SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from TO
Commission file number 0-8135
SIGMA-ALDRICH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
43-1050617
(I.R.S. Employer Identification No.)
3050 Spruce Street, St. Louis, Missouri 63103
(Address of principal executive office) (Zip Code)
(Registrant's telephone number, including area code) 314-771-5765
- -------------------------------------------------------------------------------
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 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
There were 100,589,265 shares of the Company's $1.00 par value common stock
outstanding on July 31, 1998.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Sigma-Aldrich Corporation
Consolidated Statements of Income (unaudited)
(in thousands except per share amounts)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- ----------------------
1998 1997 1998 1997
----------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales $ 294,558 $ 278,575 $ 600,757 $ 557,635
Cost of products sold 136,320 126,865 279,411 255,462
--------- --------- --------- ---------
Gross profit 158,238 151,710 321,346 302,173
Selling, general and administrative expenses 96,048 89,722 192,335 177,239
--------- --------- --------- ---------
Income before income taxes 62,190 61,988 129,011 124,934
Provision for income taxes 21,090 21,263 43,751 42,853
--------- --------- --------- ---------
Net income $ 41,100 $ 40,725 $ 85,260 $ 82,081
========= ========= ========= =========
Net income per share - Basic $0.41 $0.41 $0.85 $0.82
========= ========= ========= =========
Net income per share - Diluted $0.41 $0.40 $0.84 $0.80
========= ========= ========= =========
Weighted average number of shares outstanding - Basic 100,565 100,142 100,514 100,116
========= ========= ========= =========
Weighted average number of shares outstanding - Diluted 101,443 101,946 101,559 101,919
========= ========= ========= =========
Dividends per share $ 0.0700 $ 0.0625 $ 0.1400 $ 0.1250
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Sigma-Aldrich Corporation
Consolidated Balance Sheets
(in thousands)
<CAPTION> June 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash and temporary cash investments $ 18,560 $ 46,228
Accounts receivable, net of allowance
for doubtful accounts 229,597 186,847
Inventories 439,969 420,809
Other current assets 45,528 52,790
----------- -----------
Total current assets 733,654 706,674
----------- -----------
Property, plant and equipment:
Land 31,569 31,594
Buildings and improvements 246,070 252,388
Machinery and equipment 379,369 381,771
Construction in progress 157,577 90,831
Less-Accumulated depreciation (340,723) (317,706)
----------- -----------
Net property, plant and equipment 473,862 438,878
----------- -----------
Other assets 104,056 98,270
----------- -----------
$ 1,311,572 $ 1,243,822
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 7,030 $ 6,751
Current maturities of long-term debt -- 649
Accounts payable 50,988 53,257
Accrued payroll and other expenses 47,370 42,269
Accrued income taxes 11,471 16,553
----------- -----------
Total current liabilities 116,859 119,479
----------- -----------
Long-term debt 1,020 552
----------- -----------
Deferred postretirement benefits 37,242 35,475
----------- -----------
Deferred compensation 9,155 12,766
----------- -----------
Other liabilities 16,386 15,216
----------- -----------
Stockholders' equity:
Common stock, $1.00 par value, 200,000 shares
authorized, 100,588 and 100,377 shares
outstanding, respectively 100,588 100,377
Capital in excess of par value 28,913 24,168
Retained earnings 1,030,902 959,717
Cumulative translation adjustments (29,493) (23,928)
----------- -----------
Total stockholders' equity 1,130,910 1,060,334
----------- -----------
$ 1,311,572 $ 1,243,822
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Sigma-Aldrich Corporation
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
<CAPTION> Six Months
Ended June 30,
-------------------------
1998 1997
-------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 85,260 $ 82,081
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 28,474 25,168
Postretirement benefits expense 2,300 1,870
Deferred income taxes 661 704
Deferred compensation expense (1,073) 1,630
Deferred compensation payments (1,014) (538)
Increase in accounts receivable (44,960) (40,213)
Increase in inventories (20,944) (21,848)
(Increase) decrease in other current assets 8,109 (1,348)
Decrease in accounts payable (1,922) (8,956)
Increase in accured payroll and other expenses 5,382 14,572
Decrease in accrued income taxes (4,902) (5,103)
--------- ---------
Net cash provided by operating activities 55,371 48,019
--------- ---------
Cash flows from investing activities:
Property, plant and equipment additions (62,955) (47,229)
Acquisition of businesses -- (46,589)
Other, net (9,470) --
--------- ---------
Net cash used in investing activities (72,425) (93,818)
--------- ---------
Cash flows from financing activities:
Issuance (repayment) of notes payable 163 (9,061)
Issuance of long-term debt 66 469
Payment of dividends (14,074) (12,516)
Exercise of employee stock options 3,437 2,987
--------- ---------
Net cash used in financing activities (10,408) (18,121)
--------- ---------
Effect of exchange rate changes on cash (206) (2,611)
--------- ---------
Net change in cash and cash equivalents (27,668) (66,531)
Cash and cash equivalents at January 1 46,228 103,685
--------- ---------
Cash and cash equivalents at June 30 $ 18,560 $ 37,154
========= =========
Supplemental disclosures of cash flow information:
Income taxes paid $ 47,985 $ 47,742
Interest paid, net of capitalized interest $ 116 $ 434
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Sigma-Aldrich Corporation
Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X and, accordingly, do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. For further information, refer to the notes to consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997. In the opinion of Management, all
adjustments, consisting of normal recurring accruals, considered necessary
for a fair presentation have been included. Operating results for the six
months ended June 30, 1998, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
Earnings per Share
Earnings per share is based on the weighted average number of shares
outstanding during each period for both Basic and Diluted.
Reconciliation of Earnings and Shares
Per Share
For the Quarter Ended June 30, 1998 Earnings Shares Amount
- ------------------------------------ -------- ------- ---------
Basic Earnings per Share
Earnings available to
common shareholders $41,100 100,565 $0.41
Options Issued -- 878
-------- -------
Diluted Earnings per Share
Earnings available to
common shareholders $41,100 101,443 $0.41
------- -------
For the Quarter Ended June 30, 1997
- -----------------------------------
Basic Earnings per Share
Earnings available to
common shareholders $40,725 100,142 $0.41
Options Issued -- 1,804
------- -------
Diluted Earnings per Share
Earnings available to
common shareholders $40,725 101,946 $0.40
------- -------
For the Six Months Ended June 30, 1998
- --------------------------------------
Basic Earnings per Share
Earnings available to
common shareholders $85,260 100,514 $0.85
Options Issued -- 1,045
------- -------
Diluted Earnings per Share
Earnings available to
common shareholders $85,260 101,559 $0.84
------- -------
For the Six Months Ended June 30, 1997
- --------------------------------------
Basic Earnings per Share
Earnings available to
common shareholders $82,081 100,116 $0.82
Options Issued -- 1,083
------- -------
Diluted Earnings per Share
Earnings available to
common shareholders $82,081 101,919 $0.80
------- ------- -----
Effect on Previously Reported EPS
Per share amounts 1997
----------------- ----
Primary EPS as reported $0.41
Effect of SFAS No. 128 --
-----
Basic EPS as restated $0.41
=====
Fully diluted EPS as reported $0.41
Effect of SFAS No. 128 (0.01)
-----
Diluted EPS as restated $0.40
=====
Inventories
The principal categories of consolidated inventories were:
June 30, December 31,
1998 1997
------------ ------------
Finished goods $ 354,870 $ 336,295
Work in process 25,936 24,269
Raw materials 59,163 60,245
------------ ------------
$ 439,969 $ 420,809
============ ============
Financial Instruments
Derivatives
The Company uses forward exchange contracts to hedge certain receivables and
payables denominated in foreign currencies. Substantially all of the contracts
are single currency. Gains and losses on hedges of existing assets and
liabilities based on the difference in the contract rate and the spot rate at
the end of each month for all contracts still in force are typically offset
by transaction gains and losses, with net gains and losses included in selling,
general, and administrative expenses. While contract terminations are
infrequent, gains and losses on terminations are recognized in the month of
execution in the same manner.
In June 1998, the Financial Accounting Standards Board (FASB) adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows
a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The Company has not yet quantified the effects of adopting
SFAS No. 133 on its consolidated financial statments nor has it determined the
timing or method of its adoption of SFAS No. 133. However, SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
Comprehensive Income
On January 1, 1998, the Company adopted Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", which is the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources; it includes all changes in equity during a period
except those resulting from investments by owners and distributions to owners.
Comprehensive income is the total of all components of comprehensive income and
other comprehensive income, including net income. Other comprehensive income
refers to revenues, expenses, gains and losses that under GAAP are excluded
from net income. For the Company, the only element of other comprehensive
income is cumulative translation adjustments, arising from the translation of
certain balance sheet accounts from local currency to functional currency.
For quarters ended June 30, 1998 and 1997, comprehensive income was $35.5
million and $21.4 million, respectively and for the first six months of 1998
and 1997, comprehensive income was $72.6 million and $46.9 million,
respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto. This Quarterly Report on Form 10-Q
may be deemed to include forward looking statments within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that involve risk and uncertainty, including financial,
business environment and projections, as well as any statements prededed by,
followed by, or that include the words "believes," "expects," "anticipates" or
similar expressions, and other statements contained herein regarding matters
that are not historical facts. Although the company believes its
expectations are based on reasonable assumptions, it can give no assurance
that its goals will be achieved. The important factors that could cause
actual results to differ materially from those in the forward looking
statements herein include, without limitation, reduced growth in research
funding, uncertainties surrounding possible government health care reform,
government regulation applicable to the Company's business, the highly
competitive environment in which the Company competes and the impact of
fluctuations in foreign currency exchange rates. All subsequent written and
oral forward-looking statements attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by such cautionary
statements. The Company does not undertake any obligation to release publicly
any revisions to such forward-looking statements to reflect events or
uncertainties after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations
For the three months ended June 30, 1998, sales increased 5.7% to $294.6 million
from $278.6 million in 1997. Sales for the six month period increased 7.7% to
$600.8 million from $557.6 million in 1997. Chemical sales for the quarter
increased 5.5% to $234.5 million in the second quarter and 8.6% to $484.4
million for the first six months. Changes in currency exchange rates reduced
the quarterly and year-to-date chemical gains by 2.9% and 3.6%, respectively.
Both Research and Fine Chemicals sales continued to grow while Diagnostic
sales declined slightly due to competitive pressures. The installation of
new customer service and warehouse systems in St. Louis and Milwaukee USA
and Lyon France disrupted service and slowed the growth rate of worldwide
sales in the second quarter. Future systems conversions are expected to
proceed more smoothly and be complete before the year 2000. Metal sales for
the quarter grew 6.8% to $60.1 million in the second quarter and 4.4% to
$116.4 million for the first six months, reflecting a diminished effect of
weather on the construction industry and a growth in sales to
telecommunication customers in the second quarter.
Cost of sales for the first six months 1998 was $279.4 million, representing
46.5% of sales, compared to $255.5 million, or 45.8% of sales for the first
six months of 1997. For the quarter, cost of sales was 46.3% of sales
compared to 45.5% in 1997. Sales mix changes in the chemical business
together with the cost of new plants were only partially offset by improved
gross margins and continuing process improvements in the metal business.
Selling, general and administrative expenses for the first six months of 1998
were $192.3 million, or 32.0% of sales, compared to $177.2 million, or 31.8%
of sales in 1997. For the quarter, selling, general and administrative
expenses were $96.0 million, or 32.6% of sales compared to $89.7 million,
or 32.3% in 1997. The increase is attributable to the Company's continued
managing of staffing levels and control of other expenses, offset by
investments in new systems and new offices in Finland, Greece, Ireland,
Malaysia, Russia and Singapore.
Net income for the quarter increased .9% to $41.1 million from $40.7 million in
1997 while net income for the first half of 1998 grew by 3.9% to $85.3 million
from $82.1 million in 1997. Net income has grown at a slower rate than sales
due to incremental expenses of additional facilities, accelerated product
development in the Molecular Biology area and new information systems
expenditures exceeding short-term productivity gains realized. The strong
U.S. dollar reduced profitability for the quarter and six month period by
$.02 and $.04, respectively.
Liquidity and Capital Resources
Cash balances declined $27.7 million in the six months ended June 30, 1998 as
presented in the Consolidated Statements of Cash Flows (unaudited). The
primary source of cash was net cash provided by operating activities of $55.4
million, an increase of $7.4 million from 1997. The increase primarily resulted
from higher net income of $3.2 million and higher depreciation and amortization
of $3.3 million. The major uses of cash were capital expenditures of $72.5
million and payment of dividends totaling $14.1 million.
During the first six months, a total of $72.5 million was invested, with
significant expenditures made in support of new customer service and warehouse
systems in St. Louis and Milwaukee USA and Lyon France and distribution and
production expansions in Germany and Switzerland. To further strengthen
the Company's commitment to Molecular Biology, a significant investment was
also made to purchase rights to FLAG(TM), a gene expression technology. During
1998, the Company has also continued to modify its computer system programming
to process transactions in the year 2000. Anticipated spending for this
modification will be expensed as incurred and is not expected to have a
significant impact on the Company's ongoing results of operations.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 5, 1998. The matters
for which a vote of security holders was held included election of the Board of
Directors and a proposal on the Directors' Non-Qualified Share Option Plan of
1998.
Following are the results of the votes for the election of the Board of
Directors:
Nominee Votes For Votes Withheld
- ------- ---------- --------------
Carl T. Cori 76,146,201 5,874,437
Nina V. Fedoroff 81,130,360 890,278
David R. Harvey 81,455,931 564,707
David M. Kipnis 75,771,326 6,249,312
Andrew E. Newman 75,752,871 6,267,767
William C. O'Neil, Jr. 80,988,306 1,032,332
Jerome W. Sandweiss 80,791,332 1,229,306
D. Dean Spatz 81,150,171 870,467
Thomas N. Urban 75,826,230 6,194,408
Following are results of the votes for the proposal on the Directors' Non-
Qualified Share Option Plan of 1998:
Votes Votes
For Against Abstain
---------- ---------- -------
71,188,834 10,404,565 427,239
Item 5. Other Information
Written proposals of shareholders to be included in the Proxy Statement and
Proxy for the 1999 Annual Meeting of Shareholders must be received at the
Company no later than November 28, 1998. Upon receipt of any such proposal,
the Company will determine whether or not to include such proposal in the
Proxy Statement and Proxy in accordance with regulations governing the
solicitation of proxies.
Under the Company's by-laws, timely notice must be received by the Company in
advance of a shareholders' meeting to nominate a candidate for director or
to bring other business before the meeting. Such notice must be received
not less than ten days before the anniversary of the preceding year annual
meeting, which would be April 21, 1999. If the date of the annual meeting is
changed by more than thirty days from such anniversary date, notice must be
received no later than the tenth day preceding the date of the meeting as
announced in the notice of the meeting or as otherwise publicly disclosed.
Any shareholder filing a notice of nomination must include certain information,
including certain information about the nominee; and any notice regarding a
proposal of other business must include certain information, including a
description of the proposed business, the reasons therefor, and any interest
the shareholder has in such business, as well as for either notice, the name
and address of the shareholder and the number of shares of common stock held
by the shareholder. These requirements are separate from, and in addition to,
the requirements of the Securities and Exchange Commission (the "SEC") that a
shareholder must meet to have a proposal included in the Company's Proxy
Statement. These time limits also apply in determining whether notice is
timely for the purposes of rules adopted by the SEC relating to exercise of
discretional voting authority.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(3) Certificate of Incorporation and By-Laws:
(a) Certificate of Incorporation and Amendments - Incorporated by
reference to Exhibit 3(a) of Form 10-K filed for the year ended
December 31, 1991, Commission File Number 0-8135.
(b) By-Laws as amended May 1997 - Incorporated by reference to
Exhibit 4(b) of Form 10-K filed for the year ended
December 31, 1997, Commission File Number 0-8135.
(27) Financial Data Schedule
(b) No reports were filed on Form 8-K during the period for which this report
is filed.
SIGNATURES
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.
SIGMA-ALDRICH CORPORATION
(Registrant)
By: /s/ Karen J. Miller August 13, 1998
------------------------- ---------------
Karen J. Miller, Controller
(on behalf of the Company as Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 18560
<SECURITIES> 0
<RECEIVABLES> 229597
<ALLOWANCES> 0
<INVENTORY> 439969
<CURRENT-ASSETS> 733654
<PP&E> 814585
<DEPRECIATION> 340723
<TOTAL-ASSETS> 1311572
<CURRENT-LIABILITIES> 116859
<BONDS> 0
<COMMON> 100588
0
0
<OTHER-SE> 1030322
<TOTAL-LIABILITY-AND-EQUITY> 1130910
<SALES> 600757
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<CGS> 279411
<TOTAL-COSTS> 279411
<OTHER-EXPENSES> 192335
<LOSS-PROVISION> 0
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<EPS-PRIMARY> .85
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</TABLE>
