FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
-------------------------------------
For Quarter Ended March 31, 1996
Commission File Number: 0-2085
BETZ LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1503731
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4636 Somerton Road, Trevose, PA 19053
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 355-3300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months [or for such shorter period that the
registrant was required to file such report(s)], and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
27,740,827 Common Shares outstanding as of May 6, 1996.
<PAGE>
BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Net Sales $199,472 $177,934
Operating Costs and Expenses:
Cost of products sold 76,876 63,077
Selling, research and administrative
expenses 90,878 84,605
------------ ------------
167,754 147,682
OPERATING EARNINGS 31,718 30,252
Other Income (Expense):
Investment and other income 285 512
Interest expense (518) (39)
------------ ------------
(233) 473
------------ ------------
EARNINGS BEFORE INCOME TAXES 31,485 30,725
Income Taxes 11,807 11,983
------------ ------------
NET EARNINGS $19,678 $18,742
============ ============
Net earnings per Common Share:
Primary $.66 $.63
============ ============
Fully diluted $.62 $.59
============ ============
Cash dividends declared per Common Share $.37 $.36
============ ============
Average number of Common Shares:
Primary 27,826 28,025
============ ============
Fully diluted 30,677 30,786
============ ============
</TABLE>
See notes to consolidated financial statements.
2 of 10
<PAGE>
BETZ LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (In thousands)
ASSETS March 31, 1996 December 31, 1995
-------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $15,365 $13,919
Trade accounts receivable,
less allowances:
1996--$2,969; 1995--$2,886 149,894 146,404
Inventories:
Finished products and goods
purchased for resale 25,132 25,675
Raw materials 26,988 25,608
---------- ----------
52,120 51,283
Prepaid expenses and other 41,071 40,535
---------- ----------
TOTAL CURRENT ASSETS 258,450 252,141
PROPERTY, PLANT AND EQUIPMENT--
at cost
Buildings 191,291 190,308
Machinery and equipment 440,832 439,764
Allowance for depreciation
(deduction) (348,284) (336,578)
---------- ----------
283,839 293,494
Land 27,770 27,792
Construction in progress 23,381 12,528
---------- ----------
334,990 333,814
OTHER ASSETS
Investments and other 12,084 13,037
Intangibles -- at cost, less
amortization:
1996 -- $3,829; 1995 -- $3,544 31,623 31,476
---------- ----------
43,707 44,513
---------- ----------
$637,147 $630,468
========== ==========
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable $39,098 $39,220
Payroll and related taxes 19,657 26,681
Notes payable 22,329 18,488
Accrued expenses 28,170 35,971
Income taxes 20,864 13,244
Dividends payable 0 10,232
Current portion of ESOP debt 1,000 1,000
---------- ----------
TOTAL CURRENT LIABILITIES 131,118 144,836
ESOP DEBT--less portion classified as 95,500 95,500
current
LONG-TERM LIABILITIES
Income taxes 21,183 20,475
Employee benefit plans 21,273 19,451
Other 7,036 7,207
---------- ----------
49,492 47,133
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:
1996 -- 486,105 shares;
1995 -- 487,903 shares 97,221 97,581
Guarantee of related ESOP debt (91,063) (91,406)
---------- ----------
6,158 6,175
Common Shareholders' Equity
Common Shares -- Authorized - 90,000,000
shares, $.10 par value;
Issued (including treasury shares):
1996 -- 33,642,238 shares;
1995 -- 33,643,981 shares 3,364 3,364
Capital in excess of par value of 84,118 82,613
shares
Retained earnings 463,843 446,111
Cost of Common Shares in treasury:
1996 -- 5,908,842 shares;
1995 -- 5,990,825 shares (196,377) (198,157)
Unearned compensation (5,474) (3,327)
Foreign currency translation 5,405 6,220
adjustments
---------- ----------
COMMON SHAREHOLDERS' EQUITY 354,879 336,824
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 361,037 342,999
---------- ----------
$637,147 $630,468
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
BETZ LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $19,678 $18,742
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 14,023 11,974
Compensation and employee benefit plans 2,194 2,969
Other, net 128 263
Changes in operating assets and liabilities:
Accounts receivable (3,490) 14
Inventories (1,132) (4,190)
Prepaid expenses and other (535) (830)
Accounts payable and accrued expenses (2,172) 1,656
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,694 30,598
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (15,048) (9,362)
Proceeds from sales of long-term assets 182 564
Purchases of businesses and long-term investments (4,622) (505)
Other, net 1,018 (155)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (18,470) (9,458)
FINANCING ACTIVITIES
Dividends paid (12,178) (11,997)
Proceeds from issuance of common shares,
including treasury shares 261 178
Purchase of treasury shares - (4,411)
Net short-term borrowings 3,841 -
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (8,076) (16,230)
Effect of exchange rate changes on cash (702) 705
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 1,446 5,615
Cash and Cash Equivalents at Beginning of Year 13,919 43,926
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,365 $49,541
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4 of 10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
consolidated financial position, consolidated results of operations and
consolidated cash flows in conformity with generally accepted accounting
principles. The foregoing consolidated financial statements do include all
adjustments, consisting only of normal recurring accruals which, in the opinion
of management, are necessary for a fair statement of the results of the interim
period.
Note 2 - Common Shares Reserved for Stock Plans
At March 31, 1996, 4,408,563 and 565,715 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, 2,772,000
Common Shares were reserved and kept available for possible conversion of the
Series A ESOP Convertible preferred stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
First quarter 1996 net sales increased 12% or $21.6 million from $177.9
million to $199.5 million. Net earnings increased $1.0 million, or 5%, from
$18.7 million to $19.7 million. Primary earnings per Common Share increased 5%
from $.63 to $.66, while fully diluted earnings per Common Share also increased
5% from $.59 to $.62.
The 12% increase in net sales is approximately comprised of a 5%
increase in volume-mix, a 5% increase due to sales recorded by subsidiaries
acquired after the first quarter of 1995, a 1% combined increase in selling
prices and changes in the value of foreign currencies relative to the U.S.
dollar and a 1% increase due to the inclusion of certain freight revenues in
1996 first quarter net sales. Beginning in 1996, the Company revised its
practice of accounting for freight to standardize this practice worldwide. The
result increases both net sales and cost of products sold, with no impact on
operating earnings.
Despite very competitive market conditions in most regions of the
world, all operating divisions turned in solid performances for the first
quarter. The Company's PaperChem and Process Chemicals units both achieved
double-digit sales growth on a global basis.
The first quarter results reflect an increase in non-U.S. sales, as
reported, of 30% over 1995. Excluding the increase in net sales attributable to
acquisitions and to the aforementioned freight reclassification, non-U.S. sales
increased 8% over 1995's first quarter. Net sales by the Company's European
subsidiaries increased less than 8% on a comparable basis; however, strong
performances reported by operations in Canada and the Asia-Pacific region offset
the weakness in Europe.
First quarter sales in the United States, as reported, rose 6% over
the prior year first quarter, 5% on a comparable basis. The three largest
operating units in the U.S. (the Betz Water Management Group, Betz PaperChem and
Betz Process Chemicals) all posted improved sales growth in the quarter.
The table below sets forth as a percentage of sales cost of products
sold, selling, research and administrative expenses and operating earnings for
the respective periods.
Three Months Ended
March 31,
1996 1995
---- ----
Cost of products sold 38.5% 35.4%
Selling, research and administrative
expenses 45.6% 47.6%
Operating earnings 15.9% 17.0%
Cost of products sold, as a percentage of sales, increased when
compared to the prior year first quarter primarily due to changes in product
mix, including those related to the Company's 1995 acquisitions, the
standardization of the method of accounting for freight and increases in raw
material expense without comparable increases in selling prices. Selling,
research and administrative expenses, as a percentage of sales, declined due to
savings being realized from the Company's restructuring actions.
The Company recorded a $15.6 million provision for restructuring in
1995 for a series of actions to reduce operating costs. These actions include
personnel reductions, office consolidations and asset dispositions, including
the shutdown of two blending plants in Compton, California, and Cheyenne,
Wyoming. During the first quarter of 1996 the Company incurred approximately
$730,000 in cash charges to the reserve, eliminated approximately 60 jobs and
ceased production at both plants. The remaining restructuring reserve is
expected to be sufficient to complete the restructuring actions and will
continue to be financed with available operating cash flows and external
financing resources.
Statement of Financial Accounting Standard Number 121, "Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of," was adopted in the
first quarter of 1996. This adoption had no material impact on the Company's
results of operations or financial condition.
During the quarter, expenditures for property, plant and equipment were
$15.0 million, an increase of $5.6 million over the first quarter of 1995. The
Company anticipates that capital expenditures will be approximately $60 - $65
million and will include improvements to the Company's production facilities in
Italy and Beaumont, Texas to increase the manufacturing capacity for the
Novus(R) polymer line, which is used in both process and water treatment
applications. First quarter 1996 purchases of long-term investments and
businesses include approximately $4.3 million for a payment of the purchase
price accrued for the acquisition of the Misan Group in the fourth quarter of
1995. Net cash used in financing activities decreased $8.1 million from the
prior year's first quarter primarily due to the purchase of treasury stock at a
cost for $4.4 million in the first quarter of 1995 with no similar purchase in
1996, as well as a $3.8 million
<PAGE>
increase in net short-term borrowings in the first quarter of 1996, necessary to
finance the payment for Misan.
On March 11, 1996, the Company announced that it signed a definitive
agreement to acquire the Dearborn business unit of W.R. Grace & Co. for $632
million, the closing of which is expected to take place in the second quarter of
1996, subject to customary regulatory approvals. Dearborn is a global supplier
of industrial water and process treatment chemicals with 1995 sales of
approximately $400 million. It has major operations and facilities in North
America, Latin America and Europe.
The Dearborn acquisition will be accounted for using the purchase
method of accounting. The excess of the purchase price over the fair value of
the net tangible and identifiable intangible assets acquired will be amortized
on a straight-line basis over 40 years.
The acquisition is anticipated to be initially financed using a
revolving credit agreement with various participating financial institutions.
This agreement is expected to be executed prior to the closing date of the
Dearborn acquisition and will bear interest at short-term variable rates.
The Company anticipates that present cash and cash equivalents and net
cash provided by 1996 operating activities combined with other available
external financing resources will be sufficient to fund the Company's operating
and capital expenditure requirements and to service the dividend and debt
requirements associated with its Employee Stock Ownership Plan.
PART II OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no material developments in the cases of Katherine
Adams, et al. v. Pacific Gas and Electric, et al. and Danny Aguayo, et al. v.
Betz Laboratories, Inc., 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 thirteen (13) 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, 1995.
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on April 11,
1996. Proxies were solicited by the Board of Directors of the Company ("Board")
pursuant to Regulation 14 of the Securities Exchange Act of 1934. There was no
solicitation of proxies in opposition to the Board's nominees for Director. All
such nominees were elected. The firm of Ernst & Young was elected as the
Company's independent auditors for the year 1996.
The number of votes cast for, against or withheld, as well as the
number of abstentions and broker non-votes, were as follows:
<PAGE>
Election of Directors
Nominee For Against Abstained Not Voted
------- --- ------- --------- ---------
John W. Boyer, Jr. 25,415,982 376,677 -- 2,349,747
Patrick F. Brennan 25,423,980 368,679 -- 2,349,747
William R. Cook 25,401,409 391,250 -- 2,349,747
Alan R. Hirsig 25,423,353 369,306 -- 2,349,747
John A. H. Shober 25,425,040 367,619 -- 2,349,747
Election of Independent Auditors
For Against Abstained Not Voted
--- ------- --------- ---------
Ernst & Young LLP 25,640,929 95,738 55,992 2,349,747
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11: Statement Re: Computation of Per Share Earnings.
(b) The Company filed a Form 8-K on March 15, 1996, announcing that it
had entered into a definitive agreement on March 11, 1996, with W. R. Grace &
Co. - Conn. ("Grace") whereby the Company will purchase and Grace will sell the
Dearborn business unit of Grace for $632 million, subject to customary
regulatory approval.
The Company filed a Form 8-K/A on March 29, 1996, describing the
above purchase and sale and attached as an Exhibit the Worldwide Purchase and
Sale Agreement dated March 11, 1996, by and between Grace and the Company. No
financial statements were filed with either report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BETZ LABORATORIES, INC.
(Registrant)
Date: May 13, 1996 By: /s/ George L. James
------------------------------------
George L. James
Vice President - Finance
and Treasurer
Date: May 13, 1996 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)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Primary Earnings per Common Share 1996 1995
- ------------------------------------- ---- ----
<S> <C> <C>
Net earnings $19,678 $18,742
Effect of preferred stock dividends, net of taxes (1,328) (1,219)
------------- --------------
Net earnings available to common shareholders $18,350 $17,523
============= ==============
Average Common Shares outstanding 27,674 27,847
Common stock equivalents 152 178
------------- --------------
Average number of Common Shares - primary 27,826 28,025
============= ==============
Primary earnings per Common Share $0.66 $0.63
============= ==============
Fully Diluted Earnings per Common Share
Net earnings $19,678 $18,742
Effect of ESOP charge to operations assuming
conversion of Series A ESOP Convertible
Preferred Shares, net of taxes (648) (539)
------------- --------------
Net earnings available to common shareholders $19,030 $18,203
============= ==============
Average Common Shares outstanding 27,674 27,847
Common stock equivalents 240 178
Assumed conversion of Series A ESOP Convertible
Preferred Shares 2,763 2,761
------------- --------------
Average number of Common Shares - fully diluted 30,677 30,786
============= ==============
Fully diluted earnings per Common Share $0.62 $0.59
============= ==============
</TABLE>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,365
<SECURITIES> 0
<RECEIVABLES> 152,863
<ALLOWANCES> 2,969
<INVENTORY> 52,120
<CURRENT-ASSETS> 258,450
<PP&E> 683,274
<DEPRECIATION> 348,284
<TOTAL-ASSETS> 637,147
<CURRENT-LIABILITIES> 131,118
<BONDS> 95,500
<COMMON> 3,364
6,158
0
<OTHER-SE> 351,515
<TOTAL-LIABILITY-AND-EQUITY> 637,147
<SALES> 199,472
<TOTAL-REVENUES> 199,472
<CGS> 76,876
<TOTAL-COSTS> 76,876
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 518
<INCOME-PRETAX> 31,485
<INCOME-TAX> 11,807
<INCOME-CONTINUING> 19,678
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,678
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.62
</TABLE>
