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, 1995
Commission File Number: 0-2085
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
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.
27,685,990 Common Shares outstanding as of May 8, 1995.
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BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended
March 31,
1995 1994
- ------------------------------------------------------------------------------
Net Sales $177,934 $172,934
Operating Costs and Expenses:
Cost of products sold 63,077 61,214
Selling, research and administrative
expenses 84,605 81,757
-------- --------
147,682 142,971
OPERATING EARNINGS 30,252 29,963
Other Income (Expense):
Investment and other income 512 959
Interest expense (39) (62)
-------- --------
473 897
EARNINGS BEFORE INCOME TAXES 30,725 30,860
Income Taxes 11,983 12,344
-------- --------
NET EARNINGS $ 18,742 $ 18,516
======== ========
Net earnings per Common Share:
Primary $ .63 $ .61
======== ========
Fully diluted $ .59 $ .58
======== ========
Cash dividends declared per Common Share $ .36 $ .35
======== ========
Average number of Common Shares:
Primary 28,025 28,401
======== ========
Fully diluted 30,786 31,189
======== ========
See notes to consolidated financial statements.
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BETZ LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (In thousands)
ASSETS March 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $49,541 $43,926
Trade accounts receivable,
less allowances:
1995--$2,667; 1994--$2,693 121,646 121,660
Inventories:
Finished products and goods
purchased for resale 21,241 19,491
Raw materials 22,726 20,133
-------- --------
43,967 39,624
Prepaid expenses and other 25,496 24,666
-------- --------
TOTAL CURRENT ASSETS 240,650 229,876
PROPERTY, PLANT AND EQUIPMENT--
at cost
Buildings 174,620 172,833
Machinery and equipment 398,448 396,074
Allowance for depreciation
(deduction) (303,741) (291,588)
-------- --------
269,327 277,319
Land 22,214 22,056
Construction in progress 16,010 9,573
-------- --------
307,551 308,948
OTHER ASSETS
Investments and other 10,854 10,256
Intangibles -- at cost, less
amortization:
1995 -- $2,974; 1994 -- $2,855 6,300 6,418
-------- --------
17,154 16,674
-------- --------
$565,355 $555,498
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY March 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------
CURRENT LIABILITIES
Trade accounts payable $30,028 $30,740
Payroll and related taxes 17,567 24,010
Accrued expenses 19,905 20,305
Income taxes 21,979 12,587
Dividends payable 0 10,031
Current portion of ESOP debt 1,000 1,000
-------- --------
TOTAL CURRENT LIABILITIES 90,479 98,673
ESOP DEBT--less portion classified
as current 96,500 96,500
DEFERRED CREDITS
Income taxes 20,803 20,765
Other deferred credits 17,742 15,602
-------- --------
38,545 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 -- 491,184 shares;
1994 -- 492,167 shares 98,237 98,433
Guarantee of related ESOP debt (92,477) (92,834)
-------- --------
5,760 5,599
Common Shareholders' Equity
Common Shares -- Authorized - 90,000,000
shares, $.10 par value;
Issued (including treasury shares):
1995 -- 33,647,720 shares;
1994 -- 33,649,527 shares 3,365 3,365
Capital in excess of par value of shares 81,945 81,802
Retained earnings 440,244 423,519
Cost of Common Shares in treasury:
1995 -- 5,866,558 shares;
1994 -- 5,784,899 shares (191,561) (187,523)
Unearned compensation (4,998) (5,521)
Foreign currency translation adjustments 5,076 2,717
-------- --------
COMMON SHAREHOLDERS' EQUITY 334,071 318,359
-------- --------
TOTAL SHAREHOLDERS' EQUITY 339,831 323,958
-------- --------
$565,355 $555,498
======== ========
See notes to consolidated financial statements.
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BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
1995 1994
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $18,742 $18,516
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 11,974 11,241
Compensation and employee benefit plans 2,969 1,147
Other, net 263 --
Changes in operating assets and liabilities:
Accounts receivable 14 (9,323)
Inventories (4,190) (633)
Prepaid expenses and other (830) 1,199
Accounts payable and accrued expenses 1,656 7,884
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NET CASH PROVIDED BY OPERATING ACTIVITIES 30,598 30,031
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (9,362) (11,360)
Proceeds from sales of long-term assets 564 98
Purchase of long-term investments (505) --
Other, net (155) (172)
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NET CASH USED IN INVESTING ACTIVITIES (9,458) (11,434)
FINANCING ACTIVITIES
Dividends paid (11,997) (11,828)
Proceeds from issuance of common shares,
including treasury shares 178 491
Purchase of treasury shares (4,411) --
Retirement of ESOP preferred shares -- (295)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (16,230) (11,632)
Effect of exchange rate changes on cash 705 251
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 5,615 7,216
Cash and Cash Equivalents at Beginning of Year 43,926 43,921
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $49,541 $51,137
======= =======
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 March 31, 1995, 2,464,406 and 638,791 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, 2,759,000 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 1995 net sales increased $5.0 million from $172.9
million to $177.9 million. Sales would have been up 4 percent if the
Company's oil field chemicals business, which was sold on June 30, 1994,
were excluded from last year's first quarter numbers. This 4 percent
increase was composed of a 2 percent increase in volume-mix, a 1 percent
rise in selling prices and a 1 percent gain resulting from the changes in
the value of foreign currencies relative to the U.S. dollar. Net earnings
increased $0.2 million, or 1 percent, from $18.5 million to $18.7 million.
Primary earnings per Common Share increased 3 percent from $.61 to $.63,
while fully diluted earnings per Common Share increased 2 percent from $.58
to $.59.
The Company's first quarter results reflect a 15 percent increase in
net sales by its non-U.S. operations in Canada, Europe, Australia, South Korea
and Southeast Asia. Sales of process treatment programs for the paper
industry were up substantially in the non-U.S. marketplace during the
quarter. Net sales in the United States, excluding the oil field chemicals
business, grew 1 percent during the quarter. Sales increases of process
chemical treatment programs were partially offset by lower sales of water
treatment programs to the hydrocarbon processing industry. Customers in
this industry are still economizing on their treatment programs wherever
possible to meet short-term cost control objectives. This is particularly
true in the refining industry, which had a difficult first quarter in terms
of profitability.
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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,
1995 1994
- ---------------------------------------------------------------------------
Cost of product sold 35.4% 35.4%
Selling, research and administrative
expenses 47.6% 47.3%
Operating earnings 17.0% 17.3%
Cost of products sold as a percentage of sales remained constant.
Selling, research and administrative expenses increased slightly, as a
percent of sales, due to higher selling and marketing expenses. The net
effect of the above resulted in a 0.3 percent decrease in the Company's
operating profit margin.
In keeping with its globalization initiative to address the
significant opportunities for growth in the non-U.S. marketplace, the
Company, on May 1, 1995, announced the acquisition of Taiwan Pietz Company,
Ltd., a water, paper process and refinery process treatment business, with
projected 1995 annual sales in excess of $12 million. Taiwan Pietz Company,
Ltd. has been a licensee of Betz products since 1974. The purchase immediately
boosts the Company's market position and presence in the Asia-Pacific
region and supports the Company's strategic plan to become the preeminent
global company in the water and process treatment business. Included in
the transaction are facilities strategically located in key industrial
centers throughout Taiwan, and an ISO-9002-certified production plant,
administrative headquarters, customer service laboratories, and warehouses.
The new company, known as Betz Taiwan, Ltd., also provides the Company with
excellent opportunities for growth in the region, particularly in the paper
and refinery process treatment business. This acquisition was financed
with available cash and cash equivalents.
During the first quarter of 1995, the Company charged the
restructuring reserve $1.0 million. The restructuring plan is expected to
be completed this year.
The financial condition of the Company remains strong. Cash and cash
equivalents were $49.5 million on March 31, 1995, an increase of $5.6
million from December 31, 1994, and current assets were 2.7 times current
liabilities. Cash provided by operating activities for the first three
months of 1995 was $30.6 million, a $0.6 million increase over 1994.
During the quarter expenditures for property, plant and equipment were $9.4
million, a $2.0 million decrease from the 1994 level. The Company
anticipates that capital expenditures for 1995 will be approximately $75
million and will include improvements to the Company's production
facilities in Belgium, the start-up 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 increased by $4.6 million over the prior year first
quarter, principally due to the purchase of 100,000 treasury shares at a
cost of $4.4 million.
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The Company anticipates that present cash and cash equivalents and net
cash provided by 1995 operating activities combined with other 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 4 - Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on April 13,
1995. 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 1995.
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
- ---------------------------------------------------------------------------
Carolyn S. Burger 22,761,448 96,182 -- 5,007,104
George A. Butler 22,777,197 80,433 -- 5,007,104
John A. Miller 22,776,522 81,108 -- 5,007,104
Geoffrey Stengel, Jr. 22,752,787 104,843 -- 5,007,104
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Approval of Amendment to Company's Stock Incentive Plan
For Against Abstained Not Voted
- ---------------------------------------------------------------------------
16,862,932 3,977,014 148,198 6,876,590
Approval of Amendment to Company's Stock Option Plan
For Against Abstained Not Voted
- ---------------------------------------------------------------------------
13,771,085 7,061,860 155,199 6,876,590
Election of Independent Auditors
For Against Abstained Not Voted
- ---------------------------------------------------------------------------
Ernst & Young 22,789,405 31,807 36,417 5,007,105
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.
(c) Exhibit 27: Financial Data Schedule.
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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 1995 1994
- -------------------------------------------------------------------------------
Net earnings $18,742 $18,516
Effect of preferred stock dividends (1,219) (1,140)
------- -------
Net earnings available to common shareholders $17,523 $17,376
======= =======
Average Common Shares outstanding 27,847 28,142
Common stock equivalents 178 259
------- -------
Average number of Common Shares - primary 28,025 28,401
======= =======
Primary earnings per Common Share $0.63 $0.61
======= =======
Fully Diluted Earnings per Common Share
- -------------------------------------------------------------------------------
Net earnings $18,742 $18,516
Effect of ESOP charge to operations assuming
conversion of Series A ESOP Convertible
Preferred Shares (539) (528)
------- -------
Net earnings available to common shareholders $18,203 $17,988
======= =======
Average Common Shares outstanding 27,847 28,142
Common stock equivalents 178 269
Assumed conversion of Series A ESOP Convertible
Preferred Shares 2,761 2,778
------- -------
Average number of Common Shares - fully diluted 30,786 31,189
======= =======
Fully diluted earnings per Common Share $0.59 $0.58
======= =======
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: May 12, 1995 By: s/R. Dale Voncanon
-----------------------------------
R. Dale Voncanon
Vice President - Finance
Date: May 12, 1995 By: s/William C. Brafford
-----------------------------------
William C. Brafford
Vice President,
Secretary and General Counsel
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BETZ LABORATORIES, INC.
Exhibit 27: Financial Data Schedule
Article 5 of Regulation S-X
(In thousands, except per share amounts)
[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.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 49,541
<SECURITIES> 0
<RECEIVABLES> 121,646
<ALLOWANCES> 2,667
<INVENTORY> 43,967
<CURRENT-ASSETS> 240,650
<PP&E> 611,292
<DEPRECIATION> 303,741
<TOTAL-ASSETS> 565,355
<CURRENT-LIABILITIES> 90,479
<BONDS> 96,500
5,760
0
<COMMON> 3,365
<OTHER-SE> 330,706
<TOTAL-LIABILITY-AND-EQUITY> 565,355
<SALES> 177,934
<TOTAL-REVENUES> 177,934
<CGS> 63,077
<TOTAL-COSTS> 63,077
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<INCOME-TAX> 11,983
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.59
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