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, 1996
------------------
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.
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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
-------------------------------------------------- -----
(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 .
---
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, 1996
----- ---------------------------------
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, 1996 and December 31, 1995 1
Consolidated Statement of Operations -
nine months ended September 30, 1996 and 1995 2
Consolidated Statement of Operations -
three months ended September 30, 1996 and 1995 3
Consolidated Statement of Cash Flows -
nine months ended September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 6 - 11
Part II Other information
Item 1 Legal Proceedings 12
<PAGE>
PART I - FINANCIAL INFORMATION
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited in thousands except share and per share data)
ASSETS
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,042 $ 11,284
Accounts receivable, net 33,187 30,685
Inventories 21,746 24,504
Prepaid and other current assets 2,688 1,293
Deferred income taxes 71 68
-------- --------
Total current assets 70,734 67,834
Property, plant and equipment, net 30,909 31,149
Intangible assets 12,099 11,804
Other 721 542
-------- --------
$114,463 $111,329
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 181 $ 1,169
Accounts payable 15,390 15,364
Accrued liabilities 12,353 9,067
Current portion of long-term debt 2,434 2,444
Income taxes payable 599 974
Deferred income taxes 440 321
------- --------
Total current liabilities 31,397 29,339
Long-term debt 19,688 22,532
Deferred income taxes 2,985 3,450
Postretirement healthcare benefits 4,004 3,938
Other 1,539 2,117
-------- --------
Total liabilities 59,613 61,376
-------- --------
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 39,308 32,835
Cumulative translation adjustment (2,958) (1,382)
--------- ---------
59,939 55,042
Less treasury stock, at cost -
254,440 shares of common stock (5,089) (5,089)
--------- ---------
Total shareholders' equity 54,850 49,953
--------- --------
$114,463 $111,329
======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1996 1995
<S> <C> <C>
Net sales $130,311 $126,066
-------- --------
Cost of sales 83,009 83,105
Selling 22,676 21,848
General and administrative 8,028 6,956
Research and development 3,033 2,999
-------- --------
116,746 114,908
-------- --------
Operating income 13,565 11,158
-------- --------
Other income(expense):
Interest income 275 296
Interest expense (1,546) (1,906)
Amortization of intangible assets (980) (1,214)
Other - Net (401) (672)
--------- ---------
(2,652) (3,496)
Income before income taxes 10,913 7,662
Provision for income taxes 4,440 3,091
--------- --------
Net income $ 6,473 $ 4,571
======== ========
Net income per common share $ 1.15 $ 0.81
======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
Three months
ended
September 30,
1996 1995
<S> <C> <C>
Net sales $ 42,036 $ 39,127
-------- --------
Cost of sales 27,361 26,499
Selling 7,689 7,214
General and administrative 2,569 2,183
Research and development 1,007 1,021
-------- --------
38,626 36,917
-------- --------
Operating income 3,410 2,210
-------- --------
Other income(expense):
Interest income 90 107
Interest expense (491) (595)
Amortization of intangible assets (334) (395)
Other - net (227) (256)
--------- ---------
(962) (1,139)
--------- --------
Income before income taxes 2,448 1,071
Provision for income taxes 978 452
--------- --------
Net income $ 1,470 $ 619
========= ========
Net income per common share $ .26 $ .11
========= ========
</TABLE>
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)
<TABLE>
<CAPTION>
Nine months
ended
September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,473 $ 4,571
-------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,824 5,095
Changes in assets and liabilities:
Accounts receivable (2,867) (1,688)
Inventory 2,342 (1,364)
Other current assets (1,383) (899)
Accounts payable and accrued expenses 3,783 846
Income taxes payable (361) 261
Other assets and liabilities - net (950) 376
-------- -------
Net cash provided by operating activities 11,861 7,198
-------- -------
Cash flows from investing activities:
Capital expenditures (4,212) (4,234)
Purchase of business assets (1,275) (8,308)
Other, net 45 255
-------- -------
Net cash used by investing activities (5,442) (12,287)
-------- --------
Cash flows from financing activities:
Net (repayments) borrowings under revolving credit
facilities (1,348) 8,385
Repayment of debt (2,429)
-------- -------
Net cash (used) provided by financing activities (3,777) 8,385
-------- -------
Effect of exchange rate changes on cash (884) 336
-------- -------
Net increase in cash and cash equivalents 1,758 3,632
Cash and cash equivalents at beginning of period 11,284 6,975
-------- -------
Cash and cash equivalents at end of period $13,042 $10,607
======== =======
</TABLE>
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, 1996 and the
results of its operations and changes in its cash flows for the nine months
ended September 30, 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:
Sept. 30, Dec. 31,
1996 1995
Finished goods $15,192 $17,020
Work-in-progress 188 194
Raw materials 6,366 7,290
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$21,746 $24,504
======= =======
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 compared to Nine Months Ended
September 30, 1995 and Three Months Ended September 30, 1996 compared to Three
Months Ended September 30, 1995.
The following tables set forth certain information about the Company's two
business segments, Environmental Products and Services and Textile Chemical
Specialties.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995 (1)
% of % of
Amount Sales Amount Sales
(in thousands except percentages)
<S> <C> <C> <C> <C>
Sales
Environmental Products and Services $ 40,852 31.3% $ 41,471 32.9%
Textile Chemical Specialties 89,459 68.7 84,595 67.1
--------- ------ --------- -----
Total 130,311 100.0 126,066 100.0
Cost of Sales
Environmental Products and Services 29,160 71.4 30,119 72.6
Textile Chemical Specialties 53,849 60.2 52,986 62.6
--------- ----- --------- ----
Total 83,009 63.7 83,105 65.9
Gross Margin
Environmental Products and Services 11,692 28.6 11,352 27.4
Textile Chemical Specialties 35,610 39.8 31,609 37.4
--------- ----- --------- ----
Total 47,302 36.3 42,961 34.1
Operating Expense
Environmental Products and Services 8,476 20.7 8,299 20.0
Textile Chemical Specialties 25,261 28.2 23,504 27.8
--------- ----- --------- ----
Total 33,737 25.9 31,803 25.2
Operating Income
Environmental Products and Services 3,216 7.9 3,053 7.4
Textile Chemical Specialties 10,349 11.6 8,105 9.6
--------- ----- --------- ----
Total 13,565 10.4 11,158 8.9
Other Income (Expense), Net (2,652) (2.0) (3,496) (2.8)
--------- ----- --------- -----
Income Before Income Taxes 10,913 8.4 7,662 6.1
Provision for Income Taxes 4,440 3.4 3,091 2.5
--------- ----- --------- ----
Net Income $ 6,473 5.0% $ 4,571 3.6%
========= ===== ========= =====
<FN>
(1) Certain amounts have been reclassified for comparative purposes.
</FN>
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
1996 1995 (1)
% of % of
Amount Sales Amount Sales
(in thousands except percentages)
<S> <C> <C> <C> <C>
Sales
Environmental Products and Services $ 13,546 32.2% $ 13,406 34.3%
Textile Chemical Specialties 28,490 67.8 25,721 65.7
-------- ------ -------- -----
Total 42,036 100.0 39,127 100.0
Cost of Sales
Environmental Products and Services 9,704 71.6 9,829 73.3
Textile Chemical Specialties 17,657 62.0 16,670 64.8
-------- ----- -------- ----
Total 27,361 65.1 26,499 67.7
Gross Margin
Environmental Products and Services 3,842 28.4 3,577 26.7
Textile Chemical Specialties 10,833 38.0 9,051 35.2
-------- ----- -------- ----
Total 14,675 34.9 12,628 32.3
Operating Expense
Environmental Products and Services 2,976 22.0 2,761 20.6
Textile Chemical Specialties 8,289 29.1 7,657 29.8
-------- ----- -------- ----
Total 11,265 26.8 10,418 26.7
Operating Income
Environmental Products and Services 866 6.4 816 6.1
Textile Chemical Specialties 2,544 8.9 1,394 5.4
-------- ----- -------- ----
Total 3,410 8.1 2,210 5.6
Other Income (Expense), Net (962) (2.3) (1,139) (2.9)
-------- ----- -------- -----
Income Before Income Taxes 2,448 5.8 1,071 2.7
Provision for Income Taxes 978 2.3 452 1.1
-------- ----- -------- -----
Net Income $ 1,470 3.5% $ 619 1.6%
======= ===== ======== ======
<FN>
(1) Certain amounts have been reclassified for comparative purposes.
</FN>
</TABLE>
-7-
<PAGE>
Operations
Sales for the nine months and quarter ending September 30, 1996 increased
by 3.4% and 7.4%, respectively, compared with similar 1995 periods. Sales in the
Textile Chemical Specialties segment improved 5.7% and 10.8%, respectively,
compared with similar 1995 periods. In the Environmental Products and Services
segment, sales were 1.5% below last year's nine month level although third
quarter sales increased by 1.0% compared with the similar 1995 period.
In the Textile Chemical Specialties segment, Europe division sales in U.S.
dollars for the nine month period and third quarter improved 14.8% and 26.2%,
respectively, as compared with the same periods in 1995, while physical volume
improved by 11.4% and 23.4%. Both periods were favorably impacted by substantial
sales growth in Western Europe as well as developing markets in Eastern Europe
and the Middle East. In the America division, substantial volume gains in Mexico
combined with new product sales in the U.S. contributed to an overall 1.0%
increase in third quarter sales versus 1995's similar period in spite of
continued weakness in the North America textile market and the related organic
chemicals business. For the nine month period, America division sales dropped by
less than 1% although textile chemical sales grew substantially in Mexico and
modestly in North America and Asia. These increases were offset by a decline in
the related organic chemicals business due to the changing requirements of toll
manufacturing customers.
In the Environmental Product and Services segment, sales for the current
nine month period declined by 1.5% versus the similar period in 1995 in spite of
significant growth in biochemical product line sales for institutional,
consumer, waste water and bioremediation applications. This decline principally
resulted from a substantial reduction of export volume in the membrane product
line due to competitive pricing combined with slight selling price decreases in
the ion exchange product line. The overall 1.0% increase in third quarter sales
was directly related to the continued improvement in biochemicals, which, for
the quarter, more than offset lower sales in the membrane product line. Sales of
specialty polymers, the remaining product line in this segment, had a modest
positive impact for the quarter and the respective nine month period.
The gross margin for the nine months and third quarter ending September 30,
1996 was 36.3% and 34.9%, an improvement over the 34.1% and 32.3% experienced
during the comparable periods in 1995. The gross margin in the Textile Chemicals
Specialties segment on a nine month basis was 39.8% while the quarter resulted
in a 38.0% margin, both better than last year's comparable rates of 37.4% and
35.2%. The gross margins in Europe in both periods were substantially higher
than the comparable periods in 1995 due to new
-8-
<PAGE>
products selling at higher margins and the continued favorable currency impact
of a weaker guilder as compared with certain European currencies. The gross
margin in America, on a nine month basis, equalled last year's rate. However,
for the third quarter, the gross margin in America dropped to 26.5% versus 28.1%
in 1995 as a result of unfavorable inventory adjustments and increased
manufacturing related costs, only partially offset by lower freight expenses.
The gross margin in the Environmental Products and Services segment was
28.6% for the nine month period and 28.4% for the third quarter, both of which
were better than the respective prior year margins of 27.4% and 26.7%. This
improvement was principally the result of a favorable product mix and lower raw
material costs. Ion exchange product line margins on a nine month basis were
under last year's comparable rates due to decreases in average selling prices,
unfavorable labor and manufacturing variances and reduced inventory levels.
These variances were somewhat offset by lower costs for several major raw
materials including styrene. However, for the quarter, margins improved as
average selling prices essentially equalled last year's similar period while raw
material prices were substantially lower. Membrane product line gross margins
declined in both periods due to overall average selling price decreases which
were partially offset by improved production efficiencies, lower raw material
costs and continued cost controls. Margins increased in the specialty polymer
product line which resulted from higher overall average selling prices and
reduced raw materials costs, principally styrene.
Operating expenses as a percent of sales for the nine month period
increased to 25.9% as compared to last year's 25.2%. For the quarter, expenses
were 26.8% of sales versus 26.7% for the similar 1995 period. In the Textile
Chemical Specialties segment, expenses as a percentage of sales increased in the
nine month period due to additions to the R&D and marketing staffs in North
America and increased environmental, legal and compensation costs. However, for
the quarter, this segment's expenses as a percentage of sales improved over the
similar quarter in 1995 due to the significant increase in sales volume between
the two periods. The Environmental Products and Services segment expenses
increased as a percent of sales in both periods primarily due to the lower
overall sales, increased legal and compensation costs and staff additions in the
marketing area.
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 40.7% for the nine months increased
slightly over last year's applicable rate of 40.3%. This increase was the result
of the Company earning more of its income in higher tax rate jurisdictions.
-9-
<PAGE>
Other income (expense) was ($2.7) million for the first nine months of 1996
versus ($3.5) 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 increased to $13.0 million as of September 30,
1996 compared to $11.3 million at December 31, 1995. This increase principally
resulted from a substantial increase in net cash provided from operations due to
higher net income and improvements in working capital.
Net cash flow generated by operating activities totalled $11.9 million on a
nine month basis versus $7.2 million for the same period in 1995. This increase
principally was due to higher accounts payable and accrued expenses, lower
inventory levels and improved net income, only partially offset by increased
accounts receivables.
Net cash used by investing activities totalled $5.4 million for the first
nine months of 1996 as compared with $12.3 million for the same period in 1995.
The decrease was principally due to the purchase of the Auralux Corporation in
January 1995. Capital expenditures were essentially equal for both periods.
Net cash used by financing activities for the nine month period of 1996 was
$3.8 million. This use of capital was due to a principal repayment of $2.4
million on the Company's outstanding debt. During 1995, borrowings increased to
fund the purchase of the Auralux Corporation.
The Company has a $25 million multi-currency unsecured revolving line of
credit with Bank of Boston which expires in July, 1998. The amount owed under
this credit facility was approximately $7.5 million as of September 30, 1996.
The Company had 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 1996 borrowings was 7.79%.
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 its manufacturing
facility in Mexico. The Company
-10-
<PAGE>
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 $33,000 in the Europe
division in the first nine months of 1996 as compared with an exchange loss of
$356,000 during the similar 1995 period.
-11-
<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.
-12-
<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
Date: November 12, 1996 and Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000832815
<NAME> SYBRON CHEMICALS INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 13,042,000
<SECURITIES> 0
<RECEIVABLES> 33,187,000
<ALLOWANCES> 0
<INVENTORY> 21,746,000
<CURRENT-ASSETS> 70,734,000
<PP&E> 30,909,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,463,000
<CURRENT-LIABILITIES> 31,397,000
<BONDS> 0
0
0
<COMMON> 59,000
<OTHER-SE> 54,791,000
<TOTAL-LIABILITY-AND-EQUITY> 114,463,000
<SALES> 130,311,000
<TOTAL-REVENUES> 130,311,000
<CGS> 83,009,000
<TOTAL-COSTS> 116,746,000
<OTHER-EXPENSES> 1,106,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,546,000
<INCOME-PRETAX> 10,913,000
<INCOME-TAX> 4,440,000
<INCOME-CONTINUING> 6,473,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,473,000
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
