FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
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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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock New York Stock Exchange
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[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of Registrant's voting common stock (Par
value $.10) held by non-affiliates of Registrant as of February 10, 1995:
$1,261,249,561
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The number of shares outstanding of each of the Registrant's classes
of common stock as of February 10, 1995:
27,864,734 Common Shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for use in con-
junction with Registrant's 1995 Annual Meeting of Shareholders and Regis-
trant's 1994 Annual Report are incorporated into Parts II and III hereof.
<PAGE>
PART 1
Item 1 - BUSINESS
General
Betz Laboratories, Inc. and its subsidiaries ("Registrant") is
engaged in the engineered chemical treatment of water, wastewater and
process systems operating in a wide variety of industrial and commercial
applications, with particular emphasis on the chemical, petroleum refining,
paper, automotive, electric utility and steel industries. Registrant
produces and markets a wide range of specialty chemical products, including
the technical and laboratory services necessary to utilize these products
effectively. Chemical treatment programs are developed and marketed for
use in boilers, cooling systems, heat exchangers, paper and petroleum
process streams and both influent and effluent systems. Registrant
monitors changing water, process and plant operating conditions so as to
prescribe the appropriate treatment programs to solve problems such as
corrosion, scale, deposit formation and a variety of process problems.
Registrant has thirteen (13) production plants in the United States
and nine (9) in foreign countries. Operations are conducted primarily in
the United States and Canada, and also in Europe, Southeast Asia and the
Caribbean area. Registrant employs approximately 3,980 people worldwide.
Marketing
During 1994, the Registrant continued implementation of its
globalization initiative. Pursuant to this globalization initiative,
Registrant's foreign paper and refinery process sales and marketing
organizations report to Registrant's domestic operations along
technology lines. Under this initiative, Betz PaperChem, Inc. and
Betz Process Chemicals, Inc. were assigned worldwide responsibility for
marketing Registrant's paper and petroleum process chemical technologies,
respectively. In 1995, the Registrant expects to integrate worldwide sales
and marketing of water and wastewater technology into Betz Water Management
Group.
Domestically, the Registrant markets its products and technology along
industry specific groups utilizing eight marketing units. Each unit operates
as a separate profit center with its own sales staff and specific technology
for the market it serves.
Betz Water Management Group is comprised of five divisions: the
Refining and Chemical Division; the Pulp and Paper Division; the Power
Industry Division; the Manufacturing Industries Division and, effective
December 31, 1994, the Betz Entec Division. In 1994, it marketed all of
Registrant's water and wastewater technology within the United States.
Betz Water Management Group, which accounts for 49.6% of Registrant's
1994 sales, will continue to provide specialty water treatment programs
for boiler, cooling, influent and effluent applications to its principal
markets, such as refining, chemical, paper, electric utility, food, light
industrial, commercial and institutional establishments.
<PAGE>
Betz Process Chemicals, Inc., a subsidiary, develops specific products
used in process streams in the refining, petrochemical and steel
industries. These products are "process-side" treatments as compared to
"water-side" treatments and are formulated to reduce production
inefficiencies in large industrial plants. This technology is applied in
many ways including controlling corrosion with effective inhibitors and
controlling fouling in heat exchangers through trace metal deactivation,
polymer retardants, foam control, and oxidation control.
Betz PaperChem, Inc. serves the pulp and paper industry. This
subsidiary formulates custom engineered programs for the process related
problems associated with paper production. As a consumer of large amounts
of water in the production process, the pulp and paper industry's efforts
to reuse water and conserve energy have increased the need for water
treatment chemicals. Recirculating water systems build up organic and
inorganic deposits which must be controlled. Deposition, corrosion,
microbiological fouling, pulp processing, foam control, de-inking and felt
conditioning are other problems associated with pulp and paper production
that are treated by Betz PaperChem, Inc.'s technology.
In June, 1994, the Registrant sold Betz Energy Chemicals, Inc., a
subsidiary that served the oil field production market by providing
products and services used in the extraction of crude oil deposits in the
earth. Betz Energy Chemicals, Inc. had annualized sales of approximately $10
million. The sale was part of the Registrant's efforts to concentrate on
developing its core technologies.
The Betz MetChem Division serves steel, aluminum and plastic
producers, and the related transportation, machinery, appliances,
fabricated parts and coil industries. Its products and treatment programs
are designed for cleaning, passivation, conversion coating, paint
detackification and storage of metals and metal parts.
Technical sales representatives working in each of the Registrant's
eight marketing units assist in the development of engineered programs to
meet a customer's needs. Such programs are custom designed to conserve
energy, minimize corrosion and deposits, control microbiological fouling,
reduce waste generation, improve process efficiency or any combination of
the above, depending on the customer's requirements. Technical sales
representatives also train customer operating personnel in the controlling,
testing and chemical feeding required in applying Registrant's treatment
programs. Since plant operating conditions and intake water characteristics
do not remain static, the technical sales representatives make regular,
scheduled plant follow-up visits to monitor the treatment program results
and help customer operating personnel.
To ensure treatment effectiveness, Registrant may also provide
additional technical services from its mobile water treatment
TravelLabs (registered trademark) which conduct tests on customer water
systems. In the United States and other countries, Registrant has
approximately 1,465 District Regional Managers, District Managers and
technical sales representatives selling and servicing its chemical
technologies.
<PAGE>
Registrant's worldwide sales of specialty chemicals and the above
related products during 1994 amounted to $708,286,000, as compared to
$684,872,000 in 1993 and $706,972,000 in 1992, and in each case constituted
100% of Registrant's consolidated net sales. Consolidated net earnings for
1994 were $73,171,000, as compared to $65,520,000 in 1993 and $82,047,000
in 1992.
International Operations
Registrant's international activities are conducted through
subsidiaries operating in fifteen foreign locations. Betz International,
Inc., a wholly-owned domestic subsidiary of Registrant, manages
Registrant's U.S. based international sales effort and holds substantially
all of the stock in Registrant's Singapore, Australian, Korean, Venezuelan
and Indian subsidiaries. Betz International markets to customers located
primarily in the Caribbean, Central America, South America, Saudi Arabia,
India, Korea, Singapore, Malaysia, Indonesia, Thailand, Australia and New
Zealand. Betz Europe, Inc., a wholly-owned domestic subsidiary of
Registrant, holds directly or indirectly all of the stock in Registrant's
Belgian, Austrian, German, Finnish, Swedish, French, Italian and United
Kingdom subsidiaries. Registrant's Canadian subsidiary, Betz Canada Inc.,
operates independently of Betz International and Betz Europe.
Although Registrant does not believe that its foreign operations are
presently subject to a materially greater risk than its domestic
operations, Registrant's foreign operations may at any time be adversely
affected by conditions outside its control including economic and political
conditions. See Notes 1, 2 and 4 to Consolidated Financial Statements for
certain additional information pertaining to foreign operations.
The range of products sold by Registrant to customers located outside
of the United States is substantially similar to, although not as broad in
scope as, those sold in the United States. Products and services sold to
foreign markets during 1994 accounted for approximately $170,400,000 or
24.1% of Registrant's consolidated net sales as compared to $153,592,000
(22.4%) in 1993 and $160,484,000 (22.7%) in 1992. Of these amounts, direct
exports by Betz International from the United States to foreign markets
accounted for approximately $13,629,000 or 1.9% of Registrant's
consolidated net sales in 1994, as compared to $11,981,000 (1.7%) in 1993
and $10,913,000 (1.5%) in 1992.
Excluding products and services exported directly by Betz
International, sales for 1994 by foreign subsidiaries were approximately
$156,771,000 or 22.1% of the Registrant's consolidated net sales. Foreign
subsidiary sales in 1993 and 1992 and their percentage of Registrant's
consolidated net sales were $141,611,000 (20.7%) and $149,571,000 (21.2%),
respectively. Of these amounts, sales by Registrant's Canadian subsidiary
amounted to $38,404,000 (5.4%) in 1994; $36,171,000 (5.3%) in 1993; and
$34,361,000 (4.9%) in 1992. The operating earnings of Registrant's foreign
subsidiaries in 1994 were $22,701,000 or 3.2% of Registrant's consolidated
net sales, as compared to $18,988,000 (2.8%) in 1993 and $27,069,000 (3.8%)
in 1992.
Approximately $395,046,000 or 71.1% of Registrant's identifiable
assets are attributable to its domestic operations and $160,452,000 or
28.9% are attributable to its foreign operations.
<PAGE>
Production and Distribution
Many of Registrant's products are produced at more than one of the
twenty-two (22) production plants referred to under Item 2 ("Properties").
The particular plant from which a customer's needs are filled is generally
determined on the basis of economy of freight. Most shipments to customers
are made by common carriers and Registrant-owned vehicles. Under
Registrant's own liquid distribution program, formulated products are
delivered directly by custom-built vehicles owned by Registrant to tanks
owned by Registrant or the customer at the customer's site. This "Betz
Point of Feed (registered trademark) Delivery (POF) (registered trademark)
Service" reduces the storage and handling costs of the Registrant's customers.
The "Betz Semi-Bulk Control" (registered trademark) Program is a
distribution system to augment its "Point of Feed" and drum distribution
programs. It is used by all of Registrant's marketing units to serve their
respective markets and involves the delivery of a restricted line of the
Registrant's products to customer locations in stackable, returnable, reusable
300 and 400 gallon containers. This "Betz Semi-Bulk Control" Program offers
greater convenience to those of the Registrant's customers whose volume
demand or other considerations make unavailable "Betz Point of Feed Delivery
Service", but who desire delivery in other than 55 gallon drums.
In addition, Registrant operates a "Custom Distribution Service"
(CDS) (registered trademark) that offers the "Betz Point of Feed Delivery
Service" to some of the Registrant's customers with smaller quantity
requirements. All three of the above distribution systems eliminate the need
for the handling, storage and cleaning of chemical drums.
As most of Registrant's chemical products are shipped to customers
within one week of the receipt of specific purchase orders, Registrant has
no backlog of orders.
Raw Materials
Most of the chemicals used by the Registrant as raw materials are
standard commercial products available from two or more sources. Some of
these chemicals are produced by Registrant. Registrant's inventories of
raw materials vary according to the availability of and need for such raw
materials. Management believes that the loss of any single source of
supply would not have a materially adverse effect on its business.
The Registrant cannot presently estimate the effect which energy
problems, inflation or recession and resulting economic uncertainties may
have upon its customers, upon such customers' possible future purchases of
Registrant's products, upon future prices of raw materials purchased by
Registrant or upon future selling prices of Registrant's products and
services.
Research and Development - Patents, Trademarks and Licenses
For many years the Registrant has pursued a research and development
program which has resulted in the improvement of existing products and the
development of new products. Although Registrant does not segregate such
research and development expenditures from total laboratory and engineering
costs, it
<PAGE>
estimates that expenditures for research and development during 1994
amounted to approximately $29,818,000 as compared with approximately
$28,732,000 during 1993 and $28,343,000 during 1992. All of these
activities were sponsored and paid for by the Registrant. Such activities
were carried out in 1994 by approximately 508 professional and technical
employees as compared with approximately 492 and 474 professional and
technical employees in 1993 and 1992, respectively.
As a result of its research efforts, Registrant has produced numerous
chemicals, chemical formulations and equipment for which it has secured
letters patent and others for which Registrant is presently seeking letters
patent. Registrant also has registered various of its trademarks.
Additionally, Registrant has entered into certain licensing agreements with
third parties whereby Registrant has authorized others to make use of
and/or sell Registrant's products or whereby Registrant has obtained such
authorization with respect to the products of others. Such licensing
agreements are not material. Under United States law each letter patent is
effective for 17 years from the date of grant. Generally, trademark
registrations are valid so long as the trademarks registered are used and
renewal of the registration is timely made. Registrant's rights under its
licensing agreements expire at various times in accordance with the
respective terms of such agreements. Because of the highly competitive
nature of the specialty chemical industry and the uniqueness of
Registrant's technology in the industry, Registrant considers its rights
under its patents, trademarks, and licensing agreements to be valuable
assets.
Competition
Registrant's business is highly competitive. Competition is furnished
by many large and small companies which compete with Registrant to varying
degrees throughout the world. The large competitors are also engaged in
business areas which are not in competition with Registrant, and they do
not publish sales and earnings figures which would make direct comparisons
possible. However, on the basis of its experience in the industry and its
estimates of sales of comparable chemical products, Management believes
that Registrant is one of the largest suppliers of such products in the
United States and Canada. Registrant believes that it competes effectively
with its major competitors both as to service and price. From time to
time, Registrant has instituted price increases on its products to cover
increased costs; however, Registrant does not believe that such increases
have affected its ability to compete effectively. Registrant believes that
its 1994 experience with respect to increased costs was similar to that of
its competitors.
Environmental Legislation
Registrant believes that it is in compliance in all material respects
with all applicable Federal, state or local environmental legislation and
regulations. In those instances where the Registrant has taken affirmative
action to insure compliance with applicable legislation or regulations,
such actions have had no material effect on the earnings or competitive
position of Registrant.
<PAGE>
Federal and state pollution and waste control legislation governing
the disposal of industrial and hazardous wastes confer broad powers on the
administrative personnel charged with their enforcement. The
interpretation and enforcement of such laws govern the amount and manner of
disposal of many of the chemicals used by industry, including some chemical
products presently sold by Registrant and its competitors. It is possible
that some of such products will no longer be able to be used unless the
industrial users install their own waste treatment plants or otherwise
provide for disposition of their wastes. These laws also impose heavy
fines against manufacturers of chemicals or carriers of chemicals, or both,
if as a result of an accident, even if beyond the control of the
manufacturer or carrier, those chemicals spill into a river, lake or other
navigable water. Such manufacturers may also be ultimately responsible for
the cost of cleaning up any such spill.
While Registrant does not anticipate that it will incur substantial
costs in complying with existing environmental legislation, Registrant is
unable to predict the effect of existing or future Federal, state or local
environmental legislation or regulation on the Registrant's domestic or
foreign business. (See "Pending Legal Proceedings", page 11.)
<PAGE>
Item 2 - PROPERTIES
The Registrant's principal facilities are at the following locations:
Domestic Facilities
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Square
Owned Footage
or of
Location Leased Facility General Character
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Bakersfield, California Owned 55,000 Office, Plant and Warehouse
Cerritos, California Leased 28,480 Office and Warehouse
Compton, California Owned 36,600 Plant and Warehouse
Long Beach, California Owned 13,000 Office
Ventura, California Leased 10,000 Office and Laboratory
Jacksonville, Florida Owned 117,000 Office and Laboratory
Macon, Georgia Owned 71,000 Plant and Warehouse
Addison, Illinois Owned 56,800 Plant and Warehouse
Leased 16,000 Warehouse
Reserve, Louisiana Owned 24,000 Plant and Warehouse
New Philadelphia, Ohio Owned 108,000 Plant and Warehouse
Trevose, Pennsylvania Owned 198,000 Headquarters
Owned 46,500 W. H. and L. D. Betz
Research Center
Owned 50,000 Training Center,
Warehouse and
Maintenance Bldg.
Owned 81,000 J. D. Betz Engineering
Laboratory and Betz
Water Management Group
Laboratory
Langhorne, Pennsylvania Owned 134,000 Plant and Warehouse
Horsham, Pennsylvania Owned 32,500 Office and Laboratory
Horsham, Pennsylvania Owned 126,000 Office and Limited
Production
Horsham, Pennsylvania Owned 100,000 Office
<PAGE>
Square
Owned Footage
or of
Location Leased Facility General Character
- ---------------------------------------------------------------------------
Puerto Rico Leased 12,000 Office and Warehouse
Beaumont, Texas Owned 82,000 Plant, Warehouse and Office
The Woodlands, Texas Owned 120,000 Laboratory and Office
Garland, Texas Owned 45,000 Plant and Warehouse
Orange, Texas Owned 53,000 Plant and Warehouse
South Houston, Texas Owned 25,000 Plant and Warehouse
Washougal, Washington Owned 46,000 Plant and Warehouse
Cheyenne, Wyoming Owned 35,800 Plant and Warehouse
Foreign Facilities
Ingleburn, New South
Wales, Australia Owned 31,895 Office, Plant,
Warehouse and
Laboratory
Haasrode, Belgium Owned 38,500 Office and Laboratory
Herentals, Belgium Owned 43,800 Office, Plant and
Laboratory
Herentals, Belgium Owned 11,500 Office
Edmonton, Alberta, Canada Owned 59,800 Plant, Warehouse and
Laboratory
Pointe Claire
Quebec, Canada Owned 90,000 Office and Plant
Kanata, Ontario, Canada Owned 24,400 Office and Laboratory
Winsford, England Owned 49,000 Office, Plant and
Laboratory
Crissey, France Owned 48,000 Office and Plant
Marne la Vallee, France Owned 21,000 Office and Laboratory
Willich, Germany Owned 15,000 Office and Laboratory
Ferentino, Italy Owned 35,721 Office, Plant and
Laboratory
<PAGE>
Square
Owned Footage
or of
Location Leased Facility General Character
- ---------------------------------------------------------------------------
Rome, Italy Owned 18,200 Office
Iri, Korea Owned 22,700 Office, Plant
and Laboratory
Singapore* Owned/ 26,320 Office, Plant,
Lease Warehouse and
Laboratory
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* In accordance with local law and custom, Registrant owns the Singapore
facility but presently holds the land upon which the facility is situated
under a 30 year lease, which expires in August, 2009. At such time as
the lease lapses without being renewed, the office, plant and warehouse
would become the property of the Singapore government. Registrant would
receive no compensation therefor.
The Registrant believes that the present production capacity of its
plants is adequate to meet its present and reasonably anticipated domestic
and foreign needs.
In addition to owned facilities, the Registrant leases numerous office
facilities throughout the world from which its local sales efforts are
conducted. See Note 7 to the Consolidated Financial Statements comprising
Item 8 hereof for information concerning lease obligations.
<PAGE>
Item 3 - PENDING LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary
routine litigation incidental to the business of the Registrant to which
the Registrant or any of its subsidiaries is a party or of which any of
their property is the subject.
The Registrant is a "Potentially Responsible Party" ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") as amended by the Superfund Amendments and Reauthorization Act
("SARA") with respect to thirteen (13) sites at which alleged releases or
threatened releases of hazardous substances into the environment may have
occurred. In response, the Registrant has been voluntarily participating
with other PRPs at each of these sites to familiarize itself with site
conditions, determine the nature and extent of contamination, analyze
alternatives for remediation and develop a plan for clean-up. In each
instance, the Registrant has participated in discussions with
representatives of the EPA and other PRPs to determine its potential
liability for financing necessary response actions. Although it is
impossible to determine the exact cost of response activities, present
information and the likelihood of contributions from other PRPs at each
site indicates that the Registrant's ultimate share of remediation costs at
ten (10) of the thirteen (13) sites will be less than $100,000 of the total
anticipated response cost.
At the Operating Industries, Inc. site, Monterey Park, California (the
"Site"), the Registrant is a signatory to two Partial Consent Decrees among
the United States of America, the State of California, the California
Hazardous Substance Account and approximately four hundred (400) other
parties entered in the United States District Court for the Central
District of California in 1989 and 1992, respectively. Pursuant to such
Partial Consent Decrees, the parties are performing remedial activities at
the Site in response to alleged releases and threatened releases of
hazardous substances into the environment. The Registrant, without
admitting liability, agreed to an allocation of costs of approximately
$279,000 to be paid over a period of seven (7) years pursuant to the 1989
Partial Consent Decree. Pursuant to the 1992 Partial Consent Decree, the
Registrant agreed to pay a portion of state and federal past costs and
perform necessary remedial work, and pay for oversight of such work.
Although Registrant's share of such costs has not been finally determined
among the parties, it is estimated that Registrant's future allocation will
be approximately $180,000 payable over the next seven to nine years. Such
amount, if ultimately assessed and paid, would not be material to the
business of the Registrant.
The Registrant is a third party defendant in two federal court actions
in the State of New Jersey involving the Helen Kramer Landfill site in
Mantua Township, New Jersey. It is alleged that the Registrant's wastes
were shipped to the site from 1968 to 1971 and that two loads of municipal
solid waste were sent to the site in 1981. In September, 1988 EPA
estimated the chosen remedy to have a present worth cost of approximately
$44 million. Actual costs have been higher; press releases issued in
January, 1993 indicated costs were in the range of $90-100 million.
However, in overall settlement discussions, EPA and New Jersey Department
of Environmental Protection have demanded over $185 million to end the
litigation. The defendants and third-party defendants await documentation
of this later sum. If remedial costs exceed $100 million, the Registrant's
allocation may exceed $100,000;
<PAGE>
however, such allocation is speculative and would most likely not
materially affect the Registrant's financial condition or results of
operations. Presently, no allocation of costs has been determined among
the PRPs, and the Registrant's ultimate allocation is still speculative.
The Registrant is a counterclaim defendant in a lawsuit initiated by
EPA seeking recovery of response costs incurred at the Artel Chemical
Corporation Site in Kanawha and Putnam Counties, West Virginia. There is a
total of 57 companies in the litigation. It is alleged that the Registrant
used this site for the blending of certain anti-freeze chemicals used in
the coal mining business. EPA estimates clean-up costs to be in the range
of $100 million. The Registrant is participating in a court-approved
settlement process and a final allocation is expected in 1995. The
allocation of response costs attributable to the Registrant is speculative.
However, such allocation would most likely not materially affect the
Registrant's financial condition or results of operations.
The Registrant is a secondary defendant in the case of Katherine Adams,
et al. v. Pacific Gas and Electric, ("PG&E") et al. commenced October, 1994
in the Superior Court of California, County of Los Angeles. Plaintiffs seek
money damages for alleged exposures to chromate based products sold by
Registrant to PG&E for use in a cooling tower between 1952 to 1966. PG&E
apparently released the water from the cooling tower to an unlined pond which
in turn caused contamination of the groundwater. Registrant has been advised
that PG&E has entered into a settlement agreement with the plaintiffs.
Registrant denies any legal liability to plaintiffs for the acts of PG&E.
Registrant also believes that adequate insurance coverage exists which would
make recovery of damages, if any, by the plaintiffs unlikely to materially
affect the Registrant's financial condition or results of operations.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Registrant's security
holders through the solicitation of proxies or otherwise during the fourth
quarter of the fiscal year to which this report relates.
PART II
Item 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Pursuant to General Instruction G(2) to Form 10-K, in response to Item
5, Registrant hereby incorporates by reference the information contained in
Note 10 to the Consolidated Financial Statements, "Quarterly Financial
Information (Unaudited)", under the captions "Cash Dividends Declared per
Common Share" and "Common Share Market Prices" on page 26 of Registrant's
1994 Annual Report to its Shareholders.
Item 6 - SELECTED FINANCIAL DATA
Pursuant to General Instruction G(2) to Form 10-K, in response to Item
6, Registrant hereby incorporates by reference the following information
contained under the heading "Consolidated Summary of Operations" on pages
30 and 31, of Registrant's 1994 Annual Report to its Shareholders: For
Fiscal Years 1990 through 1994, both inclusive, the information under the
headings "Net Sales", "Net Earnings", "Earnings per Common Share", "Cash
Dividends Declared per Common Share", "Total assets", and "ESOP debt".
<PAGE>
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Pursuant to General Instruction G(2) to Form 10-K, in response to Item
7, Registrant hereby incorporates by reference the information contained
under the heading "Management's Discussion And Analysis Of Financial
Condition And Results Of Operations" on pages 27 through 29 of Registrant's
1994 Annual Report to its Shareholders.
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pursuant to General Instruction G(2) to Form 10-K, in response to Item
8, Registrant hereby incorporates by reference the consolidated financial
statements included on pages 17 through 26, both inclusive, of Registrant's
1994 Annual Report to its Shareholders.
Item 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, in response to Item
10, Registrant hereby incorporates by reference the information contained
under the heading "Directors and Executive Officers" on pages 2 through 6,
both inclusive, of Registrant's definitive proxy statement to be used in
connection with Registrant's 1995 Annual Meeting of Shareholders, as filed
with the Securities and Exchange Commission on or about March 8, 1995.
Item 11 - EXECUTIVE COMPENSATION AND TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, in response to Item
11, Registrant hereby incorporates by reference the information contained
under the headings "Executive Compensation" on pages 15 through 22, both
inclusive, of Registrant's definitive proxy statement to be used in
connection with Registrant's 1995 Annual Meeting of Shareholders, as filed
with the Securities and Exchange Commission on or about March 8, 1995.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, in response to Item
12, Registrant hereby incorporates by reference the information contained
under the heading "Ownership of Company Shares" on pages 13 and 14 of
Registrant's definitive proxy statement to be used in connection with
Registrant's 1995 Annual Meeting of Shareholders, as filed with the
Securities and Exchange Commission on or about March 8, 1995.
<PAGE>
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
a. 1. and 2. The following consolidated financial statements of Betz
Laboratories, Inc. and subsidiaries, included in the Annual Report
of Registrant to its Shareholders for the year ended December 31,
1994, are incorporated by reference in Item 8:
Annual
Report
Page(s)
Consolidated Statements of Operations--Years ended
December 31, 1994, 1993 and 1992...................... 17
Consolidated Balance Sheets--December 31, 1994 and 1993 18-19
Consolidated Statements of Cash Flows--Years
ended December 31, 1994, 1993 and 1992................ 20
Consolidated Statements of Common Shareholders' Equity--
Years ended December 31, 1994, 1993 and 1992.......... 21
Notes to Consolidated Financial Statements.............. 22-26
The following consolidated financial statement schedule of Betz
Laboratories, Inc. and subsidiaries is included in Item 14(d):
Form
10-K
Page(s)
Schedule II -- Valuation and Qualifying Accounts...... 17 (F-1)
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
<PAGE>
3. Listing of Exhibits.
Form 10-K
Exhibit
Number Description Page
3 Articles of Incorporation and Bylaws . . . . *
* The items designated Exhibit 3 to
Registrant's Annual Report on Form 10-K
for fiscal year 1988, (Restated Articles
of Incorporation and Bylaws of Betz
Laboratories, Inc.) as heretofore filed
with the Securities and Exchange Commis-
sion are hereby incorporated by reference
as Exhibit 3 hereto.
4 Instruments defining the rights of Security
Holders . . . . . . . . . . . . . . . . . . . *
See Exhibit 3 hereto.
10 Material Contracts . . . . . . . . . . . . *
*The items designated Exhibit 10 to Registrant's
Annual Report on Form 10-K for fiscal year 1992
("Guidelines For Betz Laboratories, Inc. Corporate
Discretionary Senior Executive Officer Bonus Plan;
Corporate Discretionary Executive Officer Bonus
Plan; Corporate Discretionary Officer Bonus Plan;
and Corporate Discretionary Key Employee Bonus
Plan"); the item designated as Exhibit A to
Registrant's definitive Proxy Statement dated
March 8, 1995 ("Stock Incentive Plan");
the item designated Exhibit A to Registrant's
definitive Proxy Statement dated March 5, 1982
("Stock Option Plan"); and the item designated
Exhibit B to Registrant's definitive Proxy
Statement dated March 8, 1995 ("Stock Option Plan
of 1987"); all as heretofore filed with the
Securities and Exchange Commission are hereby
incorporated by reference as Exhibit 10 hereto.
11 Statement regarding computation of per share earnings 18
13 Registrant's 1994 Annual Report to Shareholders 19
[only those portions specifically incorporated
in this Annual Report on Form 10-K are to be
deemed as filed with the Commission].
<PAGE>
21 Subsidiaries of Registrant............................. 54
23 Consent of Independent Auditors........................ 55
27 Financial Data Schedule................................ 56
b. Reports on Form 8K
None
<TABLE>
<CAPTION>
BETZ LABORATORIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------------------
(1) (2)
BALANCE AT BEGINNING CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS-- BALANCE AT END
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS--DESCRIBE DESCRIBE OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts Receivable
deducted from Trade
Accounts Receivable:
Year Ended
December 31, 1994 $ 2,698 $ 322 $ -- $ 327 (A) $ 2,693
======= ======= ===== ========== =======
Year Ended
December 31, 1993 $ 2,880 $ 1,140 $ -- $1,322 (A) $ 2,698
======= ======= ===== ========== =======
Year Ended
December 31, 1992 $ 2,428 $ 822 $ -- $ 370 (A) $ 2,880
======= ======= ===== ========== =======
Accrued Restructuring Costs
Included in Long-Term and
Current Liabilities:
Year Ended
December 31, 1994 $10,657 $ -- $ -- $5,408 (B) $ 5,249
======= ======= ===== ========== =======
Year Ended
December 31, 1993 $ -- $16,196 $ -- $5,539 (B) $10,657
======= ======= ===== ========== =======
Year Ended
December 31, 1992 $ -- $ -- $ -- $ -- $ --
======= ======= ===== ========== =======
(A) Principally accounts written off.
(B) Fixed assets written off and cash expenditures.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: s/ William R. Cook Date: March 28, 1995
----------------------------------
William R. Cook,
President and
Chief Executive Officer
By: s/ R. Dale Voncanon Date: March 28, 1995
----------------------------------
R. Dale Voncanon,
Vice President - Finance and
Treasurer (Principal Financial
and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: s/John F. McCaughan Date: March 28, 1995
----------------------------------
John F. McCaughan,
Director
By: s/John W. Boyer, Jr. Date: March 28, 1995
----------------------------------
John W. Boyer, Jr.,
Director
By: s/Patrick F. Brennan Date: March 28, 1995
----------------------------------
Patrick F. Brennan,
Director
By: s/Carolyn S. Burger Date: March 28, 1995
----------------------------------
Carolyn S. Burger,
Director
By: s/George A. Butler Date: March 28, 1995
----------------------------------
George A. Butler,
Director
By: s/William R. Cook Date: March 28, 1995
----------------------------------
William R. Cook,
Director
By: s/John A. Miller Date: March 28, 1995
----------------------------------
John A. Miller,
Director
By: s/John Quarles Date: March 28, 1995
----------------------------------
John Quarles,
Director
By: s/John A. H. Shober Date: March 28, 1995
----------------------------------
John A. H. Shober,
Director
By: s/Geoffrey Stengel, Jr. Date: March 28, 1995
----------------------------------
Geoffrey Stengel, Jr.,
Director
By: s/Robert L. Yohe Date: March 28, 1995
----------------------------------
Robert L. Yohe,
Director
<PAGE>
FINANCIAL REPORT
Betz Laboratories, Inc.
TO OUR SHAREHOLDERS:
The management of Betz Laboratories, Inc. is responsible for the
preparation and presentation of the financial statements and other
financial information contained in the Annual Report. The financial
statements include amounts that are based on management's best estimates
and judgments. These statements have been prepared in conformity with
generally accepted accounting principles and have been audited by Ernst &
Young LLP, independent auditors.
The Company and its subsidiaries maintain adequate accounting systems
and financial controls. The quality and scope of our accounting systems and
financial controls are augmented by ongoing internal audit programs. In
addition, the Audit Committee of the Board of Directors periodically meets
with management, our internal audit group and representatives of Ernst &
Young LLP to discuss financial reporting matters as well as to review
auditing and internal control procedures.
R. Dale Voncannon
Vice President -- Finance and Treasurer
January 27, 1995
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Betz Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Betz
Laboratories, Inc. as of December 31, 1994 and 1993, and the related
consolidated statements of operations, common shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Betz Laboratories, Inc. at December 31, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in the Notes to Consolidated Financial Statements, in
1993 the Company changed its methods of accounting for income taxes (Note
2) and postretirement benefits other than pensions (Note 9) and changed its
method of calculating asset values used in the determination of pension
expense (Note 3).
Ernst & Young LLP
Philadelphia, Pennsylvania
January 27, 1995
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Betz Laboratories, Inc.
Year Ended December 31
--------------------------------------
(In thousands, except per share amounts) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $708,286 $684,872 $706,972
Operating Costs and Expenses:
Cost of products sold 252,514 237,530 241,396
Selling, research and administrative expenses 338,267 329,860 334,312
Provision for restructuring -- 16,196 --
-------- -------- --------
590,781 583,586 575,708
-------- -------- --------
OPERATING EARNINGS 117,505 101,286 131,264
Other Income (Expense):
Investment and other income 3,617 2,927 3,228
Interest expense (178) (143) (321)
-------- -------- --------
3,439 2,784 2,907
-------- -------- --------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 120,944 104,070 134,171
Income Taxes 47,773 40,691 52,124
-------- -------- --------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 73,171 63,379 82,047
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 --
-------- -------- --------
-- 2,141 --
-------- -------- --------
NET EARNINGS $ 73,171 $ 65,520 $ 82,047
======== ======== ========
Primary earnings per Common Share:
Before cumulative effect of accounting changes $ 2.43 $ 2.05 $ 2.71
Accounting changes -- .07 --
-------- -------- --------
Primary earnings per Common Share $ 2.43 $ 2.12 $ 2.71
======== ======== ========
Fully diluted earnings per Common Share:
Before cumulative effect of accounting changes $ 2.30 $ 1.95 $ 2.58
Accounting changes -- .07 --
-------- -------- --------
Fully diluted earnings per Common Share $ 2.30 $ 2.02 $ 2.58
======== ======== ========
Average number of Common Shares:
Primary 28,108 28,576 28,474
======== ======== ========
Fully diluted 30,885 31,331 31,221
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
Betz Laboratories, Inc.
December 31
-----------------------
(Dollars in thousands, except per share amounts) 1994 1993
- ------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 43,926 $ 43,921
Trade accounts receivable, less allowances:
1994 -- $2,693; 1993 -- $2,698 121,660 102,882
Inventories:
Finished products and goods purchased for resale 19,491 17,155
Raw materials 20,133 20,191
-------- --------
39,624 37,346
Prepaid expenses and other 24,666 24,486
-------- --------
TOTAL CURRENT ASSETS 229,876 208,635
PROPERTY, PLANT AND EQUIPMENT -- at cost
Buildings 172,833 155,781
Machinery and equipment 396,074 360,426
Allowance for depreciation (291,588) (253,881)
-------- --------
277,319 262,326
Land 22,056 21,146
Construction in progress
(estimated cost to complete -- $17,230) 9,573 17,270
-------- --------
308,948 300,742
OTHER ASSETS
Investments and other 10,256 7,223
Intangibles -- at cost, less amortization:
1994 -- $2,855; 1993 -- $2,513 6,418 4,529
-------- -------
16,674 11,752
-------- -------
$555,498 $521,129
======== ========
<PAGE>
December 31
-----------------------
1994 1993
- ------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 30,740 $ 32,554
Payroll and related taxes 24,010 17,727
Accrued expenses 20,305 24,577
Income taxes 12,587 6,838
Dividends payable 10,031 9,845
Current portion of ESOP debt 1,000 500
-------- --------
TOTAL CURRENT LIABILITIES 98,673 92,041
ESOP DEBT -- less portion classified as current 96,500 97,500
LONG-TERM LIABILITIES
Income taxes 20,765 21,998
Other 15,602 10,271
-------- --------
36,367 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 -- 492,167 shares;
1993 -- 496,005 shares 98,433 99,201
Guarantee of related ESOP debt (92,834) (94,101)
-------- --------
5,599 5,100
Common Shareholders' Equity:
Common Shares -- Authorized -- 90,000,000
shares, $.10 par value; Issued (including
treasury shares): 1994 -- 33,649,527 shares;
1993 -- 33,654,715 shares 3,365 3,365
Capital in excess of par value of shares 81,802 78,667
Retained earnings 423,519 394,726
Cost of Common Shares in treasury:
1994 -- 5,784,899 shares;
1993 -- 5,527,310 shares (187,523) (170,442)
Unearned compensation (5,521) (7,773)
Foreign currency translation adjustments 2,717 (4,324)
-------- --------
COMMON SHAREHOLDERS' EQUITY 318,359 294,219
-------- --------
TOTAL SHAREHOLDERS' EQUITY 323,958 299,319
-------- --------
$555,498 $521,129
======== ========
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Betz Laboratories, Inc.
Year Ended December 31
--------------------------------------
(In thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 73,171 $ 65,520 $ 82,047
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 45,111 42,083 38,883
Compensation and employee benefit plans 8,554 4,707 5,569
Income taxes 1,588 2,575 8,924
Provision for restructuring -- 16,196 --
Cumulative effect of accounting changes -- (2,141) --
Other, net (1,112) (745) --
Changes in operating assets and liabilities:
Accounts receivable (18,778) 3,192 (12,909)
Inventories (2,318) (2,959) 12
Prepaid expenses and other 282 (2,590) (2,253)
Accounts payable and accrued expenses 7,801 (5,665) (5,603)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 114,299 120,173 114,670
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (55,024) (63,212) (74,290)
Proceeds from sales of long-term assets 9,081 11,718 --
Purchases of long-term investments (3,494) -- --
Other, net (1,645) (258) 129
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (51,082) (51,752) (74,161)
FINANCING ACTIVITIES
Dividends paid (47,480) (47,206) (44,970)
Proceeds from issuance of common shares,
including treasury shares 3,064 1,955 5,665
Purchase of treasury shares (19,995) (22,432) (10,696)
Principal payments on ESOP debt (500) (500) (500)
Retirement of ESOP preferred shares (516) (370) (489)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (65,427) (68,553) (50,990)
Effect of exchange rate changes on cash 2,215 (2,310) (2,165)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5 (2,442) (12,646)
Cash and Cash Equivalents at Beginning of Year 43,921 46,363 59,009
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 43,926 $ 43,921 $ 46,363
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Betz Laboratories, Inc.
Capital Foreign
Number of Shares in Excess of Unearned Currency
(Dollars in thousands, Common Treasury Common Par Value Retained Treasury Compen- Translation
except per share amounts) Shares Shares Shares of Shares Earnings Shares sation Adjustments
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 33,684,734 5,217,089 $3,368 $68,531 $333,841 $(145,131) $(11,460) $6,659
Net earnings 82,047
Dividends on preferred shares
($16.00 per share) (7,964)
Tax benefit on preferred shares 2,946
Dividends on common shares
($1.33 per share) (37,865)
Reacquired common shares 200,000 (10,696)
Reissue of treasury shares to
stock plans (271,007) 2,292 5,277 (2,668)
Shares cancelled through
stock plans (18,243) (1)
Tax benefits related to
stock plans 4,701
Stock grants expensed 4,617
Currency translation adjustments (4,896)
---------- --------- ------ ------- -------- --------- ------- -------
Balance at December 31, 1992 33,666,491 5,146,082 3,367 75,524 373,005 (150,550) (9,511) 1,763
Net earnings 65,520
Dividends on preferred shares
($16.00 per share) (7,948)
Tax benefit on preferred shares 3,554
Dividends on common shares
($1.39 per share) (39,405)
Reacquired common shares 505,200 (22,432)
Reissue of treasury shares to
stock plans (123,972) 1,013 2,540 (2,231)
Shares cancelled through
stock plans (11,776) (2)
Tax benefits related
to stock plans 2,130
Stock grants expensed 3,969
Currency translation adjustments (6,087)
---------- --------- ------ ------- -------- --------- ------- -------
Balance at December 31, 1993 33,654,715 5,527,310 3,365 78,667 394,726 (170,442) (7,773) (4,324)
Net earnings 73,171
Dividends on preferred shares
($16.00 per share) (7,905)
Tax benefit on preferred shares 3,288
Dividends on common shares
($1.43 per share) (39,761)
Reacquired common shares 400,000 (19,995)
Reissue of treasury shares
to stock plans (142,411) 1,359 2,914 (928)
Shares cancelled through
stock plans (5,188) (230) 230
Tax benefits related to
stock plans 2,006
Stock grants expensed 2,950
Currency translation adjustments 7,041
---------- --------- ------ ------- -------- --------- -------- --------
Balance at December 31, 1994 33,649,527 5,784,899 $3,365 $81,802 $423,519 $(187,523) $ (5,521) $2,717
========== ========= ====== ======= ======== ========= ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Betz Laboratories, Inc.
1 Summary of Significant Accounting Policies
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and all subsidiaries. All significant
intercompany items and transactions are eliminated from the consolidated
statements.
Foreign Operations -- The Company follows the practice of using a
November 30 fiscal year for all foreign subsidiaries in order to expedite
the year-end closing.
Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The carrying value of these investments approximates their
fair value at December 31, 1994.
Inventories -- Inventories are stated at the lower of cost or market.
Cost of approximately 70 percent of the inventory is determined by the
last-in, first-out (LIFO) method, the balance by the first-in, first-out
(FIFO) method. If the FIFO method of inventory accounting had been used for
all inventory, amounts would have been approximately $10,681,000 and
$10,419,000 higher than reported at December 31, 1994 and December 31,
1993, respectively.
Depreciation -- Depreciation is computed principally by the straight-
line method over the estimated useful lives of the related assets.
Depreciation expense for the three years ended December 31, 1994, 1993 and
1992 is $44,769,000, $41,758,000 and $38,528,000, respectively.
Investments -- Marketable equity securities and cash surrender value
of officers' life insurance policies are recorded at fair value. All other
investments are generally carried at cost.
Intangible Assets -- Intangible assets consist primarily of cost in
excess of net assets of acquired businesses. Amortization is computed by
the straight-line method generally over 40 years.
Foreign Currency Exposure Management -- The Company, through its
foreign subsidiaries, is exposed to the effect of foreign exchange rate
fluctuations on the U.S. dollar value of the income of its foreign
subsidiaries. During 1994, the Company purchased foreign currency forward
contracts to minimize the effect of fluctuating foreign currencies on its
cash flow and unremitted income from certain of its foreign subsidiaries.
The forward contracts are marked to market and resulting adjustments are
recorded directly in income.
At December 31, 1994, the Company had forward exchange contracts, all
having original maturities of less than twelve months, to exchange various
foreign currencies for U.S. dollars in the amount of $3,352,000. The
unrealized gains reflected in the financial statements at December 31, 1994
are $54,000.
Research and Development -- Research and development costs
($29,818,000 in 1994, $28,732,000 in 1993 and $28,343,000 in 1992) are
charged to expense as incurred.
Per Share Amounts -- Primary earnings per Common Share is computed by
dividing net income available to common shareholders by the weighted
average number of shares outstanding during the periods presented. In
computing primary earnings per Common Share, preferred stock dividends, net
of related income tax benefit, reduce income available to common
shareholders. In computing fully diluted earnings per Common Share,
conversion of the Series A ESOP Convertible Preferred Shares is assumed.
2 Income Taxes
Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability
method required by Financial Accounting Standard No. 109, "Accounting for
Income Taxes." As permitted under the new rules, 1992 financial statements
have not been restated.
The cumulative effect of adopting Statement 109 as of January 1, 1993
was to increase net income by $3,600,000. The effect on 1993 earnings
before cumulative effect of accounting changes was not material.
The components of earnings before income taxes and cumulative effect
of accounting changes consists of the following (in thousands):
1994 1993 1992
- --------------------------------------------------------------------------
Domestic $ 90,613 $ 75,232 $ 99,316
Foreign 30,331 28,838 34,855
-------- -------- --------
$120,944 $104,070 $134,171
======== ======== ========
The provision for income taxes consists of the following (in
thousands):
Deferred
Liability Method Method
----------------------- ---------
1994 1993 1992
- --------------------------------------------------------------------------
Current:
Federal $34,837 $28,879 $32,985
State 4,291 5,505 5,360
Foreign 10,222 9,894 12,730
------- ------- -------
Total Current 49,350 44,278 51,075
Deferred:
Federal (1,924) (2,507) 1,013
State (145) (532) 75
Foreign 492 (548) (39)
------- ------- -------
Total Deferred (1,577) (3,587) 1,049
------- ------- -------
Total Taxes $47,773 $40,691 $52,124
======= ======= =======
A reconciliation of the effective income tax rate with the applicable
statutory federal income tax rate is as follows:
1994 1993 1992
- --------------------------------------------------------------------------
Federal tax rate 35.0% 35.0% 34.0%
State and local taxes, net
of federal income taxes 2.3 3.2 2.8
Other items 2.2 0.9 2.0
----- ----- -----
Effective income tax rate 39.5% 39.1% 38.8%
===== ===== =====
Deferred income taxes reflect the estimated future tax effects of
temporary differences between the carrying amounts of the assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Company's deferred tax
assets and liabilities as of December 31 are as follows (in thousands):
1994 1993
- --------------------------------------------------------------------------
Deferred Tax Assets:
Stock and benefit plans $ 8,400 $ 5,763
Nondeductible expenses 5,221 7,395
Tax carryforwards 366 2,788
Other 2,981 3,165
-------- --------
Total Deferred Tax Assets 16,968 19,111
Valuation allowance for deferred tax assets (366) (3,095)
-------- --------
Net Deferred Tax Assets 16,602 16,016
Deferred Tax Liabilities:
Tax over book depreciation (28,635) (29,913)
Other (704) (290)
-------- --------
Total Deferred Tax Liabilities (29,339) (30,203)
-------- --------
Net Deferred Tax Liabilities $(12,737) $(14,187)
======== ========
In 1994 and 1993, prepaid expenses and other includes deferred tax
assets of $7,683,000 and $7,712,000 and investments and other includes
deferred tax assets of $345,000 and $99,000, respectively. The balance of
$20,765,000 and $21,998,000 is included in long-term liabilities - income
taxes on the balance sheet.
At December 31, 1994, the Company has capital loss carryforwards of
$1,046,000 for income tax purposes that expire in the years 1995 through
1998.
The Company made income tax payments of $39,299,000, $43,087,000 and
$42,122,000 for the years 1994, 1993 and 1992, respectively.
The Company has not provided United States income taxes on $79,865,000
of unremitted earnings of foreign subsidiaries because management views
such earnings as being indefinitely invested.
3 Employee Retirement Plans
The Company has defined benefit plans to provide pension benefits to
substantially all of its employees. The benefits are primarily based on
years of service and the employee's final average compensation. The
Company's funding policy is to contribute an amount annually based upon
actuarial and economic assumptions designed to achieve adequate funding of
projected benefit obligations. Plan assets are principally invested in
listed common stocks, bonds and common trust funds.
Effective January 1, 1993, the Company changed its method of
calculating the value of assets of its pension plan for purposes of
determining annual pension costs under Financial Accounting Standard No.
87. This calculated value is the basis for computing the annual expected
return on plan assets and the net amortization and deferral component of
pension costs. This calculated value recognizes changes in fair value of
assets over three years (previously five years). The new method, which also
changes the manner in which such changes in fair value are recognized over
the three-year period, is preferable because, in the Company's situation,
it produces a calculated value which more closely approximates fair value,
and is therefore more sensitive to the current economic environment, while
still mitigating the effect of extreme market value fluctuations.
The cumulative effect on years prior to 1993 was $1,241,000 (net of
taxes of $780,000), or $.04 per share, which is a one-time, noncash
increase in net income for 1993. The effect of this change on 1993 results
of operations and the pro forma effects on results of operations for 1992
are not material.
Net periodic pension expense (excluding the cumulative effect of the
accounting change) for the Company's defined benefit plans consists of the
following (in thousands):
1994 1993 1992
- --------------------------------------------------------------------------
Service cost $ 9,070 $ 6,262 $ 5,707
Interest cost 12,558 10,907 9,763
Return on plan assets (12,327) (11,469) (11,055)
Net amortization and deferral 623 1,477 3,457
------- ------- -------
Net periodic pension expense $ 9,924 $ 7,177 $ 7,872
======= ======= =======
The following table sets forth the actuarial present value of benefit
obligations and funded status at December 31 for the Company's plans (in
thousands):
1994 1993
- -------------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefits $(113,075) $(113,256)
Nonvested benefits (6,419) (6,900)
--------- ---------
Accumulated benefit obligation (119,494) (120,156)
Effect of projected future salary
increases (42,262) (47,628)
--------- ---------
Projected benefit obligation (161,756) (167,784)
Plan assets at fair value 140,580 142,069
--------- ---------
Projected benefit obligation in excess
of plan assets (21,176) (25,715)
Unrecognized net loss 8,389 18,953
Unrecognized prior service cost 6,244 6,970
Other 614 (2,418)
--------- ---------
Net pension liability included in
the balance sheet $ (5,929) $ (2,210)
========= =========
Assumptions used to develop the Company's net periodic pension expense
and the actuarial present value of benefit obligations were as follows:
December 31
1994 1993 1992
- --------------------------------------------------------------------------
Discount rate 8.5% 7.25% 8.75%
Rate of increase
in compensation levels 5.0% 5.0% 5.0%
Long-term rate of return
on plan assets 9.25% 9.5% 9.5%
4 Segment and Geographic Information
The Company operates principally in one industry segment which
includes the development, manufacture and sale of specialty chemical
products used to treat industrial water and industrial processes using
water.
The Company's areas of operation outside of the United States and
Europe principally include Canada, the Caribbean and the Pacific. No one
single foreign country in which the Company produces or markets its
products is significant to consolidated operations. No single customer
accounts for more than 10 percent of the Company's revenues.
Information about the Company's operations in different geographic
locations is shown below.
United Other Consoli-
1994 States Europe Foreign dated
- --------------------------------------------------------------------------
Net sales $551,515 $92,994 $63,777 $708,286
Operating earnings 94,804 13,303 9,398 117,505
Identifiable assets 395,046 102,885 57,567 555,498
1993
- --------------------------------------------------------------------------
Net sales $543,261 $84,613 $56,998 $684,872
Operating earnings 82,298 9,905 9,083 101,286
Identifiable assets 399,927 75,928 45,274 521,129
1992
- --------------------------------------------------------------------------
Net sales $557,401 $96,168 $53,403 $706,972
Operating earnings 104,195 16,140 10,929 131,264
Identifiable assets 397,306 75,149 38,162 510,617
United States identifiable assets include $27,000,000, $32,100,000 and
$49,500,000 of cash and cash equivalents, marketable securities and other
investments at December 31, 1994, 1993 and 1992, respectively. These assets
are available for general corporate purposes.
Direct export sales of $13,629,000, $11,981,000 and $10,913,000 for
the years 1994, 1993 and 1992, respectively, are included in United States
net sales.
5 Stock Option, Stock Incentive and Shareholder Rights Plans
Option Plans -- Options granted under the Company's Stock Option Plans
are at the fair value at the date of grant. The period during which these
options become exercisable ranges from date of grant to two years after
date of grant. Unexercised options expire ten years after date of grant. No
individual may receive an option if that individual owns (or would own if
options were exercised) stock possessing 5 percent of the voting power or
value of all classes of stock of the Company.
Option activity is summarized as follows:
Number of Option Price
Shares per Share
- ----------------------------------------------------------------------------
Outstanding at January 1, 1992 1,340,006 $15.125 - $58.50
Granted 358,681 53.875 - 60.50
Exercised (240,972) 15.125 - 56.75
--------
Outstanding at December 31, 1992 1,457,715 15.50 - 60.50
Granted 612,641 43.625 - 59.00
Cancelled (20,619) 33.50 - 60.50
Exercised (76,797) 15.50 - 58.25
--------
Outstanding at December 31, 1993 1,972,940 17.375 - 60.50
Granted 727,746 43.25 - 49.625
Cancelled (25,490) 33.50 - 60.00
Exercised (110,927) 17.375 - 46.75
--------
Outstanding at December 31, 1994 2,564,269 $17.375 - $60.50
==========
Exercisable at December 31, 1994 1,947,412
==========
At December 31, 1994, the Company had remaining an aggregate of
2,471,634 Common Shares reserved for issuance under its Stock Option Plans.
The Board of Directors has adopted amendments to the Employee Stock
Option Plan of 1987 which provide for an additional 2,000,000 shares of the
Company's common stock to be used for granting stock options to employees
and members of the Board of Directors until April 13, 2005. These actions
are subject to approval by the shareholders at the 1995 Annual Meeting.
Incentive Plan -- The Employee Stock Incentive Plan provides that up
to 2,500,000 shares of common stock may be granted to April 11, 2001, at
the discretion of the Board of Directors, to key employees at no cost to
the employees. The Company granted 20,098, 48,504 and 47,573 shares during
1994, 1993 and 1992, respectively. Key employees receiving grants are
entitled to receive dividends, but assumption of full beneficial ownership
is contingent at the time of grant. In the event the employee does not
remain in continuous employment for the periods stipulated, the shares are
cancelled and revert to the Company for reissuance under the Plan.
The aggregate fair market value of the shares granted under this Plan
is considered unearned compensation at the time of grant and compensation
is earned ratably over the stipulated period.
The Board of Directors has adopted an amendment to the Employee Stock
Incentive Plan which provides for the grant of incentive stock to non-
employee Directors and to extend the date for the grant of shares to April
13, 2005. This action is subject to approval by the shareholders at the
1995 Annual Meeting.
At December 31, 1994, the Company had remaining an aggregate of
642,197 Common Shares available for issuance under its Employee Stock
Incentive Plan.
Common Stock Shareholder Rights Plan -- On September 8, 1988, the
Board of Directors declared a distribution of one Stock Purchase Right for
each Common Share outstanding. Each right will entitle the holder to buy
from the Company a unit consisting of one Common Share at an exercise price
of $75 per unit. The rights become exercisable ten days after a public
announcement that a person or group has acquired 20 percent or more of the
Company's Common Shares or has commenced a tender offer for 20 percent or
more of the Common Shares. The rights may be redeemed prior to becoming
exercisable by action of the Board of Directors at a redemption price of
$.01 per right. If more than 20 percent of the Company's Common Shares
become held by a beneficial owner, other than pursuant to an offer deemed
in the best interests of the shareholders by the Company's independent
directors, each right may be exercised for Common Shares, or other
property, of the Company having a value of twice the exercise price of each
right. If the Company is acquired by any person after the rights become
exercisable, each right will entitle its holder to receive common shares of
the acquiring company having a market value of twice the exercise price of
each right. The rights expire on September 19, 1998.
6 Employee Stock Ownership (ESOP) and 401(k) Plan
In 1989, the Company established an ESOP and a related trust as a
long-term benefit for substantially all of its domestic employees. This
plan supplements the Company's employee retirement plan. Under this plan,
the Company sold 500,000 shares of a new Series A ESOP Convertible
Preferred Stock to the trust for $100,000,000. The Company arranged for and
guaranteed a loan of $100,000,000 to the trust for the purchase of the
preferred stock. Proceeds of the loan were primarily used for the purchase
of common treasury stock to be used for future conversion and redemption of
the preferred stock, which is presently convertible into 2,757,000 shares
of common stock. The loan and guarantee are recorded in the Company's
consolidated balance sheets as long-term debt and a reduction in
shareholders' equity.
Effective January 1, 1990, the Company's 401(k) program was integrated
into the Employee Stock Ownership Plan. Employees may invest 2 to 15
percent of eligible compensation. Company matches, equal to 25 percent of
the first 4 percent of employees' investments, fully vest to employees upon
the completion of 5 years of service. The Company's matching contributions,
which are included in ESOP expense, are made in the form of the ESOP
Convertible Preferred Stock. The fair value of such matching contributions
amounted to $1,365,000 in 1994, $1,411,000 in 1993 and $1,224,000 in 1992.
After satisfying the 401(k) matching contributions, the remaining
shares of ESOP stock are allocated to each participant based on the ratio
of the participant's compensation to total compensation of all
participants. During 1994, 3,838 shares of the Preferred Stock were
converted to Common Shares by plan participants and permanently retired.
The number of shares allocated and unallocated at December 31 are as
follows:
1994 1993
- --------------------------------------------------------------------------
Allocated 102,884 85,096
Unallocated 389,283 410,909
------- -------
Total shares held by ESOP 492,167 496,005
======= =======
The Company is required to make quarterly contributions to the Plan
which enable the trust to service its indebtedness. Net ESOP cost for the
Company is comprised of the following elements (in thousands):
1994 1993 1992
- --------------------------------------------------------------------------
ESOP expense $ 9,163 $ 9,210 $ 9,321
Preferred dividends (charged to
retained earnings) (7,905) (7,947) (7,964)
------- ------- -------
ESOP expense charged to
earnings $ 1,258 $ 1,263 $ 1,357
======= ======= =======
ESOP debt interest expense
at 8.08% for 1994 and 1993;
8.15% for 1992 $ 7,897 $ 7,937 $ 8,047
======= ======= =======
ESOP contributions $ 8,398 $ 8,441 $ 8,548
======= ======= =======
The ESOP expense is calculated using the 80-percent-of-shares-
allocated method. To the extent that this expense exceeds the ESOP's annual
debt service requirements, an adjustment is made to the shareholders'
equity reduction to reflect the cumulative effect of the excess charges
($7,166,000, $5,899,000 and $4,626,000 in 1994, 1993 and 1992,
respectively).
The ESOP debt matures on June 19, 2009 and requires principal payments
as follows: in each of the years 1995-1999 -- $1,000,000. The Company is
obligated to maintain, among other things, certain levels of tangible net
worth and interest coverage, and not to exceed a maximum funded debt level.
The fair value of the ESOP debt approximates $92,000,000, which was
estimated using discounted cash flow analyses, based on quoted market rates
for similar obligations.
Amounts paid by the Company to the ESOP which are characterized as
interest expense in the accompanying financial statements and interest on
other indebtedness amounted to $1,263,000, $1,331,000 and $1,376,000 for
the years 1994, 1993 and 1992, respectively. Capitalized interest amounted
to $1,085,000, $1,188,000 and $1,055,000 in 1994, 1993 and 1992,
respectively.
7 Long-Term Leases
Total rental expense for all leases amounted to $13,971,000 in 1994,
$13,270,000 in 1993 and $12,064,000 in 1992. The future rental commitments,
primarily for automobiles, as of December 31, 1994 for all noncancelable
leases are: 1995 -- $9,117,000, 1996 -- $4,174,000, 1997 -- $1,032,000,
1998 -- $167,000, 1999 -- $113,000 and $1,040,000 thereafter.
8 Provision for Restructuring
The $16,196,000 provision for restructuring recorded in 1993 was for
the estimated costs associated with the Company's decision to lower
operating costs on a prospective basis and reorganize the Company's
marketing efforts on a global basis. The provision included $5,171,000 for
asset writedowns and $11,025,000 for personnel reductions, globalization of
marketing efforts and other anticipated restructuring costs. At December
31, 1994, $3,622,000 and $1,627,000 of accrued restructuring costs are
included in accrued expenses and other deferred credits, respectively.
9 Postretirement Benefits
The Company pays limited medical and dental insurance premiums on
behalf of certain early retirees as well as providing a small life
insurance benefit for certain retirees. Prior to 1993, the cost of these
benefits, which was not significant, was charged to expense when incurred.
Effective January 1, 1993, the Company adopted Financial Accounting
Standard No. 106. Under this Standard, the Company recognizes the cost of
postretirement benefits over the active service period of its employees.
The Company elected to recognize the transition obligation, which
represents the previously unrecognized prior service cost, as a one-time
noncash charge of $2,700,000 to net earnings in the first quarter of 1993.
This charge was net of a $1,700,000 deferred tax benefit.
The following table sets forth the plans' status at December 31:
Accumulated postretirement benefit obligation (in thousands):
1994 1993
- --------------------------------------------------------------------------
Retirees $(1,186) $(1,000)
Active plan participants (7,499) (5,000)
------- -------
Accumulated postretirement benefit obligation (8,685) (6,000)
Unrecognized net loss 2,647 1,100
Unrecognized prior service cost 249 --
------- -------
Postretirement benefit liability included
in balance sheet $(5,789) $(4,900)
======= =======
Such benefit obligation is unfunded.
The components of net periodic postretirement benefit cost follow (in
thousands):
1994 1993
- --------------------------------------------------------------------------
Service cost $ 543 $ 180
Interest cost on accumulated benefit
obligation 547 320
Net amortization and other 191 --
------- ------
Net periodic postretirement benefit costs $ 1,281 $ 500
======= ======
The estimated cash expenses for these benefits is approximately
$222,000 for 1994 and $120,000 in 1993 and 1992.
To more accurately reflect expected claims payments in the future,
some assumptions changed which increased the Company's 1994 net periodic
postretirement benefit cost approximately $490,000. Changes were made to
the retirement age scale, the percentage of participants and participants'
spouses electing benefits and the method of credibility weighting between
actual claims and expected claims. The medical trend assumption was changed
from 13% in 1993 grading down to 6% by .5% per year to 11.0% in 1994
grading down to 5% by .5% per year. An increase of 1% in the health care
cost trend assumption would increase the accumulated postretirement
obligation by approximately $966,000. Also, the discount rate was increased
from 7.25% at December 31, 1993 to 8.5% at December 31, 1994.
10 Quarterly Financial Information (unaudited)
The following is a summary of quarterly financial information for the
years ended December 31, 1994 and 1993 (in thousands, except for per share
data).
<TABLE>
<CAPTION>
1994 Quarter Ended 1993 Quarter Ended
March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31
------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $172,934 $179,701 $180,398 $175,253 $168,495 $171,472 $176,543 $168,362
Gross Profit 111,720 116,490 115,843 111,719 109,578 112,712 116,713 108,339
Earnings Before
Income Taxes and
Cumulative Effect of
Accounting Changes 30,860 31,496 31,750 26,838 31,198 30,574 29,540 12,758
Earnings Before
Cumulative Effect of
Accounting Changes 18,516 18,898 19,368 16,389 19,187 18,803 17,639 7,750
Net Earnings 18,516 18,898 19,368 16,389 21,328 18,803 17,639 7,750
Net Earnings Per
Common Share:
Primary
Before Cumulative Effect
of Accounting Changes .61 .64 .65 .53 .62 .61 .58 .24
Net Earnings .61 .64 .65 .53 .69 .61 .58 .24
Fully Diluted
Before Cumulative Effect
of Accounting Changes .58 .60 .61 .51 .59 .58 .54 .24
Net Earnings .58 .60 .61 .51 .66 .58 .54 .24
Cash Dividends Declared Per
Common Share .35 .36 .36 .36 .34 .35 .35 .35
Common Share Market Prices:
High Price 53-5/8 50-3/8 48-1/2 50 62-7/8 53 49-7/8 45-1/2
Low Price 43-5/8 42-3/8 42-1/4 43-1/2 51-1/4 44 44-1/8 40
</TABLE>
The common stock of the Company is traded on the New York Stock
Exchange under the symbol BTL. The high/low price represents the high and
low sales prices for the Company's stock. The approximate number of record
holders of Common Shares as of February 10, 1995, was 3,755.
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Betz Laboratories, Inc.
Overview
Nineteen ninety-four was a challenging year. Although the economy
expanded at a healthy pace, some customers continued to take a conservative
approach to spending for the Company's treatment programs to meet short-
term cost control objectives.
For the year 1994, net sales increased $23.4 million from $684.9
million in 1993 to the current-year record level of $708.3 million. The 3
percent sales increase was comprised of a 4 percent volume-mix gain,
partially offset by a decrease of approximately 1 percent resulting from
the sale of the Company's oil field chemicals business on June 30, 1994.
The Company experienced no significant impact on 1994 net sales from
selling prices nor from the effects of foreign currency fluctuations.
Operating earnings increased 16 percent from the prior year's $101.3
million to $117.5 million. Current-year earnings before the cumulative
effect of accounting changes increased 15 percent compared to 1993 totals
from $63.4 million to $73.2 million, while net earnings after accounting
changes gained 12 percent from $65.5 million to $73.2 million. Fully
diluted earnings per Common Share before the cumulative effect of
accounting changes rose 18 percent from $1.95 to $2.30 and fully diluted
earnings per Common Share after accounting changes were up 14 percent from
$2.02 to $2.30. 1993 results of operations included a pretax and after-tax
provision for restructuring of $16.2 million and $9.9 million,
respectively, equivalent to $.31 per Common Share on a fully diluted,
after-tax basis.
In 1993, net sales decreased 3 percent from 1992 (primarily comprised
of volume-mix losses of approximately 2 percent, a 2 percent decrease due
to foreign currency fluctuations and selling price increases of
approximately 1 percent). Net earnings decreased 20 percent for the same
time period.
Results of Operations -- 1994 vs. 1993
The Company's results of operations for 1994 reflect the early success
of globalization initiatives to capture a larger share of foreign markets.
While domestic sales increased 2 percent from $543.3 million in 1993 to
$551.5 million, foreign sales increased 11 percent from $141.6 million to
$156.8 million in 1994. The 1994 domestic/foreign sales relationship was 78
percent/22 percent, respectively.
Foreign sales in Europe were 10 percent higher than 1993 in local
currencies with strong results posted by our French, German and
Scandinavian subsidiaries. Betz Canada Inc. reported a local currency 1994
sales increase of 12 percent, due primarily to higher sales of its
industrial water treatment and paper process treatment programs. The
Company also reported double-digit sales increases in the Caribbean,
Australia and South Korea.
On June 30, 1994, the Company announced the sale of its oil field
chemicals business to Western Company of North America. The oil field
production chemicals business, served by Betz Energy Chemicals, Inc., had
annual sales of approximately $10 million. 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 continued growth in Europe, Latin America and the
Pacific.
The current year's domestic net sales, excluding Betz Energy
Chemicals, Inc., increased 3 percent over the prior year from $532.9
million to $547.4 million. Sales of water and wastewater treatment programs
rose 2 percent with four of the five domestic Water Management Divisions
recording positive sales gains. Betz Entec, Inc. experienced a high single-
digit sales gain of its water treatment programs to the commercial,
institutional and light industrial marketplace. Entec had a record year in
terms of shipments to customers using Entec's CDS (registered trademark)
delivery service. This service eliminates the cost and potential hazard
associated with handling and disposing of empty metal drums.
Sales of specialty process chemical treatment programs within the U.S.
rose 3 percent from the 1993 level of $177.5 million to $182.8 million in
1994. Betz PaperChem, Inc., which markets the Company's line of specialty
process chemicals to the pulp and paper industry, reported a similar
increase.
Sales of refinery process treatment programs marketed by Betz Process
Chemicals, Inc. were essentially unchanged from the prior year. ProChem's
results reflect continuing cost pressures within the refining industry.
Nevertheless, this subsidiary continued to experience strong growth of its
ALKAT-XL (registered trademark) treatment program which improves the
efficiency of alkylation units in refineries. ProChem has been very
successful in marketing new products such as ALKAT-XL (registered
trademark) which result in significant savings in operating costs to
customers. Another example of this is STYREX (registered trademark), a
newly patented product which helps styrene manufacturers to increase yield.
Betz MetChem Division, which markets the Company's line of specialty
process chemicals to the metals industry, reported double-digit sales
increases during 1994. MetChem's results reflect the continuing success of
its NORINSE II (registered trademark) technology to the coil industry and
ADHERE (registered trademark) programs to the plastics industry.
The Company's gross profit margin decreased 1 percent from 65.3
percent of net sales in the prior year to 64.3 percent of 1994's net sales.
This deterioration in the gross profit margin percentage is primarily due
to a less favorable product mix. The Company also experienced increases in
production, distribution and materials costs during 1994, with no
corresponding increase in selling prices.
Selling, research and administrative expenses increased from $329.9
million in 1993 to $338.3 million in 1994, but decreased as a percent of
net sales with 1994's level at 47.8 percent compared to 1993's 48.2
percent. Reductions in research and administrative expenses, resulting
mainly from restructuring actions, were partially offset by increases in
selling and marketing expenses and net pension expense. Selling expenses
increased to support the higher sales level in 1994 and our globalized
marketing effort. Net periodic pension expense increased due to the
reduction in the discount rate assumption, from 8.75% in 1993 to 7.25% in
1994, used to develop net pension expense.
<PAGE>
The $16.2 million provision for restructuring recorded in 1993 was for
the estimated costs associated with the Company's decision to lower
operating costs on a prospective basis and reorganize the Company's
marketing efforts on a global basis. The provision included a noncash
charge of $5.2 million for asset writedowns and $11.0 million for personnel
reductions, globalization of marketing efforts and other anticipated
restructuring costs. No significant components of this charge would have
been recognized in 1993 in the absence of these efforts.
During 1994, the Company charged the restructuring reserve $5.4
million and completed most of the restructuring of administrative support
services, including information services, maintenance, security, and human
resources. Also, all assets designated for disposal under this program were
sold during 1994. The final areas, customer services and finance, will be
completed in 1995. Reductions in operating expenses were approximately $6
million in 1994 and are anticipated to approximate $10 million in 1995 and
future years. The $5.2 million restructuring liability remaining at
December 31, 1994 is sufficient to meet remaining obligations. The Company
expects to fund this liability with available cash and cash equivalents and
cash provided by future operating activities.
Investment and other income increased from $2.9 million in 1993 to
$3.6 million in 1994 mainly due to a gain recorded on the sale of Betz
Energy Chemicals, Inc.
The effective income tax rate increased from 39.1 percent in 1993 to
39.5 percent in 1994, reflecting the provisions of the Omnibus Budget
Reconciliation Act of 1993 which became effective in 1994.
Results of Operations -- 1993 vs. 1992
The Company's results of operations for 1993 were negatively impacted
by sluggish growth in the industrial sector of the economy, particularly
the chemical, refining and paper industries, the Company's major customers.
Some customers in these industries reduced consumption of existing
treatment programs to meet short-term cost control objectives.
The Company's domestic/foreign sales relationship was 79 percent/21
percent, respectively. Domestic sales decreased 3 percent from $557.4
million in 1992 to $543.3 million in 1993. Foreign sales decreased 5
percent from $149.6 million to $141.6 million for the same time period, but
were up approximately 5 percent when translated at 1992 foreign currency
exchange rates.
On a combined basis, sales of the Betz Industrial Division, the
Company's largest operating unit, and the Betz MetChem Division were down 5
percent from the prior year. Although Betz Industrial added new business at
a record pace in 1993, the shrinkage in business at existing accounts more
than offset new business gains.
Sales at Betz PaperChem, Inc., our second largest domestic operating
unit which markets the Company's line of specialty process chemicals to the
pulp and paper industry, declined 4 percent from the 1992 level, primarily
as a result of customer shutdowns and reduced treatment levels at existing
accounts.
Betz Process Chemicals, Inc. posted modest sales gains for 1993. The
marketing of unique technology, such as SPEC-AID (registered trademark)
Finished Product Additives and ALKAT-XL (registered trademark) treatment
programs which increase the efficiency of alkylation units in refineries,
contributed to the sales increase at this subsidiary.
Betz Energy Chemicals, Inc. reported strong increases in sales of its
oil field chemical treatment programs despite the fact that crude oil
production within the U.S. fell to a 35-year low during 1993.
Betz Entec, Inc. experienced a 6 percent sales increase over the prior
year to the commercial, institutional and light industrial marketplace. New
business generated by Betz Entec was a strong contributing factor to this
unit's growth.
Regarding our foreign operations, Betz Canada Inc. recorded a 13
percent sales gain in Canadian dollars over the prior period. This
operating unit experienced strong increases in sales of its process
treatment programs to the pulp and paper industry. Betz International, Inc.
reported a 10 percent increase in sales over 1992 and experienced strong
gains in Southeast Asia, South Korea and the Caribbean.
Betz Europe, Inc. sales were up fractionally in local currencies, but
were down 12 percent when translated to U.S. dollars. Sales increases in
France, Italy and Scandinavia were offset by slightly lower sales in the
rest of the Company's European operations.
The Company's gross profit margin decreased slightly from 65.9 percent
of net sales in the prior year to 65.3 percent of 1993's net sales.
Selling, research and administrative expenses decreased from $334.3 million
in 1992 to $329.9 million in 1993, but increased as a percent of net sales
with 1993's level at 48.2 percent compared to 1992's 47.3 percent. The
increase in selling, research and administrative expenses, as a percentage
of net sales, was primarily related to higher levels of research and
selling expenses due to continued emphasis on the development of new
products and expansion of the Company's sales force. This increase was
partially offset by declines in administrative expenses resulting from the
implementation of cost controls during the first half of 1993.
Investment and other income decreased slightly as a result of lower
investment yields on the Company's cash, partially offset by gains on the
sales of long-term investments.
The effective income tax rate increased from 38.8 percent in 1992 to
39.1 percent in 1993, reflecting the provisions of the Omnibus Budget
Reconciliation Act of 1993.
In the first quarter of 1993, the Company adopted two new accounting
standards issued by the Financial Accounting Standards Board. Financial
Accounting Standard No. 106 requires companies to recognize expense
relating to postretirement benefits as employees render services instead of
when the benefits are actually paid. The cumulative effect of this change
in accounting method was a one-time, noncash charge to the Company's 1993
net earnings of $2.7 million (net of a $1.7 million deferred
<PAGE>
tax benefit). Financial Accounting Standard No. 109 requires companies to
adopt the liability method of accounting for income taxes. Deferred income
taxes were reduced by $3.6 million resulting in a one-time, noncash credit
to the Company's net earnings in 1993.
In the fourth quarter of 1993, effective January 1, 1993, the Company
changed its method of calculating the value of assets of its pension plan
for purposes of determining annual pension costs under Financial Accounting
Standard No. 87. The cumulative effect on years prior to December 31, 1992
was $1.2 million (net of taxes of $0.8 million), which was a one-time,
noncash increase in net income for the year 1993. The effect of this change
on 1993 results of operations and the pro forma effects on results of
operations for 1992 are not material.
Liquidity and Sources of Capital
The financial condition of the Company demonstrates consistent
strength. The Company's ratio of current assets to current liabilities was
2.3 at the end of 1994 and 1993 and 2.4 at the end of 1992. During the
years 1992 through 1994, net cash provided by operating activities and
available cash balances have funded common dividend requirements, capital
expenditures, treasury share purchases, restructuring obligations and
dividend and debt requirements associated with the ESOP.
Net cash provided from operating activities amounted to $114.3
million, $120.2 million and $114.7 million for the years 1994, 1993 and
1992, respectively. The current-year decrease in cash provided from
operations is mainly the result of increases in the Company's accounts
receivable balances from 1993 to 1994, necessary to support the increase in
sales.
Net cash used in investing activities decreased by $0.7 million in
1994 as compared to 1993. Capital expenditures for the year 1994 were $55.0
million, an $8.2 million decline from the 1993 expenditures. Major projects
in 1994 included expansion and process improvements at the Company's
manufacturing facilities in Washougal, Washington, Orange, Texas and Macon,
Georgia. The Company anticipates that capital expenditures for 1995 will be
approximately $75 million. $3.5 million of cash was used to fund the
increase in long-term investments, principally for the $2.4 million funding
of a Rabbi Trust. Investing activities also included $9.1 million of cash
proceeds from the sales of long-term assets, primarily resulting from the
sales of Betz Energy Chemicals, Inc. and property, plant and equipment
under the restructuring program.
During 1994, the Company continued its program of treasury share
purchases by acquiring 400,000 shares at an approximate cost of $20.0
million. The purchases are pursuant to an authorization by the Board of
Directors in November 1990. Shares repurchased will be used in connection
with stock plans and for other corporate purposes. Future purchases will be
made through brokers or directly from shareholders at such times as deemed
appropriate by the Company's management.
The globalization of the Company's operations has increased the need
to hedge its exposure to foreign currency fluctuations. During 1994, 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 year that were primarily accounted
for on a mark to market basis. Gains or losses are included with investment
and other income on the Consolidated Statement of Operations. There are
$54,000 of unrealized gains on these forward contracts included in the
December 31, 1994 Consolidated Balance Sheet. 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 options,
as well as foreign cash management techniques designed to hedge exchange
risks.
The Company is a "Potentially Responsible Party" to thirteen waste
disposal sites under the Comprehensive Environmental Response, Compensation
and Liability Act as amended by the Superfund Amendments and
Reauthorization Act of 1986. Adequate provision has been made in the
financial statements for the Company's portion of the anticipated
remediation costs of these sites. While it is not possible to precisely
predict future costs in these matters, the Company does not believe that
any such assessments would have a materially adverse impact upon its
financial position.
The Company anticipates that present cash and cash equivalents and net
cash provided from 1995 operating activities combined with other available
financial resources will be sufficient to fund the Company's operating and
capital expenditure requirements and to service the dividend and debt
requirements of approximately $8.8 million associated with its Employee
Stock Ownership Plan.
Impact of Inflation and Changing Prices
The Company attempts to counter the impact of rising costs through
timely adjustments of product pricing whenever possible. The Company
believes that its substantial use of the LIFO cost method and higher
depreciation charges associated with its newer, more costly and improved
facilities mitigates the impact of inflation on its reported earnings.
<TABLE>
<CAPTION>
Consolidated Summary of Operations
Betz Laboratories, Inc.
(In thousands, except per share amounts) 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $708,286 $684,872 $706,972 $665,565 $596,805 $516,669 $447,580
Operating Costs and Expenses:
Cost of products sold 252,514 237,530 241,396 233,238 214,385 191,782 166,867
Selling, research and administrative expenses 338,267 329,860 334,312 313,290 278,304 237,426 204,738
Provision for restructuring -- 16,196 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
590,781 583,586 575,708 546,528 492,689 429,208 371,605
-------- -------- -------- -------- -------- -------- --------
Operating Earnings 117,505 101,286 131,264 119,037 104,116 87,461 75,975
Other Income (Expense):
Investment and other income 3,617 2,927 3,228 4,991 4,863 5,007 2,917
Interest expense (178) (143) (321) (218) (1,580) (1,548) (89)
-------- -------- -------- -------- -------- -------- --------
3,439 2,784 2,907 4,773 3,283 3,459 2,828
-------- -------- -------- -------- -------- -------- --------
Earnings Before Income Taxes and
Cumulative Effect of Accounting Changes 120,944 104,070 134,171 123,810 107,399 90,920 78,803
Income Taxes 47,773 40,691 52,124 48,286 41,925 35,060 30,418
-------- -------- -------- -------- -------- -------- --------
Earnings Before Cumulative Effect of
Accounting Changes 73,171 63,379 82,047 75,524 65,474 55,860 48,385
Cumulative Effect of Accounting Changes -- 2,141 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Earnings $ 73,171 $ 65,520 $ 82,047 $ 75,524 $ 65,474 $ 55,860 $ 48,385
======== ======== ======== ======== ======== ======== ========
Earnings per Common Share:
Primary -- before cumulative effect of
accounting changes $ 2.43 $ 2.05 $ 2.71 $ 2.47 $ 2.12 $ 1.76 $ 1.57
Primary -- net earnings per Common Share $ 2.43 $ 2.12 $ 2.71 $ 2.47 $ 2.12 $ 1.76 $ 1.57
Fully Diluted -- before cumulative effect of
accounting changes $ 2.30 $ 1.95 $ 2.58 $ 2.36 $ 2.02 $ 1.72 --
Fully Diluted -- net earnings per Common Share $ 2.30 $ 2.02 $ 2.58 $ 2.36 $ 2.02 $ 1.72 --
Cash Dividends Declared per Common Share $ 1.43 $ 1.39 $ 1.33 $ 1.20 $ 1.045 $ .915 $ .82
Average Number of Common Shares:
Primary 28,108 28,576 28,474 28,547 28,512 30,224 30,747
Fully Diluted 30,885 31,331 31,221 31,306 31,287 31,696 --
Key Statistics
As Reported in the Company's Annual Reports
Total assets $555,498 $521,129 $510,617 $475,844 $427,356 $369,226 $318,535
Foreign sales $156,771 $141,611 $149,571 $132,052 $113,562 $ 92,051 $ 80,357
ESOP debt $ 97,500 $ 98,000 $ 98,500 $ 99,000 $ 99,500 $100,000 --
Sales per employee $ 178 $ 166 $ 170 $ 167 $ 162 $ 151 $ 142
Receivables turnover 58 days 56 days 52 days 49 days 50 days 51 days 51 days
Ratio of net sales to inventory 17.9 18.3 20.2 18.6 15.5 16.4 12.9
Ratio of net sales to total assets 1.3 1.3 1.4 1.4 1.4 1.4 1.4
Return on average common equity 22.3% 20.6% 28.0% 29.7% 30.1% 25.8% 22.2%
Return on sales 10.3% 9.6% 11.6% 11.3% 11.0% 10.8% 10.8%
Sales growth 3.4% (3.1%) 6.2% 11.5% 15.5% 15.4% 16.0%
Primary earnings per Common Share growth 14.6% (21.8%) 9.7% 16.5% 20.5% 12.1% 21.7%
Common dividends paid per share growth 2.9% 6.2% 12.1% 14.9% 13.5% 11.3% 9.6%
</TABLE>
<TABLE>
<CAPTION>
Consolidated Summary of Operations (Continued)
Betz Laboratories, Inc.
(In thousands, except per share amounts) 1987 1986 1985 1984
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $385,868 $344,377 $319,381 $303,888
Operating Costs and Expenses:
Cost of products sold 140,807 126,728 117,867 113,683
Selling, research and administrative expenses 177,447 154,307 140,992 129,837
Provision for restructuring -- -- -- --
-------- -------- -------- --------
318,254 281,035 258,859 243,520
-------- -------- -------- --------
Operating Earnings 67,614 63,342 60,522 60,368
Other Income (Expense):
Investment and other income 3,049 3,506 4,446 4,391
Interest expense (124) (60) (104) (172)
-------- -------- -------- --------
2,925 3,446 4,342 4,219
-------- -------- -------- --------
Earnings Before Income Taxes and
Cumulative Effect of Accounting Changes 70,539 66,788 64,864 64,587
Income Taxes 29,905 31,244 28,072 27,850
-------- -------- -------- --------
Earnings Before Cumulative Effect of
Accounting Changes 40,634 35,544 36,792 36,737
Cumulative Effect of Accounting Changes -- -- -- --
-------- -------- -------- --------
Net Earnings $ 40,634 $ 35,544 $ 36,792 $ 36,737
======== ======== ======== ========
Earnings per Common Share:
Primary -- before cumulative effect of
accounting changes $ 1.29 $ 1.12 $ 1.17 $ 1.16
Primary -- net earnings per Common Share $ 1.29 $ 1.12 $ 1.17 $ 1.16
Fully Diluted -- before cumulative effect of
accounting changes -- -- -- --
Fully Diluted -- net earnings per Common Share -- -- -- --
Cash Dividends Declared per Common Share $ .745 $ .69 $ .645 $ .575
Average Number of Common Shares:
Primary 31,403 31,814 31,516 31,586
Fully Diluted -- -- -- --
Key Statistics
As Reported in the Company's Annual Reports
Total assets $286,901 $269,617 $253,704 $220,662
Foreign sales $ 64,829 $ 53,228 $ 44,453 $ 41,517
ESOP debt -- -- -- --
Sales per employee $ 136 $ 130 $ 126 $ 124
Receivables turnover 49 days 49 days 49 days 45 days
Ratio of net sales to inventory 15.3 19.3 20.7 21.3
Ratio of net sales to total assets 1.3 1.3 1.3 1.4
Return on average common equity 19.9% 17.8% 20.1% 22.1%
Return on sales 10.5% 10.3% 11.5% 12.1%
Sales growth 12.0% 7.8% 5.1% 13.8%
Primary earnings per Common Share growth 15.2% (4.3%) 0.9% 11.5%
Common dividends paid per share growth 7.4% 7.9% 14.5% 17.0%
</TABLE>
INDEX TO EXHIBITS
Exhibit Name Exhibit Number
- ------------ --------------
Index to Exhibits (Electronic) 99.1
Computation of Per Share Earnings 11
Subsidiaries of Registrant 21
Consent of Independent Auditors 23
Financial Data Schedule 27
<TABLE>
<CAPTION>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
Year Ended December 31,
1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Earnings before cumulative effect of accounting changes $73,171 $63,379 $82,047
Effect of preferred stock dividends (4,902) (4,928) (5,017)
------- ------- -------
68,269 58,451 77,030
Cumulative effect of accounting changes -- 2,141 --
------- ------- -------
Net earnings available to common shareholders $68,269 $60,592 $77,030
======= ======= =======
Average Common Shares outstanding 27,884 28,470 28,474
Common stock equivalents 224 106 --
------- ------- -------
Average number of Common Shares - primary 28,108 28,576 28,474
======= ======= =======
Primary earnings per share:
Before cumulative effect of accounting changes $2.43 $2.05 $2.71
Cumulative effect of accounting changes -- 0.07 --
------- ------- -------
Primary Earnings per Common Share $2.43 $2.12 $2.71
======= ======= =======
FULLY DILUTED EARNINGS PER SHARE
Earnings before cumulative effect of accounting changes $73,171 $63,379 $82,047
Effect of ESOP charge to operations assuming
conversion of Series A ESOP Convertible
Preferred Shares (2,208) (2,332) (1,366)
------- ------- -------
70,963 61,047 80,681
Cumulative effect of accounting changes -- 2,141 --
------- ------- -------
Net earnings available to common shareholders $70,963 $63,188 $80,681
======= ======= =======
Average Common Shares outstanding 27,884 28,470 28,474
Common stock equivalents 232 106 --
Assumed conversion of Series A ESOP Convertible
Preferred Shares 2,769 2,755 2,747
------- ------- -------
Average number of Common Shares - fully diluted 30,885 31,331 31,221
======= ======= =======
Fully diluted earnings per share:
Before cumulative effect of accounting changes $2.30 $1.95 $2.58
Cumulative effect of accounting changes -- 0.07 --
------- ------- -------
Fully Diluted Earnings per Common Share $2.30 $2.02 $2.58
======= ======= =======
<FN>
Common stock equivalents reflect the assumed exercise of dilutive employees' stock options
using the treasury stock method for 1993 and 1994. These common stock equivalents were ex-
cluded from the calculation in 1992 as their dilutive effect was not material.
</TABLE>
<PAGE>
EXHIBIT 21 - SUBSIDIARIES OF REGISTRANT
Betz Canada Inc., a Canadian corporation.
Betz PaperChem, Inc., a Florida corporation.
Betz Process Chemicals, Inc., a Texas corporation.
* Betz International, Inc., a Pennsylvania corporation, holds
substantially all of the stock of:
Betz de Venezuela,C.A., a Venezuelan subsidiary;
Betz Pte., Ltd., a Singapore subsidiary;
Betz Pty, Ltd., an Australian subsidiary;
Betz Korea, Ltd., a Korean subsidiary; and
Betz Chemicals India, PVT., Ltd.
* Betz Europe, Inc., a Delaware corporation,
holds directly or indirectly all of the stock of:
Betz Limited, a United Kingdom subsidiary;
Betz G.m.b.H., a German subsidiary;
Betz N.V., a Belgian subsidiary;
Betz Sud S.p.A., an Italian subsidiary;
Betz Ges.m.b.h., an Austrian subsidiary;
Betz Industries s.a., a French subsidiary;
Finn Betz Oy, a Finnish subsidiary; and
Betz Kemi AB, a Swedish subsidiary.
* None of the foreign subsidiaries listed above constitutes a "significant
subsidiary" as defined in Rule 1-02(v) (17 CFR 210.1-02(v) of Regulation
S-X); however, Betz International, Inc. and Betz Europe, Inc., the
holders of nearly all of the stock of such foreign subsidiaries, do
constitute "significant subsidiaries" of the Registrant.
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Betz Laboratories, Inc. of our report dated January 27,
1995, included in the 1994 Annual Report to Shareholders of Betz Laboratories,
Inc.
Our audits also included the financial statement schedule of Betz
Laboratories, Inc. listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this schedule based on our audits. In our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We consent to the incorporation by reference in Registration Statement
(Form S-8 No.33-40175) of Betz Laboratories, Inc. of our report dated
January 27, 1995, with respect to the financial statements incorporated
herein by reference and our report included in the preceding paragraph with
respect to the financial statement schedules included in the 1994 Annual
Report (Form 10-K) of Betz Laboratories, Inc.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 22, 1995
<PAGE>
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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 43,926
<SECURITIES> 0
<RECEIVABLES> 121,660
<ALLOWANCES> 2,693
<INVENTORY> 39,624
<CURRENT-ASSETS> 229,876
<PP&E> 600,536
<DEPRECIATION> 291,588
<TOTAL-ASSETS> 555,498
<CURRENT-LIABILITIES> 98,673
<BONDS> 96,500
5,599
0
<COMMON> 3,365
<OTHER-SE> 314,994
<TOTAL-LIABILITY-AND-EQUITY> 555,498
<SALES> 708,286
<TOTAL-REVENUES> 708,286
<CGS> 252,514
<TOTAL-COSTS> 252,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 178
<INCOME-PRETAX> 120,944
<INCOME-TAX> 47,773
<INCOME-CONTINUING> 73,171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,171
<EPS-PRIMARY> 2.43
<EPS-DILUTED> 2.30
</TABLE>
