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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-27892
SIPEX Corporation
(Exact name of registrant as specified in its charter)
Massachusetts 04-6135748
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22 Linnell Circle, Billerica, Massachusetts 01821
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 667-8700
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
There were 8,657,831 shares of the Registration's Common Stock issued and
outstanding as of May 2, 1997.
1
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SIPEX CORPORATION
FORM 10-Q
THREE MONTHS ENDED MARCH 29, 1997
INDEX
Item Number Page
- ----------- ----
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 3
1996 and March 29, 1997.
Condensed Consolidated Statements of Operations 4
for the three months ended March 30, 1996 and
March 29, 1997.
Condensed Consolidated Statements of Cash Flows 5
for the three months ended March 30, 1996 and
March 29, 1997.
Notes To Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial 7-9
Condition and Results of Operations.
Part II: Other Information
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 10
Exhibit 11.1 Computation of Earnings Per Common Share
Exhibit 27 Financial Data Schedule
Signatures 11
* No information provided due to inapplicability of item.
2
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Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
<TABLE>
SIPEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<CAPTION>
December 31, March 29,
1996 1997
------------ ---------
<S> <C> <C>
Assets:
Current Assets
Cash and cash equivalents $14,787 $ 4,346
Short-term investment securities 22,359 31,856
Accounts receivable, less allowances of $255 and
$792 at December 31, 1996 and March 29, 1997,
respectively 5,138 7,110
Inventories 11,625 11,632
Prepaid expenses 208 305
------- -------
Total current assets 54,117 55,249
Property, plant, and equipment, net 3,313 4,240
Other assets 219 138
------- -------
Total assets $57,649 $59,627
======= =======
Liabilities and Shareholders' Equity:
Current Liabilities
Current portion of long term debt $ 190 $ 155
Accounts payable 2,571 2,209
Accrued expenses 1,436 1,885
------- -------
Total current liabilities 4,197 4,249
Long term debt 43 25
------- -------
Total liabilities 4,240 4,274
------- -------
Shareholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized and no shares issued or outstanding at
December 31, 1996 and March 29, 1997, respectively. - -
Common stock, $.01 par value, 40,000,000 shares
authorized and 8,534,199 and 8,654,626 shares
issued and outstanding at December 31, 1996 and
March 29, 1997, respectively. 85 87
Additional paid-in capital 96,472 96,610
Accumulated deficit (43,304) (41,488)
Cumulative translation adjustment 156 144
------- -------
Total shareholders' equity 53,409 55,353
------- -------
Total liabilities and shareholders' equity $57,649 $59,627
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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<TABLE>
SIPEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
-------------------------
March 30, March 29,
1996 1997
--------- ---------
<S> <C> <C>
Net sales $8,523 $10,980
Cost of sales 5,162 5,951
------ -------
Gross profit 3,361 5,029
------ -------
Operating Expenses
Research and development 1,018 1,309
Marketing and selling 1,111 1,218
General and administrative 483 651
------ -------
Total operating expenses 2,612 3,178
------ -------
Income from operations 749 1,851
Other income (expense) (251) 288
------ -------
Income before income taxes 498 2,139
Income tax expense 16 323
------ -------
Net income $ 482 $ 1,816
====== =======
Net income per common and common
equivalent share $ 0.09 $ 0.20
====== =======
Weighted average common and common
equivalent shares outstanding 5,524 9,220
====== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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<TABLE>
SIPEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
------------------------
March 30, March 29,
1996 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net income $ 482 $ 1,816
Adjustments to reconcile net income
to net cash (used in) provided by operating activities
Additions to accounts receivable allowances 30 472
Depreciation and amortization 253 336
Changes in current assets and liabilities
(Increase) decrease in accounts receivable 1,158 (2,444)
Increase in inventories (1,798) (7)
Increase in prepaid expenses and other assets (251) (16)
Increase (decrease) in accounts payable and
accrued expenses (309) 87
------- --------
Net cash (used in) provided by operating activities (435) 244
------- --------
Investing activities:
Proceeds from maturity of investment securities - 136
Purchase of investment securities - (9,633)
Purchase of property, plant, and equipment (195) (1,263)
------- --------
Net cash used in investing activities (195) (10,760)
------- --------
Financing activities:
Proceeds from issuance of common stock 17 140
Proceeds from long-term debt 590 -
Payment of capital lease obligations (50) (53)
------- --------
Net cash provided by financing activities 557 87
Effect of foreign currency translation adjustments (11) (12)
------- --------
Decrease in cash and cash equivalents (84) (10,441)
Cash and cash equivalents, beginning of period 257 14,787
------- --------
Cash and cash equivalents, end of period $ 173 $ 4,346
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
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SIPEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared by
SIPEX Corporation (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be
read in conjunction with the financial statements and notes thereto
for the year ended December 31, 1996 included in the Company's 10-K
filing. The accompanying financial statements reflect all adjustments
(consisting solely of normal, recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of results
for the interim periods presented. The results of operations for the
three month period ended March 29, 1997 are not necessarily indicative
of the results to be expected for the full fiscal year.
2. Inventories
-----------
<TABLE>
<CAPTION>
(In thousands)
December 31, March 29,
1996 1997
------------ ---------
Inventories consist of:
<S> <C> <C>
Raw materials $ 5,142 $ 5,508
Work in process 3,627 4,022
Finished goods 2,856 2,102
------- -------
$11,625 $11,632
======= =======
</TABLE>
3. Net Income Per Share
--------------------
Net income per share is based upon the weighted average number of
common and common equivalent shares outstanding. Common equivalent
shares, consisting of outstanding stock options, are included in the
per share calculations where the effect of their inclusion would be
dilutive. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, all common and common equivalent shares
issued at prices less than the initial public offering price during
the twelve-month period prior to the initial filing of the
Registration Statement for the initial public offering have been
included in the calculation as if they were outstanding for all
periods using the treasury stock method. For the quarters ended March
30, 1996 and March 29, 1997, fully diluted income per share
approximates primary income per share.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This 10-Q contains certain statements of a forward-looking nature relating to
future events or the future financial performance of the Company and the
Company's actual future results may differ significantly from such statements.
In evaluating such statements, the various factors identified over the caption
"Factors Affecting Future Operating Results" should be considered.
Overview
SIPEX Corporation (the "Company") was organized and commenced operations in
1965. The Company is a leading manufacturer of high performance, high
value-added analog integrated circuits. The Company serves the broad analog
signal processing market with single, dual and multiprotocol interface circuits,
low power and high voltage application specific circuits, electroluminescent
driver and data converters. Applications for the Company's products include
telecommunications including personal computers and peripherals, battery powered
hand-held devices, cellular telephones, test equipment, factory automation,
networking, process controls and satellites. The Company operates in the analog
segment of the semiconductor industry.
Results of operations
The table below presents the statement of operations for the three months
ended March 30, 1996 and March 29, 1997 as a percentage of net sales and
provides the percentage increase of such items comparing the interim periods
ended March 29, 1997 to the corresponding period from the prior fiscal year.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
Percentage
March 30, March 29, Increase
1996 1997 (Decrease)
--------- --------- ----------
<S> <C> <C> <C>
Net sales 100% 100% 28.8%
Cost of Sales 60.6 54.2 15.3
---- ---- -------
Gross profit 39.4 45.8 49.6
---- ---- -------
Operating expenses
Research and development 11.9 11.9 28.6
Marketing and selling 13.0 11.1 9.6
General and administrative 5.7 5.9 34.8
---- ---- -------
Total operating expenses 30.6 28.9 21.7
---- ---- -------
Operating income 8.8 16.9 147.1
Other income (expense) (2.9) 2.6 214.8
---- ---- -------
Income before income taxes 5.9 19.5 329.5
Income tax expense 0.2 2.9 1,918.8
---- ---- -------
Net income 5.7% 16.6% 276.8%
==== ==== =======
</TABLE>
7
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Net sales for the first quarter of 1997 increased 28.8% to $11.0 million,
as compared to $8.5 million for the same period in the previous year. For the
first quarter of 1997, net sales increased primarily due to higher unit sales of
the Company's proprietary interface circuits, application specific circuits and
electroluminescent driver circuits. Both domestic and international sales
increased during the first quarter of 1997 as compared to the corresponding
period in the prior year.
Gross profit increased for the first quarter of 1997 by $1.6 million to
$5.0 million, as compared to $3.4 million for the same period in the previous
year. As a percentage of net sales, gross profit increased to 45.8% for the
first quarter of 1997, from 39.4% in the comparable period in the prior year
primarily due to the absorption of certain fixed costs over the increased sales
volume and due to increased market acceptance of the Company's proprietary
interface circuits, electroluminescent circuits and application specific
circuits.
Research and development expenses for the first quarter of 1997 increased
$291,000 or 28.6% as compared to the same period in the previous year. The
increase in spending was due to salary and other expenses relating to the hiring
of additional engineering personnel, and expenses associated with the increased
use of test wafers and mask sets. As a percentage of net sales, research and
development remained constant at 11.9% for the first quarter of 1997, as
compared to the same period in the previous year.
Marketing and selling expenses increased 9.6% to $1.2 million for the first
quarter of 1997 as compared with $1.1 million for the same period of the
previous year. The increase was due primarily to higher costs associated with
commissions, marketing, advertising programs and increased staffing. As a
percentage of net sales, marketing and selling expenses for the first quarter of
1997 declined slightly to 11.1% as compared to 13.0% for the previous year due
to staffing and compensation increasing at a slower rate than sales growth.
General and administrative expenses increased by $168,000 for the first
quarter of 1997 as compared to the same period of the previous year. The
increase in spending for the first quarter of 1997 as compared to the same
period a year ago was due to increased professional and additional staffing
related expense. As a percentage of net sales, general and administrative
expenses increased to 5.9% for the first quarter of 1997, a slight increase over
5.7% for the comparable period of the previous year.
Other income/expense for the first quarter of 1997 consists primarily of
interest income on short-term investment securities. For the first quarter of
1997 other income/expense improved by $539,000 reflecting income of $288,000 as
compared to an expense of $251,000 for the same period in the previous year, due
primarily to the interest income earned on short-term investment securities and
the repayment of the Company's revolving line of credit and subordinated notes
to affiliates in the second quarter of 1996.
The Company recorded income tax expense of $323,000 for the first three
months of 1997, an effective rate of 15% for the period. This effective rate
differs from the statutory rate of 34% due to the Company's utilization of its
net operating loss carry forwards.
8
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Liquidity and Capital Resources.
From fiscal 1994 through fiscal 1996, the Company has financed its
operations and met its capital requirements primarily through cash flow from
operations, loans from affiliates of Tractebel S.A. and a $7.5 million Revolving
Credit Agreement with Generale Bank. In April 1996, the Company raised net
proceeds of approximately $18.0 million by issuing common stock in its initial
public offering. In November 1996, the Company raised net proceeds of
approximately $33.0 million from the issuance of common stock in a public
offering. The proceeds will be primarily used for capital equipment relating to
expansion of facilities and general corporate purposes including working
capital. On March 29, 1997, the Company had cash, cash equivalents and
short-term investment securities of $36.2 million. The Company believes that
cash generated from operations and the net proceeds of its public offerings will
fund necessary capital expenditures and provide adequate working capital for the
next twelve months.
Factors Affecting Future Operating Results.
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including statements in this Form 10-Q) may contain
statements which are not historical facts, so called "forward-looking
statements", and are made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995 and releases of the Securities and
Exchange Commission. In particular, certain statements contained in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations which are not historical facts (including, but not limited to,
statements concerning anticipated availability of capital for working capital
and for capital expenditures) constitute "forward-looking" statements. The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not limited to the Company's reliance on outside foundries,
manufacturing risks such as yield variances, the absence of substantial
noncancellable backlog, the timely introduction and market acceptance of new
processes and products, changes in product mix, timing of investments in
research and development, the cyclical nature of the semiconductor industry,
competitors' actions and other risk factors described in the Company's filings
with the Securities and Exchange Commission, including but not limited to, its
Form 10-K for the year ended December 31, 1996.
9
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Part II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 11.1 Computation of Earnings Per Common Share
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
None
10
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SIGNATURES
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.
SIPEX CORPORATION
DATE: May 6, 1997 BY /s/ Frank R. DiPietro
-----------------------------------
Frank R. DiPietro
Executive Vice President, Finance &
Chief Financial Officer
(Duly Authorized Officer &
Principal Financial Officer)
11
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Exhibit 11.1
<TABLE>
Computation of Shares Used in Computing
Net Income Per Share
<CAPTION>
Three Months Ended
--------------------------
March 30, March 29,
1996 1997
---------- ----------
<S> <C> <C>
Common shares, beginning of period 4,685,306 8,534,199
Common stock equivalents 718,268 798,046
SAB shares (1) 129,675 101,042
Treasury stock buyback (53,355) (278,412)
Weighted average shares issued 44,135 65,051
--------- ---------
5,524,029 9,219,926
========= =========
</TABLE>
(1) In accordance with SEC Staff Accounting Bulletin No. 83 ("SAB" No. 83"),
issuance of Common Stock and common stock equivalents one year prior to the
initial filing date of the registration statement at share prices below the
public offering price of $9.50 per share, are considered to have been made
in anticipation of the public offering and have been included as if the
shares were outstanding for all periods presented until issued and
outstanding using the treasury stock method.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 29, 1997 AND FROM THE INTERIM
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-29-1997
<CASH> 4,346
<SECURITIES> 31,856
<RECEIVABLES> 7,902
<ALLOWANCES> 792
<INVENTORY> 11,632
<CURRENT-ASSETS> 55,249
<PP&E> 28,902
<DEPRECIATION> 24,662
<TOTAL-ASSETS> 59,627
<CURRENT-LIABILITIES> 4,249
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 55,266
<TOTAL-LIABILITY-AND-EQUITY> 59,627
<SALES> 0
<TOTAL-REVENUES> 10,980
<CGS> 0
<TOTAL-COSTS> 5,951
<OTHER-EXPENSES> 2,890
<LOSS-PROVISION> 472
<INTEREST-EXPENSE> (470)
<INCOME-PRETAX> 2,139
<INCOME-TAX> 323
<INCOME-CONTINUING> 1,816
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,816
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
