<PAGE> 1
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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 MARCH 28, 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: 0-27892
SIPEX CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction
of incorporation or organization)
22 LINNELL CIRCLE, BILLERICA, MASSACHUSETTS
(Address of principal executive offices)
04-6135748
(I.R.S. Employer Identification No.)
01821
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (978) 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 17,781,308 shares of the Registration's Common Stock issued and
outstanding as of April 24, 1998.
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<PAGE> 2
SIPEX CORPORATION
FORM 10-Q
THREE MONTHS ENDED MARCH 28, 1998
INDEX
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
- ---------- ----
<S> <C> <C> <C>
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 1997
and March 28, 1998. 3
Condensed Consolidated Statements of Operations for the
three months ended March 29, 1997 and March 28, 1998. 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 29, 1997 and March 28, 1998. 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 *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
- ---------------
* No information provided due to inapplicability of item.
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SIPEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 28,
1997 1998
------------ ---------
<S> <C> <C>
ASSETS:
Current Assets
Cash and cash equivalents................................. $23,887 $28,145
Short-term investment securities.......................... 16,099 9,999
Accounts receivable, less allowances of $596 and $608 at
December 31, 1997 and March 28, 1998, respectively..... 8,693 12,129
Inventories............................................... 13,988 17,205
Deferred income taxes..................................... 1,343 1,343
Prepaid expenses.......................................... 500 128
------- -------
Total current assets................................... 64,510 68,949
Property, plant, and equipment, net......................... 8,345 9,326
Other assets................................................ 127 117
------- -------
Total assets........................................... $72,982 $78,392
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities
Current portion of long term debt......................... $ 45 $ 29
Accounts payable.......................................... 2,772 3,228
Accrued expenses.......................................... 2,290 2,145
------- -------
Total current liabilities.............................. 5,107 5,402
Long term debt.............................................. 8 4
------- -------
Total liabilities...................................... 5,115 5,406
------- -------
Shareholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized and no shares issued or outstanding at
December 31, 1997 and March 28, 1998, respectively..... -- --
Common stock, $.01 par value, 40,000,000 shares authorized
and 17,711,422 and 17,779,268 shares issued and
outstanding at December 31, 1997 and March 28, 1998,
respectively........................................... 177 178
Additional paid-in capital................................ 97,586 97,961
Accumulated deficit....................................... (30,059) (25,258)
Accumulated other comprehensive income.................... 163 105
------- -------
Total shareholders' equity............................. 67,867 72,986
------- -------
Total liabilities and shareholders' equity............. $72,982 $78,392
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
SIPEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 29, MARCH 28,
1997 1998
--------- ---------
<S> <C> <C>
Net sales................................................... $10,980 $16,184
Cost of sales............................................... 5,951 8,006
------- -------
Gross profit........................................... 5,029 8,178
------- -------
Operating Expenses
Research and development............................... 1,309 1,478
Marketing and selling.................................. 1,218 1,593
General and administrative............................. 651 763
------- -------
Total operating expenses.................................... 3,178 3,834
------- -------
Income from operations...................................... 1,851 4,344
Other income (expense), net................................. 288 456
------- -------
Income before income taxes.................................. 2,139 4,800
Income tax expense.......................................... 323 --
------- -------
Net income.................................................. $ 1,816 $ 4,800
======= =======
Net income per common share-basic........................... $ 0.11 $ 0.27
======= =======
Net income per common share-assuming dilution............... $ 0.10 $ 0.26
======= =======
Weighted average common shares outstanding-basic............ 17,198 17,750
======= =======
Weighted average common shares outstanding-assuming
dilution.................................................. 18,440 18,796
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
SIPEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 29, MARCH 28,
1997 1998
--------- ---------
<S> <C> <C>
Operating activities:
Net income................................................ $ 1,816 $ 4,800
Adjustments to reconcile net income to net cash (used in)
provided by operating activities.......................
Additions to accounts receivable allowances............... 472 12
Depreciation and amortization............................. 336 504
Changes in current assets and liabilities
(Increase) decrease in accounts receivable................ (2,444) (3,448)
Increase in inventories................................... (7) (3,217)
(Increase) decrease in prepaid expenses and other
assets................................................. (16) 382
Increase (decrease) in accounts payable and accrued
expenses............................................... 87 311
-------- ---------
Net cash (used in) provided by operating activities......... 244 (656)
-------- ---------
Investing activities:
Proceeds from maturity of investment securities........... 136 134,127
Purchase of investment securities......................... (9,633) (128,027)
Purchase of property, plant, and equipment................ (1,263) (1,483)
-------- ---------
Net cash (used in) provided by investing activities.... (10,760) 4,617
-------- ---------
Financing activities:
Proceeds from issuance of common stock.................... 140 376
Payment of capital lease obligations...................... (53) (20)
-------- ---------
Net cash provided by financing activities................. 87 356
Effect of foreign currency translation adjustments........ (12) (58)
-------- ---------
Increase (decrease) in cash and cash equivalents.......... (10,441) 4,258
Cash and cash equivalents, beginning of period............ 14,787 23,887
-------- ---------
Cash and cash equivalents, end of period.................... $ 4,346 $ 28,145
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
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, 1997 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 28, 1998 are not necessarily indicative of the results to be expected for
the full fiscal year.
2. NEW ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and display of comprehensive income and its
components in a full set of financial statements. For the Company, comprehensive
income includes net earnings and unrealized gains and losses from currency
translation. For 1997 and 1998, the impact of other elements of comprehensive
income were immaterial so net income as stated approximates comprehensive
income.
3. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 28,
1997 1998
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Inventories consist of:
Raw materials................................... $ 6,424 $ 8,751
Work in process................................. 4,237 4,763
Finished goods.................................. 3,327 3,691
------- -------
$13,988 $17,205
======= =======
</TABLE>
4. NET INCOME PER SHARE
Net income per share- basic is based upon the weighted average number of
common shares outstanding. Income per share is assuming dilution based upon the
weighted average number of 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.
6
<PAGE> 7
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
circuits and data converters. Applications for the Company's products include
telecommunications, 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 29, 1997 and March 28, 1998 as a percentage of net sales and
provides the percentage change of such items comparing the interim periods ended
March 28, 1998 to the corresponding period from the prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
PERCENTAGE
MARCH 29, MARCH 28, INCREASE
1997 1998 (DECREASE)
--------- --------- ----------
<S> <C> <C> <C>
Net sales................................................... 100% 100% 47.4%
Cost of Sales............................................... 54.2 49.5 (34.5)
---- ---- ------
Gross profit................................................ 45.8 50.5 62.6
---- ---- ------
Operating expenses
Research and development............................... 11.9 9.1 12.9
Marketing and selling.................................. 11.1 9.8 30.7
General and administrative............................. 5.9 4.7 17.2
---- ---- ------
Total operating expenses.................................... 28.9 23.6 20.6
---- ---- ------
Operating income............................................ 16.9 26.9 134.6
Other income (expense)...................................... 2.6 2.8 58.3
---- ---- ------
Income before income taxes.................................. 19.5 29.7 124.4
Income tax expense.......................................... 2.9 0.0 (100.0)
---- ---- ------
Net income.................................................. 16.6% 29.7% 164.3%
==== ==== ======
</TABLE>
7
<PAGE> 8
Net sales for the first quarter of 1998 increased 47.4% to $16.2 million,
as compared to $11.0 million for the same period in the previous year. For the
first quarter of 1998, 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 1998 as compared to the corresponding
period in the prior year.
Gross profit increased for the first quarter of 1998 by $3.2 million to
$8.2 million, as compared to $5.0 million for the same period in the previous
year. As a percentage of net sales, gross profit increased to 50.5% for the
first quarter of 1998, from 45.8% 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 1998 increased
$169,000 or 12.9% 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
development of new products. As a percentage of net sales, research and
development expenses decreased slightly to 9.1% as compared to 11.9% for the
previous year.
Marketing and selling expenses increased 30.7% to $1.6 million for the
first quarter of 1998 as compared with $1.2 million for the same period of the
previous year. The increase was due primarily to higher costs associated with
commissions related to higher sales, marketing, advertising programs and
increased staffing. As a percentage of net sales, marketing and selling expenses
for the first quarter of 1998 declined slightly to 9.8% as compared to 11.1% for
the same period of time in the previous year due to staffing and compensation
increasing at a slower rate than sales growth.
General and administrative expenses increased by $112,000 for the first
quarter of 1998 as compared to the same period of the previous year. The
increase in spending for the first quarter of 1998 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 decreased slightly to 4.7% for the first quarter of 1998, as compared
to 5.9% for the comparable period of the previous year.
Other income/expense for the first quarter of 1998 consists primarily of
interest income on short-term investment securities. For the first quarter of
1998, other income/expense increased by $168,000 reflecting income of $456,000
as compared to income of $288,000 for the same period in the previous year, due
primarily to the interest income earned on short-term investment securities.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
At March 28, 1998, the Company had working capital of $63.5 million and
available funds of $39.4 million consisting of cash, cash equivalents and
short-term U.S. Government-backed investments. Up to $35,000,000 of this amount
was pledged in March 1998 as security for a lease which the Company entered into
for the construction and lease of a new facility in Milpitas, California. The
Company anticipates that the available funds and cash provided from operations
will be sufficient to meet cash and working capital requirements through at
least the end of 1998.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Except for historical information contained herein, the matters set forth
in this Form 10-Q, including the statements in the management's discussion are
forward-looking statements that are dependent on certain risks and uncertainties
including such factors, among others, as the timing, volume and pricing of new
orders received and shipped during the quarter, whether customer cancellations
and delays of outstanding orders increase, timely ramp-up of new facilities, and
the timely introduction of new processes and products.
Past performance of the Company may not be a good indicator of future
performance due to factors affecting the Company, its competitors, the
semiconductor industry and the overall domestic and international economy. The
semiconductor industry is characterized by rapid technological change, price
erosion, cyclical market patterns, occasional shortages of materials, capacity
constraints, variation in manufacturing efficiencies and significant
expenditures for capital equipment and product development. Furthermore, new
product introductions and patent protection of existing products are critical
factors for future sales growth and sustained profitability.
Although the Company believes that it has sufficient product lines,
manufacturing facilities and technical and financial resources for its current
operations, sales and profitability can be significantly affected by the above
and other risks discussed from time to time in the Company's other filings with
the Securities and Exchange Commission, including its Annual Report on Form 10-K
for the year ended December 31, 1997. Additionally, the Company's common stock
could be subject to significant price volatility should sales and/or earnings
fail to meet expectations of the investment community.
9
<PAGE> 10
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 11.1 Computation of Earnings Per Common Share
Exhibit 27.1 Financial Data Schedule
27.2 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
By: /s/ FRANK R. DIPIETRO
----------------------------------
FRANK R. DIPIETRO
EXECUTIVE VICE PRESIDENT,
FINANCE &
CHIEF FINANCIAL OFFICER
(DULY AUTHORIZED OFFICER &
PRINCIPAL FINANCIAL OFFICER)
DATE: May 12, 1998
11
<PAGE> 1
Exhibit 11.1
Computation of Shares Used in Computing
Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 29, March 28,
1997 1998
---------- ----------
<S> <C> <C>
Common shares, beginning of period 17,068,398 17,711,422
Common stock equivalents 1,596,092 1,621,187
SAB shares (1) 202,084 141,128
Treasury stock buyback (556,824) (715,635)
Weighted average shares issued 130,102 38,178
---------- ----------
18,439,852 18,796,280
========== ==========
</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
CONSOLIDATED BALANCE SHEET AS OF MARCH 28, 1998 AND FROM THE INTERIM CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 29, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-28-1998
<EXCHANGE-RATE> 1
<CASH> 28,145
<SECURITIES> 9,999
<RECEIVABLES> 12,737
<ALLOWANCES> 608
<INVENTORY> 17,205
<CURRENT-ASSETS> 68,949
<PP&E> 35,581
<DEPRECIATION> 26,255
<TOTAL-ASSETS> 78,392
<CURRENT-LIABILITIES> 5,402
<BONDS> 0
0
0
<COMMON> 178
<OTHER-SE> 72,986
<TOTAL-LIABILITY-AND-EQUITY> 78,392
<SALES> 0
<TOTAL-REVENUES> 16,184
<CGS> 0
<TOTAL-COSTS> 8,006
<OTHER-EXPENSES> 11,828
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 456
<INCOME-PRETAX> 4,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,800
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1
<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> 174
<OTHER-SE> 55,179
<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> 0.11
<EPS-DILUTED> 0.10
</TABLE>
