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 June 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
SYBRON CHEMICALS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0301280
(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
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 June 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 -
June 30, 1996 and December 31, 1995 1
Consolidated Statement of Operations -
six months ended June 30, 1996 and 1995 2
Consolidated Statement of Operations -
three months ended June 30, 1996 and 1995 3
Consolidated Statement of Cash Flows -
three months ended June 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 - 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)
<TABLE>
<CAPTION>
ASSETS
June 30, Dec. 31,
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,976 $ 11,284
Accounts receivable, net 35,891 30,685
Inventories 23,580 24,504
Prepaid and other current assets 1,933 1,293
Deferred income taxes 71 68
--------- ---------
Total current assets 71,451 67,834
Property, plant and equipment, net 30,449 31,149
Intangible assets 11,158 11,804
Other 1,537 542
--------- ---------
$ 114,595 $ 111,329
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 65 $ 1,169
Accounts payable 15,492 15,364
Accrued liabilities 9,890 9,067
Current portion of long-term debt 2,441 2,444
Income taxes payable 1,097 974
Deferred income taxes 941 321
--------- ---------
Total current liabilities 29,926 29,339
Long-term debt 22,713 22,532
Deferred income taxes 2,535 3,450
Postretirement healthcare benefits 4,085 3,938
Other 1,927 2,117
--------- ---------
Total liabilities 61,186 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 37,838 32,835
Cumulative translation adjustment (2,929) (1,382)
--------- ---------
58,498 55,042
Less treasury stock, at cost -
254,440 shares of common stock (5,089) (5,089)
--------- ---------
Total shareholders' equity 53,409 49,953
--------- ---------
$ 114,595 $ 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>
Six months ended
June 30,
1996 1995
<S> <C> <C>
Net sales $ 88,275 $ 86,939
-------- --------
Cost of sales 55,648 56,606
Selling 14,987 14,634
General and administrative 5,459 4,773
Research and development 2,026 1,978
-------- --------
78,120 77,991
-------- --------
Operating income 10,155 8,948
-------- --------
Other income(expense):
Interest income 185 189
Interest expense (1,055) (1,311)
Amortization of intangible assets (646) (819)
Other - Net (174) (416)
-------- --------
(1,690) (2,357)
-------- --------
Income before income taxes 8,465 6,591
Provision for income taxes 3,462 2,639
-------- --------
Net income $ 5,003 $ 3,952
======== ========
Net income per common share $ 0.89 $ 0.70
======== ========
</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
June 30,
1996 1995
<S> <C> <C>
Net sales $ 44,603 $ 43,931
-------- --------
Cost of sales 27,690 28,707
Selling 7,685 7,515
General and administrative 2,847 2,446
Research and development 1,037 992
-------- --------
39,259 39,660
-------- --------
Operating income 5,344 4,271
-------- --------
Other income(expense):
Interest income 88 98
Interest expense (499) (682)
Amortization of intangible assets (325) (409)
Other - net 36 6
-------- --------
(700) (987)
-------- --------
Income before income taxes 4,644 3,284
Provision for income taxes 1,895 1,289
-------- --------
Net income $ 2,749 $ 1,995
======== ========
Net income per common share
and share equivalents $ .49 $ .35
======== ========
</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>
Six months
ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,003 $ 3,952
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,191 3,385
Changes in assets and liabilities:
Accounts receivable (5,599) (3,926)
Inventory 526 (2,430)
Other current assets (630) 512
Accounts payable and accrued expenses 1,426 2,075
Income taxes payable 140 434
Other assets and liabilities - net (304) 306
-------- --------
Net cash provided by operating activities 3,753 4,308
-------- --------
Cash flows from investing activities:
Capital expenditures (2,431) (2,717)
Purchase of business assets (950) (8,286)
Other, net 28 (239)
-------- --------
Net cash used by investing activities (3,353) (11,242)
-------- --------
Cash flows from financing activities:
Net (payments) borrowings under revolving credit
facilities (849) 11,148
-------- --------
Net cash (used) provided by financing activities (849) 11,148
-------- --------
Effect of exchange rate changes on cash (859) 1,095
-------- --------
Net (decrease) increase in cash and cash
equivalents (1,308) 5,309
Cash and cash equivalents at beginning of period 11,284 6,975
-------- --------
Cash and cash equivalents at end of period $ 9,976 $ 12,284
======== ========
</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 June 30, 1996 and the results of
its operations and changes in its cash flows for the six months ended June 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:
June 30, Dec. 31,
1996 1995
Finished goods $16,597 $17,020
Work-in-progress 197 194
Raw materials 6,786 7,290
-------- -------
$23,580 $24,504
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 compared to Six Months Ended June 30, 1995 and
Three Months Ended June 30, 1996 compared to Three Months Ended June 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>
Six Months Ended June 30,
1996 1995 (1)
% of % of
Amount Sales Amount Sales
(in thousands except percentages)
<S> <C> <C> <C> <C>
Sales
Environmental Products and Services $ 27,306 30.9% $ 28,065 32.3%
Textile Chemical Specialties 60,969 69.1 58,874 67.7
-------- ----- -------- -----
Total 88,275 100.0 86,939 100.0
Cost of Sales
Environmental Products and Services 19,456 71.3 20,290 72.3
Textile Chemical Specialties 36,192 59.4 36,316 61.7
-------- ----- -------- -----
Total 55,648 63.0 56,606 65.1
Gross Margin
Environmental Products and Services 7,850 28.7 7,775 27.7
Textile Chemical Specialties 24,777 40.6 22,558 38.3
-------- ----- -------- -----
Total 32,627 37.0 30,333 34.9
Operating Expense
Environmental Products and Services 5,500 20.1 5,538 19.7
Textile Chemical Specialties 16,972 27.8 15,847 26.9
-------- ----- -------- -----
Total 22,472 25.5 21,385 24.6
Operating Income
Environmental Products and Services 2,350 8.6 2,237 8.0
Textile Chemical Specialties 7,805 12.8 6,711 11.4
-------- ----- -------- -----
Total 10,155 11.5 8,948 10.3
Other Income (Expense), Net (1,690) (1.9) (2,357) (2.7)
-------- ----- -------- -----
Income Before Income Taxes 8,465 9.6 6,591 7.6
Provision for Income Taxes 3,462 3.9 2,639 3.1
-------- ----- -------- -----
Net Income $ 5,003 5.7% $ 3,952 4.5%
======== ===== ======== =====
<FN>
(1) Certain amounts have been reclassified for comparative purposes.
</FN>
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995 (1)
% of % of
Amount Sales Amount Sales
(in thousands except percentages)
<S> <C> <C> <C> <C>
Sales
Environmental Products and Services $ 13,658 30.6% $ 14,246 32.4%
Textile Chemical Specialties 30,945 69.4 29,685 67.6
-------- ----- -------- -----
Total 44,603 100.0 43,931 100.0
Cost of Sales
Environmental Products and Services 9,425 69.0 10,185 71.5
Textile Chemical Specialties 18,265 59.0 18,522 62.4
-------- ----- -------- -----
Total 27,690 62.1 28,707 65.3
Gross Margin
Environmental Products and Services 4,233 31.0 4,061 28.5
Textile Chemical Specialties 12,680 41.0 11,163 37.6
-------- ----- -------- -----
Total 16,913 37.9 15,224 34.7
Operating Expense
Environmental Products and Services 2,902 21.2 2,849 20.0
Textile Chemical Specialties 8,667 28.0 8,104 27.3
-------- ----- -------- -----
Total 11,569 25.9 10,953 25.0
Operating Income
Environmental Products and Services 1,331 9.8 1,212 8.5
Textile Chemical Specialties 4,013 13.0 3,059 10.3
-------- ----- -------- -----
Total 5,344 12.0 4,271 9.7
Other Income (Expense), Net (700) (1.6) (987) (2.2)
-------- ----- -------- -----
Income Before Income Taxes 4,644 10.4 3,284 7.5
Provision for Income Taxes 1,895 4.2 1,289 3.0
-------- ----- -------- -----
Net Income $ 2,749 6.2% $ 1,995 4.5%
======== ===== ======== =====
<FN>
(1) Certain amounts have been reclassified for comparative purposes.
</FN>
</TABLE>
-7-
<PAGE>
Operations
Sales for both the six months and quarter ending June 30, 1996 increased by
1.5% as compared with similar 1995 periods. In the Textile Chemical Specialties
segment, sales for both periods improved 3.6% and 4.2%, respectively, whereas
sales in the Environmental Products and Services segment were 2.7% and 4.1%
below similar 1995 periods.
In the Textile Chemical Specialties segment, Europe sales for the six
months and second quarter improved 10.3% and 8.1%, respectively, in U.S.
dollars. Both periods were favorably impacted by new product introductions,
substantial sales growth in several countries outside Western Europe and
favorable currency effects. America textile chemical sales declined by 1.6% on a
six month basis versus the same period last year reflecting weak textile market
conditions in the United States and reduced activity in the related chemical
toll manufacturing operation. However, second quarter sales improved 1.3%
compared with 1995's second quarter on the strength of growth in business
outside the United States combined with sales of new products in the United
States.
The drop in sales in the Environmental Product and Services segment in both
periods was principally the result of a substantial reduction of export volume
in the membrane product line due to competitive pricing. Ion exchange resins
sales decreased in both periods as the Company continued to experience weak
market conditions in this product line. Biochemical product line sales increased
substantially both in the year-to-date and quarter, compared with similar
periods in 1995. This improvement stemmed primarily from increases in sales to
almost all markets, particularly the consumer, institutional and bioremediation
areas. The remaining product line in this segment, specialty polymers, realized
volume improvements in both periods due to higher sales of products for
reprographic toners.
The overall gross margin for the six months and second quarter ending June
30, 1996 was 37.0% and 37.9%, respectively, an improvement over the 34.9% and
34.7% experienced during 1995. The gross margin in the Textile Chemicals
Specialties segment increased to 40.6% on a six month basis while the quarter
resulted in a 41.0% margin, both better than last year's comparable rates of
38.3% and 37.6%. The gross margin in Europe improved substantially in both
periods due to the introduction of new products selling at higher margins and
the continued favorable currency impact of the weaker Dutch Guilder as compared
with the Italian Lire and certain other European currencies. America margins
also improved for both periods as a result of lower freight and raw material
costs, improved production efficiencies and a favorable product mix. These were
partially offset by small selling price decreases.
The gross margin in the Environmental Products and Services segment climbed
to 28.7% for the six month period and 31.0% for the second quarter, both of
which were better than the respective prior year margins of 27.7% and 28.5%.
This improvement principally resulted from
-8-
<PAGE>
manufacturing efficiencies, favorable product mix and lower raw material
costs. Ion exchange product line gross margins, on a six month basis, were under
last year's due to a slight decrease in average selling prices, unfavorable
labor and manufacturing variances and reduced inventory levels. These were
somewhat offset by lower costs for several major raw materials, especially
styrene. For the second quarter, ion exchange gross margins improved as selling
prices stabilized while raw material prices continued to decline. Membrane
product line gross margins declined in both periods due to overall average
selling price decreases and an unfavorable product mix which were partially
offset by improved production efficiencies and lower raw material costs. Gross
margins increased in the specialty polymer product line which resulted from
higher overall average selling prices and reduced raw material costs,
principally styrene.
Operating expenses as a percent of sales for the six month period increased
to 25.5% as compared to last year's 24.6%. For the quarter, expenses were 25.9%
of sales versus 25.0% for the similar 1995 period. The Environmental Products
and Services segment expenses increased as a percent of sales primarily due to
lower sales and staff additions in the biochemical business. In the Textile
Chemical Specialties segment, operating expenses as a percent of sales increased
in both periods due to increased costs to bolster the research and development
activity in the United States.
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 rates of 40.9% for the six months increased
over last year's applicable rate of 40.0%. The increase related to the Company
earning more of its income in high tax rate jurisdictions.
Other income (expense) was ($1.7) million for the first six months of 1996
versus ($2.4) 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 were approximately $10.0 million as of June 30,
1996 which was approximately $1.3 million under the December 31, 1995 balance.
This was principally the result of a reduction in net borrowings and the
unfavorable impact of a stronger U.S. dollar versus the Dutch guilder since most
of the Company's cash is located in Europe.
-9-
<PAGE>
Net cash flow provided by operating activities was approximately $3.8
million on a six month basis versus $4.3 million for the same period in 1995.
The decrease principally was due to lower accounts payable and accrued expenses
and increased accounts receivables, only partially offset by higher net income
and a small reduction of inventory levels in 1996.
Net cash used by investing activities was approximately $3.4 million for
the first six months of 1996 versus $11.2 million for the same period in 1995.
The 1995 figure includes the purchase of the common stock of the Auralux
Corporation in January.
Net cash used by financing activities for the six month period of 1996 was
$849,000 due to the repayment of existing debt. This was the opposite of 1995's
activity when borrowings increased in order 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 $8.1 million as of June 30, 1996.
The Company 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 six months of 1996 was 7.88%.
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 a planned relocation of the
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 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 $60,000 in the Europe
division in the first six months of 1996 as compared with an exchange loss of
$328,000 during the similar 1995 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 April 1, 1996.
-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/ Lawrence R. Hoffman
-----------------------
Lawrence R. Hoffman
Acting Principal Financial
Date: August 14, 1996 and Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000832815
<NAME> SYBRON CHEMICALS INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,976,000
<SECURITIES> 0
<RECEIVABLES> 35,891,000
<ALLOWANCES> 0
<INVENTORY> 23,580,000
<CURRENT-ASSETS> 71,451,000
<PP&E> 30,449,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,595,000
<CURRENT-LIABILITIES> 29,926,000
<BONDS> 0
0
0
<COMMON> 59,000
<OTHER-SE> 53,358,000
<TOTAL-LIABILITY-AND-EQUITY> 114,595,000
<SALES> 88,275,000
<TOTAL-REVENUES> 88,275,000
<CGS> 55,648,000
<TOTAL-COSTS> 78,120,000
<OTHER-EXPENSES> 635,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,055,000
<INCOME-PRETAX> 8,465,000
<INCOME-TAX> 3,462,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,003,000
<EPS-PRIMARY> .89
<EPS-DILUTED> .89
</TABLE>
