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 September 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 100,619,004 shares of the Company's $1.00 par value common stock
outstanding on October 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 Nine Months
Ended September 30, Ended September 30,
----------------------- ----------------------
1998 1997 1998 1997
----------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales $ 300,440 $ 286,046 $ 901,197 $ 843,681
Cost of products sold 142,848 134,662 422,259 390,124
--------- --------- --------- ---------
Gross profit 157,592 151,384 478,938 453,557
Selling, general and administrative expenses 94,938 87,745 287,273 264,984
--------- --------- --------- ---------
Income before income taxes 62,654 63,639 191,665 188,573
Provision for income taxes 21,248 21,828 64,999 64,681
--------- --------- --------- ---------
Net income $ 41,406 $ 41,811 $ 126,666 $ 123,892
========= ========= ========= =========
Net income per share - Basic $0.41 $0.42 $1.26 $1.24
========= ========= ========= =========
Net income per share - Diluted $0.41 $0.41 $1.25 $1.21
========= ========= ========= =========
Weighted average number of shares outstanding - Basic 100,592 100,262 100,540 100,165
========= ========= ========= =========
Weighted average number of shares outstanding - Diluted 101,013 101,904 101,262 101,807
========= ========= ========= =========
Dividends per share $ 0.0700 $ 0.0625 $ 0.2100 $ 0.1875
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Sigma-Aldrich Corporation
Consolidated Balance Sheets
(in thousands)
<CAPTION> September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash and temporary cash investments $ 25,077 $ 46,228
Accounts receivable, net of allowance
for doubtful accounts 243,999 186,847
Inventories 456,604 420,809
Other current assets 39,062 52,790
----------- -----------
Total current assets 764,742 706,674
----------- -----------
Property, plant and equipment:
Land 32,771 31,594
Buildings and improvements 250,628 252,388
Machinery and equipment 399,008 381,771
Construction in progress 174,458 90,831
Less-Accumulated depreciation (360,520) (317,706)
----------- -----------
Net property, plant and equipment 496,345 438,878
----------- -----------
Other assets 109,728 98,270
----------- -----------
$ 1,370,815 $ 1,243,822
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 4,673 $ 6,751
Current maturities of long-term debt -- 649
Accounts payable 48,060 53,257
Accrued payroll and other expenses 48,564 42,269
Accrued income taxes 18,692 16,553
----------- -----------
Total current liabilities 119,989 119,479
----------- -----------
Long-term debt 1,020 552
----------- -----------
Deferred postretirement benefits 38,173 35,475
----------- -----------
Deferred compensation 7,556 12,766
----------- -----------
Other liabilities 17,635 15,216
----------- -----------
Stockholders' equity:
Common stock, $1.00 par value, 200,000 shares
authorized, 100,614 and 100,377 shares
outstanding, respectively 100,614 100,377
Capital in excess of par value 29,020 24,168
Retained earnings 1,065,266 959,717
Cumulative translation adjustments ( 8,458) (23,928)
----------- -----------
Total stockholders' equity 1,186,442 1,060,334
----------- -----------
$ 1,370,815 $ 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> Nine Months
Ended September 30,
-------------------------
1998 1997
-------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 126,666 $ 123,892
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 45,075 37,028
Postretirement benefits expense 2,300 2,804
Deferred income taxes 535 683
Deferred compensation expense (2,656) 2,138
Deferred compensation payments (1,028) (576)
Increase in accounts receivable (54,202) (48,041)
Increase in inventories (34,367) (41,082)
(Increase) decrease in other current assets 15,350 (680)
Decrease in accounts payable (5,874) (2,702)
Increase in accured payroll and other expenses 6,106 17,288
(Decrease) increase in accrued income taxes 1,768 (1,750)
--------- ---------
Net cash provided by operating activities 99,673 89,002
--------- ---------
Cash flows from investing activities:
Property, plant and equipment additions (92,243) (71,439)
Acquisition of businesses -- (51,083)
Other, net (10,016) --
--------- ---------
Net cash used in investing activities (102,259) (122,522)
--------- ---------
Cash flows from financing activities:
Issuance (repayment) of notes payable (2,686) 463
Issuance (repayment) of long-term debt 447 (9,156)
Payment of dividends (21,116) (18,783)
Exercise of employee stock options 3,571 5,184
--------- ---------
Net cash used in financing activities (19,784) (22,292)
--------- ---------
Effect of exchange rate changes on cash 1,219 (3,101)
--------- ---------
Net change in cash and cash equivalents (21,151) (58,913)
Cash and cash equivalents at January 1 46,228 103,685
--------- ---------
Cash and cash equivalents at September 30 $ 25,077 $ 44,772
========= =========
Supplemental disclosures of cash flow information:
Income taxes paid $ 62,579 $ 66,333
Interest paid, net of capitalized interest $ 478 $ 443
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 nine
months ended September 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 September 30, 1998 Earnings Shares Amount
- ---------------------------------------- -------- ------- ---------
Basic Earnings per Share
Earnings available to
common shareholders $ 41,406 100,592 $0.41
Options Issued -- 421
-------- -------
Diluted Earnings per Share
Earnings available to
common shareholders $ 41,406 101,013 $0.41
------- -------
For the Quarter Ended September 30, 1997
- ----------------------------------------
Basic Earnings per Share
Earnings available to
common shareholders $ 41,811 100,262 $0.42
Options Issued -- 1,642
------- -------
Diluted Earnings per Share
Earnings available to
common shareholders $ 41,811 101,904 $0.40
------- -------
For the Nine Months Ended September 30, 1998
- --------------------------------------------
Basic Earnings per Share
Earnings available to
common shareholders $126,666 100,540 $1.26
Options Issued -- 722
------- -------
Diluted Earnings per Share
Earnings available to
common shareholders $126,666 101,262 $1.25
------- -------
For the Nine Months Ended September 30, 1997
- --------------------------------------------
Basic Earnings per Share
Earnings available to
common shareholders $123,892 100,165 $1.24
Options Issued -- 1,642
------- -------
Diluted Earnings per Share
Earnings available to
common shareholders $123,892 101,807 $1.21
------- ------- -----
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:
September 30, December 31,
1998 1997
------------ ------------
Finished goods $ 368,110 $ 336,295
Work in process 25,658 24,269
Raw materials 62,836 60,245
------------ ------------
$ 456,604 $ 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 are recognized in the month of termination 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 September 30, 1998 and 1997, comprehensive income was $56.9
million and $21.8 million, respectively and for the first nine months of 1998
and 1997, comprehensive income was $129.5 million and $68.6 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 status and
effectiveness of the Company's Year 2000 efforts, the highly competitive
environment in which the Company operates 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 September 30, 1998, sales increased 5.0% to $300.4
million from $286.0 million in 1997. Sales for the nine month period
increased 6.8% to $901.2 million from $843.7 million in 1997. Chemical sales
increased 6.5% to $241.8 million in the third quarter and 7.9% to $726.2
million for the first nine months. Changes in currency exchange rates reduced
the quarterly and year-to-date chemical gains by 1.2% and 2.6%, respectively.
Both Research and Fine Chemicals sales continued to grow while Diagnostic
sales declined slightly due to competitive pressures. Chemical sales, in
particular Research, continue to be affected by the installation of new
customer service and warehouse systems in St. Louis and Milwaukee USA and
Lyon France, but service levels did improve as the third quarter progressed.
System conversions at the major sites in 1999 are expected to proceed more
smoothly. Metal sales declined 0.7% to $58.6 million for the third quarter and
increased 2.6% to $175.0 million for the first nine months. Weakness in the
industrial construction market was only partially offset by demand for
telecommunications products in the third quarter.
Cost of sales for the first nine months 1998 was $422.3 million, representing
46.9% of sales, compared to $390.1 million, or 46.2% of sales for the first
nine months of 1997. For the quarter, cost of sales was 47.5% of sales
compared to 47.0% in 1997. In the nine month period, 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. Third qaurter margins were also effected by
the lower sales level in the metal business.
Selling, general and administrative expenses for the first nine months of 1998
were $287.3 million, or 31.9% of sales, compared to $265.0 million, or 31.4%
of sales in 1997. For the quarter, selling, general and administrative
expenses were $94.9 million, or 31.6% of sales compared to $87.7 million,
or 30.7% 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 third quarter was $41.4 million in 1998, compare to $41.8
million in 1997, while net income for the first nine months of 1998 grew by
2.3% to $126.7 million from $123.9 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 the related productivity gains.
The strong U.S. dollar reduced net income for the quarter and nine month
periods by $.01 and $.05, respectively.
Liquidity and Capital Resources
Cash balances declined $21.2 million in the nine months ended Septermber 30,
1998. The primary source of cash was net cash provided by operating
activities of $99.7 million, an increase of $10.7 million from 1997. The
increase primarily resulted from higher net income of $2.8 million, higher
depreciation and amortization of $8.0 million and increased current assets
of $16.0 million. The major uses of cash were capital expenditures of $102.3
million and payment of dividends totaling $21.1 million.
During the first nine months, a total of $102.3 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.
Year 2000 Issue
In 1997, the Company began a comprehensive worldwide program to evaluate and
mitigate the risks associated with the Year 2000 problem. The program consists
of evaluating traditional computer systems such as order taking, inventory
control and finance and systems supporting the business such a plant machinery
controls and the phone systems.
A number of our computer systems, primarily in Europe, are Year 2000 capable.
Year 2000 system changes to other systems began in 1997. In an effort to
upgrade the Company's major computer systems, the implementation of SAP, a
global ERP software system, began in 1997 and is expected to be completed in
1999. The SAP system is Year 2000 capable and has eliminated the need to
update approximately 50% of the Company's existing computer systems. The
Company expects that all systems requiring updates will either be converted to
SAP or made Year 2000 capable no later than mid-1999. Approximately 60% of the
Company's systems have been converted to SAP or are currently Year 2000 capable.
The Company is not presently aware of any Year 2000 issues encountered by its
business partners that would materially impact the Company's operations. There
can be no assurance that the Company will not experience operational
difficulties as a result of Year 2000 issues either arising out of internal
systems or caused by its business partners which may have a material adverse
effect on its business operations.
The implementation of SAP software systems has reduced the need to update
many of our systems to be Year 2000 capable. Excluding costs related to SAP,
approximately $0.5 million has been incurred in the Company's effort to
achieve Year 2000 capable systems through September 30, 1998. Total costs to
achieve Year 2000 capable systems is estimated at $3.0 million.
In planning for the most reasonably likely worst case scenario, all major
elements in the Company's comprehensive program have been addressed. The
Company's systems are expected to be Year 2000 capable. Accordingly, the
Company has no immediate contingency plan but will develop an appropriate plan
during 1999. No known event, trend or uncertainty is likely to have a
material adverse impact on the Company's results of operations, liquidity or
financial condition.
The Company is preparing for the risk that certain business partners may
experience Year 2000 issues. While the Company values the established relation-
ships with its business partners, alternate sources for some products and
services are available. The Company also recognizes the risk of other key
partners such as utilities, communications companies and delivery services in
evaluating Year 2000 issues and is developing plans to mitigate the potential
adverse impacts of these risks. If certain key partners experience Year 2000
failures, the Company could experience material adverse effects on the results
of its operations and financial condition.
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 November 12, 1998
------------------------- -----------------
Karen J. Miller, Controller
(on behalf of the Company and as Principal Accounting Officer)
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 25077
<SECURITIES> 0
<RECEIVABLES> 243999
<ALLOWANCES> 0
<INVENTORY> 456604
<CURRENT-ASSETS> 764742
<PP&E> 856865
<DEPRECIATION> 360520
<TOTAL-ASSETS> 1370815
<CURRENT-LIABILITIES> 119989
<BONDS> 0
0
0
<COMMON> 100614
<OTHER-SE> 1085828
<TOTAL-LIABILITY-AND-EQUITY> 1370815
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<CGS> 422259
<TOTAL-COSTS> 422259
<OTHER-EXPENSES> 287273
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</TABLE>
