August 12, 1994
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549-1004
Re: Commission File No.: 0-2085
---------------------------------
Dear Sirs:
Betz Laboratories, Inc. ("Company") hereby submits for filing with
the Commission its Form 10-Q for the quarter ended June 30, 1994.
The Company also is submitting by first class mail conforming paper
format documents pursuant to Section 901(d) of Regulation S-T.
Very truly yours,
BETZ LABORATORIES, INC.
James H. Decker
Assistant General Counsel
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 June 30, 1994
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Commission File Number: 0-2085
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BETZ LABORATORIES, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1503731
- --------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4636 Somerton Road, Trevose, PA 19053
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 355-3300
---------------
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
------ --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
27,778,567 Common Shares outstanding as of August 8, 1994.
---------- ---------------
<TABLE>
BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $179,701 $171,472 $352,635 $339,967
Operating Costs and Expenses:
Cost of products sold 63,211 58,760 124,425 117,677
Selling, research and administrative expenses 85,965 82,907 167,722 162,490
------- ------- ------- --------
149,176 141,667 292,147 280,167
OPERATING EARNINGS 30,525 29,805 60,488 59,800
Other Income (Expense):
Investment and other income 1,011 780 1,970 2,026
Interest expense (40) (11) (102) (54)
------- ------- ------- -------
971 769 1,868 1,972
------- ------- ------- -------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 31,496 30,574 62,356 61,772
Income Taxes 12,598 11,771 24,942 23,782
------- ------- ------- --------
EARNINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 18,898 18,803 37,414 37,990
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
------- ------- ------- -------
NET EARNINGS $18,898 $18,803 $37,414 $40,131
======= ======= ======= =======
Primary earnings per Common Share:
Before cumulative effect of accounting changes $ .64 $ .61 $ 1.25 $ 1.23
Accounting changes - - - .07
------- ------- ------- -------
Primary earnings per Common Share $ .64 $ .61 $ 1.25 $ 1.30
======= ======= ======= =======
Fully diluted earnings per Common Share:
Before cumulative effect of accounting changes $ .60 $ .58 $ 1.18 $ 1.17
Accounting changes - - - .07
------- ------- ------- -------
Fully diluted earnings per Common Share $ .60 $ .58 $ 1.18 $ 1.24
======= ======= ======= =======
Cash dividends declared per Common Share $ .36 $ .35 $ .71 $ .69
======= ======= ======= =======
Average number of Common Shares:
Primary 28,009 28,673 28,205 28,783
======= ======= ======= =======
Fully diluted 30,752 31,413 30,970 31,519
======= ======= ======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
BETZ LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (In thousands)
ASSETS June 30, 1994 December 31, 1993
------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $37,148 $43,921
Trade accounts receivable,
less allowances:
1994--$3,216; 1993--$2,698 117,638 102,882
Inventories:
Finished products and goods
purchased for resale 16,891 17,155
Raw materials 22,048 20,191
-------- --------
38,939 37,346
Prepaid expenses and other 24,376 24,486
-------- -------
TOTAL CURRENT ASSETS 218,101 208,635
PROPERTY, PLANT AND EQUIPMENT--
at cost
Buildings 162,646 155,781
Machinery and equipment 362,324 360,426
Allowance for depreciation
(deduction) (273,177) (253,881)
--------- ---------
251,793 262,326
Land 21,336 21,146
Construction in progress 28,031 17,270
-------- --------
301,160 300,742
OTHER ASSETS
Investments and other 7,563 7,223
Intangibles -- at cost, less
amortization:
1994 -- $2,662; 1993 -- $2,513 4,379 4,529
-------- --------
11,942 11,752
-------- --------
$531,203 $521,129
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 1994 December 31, 1993
------------- -----------------
CURRENT LIABILITIES
Trade accounts payable $29,405 $32,554
Payroll and related taxes 22,986 17,727
Accrued expenses 26,752 24,577
Income taxes 14,300 6,838
Dividends payable 10,000 9,845
Current portion of ESOP debt 1,000 500
------- --------
TOTAL CURRENT LIABILITIES 104,443 92,041
ESOP DEBT--less portion classified
as current 96,500 97,500
DEFERRED CREDITS
Income taxes 21,997 21,998
Other deferred credits 9,005 10,271
------- --------
31,002 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 -- 494,177 shares;
1993 -- 496,005 shares 98,835 99,201
Guarantee of related ESOP debt (93,466) (94,101)
-------- --------
5,369 5,100
Common Shareholders' Equity
Common Shares -- Authorized -
90,000,000 shares, $.10 par value;
Issued (including treasury shares):
1994 -- 33,652,995 shares;
1993 -- 33,654,715 shares 3,365 3,365
Capital in excess of par value of shares 79,132 78,667
Retained earnings 408,460 394,726
Cost of Common Shares in treasury:
1994 -- 5,875,012 shares;
1993 -- 5,527,310 shares (189,361) (170,442)
Unearned compensation (6,727) (7,773)
Foreign currency translation adjustments (980) (4,324)
-------- --------
COMMON SHAREHOLDERS' EQUITY 293,889 294,219
-------- --------
TOTAL SHAREHOLDERS' EQUITY 299,258 299,319
-------- --------
$531,203 $521,129
======== ========
See notes to consolidated financial statements.
BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
1994 1993
---- -----
OPERATING ACTIVITIES
Net earnings $37,414 $40,131
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 22,686 21,696
Compensation and employee benefit plans 2,272 2,517
Cumulative effect of accounting changes - (2,141)
Other, net (611) (636)
Changes in operating assets and liabilities:
Accounts receivable (14,756) 265
Inventories (1,900) (1,105)
Prepaid expenses and other 126 (4,581)
Accounts payable and accrued expenses 8,471 (3,115)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 53,702 53,031
INVESTING ACTIVITIES
Expenditures for property, plant and equipment, net (23,466) (31,738)
Proceeds from sales of business and long-term investments 4,973 6,716
Other, net 539 (364)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (17,954) (25,386)
FINANCING ACTIVITIES
Dividends paid (23,525) (23,395)
Proceeds from issuance of common stock,
including treasury shares 1,126 1,672
Purchase of treasury stock (19,995) -
Principal payments on ESOP debt (500) (500)
Retirement of ESOP preferred stock (514) (111)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (43,408) (22,334)
Effect of exchange rate changes on cash 887 495
------- ------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,773) 5,806
Cash and Cash Equivalents at Beginning of Year 43,921 46,363
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $37,148 $52,169
======= =======
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 presentation 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 June 30, 1994, 2,543,921 and 645,442 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, 2,728,000 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
Second quarter 1994 net sales increased $8.2 million from $171.5
million to $179.7 million. This 5 percent increase was composed of a 6
percent increase in volume-mix, with no increase in selling prices,
offset by a 1 percent decrease resulting from the changes in the value
of foreign currencies relative to the U.S. dollar. Operating earnings
were $30.5 million and were up 2 percent over the same year-ago period.
Net earnings rose 1 percent from $18.8 million to $18.9 million.
Primary earnings per Common Share increased 5 percent from $.61 to $.64,
and fully diluted earnings per Common Share rose 3 percent from $.58 to
$.60.
Net sales for the six month period ending June 30, 1994 increased 4
percent from $340.0 million to $352.6 million. The percentage increase
in sales was composed of a 5 percent increase in volume-mix, no increase
in selling prices, and a 1 percent decrease resulting from changes in
the value of foreign currencies relative to the U.S. dollar. Operating
earnings rose 1 percent from $59.8 million to $60.5 million. Net
earnings before the cumulative effect of accounting changes decreased 2
percent from $38.0 million to $37.4 million, while net earnings after
accounting changes were down 7 percent. Primary earnings per Common
Share before accounting changes were up 2 percent from $1.23 to $1.25
while primary earnings per Common Share after accounting changes were
down 4 percent from $1.30 to $1.25. Fully diluted earnings per Common
Share before accounting changes were up 1 percent from $1.17 to $1.18
and fully diluted earnings per Common Share after accounting changes
were down 5 percent from $1.24 to $1.18.
The Company's 1994 second quarter results reflect improving
business conditions within the industrial sector of the U.S. economy.
Within the U.S., the Betz Water Management Group recorded strong
increases in sales of its water treatment programs to the primary metals
and power industries during the second quarter; however, these sales
gains were partially offset by modest sales increases to the hydrocarbon
processing industry, the Company's largest customer base. Betz
PaperChem, Inc., the second largest U.S. subsidiary, achieved record
level sales in the second quarter. Betz PaperChem has been particularly
successful in marketing treatment programs aimed at solving problems
associated with changing from an acid to an alkaline method of making
paper.
Second quarter sales of the Company's foreign operations this year,
compared to the second quarter of last year, posted double-digit local
currency gains in Canada, the Caribbean, Australia, France, Germany and
Austria. On a combined basis, gains in foreign sales were reduced to 7
percent, when translated to U.S. dollars.
The table below sets forth, as a percent of sales, cost of products
sold, selling, research and administrative expenses and operating
earnings for the second quarter and six month periods:
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
---- ---- ---- ----
Cost of products sold 35.2% 34.3% 35.3% 34.6%
Selling, research and
administrative expenses 47.8% 48.4% 47.5% 47.8%
Operating earnings 17.0% 17.4% 17.2% 17.6%
Cost of products sold, as a percentage of sales, increased when
compared to prior year periods. This increase is primarily caused by
modest increases in manufacturing costs, with no corresponding increase
in selling prices. Selling, research and administrative expenses, as a
percentage of sales, decreased slightly, mainly due to reductions in
research expenses resulting from restructuring actions taken in the last
half of 1993. The net effect of the above resulted in a 0.4 percent
decrease in the Company's operating earnings, as a percentage of sales,
for the periods shown above.
Income tax expense for the second quarter and first half of 1994 is
higher than the comparable 1993 period due to a 1.5 percent increase in
the effective tax rate resulting from the Omnibus Budget Reconciliation
Act of 1993.
The financial condition of the Company remains strong. Cash
provided by operations for the first six months of 1993 and 1994
remained constant and current assets were 2.1 times current liabilities.
Operating cash needs for the increase in accounts receivable during the
first half of 1994, resulting from the increase in sales, were financed
by increases in accounts payable and other operating cash flows.
During the first half of 1994, the Company continued to implement
its previously announced restructuring program. Approximately $2
million of cash, provided by operating activities during the first six
months of 1994, was used to meet restructuring obligations. The program
is in its early stages, but the Company continued to reduce its
administrative staffing during the second quarter of 1994.
Restructuring activities are expected to continue throughout the last
half of 1994 and the first half of 1995. The cash required to fund the
restructuring program will continue to be provided by operating
activities.
Net cash used in investing activities decreased by approximately $8
million for the period ended June 30, 1994 compared to the same prior
year period. The principal cause of this decline was a reduction in
expenditures for property, plant and equipment to approximately $23
million from approximately $32 million for the same 1993 period. The
Company anticipates that capital expenditures for the year 1994 will
approximate $60 million and will include expansion and process
improvements at the Company's manufacturing facilities in Washougal,
Washington, Orange, Texas and Macon, Georgia.
On June 30, 1994, the Company announced the sale of its oil field
chemicals business to Western Company of North America. The proceeds
from the sale are included in investing activities with proceeds from
the sales of business and long-term investments. The oil field
production chemicals business, served by Betz Energy Chemicals, Inc.,
represented less than 2 percent of the Company's consolidated sales.
The sale will allow the Company to concentrate more of its efforts on
developing its core technologies. It will also allow the Company to
focus on expanding its leadership position in the U.S. and its
globalization initiative to address the significant opportunities for
growth in Europe, Latin America and the Pacific.
Net cash used in financing activities during the first six months
of 1994 increased by approximately $21 million over the same prior year
period. During the period March 28, 1994, through April 7, 1994, the
Company used $20 million to purchase 400,000 shares of treasury stock.
The Company expects that cash flows and existing financial
resources will be adequate to fund its operating and capital expenditure
requirements and to service the dividend and debt requirements
associated with the ESOP.
During the second quarter, the Company began hedging its exposure
to foreign currency fluctuations through the use of foreign currency
forward contracts. The Company executed a series of forward contracts
during the quarter that were primarily accounted for on a mark to market
basis. Unrealized gains or losses are included with investment and
other income on the Consolidated Statement of Operations. There are no
deferred gains or losses on these forward contracts included in the June
30, 1994 Consolidated Balance Sheet. The globalization of the Company's
operations has increased the need to hedge its exposure to foreign
currency fluctuations. The Company expects to continue hedging in the
future, to the extent necessary to manage its foreign exchange risks,
through the use of forward contracts and other foreign exchange
derivatives, as well as foreign cash management techniques designed to
hedge exchange risks.
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 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.
<TABLE>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Primary Earnings per Common Share 1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings before cumulative effect of
accounting changes $18,898 $18,803 $37,414 $37,990
Effect of preferred stock dividends (1,138) (1,253) (2,278) (2,506)
------- ------- ------- -------
17,760 17,550 35,136 35,484
Cumulative effect of accounting changes - - - 2,141
------- ------- ------- -------
Net earnings available to common shareholders $17,760 $17,550 $35,136 $37,625
======= ======= ======= =======
Average Common Shares outstanding 27,785 28,588 27,963 28,570
Common stock equivalents 224 85 242 213
------- ------- ------- -------
Average number of Common Shares - primary 28,009 28,673 28,205 28,783
======= ======= ======= =======
Primary earnings per Common Share:
Before cumulative effect of accounting changes $0.64 $0.61 $1.25 $1.23
Cumulative effect of accounting changes - - - 0.07
------- ------- ------- -------
Primary earnings per Common Share $0.64 $0.61 $1.25 $1.30
======= ======= ======= =======
Fully Diluted Earnings per Common Share
Earnings before cumulative effect of
accounting changes $18,898 $18,803 $37,414 $37,990
Effect of ESOP charge to operations assuming
conversion of Series A ESOP Convertible
Preferred Shares (490) (593) (1,018) (1,211)
------- ------ ------- -------
$18,408 18,210 36,396 36,779
Cumulative effect of accounting changes - - - 2,141
------- ------- ------- -------
Net earnings available to common shareholders $18,408 $18,210 $36,396 $38,920
======= ======= ======= =======
Average Common Shares outstanding 27,785 28,588 27,963 28,570
Common stock equivalents 224 85 247 213
Assumed conversion of Series A ESOP Convertible
Preferred Shares 2,743 2,740 2,760 2,736
------- ------- ------- -------
Average number of Common Shares - fully diluted 30,752 31,413 30,970 31,519
======= ======= ======= =======
Fully diluted earnings per Common Share:
Before cumulative effect of accounting changes $0.60 $0.58 $1.18 $1.17
Cumulative effect of accounting changes - - - 0.07
------- ------- ------- -------
Fully diluted earnings per Common Share $0.60 $0.58 $1.18 $1.24
======= ======= ======= =======
<FN>
Common stock equivalents reflect the assumed exercise of dilutive employees' stock options using the
treasury stock method.
</TABLE>
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.
-----------------------
(Registrant)
Date: August 12, 1994 By: s/R. Dale Voncanon
-------------------------------
R. Dale Voncanon
Vice President - Finance
Date: August 12, 1994 By: s/William C. Brafford
--------------------------------
William C. Brafford
Vice President,
Secretary and General Counsel
