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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 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: 0-27892
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SIPEX CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
MASSACHUSETTS 04-6135748
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
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<S> <C>
22 LINNELL CIRCLE, BILLERICA, MASSACHUSETTS 01821
(Address of principal executive offices) (Zip Code)
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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 18,102,502 shares of the Registration's Common Stock issued and
outstanding as of November 10, 1999.
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SIPEX CORPORATION
FORM 10-Q
NINE MONTHS ENDED OCTOBER 2, 1999
INDEX
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ITEM
NUMBER PAGE
------ ----
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Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at October 2, 1999 and
December 31, 1998........................................... 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended October 2, 1999 and
September 26, 1998.......................................... 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended October 2, 1999 and September 26, 1998......... 5
Notes To Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7-10
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 11
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............................ 12
Exhibit 11.1 Computation of Earnings Per Common Share....... 12
Exhibit 27 Financial Data Schedule.......................... 12
Signatures..................................................................... 13
</TABLE>
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* No information provided due to inapplicability of item.
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SIPEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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OCTOBER 2, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
----------- ------------
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ASSETS:
Current Assets
Cash and cash equivalents................................. $ 6,876 $17,810
Short-term investment securities.......................... 9,433 7,981
Accounts receivable, less allowances of $630 and $449 at
October 2, 1999 and December 31, 1998, respectively.... 12,237 12,862
Inventories............................................... 19,219 16,682
Deferred income taxes-current............................. 3,523 3,523
Prepaid expenses and other current assets................. 2,788 1,224
-------- -------
Total current assets.............................. 54,076 60,082
Property, plant, and equipment, net......................... 14,412 10,306
Restricted cash equivalents and securities.................. 36,750 24,261
Deferred income taxes....................................... 4,741 4,741
Other assets................................................ 89 106
-------- -------
Total assets...................................... $110,068 $99,496
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities
Current portion of long term debt......................... $ -- $ 8
Accounts payable.......................................... 3,807 3,560
Accrued expenses.......................................... 6,212 3,218
-------- -------
Total current liabilities......................... 10,019 6,786
-------- -------
Shareholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized and no shares issued or outstanding at
October 2, 1999 and December 31, 1998, respectively.... -- --
Common stock, $.01 par value, 40,000,000 shares authorized
and 18,097,502 and 17,979,812 shares issued and
outstanding at October 2, 1999 and December 31, 1998,
respectively........................................... 181 180
Additional paid-in capital................................ 103,277 102,704
Accumulated deficit....................................... (3,319) (10,229)
Accumulated other comprehensive income (loss)............. (90) 55
-------- -------
Total shareholders' equity........................ 100,049 92,710
-------- -------
Total liabilities and shareholders' equity........ $110,068 $99,496
======== =======
</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)
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THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26,
1999 1998 1999 1998
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net sales...................................... $14,432 $16,211 $47,664 $48,585
Cost of sales.................................. 8,440 7,976 24,940 23,964
------- ------- ------- -------
Gross profit.............................. 5,992 8,235 22,724 24,621
------- ------- ------- -------
Operating expenses
Research and development.................. 2,389 1,715 6,271 4,883
Marketing and selling..................... 1,903 1,576 5,453 4,864
General and administrative................ 1,028 826 2,933 2,380
Facility exit costs....................... (1,083) (1,083)
------- ------- ------- -------
Total operating expenses............. 4,237 4,117 13,574 12,127
------- ------- ------- -------
Income from operations......................... 1,755 4,118 9,150 12,494
Other income, net.............................. 514 441 1,481 1,372
------- ------- ------- -------
Income before income taxes..................... 2,269 4,559 10,631 13,866
Income tax expense............................. 794 -- 3,721 --
------- ------- ------- -------
Net income..................................... $ 1,475 $ 4,559 $ 6,910 $13,866
======= ======= ======= =======
Net income per common share-basic.............. $ 0.08 $ 0.26 $ 0.38 $ 0.78
======= ======= ======= =======
Net income per common share-assuming
dilution..................................... $ 0.08 $ 0.25 $ 0.37 $ 0.74
======= ======= ======= =======
Weighted average common shares
outstanding-basic............................ 18,093 17,841 18,062 17,794
======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding-assuming dilution......... 18,708 18,576 18,658 18,673
======= ======= ======= =======
</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)
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NINE MONTHS ENDED
---------------------------
OCTOBER 2, SEPTEMBER 26,
1999 1998
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OPERATING ACTIVITIES:
Net income.................................................. $ 6,910 $ 13,866
Adjustments to reconcile net income to net cash
provided by operating activities:
Additions (reductions) to accounts receivable
allowances............................................ 172 (30)
Depreciation and amortization.......................... 1,808 1,508
Loss on disposal of assets............................. 51 --
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable........ 453 (4,600)
Increase in inventories........................... (2,537) (2,700)
Increase in prepaid expenses...................... (1,547) (1,068)
Increase in accrued taxes......................... 3,374 --
Increase (decrease) in accounts payable........... 247 (987)
Decrease in accrued expenses...................... (380) (172)
-------- ---------
Net cash provided by operating activities................... 8,551 5,817
-------- ---------
INVESTING ACTIVITIES:
Proceeds from maturity of investment securities........ 103,898 379,398
Purchase of investment securities...................... (105,350) (385,428)
Increase in restricted cash equivalents and
securities............................................ (12,489) --
Purchase of property, plant, and equipment............. (5,965) (3,316)
-------- ---------
Net cash used in investing activities....................... (19,906) (9,346)
-------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock................. 574 849
Payment of capital lease obligations................... (8) (36)
-------- ---------
Net cash provided by financing activities................... 566 813
Effect of foreign currency translation adjustments..... (145) (45)
-------- ---------
Decrease in cash and cash equivalents....................... (10,934) (2,761)
Cash and cash equivalents, beginning of period.............. 17,810 23,887
-------- ---------
Cash and cash equivalents, end of period.................... $ 6,876 $ 21,126
======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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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, 1998 included in the Company's Form 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 and nine month
periods ended October 2, 1999 are not necessarily indicative of the results to
be expected for the full fiscal year.
2. FACILITY EXIT COSTS
In the fourth quarter of 1998, Management of the Company and the Board of
Directors approved a plan to close its current manufacturing facility in
Milpitas, California and its sales office in France. As part of the plan, the
Company will be vacating the current leased facility in Milpitas and moving
operations to a new facility in Milpitas. Total estimated costs of $938,000
associated with the closure of the facility included $220,000 for rent, real
estate taxes, electricity, heat and water expenses for an estimated six month
period after the building is vacated and until it can be sub-leased or sold. The
balance of $718,000 represented charges to operations in 1998 for the write-down
to net realizable value of less efficient and duplicate machinery and equipment
not needed in the combined restructured manufacturing operations. Additionally,
the Company's plan includes the closure of its French sales operation and
relocation of these activities to the Company's new site in Belgium. As a result
of this action, the Company recorded $200,000 of facility exit costs, in the
fourth quarter of 1998, related to severance and other related employee benefit
costs.
Additionally, as of October 2, 1999, approximately $13,000 of the $1.138
million of costs remains to be paid. In the third quarter of 1999, the Company
recorded net proceeds of $1.1 million from the sale of the tangible assets of
the Company's semiconductor wafer fab located in Milpitas, California, a portion
of such assets had been written off as part of the facility exit costs in 1998.
3. RESTRICTED CASH AND CASH EQUIVALENTS AND INVESTMENT SECURITIES
Restricted cash and cash equivalents and investment securities represents
amounts pledged for an operating lease which the Company entered into for the
construction and lease of a new wafer fabrication facility in Milpitas,
California. The lease agreement is for a five-year period, including a one-year
construction period. The Company will begin making payments in the fourth
quarter of 1999.
4. NET INCOME PER SHARE
Net income per share-basic is based upon the weighted average number of
common shares outstanding. Net income per share-assuming dilution is based upon
the weighted average number of common and common equivalent shares outstanding
assuming dilution. Common equivalent shares, consisting of outstanding stock
options, are included in the per share calculations where the effect of their
inclusion would be dilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
The Company's actual future results may differ significantly from such
statements. In evaluating such statements, the various factors identified in 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, data converters and power management products. 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 statements of operations for the three month
and nine month periods ended October 2, 1999 and September 26, 1998, as a
percentage of net sales and provides the percentage increase of such items
comparing the interim periods ended October 2, 1999 to the corresponding period
from the prior fiscal year.
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THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------- ---------------------------------------
PERCENTAGE PERCENTAGE
OCTOBER 2, SEPTEMBER 26, INCREASE OCTOBER 2, SEPTEMBER 26, INCREASE
1999 1998 (DECREASE) 1999 1998 (DECREASE)
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Net sales....................... 100% 100% (11.0)% 100% 100% (1.9)%
Cost of sales................... 58.5 49.2 5.8 52.3 49.3 4.1
----- ---- ----- ----- ---- -----
Gross profit.................... 41.5 50.8 (27.2) 47.7 50.7 (7.7)
----- ---- ----- ----- ---- -----
Operating expenses
Research and development...... 16.6 10.6 39.3 13.2 10.1 28.4
Marketing and selling......... 13.2 9.7 20.7 11.4 10.0 12.1
General and administrative.... 7.1 5.1 24.5 6.2 4.9 23.2
Facilities exit costs......... (7.5) (2.3)
----- ---- ----- ----- ---- -----
Total operating
expenses............ 29.4 25.4 2.9 28.5 25.0 11.9
----- ---- ----- ----- ---- -----
Operating income................ 12.1 25.4 (57.4) 19.2 25.7 (26.8)
Other income, net............... 3.6 2.7 16.6 3.1 2.8 7.9
----- ---- ----- ----- ---- -----
Income before income taxes...... 15.7 28.1 (50.2) 22.3 28.5 (23.3)
Income tax expense.............. 5.5 -- 7.8 --
----- ---- ----- ----- ---- -----
Net income...................... 10.2% 28.1% (67.6)% 14.5% 28.5% (50.2)%
===== ==== ===== ===== ==== =====
</TABLE>
Net sales for the third quarter decreased 11.0% to $14.4 million and
decreased 1.9% to $47.7 million for the first nine months of 1999, as compared
to the same periods in the previous year. For the third quarter, net sales
decreased primarily due to lower than planned deliveries of sub-contract wafers
from our Taiwan supplier, which in turn resulted in a year-to-date reduction.
International sales increased 32.6% and 26.0% for the third quarter and first
nine months of 1999 as compared to the same periods in 1998. This decrease was
due primarily to lower sales into distributor channels. Third quarter and
year-to-date sales increases in Japan, the Pacific Rim and Europe were offset by
a decrease in United States sales compared to the prior year's respective
periods. Sequentially, third quarter sales decreases in the United States, Japan
and the Pacific Rim were partially offset by an increase in Europe as compared
to the second quarter of 1999. International sales represented 51.1% and 45.7%
for the third quarter and first nine months of 1999, respectively.
Gross profit for the third quarter of 1999 decreased 27.2% to $6.0 million
and decreased 7.7% to $22.7 million for the first nine months of 1999, as
compared to the same periods in the previous year. As a
7
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percentage of net sales, gross profit decreased to 41.5% and 47.7% for the third
quarter and first nine months of 1999, respectively, from 50.8% and 50.7% for
the same periods in the previous year. The lower gross profit as a percentage of
net sales was primarily due to decreased revenue, increased wafer costs from
Taiwan and increased costs associated with the start-up of the Company's new
wafer fab facility in Milpitas, California in the third quarter of 1999.
Research and development expenses for the third quarter and first nine
months of 1999 increased $674,000 and $1.4 million, respectively, or 39.3% and
28.4%, as compared to the same periods last year. The increase was due to
process development in the new wafer fabrication facility as well as increased
new product development expenses. As a percentage of net sales, research and
development increased to 16.6% and 13.2% for the third quarter and first nine
months of 1999, respectively, as compared to 10.6% and 10.1% for the same
periods in the previous year.
Marketing and selling expenses increased 20.7% and 12.1% to $1.9 million
and $5.5 million, respectively, for the third quarter and first nine months of
1999, as compared with $1.6 million and $4.9 million, respectively, for the same
periods of the previous year. The increase was due primarily to higher costs
associated with travel, marketing, advertising programs and increased staffing.
As a percentage of net sales, marketing and selling expenses for the third
quarter and first nine months of 1999 increased to 13.2% and 11.4%,
respectively, as compared to 9.7% and 10.0%, respectively, in the previous year
due to increased staffing and lower net sales.
General and administrative expenses increased by $202,000 and $553,000 for
the third quarter and first nine months of 1999, respectively, as compared to
the same periods of the previous year. The increase in spending for the first
nine months of 1999, as compared to the same period a year ago, was due to
increased professional fees and additional staffing. As a percentage of net
sales, general and administrative expenses increased to 7.1% and 6.2%,
respectively for the third quarter and first nine months of 1999, an increase
from the 5.1% and 4.9%, respectively, for the comparable periods of the previous
year.
Facility exit costs in the third quarter and first nine months of 1999
consists of net proceeds of $1.1 million from the sale in the third quarter of
1999 of the tangible assets of the Company's semiconductor wafer fab located in
Milpitas, California. A portion of these assets were written down in the fourth
quarter of 1998 to the assumed net realizable value, as previously disclosed by
the Company.
Other income, net, for the third quarter and first nine months of 1999
consists primarily of interest income on short-term and restricted investment
securities and cash equivalents reduced by net royalty costs. For the third
quarter and first nine months of 1999, other income, net, represented income of
$514,000 and $1,481,000, as compared to income of $441,000 and $1,372,000 for
the same periods in the previous year. The increase was due primarily to the
interest income earned which was partially offset by increased royalty costs.
The Company recorded income tax expense of $0.8 million and $3.7 million
for the third quarter and first nine months of 1999, respectively, at an
effective rate of 35% for these periods. The Company recorded no income tax
expense for either the third quarter or first nine months of 1998. This 1998
effective rate differed from the statutory rate of 34% due to the Company's
utilization of its net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At October 2, 1999, the Company had working capital of $44.1 million and
available funds of $16.3 million consisting of cash, cash equivalents and
short-term U.S. Government-backed investments. In addition, the Company had
$36.8 million of restricted cash and cash equivalents and investment securities
representing amounts pledged for an operating lease which the Company entered
into for the construction and lease of a new wafer fabrication facility in
Milpitas, California. The lease agreement is for a five-year period, including a
one-year construction period. The Company anticipates that the available funds
and cash provided from operations will be sufficient to meet cash and working
capital requirements for the foreseeable future.
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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.
Important factors affecting the Company's ability to achieve future revenue
growth and operating results include whether, and the extent to which, demand
for the Company's products increases and reflects real end-user demand; whether
customer cancellations and delays of outstanding orders increase, and whether
the Company is able to manufacture in the correct mix to respond to orders on
hand and new orders received in the future; the amount of lead time provided by
the Company's customers; whether the Company is able to achieve its new product
development and introduction goals, including, without limitation, goals for
conceiving and introducing timely new products that are well received in the
marketplace; and whether the Company is able to successfully implement its new
Fab in a timely fashion and its ability to design and introduce new products
based on new technologies. In addition, the Company may experience unexpected
delays or problems in qualifying and ramping up production in its new Fab in
Milpitas, California and the failure of the Company to implement the new Fab
successfully and in a timely fashion may impact future revenue growth and
operating results.
Other important factors that could cause actual results to differ
materially from those predicted include overall economic conditions, such as
currency and other economic issues affecting Asian and other countries, demand
for electronic products and semiconductors generally, demand for the end-user
products for which the Company's semiconductors are suited, timely availability
of raw materials (including subcontractor wafers from Taiwan), equipment,
supplies and services, unanticipated manufacturing problems, technological and
product development risks, competitors' actions, and other risk factors
described in the Company's filings with the Securities and Exchange Commission.
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, 1998. 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.
ACQUISITION
On October 21, 1999, the Company signed a definitive agreement to merge a
wholly-owned subsidiary of the Company with and into Calogic, which will result
in Calogic becoming a wholly-owned subsidiary of the Company. Consummation of
the transaction, subject to customary conditions including regulatory approvals,
is expected to occur during the fourth quarter of 1999.
This merger is planned to be a tax-free, stock-for-stock transaction
accounted for as a pooling-of-interests. The Company will issue 3.6 million
shares of its common stock in exchange for all of the outstanding shares of
Calogic. Based on the closing price of the Company's common stock on October 20,
1999, the transaction is valued at approximately $ 40.5 million.
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YEAR 2000 READINESS DISCLOSURE STATEMENT
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Any of the Company's internal
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company's business is dependent upon its information systems that are
an integral part of all major business processes. The Company inventoried and
assessed its information technology systems and non-IT systems (such as building
security, voice mail, telephone and other systems containing embedded
microprocessors) and determined the nature and extent of the work required, if
any, to make these internal systems Year 2000 compliant. The resulting work plan
is complete. In the third quarter of fiscal 1998, the Company selected new
enterprise and manufacturing software systems that are Year 2000 compliant and
began implementation of these systems in the fourth quarter of 1998. Basic
implementation is complete and tested with complete success. In addition, the
Company's semiconductor manufacturing and payroll systems have been updated, and
have also been successfully tested. Expenditures on the general upgrade of
internal computer systems are estimated to be $2 million, a portion of which
would be related Year 2000 compliance. The majority of these expenditures will
be capitalized in 1999 to the extent in which they relate to the costs of
implementation of new systems. Year 2000 remediation costs will be expensed as
incurred.
Although management believes the Company's systems are ready for the new
millennium, the failure of the Company's suppliers to address the Year 2000
issue could result in disruption to the Company's operations and have a
significant adverse impact on its results of operations. The Company has
conducted a written survey of its foundries and other suppliers of products and
services with which it has a material relationship in order to identify and
assess their Year 2000 readiness and compliance, and any negative impacts that
any non-compliance could have on the Company. In addition, the Company reviews
Year 2000 issues at key suppliers as part of regularly scheduled visits. Based
upon the survey responses and formal on-site reviews, the Company found all of
these principal suppliers are also prepared for the new millennium.
In addition, the Company continues to work with its customers to identify
potential Year 2000 issues with its customers' products. Many of the Company's
key customers are Fortune 500 companies, are sensitive to Year 2000 issues and
are expected to be Year 2000 compliant. However, the Company continues to survey
its customers and monitor their progress in ensuring Year 2000 compliance. The
Company is not actively engaged in preparing contingency plans in the event that
key customers or suppliers fail to become Year 2000 compliant. However, the
Company, in the ordinary course of business, seeks to expand its customer base
to lessen dependence on any one customer for a significant portion of its
revenues, and seeks second sources of supply for its key products and services
where appropriate.
At this time, the Company believes that its most reasonably likely worst
case Year 2000 scenario is that a software program that has been tested or
certified by the supplier will fail in an unanticipated manner. However, the
Company has developed contingency plans for this risk and continues to develop
further contingency plans for both mission critical and non-mission critical
systems as it identifies the Year 2000 risks.
Various statements in this discussion of Year 2000 issues are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements include statements of the
Company's expectations, statements with regard to schedules and expected
completion dates and statements regarding expected Year 2000 compliance. These
forward-looking statements are subject to various risk factors, which may
materially affect the Company's efforts to achieve Year 2000 compliance. These
risk factors include the wide variety of information systems and components,
both hardware and software, that were evaluated, the variety, number and
complexity of equipment used in the Company's operations and the large number of
vendors and customers with which the Company interacts. The Company's
assessments of the effects of Year 2000 on the Company are based, in part, upon
information received from third parties and the Company's reasonable reliance on
that information. Therefore, the risk that inaccurate information is supplied by
third parties upon which the Company reasonably relied must be considered as a
risk factor that might affect the Company's Year 2000 efforts. The Company
reduced the risks by utilizing an organized approach, extensive testing, and
allowance of ample contingency time to address issues identified by tests.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company owns financial instruments that are sensitive to market risks
as part of its investment portfolio. The investment portfolio is used to
preserve the Company's capital until it is required to fund operations,
including the Company's research and development activities. None of these
market-risk sensitive instruments are held for trading purposes. The Company
does not own derivative financial instruments in its investment portfolio. The
investment portfolio contains instruments that are subject to the risk of a
decline in interest rates.
Investment Rate Risk -- The Company's investment portfolio includes debt
instruments that are primarily United States government bonds of less than one
year in duration. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. The Company's investment portfolio
also consists of certain commercial paper which is also subject to interest rate
risk. Due to the short duration and conservative nature of these instruments,
the Company does not believe that it has a material exposure to interest rate
risk.
11
<PAGE> 12
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
12
<PAGE> 13
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,
TREASURER & CLERK
(DULY AUTHORIZED OFFICER &
PRINCIPAL FINANCIAL OFFICER)
DATE: November 12, 1999
13
<PAGE> 1
Exhibit 11.1
Computation of Shares Used in Computing
Net Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
October 2, September 26, October 2, September 26,
1999 1998 1999 1998
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Common shares, beginning of period 18,075,758 17,711,422 17,979,812 17,711,422
Common stock equivalents 2,622,862 1,954,583 2,297,232 1,824,855
Treasury stock buyback (2,008,292) (1,219,107) (1,700,914) (946,033)
Weighted average shares issued 17,704 129,096 81,813 82,523
---------- ---------- ---------- ----------
18,708,032 18,575,994 18,657,943 18,672,767
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF OCTOBER 2, 1999 AND FROM THE INTERIM
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER
2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-02-1999
<EXCHANGE-RATE> 1
<CASH> 6,876
<SECURITIES> 9,433
<RECEIVABLES> 12,867
<ALLOWANCES> 630
<INVENTORY> 19,219
<CURRENT-ASSETS> 54,076
<PP&E> 41,233
<DEPRECIATION> 26,821
<TOTAL-ASSETS> 110,068
<CURRENT-LIABILITIES> 10,019
<BONDS> 0
0
0
<COMMON> 181
<OTHER-SE> 99,868
<TOTAL-LIABILITY-AND-EQUITY> 100,068
<SALES> 0
<TOTAL-REVENUES> 47,664
<CGS> 0
<TOTAL-COSTS> 24,940
<OTHER-EXPENSES> 13,934
<LOSS-PROVISION> 172
<INTEREST-EXPENSE> 1,841
<INCOME-PRETAX> 10,631
<INCOME-TAX> 3,721
<INCOME-CONTINUING> 6,910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,910
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.37
</TABLE>
