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, 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 100,893,818 shares of the Company's $1.00 par value common stock
outstanding on October 31, 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 Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
1999 1998 1999 1998
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net sales $ 323,863 $ 300,440 $ 975,216 $ 901,197
Cost of products sold 156,948 142,848 466,349 422,259
--------- --------- --------- ---------
Gross profit 166,915 157,592 508,867 478,938
Selling, general and administrative expenses 101,366 94,938 310,831 287,273
--------- --------- --------- ---------
Income before income taxes 65,549 62,654 198,036 191,665
Provision for income taxes 21,303 21,248 64,762 64,999
--------- --------- --------- ---------
Net income $ 44,246 $ 41,406 $ 133,274 $ 126,666
========= ========= ========= =========
Net income per share - Basic $0.44 $0.41 $1.32 $1.26
========= ========= ========= =========
Net income per share - Diluted $0.44 $0.41 $1.32 $1.25
========= ========= ========= =========
Weighted average number of shares outstanding - Basic 100,861 100,592 100,773 100,540
========= ========= ========= =========
Weighted average number of shares outstanding - Diluted 101,522 101,013 101,292 101,262
========= ========= ========= =========
Dividends per share $ 0.0725 $ 0.0700 $0.2175 $0.2100
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Sigma-Aldrich Corporation
Consolidated Balance Sheets
(in thousands)
<CAPTION> September 30, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash and temporary cash investments $ 90,821 $ 24,345
Accounts receivable, net of allowance
for doubtful accounts 252,941 229,486
Inventories 462,613 464,035
Other current assets 51,209 54,815
----------- -----------
Total current assets 857,584 772,681
----------- -----------
Property, plant and equipment:
Land 36,473 32,623
Buildings and improvements 318,441 318,073
Machinery and equipment 470,258 456,506
Construction in progress 120,474 84,463
Less-Accumulated depreciation (413,230) (372,926)
----------- -----------
Net property, plant and equipment 532,416 518,739
----------- -----------
Goodwill, net 105,430 113,737
Other assets 18,400 27,678
----------- -----------
Total assets $ 1,513,830 $ 1,432,835
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 8,696 $ 30,019
Current maturities of long-term debt 30 624
Accounts payable 50,670 63,520
Accrued payroll and other expenses 59,431 47,337
Accrued income taxes 18,946 872
----------- -----------
Total current liabilities 137,773 142,372
----------- -----------
Long-term debt 362 415
----------- -----------
Deferred postretirement benefits 41,321 40,663
----------- -----------
Deferred compensation 7,360 7,894
----------- -----------
Other liabilities 10,566 25,111
----------- -----------
Stockholders' equity:
Common stock, $1.00 par value, 200,000 shares
authorized, 100,889 and 100,623 shares
outstanding, respectively 100,889 100,623
Capital in excess of par value 35,435 29,238
Retained earnings 1,209,012 1,097,653
Accumulated other comprehensive loss (28,888) (11,134)
----------- -----------
Total stockholders' equity 1,316,448 1,216,380
----------- -----------
Total liabilities and
stockholders' equity $ 1,513,830 $ 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> Nine Months
Ended September 30,
-------------------------
1999 1998
-------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 133,274 $ 126,666
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 52,577 45,075
Postretirement benefits expense 3,750 2,300
Deferred income taxes 424 535
Deferred compensation expense 1,059 (2,656)
Deferred compensation payments (1,166) (1,028)
Increase in accounts receivable (27,514) (54,202)
Increase in inventories (6,756) (34,367)
Decrease in other current assets 1,386 15,350
Decrease in accounts payable (11,517) (5,874)
Increase in accured payroll and other expenses 14,185 6,106
Increase in accrued income taxes 18,018 1,768
--------- ---------
Net cash provided by operating activities 177,720 99,673
--------- ---------
Cash flows from investing activities:
Property, plant and equipment additions,net (67,902) (92,243)
Other, net (4,194) (10,016)
--------- ---------
Net cash used in investing activities (72,096) (102,259)
--------- ---------
Cash flows from financing activities:
Repayment of notes payable (22,317) (2,686)
(Repayment) issuance of long-term debt (22) 447
Payment of dividends (21,919) (21,116)
Exercise of employee stock options 5,665 3,571
--------- ---------
Net cash used in financing activities (38,593) (19,784)
--------- ---------
Effect of exchange rate changes on cash (555) 1,219
--------- ---------
Net change in cash and cash equivalents 66,476 (21,151)
Cash and cash equivalents at January 1 24,345 46,228
--------- ---------
Cash and cash equivalents at September 30 $ 90,821 $ 25,077
========= =========
Supplemental disclosures of cash flow information:
Income taxes paid $ 45,781 $ 62,579
Interest paid, net of capitalized interest $ 1,688 $ 478
See accompanying notes to consolidated financial statements.
Sigma-Aldrich Corporation
Notes to Consolidated Financial Statements (Unaudited)
(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 (GAAP) 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 GAAP
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 nine months ended September 30,
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 September 30, 1999 Income Shares Amount
- ---------------------------------------- ------ ------ ---------
Basic Earnings per Share
Net income available to
common shareholders $ 44,246 100,861 $0.44
Options Outstanding -- 661
------- -------
Diluted Earnings per Share
Net income available to
common shareholders $ 44,246 101,522 $0.44
------- ------- -----
For the Quarter Ended September 30, 1998
- ----------------------------------------
Basic Earnings per Share
Net income available to
common shareholders $ 41,406 100,592 $0.41
Options Outstanding -- 421
------- -------
Diluted Earnings per Share
Net income available to
common shareholders $ 41,406 101,013 $0.41
------- ------- -----
For the Nine Months Ended Per-Share
Septmeber 30, 1999 Earnings Shares Amount
- -------------------------------------- -------- -------- ---------
Basic Earnings per Share
Net income available to
common shareholders $133,274 100,773 $1.32
Options Outstanding -- 519
-------- --------
Diluted Earnings per Share
Net income available to
common shareholders $133,274 101,292 $1.32
-------- -------- ---------
For the Nine Months Ended
September 30, 1998
- --------------------------------------
Basic Earnings per Share
Net income available to
common shareholders $126,666 100,540 $1.26
Options Outstanding -- 722
-------- --------
Diluted Earnings per Share
Net income available to
common shareholders $126,666 101,262 $1.25
-------- -------- ---------
Inventories
The principal categories of consolidated inventories were:
September 30, December 31,
1999 1998
--------- -----------
Finished goods $371,985 $374,578
Work in process 29,347 25,627
Raw materials 61,281 63,830
--------- ----------
$462,613 $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.
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.
The FASB has delayed the effective date of SFAS 133 to fiscal
years beginning after June 15, 2000. 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 Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". Comprehensive
income represents 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. For the Company, the only element of other comprehensive
income is cumulative translation adjustments arising from the
translation of certain balance sheet and income statement accounts
from the functional currency to the reporting currency.
For the quarters ended September 30, 1999 and 1998, comprehensive
income was $53.7 million and $56.9 million, respectively. For the
first nine months of 1999 and 1998, comprehensive income was $115.5
million and $129.5 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.
The Company's operations by geographic segment are as follows:
</TABLE>
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers:
United States $196,253 $181,715 $ 576,873 $ 543,174
International 127,610 118,725 398,343 358,023
Net intercompany sales between
geographic areas:
United States 56,134 50,296 167,075 147,805
International 15,934 16,807 31,915 33,258
Eliminations (72,068) (67,103) (198,990) (181,063)
--------- --------- --------- ---------
Total $323,863 $300,440 $ 975,216 $ 901,197
========= ========= ========= =========
Income before provision for income
taxes:
United States $ 57,886 $ 57,463 $ 165,649 $ 171,227
International 8,455 7,732 32,989 24,252
Eliminations (792) (2,541) (602) (3,814)
--------- --------- --------- ---------
Total $ 65,549 $ 62,654 $ 198,036 $ 191,665
========= ========= ========= =========
Identifiable assets:
United States $1,012,277 $ 893,262
International 541,648 506,930
Eliminations (40,095) (29,377)
----------- -----------
Total $1,513,830 $1,370,815
=========== ===========
The Company's operations by industry segment are as follows:
Net sales to unaffiliated customers:
Chemical Products $257,166 $241,794 $ 785,813 $ 726,178
Metal Products 66,697 58,646 189,403 175,019
-------- -------- -------- --------
Total $323,863 $300,440 $ 975,216 $ 901,197
======== ======== ======== ========
Income before provision for income
taxes:
Chemical Products $ 55,155 $ 54,028 $ 170,071 $ 162,571
Metal Products 9,866 8,363 27,613 27,475
Interest, net 528 263 352 1,619
-------- -------- --------- --------
Total $ 65,549 $ 62,654 $ 198,036 $ 191,665
======== ======== ========= ========
Identifiable assets:
Chemical Products $1,270,563 $1,190,157
Metal Products 152,446 155,581
Cash and temporary cash investments 90,821 25,077
---------- ----------
Total $1,513,830 $1,370,815
========== ==========
</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 September 30, 1999, sales increased 7.8% to
$323.9 million from $300.4 million in 1998. Sales for the nine-
month period increased 8.2% to $975.2 million from $901.2 million
in 1998. Chemical sales for the quarter increased 6.4% to $257.2
million and 8.2% to $785.8 million for the first nine months.
Changes in currency exchange rates hampered third quarter growth by 0.5%
during the most recent quarter but currency has not affected year-to-date
results. Domestic research sales grew at market rates and sales to Far
East markets were particularly strong, but both were partially offset
by slower sales in several Western European countries. Life science
products, including those from our December 1998 Sigma-Genosys
acquisition, contributed most of our research chemical growth. Fine
chemical and diagnostic sales both increased over 1998 levels for the
third quarter and first nine months, but at a slower pace than overall
chemical growth due to the timing of large orders. Metal sales for the
quarter increased 13.8% to $66.7 million and 8.2% to $189.4 million for
the first nine months. Strong demand for telecommunications and
enclosure products more than offset modest declines in sales to the
industrial construction market.
Cost of sales for the first nine months of 1999 was $466.3 million,
representing 47.8% of sales, compared to $422.3 million, or 46.9%
of sales for the first nine months of 1998. For the quarter, cost
of sales was 48.4% of sales compared to 47.5% in 1998. The
decline in the gross profit rate in 1999 is due to a higher
proportion of lower margin business and competitive pricing pressures.
Selling, general and administrative expenses for the first nine
months of 1999 were $310.8 million, or 31.9% of sales,
compared to $287.3 million, or 31.9% of sales in 1998. For the
quarter, selling, general and administrative expenses were
$101.4 million, or 31.3% of sales compared to $94.9 million, or
31.6% in 1998. Continued control of selling, general and
administrative expenses and savings from ongoing process
improvements during the third quarter resulted in expenses being
in line with 1998 as a percent of sales.
Net income for the third quarter increased 6.8% to $44.2 million
from $41.4 million in 1998 while net income for the first nine months
of 1999 grew by 5.2% to $133.3 million from $126.7 million in 1998.
Net profit margin continues to be affected by higher amortization
costs resulting from acquisitions and higher than normal capital
expenditures in 1998, offset in part by a lower effective tax
rate of 32.7% which reflects the ongoing benefit of larger research and
development tax credits.
Liquidity and Capital Resources
Cash balances increased $66.5 million in the nine months ended
September 30, 1999 as presented in the Consolidated Statements of
Cash Flows (unaudited). The primary source of cash was net cash
provided by operating activities of $177.7 million, an increase
of approximately $78.0 million from the prior year period. The increase
resulted primarily from higher net income of $6.6 million,
higher depreciation and amortization of $7.5 million, smaller
increases in accounts receivable and inventories, and the timing
of various payments. The major uses of cash were capital
expenditures and investments of $72.1 million, which includes 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. The reduction of
debt for $22.3 million and dividend payments of $21.9 million were
also major uses of cash.
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 and other telecommunication systems.
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 apporoximately 50%
of the Company's existing computer systems. The Company has
completed changes to all critical systems required to be Year 2000
capable either through updates to existing systems or conversion
to SAP.
The Company is uncertain as to the future of any Year 2000 issues
encountered by its business partners that would reasonably be expected to
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 $2.0 million has been
incurred in the Company's effort to achieve Year 2000 capable
systems through September 30, 1999.
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 in all material respects. Contingency plans have been
developed to ensure critical systems will function in the event of
any occurrences of unremediated or unresolved Year 2000 issues;
however, there can be no assurances that the Company's systems
and contingency plans will function as intended.
The Company recognizes 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. 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.
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 Exhibit
3(a) of Form 8-K filed on February 17, 1999, Commission File
Number 0-8135.
(b) No reports were filed on Form 8-K during the period for which this
report is filed.
(27) Financial Data Schedule
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, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 90,821
<SECURITIES> 0
<RECEIVABLES> 252,941
<ALLOWANCES> 0
<INVENTORY> 462,613
<CURRENT-ASSETS> 51,209
<PP&E> 945,646
<DEPRECIATION> 413,230
<TOTAL-ASSETS> 1,513,830
<CURRENT-LIABILITIES> 137,773
<BONDS> 0
0
0
<COMMON> 100,889
<OTHER-SE> 1,215,559
<TOTAL-LIABILITY-AND-EQUITY> 1,513,830
<SALES> 975,216
<TOTAL-REVENUES> 975,216
<CGS> 466,349
<TOTAL-COSTS> 466,349
<OTHER-EXPENSES> 310,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 133,274
<INCOME-TAX> 64,762
<INCOME-CONTINUING> 133,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,274
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.32
</TABLE>
