<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-19983
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SYBRON CHEMICALS INC.
- - - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 51-0301280
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Birmingham Rd., P.O. Box 66, Birmingham New Jersey 08011
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (609) 893-1100
---------------
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 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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at September 30, 1995
- - - ----------------------------- ----------------------------------
Common stock, $.01 par value 5,650,560
<PAGE>
SYBRON CHEMICALS INC.
INDEX
Page No.
Part I Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet -
September 30, 1995 and December 31, 1994 1
Consolidated Statement of Operations -
nine months ended September 30, 1995 and 1994 2
Consolidated Statement of Operations -
three months ended September 30, 1995 and 1994 3
Consolidated Statement of Cash Flows -
nine months ended September 30, 1995 and 1994 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 6 - 10
Part II Other Information
Item 1 Legal Proceedings 11
<PAGE>
PART I - FINANCIAL INFORMATION
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited in thousands except share and per share data)
ASSETS
Sept. 30, Dec. 31,
1995 1994
--------- ---------
Current assets:
Cash and cash equivalents $ 10,607 $ 6,975
Accounts receivable 31,241 28,349
Inventories 23,548 20,446
Prepaid and other current assets 2,746 1,415
Deferred income taxes 244
--------- ---------
Total current assets 68,142 57,429
Property, plant and equipment 30,549 27,564
Intangible assets 11,026 8,411
Other 533 530
--------- ---------
$ 110,250 $ 93,934
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 205 $ 692
Accounts payable 13,888 13,820
Accrued liabilities 9,258 7,303
Income taxes payable 333 107
Deferred income taxes 375
Current portion of long-term debt 2,429
--------- ---------
Total current liabilities 26,488 21,922
Long-term debt 26,793 20,366
Deferred income taxes 2,953 3,010
Postretirement healthcare benefits 3,990 3,901
Other 1,879 2,035
--------- ---------
Total liabilities 62,103 51,234
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value -
500,000 shares authorized; none issued
Common stock - $.01 par value -
20,000,000 shares authorized;
issued 5,905,000 shares 59 59
Additional paid-in capital 23,530 23,530
Retained earnings 31,077 26,506
Cumulative translation adjustment (1,430) (2,306)
--------- ---------
53,236 47,789
Less treasury stock, at cost - 254,440
shares of common stock (5,089) (5,089)
--------- ---------
Total shareholders' equity 48,147 42,700
--------- ---------
$ 110,250 $ 93,934
========= =========
The accompanying notes are an integral part of
the financial statements
-1-
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited in thousands except per share amounts)
Nine months ended
September 30,
--------------------------
1995 1994
--------- ---------
Net sales $ 126,066 $ 108,913
--------- ---------
Cost of sales 83,105 68,654
Selling 21,848 18,742
General and administrative 6,956 6,482
Research and development 2,999 2,400
--------- ---------
114,908 96,278
--------- ---------
Operating income 11,158 12,635
--------- ---------
Other income(expense):
Interest income 296 143
Interest expense (1,906) (1,243)
Amortization of intangible assets (1,214) (806)
Other - Net (672) (423)
--------- ---------
(3,496) (2,329)
--------- ---------
Income before income taxes 7,662 10,306
Provision for income taxes 3,091 4,022
Net income $ 4,571 $ 6,284
========= =========
Net income per common share $ 0.81 $ 1.11
========= =========
The accompanying notes are an integral part of
the financial statements
-2-
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited in thousands except per share amounts)
Three months
ended
September 30,
------------------------
1995 1994
-------- --------
Net sales $ 39,127 $ 35,665
-------- --------
Cost of sales 26,499 23,047
Selling 7,214 6,288
General and administrative 2,183 2,253
Research and development 1,021 768
-------- --------
36,917 32,356
-------- --------
Operating income 2,210 3,309
-------- --------
Other income(expense):
Interest income 107 50
Interest expense (595) (481)
Amortization of intangible assets (395) (280)
Other - net (256) (163)
-------- --------
(1,139) (874)
-------- --------
Income before income taxes 1,071 2,435
Provision for income taxes 452 966
-------- --------
Net income $ 619 $ 1,469
======== ========
Net income per common share
and share equivalents $ .11 $ .26
======== ========
The accompanying notes are an integral part of
the financial statements
-3-
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited in thousands)
Nine months
ended
September 30,
1995 1994
-------- --------
Cash flows from operating activities:
Net income $ 4,571 $ 6,284
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,095 4,082
Changes in assets and liabilities:
Accounts receivable (1,688) (1,816)
Inventory (1,364) 76
Other current assets (899) 1,712
Accounts payable and accrued expenses 846 (2,172)
Income taxes payable 261 140
Other assets and liabilities - net 376 (1,057)
-------- --------
Net cash provided by operating activities 7,198 7,249
-------- --------
Cash flows from investing activities:
Capital expenditures (4,234) (4,235)
Purchase of business assets (8,308) (3,272)
Other, net 255
-------- --------
Net cash used by investing activities (12,287) (7,507)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving credit facilities 8,385 1,660
Repayment of debt (5,388)
-------- --------
Net cash provided (used) by financing activities 8,385 (3,728)
-------- --------
Effect of exchange rate changes on cash 336 490
-------- --------
Net increase (decrease) in cash and cash
equivalents 3,632 (3,496)
Cash and cash equivalents at beginning of period 6,975 9,719
-------- --------
Cash and cash equivalents at end of period $ 10,607 $ 6,223
======== ========
The accompanying notes are an integral part of
the financial statements
-4-
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited in thousands)
NOTE 1 - ACCOUNTING POLICIES:
The accompanying consolidated financial statements are unaudited
and have been prepared by management pursuant to the rules and
regulations of the Securities and Exchange Commission. In the
opinion of management, these consolidated financial statements
contain all of the adjustments, consisting only of normal recurring
adjustments, necessary to present fairly, in summarized form, the
financial position of the Company at September 30, 1995 and the
results of its operations and changes in its cash flows for the
nine months ended September 30, 1995 and 1994.
The Company presumes that users of this Quarterly Report on Form
10-Q have read or have access to the audited financial statements
for the year ended December 31, 1994 contained in the Company's
Form 10-K which was filed with the Securities and Exchange
Commission on March 30, 1995. Accordingly, footnote disclosures
which would substantially duplicate the disclosures contained
therein have been omitted.
NOTE 2 - INVENTORIES:
Inventories are stated at the lower of cost or market. For U.S.
operations, cost is determined using the last-in, first-out (LIFO)
method. For foreign operations, cost is determined using the
first-in, first-out (FIFO) method.
The components of inventories are:
Sept. 30, Dec. 31,
1995 1994
------- -------
Finished goods $16,423 $14,047
Work-in-progress 135 218
Raw materials 6,990 6,181
------- -------
$23,548 $20,446
======= =======
NOTE 3 - ACQUISITION:
On January 9, 1995, the Company purchased all the outstanding stock
of the Auralux Corporation ("Auralux"). Auralux, with annual
revenues of approximately $10 million at the time of the
acquisition, will operate as a subsidiary of the Company. Auralux
is a manufacturer of textile chemicals used in fabric finishing
with product lines including fire retardants, softeners,
thermosetting resins and other specialty products. In connection
with this acquisition, the Company acquired a nine acre site in
Yantic, Connecticut from which Auralux manufactures, distributes
and warehouses its products. The results of this acquisition were
included in net income as of the purchase date. This acquisition
was accounted for as a purchase and is not considered material for
disclosure of pro forma effects.
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1994 and Three Months Ended September 30, 1995 compared to
Three Months Ended
September 30, 1994.
The following table sets forth certain information about the Company's
two business segments, Environmental Products and Services and Textile
Chemical Specialties.
Nine Months Ended September 30,
---------------------------------
1995 1994
---------------- ---------------
% of % of
Amount Sales Amount Sales
-------- ----- -------- -----
(in thousands except percentages)
Sales
Environmental Products and Services $ 41,471 32.9% $ 38,975 35.8%
Textile Chemical Specialties 84,595 67.1 69,938 64.2
-------- ----- -------- -----
Total 126,066 100.0 108,913 100.0
Cost of Sales
Environmental Products and Services 29,603 71.4 26,386 67.7
Textile Chemical Specialties 53,502 63.2 42,268 60.4
-------- ----- -------- -----
Total 83,105 65.9 68,654 63.0
Gross Margin
Environmental Products and Services 11,868 28.6 12,589 32.3
Textile Chemical Specialties 31,093 36.8 27,670 39.6
-------- ----- -------- -----
Total 42,961 34.1 40,259 37.0
Operating Expense
Environmental Products and Services 8,299 20.0 7,918 20.3
Textile Chemical Specialties 23,504 27.8 19,706 28.2
-------- ----- -------- -----
Total 31,803 25.2 27,624 25.4
Operating Income
Environmental Products and Services 3,569 8.6 4,671 12.0
Textile Chemical Specialties 7,589 9.0 7,964 11.4
-------- ----- -------- -----
Total 11,158 8.9 12,635 11.6
Other Income (Expense), Net (3,496) (2.8) (2,329) (2.1)
-------- ----- -------- -----
Income Before Income Taxes 7,662 6.1 10,306 9.5
Provision for Income Taxes 3,091 2.5 4,022 3.7
-------- ----- -------- -----
Net Income $ 4,571 3.6% $ 6,284 5.8%
======== ===== ======== =====
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<PAGE>
Three Months Ended September 30,
--------------------------------------
1995 1994
----------------- ------------------
% of % of
Amount Sales Amount Sales
------- ----- -------- -----
(in thousands except percentages)
Sales
Environmental Products and Services $13,406 34.3% $ 12,958 36.3%
Textile Chemical Specialties 25,721 65.7 22,707 63.7
------- ----- -------- -----
Total 39,127 100.0 35,665 100.0
Cost of Sales
Environmental Products and Services 9,660 72.1 8,986 69.3
Textile Chemical Specialties 16,839 65.5 14,061 61.9
------- ----- -------- -----
Total 26,499 67.7 23,047 64.6
Gross Margin
Environmental Products and Services 3,746 27.9 3,972 30.7
Textile Chemical Specialties 8,882 34.5 8,646 38.1
------- ----- -------- -----
Total 12,628 32.3 12,618 35.4
Operating Expense
Environmental Products and Services 2,761 20.6 2,745 21.2
Textile Chemical Specialties 7,657 29.7 6,564 28.9
------- ----- -------- -----
Total 10,418 26.7 9,309 26.1
Operating Income
Environmental Products and Services 985 7.3 1,227 9.5
Textile Chemical Specialties 1,225 4.8 2,082 9.2
------- ----- -------- -----
Total 2,210 5.6 3,309 9.3
Other Income (Expense), Net (1,139) (2.9) (874) (2.5)
------- ----- -------- -----
Income Before Income Taxes 1,071 2.7 2,435 6.8
Provision for Income Taxes 452 1.1 966 2.7
------- ----- -------- -----
Net Income $ 619 1.6% $ 1,469 4.1%
======= ===== ======== =====
-7-
<PAGE>
Operations
Sales for the nine months and quarter ending September 30,
1995 increased by 15.7% and 9.7%, respectively, compared with the
similar 1994 periods. The largest growth was in the Textile
Chemical Specialties segment which increased 21.0% and 13.3%,
respectively. The Environmental Products and Services segment also
showed improvement for both periods, increasing 6.4% and 3.5% over
the same 1994 periods.
Sales in the Textile Chemical Specialties segment in both
America and Europe improved for the nine month and quarter periods.
The sales growth of 28.0% and 18.6% during the first nine months
and third quarter of 1995 in America principally resulted from the
acquisition of the Auralux Corporation in January of this year
along with growth in the liquid-for-solid, preparation and garment
finishing product lines in the first six months. Europe division
textile chemical sales for the 1995 nine month and third quarter
periods improved in terms of U.S. dollars by 12.4% and 5.8%. In
local currencies, Europe sales increased 4.4% and 1.9% with growth
in units of 4.8% and 2.5%, principally the result of increases in
Turkey, France, Germany, and Italy.
Improved ion exchange and specialty polymer product line sales
aided the growth in both periods in the Environmental Products and
Services segment. For the year, selling prices in the ion exchange
product line continue to be lower than the first nine months of
1994 and the market remained flat. Biochemical product line sales
increased in the nine month and quarter periods due, in part, to
initial revenues gained from a bioremediation project for a major
U.S. oil company, and to improvements in the industrial and
municipal wastewater treatment area. The Company's membrane
product line improved on a nine month basis due to increased export
business, although the third quarter was substantially under the
same quarter in 1994 due to order spacing.
The gross margin for the nine months and third quarter ending
September 30, 1995 was 34.1% and 32.3%, lower than the 37.0% and
35.4% experienced during the comparable periods in 1994. The gross
margin in the Textile Chemicals Specialties segment decreased to
36.8% and 34.5%, respectively, as compared with last year's similar
periods of 39.6% and 38.1%. Margins dropped in both Europe and
America. Europe continues to be adversely affected by the weakness
of the lira in Italy, where a large portion of the sales occur, and
increased U.S. dollar translated costs relating to the strong
guilder in Holland where manufacturing costs are incurred. America
margins declined in both periods due to an unfavorable product and
customer mix, lower average selling prices and increased raw
material costs. These were partially offset by lower freight
costs, improved manufacturing efficiencies and overall continued
cost controls.
-8-
<PAGE>
The gross margin in the Environmental Products and Services
segment decreased to 28.6% and 27.9%, respectively from last year's
similar periods of 32.3% and 30.7%. These declines were
principally the result of lower ion exchange margins due to
continued period-to-period increases in major raw material costs,
especially styrene, coupled with a decrease in average selling
prices. These were somewhat offset by favorable manufacturing cost
containment efforts. Biochemical gross margins also declined in
both periods due to a continuing unfavorable mix and increased
fixed manufacturing costs incurred in the development and support
of new business. The remaining businesses in this segment had a
slight overall decline in margins for both periods.
Operating expenses as a percent of sales for the nine month
period improved slightly to 25.2% as compared to last year's 25.4%.
For the quarter, operating expenses as a percent of sales increased
to 26.7% versus 26.1% for 1994's third quarter due to negative
performance in the Textile Chemical Specialties segment caused by
adverse currency impacts in Europe and slightly lower sales volumes
in the core America business.
Income Taxes and Other Items
The Company's provision for income taxes was computed using
applicable prevailing income tax rates.
The Company's effective tax rate of 40.3% for the nine month
period increased over last year's applicable rate of 39.0%. The
increase was the result of the Company earning more of its income
in jurisdictions with higher tax rates and certain purchase
accounting adjustments related to the acquisition of a textile
chemical specialty business.
Other expense was $3.5 million for the nine months of 1995
versus $2.3 million in last year's comparable period. The increase
was primarily due to higher interest expense and amortization
related to the acquisition of the Auralux Corporation and the
textile chemical business of CNC International and to losses on the
translation of European textile chemical intercompany accounts on
sales from Holland to other European subsidiaries with weak
currencies.
Liquidity and Capital Resources
Cash and cash equivalents increased to $10.6 million as of
September 30, 1995 compared to $7.0 million at December 31, 1994.
This increase was primarily the result of net income from
operations, the favorable impact of a weak U.S. dollar and a strong
Dutch guilder since most of the cash is located in Europe, and
additional borrowings.
-9-
<PAGE>
Net cash flow generated by operating activities totalled $7.2
million on a nine month basis, approximately the same amount of
cash generated in the similar 1994 period. In 1995, the Company
experienced higher non-cash expenses and increases in accounts
payable and accrued expenses on higher levels of business, offset
by lower net income and increases in inventory and accounts
receivable.
Net cash used for investing activities totalled $12.3 million
for the first nine months of 1995 as compared with $7.5 million for
the same period in 1994. The increase was essentially the result
of acquiring the Auralux Corporation in January 1995. Capital
expenditures of $4.2 million were the same for the first nine
months of both 1995 and 1994.
Net cash provided by financing activities for the first nine
months of 1995 included an increase in net borrowings of $8.4
million primarily due to the funding of the Auralux Corporation
acquisition, and a EuroLira loan established in June as a hedge
against the lira versus guilder exchange rates. In 1994, the
Company reduced debt by approximately $3.7 million in excess of
some additional borrowings.
At September 30, 1995, the Company had a $25 million multi-
currency unsecured revolving line of credit with Bank of Boston
which expires in July, 1997 and owed $12,363,000 as of that date.
The Company has entered into a series of interest rate swap
agreements which effectively converted a significant portion of its
long term debt from a fixed rate of 8.17% to a variable rate based
upon the 90 day Libor rate. The Company's effective interest rate
on all borrowings during the first nine months of 1995 was 8.41%.
During 1995, the Company believes its capital expenditures for
existing operations can be funded from operating cash flow and are
expected to be somewhat in excess of 1994 levels due to a planned
relocation of a manufacturing facility in Mexico. The Company
further believes that between its anticipated operating cash flow
and present credit facilities, it will be able to meet both short
term and long term financial obligations in the foreseeable future.
Foreign Exchange
The Company has subsidiaries in Europe, Asia, Africa and the
Americas and, for all subsidiaries, the Company has determined that
the functional currencies are the subsidiaries' local currency.
The Company has a large manufacturing facility in Ede, Holland
where chemicals are manufactured and sold either directly to
customers or to various subsidiaries which are principally in
Europe. Intercompany balances arise between the Dutch operation
and various subsidiaries. The Company recognized exchange losses
in the Europe division in the first nine months of 1995 of $356,000
compared to losses of $72,000 for the similar 1994 period.
-10-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in connection with
any pending legal proceedings as reported in the Registrant's Form
10-K Annual Report which was filed with the Securities and Exchange
Commission on March 30, 1995.
-11-
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
SYBRON CHEMICALS INC.
/s/ Jeffrey Albin
------------------------------
Jeffrey Albin
Executive Vice President-
Date: November 10, 1995 Finance and Chief Financial
Officer (Principal Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000832815
<NAME> SYBRON CHEMICALS INC
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 10,607,000
<SECURITIES> 0
<RECEIVABLES> 31,241,000
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<COMMON> 23,589,000
0
0
<OTHER-SE> 24,558,000
<TOTAL-LIABILITY-AND-EQUITY> 110,250,000
<SALES> 39,127,000
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<TOTAL-COSTS> 36,917,000
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