FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ]
For the fiscal year ended December 31, 1995
OR
[ ]
For the transition period from to
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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. [ ]
The aggregate market value of Registrant's voting common stock (Par
value $.10) held by non-affiliates of Registrant as of February 9, 1996:
$1,175,447,680
The number of shares outstanding of each of the Registrant's classes of
common stock as of February 9, 1996:
27,654,777 Common Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement for use in
conjunction with Registrant's 1996 Annual Meeting of Shareholders and
Registrant's 1995 Annual Report are incorporated into Parts II and III
hereof.
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 twelve (12) in foreign countries. Operations are conducted primarily in
the United States, Canada and Europe, and also in Asia-Pacific and Latin
America. Registrant employs approximately 4,116 people worldwide.
Acquisitions
On March 11, 1996, Registrant announced that it has signed a definitive
agreement to acquire the Dearborn business unit of W.R. Grace & Co. for
632,000,000, the closing of which is expected to take place in the second
quarter of 1996 subject to customary regulatory approval. Dearborn is a
global supplier of industrial water and process treatment chemicals with
1995 sales of approximately $400 million. Dearborn's major operations and
facilities are in North America, Europe and Latin America. The company
operates in more than 50 countries with over 70% of sales coming from markets
outside the United States. It has 12 manufacturing plants, six major
research centers, and approximately 2,500 employees.
During 1995, the Registrant acquired two businesses to continue its
expansion in non-U.S. markets. On May 1, 1995, Registrant acquired the Taiwan
Peitz Company, Ltd., a water, paper process and refinery process treatment
business. The company, which has been a licensee of Registrant's products
since 1974, was renamed Betz Taiwan, Ltd. On November 7, 1995, Registrant
acquired the Misan Group, an industrial water and paper process company with
headquarters in Naples, Italy and subsidiaries in Spain and Portugal.
The operating results of Betz Taiwan, Ltd and the Misan Group have
been included in the consolidated statement of operations since the dates of
acquisition. The pro forma consolidation of the results of operations, as if
the acquisitions had taken place at the beginning of fiscal year 1994, would
not have been materially different from the reported amounts for fiscal years
1994 and 1995.
Marketing
During 1995, the Registrant substantially completed its globalization
initiatives around three technology-based marketing units: Betz Water Manage-
ment Group, Betz PaperChem and Betz Process Chemicals. These units are now
responsible for sales, marketing and research efforts worldwide, assisted by a
centralized corporate support services organization.
Betz Water Management Group markets all of Registrant's water and
wastewater technology worldwide. This unit provides 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. Betz Water
Management Group accounts for 62.0% of Registrant's 1995 worldwide sales.
Betz PaperChem serves the global pulp and paper industry. This unit
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
technology. Betz PaperChem accounts for 24.1% of Registrant's worldwide 1995
sales.
Betz Process Chemicals develops specific products used in process
streams in the worldwide 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 Process Chemicals accounts for 10.7% of Registrant's
1995 worldwide sales.
In addition to these three global units, the Betz MetChem Division is
a U.S. marketing unit which 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. Betz MetChem accounts for 3.2% of Registrant's worldwide
1995 sales.
Technical sales representatives working in each of the Registrant's
core technology 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's sales representatives
may draw upon technical support and application management tools such as
computerized condensate modeling programs, Action Alert [registered trademark]
statistical process control software or laptop-based Application Atlas
[registered trademark] account management tools. Worldwide, Registrant has
approximately 1,537 District Regional Managers, District Managers and technical
sales representatives selling and servicing its chemical technologies.
Registrant's worldwide sales of specialty chemicals and the above related
products during 1995 amounted to $752,453,000, as compared to $708,286,000 in
1994 and $684,872,000 in 1993, and in each case constituted 100% of
Registrant's consolidated net sales. Consolidated net earnings for 1995 were
$68,297,000, as compared to $73,171,000 in 1994 and $65,520,000 in 1993.
Non U.S. Operations
Registrant's international activities outside the U.S. are conducted
through subsidiaries operating in twenty-one foreign locations. Betz
International, Inc., a wholly-owned U.S. subsidiary of Registrant holds
substantially all of the stock in Registrant's Singapore, Australian,
Korean, Venezuelan, Indian, Malaysian, Taiwanese and Thai 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 U.S. subsidiary of Registrant, holds directly or
indirectly all of the stock in Registrant's Belgian, Austrian, German,
Finnish, Swedish, French, Italian, Spanish, Portuguese 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 non-U.S. operations are
presently subject to a materially greater risk than its U.S. operations,
Registrant's non-U.S. 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 these 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 non-
U.S. markets during 1995 accounted for approximately $207,411,000 or 27.6% of
Registrant's consolidated net sales as compared to $170,400,000 (24.1%) in 1994
and $153,592,000 (22.4%) in 1993. Of these amounts, direct exports by Betz
International from the United States to foreign markets accounted for
approximately $10,841,000 or 1.4% of Registrant's consolidated net sales in
1995, as compared to $13,629,000 (1.9%) in 1994 and $11,981,000 (1.7%) in 1993.
Excluding products and services exported directly by Betz Inter-
national, sales for 1995 by non-U.S. subsidiaries were approximately
$196,571,000 or 26.1% of the Registrant's consolidated net sales. Non-U.S.
subsidiary sales in 1994 and 1993 and their percentage of Registrant's
consolidated net sales were $156,771,000 (22.1%) and $141,611,000 (20.7%),
respectively. The operating earnings of Registrant's non-U.S. subsidiaries
in 1995 were $31,418,000 or 4.2% of Registrant's consolidated net sales as
compared to $22,701,000 (3.2%) in 1994 and $18,988,000 (2.8%) in 1993.
Approximately $395,660,000 or 62.8% of Registrant's identifiable
assets are attributable to its domestic operations and $234,808,000 or 37.2%
are attributable to its foreign operations.
Production and Distribution
Many of Registrant's products are produced at more than one of the
twenty-five (25) 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 significant 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 estimates that expenditures for research and development during
1995 amounted to approximately $32,153,000 as compared with approximately
$29,818,000 during 1994 and $28,732,000 during 1993. All of these activities
were sponsored and paid for by the Registrant. Such activities were carried
out in 1995 by approximately 496 professional and technical employees as
compared with approximately 508 and 492 professional and technical employees
in 1994 and 1993, 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. Addition-
ally, 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 1995
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.
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 these
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 U.S. or non-U.S.
business. (See "Pending Legal Proceedings", page 11.)
<TABLE>
Item 2 - PROPERTIES
The Registrant's principal facilities are at the following locations:
U.S. Facilities
<S> <C> <C> <C>
Square
Owned Footage
or of
Location Leased Facility General Character
- -----------------------------------------------------------------------------------
Bakersfield, California Owned 55,000 Office, Plant and
Warehouse
Compton, California1 Owned 36,600 Plant and Warehouse
Long Beach, California Owned 13,000 Office
Jacksonville, Florida Owned 117,000 Office and Laboratory
Macon, Georgia Owned 71,000 Plant and Warehouse
Addison, Illinois Owned 87,800 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 126,000 Office and Limited
Production
Horsham, Pennsylvania Owned 100,000 Office
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
South Houston, Texas Owned 10,000 Sales Office
Washougal, Washington Owned 46,000 Plant and Warehouse
Cheyenne, Wyoming1 Owned 35,800 Plant and Warehouse
Non-U.S. 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 61,000 Plant, Warehouse and
Laboratory
Pointe Claire, Quebec, Canada Owned 90,000 Office and Plant
Kanata, Ontario, Canada Owned 43,000 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 26,000 Office and Laboratory
Willich, Germany Owned 15,000 Office and Laboratory
Ferentino, Italy Owned 35,721 Office, Plant and
Laboratory
Qualiano, Italy Owned 25,300 Office, Plant and
Laboratory
Rome, Italy Owned 18,200 Office
Iri, Korea Owned 22,700 Office, Plant
and Laboratory
Singapore2 Owned/ 26,320 Office, Plant,
Lease Warehouse and
Laboratory
Catellbiabal, Spain Owned 12,600 Office, Plant
and Warehouse
Taipei, Taiwan Owned 33,200 Office, Plant,
Warehouse and
Laboratory
</TABLE>
The Registrant believes that the present production capacity of its
plants is adequate to meet its present and reasonably anticipated worldwide
needs.
In addition to owned facilities, the Registrant leases numerous of-
fice 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.
1 Location will be closed in 1996. See Note 8 - Provision for
restructuring in notes to Consolidated Financial Statements.
2 In accordance with local law and custom, Registrant owns the Singa-
pore 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.
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. It is
estimated that Registrant's future allocation will be approximately $180,000
payable over the next six to eight 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 Registrant is participating with other
defendants to develop an allocation plan to share site costs. If remedial
costs exceed $100 million, the Registrant's allocation may exceed $100,000;
however, such allocation is speculative and most likely would not materially
affect the Registrant's financial condition or results of operations.
Presently, no final allocation of costs has been determined among the PRPs,
and the Registrant's ultimate final 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. The Registrant has reached a settlement of this matter
under which it will resolve its alleged liability by paying a percentage of
costs associated with remediating the site. Pursuant to present estimates,
the Registrant's share will be approximately $440,000 payable over a period
of three to six years. Such allocation will 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.
The Registrant is a defendant in the case of Danny Aguayo, et al. v.
Betz Laboratories, Inc., et al. commenced September, 1995 in the Superior
Court of California, County of Los Angeles. Plaintiffs herein also seek
money damages for alleged exposure to chromate based products sold by
Registrant to PG&E for use in cooling towers between 1952 to 1966.
Plaintiffs allege exposure arising out of the release of such products
into groundwater and out of the customary use of chromate based products.
Registrant denies any legal liability to plaintiffs. Registrant also
believes that adequate insurance coverage exists which would make recovery
of damages, if any, by plaintiffs unlikely to materially affect 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 12 to the Consolidated Financial Statements, "Quarterly Financial
Information (Unaudited)", under the captions "Cash Dividends Declared Per
Common Share" and "Common Stock Market Prices" on page 27 of Registrant's
1995 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 1995 Annual Report to its Shareholders: For Fiscal
Years 1991 through 1995, 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".
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 1995 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 16 through 27, both inclusive, of Registrant's
1995 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 1996 Annual Meeting of Shareholders, as filed
with the Securities and Exchange Commission on or about March 8, 1996.
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 9 through 16, both
inclusive, of Registrant's definitive proxy statement to be used in
connection with Registrant's 1996 Annual Meeting of Shareholders, as filed
with the Securities and Exchange Commission on or about March 8, 1996.
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 7 and 8 of
Registrant's definitive proxy statement to be used in connection with
Registrant's 1996 Annual Meeting of Shareholders, as filed with the
Securities and Exchange Commission on or about March 8, 1996.
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, 1995, are
incorporated by reference in Item 8:
Annual
Report
Page(s)
Report of ERNST & YOUNG LLP, Independent Auditors . . . . 16
Consolidated Statements of Operations--Years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . 17
Consolidated Balance Sheets--December 31, 1995 and 1994 . 18-19
Consolidated Statements of Cash Flows--Years
ended December 31, 1995, 1994 and 1993 . . . . . . . . . 20
Consolidated Statements of Common Shareholders' Equity--
Years ended December 31, 1995, 1994 and 1993 . . . . . . 21
Notes to Consolidated Financial Statements . . . . . . . . 22-27
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 account-
ing regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
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");
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 1995 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].
21 Subsidiaries of Registrant . . . . . . . . . . . . 57
23 Consent of Independent Auditors. . . . . . . . . . 58
27 Financial Data Schedule. . . . . . . . . . . . . . 59
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, 1995
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------
COL. A COL. B. COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------
DESCRIPTION BALANCE AT BEGINNING (1) (2)
OF PERIOD CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS -- BALANCE AT END
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, 1995 $2,693 $434 $122 (B) $363 (A) $2,886
====== ====== ====== ====== ======
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
====== ====== ====== ====== ======
(A) Principally accounts written off.
(B) Acquisition of The Misan Group.
</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 29, 1996
-------------------------------
William R. Cook,
President and
Chief Executive Officer
By: s/ George L. James, III Date: March 29, 1996
-------------------------------
George L. James, III
Vice President,
Chief Financial Officer
and Treasurer
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 29, 1996
-------------------------------
John F. McCaughan,
Director
By: s/ John W. Boyer, Jr. Date: March 29, 1996
-------------------------------
John W. Boyer, Jr.,
Director
By: s/ Patrick F. Brennan Date: March 29, 1996
-------------------------------
Patrick F. Brennan,
Director
By: s/ Carolyn S. Burger Date: March 29, 1996
-------------------------------
Carolyn S. Burger
Director
By: s/ George A. Butler Date: March 29, 1996
-------------------------------
George A. Butler,
Director
By: s/ William R. Cook Date: March 29, 1996
-------------------------------
William R. Cook,
Director
By: s/ Alan R. Hirsig Date: March 29, 1996
-------------------------------
Alan R. Hirsig
Director
By: s/ John A. Miller Date: March 29, 1996
-------------------------------
John A. Miller,
Director
By: s/ John Quarles Date: March 29, 1996
-------------------------------
John Quarles,
Director
By: s/ John A. H. Shober Date: March 29, 1996
-------------------------------
John A. H. Shober,
Director
By: s/ Geoffrey Stengle, Jr. Date: March 29, 1996
-------------------------------
Geoffrey Stengel, Jr.,
Director
By: s/ Robert L. Yohe Date: March 29, 1996
-------------------------------
Robert L. Yohe,
Director
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, 1995 and 1994, 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, 1995.
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, 1995 and 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, 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 30, 1996
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Betz Laboratories, Inc.
- ----------------------------------------------------------------------------------------------------
Year Ended December 31
------------------------------------
(In thousands, except per share amounts) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $752,453 $708,286 $684,872
Operating Costs and Expenses:
Cost of products sold 273,712 252,514 237,530
Selling, research and administrative expenses 353,163 338,267 329,860
Provision for restructuring 15,606 -- 16,196
---------- ---------- ----------
642,481 590,781 583,586
---------- ---------- ----------
OPERATING EARNINGS 109,972 117,505 101,286
Other Income (Expense):
Investment and other income 2,719 3,617 2,927
Interest expense (1,124) (178) (143)
---------- ---------- ----------
1,595 3,439 2,784
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 111,567 120,944 104,070
Income Taxes 43,270 47,773 40,691
---------- ---------- ----------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 68,297 73,171 63,379
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 $68,297 $73,171 $65,520
========== ========== ==========
Primary earnings per Common Share:
Before cumulative effect of accounting changes $2.27 $2.43 $2.05
Accounting changes -- -- .07
---------- ---------- ----------
Primary earnings per Common Share $2.27 $2.43 $2.12
========== ========== ==========
Fully diluted earnings per Common Share:
Before cumulative effect of accounting changes $2.16 $2.30 $1.95
Accounting changes -- -- .07
---------- ---------- ----------
Fully diluted earnings per Common Share $2.16 $2.30 $2.02
========== ========== ==========
Average number of Common Shares:
Primary 27,889 28,108 28,576
========== ========== ==========
Fully diluted 30,651 30,885 31,331
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Betz Laboratories, Inc.
- ----------------------------------------------------------------------------------------
December 31
----------------------
(Dollars in thousands, except per share amounts) 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $13,919 $43,926
Trade accounts receivable, less allowances:
1995 -- $2,886; 1994 -- $2,693 146,404 121,660
Inventories:
Finished products and goods purchased for resale 25,675 19,491
Raw materials 25,608 20,133
---------- ----------
51,283 39,624
Prepaid expenses and other 40,535 24,666
---------- ----------
TOTAL CURRENT ASSETS 252,141 229,876
PROPERTY, PLANT AND EQUIPMENT -- at cost
Buildings 190,308 172,833
Machinery and equipment 439,764 396,074
Allowance for depreciation (336,578) (291,588)
---------- ----------
293,494 277,319
Land 27,792 22,056
Construction in progress
(estimated cost to complete -- $27,391) 12,528 9,573
---------- ----------
333,814 308,948
OTHER ASSETS
Investments and other 13,037 10,256
Intangibles -- at cost, less amortization:
1995 -- $3,544; 1994 -- $2,855 31,476 6,418
---------- ----------
44,513 16,674
---------- ----------
$630,468 $555,498
========= =========
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
December 31
---------- ----------
1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $39,220 $29,654
Payroll and related taxes 26,681 24,010
Notes payable 18,488 1,086
Accrued expenses 35,971 20,305
Income taxes 13,244 12,587
Dividends payable 10,232 10,031
Current portion of ESOP debt 1,000 1,000
---------- ----------
TOTAL CURRENT LIABILITIES 144,836 98,673
ESOP DEBT -- less portion classified as current 95,500 96,500
LONG-TERM LIABILITIES
Income taxes 20,475 20,765
Employee benefit plans 19,451 13,198
Other 7,207 2,404
---------- ----------
47,133 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 -- 487,903 shares; 1994 -- 492,167 shares 97,581 98,433
Guarantee of related ESOP debt (91,406) (92,834)
---------- ----------
6,175 5,599
Common Shareholders' Equity:
Common Shares -- Authorized -- 90,000,000 shares, $.10
par value; Issued (including treasury shares):
1995 -- 33,643,981 shares; 1994 -- 33,649,527 shares 3,364 3,365
Capital in excess of par value of shares 82,613 81,802
Retained earnings 446,111 423,519
Cost of Common Shares in treasury:
1995 -- 5,990,825 shares; 1994 -- 5,784,899 shares (198,157) (187,523)
Unearned compensation (3,327) (5,521)
Foreign currency translation adjustments 6,220 2,717
---------- ----------
COMMON SHAREHOLDERS' EQUITY 336,824 318,359
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 342,999 323,958
---------- ----------
$630,468 $555,498
========== ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Betz Laboratories, Inc.
- -------------------------------------------------------------------------------------------------------
Year Ended December 31
-----------------------------------
(In thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S>
OPERATING ACTIVITIES <C> <C> <C>
Net earnings $68,297 $73,171 $65,520
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 49,216 45,111 42,083
Compensation and employee benefit plans 10,491 8,554 4,707
Income taxes (147) 1,588 2,575
Provision for restructuring 15,606 -- 16,196
Cumulative effect of accounting changes -- -- (2,141)
Other, net (580) (1,112) (745)
Changes in operating assets and liabilities,
net of business combinations:
Accounts receivable (13,019) (18,778) 3,192
Inventories (8,019) (2,318) (2,959)
Prepaid expenses and other (10,039) 282 (2,590)
Accounts payable and accrued expenses (2,110) 7,801 (5,665)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 109,696 114,299 120,173
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (64,073) (55,024) (63,212)
Proceeds from sales of long-term assets 2,028 9,081 11,718
Purchases of businesses and long-term investments (34,638) (3,494) --
Other, net (647) (1,645) (258)
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (97,330) (51,082) (51,752)
FINANCING ACTIVITIES
Dividends paid (48,367) (47,480) (47,206)
Proceeds from issuance of Common Shares,
including treasury shares 1,028 3,064 1,955
Purchase of treasury shares (12,619) (19,995) (22,432)
Principal payments on ESOP debt (1,000) (500) (500)
Retirement of ESOP preferred shares -- (516) (370)
Net short-term borrowings 17,402 -- --
---------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (43,556) (65,427) (68,553)
Effect of exchange rate changes on cash 1,183 2,215 (2,310)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (30,007) 5 (2,442)
Cash and Cash Equivalents at Beginning of Year 43,926 43,921 46,363
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $13,919 $43,926 $43,921
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Betz Laboratories, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Capital in
Number of Shares Excess of
Common Treasury Common Par Value
(Dollars in thousands, except per share amounts) Shares Shares Shares of Shares
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 33,666,491 5,146,082 $3,367 $75,524
Net earnings
Dividends on preferred shares ($16.00 per share)
Tax benefit on preferred shares
Dividends on common shares ($1.39 per share)
Reacquired common shares 505,200
Reissue of treasury shares to stock plans (123,972) 1,013
Shares cancelled through stock plans (11,776) (2)
Tax benefits related to stock plans 2,130
Stock grants expensed
Currency translation adjustments
---------- ---------- ---------- ----------
Balance at December 31, 1993 33,654,715 5,527,310 3,365 78,667
Net earnings
Dividends on preferred shares ($16.00 per share)
Tax benefit on preferred shares
Dividends on common shares ($1.43 per share)
Reacquired common shares 400,000
Reissue of treasury shares to stock plans (142,411) 1,359
Shares cancelled through stock plans (5,188) (230)
Tax benefits related to stock plans 2,006
Stock grants expensed
Currency translation adjustments
---------- ---------- ---------- ----------
Balance at December 31, 1994 33,649,527 5,784,899 3,365 81,802
Net earnings
Dividends on preferred shares ($16.00 per share)
Tax benefit on preferred shares
Dividends on common shares ($1.47 per share)
Reacquired common shares 300,000
Reissue of treasury shares to stock plans (94,074) 771
Shares cancelled through stock plans (5,546) (1) (290)
Tax benefits related to stock plans 330
Stock grants expensed
Currency translation adjustments
---------- ---------- ---------- ----------
Balance at December 31, 1995 33,643,981 5,990,825 $3,364 $82,613
========== ========= ========== ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
Betz Laboratories, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Foreign
Unearned Currency
Retained Treasury Compen- Translation
(Dollars in thousands, except per share amounts) Earnings Shares sation Adjustments
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $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 (22,432)
Reissue of treasury shares to stock plans 2,540 (2,231)
Shares cancelled through stock plans
Tax benefits related to stock plans
Stock grants expensed 3,969
Currency translation adjustments (6,087)
---------- ---------- ---------- ----------
Balance at December 31, 1993 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 (19,995)
Reissue of treasury shares to stock plans 2,914 (928)
Shares cancelled through stock plans 230
Tax benefits related to stock plans
Stock grants expensed 2,950
Currency translation adjustments 7,041
---------- ---------- ---------- ----------
Balance at December 31, 1994 423,519 (187,523) (5,521) 2,717
Net earnings 68,297
Dividends on preferred shares ($16.00 per share) (7,840)
Tax benefit on preferred shares 2,871
Dividends on common shares ($1.47 per share) (40,727)
Reacquired common shares (12,619)
Reissue of treasury shares to stock plans 1,985 (836)
Shares cancelled through stock plans 290
Tax benefits related to stock plans
Stock grants expensed 2,740
Currency translation adjustments (9) 3,503
---------- ---------- ---------- ----------
Balance at December 31, 1995 $446,111 $(198,157) $(3,327) $6,220
========== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Betz Laboratories, Inc.
- ------------------------------------------------------------------------------
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company 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. The Company produces and markets a wide range of specialty
chemical products. 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. The Company monitors changing
water, process and plant operating conditions so as to prescribe the
appropriate treatment programs to solve problems such as corrosion, scale, de-
posit formation and a variety of process problems. Operations are conducted
primarily in the United States, Canada and Europe, and also in Asia-Pacific
and Latin America.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
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. The Company follows the practice of using a November 30 fiscal
year for all non-U.S. 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, 1995.
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 $11,201,000 and $10,681,000
higher than reported at December 31, 1995 and December 31, 1994, 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, 1995, 1994 and 1993 is
$48,528,000, $44,769,000 and $41,758,000, 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, which does not exceed fair value.
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. The
Company purchases foreign currency forward contracts to minimize the effect of
fluctuating foreign currencies on its cash flow and current unremitted income
from certain of its foreign subsidiaries. The forward contracts generally are
marked to market and resulting adjustments are recorded directly in income.
These adjustments had no material impact on the results of operations for
1995, 1994 and 1993.
Research and Development - Research and development costs ($32,153,000
in 1995, $29,818,000 in 1994 and $28,732,000 in 1993) 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 plus the dilutive effect of stock options 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.
Impact of Accounting Pronouncements - In March 1995, the FASB issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. The Company will adopt Statement 121 in the first quarter of
1996 and, based on current circumstances, does not believe the effect of
adoption will be material.
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock Based Compensation," (FAS 123) is effective for fiscal years beginning
after December 15, 1995. FAS 123 provides companies with a choice to follow
the provisions of FAS 123 in determining stock based compensation expense or
to continue with the provisions of APB 25, "Accounting for Stock Issued to
Employees." The Company will continue to follow APB 25 and will provide the
pro forma disclosures as required by FAS 123 in the December 31, 1996 notes to
the consolidated financial statements.
Reclassifications - Certain amounts in the financial statements for the
year ended December 31, 1994 have been reclassified to conform with 1995
classifications.
<TABLE>
<CAPTION>
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." The
cumulative effect of adopting Statement 109 as of January 1, 1993 was to
increase net income by $3,600,000.
The components of earnings before income taxes and cumulative effect of
accounting changes consists of the following (in thousands):
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U.S. $ 75,564 $ 90,613 $ 75,232
Non-U.S. 36,003 30,331 28,838
------- ------- -------
$111,567 $120,944 $104,070
======== ======== ========
The provision for income taxes consists of the following (in thousands):
1995 1994 1993
---- ---- ----
Current:
<S> <C> <C> <C>
Federal 31,780 34,837 28,879
State 4,412 4,291 5,505
Foreign 10,427 10,222 9,894
------- ------- -------
Total Current 46,619 49,350 44,278
Deferred:
Federal (4,661) (1,924) (2,507)
State (1,039) (145) (532)
Foreign 2,351 492 (548)
------ ------ ------
Total Deferred (3,349) (1,577) (3,587)
------ ------ ------
Total Taxes $43,270 $47,773 $40,691
======= ======= =======
A reconciliation of the effective income tax rate with the statutory
federal income tax rate is as follows:
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
State and local taxes, net of
federal income taxes 2.0 2.3 3.2
Other items 1.8 2.2 0.9
---- ---- ----
Effective income tax rate 38.8% 39.5% 39.1%
===== ===== =====
Deferred income taxes reflect the estimated future tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows (in thousands):
1995 1994
---- ----
Deferred Tax Assets:
<S> <C> <C>
Stock and benefit plans $10,597 $8,400
Nondeductible expenses 11,029 5,221
Other 3,851 2,981
------ ------
Total Deferred Tax Assets 25,477 16,602
Deferred Tax Liabilities:
Tax over book depreciation (32,482) (28,635)
Other (522) (704)
------- -------
Total Deferred Tax Liabilities (33,004) (29,339)
------- -------
Net Deferred Tax Liabilities $(7,527) $(12,737)
======= =======
In 1995 and 1994, prepaid expenses and other includes deferred tax assets
of $12,948,000 and $7,683,000, respectively. At December 31, 1994, investments
and other includes deferred tax assets of $345,000. The balance of $20,475,000
and $20,765,000 is included in long-term liabilities - income taxes on the
balance sheet.
The Company made income tax payments of $46,000,000, $39,299,000 and
$43,087,000 for the years 1995, 1994 and 1993, respectively.
The Company has not provided United States income taxes on $84,553,000 of
unremitted earnings of foreign subsidiaries because management views such
earnings as being indefinitely invested.
</TABLE>
<TABLE>
<CAPTION>
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, 1995, the Company refined the termination,
retirement and salary scale assumptions to better reflect actual experience.
The new salary scale assumption is graded by age with an underlying inflation
assumption. The underlying inflation assumption for the salary scale was
changed to 4% from 5% in 1994 and 1993. The 1994 and 1993 salary scale was not
graded and assumed a constant rate of increase over the employees' years of
service. These changes contributed to the reduction of the Company's 1995 net
periodic pension expense.
Other assumptions used to develop the Company's net periodic pension
expense and the actuarial present value of the benefit obligations are as
follows:
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.0% 8.5% 7.25%
Long-term rate of return on plan assets 9.25% 9.25% 9.5%
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 cumulative effect on years prior to 1993 was $1,241,000 (net
of taxes of $780,000), or $.04 per share, which was a one-time, noncash
increase in net income for 1993.
Net periodic pension expense (excluding the 1993 cumulative effect of the
accounting change) for the Company's defined benefit plans consists of the
following (in thousands):
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost $ 6,841 $ 9,070 $ 6,262
Interest cost 12,983 12,558 10,907
Return on plan assets (33,293) (12,327) (11,469)
Net amortization and deferral 20,534 623 1,477
------- ------ -------
Net periodic pension expense $ 7,065 $ 9,924 $ 7,177
======= ======= =======
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):
1995 1994
---- ----
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested benefits $(154,059) $(113,075)
Nonvested benefits (9,080) (6,419)
-------- --------
Accumulated benefit obligation (163,139) (119,494)
Effect of projected future salary increases (28,911) (42,262)
-------- --------
Projected benefit obligation (192,050) (161,756)
Plan assets at fair value 175,843 140,580
-------- --------
Projected benefit obligation in excess of plan asset (16,207) (21,176)
Unrecognized net loss (gain) (3,569) 8,389
Unrecognized prior service cost 7,008 6,244
Other 800 614
------ ------
Net pension liability included in the balance sheet $ (11,968) $ (5,929)
========= ========
</TABLE>
<TABLE>
<CAPTION>
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.
The Company's areas of operation outside of the United States and Europe
principally include Canada, Latin America and Asia-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
1995 States Europe Foreign Consolidated
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $555,882 $111,594 $84,977 $752,453
Operating earnings 78,554 15,225 16,193 109,972
Identifiable assets 395,660 142,676 92,132 630,468
=============================================================================
1994
- -----------------------------------------------------------------------------
Net sales $551,515 $ 94,250 $62,521 $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
=============================================================================
United States identifiable assets include $800,000, $27,000,000 and
$32,100,000 of cash and cash equivalents, marketable securities and other
investments at December 31, 1995, 1994 and 1993, respectively. These assets are
available for general corporate purposes.
Direct export sales of $10,841,000, $13,629,000 and $11,981,000 for the
years 1995, 1994 and 1993, respectively, are included in United States net
sales.
</TABLE>
<TABLE>
<CAPTION>
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
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1993 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
Granted 967,688 39.25 - 45.875
Cancelled (46,004) 43.625 - 60.50
Exercised (47,730) 17.375 - 37.25
---------
Outstanding at December 31, 1995 3,438,223 $20.125 - $60.50
=========
Exercisable at December 31, 1995 2,660,732
=========
At December 31, 1995, the Company had remaining an aggregate of 4,418,319
Common Shares reserved for issuance under its Stock Option Plans.
Incentive Plan - The Employee Stock Incentive Plan provides that up to
2,500,000 shares of common stock may be granted to April 13, 2005, at the
discretion of the Board of Directors, to key employees and non-employee
Directors at no cost to the employees or Directors. The Company granted 20,658,
20,098 and 48,504 shares during 1995, 1994 and 1993, 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.
At December 31, 1995, the Company had remaining an aggregate of 627,048
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.
</TABLE>
<TABLE>
<CAPTION>
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 U.S. 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 2,758,000 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 $1,397,000 in 1995,
$1,365,000 in 1994 and $1,411,000 in 1993.
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
1995, 4,264 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:
1995 1994
---- ----
<S> <C> <C>
Allocated 109,512 102,884
Unallocated 378,391 389,283
------- -------
Total shares held by ESOP 487,903 492,167
======= =======
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):
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
ESOP expense $ 9,263 $ 9,163 $ 9,210
Preferred dividends (charged to
retained earnings) (7,840) (7,905) (7,947)
------- ------- ------
ESOP expense charged to earnings $ 1,423 $ 1,258 $ 1,263
======= ======= =======
ESOP debt interest expense at 8.08% $ 7,835 $ 7,897 $ 7,937
======= ======= =======
ESOP contributions $ 8,838 $ 8,398 $ 8,441
======= ======= =======
</TABLE>
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
re-quirements, an adjustment is made to the shareholders' equity reduction to
reflect the cumulative effect of the excess charges ($8,594,000, $7,166,000 and
$5,899,000 in 1995, 1994 and 1993, respectively).
The ESOP debt matures on June 19, 2009 and requires principal payments as
follows: in each of the years 1996-2000 -- $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 $104,000,000, 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 $1,652,000, $1,263,000 and $1,331,000 for the years
1995, 1994 and 1993, respectively. Capitalized interest amounted to $528,000,
$1,085,000 and $1,188,000 in 1995, 1994 and 1993, respectively.
7 LONG-TERM LEASES
Total rental expense for all leases amounted to $14,861,000 in 1995,
$13,971,000 in 1994 and $13,270,000 in 1993. The future rental commitments,
primarily for automobiles, as of December 31, 1995 for all noncancelable leases
are: 1996 -- $8,578,000, 1997 -- $3,952,000, 1998 -- $1,152,000, 1999 --
$165,000, 2000 -- $161,000 and $1,048,000 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 prospectively 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
restructuring costs. The $16,196,000 provision was sufficient to complete this
restructuring plan during 1994 and 1995.
The $15,606,000 provision for restructuring recorded in 1995 is for a
further series of actions to reduce operating costs. These actions are expected
to be substantially complete by the end of 1996 and include personnel
reductions, office consolidations and asset dispositions, including the
shutdown of two blending plants in Compton, California, and Cheyenne, Wyoming.
The provision includes $7,760,000 for the writedown associated with the
closure of the two blending plants and other planned asset dispositions. The
$7,846,000 remaining provision is primarily for employee termination benefits
covering approximately 150 technical, production, administrative and support
employees located primarily in the U.S. At December 31, 1995, $7,507,000 of
accrued restructuring costs are included in accrued expenses.
<TABLE>
<CAPTION>
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. 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:
The accumulated postretirement benefit obligation, which is unfunded,
follows (in thousands):
1995 1994
---- ----
<S> <C> <C>
Retirees $(1,730) $(1,186)
Active plan participants (8,171) (7,499)
------ ------
Accumulated postretirement benefit obligation (9,901) (8,685)
Unrecognized net loss 3,563 2,647
Unrecognized prior service cost 231 249
----- -----
Postretirement benefit liability included in balance sheet $(6,107) $(5,789)
======= =======
The components of net periodic postretirement benefit cost follow
(in thousands):
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost $ 403 $ 543 $ 180
Interest cost on accumulated benefit obligation 579 547 320
Net amortization and other 98 191 --
------ ------ -----
Net periodic postretirement benefit costs $1,080 $1,281 $ 500
====== ====== =====
</TABLE>
Effective January 1, 1994, the medical trend assumption was changed from
13% in 1993 grading down to 6% by .5% per year to 11% 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 $1,193,000.
The discount rate used to determine the accumulated postretirement benefit
obligation was decreased from 8.5% at December 31, 1994 to 7.0% at December 31,
1995. The discount rate used at December 31, 1993 was 7.25%.
10 NOTES PAYABLE
Notes payable at December 31, 1995 primarily consisted of $17,000,000
borrowed at 6.17% under the terms of a $20,000,000 unsecured line of credit
with a U.S. commercial bank expiring on June 30, 1997.
11 ACQUISITIONS
During 1995, the Company acquired two businesses to continue its
expansion in non-U.S. markets. On May 1, 1995, the Company acquired Taiwan
Peitz Company, Ltd., a water, paper process and refinery process treatment
business. Taiwan Peitz Company, Ltd., which had been a licensee of the
Company's products since 1974, was renamed Betz Taiwan, Ltd. On November 7,
1995, the Company acquired the Misan Group, an industrial water, paper process
and fuel oil treatment company with headquarters in Naples, Italy and
subsidiaries in Spain and Portugal.
The above acquisitions have been accounted for using the purchase method
of accounting and, accordingly, the purchase price has been allocated to the
assets purchased and liabilities assumed based upon the fair values at the
dates of acquisition. The combined purchase price for the acquisitions was
$43,400,000, consisting of $32,500,000 in cash and $7,300,000 to be paid in
1996 and $3,600,000 payable in 1997, which are included in the December 31,
1995 balance sheet in accrued expenses and other long-term liabilities,
respectively. The excess of the purchase price over the fair value of the net
assets acquired was approximately $25,000,000, which will be amortized on a
straight-line basis over 40 years. The combined purchase price is subject to
change based on further analysis.
The operating results of these acquired businesses have been included in
the consolidated statements of operations since the dates of acquisition. The
pro forma consolidation of the results of operations, as if the acquisitions
had taken place at the beginning of fiscal 1994, would not have been materially
different from the reported amounts for fiscal 1994 and 1995.
<TABLE>
<CAPTION>
12 QUARTERLY FINANCIAL INFORMATION (unaudited)
The following is a summary of quarterly financial information for the years ended December 31,
1995 and 1994 (in thousands, except for per share data).
1995 Quarter Ended 1994 Quarter Ended
----------------------------------- -----------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $177,934 $188,896 $195,790 $189,833 $172,934 $179,701 $180,398 $175,253
Gross Profit 114,857 120,304 124,565 119,015 111,720 116,490 115,843 111,719
Provision for
Restructuring -- -- 1,322 14,284 -- -- -- --
Earnings Before
Income Taxes 30,725 32,711 33,394 14,737 30,860 31,496 31,750 26,838
Net Earnings 18,742 19,954 20,537 9,064 18,516 18,898 19,368 16,389
Net Earnings Per
Common Share:
Primary .63 .67 .69 .28 .61 .64 .65 .53
Fully Diluted .59 .64 .65 .28 .58 .60 .61 .51
Cash Dividends Declared
Per Common Share .36 .37 .37 .37 .35 .36 .36 .36
Common Stock Market
Prices:
High Price 46-5/8 45-5/8 46-3/8 41-5/8 53-5/8 50-3/8 48-1/2 50
Low Price 42-7/8 41-1/4 40-3/4 38-3/4 43-5/8 42-3/8 42-1/4 43-1/2
The common stock of the Company is traded on the New York Stock Exchange under the symbol BTL.
The approximate number of record holders of Common Shares as of February 9, 1996, was 3,444.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Betz Laboratories, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
Nineteen ninety-five was another year of significant change and progress.
The Company achieved record sales, remained focused on globalizing Betz, and
took actions to reduce costs.
For the year 1995, net sales increased $44.2 million from $708.3 million
in 1994 to a record level of $752.5 million. This 6% sales increase was
approximately comprised of a 4% volume-mix gain and a 1% increase from both
selling prices and from the effects of foreign currency fluctuations.
Current-year net earnings decreased 7% compared to 1994 totals from $73.2
million to $68.3 million. Fully diluted earnings per Common Share declined 6%
from $2.30 to $2.16. During 1995, the Company recorded a pretax restructuring
charge in the amount of $15.6 million. Without this restructuring charge, net
earnings would have been $77.9 million, an increase of 6% over 1994, and
equivalent to $2.47 fully diluted earnings per Common Share, a 7% increase over
last year.
In 1994, net sales increased 3% from 1993 (approximately comprised of a 4%
volume-mix gain and a decrease of 1% resulting from the sale of the Company's
oil field chemicals business in 1994). Earnings before the cumulative effect of
accounting changes increased 15% over the 1993 level. During 1993, the Company
recorded a pretax restructuring charge in the amount of $16.2 million. Without
this restructuring charge, 1994 earnings before the cumulative effect of
accounting changes would have been equal to the 1993 amount.
RESULTS OF OPERATIONS -- 1995 vs. 1994
The Company's 1995 results of operations affirm the strategic decision to
globalize to capture a larger share of non-U.S. markets. Non-U.S. sales
increased 22% from $170.4 million last year to the current year's level of
$207.4 million. Sales in the U.S. increased 1% from $537.9 million in 1994 to
$545.0 million in 1995. Export sales from the U.S. are included with non-U.S.
sales in the preceding and succeeding discussion and analysis (see Note 4 to
Consolidated Financial Statements for U.S. export sales).
Sales in Europe, Canada, the Asia-Pacific area and Latin America were 16%
higher in local currencies. The 1995 U.S./non-U.S. sales relationship is
72%/28%, respectively, compared to 76%/24% in 1994. The Company's goal is to
continue to increase its non-U.S. sales to at least 40% of sales by the year
2000.
Sales reported by the Company's European subsidiaries were 18% higher in
U.S. dollars and 9% higher in local currencies. Sales of paper process treatment
programs in Europe were up strongly over 1994, while water treatment programs
and refinery process treatment programs recorded solid gains.
To continue its expansion in the European markets, the Company, on
November 7, 1995, acquired 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. The Misan acquisition did not have a
material impact on the Company's 1995 results of operations since it was
acquired on November 7, 1995, and the fiscal year ended on November 30, 1995.
Betz Canada Inc. reported a local currency 1995 sales increase of 11%.
The Canadian operation posted strong increases in all three of the Company's
core product lines.
The Company's Asia-Pacific and Latin American subsidiaries also
experienced impressive sales growth for all three product lines and were 42%
higher than 1994 in U.S. dollars and 38% higher in local currencies. Sales in
the Asia-Pacific area benefited from the acquisition of Taiwan Peitz Company,
Ltd. on May 1, 1995. The sales increase, exclusive of this acquisition, would
have been approximately 20% in local currencies.
Taiwan Peitz Company, Ltd. is a water, paper process and refinery process
treatment business which had been a licensee of the Company's products since
1974. The new company, renamed Betz Taiwan, Ltd., provides the Company with
additional opportunities for growth in the Asia-Pacific region, particularly in
the paper and refinery process treatment businesses. The impact on the Company's
1995 results of operations was not material.
The current year's U.S. net sales, excluding the 1994 divestiture of Betz
Energy Chemicals, Inc., increased 2% from $533.8 million to $545.0 million.
Sales of water and wastewater treatment programs by the Betz Water
Management Group, the largest marketing unit, were flat when compared to 1994,
primarily due to the ongoing weakness in the hydrocarbon processing industry.
Sales of specialty process chemical treatment programs in the U.S. rose 5%
from the 1994 level of $182.8 million to $192.4 million in 1995. Betz PaperChem,
Inc., which markets the Company's line of specialty process chemicals to the
pulp and paper industry, reported a similar increase. Combined sales of
specialty refinery process treatment programs by Betz Process Chemicals, Inc.
and specialty process chemicals to the metals industry by the Betz MetChem
Division increased 6% over 1994.
The Company's gross profit margin decreased from 64.3% of net sales in the
prior year to 63.6% in 1995. This deterioration in the gross profit margin
percentage is primarily due to higher raw material costs and a less favorable
product mix.
Selling, research and administrative expenses increased from $338.3
million in 1994 to $353.2 million in 1995, but decreased as a percent of net
sales to 46.9% from 1994's 47.8%. Reductions in administrative expenses are the
principal cause of this decline which mainly resulted from restructuring actions
associated with the 1993 restructuring plan and continued cost controls. Selling
and research expenses, as a percent of sales, remained constant.
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
prospectively and reorganize the Company's marketing efforts on a global basis.
During 1995, the Company completed the 1993 restructuring plan. The $16.2
million provision was sufficient to complete all actions anticipated in the 1993
plan.
The $15.6 million provision for restructuring recorded in 1995 is for a
further series of actions to reduce operating costs. These include personnel
reductions, office consolidations and asset dispositions, including the shutdown
of two blending plants in Compton, California, and Cheyenne, Wyoming. The
majority of these actions are expected to be completed in 1996 and are
anticipated to yield annualized savings of approximately $10 million, which will
be fully realized by 1997. The provision includes $7.8 million for the writedown
associated with the closure of the two blending plants and the other asset
dispositions. The $7.8 million remaining provision is primarily for employee
termination benefits covering approximately 150 technical, production,
administrative and support employees located primarily in the U.S. No
significant components of this charge would have been recognized in absence of
these efforts. The restructuring obligation will be financed with available
operating cash flows and external financing resources.
The effective income tax rate decreased from 39.5% in 1994 to 38.8% in
1995, reflecting the tax benefits from tax planning initiatives.
RESULTS OF OPERATIONS -- 1994 vs. 1993
The Company's results of operations for 1994 reflected the early success
of globalization initiatives to capture a larger share of non-U.S. markets.
While U.S. sales increased 1% from $531.3 million in 1993 to $537.9 million,
non-U.S. sales increased 11% from $153.6 million to $170.4 million in 1994.
Sales in Europe were 10% higher than 1993 in local currencies with strong
results posted by the French, German and Scandinavian subsidiaries. Betz Canada
Inc. reported a local currency 1994 sales increase of 12%, 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 sold 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 1994 U.S. net sales, excluding Betz Energy Chemicals, Inc., increased
2% over the prior year from $520.9 million to $533.8 million. Sales of water and
wastewater treatment programs rose 2% with four of the five domestic Water
Management Divisions recording positive sales gains.
Sales of specialty process chemical treatment programs in the U.S. rose 3%
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 by Betz Process Chemicals, Inc. were essentially
unchanged from the prior year. ProChem's results reflected continuing cost
pressures within the refining industry. Betz MetChem Division reported double-
digit sales increases during 1994 of specialty process chemicals to the metals
industry.
The Company's gross profit margin decreased 1% from 65.3% of net sales in
the prior year to 64.3% in 1994. This deterioration in the gross profit margin
percentage was 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% compared to 1993's 48.2%. Reductions in
research and administrative expenses, resulting mainly from restructuring
actions, were partially offset by increases in selling and marketing expenses.
Selling expenses increased to support the higher sales level in 1994 and the
globalized marketing effort.
The effective income tax rate increased from 39.1% in 1993 to 39.5% in
1994, reflecting the provisions of the Omnibus Budget Reconciliation Act of 1993
which became effective in 1994.
LIQUIDITY AND SOURCES OF CAPITAL
Net cash provided from operating activities amounted to $109.7 million,
$114.3 million and $120.2 million for the years 1995, 1994 and 1993,
respectively. The decreases in cash provided from operations in 1995 and 1994
from the 1993 level are mainly the result of increases in the Company's accounts
receivable and inventory balances in 1994 and 1995, necessary to support the
increases in sales, especially in the non-U.S. business.
Net cash used in investing activities increased by $46.2 million in 1995
as compared to 1994. The Company used approximately $32.5 million for the
acquisition of Misan and Taiwan Peitz during 1995. This amount is included with
the purchases of businesses and long-term investments on the Consolidated
Statements of Cash Flows. The acquisitions were financed with a combination of
internal and external financing resources. The Company borrowed $17.0 million,
under the terms of a $20 million line of credit agreement with a U.S. bank, to
partially fund these acquisitions.
Capital expenditures for the year 1995 were $64.1 million, a $9.0 million
increase from 1994. Major projects in 1995 included improvements to the
Company's production facilities in Belgium and commencement of expansion of its
plant in Beaumont, Texas to increase the capacity for the Novus [registered
trademark] polymer line. The Company anticipates that capital expenditures
for 1996 will be approximately $80 million.
During 1995, the Company continued its program of treasury share purchases
by acquiring 300,000 shares at an approximate cost of $12.6 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.
Globalization of the Company's operations has increased its exposure to
foreign currency fluctuations. During 1995, the Company hedged a portion of 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
Statements of Operations. The Company expects to continue hedging activities in
the future to manage its foreign exchange risks through the use of forward
contracts and other global cash management techniques designed to hedge exchange
risks.
The Company reduced its discount rate assumption used to develop net
periodic pension expense from 8.5% at the end of 1994 to 7.0% at the end of 1995
in response to lower interest rates. This reduction is not expected to have a
material impact on future operating results and financial condition.
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 assessments for these sites would have a materially
adverse impact upon its financial position.
The Company anticipates that present cash and cash equivalents and net
cash provided from 1996 operating activities combined with other available
external financial resources will be sufficient to fund the Company's operating
and capital expenditure requirements, to meet its restructuring obligations, 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.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
Statement of Financial Accounting Standard No. 123, "Accounting for Stock
Based Compensation," (FAS 123) is effective for fiscal years beginning after
December 15, 1995. FAS 123 provides companies with a choice to follow the
provisions of FAS 123 in determining stock based compensation expense or to
continue with the provisions of APB 25, "Accounting for Stock Issued to
Employees." The Company will continue to follow APB 25 and will provide the
proforma disclosures as required by FAS 123 in the December 31, 1996 notes to
theconsolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF OPERATIONS
Betz Laboratories, Inc.
- ------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $752,453 $708,286 $684,872 $706,972
Operating Costs and Expenses:
Cost of products sold 273,712 252,514 237,530 241,396
Selling, research and administrative 353,163 338,267 329,860 334,312
expenses
Provision for restructuring 15,606 -- 16,196 --
---------- ---------- ---------- ----------
642,481 590,781 583,586 575,708
---------- ---------- ---------- ----------
Operating Earnings 109,972 117,505 101,286 131,264
Other Income (Expense):
Investment and other income 2,719 3,617 2,927 3,228
Interest expense (1,124) (178) (143) (321)
---------- ---------- ---------- ----------
1,595 3,439 2,784 2,907
---------- ---------- ---------- ----------
Earnings Before Income Taxes and
Cumulative Effect of Accounting Changes 111,567 120,944 104,070 134,171
Income Taxes 43,270 47,773 40,691 52,124
---------- ---------- ---------- ----------
Earnings Before Cumulative Effect of
Accounting Changes 68,297 73,171 63,379 82,047
Cumulative Effect of Accounting Changes -- -- 2,141 --
---------- ---------- ---------- ----------
Net Earnings $68,297 $73,171 $65,520 $82,047
========== ========== ========== ==========
Earnings per Common Share:
Primary -- before cumulative effect
of accounting changes $2.27 $2.43 $2.05 $2.71
Primary -- net earnings per Common Share $2.27 $2.43 $2.12 $2.71
Fully diluted -- before cumulative effect
of accounting changes $2.16 $2.30 $1.95 $2.58
Fully diluted -- net earnings per Common
Share $2.16 $2.30 $2.02 $2.58
Cash Dividends Declared per Common Share $1.47 $1.43 $1.39 $1.33
Average Number of Common Shares:
Primary 27,889 28,108 28,576 28,474
Fully diluted 30,651 30,885 31,331 31,221
KEY STATISTICS
As Reported in the Company's Annual Reports
Total assets $630,468 $555,498 $521,129 $510,617
Non-U.S. sales $207,411 $170,400 $153,592 $160,484
ESOP debt $96,500 $97,500 $98,000 $98,500
Sales per employee $183 $178 $166 $170
Receivables turnover 62 days 58 days 56 days 52 days
Ratio of net sales to inventory 14.7 17.9 18.3 20.2
Ratio of net sales to total assets 1.2 1.3 1.3 1.4
Return on average common equity 19.4% 22.3% 20.6% 28.0%
Return on sales 9.1% 10.3% 9.3% 11.6%
Sales growth 6.2% 3.4% (3.1%) 6.2%
Primary earnings per Common Share growth (6.6%) 14.6% (21.8%) 9.7%
Common dividends paid per share growth 2.8% 2.9% 6.2% 12.1%
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF OPERATIONS
Betz Laboratories, Inc.
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $665,565 $596,805 $516,669 $447,580
Operating Costs and Expenses:
Cost of products sold 233,238 214,385 191,782 166,867
Selling, research and administrative 313,290 278,304 237,426 204,738
expenses
Provision for restructuring -- -- -- --
---------- ---------- ---------- ----------
546,528 492,689 429,208 371,605
---------- ---------- ---------- ----------
Operating Earnings 119,037 104,116 87,461 75,975
Other Income (Expense):
Investment and other income 4,991 4,863 5,007 2,917
Interest expense (218) (1,580) (1,548) (89)
---------- ---------- ---------- ----------
4,773 3,283 3,459 2,828
---------- ---------- ---------- ----------
Earnings Before Income Taxes and
Cumulative Effect of Accounting Changes 123,810 107,399 90,920 78,803
Income Taxes 48,286 41,925 35,060 30,418
---------- ---------- ---------- ----------
Earnings Before Cumulative Effect of
Accounting Changes 75,524 65,474 55,860 48,385
Cumulative Effect of Accounting Changes -- -- -- --
---------- ---------- ---------- ----------
Net Earnings $75,524 $65,474 $55,860 $48,385
========== ========== ========== ==========
Earnings per Common Share:
Primary -- before cumulative effect
of accounting changes $2.47 $2.12 $1.76 $1.57
Primary -- net earnings per Common Share $2.47 $2.12 $1.76 $1.57
Fully diluted -- before cumulative effect
of accounting changes $2.36 $2.02 $1.72 --
Fully diluted -- net earnings per Common
Share $2.36 $2.02 $1.72 --
Cash Dividends Declared per Common Share $1.20 $1.045 $.915 $.82
Average Number of Common Shares:
Primary 28,547 28,512 30,224 30,747
Fully diluted 31,306 31,287 31,696 --
KEY STATISTICS
As Reported in the Company's Annual Reports
Total assets $475,844 $427,356 $369,226 $318,535
Non-U.S. sales $142,042 $121,833 $98,327 $85,463
ESOP debt $99,000 $99,500 $100,000 --
Sales per employee $167 $162 $151 $142
Receivables turnover 49 days 50 days 51 days 51 days
Ratio of net sales to inventory 18.6 15.5 16.4 12.9
Ratio of net sales to total assets 1.4 1.4 1.4 1.4
Return on average common equity 29.7% 30.1% 25.8% 22.2%
Return on sales 11.3% 11.0% 10.8% 10.8%
Sales growth 11.5% 15.5% 15.4% 16.0%
Primary earnings per Common Share growth 16.5% 20.5% 12.1% 21.7%
Common dividends paid per share growth 14.9% 13.5% 11.3% 9.6%
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF OPERATIONS
Betz Laboratories, Inc.
- -------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1987 1986 1985
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $385,868 $344,377 $319,381
Operating Costs and Expenses:
Cost of products sold 140,807 126,728 117,867
Selling, research and administrative 177,447 154,307 140,992
expenses
Provision for restructuring -- -- --
---------- ---------- ----------
318,254 281,035 258,859
---------- ---------- ----------
Operating Earnings 67,614 63,342 60,522
Other Income (Expense):
Investment and other income 3,049 3,506 4,446
Interest expense (124) (60) (104)
---------- ---------- ----------
2,925 3,446 4,342
---------- ---------- ----------
Earnings Before Income Taxes and
Cumulative Effect of Accounting Changes 70,539 66,788 64,864
Income Taxes 29,905 31,244 28,072
---------- ---------- ----------
Earnings Before Cumulative Effect of
Accounting Changes 40,634 35,544 36,792
Cumulative Effect of Accounting Changes -- -- --
---------- ---------- ----------
Net Earnings $40,634 $35,544 $36,792
========== ========== ==========
Earnings per Common Share:
Primary -- before cumulative effect
of accounting changes $1.29 $1.12 $1.17
Primary -- net earnings per Common Share $1.29 $1.12 $1.17
Fully diluted -- before cumulative effect
of accounting changes -- -- --
Fully diluted -- net earnings per Common
Share -- -- --
Cash Dividends Declared per Common Share $.745 $.69 $.645
Average Number of Common Shares:
Primary 31,403 31,814 31,516
Fully diluted -- -- --
KEY STATISTICS
As Reported in the Company's Annual Reports
Total assets $286,901 $269,617 $253,704
Non-U.S. sales $68,958 $56,330 $47,668
ESOP debt -- -- --
Sales per employee $136 $130 $126
Receivables turnover 49 days 49 days 49 days
Ratio of net sales to inventory 15.3 19.3 20.7
Ratio of net sales to total assets 1.3 1.3 1.3
Return on average common equity 19.9% 17.8% 20.1%
Return on sales 10.5% 10.3% 11.5%
Sales growth 12.0% 7.8% 5.1%
Primary earnings per Common Share growth 15.2% (4.3%) 0.9%
Common dividends paid per share growth 7.4% 7.9% 14.5%
</TABLE>
OFFICERS AND DIRECTORS AND SHAREHOLDERS' INFORMATION
Betz Laboratories, Inc.
- ------------------------------------------------------------------------------
DIRECTORS
John F. McCaughan
Chairman of the Board,
Betz Laboratories, Inc.
William R. Cook
President and Chief Executive Officer,
Betz Laboratories, Inc.
John W. Boyer, Jr.
Retired Chief Executive Officer,
Philadelphia Suburban Corporation
Patrick F. Brennan
President, Chief Executive Officer and
Chief Operating Officer, Consolidated
Papers, Inc.
Carolyn S. Burger
President and Chief Executive Officer,
Bell Atlantic-Delaware, Inc.
George A. Butler
Retired President, CoreStates
Financial Corp
Alan R. Hirsig
President and Chief Executive Officer,
ARCO Chemical Company
John A. Miller
Chairman, Executive Committee,
Provident Mutual Life Insurance
Company
John R. Quarles, Jr., Esq.
Partner, Morgan, Lewis & Bockius
John A. H. Shober
Vice Chairman, Penn Virginia
Corporation
Geoffrey Stengel, Jr.
President, Envirite Corporation
Robert L. Yohe
Retired Vice Chairman,
Olin Corporation
ADMINISTRATIVE COMMITTEE
William R. Cook, Chairman
John F. McCaughan
AUDIT COMMITTEE
George A. Butler, Chairman
John W. Boyer, Jr.
Patrick F. Brennan
John A. Miller
John R. Quarles, Jr.
John A. H. Shober
OFFICERS
John F. McCaughan
William R. Cook
Robert B. Allahand
June B. Barry
William C. Brafford
George G. Clark
Dwight P. Davis
Jeffrey R. Gaus
Richard A. Heberle
John L. Holland
Patrick M. Houston
George L. James, III
Frederick C. Klaessig
Ronald A. Kutsche
William F. Maguire
Andrew J. Miciotto
Andrew B. Moisey
Richard L. Morris
Jack A. O'Brien
Joseph J. Perugini
J. Patrick Prader
Larry V. Rankin
Thomas J. Smith
Frank Termine
PRESIDENTS OF PRINCIPAL
SUBSIDIARIES AND DIVISIONS
George G. Clark
Vice President and General Manager
Betz International, Inc.
John F. Elliott
Executive Vice President
Betz Process Chemicals, Inc.
John L. Holland
Betz Water Management Group
Ronald A. Kutsche
Betz PaperChem, Inc.
J. Donald McWilliam
Betz Canada Inc.
William A. Micsky
Betz MetChem Division
Jan R. Willemse
Betz Europe, Inc.
REGISTRAR AND TRANSFER AGENT
American Stock Transfer and Trust Co.
40 Wall Street
New York, NY 10005
10-K REPORT AND BUSINESS PROFILE
For further information, shareholders may obtain the Company's most recent
Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, by calling (215) 953-5550 or writing to the Investor Relations
Department at the headquarters address. Also available upon request is a
Business Profile containing additional background and data for use by
professional investors.
INVESTOR RELATIONS CONTACT
W. T. Drury, Jr.
Assistant Vice President --
Investor Relations
(215) 953-2355
ANNUAL MEETING
The next Annual Meeting of Betz Laboratories, Inc. will take place on April
11, 1996 at 11 a.m. Daylight Savings Time in the Corporate Training Facility
at the Corporate Headquarters, 4636 Somerton Road, Trevose, Pennsylvania.
INDEX TO EXHIBITS
Exhibit Name Exhibit Number
- ------------- ---------------
Index to Exhibits (Electronic) 99.1
Computation of Per Share Earnings 11
Annual Report to Shareholders 13
Subsidiaries of Registrant 21
Consent of Independent Auditors 23
Financial Data Schedule 27
[DESCRIPTION] COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Earnings before cumulative effect of accounting changes $68,297 $73,171 $63,379
Effect of preferred stock dividends, net of taxes (4,861) (4,902) (4,928)
---------- ---------- ----------
63,436 68,269 58,451
Cumulative effect of accounting changes -- -- 2,141
---------- ---------- ----------
Net earnings available to common shareholders $63,436 $68,269 $60,592
========== ========== ==========
Average Common Shares outstanding 27,736 27,884 28,470
Common stock equivalents 153 224 106
---------- ---------- ----------
Average number of Common Shares - primary 27,889 28,108 28,576
========== ========== ==========
Primary earnings per share:
Before cumulative effect of accounting changes $2.27 $2.43 $2.05
Cumulative effect of accounting changes -- -- 0.07
---------- ---------- ----------
Primary Earnings per Common Share $2.27 $2.43 $2.12
========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE
Earnings before cumulative effect of accounting changes $68,297 $73,171 $63,379
Effect of ESOP charge to operations assuming
conversion of Series A ESOP Convertible
Preferred Shares, net of taxes (2,069) (2,208) (2,332)
---------- ---------- ----------
66,228 70,963 61,047
Cumulative effect of accounting changes -- -- 2,141
---------- ---------- ----------
Net earnings available to common shareholders $66,228 $70,963 $63,188
========== ========== ==========
Average Common Shares outstanding 27,736 27,884 28,470
Common stock equivalents 162 232 106
Assumed conversion of Series A ESOP Convertible
Preferred Shares 2,753 2,769 2,755
---------- ---------- ----------
Average number of Common Shares - fully diluted 30,651 30,885 31,331
========== ========== ==========
Fully diluted earnings per share:
Before cumulative effect of accounting changes $2.16 $2.30 $1.95
Cumulative effect of accounting changes -- -- .07
---------- ---------- ----------
Fully Diluted Earnings per Common Share $2.16 $2.30 $2.02
========== ========== ==========
<FN>
Common stock equivalents reflect the assumed exercise of dilutive employees' stock options using the treasury stock method.
</TABLE>
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.
George L. James, III
Vice President - Finance,
Chief Financial Officer and Treasurer
January 30, 1996
[DESCRIPTION] SUBSIDIARIES OF REGISTRANT
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;
Betz Chemicals India, PVT., Ltd.;
Betz Taiwan, Ltd., a Taiwanese subsidiary;
Betz (Malaysia) Sdn. BHD, a Malaysian subsidiary; and
Betz International (Thailand) Co., Ltd., a Thai subsidiary.
* 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 Belgium 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;
Betz Kemi AB, a Swedish subsidiary;
Misan Chimica S.P.A., an Italian subsidiary;
Misan Iberica, S.A., a Spanish subsidiary; and
Misan Portuguese, L.D.A.; a Portuguese 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.
[DESCRIPTION] CONSENT OF INDEPENDENT AUDITORS
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 30,
1996, included in the 1995 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 the Registration Statement
(Form S-8 No. 33-60557) pertaining to the Betz Laboratories, Inc. Stock Option
Plan of 1987 of our report dated January 30, 1996, with respect to the financial
statements incorporated herein by reference and our report included in the
preceding paragraph withrespect to the financial statement schedule included in
the 1995 Annual Report (Form 10-K) of Betz Laboratories, Inc.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 25, 1996
BETZ LABORATORIES INC.
Exhibit 27: Financial Data Schedule
Article 5 of Regulation S-X
(In thousands, except per share amounts)
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 13,919
<SECURITIES> 0
<RECEIVABLES> 149,290
<ALLOWANCES> 2,886
<INVENTORY> 51,283
<CURRENT-ASSETS> 252,141
<PP&E> 670,392
<DEPRECIATION> 336,578
<TOTAL-ASSETS> 630,468
<CURRENT-LIABILITIES> 144,836
<BONDS> 95,500
<COMMON> 3,364
6,175
0
<OTHER-SE> 333,460
<TOTAL-LIABILITY-AND-EQUITY> 630,468
<SALES> 752,453
<TOTAL-REVENUES> 752,453
<CGS> 273,712
<TOTAL-COSTS> 273,712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,124
<INCOME-PRETAX> 111,567
<INCOME-TAX> 43,270
<INCOME-CONTINUING> 68,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,297
<EPS-PRIMARY> 2.27
<EPS-DILUTED> 2.16
</TABLE>
