<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
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 June 28, 1997
-------------
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: 0-27892
SIPEX Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-6135748
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
22 Linnell Circle, Billerica, Massachusetts 01821
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 667-8700
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- --------------------------------------------------------------------------------
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 8,742,539 shares of the Registration's Common Stock issued and
outstanding as of July 31, 1997.
1
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SIPEX CORPORATION
FORM 10-Q
SIX MONTHS ENDED JUNE 28, 1997
INDEX
Item Number Page
- ----------- ----
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1996 and June 28, 1997. 3
Condensed Consolidated Statements of Operations
for the three months and six months ended June
29, 1996 and June 28, 1997. 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 29, 1996 and June
28, 1997. 5
Notes To Condensed Consolidated Financial
Statements. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 7-9
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 10
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
SIPEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 28,
1996 1997
------------ -----------
<S> <C> <C>
Assets:
Current Assets
Cash and cash equivalents $ 14,787 $ 7,295
Short-term investment securities 22,359 29,671
Accounts receivable, less allowances of $255
and $507 at December 31, 1996 and June 28,
1997, respectively 5,138 6,875
Inventories 11,625 11,030
Prepaid expenses and other current assets 208 548
-------- --------
Total current assets 54,117 55,419
Property, plant, and equipment, net 3,313 5,681
Other assets 219 193
======== ========
Total assets $ 57,649 $ 61,293
======== ========
Liabilities and Shareholders' Equity:
Current Liabilities
Current portion of long term debt $ 190 $ 120
Accounts payable 2,571 1,022
Accrued expenses 1,436 2,372
-------- --------
Total current liabilities 4,197 3,514
Long term debt 43 11
-------- --------
Total liabilities 4,240 3,525
-------- --------
Shareholders' Equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized and no shares issued or
outstanding at December 31, 1996 and
June 28, 1997, respectively -- --
Common stock, $.01 par value, 40,000,000
shares authorized and 8,534,199 and 8,699,371
shares issued and outstanding at December 31,
1996 and June 28, 1997, respectively 85 87
Additional paid-in capital 96,472 96,644
Accumulated deficit (43,304) (39,115)
Cumulative translation adjustment 156 152
-------- --------
Total shareholders' equity 53,409 57,768
-------- --------
Total liabilities and shareholders' equity $ 57,649 $ 61,293
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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SIPEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- -----------------------
June 29, June 28, June 29, June 28,
1996 1997 1996 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales $9,117 $12,005 $17,640 $22,985
Cost of sales 5,313 6,382 10,475 12,333
------ ------- ------- -------
Gross profit 3,804 5,623 7,165 10,652
------ ------- ------- -------
Operating expenses
Research and development 1,136 1,344 2,154 2,653
Marketing and selling 1,121 1,279 2,233 2,497
General and administrative 512 772 994 1,423
------ ------- ------- -------
Total operating expenses 2,769 3,395 5,381 6,573
------ ------- ------- -------
Income from operations 1,035 2,228 1,784 4,079
Other income (expense) (79) 323 (330) 611
------ ------- ------- -------
Income before income taxes 956 2,551 1,454 4,690
Income tax expense 33 178 49 501
====== ======= ======= =======
Net income $ 923 $ 2,373 $ 1,405 $ 4,189
====== ======= ======= =======
Net income per common and
equivalent share $ 0.12 $ 0.26 $ 0.21 $ 0.46
====== ======= ======= =======
Weighted average common and common
equivalent shares outstanding 7,649 9,189 6,552 9,192
====== ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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SIPEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
June 29, June 28,
1996 1997
-------- --------
Operating activities:
<S> <C> <C>
Net income $ 1,405 $ 4,189
Adjustments to reconcile net income
to net cash (used in) provided by operating
activities
Additions to accounts receivable allowances 30 187
Depreciation and amortization 507 672
Changes in current assets and liabilities
Decrease (increase) in accounts receivable 961 (1,924)
(Increase) decrease in inventories (3,198) 595
Decrease (increase) in prepaid expenses and
other assets 111 (314)
Decrease in accounts payable and accrued
expenses (703) (613)
-------- --------
Net cash (used in) provided by operating activities (887) 2,792
-------- --------
Investing activities:
Proceeds from maturity of investment securities -- 3,286
Purchase of investment securities -- (10,598)
Purchase of property, plant, and equipment (679) (3,040)
-------- --------
Net cash used in investing activities (679) (10,352)
-------- --------
Financing activities:
Proceeds from issuance of common stock 18,257 174
Proceeds from (payment of) long-term debt (11,710) --
Payment of capital lease obligations (103) (102)
-------- --------
Net cash provided by financing activities 6,444 72
Effect of foreign currency translation
adjustments (17) (4)
-------- --------
Decrease in cash and cash equivalents 4,861 (7,492)
Cash and cash equivalents, beginning of period 257 14,787
-------- --------
Cash and cash equivalents, end of period 5,118 7,295
======== ========
</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 six
month period ended June 28, 1997 are not necessarily indicative of the
results to be expected for the full fiscal year.
2. INVENTORIES
<TABLE>
<CAPTION>
(In thousands)
December 31, June 28,
1996 1997
------- -------
<S> <C> <C>
Inventories consist of:
Raw materials $ 5,142 $ 5,132
Work in process 3,627 3,791
Finished goods 2,856 2,107
------- -------
$11,625 $11,030
======= =======
</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
June 29, 1996 and June 28, 1997, fully diluted income per share
approximates primary income per share.
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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
and six months ended June 29, 1996 and June 28, 1997 as a percentage of net
sales and provides the percentage increase of such items comparing the interim
periods ended June 28, 1997 to the corresponding period from the prior fiscal
year.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------- ----------------------------------
Percentage Percentage
June 29, June 28, Increase June 29, June 28, Increase
1996 1997 (Decrease) 1996 1997 (Decrease)
--------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100% 100% 31.7% 100% 100% 30.3%
Cost of sales 58.3 53.2 20.1 59.4 53.7 17.7
----- ----- ----- ----- ----- -----
Gross profit 41.7 46.8 47.8 40.6 46.3 48.7
----- ----- ----- ----- ----- -----
Operating expenses
Research and
development 12.5 11.2 18.3 12.2 11.5 23.2
Marketing and selling 12.3 10.7 14.1 12.7 10.9 11.8
General and
administrative 5.6 6.4 50.8 5.6 6.2 43.2
----- ----- ----- ----- ----- -----
Total operating expenses 30.4 28.3 22.6 30.5 28.6 22.2
----- ----- ----- ----- ----- -----
Operating income 11.3 18.6 115.3 10.1 17.7 128.7
Other income (expense) (0.8) 2.7 508.9 (1.9) 2.7 285.2
----- ----- ----- ----- ----- -----
Income before income
taxes 10.5 21.3 166.9 8.2 20.4 222.6
Income tax expense 0.4 1.5 439.4 0.2 2.2 922.5
===== ===== ===== ===== ===== =====
Net income 10.1% 19.8% 157.1% 8.0% 18.2% 198.2 %
===== ===== ===== ===== ===== =====
</TABLE>
7
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Net sales for both the second quarter and first six months of 1997
increased 31.7% and 30.3% to $12.0 million and $23.0 million respectively, as
compared to the same periods in the previous year. For the second quarter and
first six months 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 second quarter and first six months of 1997 as compared to
the corresponding periods in the prior year.
Gross profit increased for both the second quarter and first six months of
1997 by $1.8 million and $3.5 million, as compared to the same periods in the
previous year. As a percentage of net sales, gross profit increased to 46.8% and
46.3% for both the second quarter and first six months of 1997 respectively,
over comparable periods 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 second quarter and first six
months of 1997 increased $208,000 and $499,000 respectively, or 18.3% and 23.2%
as compared to the same periods one year ago. 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 decreased
slightly to 11.2% and 11.5% for the second quarter and first six months of 1997,
as compared to the same periods in the previous year.
Marketing and selling expenses increased 14.1% and 11.8% to $1.3 million
and $2.5 million, respectively, for the second quarter and first six months of
1997 as compared with $1.1 million and $2.2 million, respectively, for the same
periods 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
second quarter and first six months of 1997 declined to 10.7% and 10.9% as
compared to 12.3% and 12.7%, respectively, as compared to the previous year due
to staffing and compensation increasing at a slower rate than sales growth.
General and administrative expenses increased by $260,000 and $429,000 for
the second quarter and first six months of 1997, respectively, as compared to
the same period of the previous year. The increase in spending for the second
quarter and first six months of 1997 as compared to the same periods a year ago
was due to increased professional fees and additional staffing related expense.
As a percentage of net sales, general and administrative expenses increased
slightly to 6.4% and 6.2%, respectively for the second quarter and first six
months of 1997, an increase over the 5.6% for both of the comparable periods of
the previous year.
Other income/expense for the second quarter and first six months of 1997
consists primarily of interest income on short-term investment securities. For
the second quarter and first six months of 1997, other income/expense
represented income of $323,000 and $611,000 as compared to an expense of
($79,000) and ($330,000) for the same periods in the previous year. The increase
was due primarily to the interest income earned on short-term investment
securities
8
<PAGE> 9
and reduced interest expense due to 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 $178,000 and $501,000 for the
second quarter and first six months of 1997, respectively, an effective rate of
7% and 10.7%, respectively, for these periods. This effective rate differs from
the statutory rate of 34% due to the Company's utilization of its net operating
loss carryforwards.
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 additional 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 June 28, 1997, the Company had cash, cash equivalents and short-term
investment securities of $36.3 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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on May 30, 1997. Holders of an
aggregate of 8,656,106 shares at the close of business on April 10, 1997 were
entitled to vote at the meeting. At such meeting, the Company's shareholders
voted as follows:
a) To elect Messrs. Steward S. Flaschen and Manfred Loeb to the Board of
Directors for a three-year term.
<TABLE>
<CAPTION>
Total Vote for Each Total Vote Withheld from
Director Each Director
<S> <C> <C>
Steward S. 4,727,272 42,480
Flaschen
Manfred Loeb 4,727,272 42,480
</TABLE>
Messrs. Lionel H. Olmer and John L. Sprague will continue to hold office until
the 1998 Annual Meeting of Shareholders or until their successors have been duly
elected or until their earlier resignation or removal. Messrs. James E. Donegan
and Daniel Deroux will continue to hold office until the 1999 Annual Meeting of
Shareholders or until their successors have been duly elected or until their
earlier resignation or removal.
b) To approve the adoption of the Company's 1997 Stock Option Plan.
<TABLE>
<CAPTION>
<S> <C>
Total Vote for the Proposal 2,754,644
Total Vote Against the Proposal 1,788,818
Abstentions 3,353
Broker Non-votes 222,937
</TABLE>
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
<PAGE> 11
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: August 11, 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
Computation of Shares Used in Computing
Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 29, June 28, June 29, June 28,
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common shares, beginning of period 4,685,306 8,534,199 4,685,306 8,534,199
Common stock equivalents 733,549 717,955 733,549 716,809
SAB shares (1) 126,988 86,013 126,988 86,013
Treasury stock buyback (107,742) (296,626) (124,225) (251,661)
Weighted average shares issued 2,210,995 147,446 1,130,565 106,247
--------- --------- --------- ---------
7,649,096 9,188,987 6,552,183 9,191,607
========= ========= ========= =========
</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.
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 28, 1997 AND FROM THE INTERIM
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-28-1997
<EXCHANGE-RATE> 1
<CASH> 7,295
<SECURITIES> 29,671
<RECEIVABLES> 7,382
<ALLOWANCES> 507
<INVENTORY> 11,030
<CURRENT-ASSETS> 55,419
<PP&E> 30,675
<DEPRECIATION> 24,994
<TOTAL-ASSETS> 61,293
<CURRENT-LIABILITIES> 3,514
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 57,681
<TOTAL-LIABILITY-AND-EQUITY> 61,293
<SALES> 0
<TOTAL-REVENUES> 22,985
<CGS> 0
<TOTAL-COSTS> 12,333
<OTHER-EXPENSES> 5,962
<LOSS-PROVISION> 187
<INTEREST-EXPENSE> (967)
<INCOME-PRETAX> 4,690
<INCOME-TAX> 501
<INCOME-CONTINUING> 4,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,189
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
