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, 1998
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 15,
1999 as reported on the American Stock Exchange, was approximately $22,560,000.
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 15,
1999, there were 5,753,293 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 28, 1999 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 funding therefore; the Company's market position and the growth
potential of its markets; the effect of recent acquisitions on the Company's
business and results of operations; the effects of foreign currency exchange
rate fluctuations; the Company's ability to obtain raw materials and supplies;
the outcome of environmental proceedings; the Company's liability for
environmental cleanup and the materiality of environmental cleanup costs; the
effects of Year 2000 issues on the Company's result of operations and financial
condition; product development plans; 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....................... 18
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations..19
8 Financial Statements and Supplementary Data.... 27
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....... 28
PART III
10 Directors and Executive Officers of the
Registrant................................... 28
11 Executive Compensation......................... 30
12 Security Ownership of Certain Beneficial
Owners and Management........................ 30
13 Certain Relationships and Related
Transactions................................. 30
PART IV
14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K...................... 31
Signatures..................................... 34
(i)
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PART 1
ITEM 1. BUSINESS
General
Sybron Chemicals Inc. (the "Company") is a leading international developer,
producer and marketer of specialty chemicals used primarily in the textile wet
processing, environmental, coatings, adhesives, plastics and molded goods
markets. The Company focuses on using proprietary technology to provide
value-added solutions to customer problems through innovative, high quality
products and intensive customer service. The Company's products provide critical
performance attributes that enhance the value of its customers' products while
representing only a small portion of the customers' total costs. The Company's
three operating segments, Textile Chemical Specialties, Polymer Intermediates
and Environmental Products and Services, accounted for 62.7%, 15.3% and 22.0%,
respectively, of total sales for 1998.
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 has entered into the polymer intermediates sector of the
specialty chemicals industry with the acquisition in July 1998, of Ruco Polymer
Corporation and Ruco Polymer Company of Georgia LLC (together, "Ruco") pursuant
to a Capital Stock and Membership Interest Agreement (the "Purchase Agreement").
Ruco, which constitutes the Company's Polymer Intermediates segment, is a
leading North American polymer intermediates company that produces polyester
polyols, polyester powder coating resins, polyurethane latexes and specialty
polymers which are intermediate chemical products used in the formulation and
production of coatings and plastics. Ruco's polymers are used in products that
are sold into a variety of end-use markets, including the appliance, automotive
and architectural industries.
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 2,000 products which are sold to over 6,000 active
customers through more than 20 locations 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 11.7%, 12.9% and 13.3% of sales in 1998,
1997 and 1996 , respectively. The largest customer in each such year accounted
for less than 5% of consolidated sales.
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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.
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.
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)
1998 1997* 1996*
Sales -------- -------- -------
Sales Textile Chemical Specialties $139,581 $133,452 $120,301
Polymer Intermediates 34,162
Environmental Productsand Services 49,079 55,362 54,045
-------- -------- --------
Total $222,822 $188,814 $174,346
======== ======== ========
Operating Income
Textile Chemical Specialties $ 13,073 $ 16,697 $ 12,291
Polymer Intermediates 3,517
Environmental Products and Services 4,747 5,154 4,015
-------- -------- --------
Total $ 21,337 $ 21,851 $ 16,306
======== ======== ========
Operating Income as a Percentage of Sales
Textile Chemical Specialties 9.3% 12.5% 10.2%
Polymer Intermediates 10.3%
Environmental Products and Services 9.7% 9.3% 7.4%
Total 9.6% 11.6% 9.4%
*Reclassified to conform to 1998 presentation which reclassified the
amortization expense of intangible assets from other income (expense) to an
operating expense category.
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.
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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 1998 1997 1996
---- ---- ----
(in thousands)
Textile Chemicals $133,045 $126,551 $114,941
Organics 6,536 6,901 5,360
-------- -------- -------
$139,581 $133,452 $120,301
======== ======== ========
Textile Chemicals. The Company's textile chemical products are used in the
largest segment of the textile chemical specialties industry, wet processing,
and are designed (i) to improve the wet processing of carpets, fabrics and
garments made from natural and synthetic fibers and (ii) to enhance the
aesthetic and physical characteristics of such carpets, fabrics and garments.
The Company manufactures products that are utilized for the preparation, dyeing,
finishing and printing in the wet processing area of carpets, fabrics and
garments. For example, the Company manufactures products that make whites
"whiter" on bleaching, provide level and increased yield in dyeings, impart a
"stone washed" effect on blue jeans, produce a softer feeling fabric, add
wrinkle resistance and crease performance to fabrics, provide greater stain
resistance to carpet and allow high speed machines to print intricate patterns
on carpets.
The industry is characterized by constant developments and changes in
textile fibers, fashions, manufacturing processes and regulatory requirements,
which create a continuing need for new chemical formulations. The Company
capitalizes on these changing industry dynamics through an ongoing and proactive
process of research and development, its focus being on value-added products and
growing international operations.
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 U.S. and 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 U.S. textile chemicals market in which the Company competes is highly
fragmented and, according to industry estimates, is in excess of $700 million.
U.S. textile mills purchase their preparation and dyeing chemicals from large
dyehouse suppliers and many specialty chemical companies. Products sold by the
Company in these market areas include surfactants for wetting agents and
scouring to remove impurities, peroxide stabilizers for use in bleaching,
auxiliaries to increase dye yield and level dyed shades, buffers for pH control
and chemical agents that prevent dye from washing out or degrading.
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<PAGE>
A few large suppliers of commodity products, which include glyoxal and
melamine resins and acrylic polymers, dominate the fabric finishing market
segment. The Company participates in the higher value-added segment as a
supplier to special niche areas which include high performance permanent press
resins, hand modifiers (for textile products such as acetate linings, nylon
active wear, and high end lace material), softeners to achieve both a silky
touch and improved physical characteristics, and stain blockers to provide
greater stain resistance for carpet. In Europe, the Company also has developed
proprietary technologies and substantial market share in the high quality fabric
and carpet printing industry.
The Company serves its customers primarily through its direct sales forces
throughout the U.S. and Western Europe. Such direct sales forces are
supplemented by a network of distributors in Eastern Europe and the Middle East.
The Company also services the Canadian, Mexican, Argentina and Colombian markets
through its own local organizations in these countries, and uses various agents
and licensees to access other Latin American markets. The company serves the
Asian textile chemical market from its manufacturing facility in Taiwan and its
sales offices in Korea and Hong Kong. The Company accesses other Asian markets
through a number of agents and distributors in the region. The Company also
services the South African textile market through its own local sales
organization and manufacturing facility near Durban.
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 (collectively,
"Ivax") 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. See Note
4 to the Consolidated Financial Statements.
In April 1998, the Company acquired for approximately $6.75 million the
assets of the garment processing specialty chemicals business of Ocean Wash Inc.
and Ocean Wash de Mexico S.A. de C.V (together, "Ocean Wash"). Included in the
acquisition are the Ocean Wash trade name and additional formulated products and
patents for the use of enzymes to achieve a "stone-washed" effect on denim.
These acquisitions further establish the Company as a leader in this important
garment processing segment of the textile industry.
Organics. 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. 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 U.S.
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<PAGE>
Polymer Intermediates Segment
Ruco is a leading polymer intermediates company which produces polyester
polyols, polyester powder coating resins, polyurethane latexes and specialty
polymers used in the production of coatings and plastics. Net sales by product
line since the acquisition were: Powder Coatings and Polyester Polyols - $29,020
and Latex and Other - $5,142.
Powder Coatings. Ruco's powder coating resins are custom designed to
provide specific performance characteristics and are used in the formulation of
coating products. Ruco's powder coating resins are used to produce a durable,
high quality finish in multiple industries and end-use product applications. The
major industrial markets that use powder coatings are the appliance, automotive
and architectural and building markets. Ruco's powder coating products are sold
under brand names well known in the markets it serves.
Management believes Ruco's powder coating business has strong growth
potential. Powder coating resins increasingly are displacing liquid coating
systems because they are more cost efficient and environmentally friendly. The
driving force in the U.S. for the rapid growth of powder coatings is increasing
pressure from federal, state, and local legislation to reduce volatile organic
compounds. In Europe, growth in this market is driven by environmental
regulations that are even more stringent than those in the U.S. The Company has
minimal sales in the Europe market but believes it has significant growth
opportunities available to it. Powder coating systems are environmentally
friendly and are considered to have superior end-product characteristics,
including resistance to corrosion, heat, impact, abrasion, fading from sunlight
and extreme weather conditions on metallic substrates such as appliances and
automobiles. In addition to performance characteristics, powder coatings also
offer significant cost advantages. Because powder coatings are dry, up to 98% of
powder overspray can be readily removed and reused. The waste that results from
the application process is negligible, and can be disposed of easily and
economically.
The powder coatings market in North America has grown at a compound annual
rate of approximately 13% since 1986. The European market is significantly
larger than the North American market, but Management believes such market will
not grow as rapidly as the North American market since powder coating systems
are already widely used in Europe. Compared to the general paint and coatings
industry, which parallels GDP growth, the powder coatings area is a rapidly
growing niche market within the coatings industry. The powder coating resin
industry can be characterized as a fragmented niche market.
The dominant application and substrate for powder coatings is on metals,
which most readily conduct the static electric charge necessary for the adhesion
of the coating to the metal and can withstand the high temperature curing
processes. Technology exists and is being refined which will allow powder
coatings to be more generally used on non-metal surfaces at lower cure
temperatures. Improvement of the powder coating application technology is
anticipated to result in enhanced growth prospects. Technological improvements
will allow the use of powder coatings on non-metallic surfaces such as wood and
plastic applications that could not otherwise withstand the higher cure
temperatures used on metal substances.
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<PAGE>
Polyester Polyols. Ruco's polyester polyol products are custom designed for
use in the production of high solids coatings, thermoplastic urethanes and
castable plastic parts used by the appliance, automotive and architectural
industries with multiple end-use product applications. Ruco's polyester polyol
products are sold under brand names well known in the markets it serves.
Non-foam polyol finished products typically command higher margins than
other types of polyol products, such as flexible polyols and rigid polyols. The
Company intends to continue to strengthen its market position and product
offerings through research and development. Recent new products include
polyester polyols for high solids adhesives and automotive cast urethanes, high
molecular weight polyesters, weatherable polyesters (UV and water resistant),
water dispersible polyester resins and polyesters for reactive hot melts.
Latex and Other. In addition to its powder coating resins and polyester
polyol capabilities, Ruco produces polyurethane latexes, custom manufactures
specialty resin and polyurethane products, and toll manufactures products for
major companies. Polyurethane latexes are predominantly used by Ruco's customers
for fiberglass reinforced plastic moldings.
Ruco services customers in North America through a direct sales force,
focusing on working closely with customers to design value-added applications
and develop new products to meet customer needs.
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:
Year ended December 31,
Product Line
1998 1997 1996
---- ---- ----
(in thousands)
Water Treatment $26,077 $32,644 $32,572
Biochemicals 15,763 15,600 14,915
Specialty Polymers 7,239 7,118 6,558
------- ------- -------
$49,079 $55,362 $54,045
======= ======= =======
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<PAGE>
Ion Exchange Resins. Ion exchange resins are solid chemical compounds,
generally in bead form, that are used primarily for the softening and
demineralization of water and the removal of contaminants from water and other
fluids. The ion exchange resin business is segmented in two distinct markets,
industrial and household. Based on industry publications, the Company estimates
the total U.S. market for ion exchange resins in 1998 to be in excess of $160
million. Management believes that its products and technical services have
achieved a higher degree of technological and regulatory acceptance than those
of its direct competitors. 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 end users. Generally, demineralization by ion
exchange resins has been declining as the usage of RO membranes has increased.
Also, resins are lasting longer before changeout. Other major industrial end
users 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. The Company's industrial
ion exchange resins are sold to approximately 150 customers.
A three-tiered channel of distribution exists in the U.S. industrial water
treatment market. Resins for water treatment are sold directly to end users by
the resin manufacturer, to original equipment manufacturers ("OEMs") for use in
new equipment, and to both OEMs and distributors for resale to replace resins in
existing equipment. The Company has developed close working relationships with
the remaining major OEMs 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 end user 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 end users.
In addition to the industrial market, the Company provides cation exchange
resins to the U.S. household water softening market. 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 are sold directly to water softening equipment
manufacturers such as Culligan International, a subsidiary of United States
Filter Corporation, to whom the Company has been a major supplier for over 30
years.
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<PAGE>
The ion exchange business requires significant investment in production
facilities as well as specialized expertise 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.
Biochemicals. 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; and the
reduction of fat and grease in places such as household drains, retention ponds
and restaurant grease traps. The Company expects these markets to experience
growth due to the increasing emphasis on treating waste problems utilizing
environmentally safe methods and minimizing the quantity of waste for disposal.
The biochemicals business supplies selectively adapted bacterial strains
under the BI- CHEM(R) trade name. 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 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.
For over twenty 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 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. The
Company also supplies a biologically active formulation designed to enhance
septic tank performance. This product is being marketed by the same company who
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.
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.
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<PAGE>
The Company expects that the acquisition of Ruco will have a positive
impact on its specialty polymers business. The Company believes that Ruco's
production facilities are well suited for the manufacture of polyester toner
polymers, which are utilized in the fast-growing color toner market and, as
such, will enhance the Company's existing toner business. Based on this belief,
in early 1999 the Company added its toner business to the Polymer Intermediate
segment.
Employees and Labor Relations
At December 31, 1998, the Company had 890 employees worldwide, of whom 67%
were salaried employees and 33% were hourly employees, with 110 employees in
management and administration, 247 in sales and marketing, 80 in engineering and
research, and 453 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. The
hourly and Analytical Services employees at the Hicksville, New York facility
are covered by collective bargaining agreements. These labor agreements will
expire on June 28, 1999 and December 22, 2000, respectively. 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
A significant portion of the Company's operations are located outside the
U.S., primarily in Europe. International operations and business expansion plans
are subject to numerous additional risks, including the impact of foreign
government regulations, currency fluctuations, political uncertainties and
differences in business practices. There can be no assurance that foreign
governments will not adopt regulations or take other actions that would have a
direct or indirect adverse impact on the business or market opportunities of the
Company in such countries. Furthermore, there can be no assurance that the
political, cultural and economic climate outside the U.S. will be favorable to
the Company's operations and growth strategy.
In addition, the value of the Company's investment in a subsidiary is
partially a function of the currency exchange rate between the dollar and the
applicable local currency. In addition, the Company is generally prohibited by
the terms of its banking arrangements from executing hedge transactions to
reduce its exposure to foreign currency exchange rate risks. Accordingly, the
Company may experience economic loss and a negative impact on earnings with
respect to its holdings solely as a result of foreign currency exchange rate
fluctuations, which include foreign currency devaluations against the dollar.
The countries in which the Company's subsidiaries now conduct business generally
do not restrict the repatriation or conversion of local or foreign currency;
however, there can be no assurance this situation will continue.
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For the fiscal years 1998, 1997, and 1996, approximately 40%, 46% and 45%,
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.
For the fiscal years 1998, 1997 and 1996, approximately 82%, 73% and 60%,
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 1998, 1997 and 1996, the Company derived approximately
45%, 45% and 39%, respectively, of its operating income from the America
Division. The America Division consists of the Company's subsidiaries in the
United States, Canada, Mexico, Colombia, Argentina 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, both at spot prices and under contracts, various raw
materials including caustic soda, sulfuric acid, surface active agents,
terephthalic acid, neopentyl glycol and other glycols 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. Management 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;
Tanacid(R) NA, an environmentally friendly replacement for Acetic Acid; Tanede
Nova, an environmental friendly surfactant free detergent; Tanaterge Rex, a
mineral based post scouring agent for reactive dyes; and Plexene(R), an
environmental friendly biopolymer for Ca-dispersing.
Research and development efforts for the polymer intermediates business are
focused on both improving existing products to meet new market requirements and
partnering with selected companies to develop new products for new and/or
existing applications. For example, in 1997, new resins for color toners were
developed along with polyester for high
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molecular weight adhesives. During 1998, several new products used to make
toners for desk-top laser printers were developed and introduced into the toner
polymer product line.
The research effort in ion exchange products is dedicated toward improving
existing products and processes as well as new product development. Development
was concluded during the year in a process to effectively produce cation ion
exchange resins (named C249NS) without the use of solvents typically used by
competitors to aid in the processing.
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, drain maintenance, odor control and
carpet care.
Research and development expenditures for 1998, 1997 and 1996 were $4.2
million, $3.7 million and $4.2 million, respectively.
Competition
As set forth more fully below, the Company has numerous competitors, 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.
Textile Chemical Specialties. The Company's major competitors in the U.S.
are American Emulsions Company, Apollo Chemical Company, Ciba Specialty
Chemicals, Henkel Corp., Hight Point Chemical Company, Piedmont Chemical
Industries Inc. and Virkler Chemical Company. In Europe, some of the major
chemical and dye manufacturing companies, such as BASF, Bayer A.G., Ciba
Specialty Chemicals, Clariant Ltd., Henkel and ICI are major competitors of the
Company, as are some larger specialty chemical manufacturers such as Bohme, CHT,
Lamberti, Rudolf and Rotta.
Polymer Intermediates. The Company's major competitors in the U.S. are
large, multi- national chemical companies and include Witco, UCB Chemicals and
DSM.
Environmental Products and Services. The Dow Chemical Co., Purolite
Corporation and Rohm and Haas Co. are the Company's major competitors in this
segment. A few other companies, such as International Biochemicals Group,
Polybac Corporation and Semco Corporation, 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.
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
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<PAGE>
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. The
Company routinely incurs costs to comply with these laws and regulations and
believes that it will continue to do so, although these costs are not expected
to be material to the conduct of its business. 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 analogous 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 regarding six other hazardous waste sites where it is named
as a potentially responsible party resulting from the alleged disposition of
waste.
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. The
Company has not reduced its environmental liabilities or recorded any assets
related to potential insurance recoveries from any policies previously in force.
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. The DEP
has conditionally approved the soil related portions of the Work Plan. The
Company has completed most of the soil related cleanup and has performed some
additional sampling based on the DEP's conditional approval. The ground water
remedial activities at the Birmingham facility are continuing.
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.
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<PAGE>
In 1998, the Company completed various environmental studies which
identified the extent of soil and groundwater contamination at its manufacturing
facility in Ede, Holland and other facilities owned by third parties which are
adjacent thereto. Based on these studies, a plan of remediation was prepared by
an environmental consulting firm and was approved by the authorities. The
remedial activities associated with that plan are in progress and will continue
for some time into the future.
The Company's newly acquired Hicksville, New York site is listed on the
Superfund National Priorities List ("NPL") and on the State of New York's
inactive hazardous waste site list. Pursuant to an asset purchase agreement
dated as of February 28, 1982 (the "1982 Agreement"), Occidental Chemical
Corporation ("Occidental"), the owner and operator of the Hicksville site prior
to Ruco, NY, has indemnified Ruco and its successors for damages that may arise
directly or indirectly from historic contamination at or emanating from the site
as defined in the 1982 Agreement ("Historic Contamination").
Occidental has assumed responsibility for addressing Historic Contamination
at or emanating from the Hicksville site pursuant to the 1982 Agreement, and has
been cooperating with the United States Environmental Protection Agency ("EPA").
Occidental has remediated certain PCB contaminated soils at the Hicksville site.
In a record decision issued by EPA, remedial measures estimated to cost $13
million to fully implement, including treatment of onsite groundwater
contamination and onsite soil flushing, were selected for the Hicksville site.
Occidental proposed that groundwater contamination be addressed as part of a
broader groundwater remediation effort involving other companies in the area.
The EPA is considering Occidental's proposal. At the request of the EPA,
Occidental also has evaluated a treatment system for groundwater that has
migrated from the Hicksville site. The present value estimated cost of the
installation and operation of this system is $7.3 million. Implementation of
both the onsite and offsite treatment systems may result in reduced costs due to
efficiencies.
In connection with the Ruco acquisition, the Company purchased $10 million
in environmental insurance coverage to address certain contingencies arising
from known and unknown contamination at the Hicksville site.
Management believes, based on present information available to it,
including the indemnification from Occidental, Occidental's cooperation with
EPA, and the environmental insurance coverage purchased by the Company, that the
Company does not face any material environmental liability with respect to the
Hicksville site. However, there can be no assurance that the Company will not be
subject to liability relating to remediation of the site or liability for losses
suffered by adjacent property owners or other third parties.
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.
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<PAGE>
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, BLUE-J(R),
Rucote(R), Rucothane(R) and Ocean Wash(R) trademarks. The Company believes such
trademarks have widespread commercial recognition in their respective fields.
The Company 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 the Company produces two major product lines: ion exchange resins and
specialty polymers. This plant accounted for approximately 15%, 19% and 24% of
1998, 1997 and 1996 total sales, respectively. The Company presently has no
plans to sell or to develop its undeveloped real estate in New Jersey.
At December 31, 1998, the Company occupied seven other U.S. facilities: (i)
a 22 acre site owned in Wellford, South Carolina producing textile chemicals and
organics, which accounted for approximately 21%, 24% and 26% of 1998, 1997 and
1996 total sales, respectively; (ii) a 16 acre site owned in Hicksville, New
York, producing polyester polyols, powder resins, polyurethane latexes, and
polyurethanes; (iii) a 30 acre site owned in Columbus, Georgia which produces
powder resins; (iv) a two-acre owned facility in Salem, Virginia producing
biochemicals; (v) a five-acre owned facility in Salem, Virginia used for
packaging and warehousing biochemicals; (vi) a two-acre leased facility in
Dalton, Georgia used for warehousing textile chemicals; and (vii) a nine-acre
site owned in Norwich, Connecticut producing textile chemicals.
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<PAGE>
The Company also owns a production center consisting of a six-acre facility
in Ede, Holland producing textile chemicals. This plant accounted for
approximately 25%, 30% and 32% of 1998, 1997 and 1996 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.
In addition to offices maintained at its production facilities, the Company
leases sales office space in (i) Buenos Aires, Argentina, (ii) Vienna, Austria,
(iii) Burlington, Canada, (iv) Bogota, Colombia, (v) Hong Kong, China, (vi)
Oldham, England, (vii) Le-Peck, France, (viii) Lyon, France, (ix)
Marq-En-Baroeul, France, (x) Krefeld, Germany, (xi) Rovello Porro (Como), Italy,
(xii) Yokohama, Japan, (xiii) Seoul, Korea, (xiv) Guimaraes, Portugal, (xv)
Moscow, Russia, (xvi) Barcelona, Spain, (xvii) Istanbul, Turkey and (xviii)
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.
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.
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.
-15-
<PAGE>
The Hicksville site is listed on the NPL and on the State of New York's
inactive hazardous waste site list. Pursuant to the 1982 Agreement, Occidental,
the owner and operator of the Hicksville site prior to Ruco, has indemnified
Ruco and its successors for damages that may arise directly or indirectly from
Historic Contamination at the Hicksville site and has been cooperating with the
EPA.
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 million.
There are pending against Ruco several pre-acquisition claims and lawsuits
arising in the normal course of business. The Company believes that Ruco has
adequate insurance to cover any such claims. In addition, pursuant to the
Purchase Agreement, the sellers agreed to indemnify the Company for liabilities
that may arise out of certain of the pending lawsuits.
The Company has outstanding several claims and lawsuits arising in the
normal course of business against various other parties.
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 the New Credit Facility, as
hereinafter defined, 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 8 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 New Credit Facility. The Company has no
present intention to pay cash dividends on its Common Stock.
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<PAGE>
Based upon record ownership as of March 15, 1999, 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 AMEX for each of the quarters indicated.
1998 High Low
First Quarter...................................... $37 $33 1/8
Second Quarter..................................... 35 1/4 29 3/4
Third Quarter...................................... 32 15
Fourth Quarter..................................... 21 11 1/4
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
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<PAGE>
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, 1998 and 1997 and the related
consolidated statements of income and of cash flows for the three years ended
December 31, 1998 and notes thereto. See Item 8, Financial Statements and
Supplementary Data, contained in this Annual Report.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997* 1996* 1995* 1994*
---- ----- ----- ----- -----
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net sales $222,822 $188,814 $174,346 $167,807 $145,726
Operating income 21,337 21,851 16,306 13,481 14,665
Income before extraordinary item 8,738 10,640 8,514 6,329 7,638
Extraordinary item (1) (313) -- -- -- --
Net income 8,425 10,640 8,514 6,329 7,638
Income per share before extraordinary item
Basic $ 1.53 $ 1.88 $ 1.51 $ 1.12 $ 1.35
Diluted 1.49 1.84 1.50 1.12 1.35
Extraordinary item (1)
Basic $ (.06) -- -- -- --
Diluted (.05) -- -- -- --
Net income per share
Basic $ 1.47 $ 1.88 $ 1.51 $ 1.12 $ 1.35
Diluted 1.44 1.84 1.50 1.12 1.35
Weighted average shares outstanding
Basic 5,698,815 5,666,683 5,650,560 5,650,560 5,653,035
Diluted 5,849,946 5,793,770 5,669,893 5,650,560 5,655,481
*Reclassified to conform to 1998 presentation.
</TABLE>
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 14,966 $ 26,592 $ 14,909 $ 11,284 $ 6,975
Working capital 51,954 43,431 38,667 38,495 35,507
Total assets 270,284 150,233 117,064 111,329 93,934
Long-term debt 136,008 27,390 17,787 22,532 20,366
- --------------------------------
</TABLE>
(1) The extraordinary item represents the loss, net of taxes and other
expenses, on the extinguishment of certain long-term debt prior to
scheduled maturity.
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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
three business segments.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997* 1996*
-------------------- -------------------- -----------------
% of % of % of
Amount Sales Amount Sales Amount Sales
------ ----- ------ ----- ------ -----
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales:
Textile Chemical Specialties $139,581 62.7% $133,452 70.7% $120,301 69.0%
Polymer Intermediates 34,162 15.3 -- --
Environmental Products and Services 49,079 22.0 55,362 29.3 54,045 31.0
------- ---- ------- ---- ------- ----
Total $222,822 100.0% $188,814 100.0% $174,346 100.0%
======== ====== ======== ====== ======== ======
Cost of Sales:
Textile Chemical Specialties $83,149 59.6% $77,556 58.1% $71,785 59.7%
Polymer Intermediates 28,352 83.0 -- --
Environmental Products and Services 32,397 66.0 37,624 68.0 38,405 71.1
------ ------ ------
Total $143,898 64.6% $115,180 61.0% $110,190 63.2%
======== ===== ======== ===== ======== =====
Gross Margin:
Textile Chemical Specialties $56,432 40.4% $55,896 41.9% $48,516 40.3%
Polymer Intermediates 5,810 17.0 -- --
Environmental Products and Services 16,682 34.0 17,738 32.0 15,640 28.9
------ ------ ------
Total $78,924 35.4% $73,634 39.0% $64,156 36.8%
======= ===== ======= ===== ======= =====
Operating Expense:
Textile Chemical Specialties $43,359 31.1% $39,199 29.4% $36,225 30.1%
Polymer Intermediates 2,293 6.7 -- --
Environmental Products and Services 11,935 24.3 12,584 22.7 11,625 21.5
------ ------ ------
Total $57,587 25.8% $51,783 27.4% $47,850 27.4%
======= ===== ======= ===== ======= =====
Operating Income:
Textile Chemical Specialties $13,073 9.3% $16,697 12.5% $12,291 10.2%
Polymer Intermediates 3,517 10.3 -- --
Environmental Products and Services 4,747 9.7 5,154 9.3 4,015 7.4
------ ------ -------
Total $21,337 9.6% $21,851 11.6% $16,306 9.4%
======= ==== ======= ===== ======= =====
</TABLE>
*Reclassified to conform to 1998 presentation.
-19-
<PAGE>
Overview
Sales increased by $34.0 million from 1997, principally as a result of the
acquisition of Ruco on July 31, 1998, and of the Ocean Wash garment processing
businesses in April 1998, as well as the inclusion of a full year of sales of
Ivax (acquired in July 1997). Operating income for the year was $21.3 million, a
decrease of $.6 million as the Textile Chemicals Specialties business
experienced a reduction in operating income of $3.6 million, while the new
Polymer Intermediates segment (created by the Ruco acquisition) added $3.5
million and Environmental Products and Services decreased slightly ( $.5
million). The Company's earnings per share, on a fully diluted basis, before an
extraordinary item, was $1.49, $.35 lower than 1997.
The acquisition of Ruco was part of the Company's strategic initiative to
develop a third line of business. Ruco operates in a growth market in which the
Company's basic strengths in adding value to our customers' businesses can be
extended. The acquisition of the Ocean Wash garment processing chemicals
business complements the Ivax Acquisition. Ocean Wash added approximately $4.2
million in sales for the nine months it was included in 1998 operations.
Operations
1998 Compared to 1997
The Textile Chemical Specialties segment sales for 1998 increased 4.6% over
1997. This increase resulted primarily from the Ocean Wash and Ivax
acquisitions, which more than offset the continued soft conditions in the North
American textile market where the Company had reduced sales of $5.2 million, and
the unfavorable impact of a style change in the garment sector, from light
colored denim to dark colors, which requires less of the Company's enzyme
products that create the stone-washed effect. Europe's textile chemical sales
for the year improved 1.5% in U.S. dollars, mostly due to increased sales in
distributor countries. The Europe physical volume improvement of 2.3% was offset
by the 1.6% negative effect of the continued stronger U.S. dollar versus the
Dutch guilder for 1998. U.S. based organic chemicals sales volume decreased by
approximately 4% due to expiring toll manufacturing contracts which were not
renewed or replaced.
The newly formed Polymer Intermediates segment had sales of $34.1 million
for the five months it was part of the Company, which was approximately 10%
above Ruco's results for the comparable pre-acquisition period in 1997. That
increase was mainly a result of physical volume growth as prices declined by
slightly more than 2%.
Sales in the Environmental Product and Services segment for 1998 decreased
11.3% due, in part, to the sale of the reverse osmosis membranes business in
December 1997. The ongoing operations in this segment showed a decline of 6.1%
versus 1997. This segment was negatively impacted in 1998 by the continued weak
ion exchange industrial and
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<PAGE>
household markets conditions in both the U.S. and Far East, with volume
dropping 12.3%. Those decreases were partially offset by improvements in the
toner, specialty polymer and biochemical product lines.
The overall gross margin for 1998 was 35.4% versus 39.0% for 1997. In the
Textile Chemical Specialties segment, 1998 margin of 40.4% was 1.5 percentage
points below the prior year level of 41.9%. Margins for North America/Asia were
2.3 percentage points below 1997, primarily due to the impact of the additional
sales of the Ocean Wash products which carry overall lower margins, an
approximate 2% drop in average U.S. selling prices, somewhat offset by lower raw
material and fixed manufacturing costs. Margins in Europe remained steady from
year to year. Organic margins were affected by the reduced volume without a
corresponding decrease in fixed manufacturing costs.
Gross margin for the Polymer Intermediate segment, at 17.0%, is much lower
than margins for the Company's other segments, and was comparable to Ruco's
pre-acquisition performance. The lower gross profit margin is more than offset
by lower operating expenses, producing very favorable operating income as
discussed below.
The gross margin in the Environmental Products and Services segment for
1998 increased to 34.0% versus 32.0% for 1997. Overall, the period was
positively impacted by the results of several strategic action plans which were
set in motion in 1997, including (i) the entry into a ten-year supply agreement
pursuant to which Dow Chemical Company ("Dow") will provide the Company with
substantially all of the Company's anion exchange resin requirements; (ii) the
switch from purchasing a major raw material in the polymer product line to
manufacturing in-house; and (iii) the aforementioned divestiture of the reverse
osmosis membrane business which carried substantially lower margins. In
addition, in 1998, the biochemical product line showed improved margins due to
increased volume and a favorable product/customer mix in France.
Operating expenses as a percent of sales decreased 1.6 percentage points to
25.8% in 1998, due to the lower operating cost of the Polymer Intermediates
business offsetting increased operating costs (as a percentage of sales) over
1997 in the Company's other segments. While sales volumes increased overall in
the Textile Chemical Specialties segment, operating expenses grew at a higher
rate and, as a percentage of sales, increased primarily due to the added costs
for the Ocean Wash and Ivax acquisitions, higher legal expenses in the U.S. and
increased administration and computer related costs in Europe. The lower sales
volume caused the Environmental Products and Services segment expenses as a
percent of sales to increase over the same period in 1997 despite a reduction of
actual expenses.
The Company's provision for income taxes was computed using applicable
prevailing income tax rates. Sybron's effective tax rate of 41.0% for 1998 was
essentially equivalent to 1997's rate of 41.1%.
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<PAGE>
Other income (expense) was ($6.5) million for 1998 versus ($3.8) million
last year. The increase was primarily due to the increase in interest expense of
$ 4.1 million associated with the acquisition of Ruco and the refinancing of the
Company's debt. This was offset by a favorable currency adjustment difference
between the two years of $1.1 million. This currency impact primarily resulted
from the Korean won strengthening against the U.S. dollar, reversing part of the
loss experienced in 1997. Also in 1997 the Company recorded expenses of $1.3
million related to the terminated merger transaction.
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% in 1997 compared with the prior year.
The 1997 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 1997 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 1997 compared to 1996 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.
The three major product lines in the Environmental Products and Services
segment all showed modest improvements in 1997 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 in 1997 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% in 1997 versus the 1996 rate of 40.3%.
Margins in the North America and Asia markets improved to 32.2% in 1997 from the
prior 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
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<PAGE>
Mexico which carry higher margins; and additional cost controls. In the organics
chemical business, margins also improved in 1997 compared to 1996 primarily as
the result of the increase in higher margin toll manufacturing. The margins in
Europe increased to 55.0% in 1997 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 in 1997, as compared to 28.9% in 1996. In 1997, 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 in 1997 compared to 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 27.4% in 1997, unchanged from
1996. The Textile Chemical Specialties segment expenses as a percent of sales in
1997 decreased to 29.4% from 30.1% 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 22.7% from 21.5% the
prior 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 the 1996 rate of 40.9%.
Other income (expense) was ($3.8) million for 1997 versus ($1.9) million in
the prior year. 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.
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 and Note 13 - Commitments and Contingencies, to
the Company's Consolidated Financial Statements contained in this Annual Report.
During 1998, 1997 and 1996 the Company incurred approximately $0, $79,000
and $172,000, respectively, of costs in connection with the ongoing review of
possible soil and ground-
-23-
<PAGE>
water contamination at its Birmingham, New Jersey facility. These expenditures
have been treated as land improvements.
During 1998, 1997, and 1996 the Company spent approximately $66,000,
$122,000 and $66,000, 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 $60,000,
$75,000 and $57,000 of the costs incurred in 1998, 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, 1998, the
Company has accrued approximately $1,312,000 to offset future environmental
assessment and remediation costs.
Liquidity and Capital Resources
Cash and cash equivalents of $15.0 million as of December 31, 1998 were
$11.6 million below the December 31, 1997 balance of $26.6 million, primarily
as a result of the Company's use of cashin connection with acquisitions.
Operating activities generated a net cash flow of $4.8 million for 1998
versus $25.6 million in 1997. This was primarily the result of a substantial
reduction in accounts payable and accrued expenses resulting from the return to
the taxing authorities of an erroneous tax refund in the Netherlands, executive
bonus payouts for 1997, annual pension funding, and payments for the previously
discussed terminated merger agreement. In addition, unusually high inventory and
capital equipment purchased during the latter part of 1997 were paid for in
1998.
Net cash flow generated by operating activities totaled $25.6 million for
1997 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 $128.5 million for 1998 as
compared with $22.3 million for the comparable 1997 period. The year-to-year
increase was primarily the result of the Ruco and Ocean Wash acquisitions,
coupled with the purchase of property adjacent to the manufacturing site in Ede,
Holland that will be used for future expansion.
Net cash used by investing activities totaled $22.3 million for 1997 as
compared with $7.5 million for 1996. 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.
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<PAGE>
Financing activities provided $111.6 million in net cash during 1998 versus
$11.0 million in 1997, due primarily to the new credit facility (the "New Credit
Facility") the Company entered into in connection with the acquisition of Ruco.
On July 31, 1998, the Company obtained from DLJ Capital Funding, Inc., Morgan
Guaranty Trust Company of New York and Mellon Bank N.A. the $185 million New
Credit Facility. The New Credit Facility consists of a $40 million Revolving
Credit Facility (which replaces the Company's previous revolving credit
facility) and a $145 million six-year term loan facility (the "Term Loan
Facility") consisting of a Tranche A Facility for $45 million and a Tranche B
Facility for $100 million. The Term Loan Facility was used to finance the $110
million acquisition of Ruco, refinance certain indebtedness of the Company, and
pay fees and expenses. At December 31, 1998, the Revolving Credit Facility was
undrawn.
Borrowings under the Tranche A and B Facilities and the Revolving Credit
Facility bear interest at a rate per annum equal to a margin, based on the
leverage ratio of the Company and its subsidiaries, (at the Company's option)
over either a base rate or adjusted LIBOR. The Company has chosen to borrow at
LIBOR plus the leveraged margin of 2.25%. The Revolving Credit Facility, which
matures on July 31, 2004, provides that $5 million may be used for letters of
credit and up to $5 million may be used as a swing line facility. The Term Loan
Facility will be amortized over a six-year period. The Company's obligations
under the New Credit Facility are guaranteed by each of the Company's present
and future domestic subsidiaries (the "Loan Guarantors"). The New Credit
Facility and the guarantees thereof are secured by substantially all assets of
the Company and the Loan Guarantors and a pledge of all of the capital stock of
the Company's domestic subsidiaries and 65% of the voting capital stock of the
Company's foreign subsidiaries.
The net cash provided by financing activities for 1997 was $11.0 million
primarily due to funding the Ivax Acquisition versus a $5.1 million net cash
usage for 1996.
During 1999, the Company believes its capital expenditures for existing
operations, which are expected to be slightly above 1998's, can be funded from
operating cash flow. Management believes cash flow from operations and available
credit will be sufficient to finance operations, planned capital expenditures
and debt service requirements for the foreseeable future.
Foreign Exchange
The Company has subsidiaries in Europe, Asia, Africa and the Americas and,
for all subsidiaries, except the Company's Mexican and Colombian subsidiaries,
the Company has determined the functional currencies are the subsidiaries' local
currencies. The Company's Mexican and Colombian subsidiaries' functional
currency is considered to be the U.S. dollar because both countries are
designated as highly inflationary economies. 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.
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<PAGE>
Intercompany balances arise between the Dutch operation and various
subsidiaries. Overall, the Company recognized an exchange gain of $0.3 million
1998, an exchange loss of $0.8 million in 1997, and an exchange gain of $0.1
million in 1996.
Year 2000 Readiness Disclosure
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, in less than nine
months, computer systems and/or software used by many companies in a wide
variety of applications will experience operating difficulties unless they are
modified or upgraded to adequately process information involving, related to or
dependent upon the century change. Significant uncertainty exists concerning the
scope and magnitude of problems associated with the century change.
The company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 ("Y2K") software failures and has established a
project team to address Y2K risks. The project team has and will continue to
coordinate the identification of and implementation of changes to computer
hardware and software applications that will attempt to ensure availability and
integrity of the Company's information systems and the reliability of its
operational systems and manufacturing processes. The Company has also assessed
the potential overall impact of the impending century change on its business,
results of operations and financial position.
The Company has reviewed its information and operational systems and
manufacturing and laboratory processes to identify those services or systems
that are not Y2K compliant. As a result of this review, the Company has
determined that it will be required to modify or replace certain information and
operational systems so they will be Y2K compliant. These modifications and
replacements are being, and will continue to be, made in conjunction with the
Company's overall systems initiates. The total cost of these Y2K compliance
activities, estimated at less than $500,000, has not been, and is not
anticipated to be, material to the Company's financial position or its results
of operations. The Company expects to complete its Y2K project, including
testing, during 1999. Based on available information, the Company does not
believe any material exposure to significant business interruption exists as a
result of Y2K compliance issues. Accordingly, the Company has not adopted any
formal contingency plan in the event its Y2K project is not completed in a
timely manner. The costs and the timing in which the Company plans to complete
its Y2K modification and testing processes are based on management's best
estimates. However, there can be no assurance that the Company will timely
identify and remediate all significant Y2K problems, that remedial efforts will
not involve significant time and expense, or that such problems will not have a
material adverse effect on the Company's business, results of operations or
financial position.
The Company also faces risk to the extent that suppliers of products,
services and systems and others with whom the Company transacts business on a
worldwide basis do not comply with Y2K requirements. The Company has initiated
formal communications with
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<PAGE>
significant suppliers and customers to determine the extent to which the company
is vulnerable to these third parties' failure to remediate their own Y2K issues.
In the event any such third parties cannot provide the Company with products,
services, or systems that meet the Y2K requirements on a timely basis, or in the
event Y2K issues prevent such third parties from timely delivery of products or
services required by the Company, the Company's results of operations could be
materially adversely affected. To the extent Y2K issues cause significant delays
in, or cancellation of, decisions to purchase the Company's products or
services, the Company's business, results of operations and financial position
could be materially adversely affected.
Inflations and Trends
United States - Average selling prices in the U.S. decreased by
approximately 2% during 1998. Overall raw material costs remained flat. The cost
of styrene, one of the major raw materials in the Environmental Products and
Services segment, declined approximately 8% in 1998 versus the prior year.
Europe - Average selling prices and raw material costs in the Europe
division's textile chemical product line were essentially flat in 1998.
In the Textile Chemical Specialties segment, 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 environmentally friendly alternatives to 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).
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<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
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.............. 61 President, Chief Executive
Officer and Director
Stephen R. Adler.............. 49 Vice President, Human Resources
Joe J. Belcher................ 57 Vice President-Textile Chemicals,
North America
Peter de Bruijn............... 50 Executive Vice President, Textile
Chemicals and Managing Director,
Europe
Albert L. Eilender............ 56 Executive Vice President,
Corporate Development
Steven F. Ladin............... 52 Vice President, Finance
and Chief Financial Officer
John McPeak................... 44 Vice President, Enterprise Resource
Planning Task Force
Theodore Melnik............... 41 Vice President, Biochemicals
Robert M. Parlman............. 49 President, Textile Chemicals
John H. Schroeder............. 48 Executive Vice President
Environmental Products and
Services and Director
Kirk P. Pond.................. 54 Director
Fred P. Rullo, Jr............. 58 Director
Paul C. Schorr, IV............ 31 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. His term as director will
expire in 2001.
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<PAGE>
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. 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 and in 1998 he was appointed
Executive Vice President, Textile Chemicals.
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. Ladin joined the Company in August 1998 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 Controller of The DuPont Merck
Pharmaceutical Company.
Mr. McPeak has served in various managerial positions within the Company
since 1988. Since October 1998 he became Vice President, Enterprise Resource
Planning Task Force. From September 1995 to November 1998, he 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. Melnik joined the Company in October 1998 as Vice President,
Biochemicals. Prior to joining the Company, he was Business Manager for
Specialty Chemicals at Union Carbide Corporation.
Mr. Parlman joined the Company in December 1998 as President, Textile
Chemicals. Prior to joining the Company, he served as Vice President, General
Manager for a Zeeland Chemicals Inc. subsidiary, and Vice President-Business
Development of Cambrex Corporation. Prior to that, he was Vice President,
General Manager for Petrolite, with international responsibility for their oil
field specialty chemicals business.
Mr. Schroeder has served in various managerial positions within the Company
since 1983 and has been a director of the Company since 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. He is a nominee for director at the 1999 Annual
Meeting of Shareholders.
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<PAGE>
Mr. Pond has been a director of the Company since May 1998 and has been
Chairman, President and CEO of Fairchild Semiconductor Corporation of Portland,
Maine and a member of the office of the President of National since 1994. He
also served in various management positions for the combined National and
Fairchild Logic businesses since 1984. Mr. Pond currently serves as Chairman of
Fairchild's Board of Directors. His term as a director will expire in 2000.
Mr. Rullo has been a director of the Company since February 1999. He is
currently Vice Chairman of Naxcor Biotech. He also was Chairman, President and
CEO of Freedom Chemical Company. Prior to that he was President of ABB
Combustion Systems and Services, Executive Vice President and Director of
Lyondell Petrochemical Company, Senior Vice President of Arco Chemical Company
and was a director of Rexene Corporation. Mr. Rullo currently serves as a
director of Pecora Corporation and Carolina Best Friend Pet Care, LLC. His term
as 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 KEMET Corporation and
Fairchild Semiconductor. His term as director will expire in 2001.
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
1999 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
1999 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
1999 Annual Meeting of Stockholders.
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<PAGE>
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, 1998
and 1997.............................................. F-3
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996................ F-4
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996.......... F-5
Consolidated Statement of Cash Flows for the years
ended December 31, 1998, 1997 and 1996................ F-6
Notes to Consolidated Financial Statements.............. F-7
(2) Financial Statement Schedules
The following financial statement schedule for the years ended
December 31, 1998, 1997 and 1996 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 and
Reserves.......... 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.
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<PAGE>
<TABLE>
<CAPTION>
(3) Exhibits and Exhibit Index
<S> <C>
Exhibit No. Description
2.1 Capital Stock and Membership Interest Purchase Agreement, effective as of July 31, 1998,
by and among Sybron Chemicals Inc., Louis T. Camilleri, Anthony F. Forgione, Joseph Mitola,
and Joseph A. Ruffing, with exhibits. (6)
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)
4 Rights Agreement, dated as of August 7, 1998, by and between Sybron Chemicals Inc. and
the Rights Agent, with exhibits (incorporated herein by reference to Exhibit 1 to the
Registration Statement on Form 8-A, filed on August 14, 1998 with the Securities and Exchange
Commission). (7)
10 Non-Competition Agreement, effective as of
July 31, 1998, by and among Sybron Chemicals
Inc., Ruco NY, Ruco GA and Anthony Forgione
(substantially similar agreements with
Messrs.
Mitola, Camilleri and Mitola not included). (6)
10.1 Employment Agreement by and among Ruco Polymer Corp., Ruco Polymer Company of
Georgia LLC, Sybron Chemicals Inc. and Anthony F. Forgione, dated as of July 31, 1998,
with material exhibits. (6)
10.2 Bonus Incentive Plan for Mr. Forgione. (6)
10.3 Credit Agreement, dated as of July 31, 1998, by and among Sybron Chemicals Inc., DLJ Capital
Funding, Inc., Morgan Guaranty Trust Company of New York and Mellon Bank, N.A. (6)
10.4* Savings & Thrift Plan, as amended (1)
10.5* 1992 Stock Option Plan (1)
10.6* Share Participation Plan (1)
10.7 Trademark Security Agreement, dated as of July 31, 1998, among Sybron Chemicals Inc., the
Subsidiary Guarantors to the Credit Agreement, and Mellon Bank, N.A. re: Ruco GA's
trademarks and licenses. (6)
10.8 Patent Security Agreement, dated as of July 31, 1998, among Sybron Chemicals Inc., the
Subsidiary Guarantors to the Credit Agreement, and Mellon Bank, N.A. re: Sybron
Chemicals Inc.'s patents and licenses. (6)
10.9 Patent Security Agreement, dated as of July 31, 1998, among Sybron Chemicals Inc., the
Subsidiary Guarantors to the Credit Agreement, and Mellon Bank, N.A. re: Ruco NY's
patents and licenses. (6)
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)
10.13 Subordination Agreement, dated as of July 31, 1998 by Sybron Chemical Industries Nederland
B.V. (6)
10.14 Promissory Notes, dated as of July 31, 1998, by Sybron Chemicals Inc. in favor of DLJ Capital
Funding, Inc., Morgan Guaranty Trust Company of New York and Mellon Bank, N.A. (6)
10.15 Security Agreement, dated as of July 31, 1998, among Sybron Chemicals Inc. and Mellon
Bank, N.A. (6)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
(3) Exhibits and Exhibit Index (Continued)
<S> <C>
Exhibit No. Description
10.16 Trademark Security Agreement, dated as of July 31, 1998, among Sybron Chemicals Inc., the
Subsidiary Guarantors to the Credit Agreement, and Mellon Bank, N.A. re: Sybron Chemicals
Inc.'s trademarks and licenses. (6)
10.17 Trademark Security Agreement, dated as of July 31, 1998, among Sybron Chemicals Inc., the
Subsidiary Guarantors to the Credit Agreement, and Mellon Bank, N.A. re: Ruco NY's
trademarks and licenses. (6)
10.18 Patent Security Agreement, dated as of July 31, 1998, among Sybron Chemicals Inc., the
Subsidiary Guarantors to the Credit Agreement, and Mellon Bank, N.A. re: Ruco GA's
patents and licenses. (6)
10.19 Subsidiary Guaranty Agreement, dated as of July 31, 1998, by and among Sybron Chemical
Holdings Inc., Ruco NY, Ruco GA and DLJ Capital Funding, Inc., Morgan Guaranty Trust
Co. of New York and Mellon Bank, N.A. (6)
10.20 Subordination Agreement, dated as of July 31, 1998 by Sybron Chemie Nederland B.V. (6)
21 Subsidiaries of the Registrant (8)
23 Consent of PricewaterhouseCoopers LLP dated March 31, 1999 (8)
24 Powers of attorney of directors of the Registrant. (8)
27 Financial Data Schedule (8)
- --------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(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) Previously filed as an Exhibit to the Registrant's Quarterly report on Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference.
(7) Previously filed as an Exhibit to the Company's Registration Statement on Form 8-A, filed on August 14, 1998.
(8) Filed electronically herewith.
* Denotes management contract required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
</TABLE>
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarter
ended December 31, 1998.
(1) Form 8-K, filed on October 13, 1998, regarding the Company's
acquisition of all of the outstanding capital stock of Ruco
Polymer Corporation and all of the outstanding membership
interests of Ruco Polymer Company of Georgia, LLC.
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<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, 1999.
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, 1999 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,
------------------------- and Chief Executive Officer
RICHARD M. KLEIN
/s/ STEVEN F. LADIN Vice President, Finance, Chief
------------------------- Financial Officer, Secretary and Treasurer
STEVEN F. LADIN
/s/ * Director
-------------------------
KIRK P. POND
/s/ * Director
-------------------------
PAUL C. SCHORR, IV
/s/ * Director
-------------------------
JOHN H. SCHROEDER
/s/ * Director
-------------------------
FRED P. RULLO, JR.
* By: /s/ RICHARD M. KLEIN
- --------------------------
RICHARD M. KLEIN, Attorney-in-fact
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<PAGE>
Index to Consolidated Financial Statements
Sybron Chemicals Inc.
Page
Report of Independent Accountants..................................... F-2
Consolidated Balance Sheets as of December 31, 1998
and 1997............................................................ F-3
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996.............................. F-4
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996........................ F-5
Consolidated Statement of Cash Flows for the years
ended December 31, 1998, 1997 and 1996.............................. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, 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.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania 19103
March 31, 1999
F-2
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
ASSETS
December 31,
1998 1997
---- ----
Current assets:
Cash and cash equivalents $ 14,966 $ 26,592
Accounts receivable, net 46,089 37,367
Inventories, net 36,466 28,205
Prepaid and other current assets 3,515 3,019
Prepaid income taxes 1,938
Deferred income taxes 237 140
--------- --------
Total current assets 103,211 95,323
Property, plant and equipment, net 80,175 34,224
Intangible assets, net 81,967 20,086
Other assets 4,931 600
--------- --------
$270,284 $150,233
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,093 $ 1,760
Current portion of long-term debt 9,285 2,429
Accounts payable 23,642 27,653
Accrued liabilities 15,190 16,087
Income taxes payable 598 3,951
Deferred income taxes 449 12
--------- --------
Total current liabilities 51,257 51,892
Long-term debt 136,008 27,390
Deferred income taxes 3,904 2,502
Post-retirement benefits 3,739 3,919
Other 2,728 2,119
--------- --------
Total liabilities 197,636 87,822
--------- --------
Commitments and contingencies (See Note 13)
Stockholders' equity:
Preferred stock, $.01 par value, 500,000
shares authorized; none issued
Common stock - $.01 par value, 20,000,000
shares authorized; issued 5,938,050
and 5,908,260 shares 59 59
Additional paid-in capital 24,151 23,580
Retained earnings 60,414 51,989
Accumulated other comprehensive losses (7,610) (8,544)
Less treasury stock, at cost - 218,299
and 233,648 shares (4,366) (4,673)
---------- ---------
Total stockholders' equity 72,648 62,411
--------- ---------
$270,284 $150,233
========= ========
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)
Year ended December 31,
1998 1997* 1996*
---- ----- -----
Net sales $222,822 $188,814 $174,346
--------- --------- --------
Cost of sales 143,898 115,180 110,190
Selling 38,050 35,148 31,257
General and administrative 12,534 11,340 11,123
Research and development 4,209 3,710 4,154
Amortization of intangible assets 2,794 1,585 1,316
--------- --------- --------
201,485 166,963 158,040
--------- --------- --------
Operating income 21,337 21,851 16,306
--------- --------- --------
Other income (expense):
Interest income 387 497 400
Interest expense (6,058) (1,968) (1,969)
Terminated merger costs (161) (1,270)
Other, net (694) (1,048) (343)
--------- --------- ---------
(6,526) (3,789) (1,912)
--------- --------- ---------
Income before income taxes and
extraordinary item 14,811 18,062 14,394
Provision for income taxes 6,073 7,422 5,880
--------- --------- --------
Income before extraordinary item 8,738 10,640 8,514
Extraordinary item - net of income taxes (313)
---------
Net income $ 8,425 $ 10,640 $ 8,514
=========== ========= ========
Income per share before extraordinary item:
Basic $ 1.53 $ 1.88 $ 1.51
Diluted 1.49 1.84 1.50
Loss per share extraordinary item:
Basic $ (.06)
Diluted (.05)
Net income per share:
Basic $ 1.47 $ 1.88 $ 1.51
========= ========= ========
Diluted $ 1.44 $ 1.84 $ 1.50
========= ========= ========
*Reclassified to conform to 1998 presentation.
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, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Additional Accumulated Total
Common stock paid-in other compre- Retained Treasury stock Stockholders'
Shares Amount capital hensive losses earnings Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 (3,761) 41,349 254 (5,089) 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 (8,544) 51,989 234 (4,673) 62,411
Net income 8,425 8,425
Translation adjustment 1,106 1,106
Minimum pension liability adjustment (172) (172)
Exercise of stock options 30 429 429
Shares issued under Savings and
Incentive Plans 142 (16) 307 449
------- ----- -------- -------- ------- ----- ------- --------
Balances at December 31, 1998 5,938 $ 59 $ 24,151 $(7,610) $60,414 218 $(4,366) $72,648
====== ==== ======== ======== ======= ===== ======== =======
</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,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,425 $10,640 $ 8,514
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,028 6,524 6,465
Provision for losses on accounts receivable 726 709 392
Gain on sale of assets (136)
Provision (benefit) for deferred taxes 1,215 (818) (597)
Extraordinary item 313
Change in assets and liabilities:
Accounts receivable 1,533 (6,119) (3,009)
Inventory 2,116 (6,074) 1,829
Other current assets (328) (312) (1,217)
Accounts payable and accrued expenses (13,039) 15,874 5,969
Income taxes payable (4,381) 3,602 (332)
Other assets and liabilities, net (842) 1,676 (519)
-------- -------- -------
Net cash provided by operating activities 4,766 25,566 17,495
------- -------- ------
Cash flows from investing activities:
Capital expenditures (10,689) (9,365) (6,326)
Business acquisitions, net of cash acquired (117,849) (14,476) (1,275)
Sale of business assets 1,500
Other, net 52
----------- -------- -------
Net cash used by investing activities (128,538) (22,341) (7,549)
--------- --------- -------
Cash flows from financing activities:
Repayment of debt (14,455) (2,429) (2,429)
Net (repayments) borrowings under revolving credit facilities (16,155) 13,335 (2,668)
Loan proceeds, net 141,811
Proceeds from the exercise of stock options 429 47
--------- -------
Net cash provided (used) by financing activities 111,630 10,953 (5,097)
--------- -------- -------
Effect of exchange rate changes on cash 516 (2,495) (1,224)
--------- -------- -------
Net (decrease) increase in cash and cash equivalents (11,626) 11,683 3,625
Cash and cash equivalents at beginning of year 26,592 14,909 11,284
-------- -------- ------
Cash and cash equivalents at end of year $14,966 $26,592 $14,909
======== ======== =======
</TABLE>
See Consolidated Statement of Shareholders' Equity for non-cash transaction
involving treasury shares issued in 1998 and 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 three
main markets: textile chemical specialties products, polymer intermediates and
environmental products and services (primarily related to water and waste
treatment). 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, 1998 and 1997 these
investments amounted to $4,257 and $22,687, respectively.
Inventories -
Inventories are stated at the lower of cost or market. For U.S. operations,
except the Ruco subsidiary, cost is determined using the last-in, first-out
(LIFO) method. For all other 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 - 1998, $9,157; 1997, $6,382)
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 40 years. The Company
continually evaluates the reasonableness of its amortization for intangibles. 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.
For all years presented, the amortization expense of intangible assets has been
reclassified from other income (expense) to an operating expense category. Prior
year amounts have been reclassified to conform to the current year presentation.
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.
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):
Environmental Liabilities and Expenditures (Continued)-
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.
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, 1998 and 1997 was
$2,785 and $2,058, 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 $6,414 in 1998, $1,651 in 1997 and $2,086 in 1996. Interest
capitalized was $154 in 1998, $33 in 1997 and $32 in 1996.
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". FAS
132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits"
has been adopted by the Company in 1998. See Note 10 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 Post-retirement Benefits
Other than Pensions."
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):
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.
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 and
Colombian subsidiaries functional currencies are considered to be the U.S.
dollar because these countries have been designated as highly inflationary
economies. 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 and Colombian subsidiaries which operate in
highly inflationary economies. (Certain assets of these subsidiaries 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 1998, 1997 and 1996
were approximately $303, ($787) and $131, respectively.
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):
Earnings Per Share -
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
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.
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:
1998 1997 1996
---- ---- ----
Basic 5,698,815 5,666,683 5,650,560
Diluted 5,849,946 5,793,770 5,669,893
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:
1998 1997 1996
---- ---- ----
Stock options 144,402 9,318 136,946
NOTE 3 - COMPREHENSIVE INCOME:
The Company has adopted the Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income", which establishes standards for the
reporting and display of comprehensive income and its components in
general-purpose financial statements.
The tables below set forth "comprehensive income" and each component's related
tax effect for the twelve months ended December 31:
F-11
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 3 - COMPREHENSIVE INCOME (Continued):
Statement of Comprehensive Income
Twelve Months Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income $8,425 $10,640 $8,514
------ ------- ------
Other comprehensive income, net of tax:
Foreign currency translation adjustments 1,106 (4,850) (2,127)
Minimum pension liability adjustment (172) 67 (252)
----- ------- -------
Other comprehensive income 934 (4,783) (2,379)
--- ------- -------
Comprehensive income $9,359 $5,857 $6,135
======= ======= ======
</TABLE>
Related Tax Effects of Each Component of Comprehensive Income
Twelve Months Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------- --------------------------- ----------------------------
Tax Net of Tax Net of Tax Net of
Pre-Tax (Expense) Tax Pre-Tax (Expense) Tax Pre-Tax (Expense) Tax
Amount Benefit Amount Amount Benefit Amount Amount Benefit Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign currency translation
adjustments $1,106 $1,106 $(4,850) $(4,850) $(2,127) $(2,127)
Minimum pension liability adjustment (292) $120 (172) 117 $(50) 67 (411) $159 (252)
Total comprehensive income $ 814 $120 $ 934 $(4,733) $(50) $(4,783) $(2,538) $159 (2,379)
</TABLE>
The following table illustrates the components of accumulated other
comprehensive income and their associated changes for the year ending December
31.
Accumulated Other Comprehensive Income Balances
Twelve Months Ended December 31,
<TABLE>
<CAPTION>
1998 1997
------ -----
Current Current
Beginning Period Ending Beginning Period Ending
Balance Change Balance Balance Change Balance
<S> <C> <C> <C> <C> <C> <C>
Foreign currency translation adjustments $(8,359) $1,106 ($7,253) $(3,509) $(4,850) $(8,359)
Minimum pension liability adjustment (185) (172) (357) (252) 67 (185)
--------- -------- ------- --------- -------- --------
Accumulated comprehensive (loss) income $(8,544) $ 934 $(7,610) $(3,761) $(4,783) $(8,544)
======== ====== ======== ======== ======== ========
</TABLE>
F-12
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 4 - ACQUISITIONS AND MERGERS:
On July 31, 1998, the Company acquired all of the outstanding capital stock of
Ruco Polymer Corporation and all of the outstanding membership interests of Ruco
Polymer Company of Georgia, LLC (collectively "Ruco"). The aggregate purchase
price for the acquisition was $110 million, including the repayment of bank debt
owed by Ruco.
In April 1998, the Company acquired certain operating assets, not including
manufacturing facilities, of the garment processing specialty chemicals
businesses of Ocean Wash Inc. and Ocean Wash de Mexico de C.V., (collectively
"Ocean Wash"), for $6,750. The acquired garment processing chemicals businesses
have been merged into the Company's corresponding business sector.
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 and $161 in the first quarter of 1998.
On July 29, 1997, the Company acquired certain operating assets, not including
manufacturing facilities, of the textile and garment processing businesses of
Ivax Industries, Inc., Ivax Industries Canada, Inc. and Ivax Industries U.K.
Ltd., (collectively "Ivax"), for $14,476. The acquired garment processing
chemicals businesses have been merged into the Company's corresponding business
sector.
All the above described acquisitions have been accounted for as purchases and,
accordingly, the operating results of the acquired businesses have been included
in the Company's consolidated financial statements since the date of
acquisition.
The Ocean Wash acquisition did not have a material effect on 1998 operating
results. The following unaudited pro forma consolidated results of operations
for the years ended December 31, 1998 and 1997 assume the Ruco and Ivax
acquisitions occurred on January 1, 1997:
1998 1997
-------- --------
Net sales $270,444 $280,613
Net income before extraordinary item $ 6,745 $ 7,095
Net income per diluted share before extraordinary item $1.15 $1.22
F-13
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 5 - INVENTORIES:
The components of inventories are:
December 31,
1998 1997
---- ----
Finished goods $28,871 $21,317
Raw materials 9,632 7,864
------- -------
38,503 29,181
Less reserves 2,037 976
------- -------
$36,466 $28,205
======= =======
LIFO inventories comprise approximately 49% and 64% of total inventories at
December 31, 1998 and 1997, respectively. If the FIFO method of accounting for
inventories had been used by the Company, inventories would have been less than
reported by $25 in 1998 and greater than reported by $155 at December 31, 1998
and 1997, respectively.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT:
The components of property, plant and equipment are:
December 31,
1998 1997
---- ----
Land $ 7,324 $ 2,965
Buildings 30,293 17,967
Machinery and equipment 86,647 47,503
Construction in progress 1,489 4,607
-------- -------
125,753 73,042
Accumulated depreciation (45,578) (38,818)
-------- --------
$80,175 $34,224
======== =======
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was
$6,234 $4,939 and $5,149, respectively. Maintenance and repairs expense for the
same periods amounted to $2,672, $2,342 and $2,156, respectively.
F-14
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 7 - ACCRUED LIABILITIES:
The components of accrued liabilities are:
December 31,
1998 1997
---- ----
Accrued compensation $ 6,542 $ 6,851
Accrued selling and marketing expenses 2,304 2,450
Accrued professional fees 1,152 1,494
Accrued environmental liabilities 1,312 1,349
Other accrued liabilities 3,880 3,943
------- -------
$15,190 $16,087
======= =======
NOTE 8 - LONG-TERM DEBT:
The components of long-term debt are:
December 31,
1998 1997
---- ----
Notes payable - Tranche A Facility $ 44,438
Notes payable - Tranche B Facility 98,750
Notes payable bearing interest at 8.17% $12,143
Revolving credit facility bearing interest
at the bank's prime rate less 1.5% or
.375% over LIBOR 17,676
Other debt 2,105
------- -------
145,293 28,819
Less current portion 9,285 2,429
--------- --------
$136,008 $27,390
======== =======
F-15
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 8 - LONG-TERM DEBT (Continued):
Concurrent with the closing of the Ruco acquisition, the Company entered into a
New Credit Facility consisting of a Term Facility in an aggregate principal
amount of $145,000 and a Revolving Facility in an aggregate principal amount of
$40,000, which was undrawn at December 31, 1998. The Term Facility is composed
of a $45,000 Tranche A facility and a $100,000 Tranche B facility. The New
Credit Facility will expire on July 31, 2004.
Borrowings under the Tranche A and B facilities bear interest at a rate per
annum equal to a margin, based on the leverage ratio of the Company and its
subsidiaries, at the Company's option, over a base rate or adjusted Libor. The
Company has chosen to borrow at Libor plus the leveraged margin of 2.25%. At
December 31, 1998 there were $143,188 of outstanding borrowings under the
Tranche A and B facilities at an average interest rate of 7.55%.
The Revolving Facility has $40,000 availability to fund the working capital
requirements and general corporate purposes of the Company. The previous
revolving credit facility was paid in full on July 31, 1998.
The repayment of the 8.17% notes on July 31, 1998, resulted in an extraordinary
loss of $313, net of taxes of $200.
Annual Repayments:
The aggregate annual repayments of debt outstanding at December 31, 1998 are as
follows:
1999 $ 9,285
2000 17,448
2001 23,805
2002 31,054
2003 36,492
2004 27,209
-------
$145,293
Debt Covenants:
The New Credit Facility imposes upon the Company certain conditions and
restrictions, such as financial tests relating to interest coverage, fixed
charge coverage, leverage ratio and minimum tangible net worth, limitations on
the ability of the Company to incur debt, pay dividends or take certain other
corporate actions, and limitations on capital expenditures, investments and
acquisitions. The Company believes it is in compliance with these covenants and
restrictions at December 31, 1998.
F-16
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 9 - INCOME TAXES:
Provisions for income taxes are:
Year ended December 31,
1998 1997 1996
---- ---- ----
Currently payable:
Federal $ 174 $1,973 $1,490
State 233 188
Foreign 4,687 6,034 4,799
----- ------ -----
4,861 8,240 6,477
Deferred taxes:
Federal 518 (654) (884)
State 116 (96) (131)
Foreign 578 (68) 418
------- ---- ------
Income taxes before extraordinary item $6,073 $7,422 $5,880
======= ======= ======
Provisions for income taxes differ from the amount computed by applying the
statutory federal rate due to the following:
Year ended December 31,
1998 1997 1996
---- ---- ----
Income tax computed at U.S.
Federal statutory tax rates $5,037 $6,141 $4,894
State income taxes, net of
federal income tax benefit 99 233 95
Foreign subsidiaries taxed at
higher rates 683 1,063 653
Other items, net 254 (15) 238
------- ------ -------
$6,073 $7,422 $5,880
======= ====== ======
Income taxes paid were $9,271 in 1998, $4,379 in 1997 and $6,846 in 1996.
F-17
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 9 - INCOME TAXES (Continued):
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are presented below.
December 31,
1998 1997
---- ----
Deferred tax assets:
Accrued expenses $ 1,700 $ 1,452
Post-retirement benefits 1,518 1,587
Other 815 499
-------- -------
Total deferred tax assets 4,033 3,538
------- -------
Deferred tax liabilities:
Depreciation (3,285) (2,511)
Property (1,521) (830)
Inventory (1,376) (995)
Intangibles (1,255) (968)
Other (700) (596)
-------- --------
Total deferred tax liabilities (8,137) (5,900)
-------- --------
Net deferred tax liability $(4,104) $(2,362)
======== ========
The components of income before income taxes and extraordinary item are:
Year ended December 31,
1998 1997 1996
---- ---- ----
United States (before extraordinary item) $ 554 $ 3,632 $ 1,520
Foreign 14,257 14,430 12,874
------- ------- -------
$14,811 $18,062 $14,394
======= ======= =======
Retained earnings of foreign subsidiaries totaling approximately $43,300 at
December 31, 1998 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.
F-18
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 10 - PENSION AND POST-RETIREMENT BENEFITS:
Pension Benefits:
The Company maintains a savings and investment plan (the "Plan") for certain
U.S. employees. In accordance with the Plan, the Company contributes a fixed
percentage of an employee's annual earnings based upon the employee's age and
length of service with the Company. Under the voluntary portion of the Plan,
participants contribute a certain percentage of their compensation each pay
period. The Company matches 35% of this voluntary contribution up to 6% of total
compensation. Total expenses relating to this plan were $1,095, $823 and $933
for the years ended December 31, 1998, 1997 and 1996, respectively.
In connection with the Company's acquisition of Ruco, the Company also maintains
a 401(a) profit sharing plan for all non-union employees of Ruco. Contributions
are discretionary as determined by the Board of Directors of Ruco. Expenses
relating to this plan were $101 for the period since the acquisition.
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, compensation 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.
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.
In February 1998, the Financial Accounting Standards Board issued Statement No.
132, "Employers Disclosure About Pensions and Other Post-retirement Benefits, an
amendment of FASB Statements No. 87, 88, and 106" (SFAS 132). This statement
revises disclosures about pension and other post-retirement benefit plans. It
does not change the measurement or recognition of those plans. As required, the
Company adopted the disclosures prescribed by this statement below.
F-19
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 10 - PENSION AND POST-RETIREMENT BENEFITS (Continued):
Domestic plan activity and status as of and for the years ended December 31 were
as follows:
<TABLE>
<CAPTION>
Pension Benefits Post-retirement Benefits
---------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $4,662 $4,367 $1,949 $2,495
Service cost 167 126 1 1
Interest cost 374 317 135 175
Actuarial loss (gain) 362 162 231 (537)
Acquisitions 1,881
Benefits paid (378) (310) (157) (185)
-------- -------- ------- ------
Benefit obligation at end of year $7,068 $4,662 $2,159 $1,949
------- ------- ------- ------
Change in plan assets:
Fair value of plan assets at beginning
of year $4,456 $4,083
Actual return on plan assets 329 535
Acquisitions 1,481
Employer contributions 419 149
Benefits paid (378) (310)
Adjustments (3) (1)
-------- ---------
Fair value of plan assets at end of year 6,304 4,456
------ -----
Funded status (764) (206) $(2,159) $(1,949)
Unrecognized net actuarial loss (gain) 659 205 (418) (687)
Unrecognized prior service cost 344 376 (1,300) (1,402)
Unrecognized net obligation (asset) (100) (78)
------- -------
Net amount recognized $ 139 $ 297 $(3,877) $(4,038)
======= ======= ======== ========
</TABLE>
F-20
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 10 - PENSION AND POST-RETIREMENT BENEFITS (Continued):
Amounts recognized in the statement
of financial position consist of:
<TABLE>
<CAPTION>
Pension Benefits Post-retirement Benefits
---------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C>
Prepaid benefit cost $ 540 $297
Accrued benefit liability (1,337) (539) $(3,877) $(4,038)
Intangible asset 350 398
Deferred tax asset 229 55
Accumulated other comprehensive losses 357 86
------- ------
Net amount recognized $ 139 $297 $(3,877) $(4,038)
======= ====== ======== ========
Weighted average assumptions:
Discount rate 6.50% 7.25% 6.75% 7.25%
Expected return on plan assets 9.00% 9.00% N/A N/A
Rate of compensation increase 4.00% 4.00% N/A N/A
</TABLE>
Components of net periodic benefit costs
for the years ended December 31,
are as follows:
<TABLE>
<CAPTION>
Pension Benefits Post-retirement Benefits
---------------- ------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost $167 $126 $120 $ 1 $ 1 $ 1
Interest cost 374 317 299 135 175 177
Expected return on plan assets (419) (360) (331)
Amortization of prior service cost 33 33 26 (102) (102) (102)
Amortization of initial unrecognized obligation 21 21 21
Amortization of unrecognized net loss (gain) 2 8 (38)
------ ------ ----- ------ ----- -----
Net periodic benefit cost $ 178 $ 137 $143 $ (4) $ 74 76
====== ====== ===== ===== ===== =====
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $6,960, $6,728 and $6,067, respectively, as of December 31,
1998 and $4,550, $4,550 and $4,227, respectively, as of December 31, 1997.
F-21
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 10 - PENSION AND POST-RETIREMENT BENEFITS (Continued):
Assumed health care cost trend rates have a significant effect on the amounts
reported for the post-retirement plan. The Company assumed an average inflation
rate for health care costs ranging from 7.0% currently to 4.5% in 2008 and
thereafter. A one-percentage point change in assumed health care cost trend
rates would have the following effects:
1-Percentage 1-Percentage
Point Increase Point Decrease
Effect on total of service and interest
cost components: $ 8 $ (7)
Effect on post-retirement obligation: $ 202 $ (102)
The following table summarizes the status of the Company's significant foreign
defined benefit pension plans:
December 31,
1998 1997
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $7,449 $7,467
Service cost 397 395
Interest cost 449 414
Actuarial loss (gain) 83 (330)
Benefits paid (124) (84)
Effect of exchange rates 506 (413)
------- -------
Benefit obligation at end of year $8,760 $7,449
------- ------
Change in plan assets:
Fair value of plan assets at beginning of year $6,370 $6,455
Actual return on plan assets 419 363
Employer contributions 663 601
Benefits paid (124) (84)
Adjustments 140 (24)
Effect of exchange rates 551 (941)
------ ------
Fair value of plan assets at end of year $8,019 $6,370
------ ------
F-22
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 10 - PENSION AND POST-RETIREMENT BENEFITS (Continued):
1998 1997
---- ----
Funded status $(741) $(1,079)
Unrecognized net actuarial loss (gain) 725 881
Unrecognized net obligation (asset) 325 361
------ -----
Net amount recognized $ 309 $ 163
====== =======
Amounts recognized in the statement of
financial position consist of:
Prepaid benefit cost $ 309 $ 163
Accrued benefit liability (344)
Intangible asset 192
Deferred tax asset 53
Accumulated other comprehensive losses 99
------ -------
Net amount recognized $ 309 $ 163
====== =======
Weighted average assumptions:
Discount rate 6.00% 6.00%
Expected return on plan assets 6.00% 6.00%
Rate of compensation increase 3.50% 3.50%
Components of net periodic benefit costs
for the years ended December 31, are
as follows:
1998 1997 1996
---- ---- ----
Service cost $397 $395 $441
Interest cost 449 414 426
Expected return on plan assets (419) (362) (375)
Amortization of initial unrecognized
obligation 61 62 72
Amortization of unrecognized net loss (gain) 3 25 16
----- ----- -----
Net periodic benefit cost $491 $534 $580
===== ===== ====
F-23
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 10 - PENSION AND POST-RETIREMENT BENEFITS (Continued):
As of December 31, 1998, there were no foreign pension plans with accumulated
benefit obligations in excess of plan assets.
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for foreign pension plans with accumulated benefit obligations in
excess of plan assets were $3,462, $3,259 and $3,071, respectively, as of
December 31, 1997.
NOTE 11 - 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 526,950. 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: 1998 net income, $370, and earnings per
share, $.06; 1997 net income, $334, and earnings per share, $.06; 1996 net
income, $277, and earnings per share, $.05. 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 1998, 1997, and 1996: dividend
yield of 0%, expected lives of 5 years, expected volatility of 42%, 40% and 42%,
respectively, and a risk free interest rate of 4.63%, 5.7% and 6.4%,
respectively.
F-24
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 11 - OTHER EMPLOYEE BENEFITS (Continued):
Stock Options- (Continued)
A summary of the status of the Option Plan at December 31, 1998, 1997 and 1996
and changes during the years ending on those dates is as follows:
<TABLE>
<CAPTION>
Number Price Weighted Average
of shares Per Share Exercise
<S> <C> <C> <C>
Price
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
Granted.................................. 221,195 $14.875-$33.50 $19.78
Exercised................................ (29,790) $10.75-$19.50 $14.39
Cancelled and available for reissue...... (79,335) $12.50-$33.50 $25.68
---------
Options outstanding at December 31, 1998... 462,235 $10.75-$33.50 $15.12
=======
Options exercisable at December 31, 1998... 125,313 $10.75-$33.50 $14.59
=======
Options available for grant at
December 31, 1998........................ 64,715
=======
Weighted average remaining life (years) at December 31, 1998 8
</TABLE>
The following table summarizes information about the stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices 12/31/98 Contractual Life Price 12/31/98 Price
- ------ -------- ---------------- ----- -------- -----
<C> <C> <C> <C> <C> <C> <C>
$10.75 to $12.50 92,085 7 $11.85 35,175 $11.82
$12.75 to $13.50 142,090 7 $13.15 51,403 $13.15
$14.88 to $15.00 88,355 10 $14.97
$15.50 to $16.75 75,375 9 $16.62 5,025 $15.74
$18.75 to $22.50 50,315 7 $19.66 32,535 $19.03
$25.50 to $33.50 14,015 9 $33.31 1,175 $32.31
$10.75 to $33.50 462,235 8 $15.12 125,313 $14.59
</TABLE>
F-25
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 11 - OTHER EMPLOYEE BENEFITS:
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 12 - OPERATING LEASES:
The Company leases certain manufacturing, warehouse and office
facilities, and equipment. Future minimum lease payments required as of
December 31, 1998 under operating leases that have initial
non-cancelable lease terms exceeding one year are as follows:
Year
1999 $1,321
2000 881
2001 471
2002 188
2003 59
Thereafter 159
------
$3,079
Rent expense was approximately $2,914 for 1998, $2,941 for 1997 and
$2,810 for 1996.
F-26
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 13 - 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 soil related portions of the Work Plan. The Company
has completed most of the soil related cleanup and has performed some additional
sampling based on the DEP's conditional approval. The ground water remedial
activities at the Birmingham facility are continuing.
The Company has identified certain soil and groundwater contamination at its
Wellford, South Carolina facility. The Company submitted a remedial action plan
to the South Carolina Department of Health and Environmental Control (DHEC) for
its review. DHEC has approved the Company's proposed action for remediation of
potential groundwater contamination, and these activities are in progress at
this time.
The Company completed in 1998 various environmental reports to identify the
extent of soil and groundwater contamination at its manufacturing facility in
Ede, Holland and other facilities owned by third parties which are adjacent
thereto. Based on these studies, a plan of remediation was prepared by an
environmental consulting firm and was approved by the authorities. The remedial
activities associated with that plan are in progress and will continue for
sometime into the future.
F-27
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):
The Company's Hicksville, New York facility is located on a superfund site as
designated by the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA"). The Company has received full indemnification
from its prior owners and any costs incurred to date have been funded under this
indemnification agreement. In the opinion of management, future costs to the
Company will be minimal and not material to the Company's financial position or
results of operation. In addition, in connection with the Ruco acquisition, the
Company purchased environmental insurance coverage to address contingencies at
the Hicksville site.
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 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.
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, 1998 and 1997, the
Company has accrued approximately $1,312 and $1,349, respectively, to offset
future environmental assessment and remediation costs. 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.
F-28
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):
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 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation.
The carrying amounts of the Company's long-term debt and the current portion of
long-term debt approximate fair value because the interest rates are based on
short-term market rates.
NOTE 15 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION:
In 1998 the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
No. 131). SFAS No. 131 utilizes the management approach as the source for
reportable segment disclosure. The statement also requires disclosures about
products and services, geographic areas and major customers. The required
disclosures under this statement are set forth below.
The Company operates in the following three business segments - textile chemical
specialty products, polymer intermediates and environmental products and
services. These segments are categorized based on the type of products and
services provided. These products and services are the basis for segment
presentation. The polymer intermediates segment was established in 1998
primarily due to the Ruco acquisition.
The Company's textile chemical products are used in the largest segment of the
textile chemical specialties industry, wet processing, and are designed to
improve the wet processing of fabrics and garments as well as enhance the
aesthetic and physical characteristics of such fabrics and garments.
The polymer intermediates segment produces polyester polyols, polyester powder
coating resins, polyurethane latexes and specialty polymers which are
intermediate chemical products used in the formulation and production of
coatings and plastics.
F-29
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 15 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION (Continued):
The environmental 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.
The Company's business segments offer different products and services which
require different technologies and marketing strategies and are as such managed
as separate strategic business units.
The accounting policies of the segments are essentially the same as those
described in the summary of accounting policies. 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 other income (expense),
net.
No single customer accounts for more than 5% of revenue in the periods
presented.
F-30
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands)
NOTE 15 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION (Continued):
The following schedule presents information about the Company's operations by
business segment (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997* 1996*
-------------------------------------------- ----------------------------- -------------------------------
Textile Environmental Textile Environmental Textile Environmental
Chemical Polymer Products and Chemical Products and Chemical Products and
Specialties Intermediates Services Total Specialties Services Total Specialties Services Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from external $139,581 $ 34,162 $49,079 $222,822 $133,452 $55,362 $188,814 $120,301 $54,045 $174,346
customers
Inter-segment revenues 23 271 294 7 406 413 5 144 149
Depreciation and
amortization 5,201 2,116 1,711 9,028 4,238 2,286 6,524 4,022 2,443 6,465
Segment operating income 13,073 3,517 4,747 21,337 16,697 5,154 21,851 12,291 4,015 16,306
Identifiable assets 113,418 121,817 35,049 270,284 118,299 31,934 150,233 85,103 31,961 117,064
Capital expenditures 7,788 1,158 1,743 10,689 6,990 2,375 9,365 5,146 1,180 6,326
Acquisitions 6,938 110,838 73 117,849 14,476 14,476 1,275 1,275
</TABLE>
*Reclassified to conform to 1998 presentation.
F-31
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands except share and per share data)
NOTE 15 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION (Continued):
The following schedule presents information about the Company's operations by
geographic location (in thousands). Sales to external customers are attributed
to countries based on the location of customer and not the country of origin:
Year ended December 31,
------------------------------
1998 1997 1996
------ ------ ------
Sales to external customers:
United States $133,138 $101,960 $ 95,193
Foreign 89,684 86,854 79,153
-------- -------- --------
Total sales to external customers $222,822 $188,814 $174,346
======== ======== ========
Long-lived assets:
United States $148,591 $ 39,882 $ 31,937
Foreign 18,469 15, 016 12,653
-------- -------- --------
Total long-lived assets $167,060 $ 54,898 $ 44,590
======== ======== ========
F-32
<PAGE>
SYBRON CHEMICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
(in thousands except share and per share data)
NOTE 16 - QUARTERLY FINANCIAL DATA (Unaudited):
The following is a summary of quarterly financial results for the years ended
December 31, 1998 and 1997 (amounts in thousands except per share data):
<TABLE>
<CAPTION>
1998 1997*
------ ------
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 $48,572 $48,983 $58,834 $66,433 $44,709 $47,423 $46,297 $50,385
Gross profit 19,779 19,022 18,886 21,237 17,309 18,965 17,642 19,718
Operating income 6,343 5,330 4,450 5,214 5,452 6,734 4,279 5,386
Income before extraordinary item 3,764 2,511 1,118 1,345 2,974 3,757 2,119 1,790
Income per share before extraordinary item:
Basic .66 .44 .20 .24 .53 .66 .37 .32
Diluted .64 .43 .19 .23 .52 .65 .36 .31
Net Income 3,764 2,511 805 1,345 2,974 3,757 2,119 1,790
Net income per share:
Basic .66 .44 .14 .24 .53 .66 .37 .32
Diluted .64 .43 .14 .23 .52 .65 .36 .31
</TABLE>
*Reclassified to conform to 1998 presentation.
NOTE 17 - SUBSEQUENT EVENT
In February 1999, the Company acquired certain operating assets of Green
Releaf for $1,500. Pursuant to the provisions of the Company's existing credit
facilities, certain acquisitions are prohibited. With respect to this
transaction, the Company has obtained waivers from the banking syndicate from
these provisions.
F-33
<PAGE>
SCHEDULE VIII
SYBRON CHEMICALS INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996
(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, 1998 $2,058 $ 726 $ 404 $ (403) $2,785
December 31, 1997 1,820 709 (174) (297) 2,058
December 31, 1996 2,048 295 (46) (477) 1,820
Inventory Reserves
For the year ended:
December 31, 1998 976 908 1,232 (1,080) 2,036
December 31, 1997 873 1,300 (7) (1,190) 976
December 31, 1996 476 2,175 (1,778) 873
</TABLE>
(1)Foreign exchange adjustments, acquisitions, and other reclassifications
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. Ruco Polymer Corporation USA-NY 1
4. Ruco Polymer Co. of Georgia, LLC USA-DEL. 1
5. Sybron Quimica Argentina S.A. ARGENTINA 2
6. Sybron Chemicals International Holdings Ltd. UK 2
7. Sybron Chemicals Korea Ltd. KOREA 2
8. Sybron Chemicals (Japan) Ltd. JAPAN 2
9. Sybron Quimica Colombia SA COLOMBIA 2
10. Sybron Chemicals Canada Ltd. CANADA 2
11. Sybron Quimica S.A. De C.V. MEXICO 2
12. Sybron Chemicals Hong Kong Ltd. HONG KONG 2
13. Sybron Chemical Industries Nederland B.V. HOLLAND 6
14. Sybron Chemicals Holdings B.V. HOLLAND 13
15. Sybron Quimica (Iberica) S.A. SPAIN 14
16. Sybron Chemie (Nederland) B.V. HOLLAND 14
17. Sybron Chemie (Deutschland) G.m.b.H. GERMANY 14
18. Sybron Chemicals (SA) Proprietary Limited S. AFRICA 14
19. Sybron Chemicals Handelsgesellschaft G.m.b.H. AUSTRIA 14
20. Sybron Chemicals UK Limited UK 16
21. Sybron Chimica Italia S.p.A. ITALY 14
22. Sybron Chimie France S.A. FRANCE 14
23. BMIC, Inc. USA-DEL. 2
24. Sybron Chemicals Taiwan Ltd. TAIWAN 2
<PAGE>
EXHIBIT 24
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
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, 1998, 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, 1999 /s/ Kirk P. Pond
-------------- -----------------
Kirk P. Pond
<PAGE>
EXHIBIT 24
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
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, 1998, 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, 1999 /s/ John H. Schroeder
-------------- ----------------------
John H. Schroeder
<PAGE>
EXHIBIT 24
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
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, 1998, 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, 1999 /s/ Paul C. Schorr, IV
-------------- -----------------------
Paul C. Schorr, IV
<PAGE>
EXHIBIT 24
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
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, 1998, 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, 1999 /s/ Fred P. Rullo, Jr.
-------------- -----------------------
Fred P. Rullo, Jr.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000832815
<NAME> SYBRON CHEMICALS INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,966
<SECURITIES> 0
<RECEIVABLES> 48,874
<ALLOWANCES> (2,785)
<INVENTORY> 36,466
<CURRENT-ASSETS> 103,211
<PP&E> 125,753
<DEPRECIATION> (45,578)
<TOTAL-ASSETS> 270,284
<CURRENT-LIABILITIES> 51,257
<BONDS> 0
0
0
<COMMON> 24,210
<OTHER-SE> 48,438
<TOTAL-LIABILITY-AND-EQUITY> 270,284
<SALES> 222,822
<TOTAL-REVENUES> 222,822
<CGS> 143,898
<TOTAL-COSTS> 201,485
<OTHER-EXPENSES> 468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,058
<INCOME-PRETAX> 14,811
<INCOME-TAX> 6,073
<INCOME-CONTINUING> 8,738
<DISCONTINUED> 0
<EXTRAORDINARY> 313
<CHANGES> 0
<NET-INCOME> 8,425
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.44
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated March 31, 1999 appearing on page F-2
of Sybron Chemicals Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998.
PricewaterhouseCoopers LLP
Philadelphia, PA
March 31, 1999
<PAGE>
