively. The Company's second quarter results reflect continued strong year-to-year growth on a worldwide basis. All four Global Business Units reported solid sales performances, led by the Metals Process Group and the Hydrocarbon Process Group, both with strong double-digit growth. The second quarter results reflect an increase in non-U.S. sales of 26% (11% before acquisitions) from 1995 levels in U.S. dollars. The strongest local currency growth in the quarter was achieved in our Asia-Pacific and Central and South American operations. Non-U.S. sales for the first half of 1996 are 28% higher in U.S. dollars and local currencies than the comparable 1995 period. Non-U.S. sales comprise 30% of total sales after six months. Second quarter and first half 1996 sales in the United States, as reported, rose 6% over the prior year periods and 5% on a comparable basis. The table below sets forth as a percentage of sales cost of products sold, selling, research and administrative expenses and operating earnings for the respective periods. Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- Cost of products sold 38.5% 36.3% 38.5% 35.9% Selling, research and administrative expenses 44.2% 47.0% 44.9% 47.2% Operating earnings 17.3% 16.7% 16.6% 16.9% Cost of products sold, as a percentage of sales, increased when compared to prior year periods primarily due to changes in product mix, including those related to the Company's 1995 acquisitions, standardization of the method of accounting for freight revenue and increases in raw material costs without comparable increases in selling prices. When compared to prior year periods, selling, research and administrative expenses, as a percentage of sales, declined primarily due to savings achieved from the Company's 1995 restructuring actions and continued operating cost controls. During the second quarter, in preparation for the integration of the Dearborn business, the Company revised the vesting policy for certain employee benefits to align Betz and Dearborn policies, resulting in a reduction of second quarter operating expenses. Without this, 1996 second quarter operating expenses would have been approximately 45% of sales. The Company recorded a $15.6 million provision for restructuring in 1995 for a series of actions to reduce operating costs. These actions include personnel reductions, office consolidations and asset dispositions, including the shutdown of two blending plants. During the first half of 1996, the Company incurred approximately $1,290,000 in cash charges to the reserve. Additionally, the Compton Plant was sold for approximately $980,000. Approximately 110 jobs have been eliminated under this restructuring plan. The remaining restructuring reserve is expected to be sufficient to complete the restructuring actions and will continue to be financed with available operating cash flows and external financing resources. Capital Resources and Liquidity During the first half of 1996, expenditures for property, plant and equipment were $28.2 million, a $.3 million increase from 1995. Including post-acquisition items related to the Dearborn Business, the Company anticipates that capital expenditures for the year will be approximately $80 - $85 million and will include improvements to the Company's production facility in Beaumont, Texas to increase the manufacturing capacity for the Novus(R) polymer line, which is used in both process and water treatment applications. Purchases of long-term investments and businesses for the first six months of 1996, exclusive of the Dearborn acquisition, include approximately $6.8 million for a payment of the purchase price accrued for the acquisition of the Misan Group in the fourth quarter of 1995. Net cash used in financing activities for the first half of 1996, exclusive of the Dearborn acquisition, decreased by $21.1 million from the prior year primarily due to the purchase of treasury stock at a cost of $8.6 million during the first six months of 1995 with no similar purchase in 1996, as well as a $12.3 million increase in net short-term borrowings in the first six months of 1996, primarily necessary to finance the payment for Misan. The Acquisition and the related financing has a significant impact on the Company's liquidity and sources of capital. The Company has taken or plans to take actions necessary to manage its liquidity and capital resources in order to comply with the provisions of the Credit Agreement, to optimize its capital structure and to service the dividend and debt requirements associated with its Employee Stock Ownership Plan, while meeting its operating cash requirements. Such actions may include restrictions on the growth in capital expenditures and the rate of increase in the quarterly common stock dividend and a refinancing of the Credit Agreement. The Acquisition and related financing will also increase the Company's exposure to interest rate and foreign currency movements. The Credit Agreement bears interest at short-term variable rates and the Dearborn Business conducts the majority of its operations outside the U.S. The Company plans to execute or has executed additional foreign exchange forward contracts and interest rate swaps to manage its exposure to foreign exchange and interest rate risks. During the second quarter of 1996, the Company executed a series of interest rate swaps of variable for fixed rates, with staggered maturities, at a maximum notional amount of $400 million for any future period (see Note 4). The Company also plans to increase the amount of foreign exchange forward contracts outstanding in the last half of 1996. PART II OTHER INFORMATION Item 1 - Legal Proceedings There have been no material developments in the cases of Katherine Adams, et al. v. Pacific Gas and Electric, et al. and Danny Aguayo, et al. v. Betz Laboratories, Inc., et al., nor in the pending proceedings to which the Company is a "Potentially Responsible Party" under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") during the quarter for which this report is filed. The Company is a "Potentially Responsible Party" under CERCLA at thirteen (13) sites. See the discussion under Item 3, "Pending Legal Proceedings," of the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1995. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit 11: Statement Re: Computation of Per Share Earnings. (b) The Company filed a Form 8-K on July 12, 1996 announcing that, pursuant to the Grace Dearborn Worldwide Purchase and Sale Agreement, dated as of March 11, 1996, by and between W. R. Grace & Co.-Conn. ("Grace") and the Company, the Company and certain of its subsidiaries acquired on June 28, 1996 certain assets and liabilities comprising the Dearborn water treatment business from Grace and certain of Grace's subsidiaries. Immediately following the acquisition, the Company changed its name from Betz Laboratories, Inc. to BetzDearborn Inc. Prior to the consummation of the acquisition, the Company and Betz Canada Inc., a wholly owned subsidiary of the Company, entered into a Credit Agreement, dated June 20, 1996, with a syndicate of banks to finance the acquisition. Such Credit Agreement was filed as an exhibit to the Form 8-K. EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, Primary Earnings per Common Share 1996 1995 1996 1995 - ------------------------------------- ---- ---- ---- ---- Net earnings $ 22,336 $ 19,954 $ 42,014 $ 38,696 Effect of preferred stock dividends, net of taxes (1,335) (1,214) (2,663) (2,433) -------- -------- -------- -------- Net earnings available to common shareholders $ 21,001 $ 18,740 $ 39,351 $ 36,263 ======== ======== ======== ======== Average Common Shares outstanding 27,748 27,703 27,710 27,775 Common stock equivalents 205 160 179 169 -------- -------- -------- -------- Average number of Common Shares - primary 27,953 27,863 27,889 27,944 ======== ======== ======== ======== Primary earnings per Common Share $ 0.75 $ 0.67 $ 1.41 $ 1.30 ======== ======== ======== ======== Fully Diluted Earnings per Common Share Net earnings $ 22,336 $ 19,954 $ 42,014 $ 38,696 Effect of ESOP charge to operations assuming conversion of Series A ESOP Convertible Preferred Shares, net of taxes (658) (515) (1,306) (1,054) -------- -------- -------- -------- Net earnings available to common shareholders $ 21,678 $ 19,439 $ 40,708 $ 37,642 ======== ======== ======== ======== Average Common Shares outstanding 27,748 27,703 27,710 27,775 Common stock equivalents 205 188 223 183 Assumed conversion of Series A ESOP Convertible Preferred Shares 2,716 2,763 2,740 2,762 -------- -------- -------- -------- Average number of Common Shares - fully diluted 30,669 30,654 30,673 30,720 ======== ======== ======== ======== Fully diluted earnings per Common Share $ 0.71 $ 0.64 $ 1.33 $ 1.23 ======== ======== ======== ========
Common stock equivalents reflect the assumed exercise of dilutive employees' stock options using the treasury stock method. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BETZDEARBORN INC. (Registrant) Date: August 14, 1996 By: s/George L. James ------------------------------- George L. James Vice President - Finance and Treasurer Date: August 14, 1996 By: s/William C. Brafford ------------------------------ William C. Brafford Vice President, Secretary and General Counsel EX-27 2 ARTICLE 5 FDS FOR 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 31,785 0 242,090 7,201 98,908 404,486 851,256 426,101 1,354,140 163,860 768,932 6,224 0 3,364 351,717 1,354,140 409,563 409,563 157,694 157,694 0 0 1,040 66,384 24,370 42,014 0 0 0 42,014 1.41 1.33
-----END PRIVACY-ENHANCED MESSAGE-----