<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 March 31, 1996
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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
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Commission file number 0-19983
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SYBRON CHEMICALS INC.
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(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
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 .
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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 March 31, 1996
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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 -
March 31, 1996 and December 31, 1995 1
Consolidated Statement of Operations -
three months ended March 31, 1996 and 1995 2
Consolidated Statement of Cash Flows -
three months ended March 31, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 5 - 8
Part II Other Information
Item 1 Legal Proceedings 9
<PAGE>
PART I - FINANCIAL INFORMATION
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited in thousands except share and per share data)
ASSETS
Mar. 31, Dec. 31,
1996 1995
-------- ---------
Current assets:
Cash and cash equivalents $ 11,298 $ 11,284
Accounts receivable, net 34,231 30,685
Inventories 24,422 24,504
Prepaid and other current assets 2,116 1,293
Deferred income taxes 64 68
-------- --------
Total current assets 72,131 67,834
Property, plant and equipment 30,778 31,149
Intangible assets 11,484 11,804
Other 610 542
-------- --------
$115,003 $111,329
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 156 $ 1,169
Accounts payable 15,726 15,364
Accrued liabilities 9,718 9,067
Current portion of long term debt 2,442 2,444
Income taxes payable 1,817 974
Deferred income taxes 355 321
-------- --------
Total current liabilities 30,214 29,339
Long-term debt 23,842 22,532
Deferred income taxes 3,340 3,450
Postretirement healthcare benefits 3,967 3,938
Other 2,092 2,117
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Total liabilities 63,455 61,376
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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 35,089 32,835
Cumulative translation adjustment (2,041) (1,382)
-------- --------
56,637 55,042
Less treasury stock, at cost - 254,440
shares of common stock (5,089) (5,089)
-------- --------
Total shareholders' equity 51,548 49,953
-------- --------
$115,003 $111,329
======== ========
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)
Three months
ended
March 31,
-------------------
1996 1995(1)
-------- --------
Net sales $ 43,672 $ 43,008
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Cost of sales 27,958 27,899
Selling 7,302 7,119
General and administrative 2,612 2,327
Research and development 989 986
-------- --------
38,861 38,331
-------- --------
Operating income 4,811 4,677
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Other income(expense):
Interest income 97 91
Interest expense (556) (629)
Amortization of intangible assets (321) (410)
Other - net (210) (422)
-------- --------
(990) (1,370)
-------- --------
Income before income taxes 3,821 3,307
Provision for income taxes 1,567 1,350
-------- --------
Net income $ 2,254 $ 1,957
======== ========
Net income per common share
and share equivalents $ .40 $ .35
======== ========
(1) Certain amounts have been reclassified for comparative purposes.
The accompanying notes are an integral part of
the financial statements
-2-
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited in thousands)
Three months
ended
March 31,
-----------------
1996 1995
------ ------
Cash flows from operating activities:
Net income $ 2,254 $1,957
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Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,606 1,667
Changes in assets and liabilities:
Accounts receivable (3,720) (3,314)
Inventory (97) (880)
Other current assets (829) 111
Accounts payable and accrued expenses 1,247 1,696
Income taxes payable 848 283
Other assets and liabilities - net (37) 137
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Net cash provided by operating activities 1,272 1,657
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Cash flows from investing activities:
Capital expenditures (1,146) (1,547)
Purchase of business assets (8,259)
Other, net 11 (183)
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Net cash used by investing activities (1,135) (9,989)
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Cash flows from financing activities:
Net borrowings under revolving credit
facilities 245 8,479
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Net cash provided by financing activities 245 8,479
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Effect of exchange rate changes on cash (368) 1,261
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Net increase in cash and cash equivalents 14 1,408
Cash and cash equivalents at beginning of
period 11,284 6,975
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Cash and cash equivalents at end of period $11,298 $8,383
======= ======
The accompanying notes are an integral part of
the financial statements
-3-
<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 March 31, 1996 and the results of its
operations and changes in its cash flows for the three months ended March 31,
1996 and 1995.
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, 1995 contained in the Company's Form 10-K which was filed with the
Securities and Exchange Commission on April 1, 1996. 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:
March 31, Dec. 31,
1996 1995
--------- --------
Finished goods $16,464 $17,020
Work-in-progress 155 194
Raw materials 7,803 7,290
--------- --------
$24,422 $24,504
========= ========
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995.
The following table sets forth certain information about the Company's two
business segments, Environmental Products and Services and Textile Chemical
Specialties.
Three Months Ended March 31,
----------------------------------
1996 1995(1)
--------------- ---------------
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
(in thousands except percentages)
Sales
Environmental Products and Services $ 13,648 31.3% $ 13,819 32.1%
Textile Chemical Specialties 30,024 68.7 29,189 67.9
-------- ----- -------- -----
Total 43,672 100.0 43,008 100.0
Cost of Sales
Environmental Products and Services 10,031 73.5 10,105 73.1
Textile Chemical Specialties 17,927 59.7 17,794 61.0
-------- ----- -------- -----
Total 27,958 64.0 27,899 64.9
Gross Margin
Environmental Products and Services 3,617 26.5 3,714 26.9
Textile Chemical Specialties 12,097 40.3 11,395 39.0
-------- ----- -------- -----
Total 15,714 36.0 15,109 35.1
Operating Expense
Environmental Products and Services 2,598 19.0 2,689 19.5
Textile Chemical Specialties 8,305 27.7 7,652 12.5
-------- ----- -------- -----
Total 10,903 25.0 10,432 24.2
Operating Income
Environmental Products and Services 1,019 7.5 1,025 7.4
Textile Chemical Specialties 3,792 12.6 3,652 12.5
-------- ----- -------- -----
Total 4,811 11.0 4,677 10.9
Other Income (Expense), Net (990) (2.3) (1,370) (3.2)
-------- ----- -------- -----
Income Before Income Taxes 3,821 8.7 3,307 7.7
Provision for Income Taxes 1,567 3.6 1,350 3.1
-------- ----- -------- -----
Net Income $ 2,254 5.2% $1,957 4.6%
======== ===== ======== =====
(1) Certain amounts have been reclassified for comparative purposes.
-5-
<PAGE>
Operations
Sales for the quarter ending March 31, 1996 increased by 1.5% compared with
the similar 1995 period on the strength of a 2.9% increase in the Textile
Chemical Specialties segment. Sales in the Environmental Products and Services
segment were 1.2% under the first quarter of 1995.
In the Textile Chemical Specialties segment, Europe sales for the quarter
grew by 12.5% in terms of U.S. dollars compared with the same period in 1995.
This improvement resulted from new product introductions and substantial sales
growth in several developing markets including Egypt, Portugal, Russia, and
Turkey, favorable currency effects and a slight overall price increase. Tonnage
in Europe increased 4.1% on a quarter-to-quarter basis. America textile chemical
sales declined by 4.5% compared with the first quarter of 1995, reflecting weak
textile market conditions in the United States, offset to some extent by growth
in business outside the United States, and reduced activity in the related
organic chemical toll manufacturing operation.
The decline in sales in the Environmental Products and Services segment
principally resulted from substantially lower export business in the membrane
product line which offset sales growth in the other product lines in this
segment. Ion exchange resin sales grew by 1.4% due to increased domestic and
export sales. Increased institutional, bioremediation and foreign sales volume
and selected selling price increases resulted in a 7.0% improvement in the sales
of the biochemical product line.
The gross margin for the first quarter ending March 31, 1996 was 36.0%,
compared with the 35.1% realized during the comparable period in 1995. The gross
margin in the Textile Chemical Specialties segment increased to 40.3% compared
with 39.0% during the first quarter of 1995. The gross margin on Europe textile
chemical sales improved substantially due to new products selling at higher
margins, selling price increases, and the favorable currency impact of a weaker
guilder as compared with the other European currencies. The gross margin in
America declined as a result of lower average selling prices and an unfavorable
change in product mix.
The gross margin in the Environmental Products and Services segment
decreased to 26.5% from 26.9% in last year's similar period. This decline was
principally the result of lower ion exchange margins due to decreases in average
selling prices, unfavorable labor variances, reduced inventory levels and
slightly increased plant spending. These negative factors were only partially
offset by lower costs for freight and for several major raw materials,
especially styrene. Manufacturing efficiencies, continued cost containment,
favorable product mix and selected price increases lead to a significant
improvement in the Biochemical product line gross margin.
Operating expenses as a percent of sales for the first quarter increased to
25.0% as compared to last year's 24.2%. Operating expenses in the Environmental
Products and Services segment decreased to 19.0% of sales versus last year's
19.5% as a result of continued efforts to control and reduce costs. In the
Textile Chemical Specialties segment, expenses increased to 27.7% from last
year's 26.5% primarily due to the lower sales and increased emphasis on research
in North America.
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<PAGE>
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 41.0% for the
first quarter increased slightly over last year's applicable rate of 40.8%.
Other income (expense) was approximately ($1.0) million for the first
quarter of 1996 versus ($1.4) million in last year's comparable period. The
decrease was primarily due to lower interest expense related to a reduction in
the amount of outstanding debt, lower amortization expense and the absence of a
large non-recurring 1995 translation loss on Europe intercompany accounts.
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 1996 was approximately $11.3 million
which was essentially equal to the December 31, 1995 balance.
Net cash flow generated by operating activities was approximately $1.3
million for the first quarter of 1996 versus $1.7 million for the same period in
1995. The decrease principally resulted from lower accounts payable and accrued
expenses and increased accounts receivable which were partially offset by higher
net income and inventory levels.
Net cash used for investing activities was approximately $1.1 million for
the first quarter of 1996 compared with $10.0 million for the same period in
1995. The first quarter of 1995 was impacted by the purchase of the Auralux
Corporation in January 1995. Capital expenditures for the first quarter of 1996
were approximately $1.1 million compared with $1.5 million for the comparable
1995 period.
Net cash provided by financing activities for the first three months of
1996 was $245,000. This was substantially lower than the $8.5 million during the
first quarter of 1995 which was the result of borrowings to fund the acquisition
of Auralux Corporation.
At March 31, 1996, the Company had a $25 million multi-currency unsecured
revolving line of credit with Bank of Boston which expires in July, 1997. The
amount owed under this credit facility was $9.2 million at March 31, 1996.
The Company had previously 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 last swap agreement expired in February 1996. The Company's effective
interest rate on all borrowings during the first quarter of 1996 was 8.13%.
-7-
<PAGE>
During 1996, 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 1995 levels due to the relocation of the Company's Mexican
manufacturing facility from a leased facility to Company owned premises and
certain site improvements at its Yantic, Connecticut facility. 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 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 an exchange gain of $38,000 in the Europe
division in the first three months of 1996 as compared with an exchange loss of
$387,000 during the similar 1995 period.
-8-
<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 April 1, 1996.
-9-
<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/ Lawrence R. Hoffman
----------------------------
Lawrence R. Hoffman
Acting Principal Financial
and Accounting Officer
Date: May 15, 1996
<TABLE> <S> <C>
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<CIK> 0000832815
<NAME> SYBRON CHEMICALS INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,298,000
<SECURITIES> 0
<RECEIVABLES> 34,231,000
<ALLOWANCES> 0
<INVENTORY> 24,422,000
<CURRENT-ASSETS> 72,131,000
<PP&E> 30,778,000
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<TOTAL-ASSETS> 115,003,000
<CURRENT-LIABILITIES> 30,214,000
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<COMMON> 59,000
<OTHER-SE> 51,489,000
<TOTAL-LIABILITY-AND-EQUITY> 115,003,000
<SALES> 43,672,000
<TOTAL-REVENUES> 43,672,000
<CGS> 27,958,000
<TOTAL-COSTS> 38,861,000
<OTHER-EXPENSES> 434,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 556,000
<INCOME-PRETAX> 3,821,000
<INCOME-TAX> 1,567,000
<INCOME-CONTINUING> 2,254,000
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