FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994
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Commission File Number: 0-2085
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BETZ LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1503731
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4636 Somerton Road, Trevose, PA 19053
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 355-3300
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Indicate by check mark whether the registrant (1) has filed all re-
ports 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 report(s), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
27,774,620 Common Shares outstanding as of May 9, 1994.
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BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended
March 31,
1994 1993
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Net Sales $172,934 $168,495
Operating Costs and Expenses:
Cost of products sold 61,214 58,917
Selling, research and administrative
expenses 81,757 79,583
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142,971 138,500
OPERATING EARNINGS 29,963 29,995
Other Income (Expense):
Investment and other income 959 1,246
Interest expense (62) (43)
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897 1,203
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EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 30,860 31,198
Income Taxes 12,344 12,011
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EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 18,516 19,187
Cumulative effect of accounting changes:
Income taxes - 3,600
Retiree health care, net of $1,700
income taxes - (2,700)
Pension, net of $780 income taxes - 1,241
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NET EARNINGS $18,516 $21,328
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Primary earnings per Common Share:
Before cumulative effect of
accounting changes $ .61 $ .62
Accounting changes - .07
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Primary earnings per Common Share $ .61 $ .69
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Fully diluted earnings per Common Share:
Before cumulative effect of
accounting changes $ .58 $ .59
Accounting changes - .07
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Fully diluted earnings per Common Share $ .58 $ .66
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Cash dividends declared per Common Share $ .35 $ .34
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Average number of Common Shares:
Primary 28,401 28,893
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Fully diluted 31,189 31,624
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See notes to consolidated financial statements.
BETZ LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (In thousands)
ASSETS March 31, 1994 December 31, 1993
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CURRENT ASSETS
Cash and cash equivalents $ 51,137 $ 43,921
Trade accounts receivable,
less allowances:
1994--$2,783; 1993--$2,698 112,205 102,882
Inventories:
Finished products and goods
purchased for resale 17,091 17,155
Raw materials 21,056 20,191
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38,147 37,346
Prepaid expenses and other 23,288 24,486
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TOTAL CURRENT ASSETS 224,777 208,635
PROPERTY, PLANT AND EQUIPMENT--
at cost
Buildings 160,234 155,781
Machinery and equipment 362,956 360,426
Allowance for depreciation
(deduction) (264,836) (253,881)
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258,354 262,326
Land 21,212 21,146
Construction in progress 21,990 17,270
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301,556 300,742
OTHER ASSETS
Investments and other 7,536 7,223
Intangibles -- at cost, less
amortization:
1994 -- $2,588; 1993 -- $2,513 4,454 4,529
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11,990 11,752
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$538,323 $521,129
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LIABILITIES AND SHAREHOLDERS' EQUITY March 31, 1994 December 31, 1993
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CURRENT LIABILITIES
Trade accounts payable $30,893 $32,554
Payroll and related taxes 16,434 17,727
Accrued expenses 29,338 24,577
Income taxes 17,317 6,838
Dividends payable 0 9,845
Current portion of ESOP debt 500 500
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TOTAL CURRENT LIABILITIES 94,482 92,041
ESOP DEBT--less portion classified
as current 97,500 97,500
DEFERRED CREDITS
Income taxes 22,004 21,998
Other deferred credits 10,084 10,271
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32,088 32,269
SHAREHOLDERS' EQUITY
Preferred Shares --
Authorized - 1,000,000 shares,
$.10 par value, voting
Series A ESOP Convertible,
8% Cumulative, stated
at aggregate liquidation
preference; Issued:
1994 -- 494,971 shares;
1993 -- 496,005 shares 98,994 99,201
Guarantee of related ESOP debt (93,783) (94,101)
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5,211 5,100
Common Shareholders' Equity
Common Shares --
Authorized - 90,000,000
shares, $.10 par value;
Issued (including treasury
shares):
1994 -- 33,654,715 shares;
1993 -- 33,654,715 shares 3,365 3,365
Capital in excess of par value
of shares 78,882 78,667
Retained earnings 411,260 394,726
Cost of Common Shares in treasury:
1994 -- 5,578,849 shares;
1993 -- 5,527,310 shares (174,032) (170,442)
Unearned compensation (7,393) (7,773)
Foreign currency translation
adjustments (3,040) (4,324)
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COMMON SHAREHOLDERS' EQUITY 309,042 294,219
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TOTAL SHAREHOLDERS' EQUITY 314,253 299,319
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$538,323 $521,129
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See notes to consolidated financial statements.
BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
1994 1993
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OPERATING ACTIVITIES
Net earnings $18,516 $21,328
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 11,241 10,833
Compensation and employee
benefit plans 1,147 1,280
Cumulative effect of
accounting changes - (2,141)
Changes in operating assets
and liabilities:
Accounts receivable (9,323) 1,746
Inventories (633) (1,000)
Prepaid expenses and other 1,199 (1,954)
Accounts payable and
accrued expenses 7,884 (5,694)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 30,031 24,398
INVESTING ACTIVITIES
Expenditures for property, plant and
equipment, net (11,360) (15,489)
Proceeds from sales of investments 98 1,602
Other, net (172) 67
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NET CASH USED IN INVESTING ACTIVITIES (11,434) (13,820)
FINANCING ACTIVITIES
Dividends paid (11,828) (11,688)
Proceeds from issuance of common stock,
including treasury shares 491 1,477
Retirement of ESOP preferred stock (295) (57)
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NET CASH USED IN FINANCING ACTIVITIES (11,632) (10,268)
Effect of exchange rate changes on cash 251 (286)
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INCREASE IN CASH AND CASH EQUIVALENTS 7,216 24
Cash and Cash Equivalents at
Beginning of Year 43,921 46,363
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $51,137 $46,387
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See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all information and footnotes necessary for a fair pre-
sentation of consolidated financial position, consolidated results of
operations and consolidated cash flows in conformity with generally
accepted accounting principles. The foregoing consolidated financial
statements do include all adjustments, consisting only of normal recurring
accruals which, in the opinion of management, are necessary for a fair
statement of the results of the interim period.
The 1993 cumulative effect of accounting changes has been restated
from previously reported amounts due to a change in the method of
calculating the value of the assets of the Company's pension plan for
purposes of determining annual pension costs under Financial Accounting
Standard No. 87 adopted in the fourth quarter of 1993, effective January 1,
1993. The cumulative effect on years prior to December 31, 1992 is
$1,241,000, net of taxes of $780,000 ($.04 per Common Share on a primary
and fully diluted basis), which was a one-time, noncash increase in net
earnings for the first quarter of 1993.
Note 2 - Common Shares Reserved for Stock Plans
At March 31, 1994, 2,558,403 and 647,255 Common Shares were reserved
for possible issuance pursuant to the exercise of stock options and grants
under the Company's Stock Option and Incentive Plans, respectively.
Further, 2,758,000 Common Shares were reserved and kept available for
possible conversion of the Series A ESOP Convertible preferred stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
First quarter 1994 net sales increased $4.4 million from $168.5
million to $172.9 million. This 3 percent increase was composed of a 4 per-
cent increase in volume-mix and a 1 percent decline resulting from the
changes in the value of foreign currencies relative to the U.S. dollar. Net
earnings before cumulative effect of accounting changes declined $0.7 mil-
lion, or 3 percent, from $19.2 million to $18.5 million. Primary and fully
diluted earnings per Common Share before cumulative effect of accounting
changes decreased 2 percent from $.62 to $.61 and from $.59 to $.58,
respectively. Net earnings after cumulative effect of accounting changes
were down 13 percent from $21.3 million to $18.5 million. Primary and fully
diluted earnings per Common Share after cumulative effect of accounting
changes declined 12 percent from the first quarter 1993 from $.69 to $.61
and from $.66 to $.58, respectively.
The results of operations for the quarter ended March 31, 1993 have
been restated due to a change in the method of determining annual pension
expense adopted in the fourth quarter of 1993, effective January 1, 1993.
The cumulative effect of this change is $1.2 million ($.04 per Common Share
on a primary and fully diluted basis), which is a one-time, noncash increase
in net earnings for the first quarter of 1993. The prior year's cumulative
effect of accounting changes also includes a one-time, noncash increase in
net earnings of $0.9 million ($.03 per Common Share on a primary and fully
diluted basis) for the adoption of Financial Accounting Standards Nos. 106
(retiree health care) and 109 (accounting for income taxes).
First quarter 1994 domestic sales were 3 percent higher than the first
three months of 1993 with all major operating units posting sales gains.
Within the Betz Water Management Group, the Pulp and Paper Division and
Betz Entec, Inc. reported the strongest sales gains. On the process side,
Betz MetChem, which offers a complete line of process chemicals for the
metals and plastic industries, also reported a strong sales gain in the
first quarter. Sales of NORINSE II (registered trademark) technology to
the coil industry and ADHERE (registered trademark) programs to the
plastic industries are meeting with considerable success. Betz Process
Chemicals, Inc. experienced higher sales gains of its ALKAT-XL (registered
trademark) treatment programs, which increase the efficiency of alkylation
units in refineries, and its SPEC-AID (registered trademark) line of
finished product additives, which help customers improve operations and
bottom line profitability by controlling product instability.
On a combined basis, 1994 first quarter foreign sales were also up 3
percent in U.S. dollars and 8 percent in local currencies compared to the
same quarter last year. Betz Inc., the Company's Canadian subsidiary,
continued its sales growth with double-digit sales increases, in local
currencies, of its industrial water treatment and paper process treatment
programs.
Despite the lingering recession in Europe, the Company's European
subsidiaries in England, France, Germany and Scandinavia reported solid
sales gains. Foreign operations in Australia and Korea also reported sales
gains above the Company's consolidated average.
The table below sets forth as a percent of sales cost of products
sold, selling, research and administrative expenses and operating earnings
for the respective periods.
Three Months Ended
March 31,
1994 1993
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Cost of products sold 35.4% 35.0%
Selling, research and
administrative expenses 47.3% 47.2%
Operating earnings 17.3% 17.8%
Cost of products sold as a percentage of sales increased slightly due
to modest manufacturing cost increases with no corresponding increase in
selling prices. Selling, research and administrative expenses remained
essentially flat as a percentage of sales due to continuing cost controls.
The net effect of the above resulted in a 0.5% decrease in the Company's
operating profit margin.
During the first quarter of 1994, the Company continued to implement
its previously announced restructuring program. This program, designed to
lower operating costs on a prospective basis and reorganize the Company's
marketing efforts on a global basis, is in the early stages and there have
been no significant changes in the estimated costs or cash flows necessary
to complete it.
The financial condition of the Company remains strong. Cash and cash
equivalents were $51.1 million at March 31, 1994 and current assets were
2.4 times current liabilities. During the first quarter of 1994, expendi-
tures for property, plant and equipment were $11.4 million. The Company
anticipates that capital expenditures for the year 1994 will be
approximately $63 million and will include an expansion of the Company's
manufacturing facilities in Washougal, Washington and Orange, Texas. During
the quarter, the Company completed construction of a new production plant
in Korea. This new facility, for the first time, will provide Betz Korea,
Ltd. with the capability of supplying customers with products manufactured
by Betz in Korea. During the period March 28, 1994, through April 7, 1994,
the Company continued its program of treasury stock purchases by
repurchasing 400,000 shares of common stock, increasing the cost of Common
Shares in treasury by approximately $20 million. As of March 31, 1994, $4.3
million of treasury stock repurchases had been accrued and are included in
Cost of Common Shares in treasury and Accrued expenses.
PART II OTHER INFORMATION
Item 1 - Legal Proceedings
There are no material pending legal proceedings other than ordinary
routine litigation incidental to the business of the Company and its
subsidiaries to which the Company or any of its subsidiaries is a party or
of which any of their property is the subject.
The Company is a "Potentially Responsible Party" under the Compre-
hensive Environmental Response, Compensation and Liability Act to thirteen
(13) waste disposal sites. See the discussion under Item 3, "Pending Legal
Proceedings," of the Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1993. There have been no material developments during
the quarter for which this report is filed in any of the pending
proceedings previously reported.
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on April 14,
1994. Proxies were solicited by the Board of Directors of the Company
("Board") pursuant to Regulation 14 of the Securities Exchange Act of 1934.
There was no solicitation of proxies in opposition to the Board's nominees
for Director. All such nominees were elected. The firm of Ernst & Young was
elected as the Company's independent auditors for the year 1994.
The number of votes cast for, against or withheld, as well as the
number of abstentions and broker non-votes, were as follows:
Election of Directors
Nominee For Against Abstained Not Voted
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John F. McCaughan 22,355,621 779,171 - 5,731,521
Theodore B. Palmer, 3rd 22,328,839 805,953 - 5,731,521
John R. Quarles 22,337,680 797,112 - 5,731,521
Robert L. Yohe 22,354,652 780,140 - 5,731,521
Election of Independent Auditors
For Against Abstained Not Voted
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Ernst & Young 22,933,863 127,260 73,669 5,731,521
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11: Statement Re: Computation of Per Share Earnings.
(b) No reports on Form 8-K have been filed during the quarter for
which this Form 10-Q is filed.
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.
BETZ LABORATORIES, INC.
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(Registrant)
Date: May 13, 1994 By: s/R. Dale Voncanon
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R. Dale Voncanon
Vice President - Finance
Date: May 13, 1994 By: s/William C. Brafford
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William C. Brafford
Vice President,
Secretary and General Counsel
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
Three Months Ended
March 31,
Primary Earnings per Common Share 1994 1993
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Earnings before cumulative effect of
accounting changes $18,516 $19,187
Effect of preferred stock dividends (1,140) (1,253)
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17,376 17,934
Cumulative effect of accounting changes - 2,141
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Net earnings available to common shareholders $17,376 $20,075
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Average Common Shares outstanding 28,142 28,553
Common stock equivalents 259 340
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Average number of Common Shares-primary 28,401 28,893
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Primary earnings per Common Share:
Before cumulative effect of accounting changes $0.61 $0.62
Cumulative effect of accounting changes - 0.07
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Primary earnings per Common Share $0.61 $0.69
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Fully Diluted Earnings per Common Share
Earnings before cumulative effect of
accounting changes $18,516 $19,187
Effect of ESOP charge to operations assuming
conversion of Series A ESOP Convertible
Preferred Shares (528) (618)
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17,988 18,569
Cumulative effect of accounting changes - 2,141
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Net earnings available to common shareholders $17,988 $20,710
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Average Common Shares outstanding 28,142 28,553
Common stock equivalents 269 340
Assumed conversion of Series A ESOP Convertible
Preferred Shares 2,778 2,731
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Average number of Common Shares-fully diluted 31,189 31,624
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Fully diluted earnings per Common Share:
Before cumulative effect of accounting changes $0.58 $0.59
Cumulative effect of accounting changes - 0.07
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Fully diluted earnings per Common Share $0.58 $0.66
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Common stock equivalents reflect the assumed exercise of dilutive
employees' stock options using the treasury stock method.
See notes to consolidated financial statements.
