MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER RESULTS
Overview
Consolidated net sales of $175.6 million for the second quarter
of 1995 increased 14% over the comparable 1994 period. Net
earnings of $12.1 million were 25% lower than the $16.1 million
reported in the second quarter of 1994. Net earnings per common
share of $.25 decreased 19% from the $.31 reported last year.
Gross margin as a percentage of net sales decreased to 29.5%
from 33% in last year's second quarter, primarily as a result of
lower margins in the domestic and international dyes businesses.
Consolidated operating profit of $21.3 million declined 16% from
the second quarter of 1994 as specialty chemicals decreased 33%
and specialty process equipment and controls segment increased
31%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$101.2 million representing a decrease of 4% from the comparable
period in 1994. The decrease was attributable to the impact of
lower selling prices (-4%) and lower unit volume (-2%), offset
in part by favorable currency translation (2%).
Domestic dyes sales of $49.6 million declined 14% from the 1994
second quarter primarily due to lower unit volume (-10%) and
lower selling prices (-4%). International dyes sales of $26.9
million increased 12% versus the second quarter of 1994
primarily as a result of foreign currency translation (9%) and
higher unit volume (10%), offset in part by lower selling prices
(-7%). Specialty ingredients sales of $24.7 million rose 3%
primarily as a result of increased unit volume. The percentage
of specialty chemicals sales outside the United States increased
to 28% from 24% in the second quarter of 1994.
Operating profit of $13.1 million for the second quarter of 1995
decreased 33% from the comparable quarter in 1994 primarily
attributable to the impact of lower unit volume and pricing in
domestic dyes and lower pricing and exchange rate fluctuations
among European currencies in international dyes. The percentage
of specialty chemicals operating profit outside the United
States decreased to 15% from 19% in the second quarter of 1994.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $74.4 million representing an increase of 52%
from the second quarter of 1994. Approximately 40% was
attributable to the incremental impact of acquisitions completed
since May of 1994 with the balance of 12% primarily from increased unit
volume. International sales of $18.3 million increased 21%
from 1994 primarily as a result of acquisitions and accounted
for 25% of total segment sales versus 31% for the comparable
period in 1994. Operating profit for the second quarter of 1995
increased 31% to $11.1 million. Approximately 14% was
attributable to the incremental impact of acquisitions completed
since May of 1994 with the balance primarily from increased unit
volume. The order backlog for extruders and related equipment
at the end of the second quarter amounted to $83 million
compared to $66 million at December 31, 1994.
Other
Selling, general and administrative expenses of $26.7 million
increased 20% versus the comparable period in 1994 primarily due
to the impact of acquisitions and inflation. Depreciation and
amortization of $3.8 million increased 19% versus 1994 primarily
as a result of a higher fixed asset base including acquisitions.
Interest expense increased $1.8 million to $2.0 million
primarily as a result of increased borrowings.
Other income of $13 thousand decreased by $78 thousand versus
1994. The Company's effective tax rate of 37.5% increased
versus the 36.4% in the 1994 period.
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales of $343.8 million for the first six
months of 1995 increased 19% from the comparable period in 1994.
Net earnings of $25.3 million decreased 13% versus the $28.9
million earned in the first half of 1994. Net earnings per
common share of $.52 decreased 7% from the $.56 reported last
year.
Gross margin as a percentage of net sales decreased to 30.1%
from 32.5% in the comparable 1994 period primarily as a result
of lower margins in the domestic and international dyes
businesses. Consolidated operating profit of $43.8 million
declined 3% from $45.1 million in the first half of 1994 as
specialty chemicals decreased 19% and specialty process
equipment and controls increased 38%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$203.8 million representing a 1% increase from $201 million in
the first six months of 1994. The increase was primarily
attributable to foreign currency translation as unit volume
increases were offset by lower selling prices.
Domestic dyes sales of $101.9 million were 5% lower than the
first six months of 1994 primarily due to lower selling prices.
International dyes sales of $51.5 million increased by 11%
versus 1994 primarily as a result of foreign currency
translation (9%) and unit volume growth (8%), offset by lower
selling prices (-6%). Specialty ingredients sales rose 7% to
$50.4 million reflecting primarily increased unit volume. The
percentage of sales outside the United States increased to 27%
from 24% for the comparable period in 1994.
Operating profit of $28.7 million for the first six months of
1995 decreased 19% from 1994. The decrease was attributable
primarily to the impact of lower pricing in the domestic and
international dyes businesses. The percentage of operating
profit outside the United States decreased to 16% from 19% in
the first half of 1994.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $140 million representing a 61% increase over
the first six months of 1994. Approximately 47% of the sales
increase was attributable to the incremental impact of
acquisitions completed since May of 1994 and the balance of 14%
primarily from increased unit volume. International sales of
$30.4 million increased 41% from 1994 primarily as a result of
acquisitions and accounted for 22% of total segment sales versus
25% in the first six months of 1994. Operating profit of $21.1
million increased 38% versus the comparable 1994 period.
Approximately 21% was attributable to acquisitions with the
balance primarily from higher unit volume.
Other
Selling, general and administrative expenses of $52.2 million
increased 24% versus the first six months of 1994 primarily due
to the impact of acquisitions and inflation. Depreciation and
amortization of $7.5 million increased 17% versus the 1994
period primarily as a result of a higher fixed capital base
including acquisitions. Interest expense increased $3.2 million
primarily as a result of increased borrowings. Other income of
$241 thousand decreased $394 thousand versus 1994 primarily due
to lower royalty income and higher miscellaneous expense. The
effective tax rate of 37.6% increased versus the 36.3% in the
comparable 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
The July 1, 1995 working capital balance of $123.2 million
increased $1.6 million from $121.6 million at year-end 1994.
The current ratio declined to 1.7 from 1.9 at the end of 1994
primarily as a result of the increase in notes payable.
Average days sales in receivables decreased to 51 days in 1995
from 54 days for all of 1994. Inventory turnover averaged 2.8
for the first half of 1995 compared to 3.0 for all of 1994.
Cash flows from operating activities of $3.3 million decreased
$6.3 million from the first half of 1994 primarily attributable
to lower earnings and increased working capital requirements.
Cash provided by operating activities and increased borrowings
were used to finance acquisitions, fund capital expenditures,
pay cash dividends and repurchase 222,800 shares of the
Company's common stock. The Company's debt to total capital
increased to 35% from 29% at year-end 1994. Capital
expenditures are expected to approximate $20 million in 1995
primarily for expansion and improvement of operating facilities
in the United States and Europe. The Company's long-term
liquidity needs including such items as capital expenditures and
dividends are expected to be financed from operations.
INTERNATIONAL OPERATIONS
The lower U.S. dollar exchange rate versus the Belgian Franc and
French Franc accounted primarily for the favorable adjustment of
$5.9 million in the accumulated translation adjustment account
since year-end 1994. Changes in the balance of this account are
primarily a function of fluctuations in exchange rates and do
not necessarily reflect either enhancement or impairment of the
net asset values or the earnings potential of the Company's
foreign operations.
The Company operates manufacturing facilities in Europe which
serve primarily the European market. Exchange rate disruptions
between the United States and European currencies, and among
European currencies, are not expected to have a material effect
on year-to-year comparisons of the Company's earnings.
RESEARCH AND DEVELOPMENT
The Company employs about 275 engineers, draftsmen, chemists,
and technicians responsible for developing new and improved
chemical products and process equipment systems for the
industries served by the Company. Often, new products are
developed in response to specific customer needs. The Company's
process of developing and commercializing new products and
product improvements is ongoing and involves many products, no
one of which is large enough to significantly impact the
Company's results of operations from year-to-year. Research and
development expenditures totalled $7.2 million for the first
half of 1995 compared to $5.6 million in the comparable 1994
period.
ENVIRONMENTAL MATTERS
The Company's manufacturing facilities are subject to various
federal, state and local requirements with respect to the
discharge of materials into the environment or otherwise
relating to the protection of the environment. The Company has
been designated, along with others, as a potentially responsible
party under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, or comparable state
statutes, at two waste disposal sites; and two inactive
subsidiaries have been designated, along with others, as
potentially responsible parties at a total of four other sites.
While the cost of compliance with existing environmental
requirements is expected to increase, based on the facts
currently known to the Company, management expects that those
costs, including the cost to the Company of remedial actions,
will not be material to the results of the Company's operations
in any given year.