-----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, JuLupacxmcYFnXDNFp3COlHiwTmVxCxDh19DUCP7OlDmdO29xR7YS529/101owFE KAW6u6/q2520XXmDF8Lgsg== 0000832815-98-000004.txt : 19980515 0000832815-98-000004.hdr.sgml : 19980515 ACCESSION NUMBER: 0000832815-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYBRON CHEMICALS INC CENTRAL INDEX KEY: 0000832815 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 510301280 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12263 FILM NUMBER: 98620533 BUSINESS ADDRESS: STREET 1: BIRMINGHAM RD STREET 2: PO BOX 66 CITY: BIRMINGHAM STATE: NJ ZIP: 08011 BUSINESS PHONE: 6098931100 MAIL ADDRESS: STREET 1: P O BOX 66 BIRMINGHAM ROAD CITY: BIRMINGHAM STATE: NJ ZIP: 08011 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 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 0-19983 SYBRON CHEMICALS INC. --------------------- (Exact name of registrant as specified in its charter) DELAWARE 51-0301280 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Birmingham Rd., P.O. Box 66, Birmingham New Jersey 08011 -------------------------------------------------- ----- (Address of principal executive offices) (zip code) Registrant's telephone number, including area code (609) 893-1100 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 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at March 31, 1998 ----- ----------------------------- Common stock, $.01 par value 5,686,041 SYBRON CHEMICALS INC. INDEX Page No. Part I Financial information Item 1 - Financial Statements Consolidated Balance Sheet - March 31, 1998 and December 31, 1997 1 Consolidated Statement of Operations - three months ended March 31, 1998 and 1997 2 Consolidated Statement of Cash Flows - three months ended March 31, 1998 and 1997 3 Notes to Consolidated Financial Statements 4 - 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 11 Part II Other information Item 1 Legal Proceedings 11 PART I - FINANCIAL INFORMATION SYBRON CHEMICALS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited in thousands except share and per share data) ASSETS Mar. 31, Dec. 31, 1998 1997 ---- ---- Current assets: Cash and cash equivalents $ 5,715 $ 26,592 Accounts receivable, net 38,197 37,367 Inventories, net 27,062 28,205 Prepaid and other current assets 3,157 3,019 Deferred income taxes 127 140 -------- -------- Total current assets 74,258 95,323 Property, plant and equipment, net 35,715 34,224 Intangible assets, net 19,556 20,086 Other assets 667 600 -------- -------- $130,196 $150,233 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 2,501 $ 1,760 Current portion of long-term debt 2,429 2,429 Accounts payable 15,987 27,653 Accrued liabilities 14,677 16,087 Income taxes payable 3,034 3,951 Deferred income taxes 16 12 ------- -------- Total current liabilities 38,644 51,892 Long-term debt 17,761 27,390 Deferred income taxes 2,448 2,502 Postretirement benefits 3,899 3,919 Other liabilities 2,085 2,119 -------- -------- Total liabilities 64,837 87,822 -------- -------- Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value - 500,000 shares authorized; none issued Common stock - $.01 par value - 20,000,000 shares authorized; issued 5,913,430 and 5,908,260 shares 59 59 Additional paid-in capital 23,740 23,580 Retained earnings 55,753 51,989 Accumulated other comprehensive losses (9,645) (8,544) Treasury stock, at cost - 227,389 and 233,648 shares (4,548) (4,673) --------- --------- Total shareholders' equity 65,359 62,411 --------- -------- $130,196 $150,233 ======== ======== The accompanying notes are an integral part of the financial statements -1- SYBRON CHEMICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited in thousands except per share amounts) Three months ended March 31, --------- 1998 1997 ---- ---- Net sales $ 48,572 $ 44,709 -------- -------- Cost of sales 28,793 27,400 Selling 9,047 7,974 General and administrative 2,970 2,629 Research and development 954 919 -------- -------- 41,764 38,922 Operating income 6,808 5,787 -------- -------- Other income(expense) Interest income 69 95 Interest expense (338) (452) Amortization of intangible assets (465) (335) Other - Net 305 (97) --------- --------- (429) (789) Income before income taxes 6,379 4,998 Provision for income taxes 2,615 2,024 --------- -------- Net income $ 3,764 $ 2,974 ======== ======== Net income per share: Basic $ .66 $ .53 ======== ======== Diluted $ .64 $ .52 ======== ======== Weighted average shares outstanding: Basic 5,678,245 5,655,262 Diluted 5,881,797 5,729,848 The accompanying notes are an integral part of the financial statements -2- SYBRON CHEMICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited in thousands) Three months ended March 31, 1998 1997 ---- ---- Cash flows from operating activities: Net income $ 3,764 $ 2,974 -------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,550 1,620 Provision for losses on accounts receivable 140 226 Changes in assets and liabilities: Accounts receivable (1,451) (3,177) Inventory 906 (599) Other current assets (150) (248) Accounts payable and accrued expenses (12,465) (307) Income taxes payable (837) 1,271 Other assets and liabilities - net (719) 852 -------- ------- Net cash (used) provided by operating activities (9,262) 2,612 -------- ------- Cash flows from investing activities: Capital expenditures (2,816) (1,768) Other, net -- 18 -------- ------- Net cash used by investing activities (2,816) (1,750) -------- -------- Cash flows from financing activities: Net (repayments) borrowings under revolving credit facilities (8,820) 1,264 Proceeds from exercise of stock options 73 -- -------- ------- Net cash (used) provided by financing activities (8,747) 1,264 -------- ------- Effect of exchange rate changes on cash (52) (1,492) -------- -------- Net (decrease) increase in cash and cash equivalents (20,877) 634 Cash and cash equivalents at beginning of period 26,592 14,909 -------- ------- Cash and cash equivalents at end of period $ 5,715 $15,543 ======== ======= The accompanying notes are an integral part of the financial statements -3- SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited in thousands) NOTE 1 - ACCOUNTING POLICIES: - ----------------------------- The accompanying consolidated financial statements are unaudited and have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these consolidated financial statements contain all of the adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in summarized form, the financial position of the Company at March 31, 1998 and the results of its operations and changes in its cash flows for the three months ended March 31, 1998 and 1997. The Company presumes that users of this Quarterly Report on Form 10-Q have read or have access to the audited financial statements for the year ended December 31, 1997 contained in the Company's Form 10-K which was filed with the Securities and Exchange Commission on March 31, 1998. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained therein have been omitted. NOTE 2 - COMPREHENSIVE INCOME: - ------------------------------ The Company has adopted the Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which establishes standards for the reporting and display of comprehensive income and its components in general-purpose financial statements. The tables below set forth "comprehensive income" and each components related tax effect for the three months ended March 31: Statement of Comprehensive Income Three Months Ended March 31, 1998 1997 ---- ---- Net income $ 3,764 $ 2,974 Other comprehensive income, net of tax: Foreign currency translation adjustments (1,101) (2,448) Minimum pension liability adjustment -- -- Other comprehensive income (1,101) (2,448) ------- ------- Comprehensive income $ 2,663 $ 526 ======= ====== -4- Related Tax Effects of Each Component of Comprehensive Income Three Months Ended March 31,
1998 1997 ---------------------------------- -------------------------------- Tax Net of Tax Net of Pre-Tax (Expense) Tax Pre-Tax (Expense) Tax Amount Benefit Amount Amount Benefit Amount ------ ------- ------ ------ ------- ------ Foreign currency translation adjustments (1,101) -- (1,101) (2,448) -- (2,448) Minimum pension liability adjustment -- -- -- -- -- -- ----- ------ ------ ------ ------ ------ Total comprehensive income (1,101) -- (1,101) (2,448) -- (2,448)
The following table illustrates the components of accumulated other comprehensive income and their associated changes for the three month period ending March 31, 1998: Accumulated Other Comprehensive Income Balances Three Months Ending March 31, 1998 Current Beginning Period Ending Balance Change Balance ------- ------ ------- Foreign currency translation adjustments (8,359) (1,101) (9,460) Minimum pension liability adjustment (185) -- (185) ------- ------- ------- Accumulated other comprehensive loss (8,544) (1,101) (9,645) ======= ======= ======= NOTE 3 - ACCOUNTING PRONOUNCEMENTS: - ----------------------------------- In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131). This statement establishes standards for reporting information about operating segments in annual financial statements and requires the reporting of selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997, and in the initial year of application, comparative information for earlier years is to be restated. The Company will adopt this statement in the fourth quarter of 1998 and does not expect a significant impact on present segment reporting. -5- In February 1998, the Financial Accounting Standards Board issued Statement No. 132, "Employers Disclosure About Pensions and Other Post-retirement Benefits, an amendment of FASB Statements No. 87, 88, and 106" (SFAS 132). This statement revises disclosures about pension and other post-retirement benefit plans. It does not change the measurement or recognition of those plans. The statement is effective for fiscal years beginning after December 15, 1997. The Company will adopt SFAS 132 in the fourth quarter of 1998. NOTE 4 - INVENTORIES: - --------------------- Inventories are stated at the lower of cost or market. For U.S. operations, cost is determined using the last-in, first-out (LIFO) method. For foreign operations, cost is determined using the first-in, first-out (FIFO) method. The components of inventories are: March 31, Dec. 31, 1998 1997 ---- ---- Finished goods $20,923 $21,317 Raw materials 7,174 7,864 -------- ------- 28,097 29,181 Less reserves 1,035 976 -------- ------- $27,062 $28,205 ======== ======= -6- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, 1998 compared to Three Months Ended March 31, 1997. The following tables set forth certain information about the Company's two business segments, Environmental Products and Services and Textile Chemical Specialties. Three Months Ended March 31, 1998 1997 ---- ---- % of % of Amount Sales Amount Sales ------ ----- ------ ----- (in thousands except percentages) Sales Environmental Products and Services $12,840 26.4% $13,955 31.2% Textile Chemical Specialties 35,732 73.6 30,754 68.8 -------- ------ -------- ----- Total 48,572 100.0 44,709 100.0 Cost of Sales Environmental Products and Services 8,310 64.7 9,641 69.1 Textile Chemical Specialties 20,483 57.3 17,759 57.7 -------- -------- Total 28,793 59.3 27,400 61.3 Gross Margin Environmental Products and Services 4,530 35.3 4,314 30.9 Textile Chemical Specialties 15,249 42.7 12,995 42.3 -------- -------- Total 19,779 40.7 17,309 38.7 Operating Expense Environmental Products and Services 2,944 22.9 2,902 20.8 Textile Chemical Specialties 10,027 28.1 8,620 28.0 -------- -------- Total 12,971 26.7 11,522 25.8 Operating Income Environmental Products and Services 1,586 12.4 1,412 10.1 Textile Chemical Specialties 5,222 14.6 4,375 14.2 -------- -------- Total 6,808 14.0 5,787 12.9 Other Expense (429) (0.9) (789) (1.7) -------- ----- -------- ----- Income Before Income Taxes 6,379 13.1 4,998 11.2 Provision for Income Taxes 2,615 5.4 2,024 4.5 -------- ----- -------- ---- Net Income $ 3,764 7.7% $ 2,974 6.7% ======== ===== ======== ===== -7- Operations Sales for the quarter ended March 31, 1998 were $48.6 million, an increase of 8.6% over the $44.7 million in the year earlier quarter on the strength of a 16.2% improvement in the Textile Chemical Specialties segment. This increase more than offset an 8.0% decrease in sales in the Environmental Products and Services segment. Operating income was $6.8 million, a 17.6% improvement over the $5.8 million recorded in 1997. On a fully diluted basis, net income was $.64 per share versus $.52 per share for the first quarter of 1997, an improvement of 23.1%. In the Textile Chemical Specialties segment, combined North America/Asia textile chemical sales for the first quarter jumped 25.6%. This reflected the impact of the Ivax garment processing and textile chemicals business acquired in July 1997, continued growth in Mexico, and strong sales in the related organic chemicals toll manufacturing business. The U.S. portion of this segment was unfavorably impacted by continued weak textile manufacturing activities and a style change in the garment sector from light colored denim to black which requires less of the Company's enzyme products to create the stone-washed effect. Europe division textile chemical sales improved 5.6% for the quarter in terms of U.S. dollars. Increased sales primarily in the Middle East and the former Soviet Republics coupled with new product introductions into Western Europe resulted in an overall physical volume increase of 10.7%. This volume growth more than offset the 8.2% net negative currency effect primarily due to the stronger U.S. dollar versus the Dutch guilder. More than half of the decline in sales in the Environmental Product and Services segment was the result of the sale of the reverse osmosis membranes business in December 1997. The ongoing operations in this segment showed a 3.2% sales drop for the quarter versus the same 1997 period, primarily a result of weak ion exchange industrial market conditions both domestically (especially for replacement resins) and in the Far East. These were somewhat offset by new product sales and major growth at key customers in the toner/polymer product line and growth in biochemical sales in Europe. The overall gross margin for the quarter ending March 31, 1998 was 40.7%, a substantial improvement over the 38.7% experienced during the similar 1997 period. The gross margin in the Textile Chemical Specialties segment increased slightly to 42.7% for the quarter versus last year's rate of 42.3%. Margins in North America/Asia improved significantly primarily due to favorable customer mix and manufacturing fixed cost controls in the U.S. In the related organics chemical business, margins also improved as a direct result of the increase in higher margin toll manufacturing business. Margins in Europe improved slightly as the continued -8- favorable impact of a weaker guilder as compared with certain other European currencies coupled with a small selling price increase were almost completely offset by higher raw material costs and an unfavorable product mix. The gross margin in the Environmental Products and Services segment increased to 35.3% for the quarter, a substantial increase over the prior year margin of 30.9% as all product lines in this segment showed improvement. Overall margins in this segment were positively impacted by the results of several strategic actions which were set in motion last year including: the alliance with Dow Chemical for supply of certain ion exchange resins with consequent cost reductions; the switch from purchasing to manufacturing in-house a raw material used in the polymer product line; and the aforementioned divestiture of the reverse osmosis membrane business which carried substantially lower margins. In addition, margins in this segment also improved due to average selling price increases and a favorable product/customer mix in the biochemical product line. Operating expenses as a percent of sales increased to 26.7% for the first quarter as compared with the 25.8% reported in the similar period in 1997. The Textile Chemical Specialties segment expenses as a percent of sales were essentially equal to the 1997 level. Expenses increased by $1.4 million primarily as a result of the Ivax acquisition, while the sales volume also increased at a proportionate level. The lower sales volume caused the Environmental Products and Services segment expenses as a percent of sales to increase over the similar quarter in 1997. Income Taxes and Other Items The Company's provision for income taxes was computed using applicable prevailing income tax rates. The Company's effective tax rate of 41.0% for the first quarter of 1998 was slightly higher than last year's equivalent rate of 40.5%. Other income (expense) was ($0.4) million for the quarter versus ($0.8) million in last year's comparable period. The decrease was primarily due to lower interest costs and a favorable currency adjustment of $0.7 million. This currency impact resulted from the Korean Won strengthening against the U.S. dollar, reversing part of the loss taken in the last quarter of 1997, and the revaluation of a Dutch guilder loan from the European subsidiary to the U.S. due to the guilder weakening against the dollar. The quarter's results also included $0.2 million in costs associated with the recently terminated merger agreement. -9- Liquidity and Capital Resources Cash and cash equivalents of $5.7 million as of March 31, 1998 were $20.9 million under the December 31, 1997 balance of $26.6 million, primarily the result of using cash from the Company's European subsidiary to pay off revolving debt. Operating activities generated a net cash flow usage of $9.3 million for the first quarter of 1998 versus a $2.6 million net cash provision for the same period in 1997. This was primarily the result of a substantial reduction in accounts payable and accrued expenses due to: the return to the Dutch taxing authorities of an erroneous tax refund in the Netherlands; executive bonus payouts; and payments for annual pensions, the terminated merger agreement and for high inventory and capital expenditures. Net cash used by investing activities totalled $2.8 million for the first quarter as compared with $1.8 million for the comparable 1997 period. The quarter-to-quarter increase was the result of the purchase of property adjacent to the manufacturing site in Ede, Holland which will be used for future expansion. Financing activities used $8.7 million in net cash during the first quarter of 1998 due to repayment of revolving credit facilities. The similar period in 1997 showed a net cash provision of $1.3 million. The Company has a $40 million unsecured multi-currency revolving line of credit with CoreStates Bank which expires in February, 2002. The amount owed under this credit facility was $8.0 million as of March 31, 1998. On April 7, 1998 the Company purchased certain assets of the garment processing specialty chemicals business of Ocean Wash Inc. and Ocean Wash de Mexico S.A. de C.V. The Company funded this purchase from the aforementioned revolving line of credit. During 1998, the Company believes its capital expenditures for existing operations can be funded from operating cash flow and are expected to be slightly higher than 1997 levels. The Company further believes that between its anticipated operating cash flow and present credit facilities, it will be able to meet both short-term and long-term financial obligations in the foreseeable future. However, the Company may seek, as required, equity or debt financing to provide capital to fund strategic business opportunities, including possible business acquisitions, which could require substantial capital outlays. The timing and amount of such potential capital requirements cannot be determined at this time and will depend on a number of factors, including the nature and size of strategic business opportunities that the Company may elect to pursue. Foreign Exchange The Company has foreign subsidiaries in Europe, Asia, Africa and the Americas and, for all subsidiaries, except the Company's Mexican subsidiary, the Company has determined the functional currencies are the subsidiaries' local currency. The Company's Mexican subsidiary's functional currency is considered -10- to be the U.S. dollar because of that country's designation as a highly inflationary economy. The Company has a large manufacturing facility in Ede, Holland where chemicals are manufactured and sold either directly to customers or to various subsidiaries, which are principally in Europe. Intercompany balances arise between the Dutch operation and various subsidiaries. Overall, the Company recognized an exchange gain of $0.7 million in the first quarter of 1998 versus a slight currency exchange loss in the similar period in 1997. PART II - OTHER INFORMATION Item 1. Legal Proceedings - ------- ----------------- There have been no material developments in connection with any pending legal proceedings as reported in the Registrant's Form 10-K Annual Report which was filed with the Securities and Exchange Commission on March 31, 1998. -11- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYBRON CHEMICALS INC. /s/ Dennis J. Fiore ------------------- Dennis J. Fiore Vice President, Finance and Chief Financial Officer Date: May 14, 1998 EX-27 2
5 0000832815 SYBRON CHEMICALS INC. 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 5,715,000 0 38,197,000 0 27,062,000 74,258,000 35,715,000 0 130,196,000 38,644,000 0 0 0 59,000 65,300,000 130,196,000 48,572,000 48,572,000 28,793,000 41,764,000 91,000 0 338,000 6,379,000 2,615,000 3,764,000 0 0 0 3,764,000 .66 .64
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