-----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, IczLzUdatIOK1z3/G29kTD0iap9LCOQhsY4E+e4hZIWF3CRfVut1BP3yBs97bw1g qE9Ajh59uOZb0q6vl8p8ag== 0000832815-99-000006.txt : 19990809 0000832815-99-000006.hdr.sgml : 19990809 ACCESSION NUMBER: 0000832815-99-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990806 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: 99679076 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 June 30, 1999 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 June 30, 1999 - ------------------------------ ---------------------------- Common stock, $.01 par value 5,728,494 SYBRON CHEMICALS INC. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This Form 10-Q Report contains information that is forward-looking, such as information relating to future capital expenditures and liquidity. Such forward-looking information involves important risks and uncertainties that could significantly affect expected results in the future from those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks and uncertainties include, but are not limited to, uncertainties relating to economic conditions, fluctuations in exchange rates of various foreign currencies, and other risks associated with foreign operations, changes in governmental and regulatory policies including environmental regulations, the pricing of raw materials, the ability of the Company to make and successfully integrate corporate acquisitions, technological developments, the impact of Year 2000 issues on the Company and changes in the competitive environment in which the Company operates. INDEX Page No. Part I Financial information Item 1 - Financial Statements Consolidated Balance Sheet - June 30, 1999 and December 31, 1998 1 Consolidated Statement of Operations - six months ended June 30, 1999 and 1998 2 Consolidated Statement of Operations - three months ended June 30, 1999 and 1998 3 Consolidated Statement of Cash Flows - six months ended June 30, 1999 and 1998 4 Notes to Consolidated Financial Statements 5 - 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 15 Part II Other information Item 1 Legal Proceedings 15 Exhibit Index 16 Signature 17 PART I - FINANCIAL INFORMATION SYBRON CHEMICALS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in thousands except share and per share data) ASSETS Unaudited Audited June 30, Dec. 31, 1999 1998 ---- ---- Current assets: Cash and cash equivalents $ 13,859 $ 14,966 Accounts receivable, net 50,049 46,089 Inventories, net 38,199 36,466 Prepaid and other current assets 4,074 5,690 -------- -------- Total current assets 106,181 103,211 Property, plant and equipment, net 76,521 80,175 Intangible assets, net 81,609 81,967 Other assets 4,727 4,931 -------- -------- $269,038 $270,284 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ $ 2,093 Current portion of long-term debt 12,944 9,285 Accounts payable 24,104 23,642 Accrued liabilities 17,063 16,237 ------- -------- Total current liabilities 54,111 51,257 Long-term debt 128,584 136,008 Deferred income taxes 5,013 3,904 Postretirement benefits 3,699 3,739 Other liabilities 2,495 2,728 -------- -------- Total liabilities 193,902 197,636 -------- -------- 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 5,941,165 and 5,938,050 shares 59 59 Additional paid-in capital 24,157 24,151 Retained earnings 66,046 60,414 Accumulated other comprehensive losses (10,872) (7,610) Treasury stock, at cost - 212,671 and 218,299 shares (4,254) (4,366) --------- --------- Total shareholders' equity 75,136 72,648 --------- -------- $269,038 $270,284 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) Six months ended June 30, 1999 1998 ---- ---- Net sales $133,659 $ 97,555 -------- -------- Cost of sales 87,201 58,754 Selling, general and administrative 27,892 25,142 Research and development 2,665 1,986 -------- -------- 117,758 85,882 Operating income 15,901 11,673 -------- -------- Other income(expense) Interest expense (5,520) (838) Other - net (836) (167) --------- --------- (6,356) (1,005) Income before income taxes 9,545 10,668 Provision for income taxes 3,913 4,393 -------- -------- Net income $ 5,632 $ 6,275 ======== ======== Net income per share: Basic $ .98 $ 1.10 ======== ======== Diluted $ .98 $ 1.07 ======== ======== Weighted average shares outstanding: Basic 5,725,065 5,683,527 Diluted 5,754,953 5,881,397 The accompanying notes are an integral part of the financial statements -2- SYBRON CHEMICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited in thousands except per share amounts) Three months ended June 30, 1999 1998 ---- ---- Net sales $ 64,974 $ 48,983 -------- -------- Cost of sales 42,074 29,961 Selling, general and administrative 15,043 12,660 Research and development 1,368 1,032 -------- -------- 58,485 43,653 Operating income 6,489 5,330 -------- -------- Other income(expense) Interest expense (2,699) (500) Other - net (24) (541) --------- --------- (2,723) (1,041) Income before income taxes 3,766 4,289 Provision for income taxes 1,544 1,778 --------- -------- Net income $ 2,222 $ 2,511 ======== ======== Net income per share: Basic $ .39 $ .44 ======== ======== Diluted $ .38 $ .43 ======== ======== Weighted average shares outstanding: Basic 5,726,820 5,688,751 Diluted 5,794,905 5,881,019 The accompanying notes are an integral part of the financial statements -3- SYBRON CHEMICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited in thousands) Six months ended June 30, 1999 1998 Cash flows from operating activities: Net income $ 5,632 $ 6,275 ------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,711 3,287 Provision for losses on accounts receivable 292 280 Changes in assets and liabilities: Accounts receivable (6,075) (2,837) Inventory (2,704) 1,482 Other current assets 64 30 Accounts payable and accrued expenses 2,464 (10,308) Income taxes payable 2,094 (1,621) Other assets and liabilities - net 1,197 (767) -------- -------- Net cash provided (used) by operating activities 9,675 (4,179) -------- -------- Cash flows from investing activities: Capital expenditures (2,443) (4,967) Purchase of business assets (1,611) (6,815) Other (212) --------- -------- Net cash used by investing activities (4,266) (11,782) --------- -------- Cash flows from financing activities: Net repayments under revolving credit facilities (1,810) (4,093) Repayment of debt (3,728) Direct costs of financing (287) Proceeds from exercise of stock options 31 216 -------- ------- Net cash used by financing activities (5,794) (3,877) -------- -------- Effect of exchange rate changes on cash (722) (157) -------- -------- Net decrease in cash and cash equivalents (1,107) (19,995) Cash and cash equivalents at beginning of period 14,966 26,592 ------- ------- Cash and cash equivalents at end of period $13,859 $ 6,597 ======= ======= The accompanying notes are an integral part of the financial statements -4- 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 June 30, 1999 and the results of its operations and changes in its cash flows for the six months ended June 30, 1999 and 1998. 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, 1998 contained in the Company's Form 10-K which was filed with the Securities and Exchange Commission on March 31, 1999. 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 component's related tax effect for the three and six months ended June 30: Statement of Comprehensive Income Three Months Ended June 30, 1999 1998 ---- ---- Net income $ 2,222 $ 2,511 Other comprehensive income, net of tax: Foreign currency translation adjustments (1,076) 120 Comprehensive income $ 1,146 $ 2,631 ======= ====== -5- NOTE 2 - COMPREHENSIVE INCOME: (Cont'd.) - ------------------------------ Statement of Comprehensive Income Six Months Ended June 30, 1999 1998 Net income $ 5,632 $ 6,275 Other comprehensive income, net of tax: Foreign currency translation adjustments (3,262) (981) Comprehensive income $ 2,370 $ 5,294 ======= ======
Related Tax Effects of Each Component of Other Comprehensive Income Three Months Ended June 30, 1999 1998 ---------------------------------------- ---------------------------------------- Tax Net of Tax Net of Pre-Tax (Expense) Tax Pre-Tax (Expense) Tax Amount Benefit Amount Amount Benefit Amount ------ ------- ------ ------ ------- ------ Foreign currency translation adjustments $(1,076) -- $(1,076) $120 -- $120
Related Tax Effects of Each Component of Other Comprehensive Income Six Months Ended June 30,
1999 1998 ---------------------------------------- ---------------------------------------- Tax Net of Tax Net of Pre-Tax (Expense) Tax Pre-Tax (Expense) Tax Amount Benefit Amount Amount Benefit Amount ------ ------- ------ ------ ------- ------ Foreign currency translation adjustments $(3,262) -- $(3,262) $(981) -- $(981)
The following table illustrates the components of accumulated other comprehensive income and their associated changes for the six month period ending June 30, 1999: Accumulated Other Comprehensive Income Balances Six Months Ending June 30, 1999 Current Beginning Period Ending Balance Change Balance ------- ------ ------- Foreign currency translation adjustments $(7,253) $(3,262) $(10,515) Minimum pension liability adjustment (357) -- (357) -------- -------- -------- Accumulated other comprehensive losses $(7,610) $(3,262) $(10,872) ======== ======== ========= -6- NOTE 3 - ACCOUNTING PRONOUNCEMENTS: - ----------------------------------- In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not believe that the adoption of SFAS No. 133 will have a material effect on its consolidated financial statements. NOTE 4 - INVENTORIES: - --------------------- Inventories are stated at the lower of cost or market. For U.S. operations, except for Ruco, cost is determined using the last-in, first-out (LIFO) method. For all other operations, cost is determined using the first-in, first-out (FIFO) method. The components of inventories are: June 30, Dec. 31, 1999 1998 ---- ---- Finished goods $32,378 $28,871 Raw materials 8,294 9,632 ------- ------- 40,672 38,503 Less reserves 2,473 2,037 ------- ------- $38,199 $36,466 ======= ======= NOTE 5 - ACQUISITIONS: - ---------------------- On July 31, 1998, the Company acquired all of the outstanding capital stock of Ruco Polymer Corporation and all of the outstanding membership interests of Ruco Polymer Company of Georgia, LLC (collectively "Ruco"). The aggregate purchase price for the acquisition was $110 million, including the repayment of bank debt owed by Ruco. In April 1998, the Company acquired certain operating assets, not including manufacturing facilities, of the garment processing specialty chemicals businesses of Ocean Wash Inc. and Ocean Wash de Mexico de C.V., (collectively "Ocean Wash"), for $6.75 million. The acquired garment processing chemicals businesses have been merged into the Company's corresponding business sector. The above described acquisitions have been accounted for as purchases and, accordingly, the operating results of the acquired businesses have been included in the Company's consolidated financial statements since the date of acquisition. -7- NOTE 5 - ACQUISITIONS: (Cont'd.) - ---------------------- The Ocean Wash acquisition did not have a material effect on 1998 operating results. The following unaudited pro forma consolidated results of operations for the six months ended June 30, 1998 assume the Ruco acquisition occurred on January 1, 1998: 1998 ---- Net sales $139,224 Net income $ 5,612 Net income per diluted share $ 0.95 NOTE 6 - SEGMENT INFORMATION: - ----------------------------- The following schedules illustrate certain financial information about the Company's three business segments for the six and three months ended June 30. For 1999 the results of the Toners Strategic Business Unit, which was formerly a part of the Environmental Products and Services segment, is now included in the new Polymer Intermediate segment. This realignment coincided with the shift in management responsibility which was implemented in 1999 to help facilitate the planned growth in the solid polymer business. -8- NOTE 6 - SEGMENT INFORMATION: (Cont'd.) - ----------------------------- Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998. Six Months Ended June 30, ------------------------- 1999 1998 --------------- -------------- % of % of Amount Sales Amount Sales ------ ----- ------ ----- (in thousands except percentages) Sales Textile Chemical Specialties $ 66,764 49.9% $ 72,382 74.2% Polymer Intermediates 42,899 32.1 Environmental Products and Services 23,996 18.0 25,173 25.8 -------- ------ -------- ----- Total 133,659 100.0 97,555 100.0 Cost of Sales Textile Chemical Specialties 38,437 57.6 42,321 58.5 Polymer Intermediates 33,925 79.1 Environmental Products and Services 14,839 61.8 16,433 65.3 -------- -------- Total 87,201 65.2 58,754 60.2 Gross Margin Textile Chemical Specialties 28,327 42.4 30,061 41.5 Polymer Intermediates 8,974 20.9 Environmental Products and Services 9,157 38.2 8,740 34.7 -------- -------- Total 46,458 34.8 38,801 39.8 Operating Expenses Textile Chemical Specialties 22,066 33.1 21,333 29.5 Polymer Intermediates 3,550 8.3 Environmental Products and Services 4,941 20.6 5,795 23.0 -------- -------- Total 30,557 22.9 27,128 27.8 Operating Income Textile Chemical Specialties 6,261 9.3 8,728 12.0 Polymer Intermediates 5,424 12.6 Environmental Products and Services 4,216 17.6 2,945 11.7 -------- -------- Total 15,901 11.9 11,673 12.0 Other Expense, Net (6,356) (4.8) (1,005) (1.1) -------- ----- -------- ----- Income before income taxes 9,545 7.1 10,668 10.9 Provision for Income Taxes 3,913 2.9 4,393 4.5 -------- ----- -------- ---- Net Income $ 5,632 4.2% $ 6,275 6.4% ======== ===== ======== ===== -9- NOTE 6 - SEGMENT INFORMATION: (Cont'd.) - ---------------------------- Three Months Ended June 30, 1999 compared to Three Months Ended June 30, 1998. Three Months Ended June 30, --------------------------- 1999 1998 --------------- --------------- % of % of Amount Sales Amount Sales ------ ----- ------ ----- (in thousands except percentages) Sales Textile Chemical Specialties $ 32,899 50.6% $ 36,650 74.8% Polymer Intermediates 20,487 31.5 Environmental Products and Services 11,588 17.9 12,333 25.2 --------- ------ -------- ----- Total 64,974 100.0 48,983 100.0 Cost of Sales Textile Chemical Specialties 18,962 57.6 21,838 59.6 Polymer Intermediates 16,147 78.8 Environmental Products and Services 6,965 60.1 8,123 65.9 -------- -------- Total 42,074 64.8 29,961 61.2 Gross Margin Textile Chemical Specialties 13,937 42.4 14,812 40.4 Polymer Intermediates 4,340 21.2 Environmental Products and Services 4,623 39.9 4,210 34.1 -------- -------- Total 22,900 35.2 19,022 38.8 Operating Expenses Textile Chemical Specialties 11,134 33.8 10,888 29.7 Polymer Intermediates 1,836 9.0 Environmental Products and Services 3,441 29.7 2,804 22.7 -------- -------- Total 16,411 25.2 13,692 28.0 Operating Income Textile Chemical Specialties 2,803 8.6 3,924 10.7 Polymer Intermediates 2,504 12.2 Environmental Products and Services 1,182 10.2 1,406 11.4 -------- -------- Total 6,489 10.0 5,330 10.8 Other Expense, Net (2,723) (4.2) (1,041) (2.1) -------- ----- -------- ----- Income before income taxes 3,766 5.8 4,289 8.7 Provision for Income Taxes 1,544 2.4 1,778 3.6 -------- ----- -------- ---- Net Income $ 2,222 3.4% $ 2,511 5.1% ======== ===== ======== ===== -10- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operations Revenues and operating income increased for the second quarter of 1999 versus the prior year's quarter, with lower net income, resulting in earnings per share of 38 cents (fully diluted), down 11.6% from the 43 cents per share recorded in the same period last year. The increases in sales and operating income were a result of the acquisitions of Ruco Polymer Corporation and Ruco Polymer Company of Georgia LLC on July 31, 1998 ("Ruco") and Green Releaf Bio Tech Inc. ("Green Releaf") in February, 1999. Net income was reduced by the increased interest expense related to the acquisitions. For the six months ended June 30, 1999, earnings per share (fully diluted) were $.98 compared to $1.07 for the first half of 1998, down 8.4%. Sales for the quarter were $64,974,000, a 32.6% increase over the same period last year. Operating income increased 21.7% to $6,489,000, while net income declined 11.5% to $2,222,000 versus the $2,511,000 in the same quarter in 1998. For the six month period ended June 30, 1999, sales were $133,659,000 a 37.0% increase over the same period last year. Operating income increased 36.2% to $15,901,000 while net income declined 10.2% to $5,632,000 versus the $6,275,000 in the same period in 1998. For the second quarter of 1999, sales in the Textile Chemical Specialties segment of $32,899,000 were $3,751,000 (10.2%) lower then the similar period in 1998, while operating income of $2,803,000 was $1,121,000 below 1998, a decrease of 28.6%. Continued softness in the textile chemicals and garment processing markets in North America was responsible for a 7.8% reduction in sales. Reduced physical volume of 6.3% in Europe also contributed to the sales decline. Somewhat offsetting these declines were increased Textile Chemical sales in Latin America and Asia, reflecting the increased focus being placed on these markets. Sales of organic chemicals, included in this segment, also increased, due to new toll manufacturing business and greater sales of proprietary products. Gross profit of the segment increased by 2 percentage points, mainly as a result of cost control efforts in North America and reduced raw material costs. The decline in operating profit for this segment in the second quarter was due principally to the sales declines, and higher costs associated with the new operations in Argentina and Hong Kong. Partially offsetting these factors were the previously mentioned lower raw material and manufacturing costs in North America. For the six month period ending June 30, 1999, Textile Chemical sales were $5,618,000 (7.8%) below the same period last year reflecting the softness in the North American textile and garment markets, -11- somewhat offset by the inclusion of the sales of Ocean Wash Inc. and Ocean Wash de Mexico S. A. de C. V. (acquired in April, 1998), and softness in European textile markets. Operating income was $2,467,000 (28.3%) below the same period reflecting the lower sales, increased costs in Europe for the enterprise systems implementation and increased operating costs of the new operations. Sales for the second quarter in the Polymer Intermediates segment, formed by Ruco and the toner polymer businesses (which is reported in Environmental Products and Services for 1998), were $20,487,000. Unit sales of powder coating resins increased by 8.2% with dollar volume up by only 1.7% due to price decreases, which were offset by raw material cost reductions. The segment contributed operating profit of $2,504,000, mostly earned by Ruco. For the six month period ending June 30, 1999, sales were $42,899,000 and operating profits were $5,424,000, mainly from Ruco. Second quarter sales in the Environmental Products and Services segment were $11,588,000. The 6.0% decline from the same period last year results from the inclusion of the Toner Polymer business in the newly formed Polymer Intermediates segment and lower Ion Exchange sales, offset by increased sales of Biochemicals. Increased Ion Exchange physical volume was more then offset by price decreases resulting in a 3.8% decline in sales revenue for ion exchange products. A 15.5% increase in sales of Biochemicals is primarily attributable to the inclusion of Green Releaf operations. Gross profit increased by 5.8 percentage points from the same quarter last year, mainly a result of ion exchange cost control efforts and the inclusion of high margin Green Releaf sales. Operating income in this segment was $1,182,000 for the quarter, a decline of 15.9% from the second quarter of 1998. The decline is attributed to the exclusion of the Toner business and to increased selling and R&D expenses in the Biochemicals business. For the six month period ended June 30, 1999, sales were $1,177,000 (4.7%) below the same period last year reflecting the exclusion of the Toner business offset somewhat by the increased Biochemicals sales of Green Releaf products. Operating income was $1,271,000 (43.2%) above the same period last year reflecting a $1,500,000 insurance settlement recorded in the first quarter of 1999. Other expense of $2,723,000 for the quarter was $1,682,000 higher than the same period in 1998 primarily due to the increased interest costs relating to the acquisitions. Partially offsetting this increase were foreign currency translation benefits reflecting Canadian dollar versus the U.S. dollar exchange differences. For the six month period ended June 30, 1999, Other Expense was $5,351,000 higher than the same period last year primarily related to the additional interest expense associated with the acquisitions. The overall gross margin for the second quarter of 1999 was 35.2% versus 38.8% in 1998. The decline is due to the inclusion of Ruco in 1999, which produces a considerably lower gross margin than the other -12- two segments, but also has considerably lower operating expenses. In the Textile Chemical Specialties segment, 1999 margin of 42.4% was 2.0 percentage points higher than 1998. Margins in North America and Latin America reflect lower sales of lower gross margin garment products and reduced raw material costs. The gross margin of the Polymer Intermediate segment was 21.2% for the second quarter of 1999. The gross margin in the Environmental Products and Services segment for the second quarter of 1999 increased 5.8 percentage points to 39.9%. Ion exchange margins improved, while the biochemical product line had substantially higher margins, mainly because of the Green Releaf products, and comprised a larger proportion of the total segment's sales. For the six month period ended June 30, 1999, the overall gross margin was 34.8% versus the margin of 39.8% in the same period in 1998. The decline is the result of the inclusion of Ruco in the 1999 results partially offset by increased margins in the Textile Chemical Specialties and Environmental Products and Services segments. The gross margin in the Textile Chemical Specialties segment increased by .9 percentage points to 42.4% reflecting lower sales of lower gross margin garment products and reduced raw material costs. Gross margin for Environmental Products and Services increased 3.5 percentage points to 38.2% primarily as a result of the acquisition of Green Releaf which has margins significantly above the average in this segment. Margins of 20.9% in the Polymer Intermediate segment are essentially unchanged from pre-acquisition margins. Operating expenses as a percent of sales decreased 2.8 percentage points to 25.2% in the second quarter of 1999 because of the lower operating cost structure of the Polymer Intermediates segment. The Textile Chemical Specialties segment operating expenses increased 4.1 percentage points to 33.8% of sales primarily as a result of increased selling and administrative expenses in Latin America and Asia with the start-up of new operations in Columbia, Argentina and Hong Kong consistent with the Company's plans to grow the business in those geographic areas. The Environmental Products and Services segment operating expenses increased 7.0 percentage points to 29.7% primarily as a result of increased selling expenses associated with the Green Releaf business. For the six month period ended June 30, 1999, operating expenses as a percentage of sales were 22.9% versus 27.8% in the same period in 1998. Operating expenses as a percentage of sales decreased as a result of the lower cost structure in the Polymer Intermediates segment and in the Environmental Products and Services segment reflecting the first quarter 1999 insurance settlement. Operating expense increased in the Textile Chemical Specialties segment as a result of selling and administrative expense increases in Latin America and Asia due to the focus on expanding in these areas. Expenses increased in Europe as a result of the implementation of an enterprise computer system. -13- The Company's provision for income taxes was computed using applicable prevailing income tax rates. Sybron's effective tax rate was 41.0% for 1999 and 1998. Liquidity and Capital Resources Cash and cash equivalents of $13.9 million as of June 30, 1999 were $1.7 million below the balance as of March 31, 1999. For the six month period ended June 30, 1999, operating activities generated $9.7 million versus a utilization of $4.2 million in the same period in 1998. The 1998 period reflected a utilization of cash for substantial reductions in accounts payable and accrued liabilities. Cash utilized from investing activities was $4.3 million in 1999 versus $11.8 million in 1998. The 1999 period reflects capital expenditures of $2.4 million and the purchase of Green Releaf. The 1998 period reflects capital expenditures of $5.0 million and purchase of Ocean Wash for $6.8 million. Cash utilized for financing activities for the six month period in 1999 was $5.8 million versus $3.9 million in 1998. The repayment of long-term debt of $3.7 million in 1999 was the primary reason for the difference. Management believes that its capital expenditures for existing operations can be funded from operating cash flow. Management also believes that cash flow from operations and available credit will be sufficient to finance its operations and debt service requirements for the foreseeable future. Year 2000 Readiness Disclosure Many currently installed computer systems are not capable of distinguishing 21st century dates from 20th century dates. As a result, in less than six months, computer systems and/or software used by many companies in a wide variety of applications will experience operating difficulties unless they are modified or upgraded to adequately process information involving, related to or dependent upon the century change. Significant uncertainty exists concerning the scope and magnitude of problems associated with the century change. The Company recognizes the need to ensure its operations will not be adversely impacted by Year 2000 software failures and has established a project team to address Year 2000 risks. The project team has and will continue to coordinate the identification of and implementation of changes to computer hardware and software applications that will attempt to ensure availability and integrity of the Company's information systems and the reliability of its operational systems and manufacturing processes. The Company is also assessing the potential overall impact of the impending century change on its business, results of operations and financial position. -14- The Company has reviewed its information and operational systems and manufacturing and laboratory processes in order to identify those services or systems that are not Year 2000 compliant. As a result of this review, the Company has determined that it will be required to modify or replace certain information and operational systems so they will be Year 2000 compliant. These modifications and replacements have been, are being, and will continue to be, made in conjunction with the Company's overall systems initiatives. The total cost of these Year 2000 compliance activities, estimated at less than $500,000, has not been, and is not anticipated to be, material to the Company's financial position or its results of operations. The Company expects to complete its Year 2000 project during 1999. Based on available information, the Company does not believe any material exposure to significant business interruption exist as a result of Year 2000 compliance issues. However, the company is evaluating a formal contingency plan in the event its year 2000 project is not completed in a timely manner. These costs and the timing in which the Company plans to complete its Year 2000 modification and testing processes are based on management's best estimates. However, there can be no assurance that the Company will timely identify and remediate all significant Year 2000 problems, that remedial efforts will not involve significant time and expense, or that such problems will not have a material adverse effect on the Company's business, results of operations or financial position. The Company also faces risk to the extent that suppliers of products, services and systems and others with whom the Company transacts business on a worldwide basis do not comply with Year 2000 requirements. The Company has initiated formal communications with significant suppliers and customers to determine the extent to which the company is vulnerable to these third parties failure to remediate their own Year 2000 issues. In the event any such third parties cannot provide the Company with products, services, or systems that meet the year 2000 requirements on a timely basis, or in the event Year 2000 issues prevent such third parties from timely delivery of products or services required by the Company, and the duration of such failure, the Company's results of operations could be materially adversely affected. To the extent Year 2000 issues cause significant delays in, or cancellation of, orders for the company's products or services, the Company's business, results of operations and financial position could be materially adversely affected. 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, 1999. -15- EXHIBIT INDEX Exhibit 27 Financial Data Schedule, filed electronically herewith. -16- 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/ Steven F. Ladin ------------------- Steven F. Ladin Vice President, Finance and Chief Financial Officer Date: August 6, 1999 -17- EX-27 2
5 0000832815 SYBRON CHEMICALS INC. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 13,859,000 0 50,049,000 0 38,199,000 106,181,000 76,521,000 0 269,038,000 54,111,000 0 0 0 59,000 75,077,000 269,038,000 133,659,000 133,659,000 87,201,000 117,758,000 836,000 0 5,520,000 9,545,000 3,913,000 5,632,000 0 0 0 5,632,000 0.98 0.98
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