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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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Commission File Number 333-39373
SOVEREIGN SPECIALTY CHEMICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------------------
DELAWARE
36-4176637
(State or Other Jurisdiction of Incorporation or Organization)
(IRS Employer Identification No.)
225 W. Washington St. - Ste. 2200, Chicago, IL 60606
(Address of Principal Executive Offices)
(Zip Code)
Registrant's Telephone Number, Including Area Code: (312) 419-7100
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 [ ]
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SOVEREIGN SPECIALTY CHEMICALS, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets at September 30, 1999 and
December 31, 1998......................................... 1
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1999 and 1998.................. 2
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998......................... 3
Notes to Consolidated Financial Statements.................. 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7
PART II. OTHER INFORMATION
6. Exhibit and Reports on Form 8-K.......................... 10
Signatures.................................................. 11
</TABLE>
<PAGE> 3
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,134 $ 5,863
Accounts receivable, net.................................. 43,266 32,710
Inventories, net.......................................... 24,151 19,822
Other current assets...................................... 5,337 5,359
-------- --------
Total current assets........................................ 78,888 63,754
Property, plant, and equipment, net......................... 51,376 49,497
Goodwill, net............................................... 107,705 101,205
Deferred financing costs, net............................... 9,023 9,913
Other assets................................................ 4,190 1,435
-------- --------
Total assets................................................ $251,182 $225,804
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 18,651 $ 16,400
Accrued expenses.......................................... 14,598 13,452
Other current liabilities................................. 1,200 2,200
Current portion of long-term debt......................... 6,089 1,802
Current portion of capital lease obligations.............. 193 161
-------- --------
Total current liabilities................................... 40,731 34,015
Long-term debt, less current portion........................ 140,747 126,900
Capital lease obligations, less current portion............. 3,444 3,401
Other long-term liabilities................................. 6,819 7,294
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding.................................... -- --
Additional paid-in capital.................................. 55,960 55,652
Retained earnings........................................... 6,059 949
Management notes receivable................................. (2,535) (2,535)
Cumulative translation adjustment........................... (43) 128
-------- --------
Total stockholder's equity.................................. 59,441 54,194
-------- --------
Total liabilities and stockholder's equity.................. $251,182 $225,804
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
1
<PAGE> 4
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
--------------------------- ---------------------------
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
------------ ----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................. $63,027 $181,843 $55,445 $158,115
Cost of goods sold.................... 43,070 124,066 37,721 107,683
------- -------- ------- --------
Gross profit.......................... 19,957 57,777 17,724 50,432
Selling, general and administrative
expenses............................ 12,304 36,054 11,436 34,514
------- -------- ------- --------
Operating income...................... 7,653 21,723 6,288 15,918
Other expense.........................
Interest expense, net............... (3,900) (11,233) (3,650) (11,266)
Loss on sale of business............ -- -- -- (1,110)
------- -------- ------- --------
Other expense, net.................... (3,900) (11,233) (3,650) (12,376)
Income before income taxes and
extraordinary loss.................. 3,753 10,490 2,638 3,542
Income taxes.......................... 1,862 5,380 1,238 1,992
------- -------- ------- --------
Income before extraordinary loss...... 1,891 5,110 1,400 1,550
Extraordinary loss (net of tax
benefit)............................ -- -- -- (176)
------- -------- ------- --------
Net income............................ $ 1,891 $ 5,110 $ 1,400 $ 1,374
======= ======== ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
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SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 5,110 $ 1,374
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization.......................... 8,172 6,907
Amortization of deferred financing costs............... 889 881
Extraordinary loss..................................... -- 176
Loss on sale of business............................... -- 1,025
Compensation expense under management incentive
plans............................................... 308 --
Changes in operating assets and liabilities (excluding
the effects of acquisitions/disposition):
Accounts receivable................................. (9,291) (12,290)
Inventories......................................... (3,559) (1,496)
Prepaid expenses and other assets................... (112) (34)
Accounts payable.................................... 2,252 6,395
Accrued expenses and other.......................... (399) 2,801
-------- --------
Net cash provided by operating activities................ 3,370 5,739
INVESTING ACTIVITIES
Acquisition of business................................ (15,809) (15,089)
Sale of business....................................... -- 35,308
Purchase of property, plant and equipment.............. (5,280) (2,109)
-------- --------
Net cash provided by (used in) investing activities...... (21,089) 18,110
FINANCING ACTIVITIES
Deferred financing costs............................... -- (282)
Payments on long-term debt............................. (1,000) (30,081)
Payments on capital lease obligations.................. 75 (111)
Proceeds from revolving credit facilities.............. 38,662 4,511
Payments on revolving credit facilities................ (19,576) --
-------- --------
Net cash provided by (used in) financing activities...... 18,161 (25,963)
Effect of exchange rates on cash......................... (171) --
-------- --------
Net increase (decrease) in cash and cash equivalents..... 271 (2,114)
Cash and cash equivalents at beginning of period......... 5,863 6,413
-------- --------
Cash and cash equivalents at end of period............... $ 6,134 $ 4,299
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 6
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements as of and for the periods ended
September 30, 1999 and 1998, respectively, include the accounts of Sovereign
Specialty Chemicals, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
Management and the Company's Chief Operating Decision Maker assess performance
and make decisions about resource allocation on a consolidated basis as the
Company is one operating segment. The Company operates in the adhesives,
sealants and coatings segment of the specialty chemicals industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The unaudited interim consolidated financial statements of the Company, in
the opinion of management, reflect all necessary adjustments, consisting only of
normal recurring adjustments, for a fair presentation of results as of the dates
and for the interim periods covered by the financial statements. The results for
the interim periods are not necessarily indicative of the results of operations
to be expected for the entire year.
The unaudited interim consolidated financial statements have been prepared
in conformity with generally accepted accounting principles and reporting
practices. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission; however, the Company believes the
disclosures are adequate to make the information not misleading. The unaudited
interim consolidated financial statements contained herein should be read in
conjunction with the audited financial statements and notes thereto included in
its 1998 Annual Report on Form 10-K.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw Materials.................................... $ 9,636 $ 8,515
Work in process.................................. 567 326
Finished Goods................................... 13,948 10,981
------- -------
$24,151 $19,822
======= =======
</TABLE>
3. ACQUISITION
On April 20, 1999, the Company completed an asset purchase of the flexible
packaging coatings business from The Valspar Corporation for approximately $15.8
million. The Company paid cash and borrowed $13.7
4
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SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1999
(Dollars in Thousands)
million under its revolving credit facility. The transaction was accounted for
as a purchase and as such, the results of operations subsequent to the date of
acquisition have been included in consolidated statement of operations of the
Company. Goodwill of approximately $10.6 million was recognized in the
acquisition and is being amortized over a period of 15 years.
4. COMPREHENSIVE INCOME
For the three and nine months ended September 30, 1999 and 1998,
respectively, the calculation of comprehensive income is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------------- --------------------------
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net income as reported....................... $1,891 $5,110 $1,400 $1,374
Foreign currency translation adjustment...... (6) (171) 31 39
------ ------ ------ ------
Comprehensive income......................... $1,885 $4,939 $1,431 $1,413
====== ====== ====== ======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company exists to acquire, consolidate and operate specialty chemical
businesses in the highly fragmented adhesives, sealants and coatings segment of
the specialty chemicals industry. The Company began operations in March 1996
with the acquisition of SIA Adhesives, a manufacturer of specialty adhesives
used primarily in the automotive, aerospace and general industrial markets. In
August 1996, the Company acquired Pierce & Stevens, a developer and manufacturer
of specialty coatings and adhesives for performance-oriented niche applications.
In August 1997, the Company acquired in a single transaction the net assets of
Laporte Construction Chemicals North America, Inc. (OSI), Evode-Tanner
Industries, Inc. (Tanner), and Mercer Products Company, Inc. (Mercer). These
businesses manufacture, market and distribute adhesives and sealants primarily
utilized in housing repair, remodeling and construction and industrial markets.
In April 1998, the Company sold Mercer to Burke Industries, Inc. In June 1998,
the Company acquired the net assets of the Coatings and Adhesives Division of
K.J. Quinn & Co., Inc. (C&A Division), a developer and manufacturer of specialty
polyurethane formulations for adhesives and coatings. In August 1998, the
Company acquired the PL Adhesives & Sealants brand and product line (PL). In
April 1999, the Company acquired the flexible packaging coatings business from
The Valspar Corporation. The operating results of acquired businesses have been
included in the consolidated operating results of the Company for all periods
after their respective dates of acquisition.
RESULTS OF OPERATIONS
Net Sales. Net sales for the first nine months of 1999 were $181.8 million,
an increase of $23.7 million, or 15.0%, over the comparable period in 1998.
Excluding the impact of Mercer sales in 1998, net sales increased 20.5% due to
organic growth (approximately 8.4%) and growth through acquisition
(approximately 12.1%). The organic growth was primarily the result of increased
sales of insulation coating and for housing repair, remodeling and construction
adhesive applications. Sales of flexible packaging and shipments for industrial
applications also increased from the prior year.
Cost of Goods Sold. Cost of goods sold increased 15.2% from the first nine
months of 1998 to $124.1 million. Gross margin percentage for year to date 1999
was 31.8% compared with 31.9% in the prior
5
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SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1999
(Dollars in Thousands)
year. This reflects improvements in raw material costs offset by the lower
margins associated with the phase in of production of PL and Valspar
applications.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1999 and 1998,
respectively were $36.1 million and $34.5 million. As a percentage of net sales,
selling, general and administrative expenses decreased 9.1% to 19.8% from 21.8%
in 1998. This decrease is due primarily to maintaining corporate overhead costs
relatively constant despite rapidly expanding net sales as well as other
operating efficiencies.
Interest Expense. Interest expense was $11.2 million for the first nine
months of 1999 and 1998.
Loss on sale of business. In April 1998, the Company sold Mercer and
recognized a book loss of approximately $1.1 million.
Income Taxes. Income tax expense increased by $3.4 million to $5.4 million
in 1999 over 1998, due to the increase in pretax income.
Extraordinary loss. The extraordinary loss of $176, net of income tax
benefit of $117, in the first nine months of 1998, relates to the write-off of
deferred financing costs resulting from the early extinguishment of debt.
Net Income. Net income was $5.1 million, representing a $3.7 million
increase over 1998. This increase was primarily the result of the factors
discussed above.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Net Sales. Net sales for the three months ended September 30, 1999 were
$63.0 million, an increase of $7.6 million, or 13.7%, over the comparable period
in 1998. Net of acquisitions, net sales increased 8.6% in the third quarter over
the prior year.
Cost of Goods Sold. Cost of goods sold increased 14.2% from the third
quarter of 1998 to $43.1 million. Gross margin for the quarter declined slightly
to 31.7% relative to the prior year. This slight decline was the result of costs
incurred during the phase-in of production of Valspar applications into the
Company's facilities as well as sales mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1999 and 1998,
respectively were $12.3 million and $11.4 million. As a percentage of net sales,
selling, general and administrative expenses decreased 5.3% to 19.5% from 20.6%
in 1998. This decrease is due primarily to maintaining corporate overhead costs
relatively constant despite rapidly expanding net sales as well as other
operating efficiencies.
Interest Expense. Interest expense was $3.9 million for the third quarter
of 1999 representing a 6.8% increase from the comparable period in 1998, due
primarily to the increased interest expense associated with the financing of the
Valspar acquisition.
Income Taxes. Income tax expense increased by $0.7 million over third
quarter 1998 to $1.9 million in 1999, due to the increase in pretax income.
Net Income. Net income was $1.9 million, representing a $0.5 million
increase over 1998. This increase was primarily the result of the factors
discussed above.
6
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SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1999
(Dollars in Thousands)
YEAR 2000 READINESS DISCLOSURE
The Company is actively addressing the Year 2000 issue. The compliance
program is led by information technology staff at each operating company, with
assistance from the finance and manufacturing staffs and outside technology
consultants where necessary. Progress is being monitored by each operating
company president and reported to Company management.
The Company's Year 2000 efforts focus on three areas: information
technology ("IT") related systems and processes, such as operating systems,
applications and programs; embedded logic ("non-IT") systems and processes, such
as manufacturing machinery, telecommunications equipment and security devices;
and compliance efforts of third parties (such as customers, suppliers and
service providers). Within each of the IT and non-IT areas, the project spans
four phases; assessment of programs and devices to identify those that are
affected by the Year 2000 issue; development of remediation strategies; testing
such strategies; and implementing the solutions. The third party aspect of the
project includes, among other things, obtaining Year 2000 readiness
certifications, obtaining Year 2000 disclosures contained in SEC filings, and
where applicable, testing interfaced systems as well as having discussions with
critical vendors in order to determine and mitigate the risk to the Company from
third parties' failures to satisfactorily address their Year 2000 issues.
The Company has completed an assessment of its critical IT systems and, as
a result, the operating companies have decided to modify, upgrade or replace
portions of their systems. The remediation efforts achieved significant progress
to date, and remain underway. The remediation, testing and implementation of all
critical IT systems was completed in the third quarter of 1999 with the
exception of one subsidiary where these efforts will not be completed until the
fourth quarter of 1999. The Company is continuing the process of assessing and
remediating critical non-IT systems, as well, and expects that the assessment,
remediation, testing and implementation phases with respect to such systems will
be completed in the fourth quarter of 1999. The Company continues to confirm the
state of readiness of its primary vendors and develop and implement any
necessary contingency plans.
The Company believes that, with modification of existing computer systems,
updates by vendors and conversion to new software in the ordinary course of
business, the year 2000 issue will not have a material impact on the Company's
operations. The costs of modifications and conversions have not been and are not
expected to be material. Many of the required tasks to achieve compliance of its
systems have been completed at November 15, 1999 and the Company estimates that
its effort will be completed in the fourth quarter of 1999 for both its
financial and operational systems. There can be no assurance, however, that as a
result of the failure of major customers or suppliers to properly address their
year 2000 issues, or as a result of a delay or oversight in the Company's
efforts, that the year 2000 issue will not have a material impact on the
business and operations of the Company. Because of the difficulty of assessing
the Year 2000 compliance of such third parties, the Company considers the
potential disruptions caused by such parties to present the most reasonably
likely worst-case scenarios. Adverse effects on the Company could include
business disruption, increased costs, loss of sales and other similar
ramifications.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $3.4 million in the first
nine months of 1999. Net income, depreciation and amortization provided
approximately $13.3 million of cash flow from operations for the first nine
months of 1999. Accounts payable and accrued expenses increased $1.9 million in
the first nine months of 1999. These increases in cash flow from operations were
offset by increases in accounts receivable of
7
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SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
SEPTEMBER 30, 1999
(Dollars in Thousands)
$9.3 million, net buildup of inventory levels of $3.6 million. The increases in
accounts receivable are consistent with the percentage sales increases year over
year from 1998, excluding Mercer which was sold in April 1998.
Net cash used in investing activities was $21.1 million and resulted from
capital additions to property plant and equipment in the first nine months of
1999 of $5.3 million and the acquisition of the flexible packaging coatings
business from The Valspar Corporation in April 1999.
Net cash provided by financing activities was $18.2 million for the first
nine months of 1999.
The Company's bank debt at September 30, 1999 consists of $125.0 million
Senior Subordinated Notes (Notes), $19 million drawn under a $20.0 million
facility which was supplemental to the Company's $30.0 million Revolving Credit
Facility and $0.9 million drawn under a $1.5 million facility obtained by its
Singapore-based sales office. In July 1999, the Company borrowed $20.0 million
under the supplemental facility and used the proceeds to repay funds borrowed
under the $30.0 million Revolving Credit Facility related to the Valspar
acquisition and for general corporate purposes. According to the provisions of
the Company's Revolving Credit Agreement, the $20.0 million drawn under the
supplemental facility became a term loan. Approximately $1.0 million principal
repayment is due each quarter beginning at September 30, 1999. The Company has a
approximately $29.1 million available under its $30.0 million Revolving Credit
Facility.
Interest payments on the Notes and under the Facilities represent
significant obligations of the Company. The Notes require semiannual interest
payments on February 1, and August 1. The Company's remaining liquidity demands
relate to capital expenditures and working capital needs. The Company
anticipates that capital expenditures will approximate $7.7 million in 1999,
including approximately $3.3 million of which relates to environmental
expenditures for which the Company has been or will be indemnified pursuant to
acquisition agreements. Exclusive of the impact of any future acquisitions, the
Company does not expect its capital expenditure requirements to increase
materially in the foreseeable future.
The Company's primary sources of liquidity are cash flows from operations
and borrowings under the Revolving Credit Facility. The Revolving Credit
Facility provides the Company with $30.0 million of borrowings, subject to
availability under its borrowing base. At September 30, 1999, the Company would
have been able to borrow $29.1 million under the Revolving Credit Facility. The
Company believes that, based on current and anticipated financial performance,
cash flow from operations and borrowings under the Revolving Credit Facility
will be adequate to meet anticipated requirements for capital expenditures,
working capital and scheduled interest payments (including interest payments on
the Notes and amounts outstanding under the Facilities). However, the Company's
capital requirements may change, particularly if the Company should complete any
additional material acquisitions. The ability of the Company to satisfy its
capital requirements will be dependent upon the future financial performance of
the Company, which in turn will be subject to general economic conditions and to
financial, business and other factors, including factors beyond the Company's
control.
The Company's future operating performance and ability to repay or
refinance the Notes will also be subject to future economic conditions and to
financial, business and other factors, many of which are beyond the Company's
control.
8
<PAGE> 11
SOVEREIGN SPECIALTY CHEMICALS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
SEPTEMBER 30, 1999
(Dollars in Thousands)
As previously discussed in the June 30, 1999 Quarterly Report on Form 10-Q,
the Company continues to explore strategic alternatives with respect to its
ownership structure through use of an investment banking firm.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
Some of the information presented in, or connection with, this report may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 that involve potential risks and
uncertainties. The Company's future results could differ materially from those
discussed here. Some of the factors that could cause or contribute to such
differences include:
Changes in economic and market conditions that impact the
demand for the Company's products and services;
Risks inherent in international operations, including possible
economic, political or monetary instability;
Uncertainties relating to the Company's ability to consummate
its business strategy, including realizing synergies and cost
savings from the integration of its acquired businesses;
The impact of new technologies and the potential effect of
delays in the development or deployment of such technologies;
and,
The potential impact of issues related to Year 2000 software
compliance.
You should not place undue reliance on these forward-looking statements,
which are applicable only as of November 15, 1999. All written and oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the foregoing factors. The Company have no obligation to
revise or update these forward-looking statements to reflect events or
circumstances that arise after November 15, 1999 or to reflect the occurrence of
unanticipated events.
9
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
10
<PAGE> 13
SOVEREIGN SPECIALTY CHEMICALS, INC.
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.
SOVEREIGN SPECIALTY CHEMICALS, INC.
/s/ ROBERT B. COVALT
--------------------------------------
Robert B. Covalt, Chief Executive
Officer
/s/ JOHN R. MELLETT
--------------------------------------
John R. Mellett, Chief Financial
Date: November 15, 1999 Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED SOVEREIGN
SPECIALTY CHEMICALS INC.'S SEPTEMBER 30, 1999 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,134
<SECURITIES> 0
<RECEIVABLES> 43,266
<ALLOWANCES> 0
<INVENTORY> 24,151
<CURRENT-ASSETS> 78,888
<PP&E> 62,669
<DEPRECIATION> (11,293)
<TOTAL-ASSETS> 251,182
<CURRENT-LIABILITIES> 40,731
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 59,441
<TOTAL-LIABILITY-AND-EQUITY> 251,182
<SALES> 181,843
<TOTAL-REVENUES> 181,843
<CGS> 124,066
<TOTAL-COSTS> 124,066
<OTHER-EXPENSES> 36,054
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,232
<INCOME-PRETAX> 10,470
<INCOME-TAX> 5,380
<INCOME-CONTINUING> 5,110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,110
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
