FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________________________
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
_____________________________________
For Quarter Ended September 30, 1995
Commission File Number: 0-2085
BETZ LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1503731
- ---------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4636 Somerton Road, Trevose, PA 19053
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 355-3300
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months [or for such shorter
period that the registrant was required to file such report(s)], and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
27,720,840 Common Shares outstanding as of November 7, 1995.
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BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------
Net Sales $195,790 $180,398 $562,620 $533,033
Operating Costs and Expenses:
Cost of products sold 71,225 64,555 202,894 188,980
Selling, research and
administrative expenses 91,603 84,367 264,910 252,089
-------- -------- -------- --------
162,828 148,922 467,804 441,069
OPERATING EARNINGS 32,962 31,476 94,816 91,964
Other Income (Expense):
Investment and other income 809 354 2,517 2,324
Interest expense (377) (80) (503) (182)
-------- -------- -------- --------
432 274 2,014 2,142
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 33,394 31,750 96,830 94,106
Income Taxes 12,857 12,382 37,597 37,324
-------- -------- -------- --------
NET EARNINGS $ 20,537 $ 19,368 $ 59,233 $ 56,782
======== ======== ======== ========
Net earnings per Common Share:
Primary $.69 $.65 $1.99 $1.90
======== ======== ======== ========
Fully diluted $.65 $.61 $1.88 $1.79
======== ======== ======== ========
Cash dividends declared per
Common Share $.37 $.36 $1.10 $1.07
======== ======== ======== ========
Average number of Common Shares:
Primary 27,859 27,995 27,915 28,135
======== ======== ======== ========
Fully diluted 30,594 30,808 30,678 30,916
======== ======== ======== ========
See notes to consolidated financial statements.
BETZ LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (In thousands)
ASSETS September 30, 1995 December 31, 1994
- -------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 22,414 $ 43,926
Trade accounts receivable,
less allowances:
1995--$2,844; 1994--$2,693 135,573 121,660
Inventories:
Finished products and goods
purchased for resale 24,748 19,491
Raw materials 26,479 20,133
-------- --------
51,227 39,624
Prepaid expenses and other 27,444 24,666
-------- --------
TOTAL CURRENT ASSETS 236,658 229,876
PROPERTY, PLANT AND EQUIPMENT--
at cost
Buildings 177,547 172,833
Machinery and equipment 417,099 396,074
Allowance for depreciation
(deduction) (327,039) (291,588)
-------- --------
267,607 277,319
Land 26,839 22,056
Construction in progress 30,881 9,573
-------- --------
325,327 308,948
OTHER ASSETS
Investments and other 14,188 10,256
Intangibles -- at cost, less
amortization:
1995 -- $3,920; 1994 -- $2,855 14,047 6,418
-------- --------
28,235 16,674
-------- --------
$590,220 $555,498
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY September 30, 1995 December 31, 1994
- -------------------------------------------------------------------------------
CURRENT LIABILITIES
Trade accounts payable $30,366 $30,740
Payroll and related taxes 24,076 24,010
Accrued expenses 23,559 20,305
Income taxes 15,328 12,587
Dividends payable 0 10,031
Current portion of ESOP debt 1,000 1,000
-------- --------
TOTAL CURRENT LIABILITIES 94,329 98,673
ESOP DEBT--less portion classified
as current 95,500 96,500
DEFERRED CREDITS
Income taxes 20,794 20,765
Other deferred credits 25,056 15,602
-------- --------
45,850 36,367
SHAREHOLDERS' EQUITY
Preferred Shares -- Authorized - 1,000,000
shares, $.10 par value, voting
Series A ESOP Convertible, 8%
Cumulative, stated at aggregate
liquidation preference; Issued:
1995 -- 488,768 shares;
1994 -- 492,167 shares 97,754 98,433
Guarantee of related ESOP debt (91,763) (92,834)
-------- --------
5,991 5,599
Common Shareholders' Equity
Common Shares -- Authorized - 90,000,000
shares, $.10 par value;
Issued (including treasury shares):
1995 -- 33,644,488 shares;
1994 -- 33,649,527 shares 3,364 3,365
Capital in excess of par value of shares 82,148 81,802
Retained earnings 456,411 423,519
Cost of Common Shares in treasury:
1995 -- 5,930,174 shares;
1994 -- 5,784,899 shares (195,011) (187,523)
Unearned compensation (3,605) (5,521)
Foreign currency translation adjustments 5,243 2,717
-------- --------
COMMON SHAREHOLDERS' EQUITY 348,550 318,359
-------- --------
TOTAL SHAREHOLDERS' EQUITY 354,541 323,958
-------- --------
$590,220 $555,498
======== ========
See notes to consolidated financial statements.
BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
1995 1994
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $59,233 $56,782
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 36,824 33,810
Compensation and employee benefit plans 8,976 3,356
Other, net (395) (118)
Changes in operating assets and liabilities:
Accounts receivable (11,159) (17,426)
Inventories (9,992) (4,557)
Prepaid expenses and other (2,712) (2,127)
Accounts payable and accrued expenses 1,452 11,995
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 82,227 81,715
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (43,686) (35,641)
Proceeds from sales of long-term assets 1,390 5,075
Purchases of long-term investments and businesses (15,989) -
Other, net (935) 2,290
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (59,220) (28,276)
FINANCING ACTIVITIES
Dividends paid (36,150) (35,499)
Proceeds from issuance of common shares,
including treasury shares 461 1,400
Purchase of treasury shares (8,622) (19,995)
Principal payments on ESOP debt (1,000) (500)
Retirement of ESOP preferred shares - (515)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (45,311) (55,109)
Effect of exchange rate changes on cash 792 1,771
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (21,512) 101
Cash and Cash Equivalents at Beginning of Year 43,926 43,921
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $22,414 $44,022
======= =======
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do
not include all information and footnotes necessary for a fair presentation of
consolidated financial position, consolidated results of operations and
consolidated cash flows in conformity with generally accepted accounting
principles. The foregoing consolidated financial statements do include all
adjustments, consisting only of normal recurring accruals which, in the opinion
of management, are necessary for a fair statement of the results of the interim
period.
Note 2 - Common Shares Reserved for Stock Plans
At September 30, 1995, 4,447,117 and 633,420 Common Shares were reserved
for possible issuance pursuant to the exercise of stock options and grants
under the Company's Stock Option and Incentive Plans, respectively. Further,
2,741,000 Common Shares were reserved and kept available for possible
conversion of the Series A ESOP Convertible preferred stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
Third quarter 1995 net sales increased $15.4 million from $180.4 million
to $195.8 million. This 9 percent increase was approximately composed of a 5
percent improvement in volume-mix, a 2 percent gain resulting from the changes
in the value of foreign currencies relative to the U.S. dollar and a 2 percent
increase resulting from the acquisition of Taiwan Pietz Company, Ltd. on May 1,
1995. Net earnings increased $1.1 million, or 6 percent, from $19.4 million to
$20.5 million. Primary earnings per Common Share rose 6 percent from $.65 to
$.69 and fully diluted earnings per Common Share increased 7 percent from $.61
to $.65.
Net sales for the nine month period ending September 30, 1995 increased 6
percent from $533.0 million to $562.6 million. The percentage increase in
sales was approximately comprised of a 3 percent improvement in volume-mix, a 1
percent net increase in selling prices and a 2 percent increase from currency
fluctuations. Sales gains resulting from the acquisition of Taiwan Pietz on
May 1, 1995 were mainly offset by lost sales resulting from the sale of Betz
Energy Chemicals, Inc. (EnChem) on June 30, 1994. Operating earnings rose
3 percent from $92.0 million to $94.8 million. Net earnings increased
4 percent from $56.8 million to $59.2 million. Primary and fully diluted
earnings per Common Share both increased 5 percent from $1.90 to $1.99 and
from $1.79 to $1.88, respectively.
The Company's third quarter results reflect another strong quarter by
its non-U.S. operations, where net sales rose 23 percent in U.S. dollars
and 17 percent in local currencies over the third quarter of 1994. Double-
digit sales gains were recorded during the quarter in Canada, Southeast
Asia, Korea and Australia. Performance in the Asia Pacific region also
benefited from the results of Betz Taiwan. Sales of water treatment and
paper process treatment programs reported by the Company's European
subsidiaries were also up strongly over the third quarter of 1994. Non-
U.S. sales for the first nine months of 1995 were 20 percent higher in
U.S. dollars and 13 percent higher in local currencies than the comparable
1994 period.
Third quarter net sales within the United States rose 4 percent over the
1994 third quarter. All major operating units posted positive sales gains.
Sales reported by the Betz Water Management Group, which markets industrial
water treatment programs in the U.S., were up at a rate less than the U.S.
average, despite continuing weakness in sales to the hydrocarbon processing
industry. The Betz Water Management Group continues to experience double-
digit increases in sales of its wastewater treatment programs which
include the Company's new Novus [registered trademark] polymers. United
States net sales, excluding 1994 EnChem sales, for the first nine months of
1995 were 2 percent higher than the first nine months of 1994.
The table below sets forth as a percent of sales cost of products sold,
selling, research and administrative expenses and operating earnings for the
respective periods.
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------
Cost of products sold 36.4% 35.8% 36.1% 35.5%
Selling, research and administrative
expenses 46.8% 46.8% 47.0% 47.2%
Operating earnings 16.8% 17.4% 16.9% 17.3%
Cost of products sold, as a percentage of sales, increased when compared
to the prior year periods. This increase is primarily caused by higher raw
material costs and a less favorable product mix. Selling, research and
administrative expenses, as a percentage of sales, remained constant when
comparing third quarter 1995 with the same period in 1994, but declined from
the prior year-to-date period due to reductions in administrative expenses
resulting from restructuring actions. The net effect of the above resulted in
a 0.6 percent decline in operating earnings, as a percent of sales, for the
third quarter 1995 compared to the third quarter 1994 and a 0.4 percent decline
when comparing the year-to-date periods.
During the first nine months of 1995, the Company charged the
restructuring reserve $3.1 million. The restructuring plan has been completed
this year.
Cash and cash equivalents were $22.4 million on September 30, 1995, a
decrease of $21.6 million from December 31, 1994. The primary cause of this
decline was $16.0 million of expenditures for long-term investments and
businesses. The largest such expenditure was the cash acquisition of Taiwan
Pietz Company, Ltd. on May 1, 1995. The new company, known as Betz Taiwan,
Ltd., provides the company with excellent opportunities for growth in the Asia
Pacific region, particularly in the paper and refinery process treatment
businesses. The purchase price for Taiwan Pietz Company, Ltd. was not
disclosed.
During the period expenditures for property, plant and equipment were
$43.7 million, an $8.0 million increase from the 1994 level. The Company
anticipates that capital expenditures for 1995 will be approximately $65 to $70
million and will include improvements to the Company's production facilities in
Belgium and commencement of expansion of its plant in Beaumont, Texas to
increase the manufacturing capacity for the Novus [registered trademark]
polymer line, which is used in both process and water treatment applications.
Net cash used in financing activities decreased by $9.8 million from the
prior year nine month period, principally due to the purchase of 200,000
treasury shares at a cost of $8.6 million in 1995 compared to the 1994 nine
month purchase of 400,000 treasury shares at a cost of $20.0 million.
On November 7, 1995, the Company announced the acquisition of the Misan
Group (Misan), an industrial water, paper process and fuel oil treatment
company with headquarters in Naples, Italy and subsidiaries in Spain and
Portugal. Misan, which has projected 1995 annual sales of approximately
$20 million, complements the Southern European operations and boosts the
Company's leadership position in Italy by approximately doubling market share
in that country. Misan also provides opportunities to expand the Company's
business into Spain and Portugal. Included in the purchase transaction are
office, laboratory and production facilities near Naples, Italy and Barcelona
Spain. The ISO 9001 certified production plant in Naples will allow the
Company to produce in Europe the proprietary raw materials used in advanced
treatment programs. The Company's customers will also have access to Misan's
fuel oil technology called Gemini [registered trademark] for optimizing
combustion in boilers and furnaces.
The Misan acquisition is not expected to have a material impact on the
Company's 1995 results of operations. The 1995 year-end consolidated balance
sheet will include the cost of assets purchased and liabilities incurred or
assumed as a result of this transaction. The acquisition will be financed with
a combination of internal and external financing resources.
The Company anticipates that present cash and cash equivalents and net
cash provided by 1995 operating activities, combined with available external
financing resources, will be sufficient to fund the Company's operating and
capital expenditure requirements and to service the dividend and debt
requirements associated with its Employee Stock Ownership Plan.
PART II OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no material developments in the case of Katherine Adams,
et al. v. Pacific Gas and Electric, et al. nor in the pending proceedings to
which the Company is a "Potentially Responsible Party" under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") during the
quarter for which this report is filed. The Company is a "Potentially
Responsible Party" under CERCLA at fourteen (14) sites. See the discussion
under Item 3, "Pending Legal Proceedings," of the Company's Annual Report on
Form 10-K for fiscal year ended December 31, 1994.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11: Statement Re: Computation of Per Share Earnings.
(b) No reports on Form 8-K have been filed during the quarter for which
this Form 10-Q is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BETZ LABORATORIES, INC.
-------------------------------------
(Registrant)
Date: November 13, 1995 By: s/George L. James
----------------------------------
George L. James
Vice President - Finance
and Treasurer
Date: November 13, 1995 By: s/William C. Brafford
----------------------------------
William C. Brafford
Vice President,
Secretary and General Counsel
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
Primary Earnings per Common Share 1995 1994 1995 1994
- -------------------------------------------------------------------------------
Net earnings $20,537 $18,086 $59,233 $56,782
Effect of preferred stock dividends (1,213) (980) (3,648) (3,413)
------- ------- ------- -------
Net earnings available to
common shareholders $19,324 $17,106 $55,585 $53,369
======= ======= ======= =======
Average Common Shares outstanding 27,701 27,783 27,750 27,903
Common stock equivalents 158 212 165 232
------- ------- ------- -------
Average number of Common Shares - primary 27,859 27,995 27,915 28,135
======= ======= ======= =======
Primary earnings per Common Share $0.69 $0.61 $1.99 $1.90
======= ======= ======= =======
Fully Diluted Earnings per Common Share
- -------------------------------------------------------------------------------
Net earnings $20,537 $18,086 $59,233 $56,782
Effect of ESOP charge to operations
assuming conversion of Series A ESOP
Convertible Preferred Shares (510) (480) (1,564) (1,533)
------- ------- ------- -------
Net earnings available to
common shareholders $20,027 $17,606 $57,669 $55,249
======= ======= ======= =======
Average Common Shares outstanding 27,701 27,783 27,750 27,903
Common stock equivalents 158 234 175 242
Assumed conversion of Series A ESOP
Convertible Preferred Shares 2,735 2,791 2,753 2,771
------- ------- ------- -------
Average number of Common Shares -
fully diluted 30,594 30,808 30,678 30,916
======= ======= ======= =======
Fully diluted earnings per Common Share $0.65 $0.57 $1.88 $1.79
======= ======= ======= =======
Common stock equivalents reflect the assumed exercise of dilutive employees'
stock options using the treasury stock method.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-END> SEP-30-1995
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5,991
0
<COMMON> 3,364
<OTHER-SE> 345,186
<TOTAL-LIABILITY-AND-EQUITY> 590,220
<SALES> 562,620
<TOTAL-REVENUES> 562,620
<CGS> 202,894
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