SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______ to _______
Commission File No. 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 Number)
Birmingham Rd., P.O. Box 66, Birmingham, NJ 08011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 893-1100
-------------------------------
Securities registered pursuant to Section 12(b) of
the Act:
Title of each Class Name of exchange on which registered
Common Stock, par value $0.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of
the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant based upon the closing sale price of the Common Stock on March 13,
1998 as reported on the American Stock Exchange, was approximately $59,220,000.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes. At March 13,
1998, there were 5,680,048 shares of the Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 29, 1998 are incorporated by reference into Part III
of this Annual Report.
<PAGE>
SYBRON CHEMICALS INC.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward- looking statements. This Annual Report contains information that is
forward-looking, such as information relating to future capital expenditures and
environmental cleanup costs as well as the effects of future regulation and
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in the future
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. These risks and uncertainties include, but are not limited to,
uncertainties relating to economic conditions, fluctuations in exchange rates of
various foreign currencies, and other risks associated with foreign operations,
changes in governmental and regulatory policies including environmental
regulations, the pricing of raw materials, the ability of the Company to make
and successfully integrate corporate acquisitions, technological developments
and changes in the competitive environment in which the Company operates.
TABLE OF CONTENTS
Item Page
PART I
1 Business...................................... 1
2 Properties.................................... 14
3 Legal Proceedings............................. 15
4 Submission of Matters to a Vote of Security
Holders...................................... 16
PART II
5 Market for the Registrant's Common Stock and
Related Stockholder Matters.................. 16
6 Selected Financial Data....................... 17
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations. 19
8 Financial Statements and Supplementary Data... 26
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....... 26
PART III
10 Directors and Executive Officers of the
Registrant................................... 27
11 Executive Compensation........................ 29
12 Security Ownership of Certain Beneficial
Owners and Management........................ 29
13 Certain Relationships and Related
Transactions................................. 29
PART IV
14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K...................... 29
Signatures.................................... 32
(i)
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PART 1
ITEM 1. BUSINESS
General
Sybron Chemicals Inc. (the "Company") is an international developer,
producer and marketer of specialty chemicals used primarily in the textile wet
processing and environmental markets. The Company's two operating segments,
Textile Chemical Specialties and Environmental Products and Services, accounted
for 70.7% and 29.3%, respectively, of total sales for 1997.
The Company's Textile Chemical Specialties segment products are used in the
wet processing of fabrics made from natural and synthetic fibers to enhance the
aesthetic and physical characteristics of such fabrics. This segment also
includes a line of proprietary and custom manufactured organic chemicals, some
of which are also used as components in the Company's textile chemicals
products.
The Company's Environmental Products and Services segment products include
ion exchange resins for use in home water softening/conditioning and industrial
water treatment; biochemicals for treating industrial municipal and sanitary
waste, and contaminated soil and groundwater; and specialty polymers, primarily
for use as binders in toners for photocopy machines and laser printers.
The Company offers over 1,600 products which are sold to over 6,000 active
customers worldwide. The Company possesses numerous customized and proprietary
formulations with unique performance characteristics designed to address
specific customer needs. The top 10 customers accounted for approximately 12.9%,
13.3% and 14.7% of sales in 1997, 1996 and 1995, respectively. The largest
customer in each such year accounted for less than 5% of consolidated sales.
The Company, a Delaware corporation formerly known as Sybron Chemical
Industries Inc., is the successor to a business established in the 1920's. That
business became a specialty chemical company (the "Sybron Chemical Group") in
the 1960's under the ownership of Sybron Corporation. The Company acquired the
Sybron Chemical Group from Sybron Corporation in 1987.
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The Company uses proprietary technology to provide value added solutions to
customer problems through innovative, high quality products and intensive
customer service. Management believes that the Company's products provide
critical performance attributes which enhance the value of its customers'
products while representing only a small portion of the customers' total product
costs. The Company's extensive field sales force and marketing representatives,
most of whom have had direct working experience in the industries which they
service, function as applications engineers. They work in conjunction with the
Company's research groups and customers to develop and sell products and
applications know-how to meet customers' individual needs.
On July 29, 1997, the Company acquired certain operating assets, not
including manufacturing facilities, of the textile and garment processing
chemicals business of Ivax Industries, Inc. and its affiliates for $14,476,000
(the "Ivax") Acquisition"). As part of the Ivax Acquisition, the Company
obtained leading patents and formulations developed by Ivax for the use of
enzymes to impart a "stone-washed" finish to denim. The Company intends to
continue to support such product lines utilizing its existing manufacturing and
distribution facilities in Wellford, South Carolina and other locations around
the world. Management believes that the Ivax Acquisition will enhance the
Company's position in the fast-growing garment processing segment of the textile
industry. See Note 3 to the Consolidated Financial Statements.
On August 26, 1997, the Company entered into a ten-year supply agreement
with Dow Chemical Company ("Dow") pursuant to which Dow will provide the Company
with substantially all of the Company's anion exchange resin requirements. Prior
to this agreement, the Company independently manufactured its anion exchange
resin requirements. Pursuant to the agreement, Dow will also supply other anion
resin products that will be additions or improvements to the Company's product
line.
During the three months ended September 30, 1997, the Company commenced
manufacture of a raw material that it had previously purchased for use in one of
the products in its Environmental Products and Services segment.
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On December 15, 1997, the Company sold the reverse osmosis membrane
business of its subsidiary, Purification Products Company, formerly part of its
Environmental Products and Services segment, for $1.5 million in cash.
The following table sets forth the Company's sales, operating income and
operating income as a percentage of sales by segment for the periods indicated:
================================================================================
Year ended December 31,
(in thousands, except percentages)
1997 1996 1995
-------- -------- ------
Sales
Textile Chemical Specialties $133,452 $120,301 $112,838
Environmental Products and Services 55,362 54,045 54,969
-------- -------- --------
Total $188,814 $174,346 $167,807
======== ======== ========
Operating Income
Textile Chemical Specialties $ 18,066 $ 13,480 $ 10,947
Environmental Products and Services 5,370 4,142 4,030
-------- -------- --------
Total $ 23,436 $ 17,622 $ 14,977
======== ======== ========
Operating Income as a Percentage of Sales
Textile Chemical Specialties 13.5% 11.2% 9.7%
Environmental Products and Services 9.7% 7.7% 7.3%
Total 12.4% 10.1% 8.9%
All other financial information about business segments and foreign
operations is included in Items 7 and 8 to this Annual Report on Form 10-K and
is incorporated herein by reference.
Unless noted otherwise, market share estimates contained in this Annual
Report have been developed by the Company from internal sources and no
assurances can be given regarding the accuracy of such estimates.
Textile Chemical Specialties Segment
The Company's textile chemical specialty products business consists of
textile chemicals and related organic products. The following table sets forth
net sales by product line for the years indicated:
Years ended December 31,
Product Line 1997 1996 1995
---- ---- ----
(in thousands)
Textile Chemicals
- America & Asia(1) $ 69,157 $ 59,438 $ 57,924
- Europe(2) 57,394 55,503 48,859
Organics 6,901 5,360 6,055
-------- -------- --------
$133,452 $120,301 $112,838
======== ======== ========
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(1) Includes the Company's U.S., Mexico and Asia business units as well as
sales to Canada and Latin America.
(2) Includes the Company's European business units as well as sales to the
Middle East and Africa.
Textile Chemicals. Chemical usage in the worldwide textile industry is
divided among the fiber and yarn forming, fabric forming and wet processing
industry segments. The Company participates in the largest segment, wet
processing, which is divided into four major types: fabric preparation (scouring
and bleaching), printing, dyeing and finishing.
Constant developments in textile fibers, fashions, manufacturing processes
and regulatory requirements create a continuing need for new chemicals. The
Company capitalizes on these business opportunities through an ongoing process
of product development. As part of this process, the Company's research and
applications chemists respond to field requirements identified by sales and
marketing personnel who maintain close contact with the Company's customers. In
addition, management conducts research brainstorming sessions with both sales
personnel and customers to identify product development needs.
The Company markets its dyehouse products in the United States and Europe
under the brand name TANATEX(R). The Company markets its fabric finishing
products primarily in the United States under various names. In Europe, the
Company has also developed proprietary technology and substantial market share
in high-quality fabric and carpet printing applications.
U.S. textile mills purchase their preparation and dyeing chemical
requirements from large dyestuff suppliers and many small companies. The Company
estimates the market segments for the preparation and dyeing chemicals in which
it competes in the United States to be in excess of $650 million. The Company's
major competitors in these segments include American Emulsions Company, Apollo
Chemical Company, Ciba Specialty Chemicals, Henkel Corp., High Point Chemical
Company, Piedmont Chemical Industries Inc. and Virkler Chemical Company.
Products sold by the Company to these market areas include surfactants for
wetting and removal of impurities, stabilizers and detergents for use in
bleaching, enzymes, agents to increase dye yield and provide smooth level
shades, pH control agents and materials that prevent dye from washing out or
degrading.
The Company also services the Canadian and Mexican markets through its own
local organizations in these countries, and uses various agents and licensees to
access other Latin American markets. In November 1996, the Company opened a new
manufacturing facility in Ocoyoacac, Mexico, which replaces a leased facility
the Company occupied in Mexico City. The new facility enhances the Company's
ability to supply the fast-growing Mexican and Latin American textile industry.
The Company serves the growing Asian textile chemical market from its
Taiwanese manufacturing facility. During the latter part of 1995, the Company
set up a subsidiary in Seoul, Korea in order to service the Korean textile
market. The results of the Korean
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<PAGE>
subsidiary during 1996 far exceeded the Company's first year expectations
and continued into 1997. However, the financial crisis that hit the southeast
Asian economy during the latter half of 1997 and early 1998 adversely affected
the Korean subsidiary primarily as a result of currency losses on foreign
obligations. The Company continues to be optimistic about opportunities
available in that market. The Company accesses the Asian market through a
number of agents and distributors in the region.
The U.S. fabric finishing market segment is dominated by a few large
suppliers of commodity products such as glyoxal resins, acrylic polymers and
melamine resins. The Company has chosen to participate in this segment as a
supplier to selected specialty niches. The Company's product line includes
specialty permanent press resins, hand modifiers (for products such as acetate
linings, nylon jacket fabric and lace), fabric softeners for industrial use and
flame retardants (used on industrial fabrics, drapes, wall coverings and
curtains). Recognizing the inherent growth limitations in the North America
textile industry, the Company focused its efforts in 1997 on increasing market
share and improving profitability. Also, the Company expanded its sales coverage
in areas such as Southern Georgia, Alabama, Tennessee, California, the Mid-West,
the garment processing industry along the Texas/ Mexico border, as well as
Western Canada. These marketing efforts enabled the Company to generate new
business at improved margins. The Company also streamlined its product line and
production to reduce costs and better serve its 800 customers.
In July, 1997, as part of the Ivax acquisition, the Company obtained
leading patents and formulations developed by Ivax for the use of enzymes to
impart a "stone-washed" finish to denim. The Company intends to continue to
support such product lines utilizing its existing manufacturing and distribution
facilities in Wellford, South Carolina and other locations around the world.
Management believes that the Ivax acquisition will enhance the Company's global
position in the growing garment processing segment of the textile industry. See
Item 1 of this Annual Report and Note 3 to the Consolidated Financial
Statements.
The Company has an important position in the high quality and technically
oriented wet-end processing segment of the European textile industry.
Management estimates the market segments for wet-end processing in which the
Company competes in Europe to be in excess of $800 million. The textile
manufacturing industry in Europe tends to be characterized by producers that are
smaller and more oriented to fashion and quality than the producers in the
United States. European customers rely to a large extent on the expertise and
product development capabilities of their suppliers of dyehouse products. The
Company believes that its technological capabilities and customer support
services have enabled it to grow and gain a significant share of the dyehouse
products market in Europe. The introduction of new products and technology
played a very important role in the Company's growth. The introduction of new
Cellolube(R) softeners and Protorez(R) resins for the finishing of textile
products and new Plexene(R) and Tannex(R) products for the preparation of
textile fabrics supported growth in 1997. Sales of environmentally friendly
products meeting the severe European ecological requirements also continued to
grow. These new product developments and qualitative customer support services
are vital for the Company's ongoing growth.
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<PAGE>
Some of the major chemical and dye companies in Europe, such as BASF, Bayer
A.G., Ciba Specialty Chemicals, Clariant Ltd. and ICI are major competitors of
the Company, as are some larger specialty chemical manufacturers such as Bohme,
CHT, Lamberti and Rudolf.
The Company serves approximately 2,000 customers in the major textile
centers in Europe through its direct sales forces in Austria, Community of
Independent States, France, Germany, Italy, Netherlands, Portugal, Spain and the
United Kingdom; and through exclusive agency and distributor agreements in
places such as the Baltic States, Belgium, Bulgaria, Denmark, Egypt, Finland,
Greece, Hungary, Ireland, the Middle East, Morocco, Poland, Slovenia and Turkey.
The Company also services the South African textile market through its own
local sales organization and manufacturing facility near Durban.
Organics. The Company markets its production capabilities and process
expertise to major chemical companies that require custom synthesis and fine
chemicals. The demand for the Company's technology in these areas has allowed
its Wellford, South Carolina plant to utilize excess capacity and has enabled
the Company to expand its capabilities and increase its overall margins. Clients
for these services include some of the largest chemical companies in the United
States. The Company plans to continue the marketing and development of its
proprietary product line and utilizing excess capacity for custom manufacturing.
The organics product line was developed to capitalize on the Company's
proprietary manufacturing technology in the areas of quaternization, alkylation
and esterification (typical organic synthesis reactions used to make a variety
of industrial chemical products). Products produced from these and other types
of reactions are now sold for use as phase transfer agents, surfactants and
intermediates for textile, cosmetic and various industrial applications. The
Company's distillation capabilities enable the products to be purified to the
exact specifications demanded by these industries. Many of the chemicals
produced and sold by this unit serve as raw materials for the formulations sold
by the textile groups. Therefore, the organics product line represents both a
vertical integration and a branching out into new markets.
Environmental Products and Services Segment
The Company's environmental products and services segment consists of ion
exchange resins for use in home water softening and conditioning and industrial
water treatment; biochemicals for treating industrial and sanitary waste,
contaminated soil and groundwater; and specialty polymers. The following table
sets forth net sales by product line for the years indicated:
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<PAGE>
Year ended December 31,
-----------------------
Product Line 1997 1996 1995
- ------------ ---- ---- ----
(in thousands)
Water Treatment $32,644 $32,572 $34,750
Waste Treatment 15,600 14,915 14,119
Specialty Polymers 7,118 6,558 6,100
------- ------- -------
$55,362 $54,045 $54,969
======= ======= =======
Ion Exchange Resins. The Company's ion exchange resins, which are used to
improve water quality, serve two distinct markets, industrial and household. Ion
exchange resins are solid chemical compounds (polymers), generally in bead form,
which are used primarily for the softening and demineralization of water and the
removal of contaminants from other fluids. The softening and demineralization
processes involve the exchange of acceptable ions which are originally
chemically bound to the resins for undesirable ions present in water. The
process is reversible in that the resins can be regenerated to their original
ionic forms permitting continuous reuse. Depending upon the type of resin and
application, resins will typically last for between three to ten years before
replacement is necessary. Ion exchange resins are either anion exchange resins,
which remove negatively charged ions, or cation exchange resins, which remove
positively charged ions. Both cation and anion exchange resins are used in
equipment for industrial applications, while only cation resins are used in home
water softening equipment. The Company's ion exchange products are sold under
the IONAC(R) tradename.
The industrial ion exchange water treatment market involves the
demineralization of incoming water for high pressure boilers and the
purification of process water and other fluids. The use of untreated boiler
water causes scaling of the heat exchangers which, in turn, leads to loss of
efficiency or damage to costly turbine blades. Treatment of water with cation
and anion exchange resins is required to reduce such risks. Electrical utilities
are the largest industrial resin endusers. Other major industrial endusers
include large water users such as paper mills, refineries, and petrochemical
plants and those industries requiring a high level of water purity, such as
semi-conductor manufacturers and laboratories. A market exists in trailers
containing ion exchange equipment that provide temporary on-site water treatment
to various industries and utilities. The service deionization business, which
provides on-site water treatment to a number of businesses, such as the
electronics industry, also continues to grow.
During 1997, the Company continued to control and reduce its fixed costs
supporting the ion exchange business in response to weakened market conditions
and reduced profitability.
On August 26, 1997, the Company entered into a ten-year supply agreement
Dow pursuant to which Dow will provide the Company with substantially all of the
Company's anion exchange requirements. Prior to this agreement, the Company
independently manufactured all of its anion exchange resin requirements.
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Pursuant to the agreement, Dow also will supply other anion resin products that
will be additions or improvements to the Company's product line.
A three-tiered channel of distribution exists in the U.S. industrial water
treatment market. Resins for water treatment are sold directly to endusers by
the resin manufacturer for replacement purposes and are sold to original
equipment manufacturers ("OEM") for use in new equipment and to both OEM's and
distributors for resale to replace resins in existing equipment. The number of
major OEM's continued to decline during 1997 due to the acquisition of certain
OEM's by companies such as U.S. Filter and Culligan. In early 1998, U.S. Filter
announced it was acquiring Culligan. It is not possible to measure what impact,
if any, this announced combination might have on the Company. The Company has
developed close working relationships with the remaining major OEM's and
selected distributors based on strong technical support and customer service.
The ion exchange sales force, comprised of chemists and engineers, also
maintains an active enduser contact program through which members of the sales
force act as advisors on matters related to the various needs for quality water.
This key customer service aspect of the Company's marketing strategy has enabled
the Company to have its resins specified by numerous endusers. International
business, representing approximately 35% of the Company's industrial ion
exchange business, is conducted primarily through agents supported by the
Company's in-house personnel. This area of the business grew substantially in
1997. The Company's industrial ion exchange resins are sold to approximately 150
customers.
Other industrial ion exchange products manufactured and sold by the Company
include electrodialysis membranes impregnated with ion exchange resins used
primarily in the cleanup of automotive paint baths and in preparation of
ultrapure water, and desalting kits used for low volume desalinization of water,
which are primarily sold to governments and the air and marine transportation
industries for emergency use, and selective ion exchange resins which are higher
value added products which selectively remove contaminants from water and
wastewater.
In addition to the industrial market, the Company provides cation exchange
resins to the U.S. household water softening market with a market share in
excess of 50%. The Company believes that the market for household water
treatment products is positioned for growth in the coming years, as the concern
for water quality continues to grow. The Company's main softening resins,
including Ionac(R) C-249, are sold directly to water softening equipment
manufacturers such as Culligan International Company to whom the Company has
been a major supplier for over 30 years. The Company has maintained its leading
market position in the United States for years through its strong technical
support and customer service to the softener manufacturers and through the
introduction of new products with physical characteristics specifically suited
for this market segment.
Based on industry publications, the Company estimates the total U.S. market
for ion exchange resins in 1997 to be approximately $175 million. Dow, Purolite
Corporation and Rohm and Haas Co. are the major competitors in this segment. The
ion exchange business requires significant investment in production facilities
as well as specialized know-how in product synthesis, applications and customer
support. As a result, it is difficult for companies not presently manufacturing
ion exchange resins to enter this market.
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Biochemicals. The biochemicals business supplies selectively adapted
bacterial strains under the BI-CHEM(R) trademark and appropriate application
technology under the trade name Biosystems Engineering. The Company has
established a leadership position in the waste degradation field through its
development of highly active bacterial strains, as well as through its
understanding of the optimal conditions for application of those strains to
solve field problems. In the biodegradation process, bacterial strains which are
developed under laboratory conditions through a process of natural selection and
adaptation, reduce or eliminate specific contaminants by breaking them down into
harmless components such as carbon dioxide and water. The Company's biochemical
products are used in the treatment of industrial and municipal wastewater; the
elimination of hazardous contaminants in soil and ground water caused by spills
and leaking underground storage tanks; the operation of household and commercial
septic systems; the reduction of fat and grease in places such as household
drains, retention ponds and restaurant grease traps; and a variety of
biologically based agricultural products to enhance plant growth and disease
resistance for turf and row crops. The Company expects these markets to
experience high growth due to the increasing emphasis on treating waste problems
utilizing environmentally safe methods and minimizing the quantity of waste for
disposal.
The Company's biochemical products are based on naturally occurring
microorganisms already present in the environment. The Company's primary
expertise is in isolating, selecting, adapting and growing organisms so they
will degrade specific hazardous or toxic organic compounds at a much faster rate
than would otherwise occur with indigenous organisms under normal conditions.
Highly trained technical service and field sales engineers, supported by skilled
laboratory technicians, biologists and environmental engineers, provide the
necessary knowledge and experience to identify and solve customers' problems and
to develop a growing base of business.
For over thirty years, the Company has served the on-site waste treatment
market (domestic and institutional septic systems). Over the past few years, the
Company has expanded its presence in this market segment through the
introduction of biological formulations for additional institutional and
household utilization, such as bathroom and carpet deodorizers as well as fat
and grease digesters for unclogging drains and pipes in bathrooms, kitchens and
fast food restaurants. The Company supplies a biologically active formulation to
a major consumer products company for use in their biological drain maintenance
product. This product, which eliminates deposit buildup in drain lines and
prevents its recurrence, has demonstrated technical superiority since its
introduction.
In 1995, the Company began supplying a new biologically active formulation
designed to enhance septic tank performance. This product is being marketed by
the same company that markets the drain maintenance product with the Company's
formulation. The Company believes that its septic tank product is superior to
other similar products currently sold in the market place and that the growth
potential for septic treatment products is significant. Studies indicate that
only 10% of households with a septic waste treatment system utilize septic
treatment products.
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The Company's biochemical products are developed and manufactured in a
facility located in Salem, Virginia, where up-to-date research, quality control,
and product development laboratories are located together with fermentation,
blending and packaging operations.
There are a few other companies that grow and sell bacterial strains but
Management believes that the Company's products have achieved a higher degree of
technological and regulatory acceptance than its direct competitors' products.
Management also believes that the Company has developed unique application
know-how in this area.
Specialty Polymers. The specialty polymers business supplies polymer beads
for use as binders in dry toners for office copy machines and laser printers and
other polymeric materials for use in adhesives and coatings. The Company's
products in this segment represent a small portion of the total specialty
polymers market. The Company's customers include major laser printer equipment
manufacturers, independent toner manufacturers and major adhesive and tape
suppliers. During 1997, the Company substantially increased its sales in the
rapidly growing toners market through the dedication of additional marketing and
research resources to the business, resulting in new products and new customers.
Employees and Labor Relations
At December 31, 1997, the Company had 738 employees worldwide, of whom 70%
were salaried employees and 30% were hourly employees, with 90 employees in
management and administration, 230 in sales and marketing, 71 in engineering and
research, and 347 in production. The hourly employees at the Company's
Birmingham, New Jersey facility are covered by collective bargaining agreements
with two unions. These labor agreements will expire on April 11, 1999. Employees
at the Ede, Holland facility are all members of national unions, which is
customary in Holland. The Company considers its relations with its union and
non-union employees to be satisfactory.
Risks Attendant to Foreign Operations
The Company conducts its business in numerous foreign countries and as a
result is subject to risks of fluctuations in exchange rates of various foreign
currencies and other political and economic risks associated with international
business. The Company's foreign entities report their assets, liabilities and
results of operations in the currency in which the foreign entity primarily
conducts its business. The foreign currencies are ultimately translated into
U.S. dollars for financial reporting purposes.
For the fiscal years 1997, 1996, and 1995, approximately 46.0%, 45.4% and
41.9%, respectively, of the Company's net sales were to customers outside the
United States, predominantly in Western Europe, with most of the balance in
Canada, Mexico and the Far East.
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For the fiscal years 1997, 1996 and 1995, approximately 73%, 60% and 62%,
respectively, of the Company's identifiable assets were in North America. The
remainder of the Company's identifiable assets were predominantly in Western
Europe although the Company does lease small production facilities in Taiwan and
South Africa.
For the fiscal years 1997, 1996 and 1995, the Company derived 48%, 44% and
56%, respectively, of its operating income from the America Division. The
America Division consists of the Company's subsidiaries in the United States,
Canada, Mexico and the Far East. The balance of the Company's operating income
was principally derived from the Company's European subsidiaries.
Raw Materials
The Company purchases various raw materials including caustic soda,
sulfuric acid and surface active agents from a number of suppliers and does not
rely on a sole source to any material extent. One of the Company's major raw
materials is styrene, which is available through a number of suppliers but which
the Company obtains from one supplier with which the Company has a favorable
supply agreement. The Company does not foresee any significant difficulty in
obtaining necessary raw materials or supplies.
Research and Development
Each of the Company's individual business groups has its own dedicated
research and development activities. The Company's research and development in
textile chemicals has created several new products in the past year. Products
developed include: environmentally friendly dye machine cleaners, EnviroShine
for the interior and SurfcleanTM for the exterior; Ultralux, an innovative
non-yellowing softener for unique fabric finishing; Astralplush(R) for the
bulking of polypropylene and polyester fiber to impart a more luxurious hand;
Astralprint(R) which greatly improves dye fastness on pigment printed fabrics;
and Tanacid(R) NA, an environmentally friendly replacement for Acetic Acid.
The research effort in ion exchange products is dedicated toward improving
existing products and processes as well as new product development. During 1997,
several new products used to make toners for desk-top laser printers were
developed and introduced into the toner/polymer product line.
Research efforts in the biochemical business focused on new products in the
consumer, agricultural, industrial wastewater and institutional markets. In the
consumer segment, the Company developed new and improved formulations for the
improvement of on-site septic systems and drain maintenance.
Research and development expenditures for 1997, 1996 and 1995 were $3.7
million, $4.2 million and $3.9 million, respectively.
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Competition
The Company has numerous competitors in its environmental products and
services and textile businesses, a number of which have substantially greater
financial and other resources than the Company. There can be no assurance that
the Company will not encounter increased competition in the future.
Environmental Matters
The manufacture of the Company's products, and in some cases their storage,
transportation and disposal, involve a number of environmental considerations.
These activities are subject to federal, state, local and foreign laws and
regulations concerning, among other things, solid and hazardous waste disposal,
air emissions, waste water discharge, toxic substances and occupational safety.
Violations of any of these laws and regulations, uncontrolled releases of toxic
or hazardous materials into the environment or third party or government actions
relating to environmental matters could expose the Company to significant
liability. The Company believes that it has all the necessary permits to operate
its plants and that it is in substantial compliance with current regulatory
requirements material to the conduct of its business.
Periodically, the Company is advised that it may be named as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") or similar state statutes with respect to the
transport and disposal of hazardous wastes. At present, the Company is a party
in a legal action in the United States regarding a site never occupied by the
Company or its predecessors. In addition, the Company has received inquiry
letters or notices on seven other hazardous waste sites where it could be named
as a potentially responsible party. All of these claims relate to disposition of
waste occurring prior to the Company's acquisition of the Sybron Chemical Group.
In connection with the acquisition of the Sybron Chemical Group from Sybron
Corporation, (a) the Company agreed to assume all liabilities relating to
environmental matters arising as a result of the conduct of the business of the
Sybron Chemical Group, and (b) Sybron Corporation agreed to make available to
the Company insurance coverage of Sybron Corporation that was in force during
the time that the Sybron Chemical Group was part of Sybron Corporation. Such
insurance covered certain liabilities that were settled in the past relating to
the disposition of waste prior to 1984 at third-party sites not occupied by the
Company or its predecessor. Although there can be no assurance that the
insurance carriers will accept coverage for additional such events that are not
already settled, the Company believes that such insurance adequately covers its
exposure. The Company does not have any additional insurance covering
environmental liabilities as it believes that such insurance is not presently
available on commercially reasonable terms. The Company has not reduced its
environmental liabilities or recorded any assets related to potential insurance
recoveries from any policies previously in force.
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<PAGE>
The Company has identified certain soil and groundwater contamination at
its Birmingham, New Jersey facility. The Company has conducted extensive
sampling plans for both soil and groundwater and has proposed a remedial action
work plan (the "Work Plan") to the New Jersey Department of Environmental
Protection (DEP) related to the cleanup of the Birmingham facility. DEP has
conditionally approved the Work Plan and the Company has completed most of the
cleanup and has performed some additional sampling based on the DEP's
conditional approval. The remedial activities pursuant to the Work Plan are
continuing and are expected to be completed by the end of 1998.
The Company has identified certain soil and groundwater contamination at
its facility in Wellford, South Carolina. The Company submitted a proposed
sampling and testing program to the South Carolina Department of Health and
Environmental Control (DHEC) for its review. The DHEC has approved the Company's
proposed action for the next phase of the investigation and remediation of
potential groundwater contamination. The remedial activities related to this
program are in progress at this time.
The Company has completed a number of studies to identify the extent of
certain soil and groundwater contamination at its manufacturing facility in Ede,
Holland and other facilities owned by third parties which are adjacent thereto
(collectively, the "Dutch Facilities"). As a result of these studies, the
Company is presently remediating certain contamination at its Ede facility. An
environmental consulting firm is performing additional studies and has developed
a plan of remediation for the Dutch Facilities. The plan was presented to the
local and provincial government officials at the end of 1997. The approval
process for this plan is expected to be completed by mid-year 1998.
The Company has not identified any sites which may require remediation but
which have not been cited specifically by regulatory authorities for
noncompliance with environmental rules and regulations.
Although there can be no assurance regarding the outcome of environmental
proceedings, the Company believes that it has made adequate accruals to cover
all cleanup and other related costs with respect to environmental problems of
which it is aware. The Company believes that the environmental matters described
above, individually or in the aggregate, will not have a material adverse effect
on the financial position, capital expenditures, cash flow, operating results or
competitive position of the Company.
Patents and Trademarks
The Company's products are sold under a variety of trademarks and trade
names. The Company owns all of the trademarks and trade names that the Company
believes to be material to the operation of its business, including the
BICHEM(R), IONAC(R), AURALUXTM, TANATEX(R), JERSEY STATETM and BLUE-J(R)
trademarks. The Company believes such trademarks have widespread commercial
recognition in their respective fields. The Company
-13-
<PAGE>
also owns various patents and considers selected patents related to its textile
chemicals and biochemicals to be of commercial significance. The Company does
not believe any single patent is material to the operations of its business as a
whole.
ITEM 2. Properties
Facilities
The Company's largest production facility in Birmingham, New Jersey, is
located on 75 acres of a 500 acre site owned by the Company. This facility is
located in a rural area approximately 23 miles from Philadelphia, Pennsylvania
where it produces two major product lines: ion exchange resins and specialty
polymers. This plant accounted for approximately 19%, 24% and 25% of 1997, 1996
and 1995 total sales, respectively. The Company presently has no plans to sell
or to develop its undeveloped real estate in New Jersey.
At December 31, 1997, the Company occupied five other U.S. facilities: (i)
a 22 acre site owned in Wellford, South Carolina producing textile chemicals and
organics, which accounted for approximately 24%, 26% and 28% of 1997, 1996 and
1995 total sales, respectively, (ii) a two-acre owned facility in Salem,
Virginia producing biochemicals, (iii) a five-acre owned facility in Salem,
Virginia used for packaging and warehousing biochemicals, (iv) a two-acre leased
facility in Dalton, Georgia used for warehousing textile chemicals, and (v) a
nine-acre site owned in Norwich, Connecticut producing textile chemicals.
The Company owns a production center consisting of a five-acre facility in
Ede, Holland producing textile chemicals. This plant accounted for approximately
30%, 32% and 29% of 1997, 1996 and 1995 total sales, respectively. The Company
also leases small production facilities in South Africa and Taiwan. In 1996 the
Company completed a new production facility in Ocoyoacac, Mexico on land owned
by the Company. This facility replaces a production facility in Mexico City that
was previously leased.
The Company has ample manufacturing capacity for most of its product lines
for its current level of business including anticipated growth for at least the
next two years. With respect to certain ion exchange resins, the Company has
supplemented its production capacity when necessary by making purchases from
other suppliers to meet peak customer demands. The Company has been able to
increase manufacturing capacity as needed in the past without significant
capital expenditures through the development of process improvements and
modifications.
In addition to offices maintained at its production facilities, the Company
leases sales office space in (i) Vienna, Austria, (ii) Burlington, Canada, (iii)
Oldham, England, (iv) Lyon, France, (v) Krefeld, Germany, (vi) Milan, Italy,
(vii) Yokohama, Japan, (viii) Seoul, Korea, (ix) Guimaraes, Portugal, (x)
Moscow, Russia, (xi) Barcelona, Spain and (xii)
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<PAGE>
Elmwood Park, New Jersey. The Company's office and warehouse space is currently
adequate for its needs. The leases are for total periods of one to five years at
commercial rates. Management believes that suitable equivalent facilities could
be obtained in each of the cities in which the Company maintains offices.
ITEM 3. Legal Proceedings
Periodically, the Company is advised that it may be named as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") or similar state statutes with respect to the
transport and disposal of hazardous wastes. At present, the Company is a party
in a legal action in the United States regarding a site never occupied by the
Company or its predecessors. In addition, the Company has received inquiry
letters or notices on several other hazardous waste sites where it could be
named as a potentially responsible party. All of these claims relate to the
disposition of waste occurring prior to the Company's acquisition of the Sybron
Chemical Group. In connection with that acquisition, the Company agreed to
assume all liabilities relating to environmental matters arising as a result of
the prior conduct of the business of the Sybron Chemical Group. The Company has
not identified any sites which may require remediation but which have not been
cited specifically by regulatory authorities for noncompliance with
environmental rules and regulations.
There are also pending against the Company several claims and lawsuits
arising in the normal course of business. Such claims and lawsuits include
allegations of patent infringement, injuries from the inhalation of hazardous
chemicals and breach of contract. The Company believes it has adequate insurance
to cover any such claims subject to a self-insurance retention of $1,000,000.
Similarly, the Company has outstanding several claims and lawsuits arising in
the normal course of business against various other parties.
In November 1997, the Company was served with a Complaint filed by William
Steiner, a stockholder, on behalf of himself and all others similarly situated,
against the Company, Messrs. Tomfohrde, Barton, and Schorr (in their capacities
as directors of the Company) and Dr. Klein and Mr. Schroeder (in their
capacities as directors and officers of the Company) in the Court of Chancery of
the State of Delaware in and for New Castle County. The Complaint alleged that
the defendant directors and officers breached their fiduciary duties to the
public stockholders in connection with the offer made by the Investor Group to
the Company to acquire the outstanding shares of Common Stock not already owned
by the members of the Investor Group by allegedly failing to solicit and
consider competing bids for the Company and by offering an allegedly inadequate
price for the publicly held shares. Plaintiff sought as relief an order (i)
declaring the suit a proper class action, (ii) ordering the defendants to carry
out their fiduciary duties, (iii) ordering the defendants to account to
plaintiff and the purported class members for all present and future damages,
(iv) awarding attorney fees and costs, including expert fees, and (v) granting
such other relief as the court may deem appropriate. The Merger Agreement that
ultimately resulted from the Investor Group's offer was terminated on February
11, 1998. A stipulation of dismissal of the Steiner lawsuit was filed with the
Court of Chancery by the parties on March 30, 1998.
-15-
<PAGE>
In addition to the lawsuit described above, in October 1997, a similar
lawsuit was purportedly filed by Michael Fegan, on behalf of himself and all
others similarly situated, against the Company and certain of its officers and
directors in the Court of Chancery of the State of Delaware in and for New
Castle County. The Company was informed by the purported named plaintiff that
the Fegan Complaint had been filed without his knowledge and consent and that he
had so informed the law firm that filed the Complaint. On October 28, 1997,
attorneys for the plaintiff in the Fegan Complaint filed a Notice of Dismissal
dismissing the lawsuit without prejudice, subject to the approval of the Court.
The Court so ordered the dismissal on November 5, 1997.
The Company believes that the legal proceedings described above,
individually or in the aggregate, will not have a material adverse effect on the
financial position, cash flow or operating results of the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
Since its inception the Company has not paid any dividends on its Common
Stock (the "Common Stock"). Under the terms of its existing bank debt agreement,
the Company is required to comply with certain debt covenants which require
certain levels of cash flow and equity to be maintained. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 of this Annual Report and Note 7 to the Consolidated Financial Statements
also contained herein. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will depend upon, among other
factors, the Company's earnings, financial condition, cash flow and the
covenants contained in the bank agreement. The Company has no present intention
to pay cash dividends on its Common Stock.
Based upon record ownership as of February 28, 1998, the approximate number
of record holders of the Common Stock is 600. A significant number of shares of
the Common Stock is held in street name by various institutions for the benefit
of their clients.
The Common Stock began trading on The American Stock Exchange ("AMEX")
under the symbol "SYC" on October 10, 1996. Prior to October 10, 1996, the
Common Stock traded on The Nasdaq National Market under the symbol "SYCM". The
following table sets forth the high and low sale prices of the Common Stock as
reported by the Nasdaq National Market and the AMEX for each of the quarters
indicated.
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<PAGE>
1996 High Low
First Quarter......................... $13 1/2 $10 1/4
Second Quarter........................ 14 1/2 12 1/2
Third Quarter.......................... 15 3/4 13 1/2
Fourth Quarter......................... 16 5/8 13 3/4
1997 High Low
First Quarter.......................... $18 1/4 $15 3/4
Second Quarter......................... 19 5/8 16
Third Quarter.......................... 25 5/8 19 1/8
Fourth Quarter......................... 34 1/2 25
ITEM 6. Selected Financial Data
The following selected financial data has been derived from the Company's
annual financial statements and should be read in conjunction with the
consolidated balance sheet at December 31, 1997 and 1996 and the related
consolidated statements of income and of cash flows for the three years ended
December 31, 1997 and notes thereto. See Item 8, Financial Statements and
Supplementary Data, contained in this Annual Report.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net sales $188,814 $174,346 $167,807 $145,726 $135,972
Operating income 23,436 17,622 14,977 15,756 15,281
Income before extraordinary items and cumulative
effect of accounting changes 10,640 8,514 6,329 7,638 7,453
Extraordinary items (1) -- -- -- -- (2,197)
Cumulative effect of accounting changes (2) -- -- -- -- (9,316)
Net income (loss) 10,640 8,514 6,329 7,638 (4,060)
Income per share before extraordinary items
and cumulative effect of accounting changes $ 1.88 $ 1.51 $ 1.12 $ 1.35 $ 1.32
Extraordinary items (1) -- -- -- -- (.39)
Cumulative effect of accounting changes (2) -- -- -- -- (1.65)
Net income (loss) per share
Basic 1.88 1.51 1.12 1.35 (.72)
Diluted 1.84 1.50 1.12 1.35 (.72)
Weighted average shares outstanding
Basic 5,666,683 5,650,560 5,650,560 5,653,035 5,650,560
Diluted 5,793,770 5,669,893 5,650,560 5,655,481 5,650,562
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 26,592 $ 14,909 $ 11,284 $ 6,975 $ 9,719
Working capital 43,431 38,667 38,495 35,507 29,535
Total assets 150,233 117,064 111,329 93,934 91,805
Long-term debt 27,390 17,787 22,532 20,366 20,777
- --------------------------------
<FN>
(1) The extraordinary items represent the loss, net of taxes and other
expenses, on the extinguishment of certain long-term debt prior to
scheduled maturity.
(2) The Company adopted Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, and
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, on January 1, 1993.
</FN>
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain information about the Company's two
business segments
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
-------------------- -------------------- ------------------
% of % of % of
Amount Sales Amount Sales Amount Sales
------ ----- ------ ----- ------ -----
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales:
Textile Chemical Specialties $133,452 70.7% $120,301 69.0% $112,838 67.2%
Environmental Products and Services 55,362 29.3 54,045 31.0 54,969 32.8
------- ---- ------- ---- -------- -----
Total $188,814 100.0% $174,346 100.0% $167,807 100.0%
======== ====== ======== ====== ======== ======
Cost of Sales:
Textile Chemical Specialties $77,556 58.1% $71,785 59.7% $ 70,393 62.4%
Environmental Products and Services 37,624 68.0 38,405 71.1 40,152 73.0
------ ------ ------ ---- ------- ----
Total $115,180 61.0% $110,190 63.2% $110,545 65.9%
======== ===== ======== ===== ======== =====
Gross Margin:
Textile Chemical Specialties $55,896 41.9% $ 48,516 40.3% $ 42,445 37.6%
Environmental Products and Services 17,738 32.0 15,640 28.9 14,817 27.0
------ ------ ------ ---- -------- ----
Total $73,634 39.0% $ 64,156 36.8% $ 57,262 34.1%
======= ===== ======= ===== ======= =====
Operating Expense:
Textile Chemical Specialties $37,830 28.4% $ 35,036 29.1% $ 31,498 27.9%
Environmental Products and Services 12,368 22.3 11,498 21.3 10,787 19.6
------ ------ ------ ---- -------- -----
Total $50,198 26.6% $ 46,534 26.7% $ 42,285 25.2%
======= ===== ======= ===== ======= =====
Operating Income:
Textile Chemical Specialties $18,066 13.5% $ 13,480 11.2% $ 10,947 9.7%
Environmental Products and Services 5,370 9.7 4,142 7.7 4,030 7.3
------ ------ ------- ---- -------- ----
Total $23,436 12.4% $ 17,622 10.1% $ 14,977 8.9%
======= ===== ======= ===== ======= =====
</TABLE>
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<PAGE>
Overview
The Company had a record year in 1997. Sales increased 8.3% to $188.8
million from $174.3 million in 1996. Operating income for the year was $23.4
million, an increase of 33.0% over the $17.6 million recorded the prior year.
Net income was $10.6 million or $1.88 per share, compared with $8.5 million or
$1.51 per share in 1996, an increase of 25.0%. On a fully diluted basis, net
income was $1.84 per share versus $1.50 per share for 1996.
The Company acquired the garment processing and textile chemical business
from Ivax Industries at the end of July 1997. This business added approximately
$8.2 million in sales for the five months it was owned by the Company. The
Company also sold its membrane business in mid-December. Sales for this business
were $3.1 million in 1997.
In October 1997, the Company received a proposal from an investor group
comprised primarily of certain executive officers of the Company and Citicorp
Venture Capital Ltd. to purchase for cash all outstanding shares not already
owned by them. On February 11, 1998, the merger agreement was terminated. The
action came after the Company and the investor group were informed by the
Special Committee of the Company's Board of Directors that it was withdrawing
its support for the transaction. The Company recorded a charge of $1.3 million
in the fourth quarter of 1997 for costs associated with the terminated merger
agreement. See Item 1. Business - General in this Annual Report.
Operations
1997 Compared to 1996
Sales for 1997 improved 8.3% over 1996 led by the Textile Chemical
Specialties segment, which grew 10.9%. Sales in the Environmental Products and
Services segment increased 2.4% compared with the prior year.
The growth in the Textile Chemical Specialties segment resulted primarily
from combined North America and Asia textile chemical sales which increased
18.2% over 1996. This was the result of: the initial five months of sales from
the acquisition in late July of the garment processing and textile chemical
business from Ivax Industries; strong growth in Mexico, Taiwan, Korea and
Canada; new product introduction and market expansion in several southern
states; and increased custom toll manufacturing in the related organics
business. These more than offset the continued weakness in the U.S. textile
markets. Sales in Europe improved 2.4%, in terms of U.S. dollars. This resulted
from a substantial physical quantity increase of 15.0% due to geographic market
expansion and new product sales, which more than overcame an overall 1.3%
average selling price decrease and a net negative currency impact of
approximately 14% primarily related to the stronger U.S. dollar versus the Dutch
guilder.
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<PAGE>
The three major product lines in the Environmental Products and Services
segment all showed modest improvements over the prior year. The increase in the
ion exchange product line was primarily a result of new and regained customers
and an overall volume increase in the household resin market. The full-year
impact of the acquisition of Chemical Images in June 1996 and new toner business
contributed to the improvement in the specialty polymer product line. The
biochemical product line increase was due to: substantial improvements in Europe
primarily in consumer, marine, industrial and municipal applications; and
increased usage in the treatment of industrial and municipal wastewater in the
U.S.; all somewhat offset by a downturn in the consumer product line in the U.S.
Overall average selling prices in this segment were relatively flat in 1997
versus the prior year.
The gross margin for 1997 was 39.0%, a substantial improvement over the
36.8% experienced the prior year. Gross margins in the Textile Chemicals
Specialties segment increased to 41.9% versus last year's rate of 40.3%. Margins
in the North America and Asia markets improved to 32.2% in 1997 from last year's
29.4% due to: new product sales which command a higher margin; the elimination
of several low margin products in the U.S.; a slight decrease in raw material
costs; substantial sales increases in Mexico which carry higher margins; and
additional cost controls. In the organics chemical business, margins also
improved primarily as the result of the increase in higher margin toll
manufacturing. The margins in Europe increased to 55.0% from 53.1% in 1996. This
improvement was due to the continued favorable impact of a weaker Dutch guilder
as compared with certain other European currencies, coupled with new product
sales that carry higher margins.
Year-to-year improvements in all the product lines in the Environmental
Products and Services segment resulted in a gross margin of 32.0% for this
segment, as compared to 28.9% in 1996. Margins in the ion exchange product line
were impacted by lower raw material costs, production related efficiencies and
improved fixed cost controls. These offset a slight decrease in average selling
prices and higher freight costs. Costs for styrene, the major raw material,
remained stable. Production efficiencies and improved cost controls helped
improve the margins in the specialty polymers product line. Biochemical margins
increased over 1996 due to an overall average selling price increase, production
efficiencies and a favorable product/customer mix.
Operating expenses as a percent of sales were 26.6% in 1997, essentially
unchanged from 1996's mark of 26.7%. The Textile Chemical Specialties segment
expenses as a percent of sales in 1997 decreased to 28.4% from 29.1% in 1996,
primarily the result of favorable impacts from Europe due to the Dutch
guilder/dollar exchange rate and lower environmental costs. Operating expenses
as a percent of sales in the Environmental Products and Services segment
increased to 22.3% from 21.3% last year. This was primarily the result of
increased legal accruals (primarily in the ion exchange product line), higher
provisions for doubtful accounts in specialty polymers, and overall stepped-up
marketing efforts in several of the segment's product lines.
The Company's provision for income taxes was computed using applicable
prevailing income tax rates. The Company's effective tax rate of 41.1% for 1997
was only slightly higher than last year's rate of 40.9%.
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<PAGE>
Other income (expense) was ($5.4) million for 1997 versus ($3.2) million in
last year's comparable period. The increase was primarily due to $1.3 million in
costs associated with the terminated merger agreement transaction coupled with
$.6 million in foreign exchange losses related to the devaluation of Asian
currencies, primarily the Korean won.
1996 Compared to 1995
Total sales increased 3.9% in 1996 as compared to the prior year on the
strength of a 6.6% improvement in the Textile Chemical Specialties segment.
Sales in the Environmental Products and Services segment declined by 1.7% in
1996 compared to 1995.
In the Textile Chemical Specialties segment, sales in the North America,
Asia and Europe divisions improved over the prior year. North America and Asia
division sales improved by 2.6% over 1995. A substantial increase in textile
chemical volume in Mexico, smaller increases in Canada and Taiwan, new product
sales in the U.S., and the impact of the first full year of sales in Korea more
than offset the continued general weakness in the U.S. textile market, the
decline in the related organic chemicals business due to reduced customer toll
manufacturing requirements, and a slight drop in average U.S. selling prices.
Europe division sales improved 13.6% in terms of U.S. dollars and 16.5% in terms
of local currencies. Physical volume increased 11.5% primarily due to the
Company's continued success in penetrating newer geographical markets as well as
new product introductions. Overall selling prices in terms of Dutch guilders
improved versus the prior year.
Sales in the Environmental Product and Services segment were favorably
impacted by improvement in two product lines. Biochemical sales improved due to
increased volume in products for the institutional, consumer and bioremediation
markets, combined with a slight selling price increase. Specialty polymers sales
improved due to an 8.1% increase in average selling prices and the impact of the
mid-year purchase of the specialty polymers business of the Chemical Images Co.
More than offsetting these improvements was a substantial decline in membrane
sales which resulted from significantly lower export volume and an 8.5% average
selling price decrease. Continued weak market conditions in the U.S. and a 2.6%
drop in average selling prices resulted in lower sales volume in the ion
exchange product line.
The overall gross margin for 1996 increased to 36.8% from 34.1% in 1995 as
both of the Company's segments showed year-to-year improvements. In the Textile
Chemicals Specialties segment, the gross margin increased to 40.3% from the
prior year's 37.6%. The gross margin in North America and Asia increased almost
1 percentage point to 29.4% due to reduced freight expenses, production
improvements and lower raw material costs. These were partially offset by a
slight reduction in selling prices and higher manufacturing expenses. Selling
price increases, new products selling at higher margins, lower raw material
costs and the continued favorable currency impact of a weaker Dutch guilder as
compared with the other European currencies, all combined to increase the gross
margin in Europe to 53.1% from 49.6% in 1995.
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<PAGE>
The gross margin in the Environmental Products and Services segment was
28.9% in 1996, an improvement of almost two percent compared to the prior year.
Gross margin in the ion exchange product line improved as a result of lower raw
material costs, primarily styrene, and production cost controls, partially
offset by lower selling prices, increased freight costs, unfavorable
manufacturing variances and reduced inventory levels. Gross margin also
increased significantly in the specialty polymer product line due to higher
overall average selling prices, reduced raw material costs, principally styrene,
and the favorable impact of higher margins gained from the June 1996 purchase of
the Chemical Images specialty polymer business. Biochemical product line margins
showed a small increase due to a slight decrease in raw material costs combined
with a slight increase in selling prices. The membrane product line gross margin
declined in 1996 as compared with 1995 due to overall average selling price
decreases and unfavorable manufacturing inventory variances which were partially
offset by lower raw material costs and continued cost controls.
Operating expenses as a percent of sales for 1996 increased to 26.7% as
compared to 25.2% for 1995. In the Textile Chemical Specialties segment,
expenses as a percentage of sales increased as a result of headcount additions
in R&D and marketing in North America and increased environmental, compensation
and legal costs. Similarly, marketing staff additions, higher legal and
compensation costs and the slightly lower overall sales also resulted in an
increase in the Environmental Products and Services segment expenses as a
percent of sales.
The Company's provision for income taxes was computed using applicable
prevailing income tax rates. The Company's effective tax rate of 40.9% for 1996
was essentially equal to the applicable rate for 1995.
Other income (expense) was ($3.2) million for 1996 versus ($4.3) million in
1995. 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 resulted in over a $1 million
favorable year-to-year comparison.
Environmental Matters
The manufacture of the Company's products, and in some cases their storage,
transportation and disposal, involve a number of environmental considerations.
See Item 1 Environmental Matters - in this Annual Report and Note 11 -
Commitments and Contingencies, to the Company's Consolidated Financial
Statements contained in this Annual Report.
During 1997, 1996 and 1995 the Company incurred approximately $79,000,
$172,000 and $389,000, respectively, of costs in connection with the ongoing
review of possible soil and ground-water contamination at its Birmingham, New
Jersey facility and approximately $7,000, $26,000 and $10,000, respectively, in
measuring the extent of contamination at its Wellford, South Carolina facility.
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<PAGE>
Since July 1987, the Company has incurred approximately $4.7 million in
costs in order to identify and remediate certain soil and groundwater
contamination at various facilities which it currently or formerly occupied in
the State of New Jersey. Approximately $4.2 million of these expenditures were
charged against the liability established at the time the Company acquired the
Sybron Chemical Group from Sybron Corporation. The remaining expenditures have
been treated as land improvements.
During 1997, 1996, and 1995 the Company spent approximately $122,000,
$66,000 and $70,000, respectively, to identify and remediate certain soil
contamination at its facility in Ede, Holland which existed at the time the
Company acquired this facility from Sybron Corporation. Approximately $75,000
and $57,000 of the costs incurred in 1997 and 1996, respectively, were charged
against amounts previously reserved.
The cost of remediating contamination at the Company's existing facilities
is not expected to have a material adverse effect on the Company's annual
operating results, cash flow or financial condition. At December 31, 1997, the
Company has accrued approximately $1,349,000 to offset future environmental
assessment and remediation costs.
Liquidity and Capital Resources
Cash and cash equivalents of $26.6 million as of December 31, 1997 were
$11.7 million over the December 31, 1996 balance of $14.9 million, an increase
of 78.4%.
Net cash flow generated by operating activities totaled $25.6 million for
the year versus $17.5 million for the same period in 1996. This increase
principally was due to increased net income and higher payable balances,
including a $3.8 million tax refund paid in error by the Netherlands government.
This refund was returned to the taxing authorities early in 1998. Higher
accounts receivable and inventory balances due to increased business activity
were the principal uses of operating cash.
Net cash used by investing activities totaled $22.3 million for 1997 as
compared with $7.5 million for the comparable 1996 period. This increase was the
result of the Ivax Acquisition in July 1997, coupled with higher capital
expenditures in 1997 due to manufacturing plant upgrades in the U.S. and Mexico.
Net cash provided by financing activities for the year was $11.0 million
primarily due to funding the Ivax acquisition versus a $5.1 million net cash
usage for the year 1996.
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 $17.7 million as of December 31, 1997.
-24-
<PAGE>
The Company expects its 1998 capital expenditures for existing operations
to be somewhat lower than the 1997 levels. The Company believes that anticipated
cash flow from operations, its working capital and amounts available under its
revolving credit facility will be sufficient to meet the Company's liquidity and
capital requirements through 1998. However, the Company may seek, as required,
equity or debt financing to provide capital to fund strategic business
opportunities, including possible business acquisitions, which could require
substantial capital outlays. The timing and amount of such potential capital
requirements cannot be determined at this time and will depend on a number of
factors, including the nature and size of strategic business opportunities that
the Company may elect to pursue.
Foreign Exchange
The Company has subsidiaries in Europe, Asia, Africa and the Americas and,
for all subsidiaries, except the Company's Mexican subsidiary, the Company has
determined the functional currencies are the subsidiaries' local currency. The
Company's Mexican subsidiary's functional currency is considered to be the U.S.
dollar because of that country's designation as a highly inflationary economy.
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 an exchange loss of $0.8 million in the twelve month period ended
December 31, 1997 versus currency exchange income of $0.1 million in the similar
period in 1996.
Year 2000
Based on a preliminary study, the Company expects to spend and expense
approximately $.2 million from 1998 through 1999 to modify its computer
information systems enabling proper processing of transactions relating to the
year 2000 and beyond. The Company continues to evaluate appropriate courses of
corrective action, including replacement of certain systems whose associated
costs would be recorded as assets and amortized. The Company has initiated a
project in Europe to replace existing business and accounting systems. The new
system will accommodate the adoption of the Euro currency, and is also Year 2000
compliant. The Company expects to incur capital expenditures of less than $1
million, primarily for computer hardware and software, related to this system
implementation project. Such amounts are included in the estimated capital
expenditures discussed above. Internal staffing costs and all reengineering
costs, if any, associated with this and any other system implementation project
will be expensed as incurred. Accordingly, the Company does not expect the
amounts required to be expensed over the next two years to have a material
effect on its financial position or results of operations nor does it currently
anticipate any material disruption in its business operations as a consequence
of the Year 2000 issue.
-25-
<PAGE>
Inflations and Trends
United States - Average selling prices in the U.S. increased by less than
0.2% during 1997. Overall raw material costs dropped 1.5%. The cost of styrene,
one of the major raw materials in the Environmental Products and Services
segment, remained relatively flat in 1997 versus the prior year.
Europe - Average selling prices in the Europe division's textile chemical
product line dropped 1.3% while raw material costs increased slightly.
Sales growth in the Textile Chemical Specialties segment for 1998 should be
favorably impacted by the full year effect of the Ivax Acquisition. The Company
is focusing on increasing market penetration in existing major markets such as
the U.S. and Europe and growing developing markets in Latin America, Asia,
Eastern Europe and the Middle East. The Company will continue new product
development including more environmental friendly alternatives for existing
products.
Growth opportunities in the Environmental Product and Services segment
include: further penetration into the toner and laser printer markets; increased
share of the U.S. and export ion exchange markets; and expansion of the
biochemical waste treatment and consumer/ institutional business in the U.S. and
Europe.
In addition, the Company continues to actively pursue niche acquisitions
that, together with synergies gained with the existing businesses, would provide
both top and bottom line growth and accretive earnings per share.
ITEM 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements and supplementary data as set forth
in Item 14(a)(1) and (2).
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
-26-
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company, their ages and their
positions are set forth below:
Name Age Position
Richard M. Klein......... 60 President, Chief Executive
Officer and Director
Stephen R. Adler......... 48 Vice President, Human Resources
Joe J. Belcher........... 56 Vice President-Textile Chemicals,
North America
Peter de Bruijn.......... 49 Managing Director,Europe Division
Albert L. Eilender....... 55 Executive Vice President,
Corporate Development
Dennis J. Fiore.......... 46 Vice President, Finance
and Chief Financial Officer
John McPeak.............. 43 Vice President, Biochemicals
John H. Schroeder........ 47 Executive Vice President
Environmental Products and
Services and Director
David I. Barton.......... 59 Director
Paul C. Schorr IV........ 30 Director
Heinn F. Tomfohrde, III.. 64 Director
Dr. Klein has been a director of the Company and its President and Chief
Executive Officer since its inception in 1987. Since 1969 and until July 1987,
Dr. Klein served in various managerial positions with the Sybron Chemical Group,
becoming its senior executive officer in 1978. He holds a Ph.D. in Chemistry
from the University of Illinois. Dr. Klein currently serves as a director of the
Nash Engineering Company and Mannington Mills, Inc. He is a nominee for director
at the 1998 Annual Meeting of Stockholders.
Mr. Adler has been the Vice President, Human Resources for the Company and
the Sybron Chemical Group since 1984.
Mr. Belcher has served in various managerial positions within the Company
since 1984. In April 1995, he was promoted to Vice President-Textile Chemicals,
North America with responsibility for the Company's textile chemical business in
North America. From July 1987 through March 1995, he was General Sales
Manager-Textile Chemicals.
Mr. de Bruijn has served in various managerial positions within the Company
and the Sybron Chemical Group since January 1972. In January 1995, he was
promoted to Managing Director Europe Division with managerial responsibility for
the Company's textile chemical business in Europe.
-27-
<PAGE>
Mr. Eilender joined the Company in May 1996 as Executive Vice President,
Corporate Development. Prior to joining the Company, he spent twenty-eight years
at Cambrex Corporation and its predecessor company in various managerial
positions.
Mr. Fiore joined the Company in August 1997 as Vice President, Finance and
Chief Financial Officer. He also holds the positions of Treasurer and Corporate
Secretary. Prior to joining the Company, he was Vice President, Finance and
Chief Financial Officer of InterMetro Industries Corporation.
Mr. McPeak has served in various managerial positions within the Company
since 1988. Since September 1995 he has had managerial responsibility for the
Company's biochemical business. From August 1993 to August 1995, he was the
Operations Manager for the Biochemical Division.
Mr. Schroeder has served in various managerial positions within the Company
since 1983 and became a director of the Company in 1992. He was promoted to
Executive Vice President Environmental Products and Services in March 1996 with
responsibility for all business activities for the Company's Environmental
Products and Services segment. His term as a director will expire in 1999.
Mr. Barton has been a director of the Company since July 1996 and served as
Chairman, President and Chief Executive Officer of OSi Specialties, Inc. from
March 1993 until October 1995. During the previous five years, Mr. Barton was
Senior Vice President and General Manager of the Specialty Derivatives business
at International Specialty Products, Inc. Mr. Barton currently serves as a
director of the University of Connecticut Foundation. His term as a director
will expire in 2000.
Mr. Schorr has been a director of the Company since February 1997 and has
been a Vice President of Citicorp Venture Capital Ltd. since 1996. Prior to
joining Citicorp in 1996, Mr. Schorr was a consultant with McKinsey & Company,
Inc. Mr. Schorr currently serves as a director of Inland Resources and Fairchild
Semiconductor. He is a nominee for director at the 1998 Annual Meeting of
Stockholders.
Mr. Tomfohrde has been a director of the Company since June 1992 and served
as President, Chief Operating Officer and Director of International Specialty
Products Inc. and its predecessor company, GAF Chemicals Corporation, from 1987
to 1991. Since 1991, Mr. Tomfohrde has been an independent business consultant
and currently serves as a director of Harris Chemical Group, Inc. and McWhorter
Technologies Inc. His term as a director will expire in 2000.
-28-
<PAGE>
ITEM 11. Executive Compensation
The information required by this Item 11 is incorporated herein by
reference to such information included in the Company's Proxy Statement for the
1998 Annual Meeting of Stockholders.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item 12 is incorporated herein by
reference to such information included in the Company's Proxy Statement for the
1998 Annual Meeting of Stockholders.
ITEM 13. Certain Relationships and Related Transactions
The information required by this Item 13 is incorporated herein by
reference to such information included in the Company's Proxy Statement for the
1998 Annual Meeting of Stockholders.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) (1) Financial Statements
Page
Report of Independent Accountants....................... F-2
Consolidated Balance Sheets as of December 31, 1997
and 1996.............................................. F-3
Consolidated Statements of Income for the years
ended December 31, 1997, 1996 and 1995................ F-4
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995.......... F-5
Consolidated Statement of Cash Flows for the years
ended December 31, 1997, 1996 and 1995................ F-6
Notes to Consolidated Financial Statements.............. F-7
-29-
<PAGE>
(2) Financial Statement Schedules
The following financial statement schedule for the years ended
December 31, 1997, 1996 and 1995 is filed as part of this report
and should be read in conjunction with the consolidated
financial statements set forth in Item 8.
Page
Schedule VIII - Valuation and Qualifying Accounts....... S-1
Schedules other than that listed above are omitted because they
are not applicable or because the required information is given
in the consolidated financial statements and notes thereto.
(3) Exhibits and Exhibit Index
Exhibit No. Description
----------- -----------
3.1 Form of Restated Certificate of Incorporation
of Sybron Chemicals Inc. (1)
3.2 Bylaws of Sybron Chemicals Inc. (1)
3.3 Certificate of Ownership and Merger Merging
Sybron Chemicals, Inc. into Sybron Chemical
Industries Inc. (2)
3.4 Agreement and Plan of Merger dated January 28,
1993 between Sybron Chemicals Inc. and
Sybron Chemical Industries Inc. (2)
10.4* Savings & Thrift Plan, as amended (1)
10.5* 1992 Stock Option Plan (1)
10.6* Share Participation Plan (1)
10.7 Loan Agreement between Sybron Chemicals Inc.
and CoreStates Bank, N.A. dated February 18,
1997. (4)
10.8 Note Agreement dated as of August 1, 1992,
$17,000,000 8.17% Senior Notes due August 14,
2002 by and among Sybron Chemicals Inc. and
The Prudential Insurance Company. (2)
10.8-A First Amendment to Note Agreement dated as of
August 1, 1992, by and among Sybron
Chemicals Inc. and The Prudential Insurance
Company. (2)
10.8-B Amendment and Assumption Agreement No. 2 to
Note Agreement dated as of August 1, 1992 by
and among Sybron Chemicals Inc. and The
Prudential Insurance Company. (2)
10.10* Executive Bonus Plan (2)
10.11* Employment Agreement, dated April 19, 1996,
with Albert L. Eilender. (4)
10.12 Asset Purchase Agreement by and among Ivax
Corporation, Ivax Industries Inc., Ivax
Industries Canada, Inc., Ivax Industries U.K.,
Ltd. and Sybron Chemicals Inc. dated
July 29, 1997. (5)
21 Subsidiaries of the Registrant (6)
24 Powers of attorney of directors of the
Registrant. (6)
27 Financial Data Schedule (6)
- --------------------
(1) Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1 (File No. 33-46091) and incorporated
herein by reference.
(2) Previously filed as an Exhibit to the Registrant's 1992 Form 10-K and
incorporated herein by reference.
(3) Previously filed as an Exhibit to the Registrant's 1994 Form 10-K and
incorporated herein by reference.
(4) Previously filed as an Exhibit to the Registrant's 1996 Form 10-K and
incorporated herein by reference.
(5) Previously filed as an Exhibit to Registrant's Form 8-K filed October
13, 1997 and incorporated herein by reference.
(6) Filed herewith.
* Denotes management contract required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
-30-
<PAGE>
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter
ended December 31, 1997.
(1) Form 8-K, filed on October 14, 1997, regarding the Company's
acquisition of certain of the operating assets of Ivax
Industries, Inc., Ivax Industries Canada, Inc. and Ivax
Industries U.K. Ltd.
(2) Form 8-K, filed on December 16, 1997, regarding the execution of
an Agreement and Plan of Merger, dated as of December 11, 1997,
by and among the Company, Sybron Holdings, Inc., a Delaware
corporation, and Sybron Acquisition Corp., a Delaware
corporation (the "Merger Agreement").
(3) Form 8-K, filed on January 8, 1998 for the purpose of filing a
press release of the Company, dated January 7, 1998, regarding
the rejection by the Company of an unsolicited offer by a third
party to acquire all of the Company's stock in a merger
transaction.
(4) Form 8-K, filed on February 17, 1998, regarding the termination
of the Merger Agreement.
-31-
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) 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, on March 30, 1998.
SYBRON CHEMICALS INC.
By /s/ RICHARD M. KLEIN
------------------------
RICHARD M. KLEIN
Chairman of the Board, President,
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 30, 1998 by the following persons on
behalf of the Registrant and in the capacities indicated.
Signature Title
--------- -----
/s/ RICHARD M. KLEIN Chairman of the Board, President,
---------------------
RICHARD M. KLEIN and Chief Executive Officer
/s/ DENNIS J. FIORE Vice President, Finance, Chief
---------------------
DENNIS J. FIORE Financial Officer, Secretary and Treasurer
/s/ * Director
----------------------
DAVID I. BARTON
/s/ * Director
-----------------------
PAUL C. SCHORR, IV
/s/ * Director
-----------------------
JOHN H. SCHROEDER
/s/ * Director
-----------------------------
HEINN F. TOMFOHRDE, III
* By: /s/ RICHARD M. KLEIN
- -------------------------------------
RICHARD M. KLEIN, Attorney-in-fact
-32-
<PAGE>
Index to Consolidated Financial Statements
Sybron Chemicals Inc.
Page
Report of Independent Accountants.............................. F-2
Consolidated Balance Sheets as of December 31, 1997
and 1996..................................................... F-3
Consolidated Statements of Income for the years
ended December 31, 1997, 1996 and 1995....................... F-4
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995................. F-5
Consolidated Statement of Cash Flows for the years
ended December 31, 1997, 1996 and 1995....................... F-6
Notes to Consolidated Financial Statements..................... F-7
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Stockholders of
Sybron Chemicals Inc.
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Sybron
Chemicals Inc. and its subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania 19103
February 24, 1998
F-2
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
ASSETS
<TABLE>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26,592 $ 14,909
Accounts receivable, net 37,367 32,863
Inventories, net 28,205 22,125
Prepaid and other current assets 3,019 2,522
Deferred income taxes 140 43
--------- --------
Total current assets 95,323 72,462
Property, plant and equipment, net 34,224 31,533
Intangible assets, net 20,086 12,383
Other assets 600 686
--------- --------
$150,233 $117,064
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,760 $ 778
Current portion of long-term debt 2,429 2,433
Accounts payable 27,653 16,603
Accrued liabilities 16,087 13,184
Income taxes payable 3,951 609
Deferred income taxes 12 188
--------- --------
Total current liabilities 51,892 33,795
Long-term debt 27,390 17,787
Deferred income taxes 2,502 2,926
Postretirement benefits 3,919 3,999
Other 2,119 2,469
--------- --------
Total liabilities 87,822 60,976
--------- --------
Commitments and contingencies (See Note 11)
Stockholders' equity:
Preferred stock, $.01 par value, 500,000
shares authorized; none issued
Common stock - $.01 par value, 20,000,000
shares authorized; issued 5,908,260
and 5,905,000 shares 59 59
Additional paid-in capital 23,580 23,530
Retained earnings 51,989 41,349
Cumulative translation adjustment (8,359) (3,509)
-------- --------
67,269 61,429
Less treasury stock, at cost - 233,648
and 254,440 shares (4,673) (5,089)
Less minimum pension liability, net of tax (185) (252)
-------- --------
Total stockholders' equity 62,411 56,088
-------- --------
$150,233 $117,064
========= ========
</TABLE>
The accompanying notes are an
integral part of the financial
statements.
F-3
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $188,814 $174,346 $167,807
--------- --------- --------
Cost of sales 115,180 110,190 110,545
Selling 35,148 31,257 28,597
General and administrative 11,340 11,123 9,765
Research and development 3,710 4,154 3,923
--------- --------- --------
165,378 156,724 152,830
--------- --------- --------
Operating income 23,436 17,622 14,977
--------- --------- --------
Other income (expense):
Interest income 497 400 438
Interest expense (1,968) (1,969) (2,471)
Amortization of intangible assets (1,585) (1,316) (1,496)
Terminated merger costs (1,270)
Other, net (1,048) (343) (725)
--------- --------- ---------
(5,374) (3,228) (4,254)
--------- --------- ---------
Income before income taxes 18,062 14,394 10,723
Provision for income taxes 7,422 5,880 4,394
--------- --------- --------
Net income $ 10,640 $ 8,514 $ 6,329
========= ========= ========
Net income per share:
Basic $ 1.88 $ 1.51 $ 1.12
========= ========= ========
Diluted $ 1.84 $ 1.50 $ 1.12
========= ========= ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-4
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1996 and 1997
(amounts in thousands)
<TABLE>
<CAPTION>
Additional Cumulative Minimum Total
Common stock paid-in translation Retained Treasury stock Pension Stockholders'
------------- --------------
Shares Amount capital adjustment earnings Shares Amount Liability Equity
------ ------ ----------- ----------- -------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 5,905 $ 59 $23,530 $(2,306) $26,506 254 $(5,089) $42,700
Net income 6,329 6,329
Translation adjustment 924 924
----- ----- -------- -------- -------- ---- -------- --------
Balances at December 31, 1995 5,905 59 23,530 (1,382) 32,835 254 (5,089) 49,953
Net income 8,514 8,514
Translation adjustment (2,127) (2,127)
Minimum pension liability adjustment $(252) (252)
----- ----- -------- -------- -------- ---- -------- ------ ---------
Balances at December 31, 1996 5,905 59 23,530 (3,509) 41,349 254 (5,089) (252) 56,088
Net income 10,640 10,640
Translation adjustment (4,850) (4,850)
Minimum pension liability adjustment 67 67
Exercise of stock options 3 47 47
Shares issued under Savings and
Incentive Plans 3 (20) 416 419
------ ----- ------- -------- -------- ----- ------- ----- ---------
Balances at December 31, 1997 5,908 $ 59 $23,580 $(8,359) $51,989 234 $(4,673) $(185) $62,411
====== ==== ======== ======== ======= ===== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-5
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $10,640 $ 8,514 $ 6,329
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,524 6,465 6,712
Provision for losses on accounts receivable 709 392 831
Gain on sale of assets (136)
Provision (benefit) for deferred taxes (818) (597) 485
Change in assets and liabilities:
Accounts receivable (6,119) (3,009) (1,847)
Inventory (6,074) 1,829 (2,248)
Other current assets (312) (1,217) 279
Accounts payable and accrued expenses 15,874 5,969 2,546
Income taxes payable 3,602 (332) 458
Other assets and liabilities, net 1,676 (519) (401)
-------- -------- --------
Net cash provided by operating activities 25,566 17,495 13,144
-------- -------- -------
Cash flows from investing activities:
Capital expenditures (9,365) (6,326) (5,731)
Purchase of business assets (14,476) (1,275) (8,299)
Sale of business assets 1,500
Other, net 52 (27)
--------- -------- --------
Net cash used by investing activities (22,341) (7,549) (14,057)
-------- -------- --------
Cash flows from financing activities:
Repayment of debt (2,429) (2,429)
Net (repayments) borrowings under
revolving credit facilities 13,335 (2,668) 4,790
Proceeds from the exercise of stock options 47
------- ------- --------
Net cash (used) provided by financing activities 10,953 (5,097) 4,790
-------- -------- -------
Effect of exchange rate changes on cash (2,495) (1,224) 432
-------- -------- -------
Net increase in cash and cash equivalents 11,683 3,625 4,309
Cash and cash equivalents at beginning of year 14,909 11,284 6,975
-------- -------- -------
Cash and cash equivalents at end of year $26,592 $14,909 $11,284
======== ======== =======
</TABLE>
See Consolidated Statement of Shareholders' Equity for non-cash transaction
involving treasury shares issued in 1997 under savings and incentive plans.
The accompanying notes are an
integral part of the financial statements.
F-6
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data)
NOTE 1 - THE COMPANY:
- ---------------------
The Company is an international "specialty" chemical company which serves two
main markets: environmental products and services (primarily related to water
and waste treatment) and textile chemical specialties products. As used herein,
unless otherwise indicated, the "Company" refers to Sybron Chemicals Inc. and
its subsidiaries.
NOTE 2 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES:
- -------------------------------------------------------
Basis of Presentation:
- ----------------------
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and activity
have been eliminated.
Accounting Policies:
- --------------------
Use of Estimates -
------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents -
---------------------------
Cash and cash equivalents include funds invested in liquid short-term
investments with a maturity of three months or less. For such investments the
carrying amount approximates fair value. At December 31, 1997 and 1996 these
investments amounted to $22,687 and $11,915, respectively.
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.
F-7
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 2 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued):
- -------------------------------------------------------------------
Property, Plant and Equipment -
-------------------------------
Property, plant and equipment is stated at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of depreciable assets
(generally 10-40 years for buildings and 3-20 years for machinery and equipment)
using the straight-line method.
Intangible and Other Assets -
--------------------------- -
Intangible assets (net of accumulated amortization - 1997, $6,382; 1996, $6,705)
include the unamortized fair values of trademarks, license agreements, patents,
non-compete agreements and goodwill. Intangible assets are amortized on a
straight-line basis over estimated useful lives of 5 to 30 years. The Company
continually evaluates the reasonableness of its amortization for intangibles. In
addition, if it becomes probable that expected future undiscounted cash flows
associated with intangible assets are less than their carrying value, the assets
will be written down to their fair value. Costs associated with the issuance of
long- term debt are amortized on a straight-line basis over the term of the
debt.
Impairment of Long-Lived Assets -
---------------------------------
The Company reviews long-lived assets and certain identifiable intangibles for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Environmental Liabilities and Expenditures -
--------------------------------------------
Accrued liabilities and other liabilities include accruals for environmental
matters which are established and reflected as operating expenses when it is
probable that a liability has been incurred and the amount of the liability can
be reasonably estimated. Accrued liabilities are exclusive of claims against
third parties and are not discounted.
In general, costs related to environmental remediation are charged to expense.
Environmental remediation costs are capitalized if the costs increase the value
of the property as compared to the state of the property when acquired, or
mitigate or prevent contamination from future operations.
F-8
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 2 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued):
- -------------------------------------------------------------------
Revenue Recognition and Related Disclosures -
---------------------------------------------
The Company recognizes revenue upon shipment of products. Receivables resulting
from these sales approximate fair value. The Company monitors the credit
worthiness of its customers. Concentrations of credit risk associated with these
trade receivables are considered minimal due to the Company's diverse customer
base. The allowance for doubtful accounts at December 31, 1997 and 1996 was
$2,058 and $1,820, respectively.
Interest Expense -
------------------
Interest expense incurred during the construction of facilities and equipment is
capitalized as part of the cost of those assets. Total interest paid by the
Company was $1,618 in 1997, $2,054 in 1996 and $2,416 in 1995. Interest
capitalized was $33 in 1997, $32 in 1996 and $133 in 1995.
Retirement Benefits -
---------------------
Pension expense for the Company's domestic and significant international defined
benefit pension plans is determined in accordance with Statement of Financial
Accounting Standards No. 87 (FAS 87), "Employers' Accounting for Pensions". See
Note 8 for further description.
In addition to providing pension benefits, the Company provides certain health
care and life insurance benefits for a portion of its retired employees which
are funded as costs are incurred. Liability for these benefits are recognized in
accordance with FAS 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." FAS 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" is applicable for 1998 and will be adopted by the
Company for 1998 reporting.
Stock-Based Compensation -
--------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method described in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to
Employees", and related Interpretations.
F-9
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 2 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued):
- -------------------------------------------------------------------
Income Taxes -
--------------
The Company accounts for certain income and expense items differently for
financial reporting and income tax purposes. Deferred tax assets and liabilities
are recognized for future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and for operating loss and tax credit
carry-forwards.
Foreign Currency Translation -
------------------------------
The financial statements and transactions for the majority of the Company's
foreign subsidiaries are maintained in their local currencies which are
considered to be their functional currencies. The Company's Mexican subsidiary's
functional currency is considered to be the U.S. dollar because of that
country's designation as a highly inflationary economy. All of these
transactions are translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards No. 52.
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars
using current exchange rates and the resulting translation adjustments are
recorded to the cumulative translation adjustment component of stockholders'
equity, except the Company's Mexican subsidiary which operates in a highly
inflationary economy. (Certain assets of the Mexican subsidiary are translated
at historical exchange rates and all translation adjustments are reflected in
the Consolidated Statements of Income). Revenues and expenses of foreign
subsidiaries are translated at weighted average rates of exchange for the
respective periods. Foreign exchange gains (losses) for 1997, 1996 and 1995 were
approximately ($787), $131 and ($390), respectively.
Earnings Per Share -
--------------------
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
became effective in the fourth quarter of 1997 and requires two presentations of
earnings per share "basic" and "diluted". Basic earnings per share is computed
by dividing income available to common stockholders (the numerator) by the
weighted-average number of common shares (the denominator) for the period. The
computation of diluted earnings per share is similar to basic earnings per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued.
F-10
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 2 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued):
- -------------------------------------------------------------------
The numerator in calculating both basic and diluted earnings per share for each
year is reported net income. The denominator is based on the following
weighted-average number of common shares:
1997 1996 1995
---- ---- ----
Basic 5,666,683 5,650,560 5,650,560
Diluted 5,793,770 5,669,893 5,650,560
The difference between basic and diluted weighted-average common shares results
from the assumption that dilutive stock options outstanding were exercised.
The following stock options are not included in the diluted earnings per share
calculation since in each case the exercise price is greater than the average
market price for the year:
1997 1996 1995
---- ---- ----
Stock options 9,318 136,946 158,260
NOTE 3 - ACQUISITIONS AND MERGERS:
- ----------------------------------
Between October 1997 and February 11, 1998, the Company entertained a buyout
proposal received from an investor group consisting of certain major
shareholders, primarily Citicorp Venture Capital Ltd. and certain members of the
Company's management. The Company signed a merger agreement on December 11,
1997, which was terminated on February 11, 1998. The Company recognized expense
of $1,270 associated with the terminated merger agreement in the fourth quarter
of 1997.
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 Industries Canada, Inc. and Ivax
Industries U.K. Ltd. for $14,476. The purchase price was financed 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.
F-11
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 3 - ACQUISITIONS AND MERGERS (Continued):
- ----------------------------------------------
The acquisition has been accounted for as a purchase and, accordingly, the
operating results of Ivax have been included in the Company's consolidated
financial statements since the date of acquisition. The excess of the aggregate
purchase price over the fair market value of net assets acquired of
approximately $6,246 is being amortized over 30 years.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1997 and 1996 assume the Ivax Acquisition occurred as
of January 1, 1996:
Pro Forma Information
(in thousands, except per share data) 1997 1996
-------- ------
Net sales $199,823 $192,770
Net income (loss) 10,008 *(17,367)
Net income (loss) per share $1.77 $(3.07)
*At September 30, 1996 management of Ivax Industries reevaluated the carrying
value of certain long-lived assets and goodwill related to those assets to be
held and used in the Division's operations. Consequently, management reduced the
carrying value of certain long-lived assets and goodwill of the Division by
approximately $23,396. The Company considers this a one-time charge that will
not be a factor in ongoing costs.
In June 1996, the Company purchased the specialty resin business of the Chemical
Images Co. ("CIC"). CIC develops and markets specialty resins for use in
reprographic and laser printer toners. This transaction, which was accounted for
as a purchase, did not have a material effect on the Company's 1996 operating
results.
On January 9, 1995, the Company completed the purchase of all the outstanding
stock of the Auralux Corporation ("Auralux"). Auralux, with annual revenues of
approximately $10 million at the time of the acquisition, is a manufacturer of
textile chemicals used in fabric finishing with product lines including fire
retardants, softeners, thermosetting resins and other specialty products. In
connection with this acquisition, the Company acquired a nine acre site in
Norwich, Connecticut from which Auralux manufactures, distributes and warehouses
its products. At December 31, 1995, Auralux was merged into the Company.
F-12
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 4 - INVENTORIES:
- ---------------------
The components of inventories are:
December 31,
------------
1997 1996
---- ----
Finished goods $21,317 $16,247
Raw materials 7,864 6,751
------- -------
29,181 22,998
Less reserves 976 873
------- -------
$28,205 $22,125
======= =======
LIFO inventories comprise 64% and 61% of total inventories at December 31, 1997
and 1996, respectively. If the FIFO method of accounting for inventories had
been used by the ompany, inventories would have been greater than reported by
$155 and $761 at December 31, 1997 and 1996, respectively.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
- ---------------------------------------
The components of property, plant and equipment are:
December 31,
------------
1997 1996
---- ----
Land $ 2,965 $ 2,961
Buildings 17,967 16,718
Machinery and equipment 47,503 44,816
Construction in progress 4,607 3,521
-------- -------
73,042 68,016
Accumulated depreciation (38,818) (36,483)
-------- --------
$34,224 $31,533
======== =======
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was
$4,939, $5,149 and $5,072, respectively. Maintenance and repairs expense for the
same periods amounted to $2,342, $2,156 and $1,963, respectively.
F-13
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 6 - ACCRUED LIABILITIES:
- -----------------------------
The components of accrued liabilities are:
December 31,
------------
1997 1996
---- ----
Accrued compensation $ 6,851 $ 5,371
Accrued selling and marketing expenses 2,450 2,545
Accrued professional fees 1,494 715
Accrued environmental liabilities 1,349 1,717
Other accrued liabilities 3,943 2,836
------- -------
$16,087 $13,184
======= =======
NOTE 7 - LONG-TERM DEBT:
- ------------------------
The components of long-term debt are:
December 31,
------------
1997 1996
---- ----
Notes payable bearing interest at 8.17% $ 12,143 $14,572
Revolving credit facility bearing interest
at the bank's prime rate less 1.5% or
.375% over the LIBOR rate in 1997,
and the banks prime rate or 1% over the
LIBOR rate in 1996. 17,676 5,648
------- -------
29,819 20,220
Less current portion 2,429 2,433
----- -----
$27,390 $17,787
======= =======
Notes Payable:
- --------------
The unsecured notes payable bear interest at 8.17% and mature in August 2002.
Interest is payable quarterly. The notes require payments of $2,429 in August of
the years 1998 to 2002, inclusive, together with accrued interest to the payment
dates. Optional prepayments may be made by the Company.
F-14
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 7 - LONG-TERM DEBT (Continued):
- ------------------------------------
Revolving Credit Agreement:
- ---------------------------
The Revolving Credit Agreement permits the Company and its wholly owned foreign
subsidiaries to borrow in Eurodollars or in several foreign currencies,
including the Italian lira, Dutch guilder or British pound. The borrowings under
this agreement shall not exceed the U.S. dollar equivalent of $40,000 and the
agreement expires on February 18, 2002. The Company has the option on U.S.
dollar borrowings to incur interest at the bank's prime rate, less up to 150
basis points, or the London Interbank Offered Rate ("LIBOR"), plus up to 125
basis points. The basis point adjustments depend upon the Company's cash flow
ratio. All borrowings under this agreement are unsecured.
At December 31, 1997 there were $17,676 of outstanding borrowings under the
agreement at an average interest rate of 6.22%.
The Company has the ability and intent to borrow under the agreement on a
long-term basis and accordingly has classified outstanding borrowings at
December 31, 1997 as long-term debt.
Annual Repayments:
- ------------------
The aggregate annual repayments of debt outstanding at December 31, 1997 are as
follows:
1998 $ 2,429
1999 2,429
2000 2,429
2001 2,429
2002 20,103
-------
$29,819
=======
Debt Covenants:
- ---------------
At December 31, 1997, certain of the debt agreements contain conditions and
restrictions, such as financial tests relating to interest coverage and cash
flow ratios, required amount of net worth, limitations on additional borrowings,
limitations on capital expenditures and restrictions relating to asset sales and
repayments of existing debt. The Company believes it is in compliance with these
covenants and restrictions.
F-15
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 7 - LONG-TERM DEBT (Continued):
- ------------------------------------
Interest Rate Swap Agreements:
- ------------------------------
In February 1994, the Company entered into a 2 year interest rate swap agreement
("Swap") having a total notional principal of $17,000 with a major financial
institution. This Swap effectively converted a significant portion of the
Company's long-term debt from a fixed to a variable rate based on the 90 day
LIBOR rate. On specific 90 day intervals, the 90 day LIBOR rate was compared
against the Swap rate (5.03%), and to the extent that the LIBOR rate was higher
or lower than the Swap rate, payments were made or received by the Company.
At times, the Company entered into interest rate forward agreements (the
"Forward") with major financial institutions which effectively converted the
Swap's variable interest rate to a fixed rate for respective 90 day intervals.
As a result of the Swap and Forward, the Company's effective interest rates
during 1995 on the related long-term debt was approximately 9.2%. The Swap was
closed out in February 1996.
NOTE 8 - INCOME TAXES:
- ----------------------
Provisions for income taxes are:
Year ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Currently payable:
Federal $1,973 $1,490 $ 305
State 233 188 120
Foreign 6,034 4,799 3,484
------ ------ -----
8,240 6,477 3,909
Deferred taxes:
Federal (654) (884) 562
State (96) (131) 2
Foreign (68) 418 (79)
------- ---- -------
$7,422 $5,880 $4,394
======= ======= ======
F-16
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 8 - INCOME TAXES (Continued):
- ----------------------------------
Provisions for income taxes differ from the amount computed by applying the
statutory federal rate due to the following:
Year ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Income tax computed at U.S.
Federal statutory tax rates $6,141 $4,894 $3,646
State income taxes, net of
federal income tax benefit 233 95 138
Foreign subsidiaries taxed at
higher rates 1,063 653 599
Other items, net (15) 238 11
------- ------ ------
$7,422 $5,880 $4,394
======= ====== ======
Income taxes paid were $4,379 in 1997, $6,846 in 1996 and $2,981 in 1995.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1996 are presented below.
December 31,
------------
1997 1996
---- ----
Deferred tax assets:
Postretirement benefits $ 1,587 $ 1,619
Accrued expenses 1,452 1,324
Other 499 475
-------- -------
Total deferred tax assets 3,538 3,418
------- -------
Deferred tax liabilities:
Depreciation (2,511) (3,036)
Inventory (995) (947)
Intangibles (968) (1,038)
Property (830) (830)
Other (596) (626)
-------- --------
Total deferred tax liabilities (5,900) (6,477)
-------- --------
Net deferred tax liability $(2,362) $(3,059)
======== ========
F-17
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 8 - INCOME TAXES (Continued):
- ----------------------------------
The components of income before income taxes are:
Year ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
United States $ 3,632 $ 1,520 $ 2,514
Foreign 14,430 12,874 8,209
------- ------- -------
$18,062 $14,394 $10,723
======= ======= =======
Retained earnings of foreign subsidiaries totaling approximately $34,600 at
December 31, 1997 are considered to be reinvested indefinitely in these
businesses. Accordingly, no provision for income taxes has been made for the
repatriation of these earnings. Provision for income taxes have been made for
approximately $17,000 of retained earnings of foreign subsidiaries which are not
considered to be indefinitely invested.
NOTE 9 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS:
- -------------------------------------------------------------
Pension Benefits:
- -----------------
The Company has a defined contribution pension plan (the "Plan") for U.S.
salaried employees. In accordance with the Plan, the Company contributes a fixed
percentage of a salaried employee's annual earnings ranging from 4.0% to 17.9%,
based on the employee's age and length of service with the Company. Expenses
related to this plan were $517, $653 and $615 for the years ended December 31,
1997, 1996 and 1995, respectively.
The Company has defined benefit pension plans covering substantially all U.S.
hourly and foreign employees. Plans covering U.S. hourly employees provide
benefits based on years of service and applicable contractual agreements. Plans
covering foreign employees are generally based on various formulas, the
principal factors of which are years of service and compensation. The Company's
funding policy is to make the minimum annual contribution required by applicable
regulations.
F-18
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 9 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS
- ------------------------------------------------------------
(Continued):
Significant assumptions used in determining net periodic pension cost of the
hourly plans and related pension obligations were:
Year ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Domestic:
Discount rate 7.25% 7.25% 7.25%
Expected long-term rate of return 9.0% 9.0% 9.0%
Rate of increase in compensation
levels 4.0% 4.0% 4.0%
Foreign:
Discount rate 6.00% 6.25% 7.25%
Expected long-term rate of return 6.00% 6.25% 7.25%
Rate of increase in compensation
levels 3.5% 3.5% 3.5%
The components of consolidated net periodic pension cost are:
Year ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Defined benefit pension plans:
Service cost $ 521 $ 561 $ 425
Interest on projected benefit
obligations 731 725 681
Return on plan assets (722) (706) (980)
Amortization and deferral of
unrecognized items 141 143 460
------- ------- -----
Net periodic pension cost 671 723 586
Other foreign plans, including
certain social payments 403 331 293
------- ------- -----
$1,074 $1,054 $ 879
======= ======= =====
F-19
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 9 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS
- ------------------------------------------------------------
(Continued):
The following table summarizes the funded status of the Company's domestic
defined benefit pension plans:
December 31,
------------
1997 1996
---- ----
Actuarial present value of benefit
obligations:
Vested benefit obligation ($4,406) ($4,125)
======== ========
Accumulated benefit obligation ($4,662) ($4,367)
======== ========
Projected benefit obligation ($4,662) ($4,367)
Fair value of plan assets 4,456 4,083
-------- -------
Plan assets less than projected
benefit obligation (206) (284)
Unrecognized net obligation
arising at transition (78) (57)
Unrecognized net loss 205 335
Unrecognized prior service cost 376 291
Additional minimum liability (218) (445)
-------- --------
Amount reflected as pension
(liability)/asset $ 79 $ (160)
======== ========
F-20
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 9 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS
- ------------------------------------------------------------
(Continued):
The following table summarizes the funded status of the Company's significant
foreign defined benefit pension plans:
December 31,
------------
1997 1996
---- ----
Actuarial present value of benefit
obligations:
Vested benefit obligation ($4,884) ($4,738)
======== ========
Accumulated benefit obligation ($6,296) ($6,169)
======== ========
Projected benefit obligation ($7,449) ($7,467)
Fair value of plan assets 6,370 6,455
-------- -------
Plan assets less than projected
benefit obligation (1,079) (1,012)
Unrecognized net obligation
arising at transition 361 490
Unrecognized net loss 881 790
Additional minimum liability (152) (36)
-------- --------
Accrued pension asset $ 11 $ 232
======== =======
Plan assets are held in trust and are composed of investments in cash
equivalents, bonds and marketable securities.
In accordance with the provisions of Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions", the Company has recorded an
additional minimum liability of $884 at December 31, 1997 and $1,030 at December
31, 1996, representing the excess of the accumulated benefit obligation over the
fair value of plan assets and accrued pension liability for its pension plans.
The additional liability has been offset by an intangible asset of $590 at
December 31, 1997 and $619 at December 31, 1996, which is included in Intangible
Assets to the extent of previously unrecognized prior service cost. Amounts in
excess of previously recognized prior service cost, net of the related deferred
tax benefit, of $185 at December 31, 1997 and $252 at December 31, 1996, are
reflected as a reduction of stockholders' equity.
F-21
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 9 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS
- ------------------------------------------------------------
(Continued):
Postretirement Benefits:
- ------------------------
In addition to providing pension benefits, the Company provides certain health
care and life insurance benefits for a portion of its retired employees which
are funded as costs are incurred. These benefits are provided through various
insurance companies whose premiums are based on the claims paid during the
period. In addition, current retirees contribute varying percentages of
equivalent premiums toward the cost of their health care coverage. Retiree
contributions are automatically indexed to keep up with health care inflation.
The components of net periodic postretirement benefit cost are:
Year ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Service cost benefits attributed
to service during the year $ 1 $ 1 $ 2
Interest cost on accumulated post
retirement benefit obligation 175 177 306
Net amortization and deferral (102) (102) (25)
------ ------ -----
Net periodic postretirement
benefit cost $ 74 $ 76 $ 283
====== ====== =====
The following table sets forth the postretirement plans' status as recorded in
the Company's consolidated balance sheet:
Accumulated postretirement benefit obligation:
December 31,
------------
1997 1996
---- ----
Retirees $(1,722) $(2,223)
Fully eligible participants (217) (262)
Participants not fully eligible (10) (10)
-------- --------
Accumulated postretirement benefit
obligation (1,949) (2,495)
Unrecognized prior service cost (1,402) (1,504)
Unrecognized net gain (687) (150)
--------- --------
Accrued postretirement benefits $(4,038) $(4,149)
======== ========
F-22
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 9 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS
- ------------------------------------------------------------
(Continued):
Postretirement Benefits (Continued):
- ------------------------------------
The discount rate used in determining the net periodic benefit cost was 7.25% at
December 31, 1997 and 1996. The assumed average inflation rate of medical costs
over the life of the benefits ranged from 7.5% currently to 5.0% in 2004 and
thereafter. An increase of one percentage point in the per capita cost of health
care costs would increase the accumulated postretirement benefit obligation as
of December 31, 1997 by approximately $110 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost by
approximately $9.
Other Employee Benefits:
- ------------------------
Stock Options-
--------------
Effective May 1, 1992, the Company adopted the 1992 Stock Option Plan (the
"Option Plan"). The aggregate maximum number of shares of Common Stock available
for awards under the Plan is 556,740. Options granted under the Option Plan may
be either incentive stock options or non-qualified stock options. The exercise
price of each option equals the market price of the Company's stock on the date
of the grant and an options maximum term is 10 years. Options generally vest in
20% increments beginning with the first anniversary of the grant.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its Option Plan. Accordingly, no compensation cost has been recognized for
options granted under its Option Plan. Had compensation cost for the Company's
Option Plan been determined based on the fair value at the grant dates for
awards under the Option Plan consistent with the method of FASB Statement 123,
the Company's net income and earnings per share (basic and diluted) would have
been reduced by the proforma amounts of: 1997 net income, $334, and earnings per
share, $.06; 1996 net income, $277, and earnings per share, $.05; 1995 net
income, $32, and earnings per share, $.01. This determination of fair value was
based on using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997, 1996, and 1995: dividend
yield of 0%, expected lives of 5 years, expected volatility of 40%, 42% and 42%,
respectively, and a risk free interest rate of 5.7%, 6.4% and 6.4%,
respectively.
F-23
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 9 - PENSION, POST-RETIREMENT AND OTHER EMPLOYEE BENEFITS (Continued):
- --------------------------------------------------------------------------
Stock Options- (Continued)
--------------------------
A summary of the status of the Option Plan at December 31, 1997, 1996 and 1995
and changes during the years ending on those dates is as follows:
<TABLE>
<CAPTION>
Number Price Weighted Average
of shares Per Share Exercise Price
--------- --------- --------------
<S> <C> <C> <C>
Options outstanding at December 31, 1994... 183,035 $18.75-$25.50 $22.76
Granted.................................. 17,875 $15.50 $15.50
Exercised................................ --
Cancelled and available for reissue...... (42,650) $18.75-$25.50 $22.48
--------
Options outstanding at December 31, 1995... 158,260 $15.50-$25.50 $22.02
Granted.................................. 281,195 $10.75-$13.875 $12.61
Exercised................................ --
Cancelled and available for reissue...... (107,550) $10.75-$25.50 $23.54
---------
Options outstanding at December 31, 1996... 331,905 $10.75-$25.50 $13.54
Granted.................................. 49,250 $16.00-$22.50 $19.43
Exercised................................ (3,260) $10.75-$18.75 $14.35
Cancelled and available for reissue...... (27,730) $10.75-$18.75 $13.87
---------
Options outstanding at December 31, 1997... 350,165 $10.75-$25.50 $14.33
=======
Options exercisable at December 31, 1997... 82,054 $10.75-$25.50 $14.65
======
Options available for grant at
December 31, 1997........................ 206,575
=======
Weighted average remaining life (years) at December 31, 1997 8
</TABLE>
The following table summarizes information about the stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices 12/31/97 Contractual Life Price 12/31/97 Price
- ------ -------- ---------------- ----- -------- -----
<C> <C> <C> <C> <C> <C>
$10.75 to $12.50 102,980 8 $11.82 22,320 $11.74
$12.75 72,990 8 $12.75 15,054 $12.75
$13.50 81,375 8 $13.50 16,275 $13.50
$15.50 to $19.50 77,395 8 $18.40 28,230 $18.55
$22.50 to $25.50 15,425 9 $22.53 175 $25.50
- -------------------------------------------------------------------------------------
$10.75 to $25.50 350,165 8 $14.33 82,054 $14.65
</TABLE>
F-24
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 9 - PENSION, POST-RETIREMENT AND OTHER EMPLOYEE BENEFITS (Continued):
- --------------------------------------------------------------------------
Share Participation Plan-
-------------------------
The Company has a Share Participation Plan (the "Share Plan") as a means of
rewarding certain employees of the Company for their effort in contributing to
an increase in the value of the Company as well as to provide an incentive to
continue employment in the Company. The Share Plan covers all full-time
employees of the Company, with the exception of executive officers and certain
other senior employees of the Company, who have completed at least one full year
of service.
The Share Plan entitles employees holding shares to receive a pro rata portion
of a cash award pool to be established in the event the Company sells a
substantial portion of its assets, undergoes a substantial change in beneficial
ownership of its equity securities, merges or is consolidated into an
unaffiliated third party. The cash award paid is a sum equal to 2% of the net
amount of cash and fair market value of any publicly traded securities paid in
consideration of a triggering event, less $2.6 million. In the event that an
employee receives payment for their shares under the Share Plan, a proportionate
percentage of their stock options, if any, in the Option Plan will be subject to
cancellation.
NOTE 10 - OPERATING LEASES:
- ---------------------------
The Company leases certain manufacturing, warehouse and office
facilities, and equipment. Future minimum lease payments required as of
December 31, 1997 under operating leases that have initial
non-cancelable lease terms exceeding one year are as follows:
Facility Equipment
Year Rentals Rentals Total
---- ------- ------- -----
1998 $ 516 $1,204 $1,720
1999 174 969 1,143
2000 5 587 592
2001 -- 175 175
2002 -- 78 78
Thereafter -- 212 212
-------- ------ ------
$ 695 $3,225 $3,920
====== ====== ======
Rent expense was approximately $2,941 for 1997, $2,810 for 1996 and
$2,932 for 1995.
F-25
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
- ----------------------------------------
The Company is subject to a variety of environmental and pollution control
regulations in the jurisdictions in which it operates. These laws and
regulations require the Company to make significant expenditures for
remediation, capital improvements and operating environmental protection
equipment. Future developments and changes in environmental regulations may
require the Company to make additional unforeseen environmental expenditures.
The Company's major competitors are confronted by substantially similar
environmental risks and regulations.
The Company has identified certain soil and groundwater contamination at its
Birmingham, New Jersey facility. The Company has conducted extensive sampling
plans for both soil and ground- water and has proposed a remedial action work
plan (the "Work Plan") to the New Jersey Department of Environmental Protection
(the "DEP") related to the clean-up of the Birmingham facility. DEP has
conditionally approved the Work Plan and the Company has initiated the clean-up
based on DEP's conditional approval. The remedial activities pursuant to the
Work Plan are expected to be completed by the end of 1998.
The Company has identified certain soil and groundwater contamination at its
Wellford, South Carolina facility. The Company submitted a proposed sampling and
testing program to the South Carolina Department of Health and Environmental
Control (DHEC) for its review. DHEC has approved the Company's proposed action
for the next phase of the investigation and remediation of potential groundwater
contamination. The remedial activities related to this program are in progress
at this time.
The Company has completed a number of studies to identify the extent of certain
soil and groundwater contamination around its manufacturing facility in Ede,
Holland and other facilities owned by third parties which are adjacent thereto
(collectively, the "Dutch Facilities"). As a result of these studies, the
Company is presently remediating certain contamination at its Ede facility. An
environmental consulting firm is performing additional studies and has developed
a plan of remediation for the Dutch Facilities. The plan was presented to the
local and provincial government officials for their approval at the end of 1997.
The approval process for this plan is expected to be completed by mid-year 1998.
In addition to sites occupied by the Company, the Company has on occasion been
advised that it may be named as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
or similar state statutes with respect to the transport and disposal of
hazardous wastes. At present, the Company is a party in a legal action in the
United States regarding the clean-up of hazardous waste or chemicals at a site
never occupied by the Company or its predecessors. In addition, the Company has
received inquiry letters or notices on seven other hazardous waste sites where
the Company could be a potentially responsible party.
F-26
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued):
- ----------------------------------------------------
The Company has not identified any sites which may require remediation but which
have not been cited specifically by regulatory authorities for non-compliance
with environmental rules and regulations.
Although it is difficult to quantify the potential impact of compliance with or
liability under environmental protection laws, the Company believes that it has
made adequate accruals for all clean-up and other related costs with respect to
environmental problems of which it is aware. At December 31, 1997 and 1996, the
Company has accrued approximately $1,349 and $1,717, respectively, to offset
future environmental assessment and remediation costs. The charge in 1996
included $650 for potential liabilities related to the remediation of the Dutch
facilities. The Company has not reduced its environmental liabilities or
recorded any assets related to potential insurance recoveries.
There are also pending against the Company several claims and lawsuits arising
in the normal course of its business. Such claims and lawsuits include
allegations of patent infringement and injuries related to the inhalation of
hazardous chemicals.
The Company believes it has adequate insurance to cover any such claims subject
to a self insurance retention of $1,000. Similarly, the Company has several
outstanding claims and lawsuits arising in the normal course of business against
various other parties.
The Company believes that adequate provision has been made for the environmental
and legal proceedings described above, and that such proceedings will not have a
material adverse effect on the financial position, cash flow or operating
results of the Company.
NOTE 12 - FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS:
- -----------------------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS 107"), requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates,
methods, and assumptions are set forth below for the Company's financial
instruments.
F-27
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 12 - FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS (Continued):
- -----------------------------------------------------------------
The interest rate on the Note Payable (the "Note") is fixed at 8.17% during its
entire term. The fair value of the Note as of December 31, 1997 was determined
by estimating the interest rate at which the Company could refinance the Note
given the same maturity period. The Company assumed a rate of 8% in its
calculations. The fair market value approximates the carrying value of $12,143.
The interest rate on the Revolving Credit Facility is at market interest rates,
therefore, its fair market value approximates its carrying value.
NOTE 13 - GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION:
- ------------------------------------------------------
The Company operates in the following two business segments - environmental
products and services and textile chemical specialty products.
Sales and transfers between geographic areas are generally priced to recover
cost plus an appropriate markup for profit. Operating income is revenue less
related costs and direct and allocated operating expenses, excluding interest
and amortization of intangible assets and other income (expense), net.
No single customer accounts for more than 10% of revenue in the periods
presented.
F-28
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 13 - GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION (Continued):
- ------------------------------------------------------------------
The following schedule presents information about the Company's operations by
geographic location:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Net sales to unaffiliated customers
originated from:
America and Asia(1) $128,772 $115,158 $115,620
Europe 60,042 59,188 52,187
-------- -------- --------
Total net sales $188,814 $174,346 $167,807
======== ======== ========
Intercompany sales between geographic
areas originated from:
America and Asia $ 2,695 $ 2,462 $ 1,867
Europe 552 468 --
--------- --------- ----------
Total intercompany sales $ 3,247 $ 2,930 $ 1,867
======== ======== ========
Operating income:
America and Asia $ 11,355 $ 7,695 $ 8,458
Europe 12,081 9,927 6,519
-------- -------- --------
Total operating income $ 23,436 $ 17,622 $ 14,977
======== ======== ========
Identifiable assets:
America and Asia $108,109 $ 69,996 $ 68,503
Europe 42,124 47,068 42,826
-------- -------- --------
Total assets $150,233 $117,064 $111,329
======== ======== ========
<FN>
(1) Net sales to Asian customers are immaterial.
</FN>
</TABLE>
F-29
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands)
NOTE 13 - GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION (Continued):
- ------------------------------------------------------------------
The following schedule presents information about the Company's operations by
business segment (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------------------------------- ---------------------------------- --------------------------------
Environmental Textile Environmental Textile Environmental Textile
Products and Chemical Products and Chemical Products and Chemical
Services Specialties Total Services Specialties Total Services Specialties Total
---------- ----------- ------- ---------- ----------- ------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to other segments $ 406 $ 7 $ 413 $ 144 $ 5 $ 149 $ 119 $ 1 $ 120
======== ======== ======== ======= ======== ======== ======== ======== ========
Sales to unaffiliated
customers $55,362 $133,452 $188,814 $54,045 $120,301 $174,346 $54,969 $112,838 $167,807
Cost of sales 37,624 77,556 115,180 38,405 71,785 110,190 40,152 70,393 110,545
------- -------- -------- ------- -------- -------- -------- -------- --------
Gross margin 17,738 55,896 73,634 15,640 48,516 64,156 14,817 42,445 57,262
Operating expenses 12,368 37,830 50,198 11,498 35,036 46,534 10,787 31,498 42,285
------- -------- -------- ------- -------- -------- ------- -------- --------
Operating income $ 5,370 $ 18,066 $ 23,436 $ 4,142 $ 13,480 $ 17,622 $ 4,030 $ 10,947 $ 14,977
======= ======== ======== ======= ======== ======== ======= ======= =======
Identifiable assets $31,934 $118,299 $150,233 $31,961 $ 85,103 $117,064 $30,490 $ 80,839 $111,329
======= ======== ======== ======= ======== ======== ======= ======= =======
Depreciation and
amortization $ 2,286 $ 4,238 $ 6,524 $ 2,443 $ 4,022 $ 6,465 $ 2,865 $ 3,847 $ 6,712
======= ======== ======== ======== ========= ======== ======= ======= ========
Capital expenditures $ 2,375 $ 6,990 $ 9,365 $ 1,180 $ 5,146 $ 6,326 $ 1,332 $ 4,399 $ 5,731
======= ======== ======== ======== ========= ========= ======= ======= ========
</TABLE>
F-30
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
(in thousands except share and per share data)
NOTE 14 - QUARTERLY FINANCIAL DATA (Unaudited):
- -----------------------------------------------
The following is a summary of quarterly financial results for the years ended
December 31, 1997 and 1996 (amounts in thousands except per share data):
<TABLE>
<CAPTION>
1997 1996
------ -----
Three Months Ended Three Months Ended
------------------ ------------------
March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31
-------- ------- ------------ ----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $44,709 $47,423 $46,297 $50,385 $43,672 $44,603 $42,036 $44,035
Gross profit 17,309 18,965 17,642 19,718 15,714 16,913 14,675 16,854
Operating income 5,787 7,068 4,670 5,911 4,811 5,344 3,410 4,057
Net income 2,974 3,757 2,119 1,790 2,254 2,749 1,470 2,041
Net income per share:
Basic .53 .66 .37 .32 .40 .49 .26 .36
Diluted .52 .65 .36 .31 .40 .48 .26 .36
</TABLE>
F-31
<PAGE>
SCHEDULE VIII
SYBRON CHEMICALS INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
For the years ended December 31, 1997, 1996 and 1995
(In thousands)
Additions
Balance at
beginning of Charged to costs Charged to Balance at
period and expenses other accounts(1) Deductions end of period
------ ------------ ----------------- ---------- -------------
Allowance for Doubtful Accounts
For the year ended:
<S> <C> <C> <C> <C> <C>
December 31, 1997 $1,820 $ 709 $(174) $ (297) $2,058
December 31, 1996 2,048 295 (46) (477) 1,820
December 31, 1995 1,565 831 42 (390) 2,048
Inventory Reserves
For the year ended:
December 31, 1997 873 1,300 (7) (1,190) 976
December 31, 1996 476 2,175 (1,778) 873
December 31, 1995 384 276 (8) (176) 476
<FN>
(1)Foreign exchange adjustments
</FN>
</TABLE>
S-1
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Country of Owned
Company Incorporation By
1. Sybron Chemicals Inc. USA-DEL. --
2. Sybron Chemical Holdings Inc. USA-DEL. 1
3. Sybron Chemicals International Holdings Ltd. UK 2
4. Sybron Chemicals Korea Ltd. KOREA 2
5. Sybron Chemicals (Japan) Ltd. JAPAN 2
6. Sybron Chemical Industries Nederland B.V. HOLLAND 3
7. Sybron Chemicals Canada Ltd. CANADA 2
8. Sybron Quimica S.A. De C.V. MEXICO 2
9. Sybron Chemicals Holdings B.V. HOLLAND 6
10. Sybron Quimica (Iberica) S.A. SPAIN 9
11. Sybron Chemie (Nederland) B.V. HOLLAND 9
12. Sybron Chemie (Deutschland) G.m.b.H. GERMANY 9
13. Sybron Chemicals (SA) Proprietary Limited S. AFRICA 9
14. Sybron Chemicals Handelsgesellschaft G.m.b.H. AUSTRIA 9
15. Sybron Chemicals UK Limited UK 9
16. Sybron Chimica Italia S.p.A. ITALY 9
17. Sybron Chimie France S.A. FRANCE 9
18. BMIC, Inc. USA-DEL. 2
19. Sybron Chemicals Taiwan Ltd. TAIWAN 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a
member of the Board of Directors of Sybron Chemicals Inc.,
constitutes and appoints Richard M. Klein or Dennis J. Fiore his
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute Form 10-K,
Annual Report on behalf of Sybron Chemicals Inc., for the fiscal
year ended December 31, 1997, promulgated by the Securities and
Exchange Commission pursuant to Section 13 of the Securities
Exchange Act of 1934 and to file the same, and any other
documents in connection therewith, from time to time as said
attorney-in-fact and agent, or his substitute or substitutes,
deems necessary and appropriate, with the Securities and Exchange
Commission and such other exchange, self-regulatory organization,
or entity to which Sybron Chemicals Inc. may, now or hereafter,
be required by applicable regulation to file.
Date: March 30, 1998 /s/ David I. Barton
David I. Barton
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a
member of the Board of Directors of Sybron Chemicals Inc.,
constitutes and appoints Richard M. Klein or Dennis J. Fiore his
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute Form 10-K,
Annual Report on behalf of Sybron Chemicals Inc., for the fiscal
year ended December 31, 1997, promulgated by the Securities and
Exchange Commission pursuant to Section 13 of the Securities
Exchange Act of 1934 and to file the same, and any other
documents in connection therewith, from time to time as said
attorney-in-fact and agent, or his substitute or substitutes,
deems necessary and appropriate, with the Securities and Exchange
Commission and such other exchange, self-regulatory organization,
or entity to which Sybron Chemicals Inc. may, now or hereafter,
be required by applicable regulation to file.
Date: March 30, 1998 /s/ John H. Schroeder
John H. Schroeder
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a
member of the Board of Directors of Sybron Chemicals Inc.,
constitutes and appoints Richard M. Klein or Dennis J. Fiore his
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute Form 10-K,
Annual Report on behalf of Sybron Chemicals Inc., for the fiscal
year ended December 31, 1997, promulgated by the Securities and
Exchange Commission pursuant to Section 13 of the Securities
Exchange Act of 1934 and to file the same, and any other
documents in connection therewith, from time to time as said
attorney-in-fact and agent, or his substitute or substitutes,
deems necessary and appropriate, with the Securities and Exchange
Commission and such other exchange, self-regulatory organization,
or entity to which Sybron Chemicals Inc. may, now or hereafter,
be required by applicable regulation to file.
Date: March 30, 1998 /s/ Paul C. Schorr, IV
Paul C. Schorr, IV
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a
member of the Board of Directors of Sybron Chemicals Inc.,
constitutes and appoints Richard M. Klein or Dennis J. Fiore his
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute Form 10-K,
Annual Report on behalf of Sybron Chemicals Inc., for the fiscal
year ended December 31, 1997, promulgated by the Securities and
Exchange Commission pursuant to Section 13 of the Securities
Exchange Act of 1934 and to file the same, and any other
documents in connection therewith, from time to time as said
attorney-in-fact and agent, or his substitute or substitutes,
deems necessary and appropriate, with the Securities and Exchange
Commission and such other exchange, self-regulatory organization,
or entity to which Sybron Chemicals Inc. may, now or hereafter,
be required by applicable regulation to file.
Date: March 30, 1998 /s/ Heinn F. Tomfohrde, III
Heinn F. Tomfohrde, III
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000832815
<NAME> SYBRON CHEMICALS INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 26,592
<SECURITIES> 0
<RECEIVABLES> 37,367
<ALLOWANCES> 0
<INVENTORY> 28,205
<CURRENT-ASSETS> 95,323
<PP&E> 34,224
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,233
<CURRENT-LIABILITIES> 51,892
<BONDS> 0
0
0
<COMMON> 23,580
<OTHER-SE> 38,831
<TOTAL-LIABILITY-AND-EQUITY> 150,233
<SALES> 188,814
<TOTAL-REVENUES> 188,814
<CGS> 115,180
<TOTAL-COSTS> 165,378
<OTHER-EXPENSES> 3,406
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,968
<INCOME-PRETAX> 18,062
<INCOME-TAX> 7,422
<INCOME-CONTINUING> 10,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,640
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.84
</TABLE>
