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 March 31, 1999
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 100,782,504 shares of the Company's $1.00 par value common stock
outstanding on April 30, 1999.
<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
Ended March 31,
-----------------------
1999 1998
-----------------------
<S> <C> <C>
Net sales $ 332,961 $ 306,199
Cost of products sold 158,019 143,091
--------- ---------
Gross profit 174,942 163,108
Selling, general and administrative expenses 108,272 96,287
--------- ---------
Income before income taxes 66,670 66,821
Provision for income taxes 22,068 22,661
--------- ---------
Net income $ 44,602 $ 44,160
========= =========
Net income per share - Basic $0.44 $0.44
========= =========
Net income per share - Diluted $0.44 $0.43
========= =========
Weighted average number of shares outstanding - Basic 100,670 100,461
========= =========
Weighted average number of shares outstanding - Diluted 100,994 102,695
========= =========
Dividends per share $ 0.0725 $ 0.0700
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Sigma-Aldrich Corporation
Consolidated Balance Sheets
(in thousands)
<CAPTION> March 31, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash and temporary cash investments $ 51,386 $ 24,345
Accounts receivable, net of allowance
for doubtful accounts 255,622 229,486
Inventories 459,553 464,035
Other current assets 56,176 54,815
----------- -----------
Total current assets 822,737 772,681
----------- -----------
Property, plant and equipment:
Land 33,782 32,623
Buildings and improvements 313,296 318,073
Machinery and equipment 456,201 456,506
Construction in progress 100,247 84,463
Less-Accumulated depreciation (383,262) (372,926)
----------- -----------
Net property, plant and equipment 520,264 518,739
----------- -----------
Goodwill, net 112,224 113,737
Other assets 19,944 27,678
----------- -----------
Total assets $ 1,475,169 $ 1,423,835
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 39,096 $ 30,019
Current maturities of long-term debt 53 624
Accounts payable 56,496 63,520
Accrued payroll and other expenses 56,457 47,337
Accrued income taxes 23,337 872
----------- -----------
Total current liabilities 175,439 142,372
----------- -----------
Long-term debt 785 415
----------- -----------
Deferred postretirement benefits 41,139 40,663
----------- -----------
Deferred compensation 7,643 7,894
----------- -----------
Other liabilities 11,896 25,111
----------- -----------
Stockholders' equity:
Common stock, $1.00 par value, 200,000 shares
authorized, 100,777 and 100,623 shares
outstanding, respectively 100,777 100,623
Capital in excess of par value 32,774 29,238
Retained earnings 1,134,090 1,097,653
Accumulated other comprehensive income (29,374) (11,134)
----------- -----------
Total stockholders' equity 1,238,267 1,216,380
----------- -----------
Total liabilities and
stockholders' equity $ 1,475,169 $ 1,432,835
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Sigma-Aldrich Corporation
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
<CAPTION> Three Months
Ended March 31,
-------------------------
1999 1998
-------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 44,602 $ 44,160
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 17,194 14,313
Postretirement benefits expense 1,250 1,150
Deferred income taxes (820) 164
Deferred compensation expense 1,030 100
Deferred compensation payments (528) (965)
Increase in accounts receivable (31,610) (42,054)
Increase in inventories (4,424) (8,766)
(Increase) decrease in other current assets (2,523) 5,192
Increase (decrease)in accounts payable (5,954) 2,622
Increase in accured payroll and other expenses 6,598 4,673
Increase in accrued income taxes 22,659 10,785
--------- ---------
Net cash provided by operating activities 47,474 31,374
--------- ---------
Cash flows from investing activities:
Property, plant and equipment additions,net (23,766) (27,939)
Other, net (8,568) --
--------- ---------
Net cash used in investing activities (32,334) (27,939)
--------- ---------
Cash flows from financing activities:
Issuance of notes payable 9,070 441
(Repayment) issuance of long-term debt (43) 99
Payment of dividends (7,298) (7,034)
Exercise of employee stock options 2,934 1,712
--------- ---------
Net cash provided(used)in financing activities 4,663 (4,782)
--------- ---------
Effect of exchange rate changes on cash 7,238 (463)
--------- ---------
Net change in cash and cash equivalents 27,041 (1,810)
Cash and cash equivalents at January 1 24,345 46,228
--------- ---------
Cash and cash equivalents at March 31 $ 51,386 $ 44,418
========= =========
Supplemental disclosures of cash flow information:
Income taxes paid $ 177 $ 11,712
Interest paid, net of capitalized interest $ 484 $ 61
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, 1998. 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 three months ended March 31,
1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
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 March 31, 1999 Income Shares Amount
- ------------------------------------ ------ ------ ---------
Basic Earnings per Share
Net income available to
common shareholders $44,602 100,670 $0.44
Options Outstanding -- 324
------- -------
Diluted Earnings per Share
Net income available to
common shareholders $44,602 100,994 $0.44
------- ------- -----
For the Quarter Ended March 31, 1998
- ------------------------------------
Basic Earnings per Share
Net income available to
common shareholders $44,160 100,461 $0.44
Options Outstanding -- 2,234
------- -------
Diluted Earnings per Share
Net income available to
common shareholders $44,160 102,695 $0.43
------- ------- -----
Inventories
The principal categories of consolidated inventories were:
March 31, December 31,
1999 1998
--------- -----------
Finished goods $374,449 $374,578
Work in process 25,381 25,627
Raw materials 59,723 63,830
--------- ----------
$459,553 $464,035
========= ==========
Financial Derivatives
The Company uses forward exchange contracts to hedge certain
receivables and payables denominated in foreign currencies. Most
of the contracts are single currency. Gains and losses on these
hedges, 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 Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133). 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 statements 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 the quarter ended March 31, 1999 and 1998, comprehensive income
was $26.4 million and $37.1 million, respectively.
Company Operations By Segment
The Chemical Products segment distributes biochemicals, organic
chemicals, chromatography products, diagnostic reagents and related
products for use in research and development, in the diagnosis of
disease and in manufacturing. These products are both manufactured
by the Company and purchased for resale. The Metal Products
segment manufactures and distributes components for metal
frameworks used in industry to support pipes, lighting fixtures and
conduit, continuous networks of trays used in routing power and
telecommunications cabling, and electrical and electronic
enclosures. Sales between these two industry segments are not
significant. Cash and temporary cash investments are considered
available for general corporate purposes and, accordingly, are not
allocated to the identifiable assets of either segment.
<TABLE>
The Company's operations by geographic segment are as follows:
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales to unaffiliated customers:
United States $192,157 $180,665
International 140,804 125,534
Net intercompany sales between
geographic areas:
United States 59,230 55,428
International 8,545 8,298
Eliminations (67,775) (63,726)
--------- ---------
Total $332,961 $306,199
========= =========
Income before provision for income
taxes:
United States $52,216 $57,918
International 15,286 9,811
Eliminations (832) (908)
-------- --------
Total $66,670 $66,821
======== ========
Identifiable assets:
United States $995,969 $855,150
International 521,136 479,254
Eliminations (41,936) (41,023)
----------- -----------
Total $1,475,169 $1,293,381
=========== ===========
The Company's operations by industry segment are as follows:
Net sales to unaffiliated customers:
Chemical Products $272,250 $249,910
Metal Products 60,711 56,289
-------- --------
Total $332,961 $306,199
======== ========
Income before provision for income
taxes:
Chemical Products $58,081 $56,147
Metal Products 8,830 9,379
Interest, net (241) 1,295
-------- -------
Total $66,670 $66,821
======== =======
Identifiable assets:
Chemical Products $1,265,824 $1,093,990
Metal Products 157,959 154,973
Cash and temporary cash investments 51,386 44,418
---------- ----------
Total $1,475,169 $1,293,381
========== ==========
</TABLE>
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 statements 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, the Company's Year 2000
initiatives, other systems conversions, as well as any statements
preceded 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 effectiveness of the Company's further
implementation of its global software system, SAP, the status and
effectiveness of the Company's Year 2000 and Euro conversion
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 March 31, 1999, sales increased 8.7% to
$333.0 million from $306.2 million in 1998. Chemical sales
increased 8.9% to $272.3 million for the first three months.
Changes in currency exchange rates contributed 1.1% of the overall
growth in chemical sales. Research chemical sales benefited from
growth in the base business, from the addition of synthetic DNA
products for genome research through Sigma-Genosys (acquired in
December 1998), and from the introduction of products to meet the
expanding needs of our Life Sciences customers. Fine Chemical sales
gains reflected especially strong demand from pharmaceutical
customers and the utilization of manufacturing plant capacity added
in 1998. The launch of innovative products, including an instrument
system for infectious disease and auto-immune testing, helped
Diagnostic division sales. We believe that chemical sales growth
was driven in part by our demonstrated return to the service levels
expected by our customers. Metal sales increased 7.9% to $60.7
million, as strong demand for our telecommunications and enclosure
products more than offset small declines in sales to the industrial
construction market.
Cost of sales for the first three months of 1999 was $158.0
million, compared to $143.1 million for the first three months in
1998, representing 47.4% and 46.7% of sales, respectively. The
decline in the gross profit rate in 1999 is due to a higher
proportion of lower margin business, costs of new production
facilities which became operational during 1998 and competitive
pricing pressures.
Selling, general and administrative expenses for the first three
months of 1999 were $108.3 million, or 32.5% of sales, compared to
$96.3 million, or 31.4% of sales in 1998. The increase in 1999 is
due to increased amortization of growth investments in new systems
and warehouse facilities which became operational on a progressive
basis during 1998, offset by ongoing efforts to effectively manage
staffing levels and control other significant operating expenses.
Net income for the first quarter was $44.6 million in 1999,
compared to $44.2 million in 1998. Net income grew at a slower
rate than sales due to expenses of additional facilities and new
systems exceeding gains from process improvements. Net income was
also affected by higher interest costs from the 1998 acquisition of
Sigma-Genosys and higher than usual capital expenditures.
Liquidity and Capital Resources
Cash balances increased $27.0 million in the three months ended
March 31, 1999. The primary source of cash was net cash provided by
operating activities of $47.5 million, an increase of $16.1 million
from the prior year period. The increase resulted primarily from
an increase in accrued income taxes of $11.9 million, and higher
depreciation and amortization of $2.9 million.
Net cash used in investing activities for the three months ended
March 31, 1999 was $32.3 million, primarily due to capital spending
of $23.8 million to continue to enhance distribution, production
and information systems and the acquisition of a 25% interest in
RdH Laborchemikalien GmbH & Co. KG, a partnership located in
Seelze, Germany that produces laboratory chemicals under the Riedel-
de Haen brand name. Net financing activities provided $4.7
million, which primarily reflected the borrowing for the
acquisition of the 25% interest in RdH Laborchemikalien GmbH & Co.
KG.
Year 2000
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 as 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 enterprise resource
planning software system, began in 1997. 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 by the end of 1999. Approximately
80% 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 the Company's systems to be Year 2000 capable.
Excluding costs related to SAP, approximately $1.5 million has been
incurred in the Company's effort to achieve Year 2000 capable
systems through March 31, 1999. 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. 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. Contingency plans have been
developed to ensure critical systems will function in the event of
any occurrences of unremediated or unresolved Year 2000 issues.
The Company is preparing for the risk that certain business
partners may experience Year 2000 issues. While the Company values
the established relationships 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.
Euro
On January 1, 1999, eleven member countries of the European
Community established fixed conversion rates between their existing
currencies and the European Economic and Monetary Union's new
common currency, the Euro. The transition period for the
introduction of the Euro is January 1, 1999 through January 1,
2002. During this transition period, payment and billing may be
conducted in the Euro or the relevant legacy currency.
The Company is currently developing and implementing plans to
address the conversion to the Euro such as updating certain
information technology systems, evaluating currency risk, impacts
on financial transactions and competitive activity. The costs
associated with addressing the Euro conversion are not expected to
be material. The Company believes the conversion to the Euro will
not have a material impact on the Company's financial condition or
results of its operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) Certificate of Incorporation and By-Laws:
(a) Certificate of Incorporation as Amended - Incorporated by
reference to Exhibit 3(a) of Form 10-Q filed for the period ended
September 30, 1996, Commission File Number 0-8135.
(b) By-Laws as Amended - Incorporated by reference to Form 8-K
filed on February 17, 1999, Commission File Number 0-8135.
(27) Financial Data Schedule
(b) A Form 8-K was filed on February 17, 1999, to announce under
Item 5 the Company amended its By-laws on February 16, 1999 to,
among other things, adopt advance notice provisions relating to
the proposal of business and nominations of directors at meetings
of shareholders.
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 April 14, 1999
---------------------------- --------------
Karen J. Miller, Controller Date
(on behalf of the Company and as Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 51,386
<SECURITIES> 0
<RECEIVABLES> 255,622
<ALLOWANCES> 0
<INVENTORY> 459,553
<CURRENT-ASSETS> 56,176
<PP&E> 903,526
<DEPRECIATION> 383,262
<TOTAL-ASSETS> 1,475,169
<CURRENT-LIABILITIES> 175,439
<BONDS> 0
0
0
<COMMON> 100,777
<OTHER-SE> 1,137,490
<TOTAL-LIABILITY-AND-EQUITY> 1,475,169
<SALES> 332,961
<TOTAL-REVENUES> 332,961
<CGS> 158,019
<TOTAL-COSTS> 158,019
<OTHER-EXPENSES> 108,272
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 66,670
<INCOME-TAX> 22,068
<INCOME-CONTINUING> 44,602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,602
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
