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, 1997
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, 1997
----- ----------------------------
Common stock, $.01 par value 5,668,448
<PAGE>
SYBRON CHEMICALS INC.
INDEX
Page No.
--------
Part I Financial information
Item 1 - Financial Statements
Consolidated Balance Sheet -
June 30, 1997 and December 31, 1996 1
Consolidated Statement of Operations -
six months ended June 30, 1997 and 1996 2
Consolidated Statement of Operations -
three months ended June 30, 1997 and 1996 3
Consolidated Statement of Cash Flows -
six months ended June 30, 1997 and 1996 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
Item 5 Other Information 11
<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>
June 30, Dec. 31,
1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,205 $ 14,909
Accounts receivable, net 37,078 32,863
Inventories, net 23,209 22,125
Prepaid and other current assets 2,593 2,522
Deferred income taxes 43 43
-------- --------
Total current assets 80,128 72,462
Property, plant and equipment, net 31,315 31,533
Intangible assets, net 11,714 12,383
Other assets 622 686
-------- --------
$123,779 $117,064
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 311 $ 778
Accounts payable 17,779 16,603
Accrued liabilities 12,936 13,184
Current portion of long-term debt 2,431 2,433
Income taxes payable 3,444 609
Deferred income taxes 205 188
-------- --------
Total current liabilities 37,106 33,795
-------- --------
Long-term debt 17,891 17,787
Deferred income taxes 2,882 2,926
Postretirement benefits 3,959 3,999
Other liabilities 2,284 2,469
-------- --------
Total liabilities 64,122 60,976
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 5,905,150 shares 59 59
Additional paid-in capital 23,519 23,530
Retained earnings 48,080 41,349
Cumulative translation adjustment (7,015) (3,509)
--------- ---------
64,643 61,429
Less treasury stock, at cost - 236,702
shares of common stock at June 30, 1997,
254,440 at December 31, 1996 (4,734) (5,089)
Less minimum pension liability, net of tax (252) (252)
Total shareholders' equity 59,657 56,088
--------- ---------
$123,779 $117,064
</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,
--------
1997 1996
---- ----
<S> <C> <C>
Net sales $ 92,132 $ 88,275
-------- --------
Cost of sales 55,858 55,648
Selling 16,338 14,987
General and administrative 5,245 5,459
Research and development 1,836 2,026
-------- --------
79,277 78,120
Operating income 12,855 10,155
-------- --------
Other income(expense):
Interest income 201 185
Interest expense (853) (1,055)
Amortization of intangible assets (669) (646)
Other - Net (124) (174)
--------- ---------
(1,445) (1,690)
Income before income taxes 11,410 8,465
Provision for income taxes 4,679 3,462
-------- --------
Net income $ 6,731 $ 5,003
======== ========
Net income per common share $ 1.19 $ 0.89
======== ========
Weighted average number of shares
outstanding 5,661,341 5,650,560
</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,
--------
1997 1996
---- ----
<S> <C> <C>
Net sales $ 47,423 $ 44,603
-------- --------
Cost of sales 28,458 27,690
Selling 8,364 7,685
General and administrative 2,616 2,847
Research and development 917 1,037
-------- --------
40,355 39,259
Operating income 7,068 5,344
-------- --------
Other income(expense):
Interest income 106 88
Interest expense (401) (499)
Amortization of intangible assets (334) (325)
Other - net (27) 36
--------- ---------
(656) (700)
Income before income taxes 6,412 4,644
Provision for income taxes 2,655 1,895
-------- --------
Net income $ 3,757 $ 2,749
======== ========
Net income per common share $ .66 $ .49
======== ========
Weighted average number of shares
outstanding 5,667,353 5,650,560
</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,
--------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,731 $ 5,003
------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,368 3,191
Provision for losses on accounts receivable 322 38
Changes in assets and liabilities:
Accounts receivable (6,279) (5,637)
Inventory (1,892) 526
Other current assets (108) (630)
Accounts payable and accrued expenses 2,500 1,426
Income taxes payable 2,959 140
Other assets and liabilities - net 104 (304)
------- --------
Net cash provided by operating activities 7,705 3,753
------- -------
Cash flows from investing activities:
Capital expenditures (3,737) (2,431)
Purchase of business assets -- (950)
Other, net 23 28
------- -------
Net cash used by investing activities (3,714) (3,353)
------- -------
Cash flows from financing activities:
Net payments under revolving credit facilities (288) (849)
Proceeds from exercise of stock options 2 --
------- --------
Net cash used by financing activities (286) (849)
------- -------
Effect of exchange rate changes on cash (1,409) (859)
-------- --------
Net increase (decrease) in cash and cash
equivalents 2,296 (1,308)
Cash and cash equivalents at beginning of period 14,909 11,284
------- -------
Cash and cash equivalents at end of period $17,205 $ 9,976
======= =======
</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, 1997 and the results of
its operations and changes in its cash flows for the six months ended June 30,
1997 and 1996.
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, 1996 contained in the Company's Form 10-K which was filed with the
Securities and Exchange Commission on March 27, 1997. 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,
1997 1996
---- ----
Finished goods $16,550 $16,247
Work-in-progress 126 109
Raw materials 7,384 6,642
------- -------
24,060 22,998
Less reserves 851 873
------- -------
$23,209 $22,125
======= =======
-5-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 compared to Six Months Ended June 30, 1996
and Three Months Ended June 30, 1997 compared to Three Months Ended June 30,
1996.
The following tables set forth certain information about the Company's two
business segments, Environmental Products and Services and Textile Chemical
Specialties. Six Months Ended June 30, 1997 1996
<TABLE>
<CAPTION>
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
(in thousands except percentages)
<S> <C> <C> <C> <C>
Sales
Environmental Products and Services $ 28,443 30.9% $ 27,306 30.9%
Textile Chemical Specialties 63,689 69.1 60,969 69.1
-------- ----- -------- -----
Total 92,132 100.0 88,275 100.0
Cost of Sales
Environmental Products and Services 19,463 68.4 19,456 71.3
Textile Chemical Specialties 36,395 57.1 36,192 59.4
-------- ----- -------- -----
Total 55,858 60.6 55,648 63.0
Gross Margin
Environmental Products and Services 8,980 31.6 7,850 28.7
Textile Chemical Specialties 27,294 42.9 24,777 40.6
-------- ----- -------- -----
Total 36,274 39.4 32,627 37.0
Operating Expense
Environmental Products and Services 5,912 20.8 5,500 20.1
Textile Chemical Specialties 17,507 27.5 16,972 27.8
-------- ----- -------- -----
Total 23,419 25.4 22,472 25.5
Operating Income
Environmental Products and Services 3,068 10.8 2,350 8.6
Textile Chemical Specialties 9,787 15.4 7,805 12.8
-------- ----- ------- -----
Total 12,855 14.0 10,155 11.5
Other Income (Expense), Net (1,445) (1.6) (1,690) (1.9)
-------- ----- ------- -----
Income Before Income Taxes 11,410 12.4 8,465 9.6
Provision for Income Taxes 4,679 5.1 3,462 3.9
-------- ---- ------- -----
Net Income $ 6,731 7.3% $ 5,003 5.7%
======== === ======== ===
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1997 1996
---- ----
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
(in thousands except percentages)
<S> <C> <C> <C> <C>
Sales
Environmental Products and Services $ 14,488 30.6% $ 13,658 30.6%
Textile Chemical Specialties 32,935 69.4 30,945 69.4
-------- ----- -------- -----
Total 47,423 100.0 44,603 100.0
Cost of Sales
Environmental Products and Services 9,822 67.8 9,425 69.0
Textile Chemical Specialties 18,636 56.6 18,265 59.0
-------- ----- -------- -----
Total 28,458 60.0 27,690 62.1
Gross Margin
Environmental Products and Services 4,666 32.2 4,233 31.0
Textile Chemical Specialties 14,299 43.4 12,680 41.0
-------- ----- -------- -----
Total 18,965 40.0 16,913 37.9
Operating Expense
Environmental Products and Services 3,010 20.8 2,902 21.2
Textile Chemical Specialties 8,887 27.0 8,667 28.0
-------- ----- ------- -----
Total 11,897 25.1 11,569 25.9
Operating Income
Environmental Products and Services 1,656 11.4 1,331 9.8
Textile Chemical Specialties 5,412 16.4 4,013 13.0
-------- ----- ------- -----
Total 7,068 14.9 5,344 12.0
Other Income (Expense), Net (656) (1.4) (700) (1.6)
-------- ----- ------- -----
Income Before Income Taxes 6,412 13.5 4,644 10.4
Provision for Income Taxes 2,655 5.6 1,895 4.2
-------- ----- ------- -----
Net Income $ 3,757 7.9% $2,749 6.2%
======= === ====== ===
</TABLE>
-7-
<PAGE>
Operations
Total sales for the six months and quarter ending June 30, 1997 increased
by 4.4% and 6.3%, respectively, compared with the same periods in 1996. The
Textile Chemical Specialties segment grew by 4.5% on a six months basis and 6.4%
for the quarter. Similarly, sales in the Environmental Products and Services
segment improved 4.2% and 6.1%, respectively, over the same periods in 1996.
In the Textile Chemical Specialties segment, Europe division sales for the
six months and second quarter improved 5.4% and 9.4%, respectively, in U.S.
dollars. Substantial physical volume growth of 15.2% for the first half of the
year and 18.5% for the quarter more than offset the negative currency impact in
both periods, primarily relating to the stronger U.S. dollar versus the Dutch
guilder. Combined North America/Asia textile chemical sales for the six months
and second quarter increased 3.7% and 4.0%, respectively. Both periods reflected
strong growth in the Mexican, Canadian and Asian businesses that more than
offset lower sales in the U.S. due to the continued weak market conditions and
the discontinuance of certain low margin products. Substantial increases in toll
manufacturing volume in both periods resulted in an 18.5% and 16.1% improvement,
respectively, in sales in the related organic chemical business.
The improvement in sales in the Environmental Product and Services segment
in both periods was primarily in the ion exchange product line, the result of
new customers and an overall volume increase in the household resin market.
Volume also increased in the specialty polymers product line due to the impact
of the acquisition of Chemical Images in June 1996 and improved market
penetration. Biochemical product line sales improved in the six months due to
increased activity in Europe; however, the second quarter sales were slightly
under the similar 1996 period stemming from a downturn in the consumer area. The
membrane product line also showed an upturn in both periods.
The overall gross margin for the six months and second quarter ending June
30, 1997 was 39.4% and 40.0%, respectively, an improvement over the 37.0% and
37.9% experienced during the similar 1996 periods. The gross margin in the
Textile Chemicals Specialties segment climbed to 42.9% on a six month basis
while the quarter jumped to 43.4%, both better than last year's rates of 40.6%
and 41.0%. Product mix and the continued favorable impact of a weaker guilder as
compared with certain other European currencies resulted in an improvement in
Europe in both periods. Likewise, margins in both periods in the North America
and Asia markets improved in 1997 as compared with similar 1996 periods due to
higher sales of new products which carry better margins, the reduction of
several very low margin products in the U.S., and
-8-
<PAGE>
customer mix. In the related organic chemical business, margins improved in both
periods due to the increase in higher margin toll manufacturing and production
efficiencies.
The gross margin in the Environmental Products and Services segment
increased to 31.6% for the six month period and 32.2% for the second quarter
versus the respective prior year margins of 28.7% and 31.0%. Margins in the ion
exchange and specialty polymer product lines were positively impacted in both
periods by manufacturing efficiencies, customer mix and continued cost controls.
Margins also improved on a six month and quarter basis in the biochemical
product line due to production efficiencies and product/customer mix. Margins in
the membrane business dropped compared with both periods in 1996 as a result of
customer mix and unfavorable inventory adjustments.
Operating expenses as a percent of sales decreased to 25.4% for the six
month period and 25.1% for the second quarter. Both of these were favorable to
the similar period results in 1996 of 25.5% and 25.9%. The Textile Chemical
Specialties segment expenses decreased as a percent of sales in both periods as
a result of lower administration expenses and the currency impact in Europe on
fixed costs due to the stronger dollar versus the Dutch guilder. The
Environmental Products and Services segment expenses as a percent of sales
decreased slightly in the quarter but were higher on a six month basis versus
last year primarily due to increased marketing efforts and staffing in several
of the segment's product lines coupled with an increase in provisions for
doubtful accounts related to the specialty polymer product line.
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 six months of 1997 was
essentially equal to last year's rate of 40.9%.
Other income (expense) was ($1.4) million for the first six months of 1997
versus ($1.7) million in last year's comparable period. The decrease was
primarily due to a drop in interest expense related to lower rates and an
overall reduction of all debt including the amount of fixed term debt which
carries a higher interest rate than borrowings under the revolving credit
facility.
Liquidity and Capital Resources
Cash and cash equivalents of $17.2 million as of June 30, 1997 were $2.3
million over the December 31, 1996 balance of $14.9 million.
-9-
<PAGE>
Net cash flow generated by operating activities totalled $7.7 million for
the first six months of 1997 versus $3.8 million for the same period in 1996.
This increase was principally due to improved net income and higher payable
balances.
Net cash used by investing activities totalled $3.7 million for the first
six month period of 1997 as compared with $3.4 million for the comparable 1996
period. Manufacturing plant upgrades in the U.S. and Mexico resulted in the
increase in capital expenditures in 1997.
Net cash used by financing activities for the first half of this year was
$0.3 million versus $0.8 million for the similar period in 1996 due to the
repayment of existing debt.
The Company has a $40 million unsecured multi-currency revolving line of
credit with CoreStates Bank that expires in February 2002. The amount owed under
this credit facility was approximately $5.7 million as of June 30, 1997.
During 1997, the Company believes its capital expenditures for existing
operations can be funded from operating cash flow and are expected to be
somewhat ahead of 1996 levels. 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. This includes financing the Company's purchase on July 29, 1997 of
certain assets of the garment processing and textile chemical business from IVAX
Industries, Inc.
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. Overall, the Company recognized exchange gains of less than $0.1
million in both the first six months of 1997 and the similar period in 1996.
-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 27, 1997.
Item 5. Other Information
- ------- -----------------
Acquisition
-----------
On July 29, 1997, the Company acquired certain operating assets not
including manufacturing facilities, of the Textile and Garment Processing
businesses (the "Business") of IVAX Industries, Inc. ("IVAX"), IVAX Industries
Canada, Inc. and IVAX Industries U.K. Ltd. The purchase price for such assets
was $13,770,000, subject to certain post-closing adjustments. The purchase price
was financed primarily from the Company's existing revolving credit facility.
The Company intends to use the acquired assets to continue the product lines of
the Business, which the Company will operate out of its existing facilities in
Wellford, South Carolina and other locations around the world. For a
transitional period not to exceed 270 days, IVAX agreed to continue
manufacturing products on behalf of the Company in IVAX's existing facilities.
-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/ Richard M. Klein
--------------------
Richard M. Klein
President & Chief Executive
Officer
/s/ William A. Pfeiffenberger
-----------------------------
William A. Pfeiffenberger
Acting Principal Financial
and Accounting Officer
Date: August 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000832815
<NAME> SYBRON CHEMICALS INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,205,000
<SECURITIES> 0
<RECEIVABLES> 37,078,000
<ALLOWANCES> 0
<INVENTORY> 23,209,000
<CURRENT-ASSETS> 80,128,000
<PP&E> 31,315,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 123,779,000
<CURRENT-LIABILITIES> 37,106,000
<BONDS> 0
0
0
<COMMON> 59,000
<OTHER-SE> 59,598,000
<TOTAL-LIABILITY-AND-EQUITY> 123,779,000
<SALES> 92,132,000
<TOTAL-REVENUES> 92,132,000
<CGS> 55,858,000
<TOTAL-COSTS> 79,277,000
<OTHER-EXPENSES> 592,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 853,000
<INCOME-PRETAX> 11,410,000
<INCOME-TAX> 4,679,000
<INCOME-CONTINUING> 6,731,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,731,000
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.19
</TABLE>
