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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-19983
DELAWARE 51-0301280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Birmingham Rd., P.O. Box 66, Birmingham New Jersey
08011
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (609) 893-1100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at March 31, 2000
Common stock, $.01 par value 5,737,516
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This Form 10-Q Report contains information that is forward-looking, such as information relating to future capital expenditures and liquidity. 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, the impact of Year 2000 issues on the Company and changes in the competitive environment in which the Company operates.
Page No.
Part I Financial information
Item 1 - Financial Statements
Consolidated Balance Sheet -
March 31, 2000 and December 31, 1999 1
Consolidated Statement of Operations -
three months ended March 31, 2000 and 1999 2
Consolidated Statement of Cash Flows -
three months ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4 - 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7 - 9
Part II Other information
Item 1 Legal Proceedings 9
Exhibit Index 10
Signature 11
ASSETS
Unaudited Audited
March 31, Dec. 31,
2000 1999
-------- -----
Current assets:
Cash and cash equivalents $ 12,820 $ 14,697
Accounts receivable, net 54,130 50,316
Inventories, net 36,273 37,205
Prepaid and other current assets 6,187 5,066
----- -----
Total current assets 109,410 107,284
Property, plant and equipment, net 72,940 74,459
Intangible assets, net 67,767 68,454
Other assets 6,811 6,934
-------- --------
$256,928 $257,131
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,336 $ 8,501
Accounts payable 29,521 24,489
Accrued liabilities 14,086 15,636
------ ------
Total current liabilities 48,943 48,626
Long-term debt 126,634 127,706
Deferred income taxes 1,853 1,429
Postretirement benefits 3,553 3,584
Other liabilities 3,154 3,203
-------- --------
Total liabilities 184,137 184,548
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value -
500,000 shares authorized; none issued
Common stock - $.01 par value -
20,000,000 shares authorized;
issued 5,942,665 (2000) and
5,941,165 (1999) shares 59 59
Additional paid-in capital 24,219 24,214
Retained earnings 64,941 63,405
Accumulated other comprehensive losses (12,325) (10,943)
Treasury stock, at cost - 205,149 (2000)
and 207,611 (1999) shares (4,103) (4,152)
--------- ---------
Total shareholders' equity 72,791 72,583
--------- --------
$256,928 $257,131
========= ========
Three months
ended
March 31,
--------------
2000 1999
------ -----
Net sales $ 73,275 $ 68,685
-------- --------
Cost of sales 50,198 45,127
Selling, general and administrative 14,329 12,849
Research and development 1,342 1,297
-------- --------
65,869 59,273
-------- --------
Operating income 7,406 9,412
-------- --------
Other (income) expense
Interest expense 2,980 2,821
Other - net 1,618 812
-------- --------
4,598 3,633
-------- --------
Income before income taxes 2,808 5,779
Provision for income taxes 1,272 2,369
-------- --------
Net income $ 1,536 $ 3,410
======== ========
Net income per share:
Basic $ 0.27 $ .60
======== ========
Diluted $ 0.27 $ .59
======== ========
Weighted average shares outstanding:
Basic 5,734,801 5,723,290
Diluted 5,748,498 5,731,802
Three months
ended
March 31,
2000 1999
------ -----
Cash flows from operating activities:
Net income $ 1,536 $ 3,410
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,188 3,340
Provision for losses on accounts receivable 181 199
Direct costs of financing 1,729
Changes in assets and liabilities:
Accounts receivable (4,705) (4,283)
Inventory 594 37
Other current assets (518) (267)
Accounts payable and accrued expenses 3,295 1,996
Income taxes payable 149 2,440
Other assets and liabilities - net 468 647
-------- -------
Net cash provided by operating activities 5,917 7,519
-------- -------
Cash flows from investing activities:
Capital expenditures (1,390) (1,062)
Purchase of business assets (1,397)
------- -------
Net cash used by investing activities (1,390) (2,459)
-------- -------
Cash flows from financing activities:
Net repayments under revolving credit facilities (1,937)
Net repayment of debt (4,189) (1,853)
Direct costs of financing (1,729) (287)
Proceeds from exercise of stock options 19 21
-------- -------
Net cash (used) provided by financing activities (5,899) (4,056
-------- ------
Effect of exchange rate changes on cash (505) (418)
-------- --------
Net increase (decrease) in cash and cash
equivalents (1,877) 586
Cash and cash equivalents at beginning of period 14,697 14,966
------- -------
Cash and cash equivalents at end of period $12,820 $15,552
======= =======
The accompanying consolidated financial statements are unaudited and have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these consolidated financial statements contain all of the adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in summarized form, the financial position of the Company at March 31, 2000 and the results of its operations and changes in its cash flows for the three months ended March 31, 2000 and 1999.
The Company presumes that users of this Quarterly Report on Form 10-Q have read or have access to the audited financial statements for the year ended December 31, 1999 contained in the Company’s Form 10-K which was filed with the Securities and Exchange Commission on March 30, 2000, and as amended and refiled on May 1, 2000. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained therein have been omitted.
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” for the three months ended March 31. There are no related tax effects for the three month periods presented.
2000 1999
-------- ------
Net income $ 1,536 $ 3,410
Other comprehensive income, net of tax:
Foreign currency translation adjustments (1,382) (2,186)
-------- --------
Comprehensive income $ 154 $ 1,224
======= ======
The following table illustrates the components of accumulated other comprehensive income and their associated changes for the three month period ending March 31, 2000:
Current
Beginning Period Ending
Balance Change Balance
--------- ------- -------
Foreign currency translation adjustments $(10,943) $(1,382) $(12,325)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not believe that the adoption of SFAS No. 133 will have a material effect on its consolidated financial statements.
Inventories are stated at the lower of cost or market. For U.S. operations, except for Ruco, 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.
The components of inventories are:
March 31, Dec. 31,
2000 1999
------- ------
Finished goods $28,409 $29,373
Raw materials 9,211 9,502
------- -------
37,620 38,875
Less reserves 1,347 1,670
------- -------
$36,273 $37,205
======= =======
The following schedule presents certain financial information about the Company’s three business segments for the three months ended March 31.
For 2000 the results of the Organics Strategic Business Unit, which was formerly a part of the Textile Chemical Specialties segment, is now included in the new Environmental Products and Services segment.
Three Months Ended March 31,
-----------------------------
2000 1999(1)
--------------- -------------
% of % of
Amount Sales Amount Sales
------ ----- ------ -----
(in thousands except percentages)
Sales
Textile Chemical Specialties $ 30,937 42.2% $ 31,424 45.8%
Polymer Intermediates 24,601 33.6 22,412 32.6
Environmental Products and Services 17,737 24.2 14,849 21.6
--------- ------ -------- -----
Total 73,275 100.0 68,685 100.0
Cost of Sales
Textile Chemical Specialties 17,996 58.2 17,624 56.1
Polymer Intermediates 19,509 79.3 17,778 79.3
Environmental Products and Services 12,693 71.6 9,725 65.5
-------- --------
Total 50,198 68.5 45,127 65.7
Gross Margin
Textile Chemical Specialties 12,941 41.8 13,800 43.9
Polymer Intermediates 5,092 20.7 4,634 20.7
Environmental Products and Services 5,044 28.4 5,124 34.5
-------- --------
Total 23,077 31.5 23,558 34.3
Operating Expenses
Textile Chemical Specialties 10,021 32.4 10,392 33.1
Polymer Intermediates 2,361 9.6 2,254 10.1
Environmental Products and Services 3,289 18.5 1,500 10.1
-------- --------
Total 15,671 21.4 14,146 20.6
Operating Income
Textile Chemical Specialties 2,920 9.4 3,408 10.8
Polymer Intermediates 2,731 11.1 2,380 10.6
Environmental Products and Services 1,755 9.9 3,624 24.4
-------- --------
Total 7,406 10.1 9,412 13.7
Other Expense, Net (4,598) (6.3) (3,633) (5.3)
-------- ----- -------- -----
Income before income taxes 2,808 3.8 5,779 8.4
Provision for income taxes 1,272 1.7 2,369 3.4
-------- ----- -------- ----
Net Income $ 1,536 2.1% $ 3,410 5.0%
======== ===== ======== =====
(1) 1999 segments have been reclassified to conform to 2000 presentation.
On April 26, 2000 the Company announced that it engaged JP Morgan to study strategic alternatives to maximize shareholder value. This decision has been arrived at by the unanimous agreement of the Company's Board of Directors. At this time, it is not possible to predict the outcome of this study.
Revenues and operating profits, exclusive of a prior year insurance settlement, increased for the first quarter of 2000 versus the prior year's quarter. Net income was lower than the prior year as a result of certain financing costs incurred in the first quarter of this year. Earnings were $.27 per share compared to the $.59 per fully diluted share in 1999. Excluding one-time items in both years, net income increased by 13.5% in the current quarter compared to the same period in the prior year.
Sales for the quarter were $73,275,000, a 6.7% increase over the same period last year, primarily the result of stronger sales volumes in the Polymer Intermediates and Environmental segments. The gross margin for the first quarter of 2000 was 31.5%, a 2.8 percentage point decrease from the prior year's quarter. The decline resulted from a combination of lower selling prices, increases in several petrochemical based raw materials and unfavorable product mix. Operating income of $7,406,000 was $59,000 higher than the comparable period last year after excluding the one time insurance settlement of $2,065,000 recorded in that period.
For the first quarter of 2000, sales in the Textile Chemical Specialties segment of $30,937,000 were $487,000 lower than the comparable period in 1999. Physical volume increased in Europe by 8.5%, but dollar sales were negatively impacted by an 11.8% reduction in the exchange rate of the Dutch Guilder vs. the dollar. North America textile chemical sales were the same as last year, with a continued decline in sales for garment processing offsetting higher sales for flat goods. Sales in Latin America increased approximately 42%, reflecting the increased focus being placed on this market. Gross profit of the segment decreased by 2.1 percentage points, mainly as a result of the affect of translation, reductions in selling prices for many textile and garment products and the impact of continuing product evolution. The operating income of $2,920,000 after excluding the affect of the insurance recovery, was virtually the same as the comparable period last year, as the gross margin and currency effects were offset by lower selling, amortization and administrative expenses.
Sales for the first quarter in the Polymer Intermediates segment were $24,601,000 versus $22,412,000 in the first quarter of 1999, an increase of 9.8%. The increase was mainly due to increased volume in both the solid and liquid resin market segments. Gross margins remained stable as reduced raw material costs and plant operating efficiencies offset sales price decreases, when compared to the same period in 1999. Operating income for the quarter was $2,731,000, 14.7% higher than the same period last year, reflecting the increased gross profit from the higher sales and stable margins. Fixed expenses were relatively flat as increased selling expenses were offset by reduced administrative costs.
First quarter sales in the Environmental Products and Services segment were $17,737,000 versus $14,849,000 in the first quarter of 1999, a 19.4% increase. Specialty chemicals sales increased due to strong demand for products being toll processed and the introduction of new aziridine based products in mid year of 1999. Ion exchange products sales increased by 6.9% as demand for industrial ion exchange products increased in the US and for export. Biochemical sales were lower than the comparable period last year as water treatment and sanitary product sales increased, but turf and consumer product sales decreased. Gross profit for the segment declined by 6.1 percentage points from the same quarter last year, which is a result of the lower sales of higher margin Biochemicals, increases in raw material costs in excess of recently introduced price increases, and lower margins on the aziridine products. Operating income in this segment was $1,755,000 for the quarter, a decrease of 51.6% from the first quarter of 1999. The decrease is primarily attributable to the one time insurance settlement of $1,560,000 recorded in the first quarter of 1999 and the reduced Biochemical sales volumes. Partially offsetting both of these reductions was a doubling of operating profits from specialty products.
Operating expenses as a percent of sales was 21.4% in the first quarter of 2000 versus 20.6% in the first quarter of 1999. In 1999, the insurance settlement was recorded as a reduction of operating expenses. Exclusive of this one-time item, operating expenses in 2000 declined by 2.2 percentage points. The decline was attributable to sales growth and continued cost control efforts particularly in the North American Textile segment.
Other expense of $ 4,598,000 for the quarter was $ 965,000 higher than the same period in 1999. The Company's debt facility was amended in the quarter resulting in a $1,700,000 one-time expense. The restructuring provides for extended maturities and greater financial flexibility. Partially offsetting this expense were a contract penalty recorded in 1999's first quarter and foreign currency.
Cash and cash equivalents of $ 12.8 million as of March 31,2000 were $ 1.9 million below the balance as of December 31,1999.
Operating activities generated cash flow of $5.9 million for the first quarter of 2000 versus cash flow of $7.5 million for the same period in 1999. Net working capital increased by $.7 million mostly as a result of the increased sales and resulting receivables. The 1999 results included a $2.0 million insurance recovery and a $1.1 million refund of U.S. Federal Income taxes.
Net cash used by investing activities totaled $1.4 million for the first quarter of 2000 compared to the $2.5 million in the same period in 1999. Capital expenditures were $1.4 million in 2000 and $1.0 million in 1999. In 1999, the Company also acquired certain assets of Green Releaf for approximately $1.5 million. The company expects to spend approximately $10 million on capital expenditures for the year 2000.
Financing activities used $5.9 million in cash in the first quarter of 2000 versus $4.1 million in the first quarter of 1999. The company utilized $1.7 million of cash for the amendment of its debt facility in the first quarter of 2000. In addition, $4.2 million of cash was utilized for the scheduled repayment of long-term debt. In 1999, $1.8 million of the cash utilization was for the scheduled repayment of long-term debt and $1.8 million was for the repayment of short-term debt of the European subsidiary.
In March 2000, the company amended the credit facility to reduce current maturates in the next six years. The interest rate, restrictive covenants and certain other provisions were also amended.
Management believes that its capital expenditures for existing operations can be funded from operating cash flow. Management also believes that cash flow from operations and available credit will be sufficient to finance its operations and debt service requirements for the foreseeable future.
There have been no material developments in connection with any pending legal proceedings as reported in the Registrant's Form 10-K Annual Report which was filed with the Securities and Exchange Commission on March 30, 2000 and as amended and refiled on May 1, 2000.
Exhibit No. Description Method of Filing
----------- ----------- ----------------
10.3 Credit Agreement, dated as of July 31, 1998 *
as amended and Restated as of March 29,
2000, by and among Sybron Chemicals Inc.,
DLJ Capital Funding, Inc. and Fleet Bank, N.A.
10.4 Master Assignment and Assumption Agreement, *
dated as of March 29, 2000, by and among
Sybron Chemicals Inc., DLJ Capital Funding,
Inc. and Fleet Bank, N.A.
10.5 Security Agreement Assignment and Amendment *
dated as of March 29, 2000, by and among
Sybron Chemicals Inc., Mellon Bank, N.A.,
Fleet Bank, N.A., and the Subsidiary Guarantors.
10.6 Acknowledgement and Consent to the Subsidiary *
Guarantee Agreement dated as of March 29,
2000, by and among Sybron Chemicals Inc.,
Ruco, NY and Ruco, GA
27 Financial Data Schedule, filed electronically *
herewith.
* Filed electronically herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SYBRON CHEMICALS INC.
/s/ Steven F. Ladin
-------------------
Steven F. Ladin
Vice President, Finance and
Chief Financial Officer
Date: May 10, 2000
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