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, 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 March 31, 1997
----- -----------------------------
Common stock, $.01 par value 5,665,746
<PAGE>
SYBRON CHEMICALS INC.
INDEX
Page No.
Part I Financial information
Item 1 - Financial Statements
Consolidated Balance Sheet -
March 31, 1997 and December 31, 1996 1
Consolidated Statement of Operations -
three months ended March 31, 1997 and 1996 2
Consolidated Statement of Cash Flows -
three months ended March 31, 1997 and 1996 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
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,543 $ 14,909
Accounts receivable, net 34,446 32,863
Inventories, net 22,147 22,125
Prepaid and other current assets 2,739 2,522
Deferred income taxes 42 43
-------- --------
Total current assets 74,917 72,462
Property, plant and equipment, net 31,098 31,533
Intangible assets, net 12,047 12,383
Other assets 649 686
-------- --------
$118,711 $117,064
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 204 $ 778
Accounts payable 16,547 16,603
Accrued liabilities 11,735 13,184
Current portion of long-term debt 2,432 2,433
Income taxes payable 1,818 609
Deferred income taxes 194 188
------- --------
Total current liabilities 32,930 33,795
Long-term debt 19,566 17,787
Deferred income taxes 2,997 2,926
Postretirement benefits 3,979 3,999
Other liabilities 2,324 2,469
-------- --------
Total liabilities 61,796 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 5,905,000 shares 59 59
Additional paid-in capital 23,527 23,530
Retained earnings 44,323 41,349
Cumulative translation adjustment (5,957) (3,509)
--------- ---------
61,952 61,429
Less treasury stock, at cost - 239,254
shares of common stock in 1997 and
254,440 in 1996 (4,785) (5,089)
Less minimum pension liability, net of tax (252) (252)
--------- ---------
Total shareholders' equity 56,915 56,088
--------- --------
$118,711 $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>
Three months
ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
Net sales $ 44,709 $ 43,672
-------- --------
Cost of sales 27,400 27,958
Selling 7,974 7,302
General and administrative 2,629 2,612
Research and development 919 989
-------- --------
38,922 38,861
Operating income 5,787 4,811
-------- --------
Other income(expense)
Interest income 95 97
Interest expense (452) (556)
Amortization of intangible assets (335) (321)
Other - Net (97) (210)
--------- ---------
(789) (990)
Income before income taxes 4,998 3,821
Provision for income taxes 2,024 1,567
--------- --------
Net income $ 2,974 $ 2,254
======== ========
Net income per common share $ .53 $ .40
======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
Three months
ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,974 $ 2,254
-------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,620 1,606
Provision for losses on accounts receivable 226 27
Changes in assets and liabilities:
Accounts receivable (3,177) (3,747)
Inventory (599) (97)
Other current assets (248) (829)
Accounts payable and accrued expenses (307) 1,247
Income taxes payable 1,271 848
Other assets and liabilities - net 852 (37)
-------- --------
Net cash provided by operating activities 2,612 1,272
-------- -------
Cash flows from investing activities:
Capital expenditures (1,768) (1,146)
Other, net 18 11
-------- -------
Net cash used by investing activities (1,750) (1,135)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving credit facilities 1,264 245
-------- -------
Net cash provided by financing activities 1,264 245
-------- -------
Effect of exchange rate changes on cash (1,492) (368)
-------- --------
Net increase in cash and cash equivalents 634 14
Cash and cash equivalents at beginning of period 14,909 11,284
-------- -------
Cash and cash equivalents at end of period $15,543 $11,298
======== =======
</TABLE>
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, 1997 and the results of
its operations and changes in its cash flows for the three months ended March
31, 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:
March 31, Dec. 31,
1997 1996
---- ----
Finished goods $16,407 $16,247
Work-in-progress 124 109
Raw materials 6,589 6,642
-------- -------
23,120 22,998
Less reserves 973 873
-------- -------
$22,147 $22,125
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 compared to Three Months Ended March 31, 1996.
The following tables set forth certain information about the Company's two
business segments, Environmental Products and Services and Textile Chemical
Specialties.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
(in thousands except percentages)
<S> <C> <C> <C> <C>
Sales
Environmental Products and Services $13,955 31.2% $13,648 31.3%
Textile Chemical Specialties 30,754 68.8 30,024 68.7
-------- ------ -------- -----
Total 44,709 100.0 43,672 100.0
Cost of Sales
Environmental Products and Services 9,641 69.1 10,031 73.5
Textile Chemical Specialties 17,759 57.7 17,927 59.7
-------- ----- -------- ----
Total 27,400 61.3 27,958 64.0
Gross Margin
Environmental Products and Services 4,314 30.9 3,617 26.5
Textile Chemical Specialties 12,995 42.3 12,097 40.3
-------- ----- -------- ----
Total 17,309 38.7 15,714 36.0
Operating Expense
Environmental Products and Services 2,902 20.8 2,598 19.0
Textile Chemical Specialties 8,620 28.0 8,305 27.7
-------- ----- -------- ----
Total 11,522 25.8 10,903 25.0
Operating Income
Environmental Products and Services 1,412 10.1 1,019 7.5
Textile Chemical Specialties 4,375 14.2 3,792 12.6
-------- ----- -------- ----
Total 5,787 12.9 4,811 11.0
Other Expense (789) (1.7) (990) (2.3)
-------- ----- -------- -----
Income Before Income Taxes 4,998 11.2 3,821 8.7
Provision for Income Taxes 2,024 4.5 1,567 3.5
-------- ----- -------- ----
Net Income $ 2,974 6.7% $ 2,254 5.2%
======== ===== ======== =====
</TABLE>
-5-
<PAGE>
Operations
Sales for the quarter ending March 31, 1997 increased by 2.4% compared with
the similar 1996 quarter with the Textile Chemical Specialties and Environmental
Products and Services segments growing by 2.4% and 2.3%, respectively.
In the Textile Chemical Specialties segment, North America and Asia textile
chemical sales increased 3.3% compared with the first quarter of 1996 as a
result of strong growth in the Mexican, Canadian and Asian businesses. Despite
the sales growth related to the introduction of several new products last year,
continued weak textile market conditions in the U.S. coupled with the
discontinuance of several low margin products caused a decline in sales in the
U.S. textile chemical business. Europe division textile chemical sales in U.S.
dollars for the first quarter improved 1.5% as compared with the same period in
1996. Physical volume in Europe grew 11.8% with strong sales in both Eastern and
Western Europe. This volume growth more than offset the 9.3% negative currency
effect of the strong U.S. dollar versus the Dutch guilder. Sales in the related
U.S. organic chemical product line improved by 21.8% as the custom manufacturing
business increased compared to last year.
The improvement in sales in the Environmental Product and Services segment
principally resulted from sales to new customers in the ion exchange resin
household market coupled with a slight increase in the biochemical product line.
The slight increase in biochemical sales was due to growth in the U.S. coupled
with increased sales to foreign distributors which were partially offset by a
decline in sales to Japan. The remaining product lines in this segment,
specialty polymers and membranes, had a modest improvement in sales compared
with the first quarter of 1996.
The gross margin for the quarter ending March 31, 1997 was 38.7%, a
substantial improvement over the 36.0% experienced during the comparable 1996
period. New product sales which carry higher margins, the elimination of several
low margin products, and a small decrease in raw material costs resulted in an
improvement in North America textile chemical gross margins. The gross margin in
Europe was also higher than the comparable period in 1996 due to product mix and
the continued favorable currency impact of a weaker guilder as compared with
certain other European currencies. Favorable product and customer mix resulted
in an increase in gross margins in the related organics chemical business.
The gross margin in the Environmental Products and Services segment was
30.9% for the first quarter, a significant improvement over the 26.5%
experienced during the first quarter of 1996. The gross margin in both the ion
exchange and specialty polymers product lines increased as a result of overall
lower raw material
-6-
<PAGE>
costs, production efficiencies, and cost reductions. Higher raw material costs
and an unfavorable product mix contributed to a gross margin reduction in the
biochemical product line. The gross margin also decreased in the membrane
product line due to unfavorable inventory adjustments.
Operating expenses as a percent of sales for the first quarter were 25.8%
as compared to last year's 25.0% with both segments showing year-to-year
increases. In the Environmental Products and Services segment, operating
expenses increased as a percent of sales primarily due to increased marketing
efforts and staffing in the specialty polymers, membrane and biochemicals
product lines and an increase in bad debt reserves in the specialty polymer
product line. Operating expenses as a percent of sales in the Textile Chemical
Specialties segment also increased, but to a lessor degree, as a result of
additional bad debt reserves in the U.S. coupled with increased marketing costs
related to staff additions in North America and Asia.
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 40.5% for the first quarter of 1997 was
slightly under last year's applicable rate of 41.0%. This decrease was the
result of the Company earning more of its income in lower tax rate
jurisdictions.
Other income (expense) was ($0.8) million for the quarter versus ($1.0)
million in last year's comparable period. The decrease was primarily due to a
reduction in interest expense related to lower interest rates on the Company's
newly negotiated revolving credit facility and a reduction in 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 $15.5 million as of March 31, 1997 were $0.6
million over the December 31, 1996 balance of $14.9 million, an increase of 4%.
Net cash flow generated by operating activities totalled $2.6 million for
the first three months of 1997 versus $1.3 million for the same period in 1996.
This increase was principally due to an improvement in net income, income taxes
payable and other assets and liabilities.
Net cash used by investing activities totalled $1.8 million for the first
quarter of 1997 as compared with $1.1 million for the
-7-
<PAGE>
comparable 1996 period. The increase in capital expenditures during the
first quarter of 1997 was primarily due to manufacturing plant upgrades in the
U.S. and Mexico.
Net cash used by financing activities for the first quarter of 1997 was
$1.2 million versus $0.2 million for the first quarter of 1996 due to additional
borrowings in order to fund increased bonus payouts and the increase in capital
expenditures.
The Company has a $40 million unsecured multi-currency revolving line of
credit with CoreStates Bank which expires in February, 2002. The amount owed
under this credit facility was $7.4 million as of March 31, 1997.
During 1997, the Company believes its capital expenditures for existing
operations can be funded from operating cash flow and are expected to be
comparable to 1996 spending. 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 except Mexico, 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 realized a modest exchange loss in the first quarter
of 1997 and a modest exchange gain in the similar period in 1996.
-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 March 27, 1997.
-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 Chief Financial
Date: May 13, 1997 Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000832815
<NAME>Lawrence R. Hoffman
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,543,000
<SECURITIES> 0
<RECEIVABLES> 34,446,000
<ALLOWANCES> 0
<INVENTORY> 22,147,000
<CURRENT-ASSETS> 74,917,000
<PP&E> 31,098,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 118,711,000
<CURRENT-LIABILITIES> 32,930,000
<BONDS> 0
0
0
<COMMON> 59,000
<OTHER-SE> 56,856,000
<TOTAL-LIABILITY-AND-EQUITY> 118,711,000
<SALES> 44,709,000
<TOTAL-REVENUES> 44,709,000
<CGS> 27,400,000
<TOTAL-COSTS> 38,922,000
<OTHER-EXPENSES> 337,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 452,000
<INCOME-PRETAX> 4,998,000
<INCOME-TAX> 2,024,000
<INCOME-CONTINUING> 2,974,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,974,000
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
