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, 1995
Commission File Number: 0-2085
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
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 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.
27,701,518 Common Shares outstanding as of August 7, 1995.
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BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
----------------------------------------
Net Sales $188,896 $179,701 $366,830 $352,635
Operating Costs and Expenses:
Cost of products sold 68,592 63,211 131,669 124,425
Selling, research and administrative
expenses 88,702 85,965 173,307 167,722
-------- -------- -------- --------
157,294 149,176 304,976 292,147
OPERATING EARNINGS 31,602 30,525 61,854 60,488
Other Income (Expense):
Investment and other income 1,196 1,011 1,708 1,970
Interest expense (87) (40) (126) (102)
-------- -------- -------- --------
1,109 971 1,582 1,868
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 32,711 31,496 63,436 62,356
Income Taxes 12,757 12,598 24,740 24,942
-------- -------- -------- --------
NET EARNINGS $ 19,954 $ 18,898 $ 38,696 $ 37,414
======== ======== ======== ========
Net earnings per Common Share:
Primary $ .67 $ .64 $ 1.30 $ 1.25
======== ======== ======== ========
Fully diluted $ .64 $ .60 $ 1.23 $ 1.18
======== ======== ======== ========
Cash dividends declared
per Common Share $ .37 $ .36 $ .73 $ .71
======== ======== ======== ========
Average number of Common Shares:
Primary 27,863 28,009 27,944 28,205
======== ======== ======== ========
Fully diluted 30,654 30,752 30,720 30,970
======== ======== ======== ========
See notes to consolidated financial statements.
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BETZ LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (In thousands)
ASSETS June 30, 1995 December 31, 1994
------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 17,393 $ 43,926
Trade accounts receivable,
less allowances:
1995--$2,762; 1994--$2,693 134,308 121,660
Inventories:
Finished products and goods
purchased for resale 23,071 19,491
Raw materials 24,009 20,133
-------- --------
47,080 39,624
Prepaid expenses and other 22,325 24,666
-------- --------
TOTAL CURRENT ASSETS 221,106 229,876
PROPERTY, PLANT AND EQUIPMENT--
at cost
Buildings 179,000 172,833
Machinery and equipment 414,251 396,074
Allowance for depreciation
(deduction) (317,042) (291,588)
-------- --------
276,209 277,319
Land 24,151 22,056
Construction in progress 24,251 9,573
-------- --------
324,611 308,948
OTHER ASSETS
Investments and other 13,014 10,256
Intangibles -- at cost, less
amortization:
1995 -- $3,092; 1994 -- $2,855 14,876 6,418
-------- --------
27,890 16,674
-------- --------
$573,607 $555,498
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 1995 December 31, 1994
------------- -----------------
CURRENT LIABILITIES
Trade accounts payable $30,828 $30,740
Payroll and related taxes 16,885 24,010
Accrued expenses 21,368 20,305
Income taxes 13,545 12,587
Dividends payable 10,246 10,031
Current portion of ESOP debt 1,000 1,000
-------- --------
TOTAL CURRENT LIABILITIES 93,872 98,673
ESOP DEBT--less portion classified as current 95,500 96,500
DEFERRED CREDITS
Income taxes 20,898 20,765
Other deferred credits 24,242 15,602
-------- --------
45,140 36,367
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:
1995 -- 490,065 shares;
1994 -- 492,167 shares 98,013 98,433
Guarantee of related ESOP debt (92,121) (92,834)
-------- --------
5,892 5,599
Common Shareholders' Equity
Common Shares -- Authorized - 90,000,000
shares, $.10 par value;
Issued (including treasury shares):
1995 -- 33,646,287 shares;
1994 -- 33,649,527 shares 3,365 3,365
Capital in excess of par value of shares 82,062 81,802
Retained earnings 437,977 423,519
Cost of Common Shares in treasury:
1995 -- 5,953,807 shares;
1994 -- 5,784,899 shares (195,514) (187,523)
Unearned compensation (4,378) (5,521)
Foreign currency translation adjustments 9,691 2,717
-------- --------
COMMON SHAREHOLDERS' EQUITY 333,203 318,359
-------- --------
TOTAL SHAREHOLDERS' EQUITY 339,095 323,958
-------- --------
$573,607 $555,498
======== ========
See notes to consolidated financial statements.
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BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
1995 1994
-----------------------
OPERATING ACTIVITIES
Net earnings $38,696 $37,414
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 24,387 22,686
Compensation and employee benefit plans 5,805 2,272
Other, net (232) (611)
Changes in operating assets and liabilities:
Accounts receivable (9,894) (14,756)
Inventories (5,395) (1,900)
Prepaid expenses and other 2,407 126
Accounts payable and accrued expenses (8,035) 8,471
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 47,739 53,702
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (27,853) (23,466)
Proceeds from sales of long-term assets 1,114 4,973
Purchases of long-term investments and businesses (15,514) -
Other, net (326) 539
------- -------
NET CASH USED IN INVESTING ACTIVITIES (42,579) (17,954)
FINANCING ACTIVITIES
Dividends paid (23,944) (23,525)
Proceeds from issuance of common shares,
including treasury shares 242 1,126
Purchase of treasury shares (8,622) (19,995)
Principal payments on ESOP debt (1,000) (500)
Retirement of ESOP preferred shares - (514)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (33,324) (43,408)
Effect of exchange rate changes on cash 1,631 887
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (26,533) (6,773)
Cash and Cash Equivalents at Beginning of Year 43,926 43,921
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $17,393 $37,148
======= =======
See notes to consolidated financial statements.
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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.
Note 2 - Common Shares Reserved for Stock Plans
At June 30, 1995, 4,460,586 and 636,441 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, 2,790,000 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 1995 net sales increased $9.2 million from $179.7
million to $188.9 million. This 5 percent increase was approximately composed
of a 2 percent increase in volume-mix, a 1 percent rise in selling prices and
a 2 percent gain resulting from the changes in the value of foreign currencies
relative to the U.S. dollar. A 1 percent decrease due to the sale of Betz
Energy Chemicals, Inc. (EnChem) on June 30, 1994 was mostly offset by a
sales increase resulting from the acquisition of Taiwan Pietz Company, Ltd.
on May 1, 1995. Net earnings increased $1.1 million, or 6 percent, from
$18.9 million to $20.0 million. Primary earnings per Common Share
increased 5 percent from $.64 to $.67, while fully diluted earnings per
Common Share increased 7 percent from $.60 to $.64.
Net sales for the six month period ending June 30, 1995 increased 4
percent from $352.6 million to $366.8 million. The percentage increase in
sales was approximately comprised of a 2 percent increase in volume-mix,
a 1 percent increase in selling prices and a 2 percent increase from currency
fluctuations, partially offset by a 1 percent decrease from the sale of
EnChem. Operating earnings rose 2 percent from $60.5 million to $61.9
million. Net earnings increased 3 percent from $37.4 million to $38.7
million. Primary and fully diluted earnings per Common Share both
increased 4 percent from $1.25 to $1.30 and from $1.18 to $1.23,
respectively.
The Company's second quarter results reflect another strong quarter by
its non-U.S. operations which reported a 21 percent U.S. dollar increase in
net sales over the second quarter of 1994. Double-digit sales gains were
recorded during the quarter in Canada, Southeast Asia, Korea, Australia,
France and the Benelux countries. Performance in the Asia Pacific region
also benefited from the results of Betz Taiwan, Ltd., formerly known as
Taiwan Pietz Company, Ltd. Non-U.S. sales for the first half of 1995 are
18 percent higher in U.S. dollars and 11 percent higher in local currencies
than the comparable 1994 period.
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As part of its plans to continue to capitalize on opportunities for
growth outside of the United States, the Company recently announced an
agreement with a licensee that will provide greater access to the Mexican
market. Under the terms of the agreement, the Company will be able to
provide water and process treatment services directly to major industrial
facilities in Mexico. Due to the proximity of its production plants to the
Mexican border, the Company will be able to serve Mexican customers with
its existing production and distribution network.
Second quarter net sales in the United States, excluding EnChem, rose
2 percent over the 1994 second quarter. Betz Process Chemicals, Inc.
experienced higher sales partially due to the continued success of its
ALKAT-XL (registered trademark) treatment program, and its SPEC-AID
(registered trademark) line of finished product additives which help cus-
tomers improve profitability and control product instability. Betz
PaperChem, Inc. reported a record quarter reflecting the success of its
marketing programs aimed at helping solve customers' process problems and
increasing plant throughput. Sales of industrial water treatment programs
in the U.S. were sluggish during the quarter. However, sales of the
Company's new Novus (registered trademark) polymers used in wastewater
clarification were up strongly. These polymers are also used in refinery
and paper process applications and represent a significant opportunity for
growth, both domestically and internationally. United States net sales,
excluding EnChem, for the first half of 1995 were 1 percent higher than the
first six months of 1994.
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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
-------------------- -----------------
Cost of products sold 36.3% 35.2% 35.9% 35.3%
Selling, research and administrative
expenses 47.0% 47.8% 47.2% 47.5%
Operating earnings 16.7% 17.0% 16.9% 17.2%
Cost of products sold, as a percentage of sales, increased when
compared to the prior year periods. This increase is primarily caused by
higher raw material costs and a less favorable product mix. Selling,
research and administrative expenses, as a percentage of sales, declined
from prior periods due to reductions in administrative expenses resulting
from restructuring actions. The net effect of the above resulted in a 0.3
percent decline in operating earnings, as a percent of sales, for both the
1995 second quarter and first half compared to 1994.
During the first six months of 1995, the Company charged the
restructuring reserve $2.2 million. The restructuring plan is expected to
be completed this year.
Cash and cash equivalents were $17.4 million on June 30, 1995, a
decrease of $26.5 million from December 31, 1994. The primary cause of
this decline was $15.5 million of expenditures for long-term investments
and businesses. The largest such expenditure was the cash acquisition of
Taiwan Pietz Company, Ltd. on May 1, 1995. The new company, known as Betz
Taiwan, Ltd., provides the company
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with excellent opportunities for growth in the Asia Pacific region,
particularly in the paper and refinery process treatment businesses. The
purchase price for Taiwan Pietz Company, Ltd. was not disclosed.
Cash provided by operating activities for the first six months of 1995
was $47.7 million, a $6.0 million decrease from 1994. Cash used to fund
increases in accounts receivable and inventories and to reduce accrued
payroll were the primary causes of the decline in net cash provided by
operating activities. Inventories and receivable increases were necessary
to support the higher sales level, especially in the non-U.S. markets.
During the period expenditures for property, plant and equipment were
$27.9 million, a $4.4 million increase from the 1994 level. The Company
anticipates that capital expenditures for 1995 will be approximately $70
million and will include improvements to the Company's production
facilities in Belgium, the startup of construction of a new research
facility at corporate headquarters in Trevose, Pennsylvania, and
commencement of expansion of its plant in Beaumont, Texas to increase the
manufacturing capacity for the Novus (registered trademark) polymer line,
which is used in both process and water treatment applications.
Net cash used in financing activities decreased by $10.1 million from
the prior year six month period, principally due to the purchase of 200,000
treasury shares at a cost of $8.6 million in 1995 compared to the 1994 six
month purchase of 400,000 treasury shares at a cost of $20.0 million.
The Company anticipates that present cash and cash equivalents and net
cash provided by 1995 operating activities, combined with available
external financing resources, will be sufficient to fund the Company's
operating and capital expenditure requirements and to service the dividend
and debt requirements associated with its Employee Stock Ownership Plan.
PART II OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no material developments in the case of Katherine
Adams, et al. v. Pacific Gas and Electric, et al. nor in the pending
proceedings to which the Company is a "Potentially Responsible Party" under
the Comprehensive Environmental Response, Compensation and Liability Act
during the quarter for which this report is filed. 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, 1994.
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.
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EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
Primary Earnings per Common Share 1995 1994 1995 1994
-------------------- ------------------
Net earnings $19,954 $18,898 $38,696 $37,414
Effect of preferred stock dividends (1,214) (1,138) (2,433) (2,278)
-------- ------- ------- -------
Net earnings available to
common shareholders $18,740 $17,760 $36,263 $35,136
======= ======= ======= =======
Average Common Shares outstanding 27,703 27,785 27,775 27,963
Common stock equivalents 160 224 169 242
-------- ------- ------- -------
Average number of Common Shares -
primary 27,863 28,009 27,944 28,205
======== ======= ======= =======
Primary earnings per Common Share $0.67 $0.64 $1.30 $1.25
======== ======= ======= =======
Fully Diluted Earnings per Common Share
Net earnings $19,954 $18,898 $38,696 $37,414
Effect of ESOP charge to operations
assuming conversion of Series A
ESOP Convertible Preferred Shares (515) (490) (1,054) (1,018)
-------- ------- ------- -------
Net earnings available to common
shareholders $19,439 $18,408 $37,642 $36,396
======== ======= ======= =======
Average Common Shares outstanding 27,703 27,785 27,775 27,963
Common stock equivalents 188 224 183 247
Assumed conversion of Series A
ESOP Convertible Preferred Shares 2,763 2,743 2,762 2,760
-------- ------- ------- -------
Average number of Common Shares -
fully diluted 30,654 30,752 30,720 30,970
======== ======= ======= =======
Fully diluted earnings per Common Share $0.64 $0.60 $1.23 $1.18
======== ======= ======= =======
Common stock equivalents reflect the assumed exercise of dilutive employees'
stock options using the treasury stock method.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BETZ LABORATORIES, INC.
------------------------------
(Registrant)
Date: August 14, 1995 By: s/George L. James
------------------------------
George L. James
Vice President - Finance
and Treasurer
Date: August 14, 1995 By: s/William C. Brafford
------------------------------
William C. Brafford
Vice President,
Secretary and General Counsel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 17,393
<SECURITIES> 0
<RECEIVABLES> 134,308
<ALLOWANCES> 2,762
<INVENTORY> 47,080
<CURRENT-ASSETS> 221,106
<PP&E> 641,653
<DEPRECIATION> 317,042
<TOTAL-ASSETS> 573,607
<CURRENT-LIABILITIES> 93,872
<BONDS> 95,500
5,892
0
<COMMON> 3,365
<OTHER-SE> 329,838
<TOTAL-LIABILITY-AND-EQUITY> 573,607
<SALES> 366,830
<TOTAL-REVENUES> 366,830
<CGS> 131,669
<TOTAL-COSTS> 131,669
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126
<INCOME-PRETAX> 63,436
<INCOME-TAX> 24,740
<INCOME-CONTINUING> 38,696
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<EXTRAORDINARY> 0
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<NET-INCOME> 38,696
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.64
</TABLE>
