MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER RESULTS
Overview
Consolidated net sales of $159.1 million for the third quarter
of 1995 increased 11% over the comparable 1994 period. Net
earnings of $8.1 million declined 21% from the third quarter of
1994. Net earnings per common share of $.17 was 15% lower than
the $.20 reported last year.
Gross margin as a percentage of net sales decreased to 28.0%
from 30.8% in last year's third quarter, primarily from lower
margins in the domestic and international dyes businesses.
Consolidated operating profit of $15.0 million declined 7% from
the third quarter of 1994 as specialty chemicals decreased 34%
and specialty process equipment and controls segment increased
36%.
Specialty Chemicals
The Company's specialty chemicals segment sales of $92.5 million
were approximately even with the 1994 third quarter as increases
in unit volume were offset by lower selling prices.
Domestic dyes sales of $45.2 million declined 7% from the third
quarter of 1994 primarily due to lower unit volume (-2%) and
lower selling prices (-5%). International dyes sales of $21.4
million were essentially even versus the comparable 1994 period
primarily as a result of unit volume increases (7%) plus foreign
currency translation (2%) offset by lower selling prices (-9%).
Specialty ingredient sales of $25.9 million rose 14% primarily
as a result of increased unit volume. The percentage of
specialty chemicals sales outside the United States increased to
25% from 24% in the third quarter of 1994.
Operating profit of $7.9 million for the third quarter of 1995
declined 34% from the comparable quarter in 1994. The decline
was attributable to both domestic and international dyes.
Domestic dyes operating profit declined due to lower unit volume
and pricing. International dyes operating profit declined
primarily due to lower pricing and exchange rate fluctuations
among European currencies, offset in part by certain accrual
adjustments. The percentage of specialty chemicals operating
profit outside the United States decreased to 2% from 21% in the
third quarter of 1994.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $66.6 million representing an increase of 33%
from the third quarter of 1994. Approximately 11% was
attributable to the incremental impact of acquisitions with the
balance of 22% primarily from increased unit volume.
International sales of $21.0 million increased 69% from 1994 and
accounted for 32% of total segment sales versus 25% for the
comparable period in 1994. Operating profit for the third
quarter of 1995 increased 36% to $9.7 million primarily
attributable to increased unit volume. The order backlog for
extruders and related equipment at the end of the third quarter
amounted to $82 million compared to $66 million at December 31,
1994.
Other
Selling, general and administrative expenses of $25.6 million
increased 6% versus the comparable period in 1994 primarily due
to the impact of acquisitions and inflation. Depreciation and
amortization of $4.0 million increased 12% versus 1994 primarily
as a result of a higher fixed asset base including acquisitions.
Interest expense increased $1.6 million to $2.1 million
primarily as a result of increased borrowings. Other expense
(income) of $49 thousand increased by $473 thousand versus 1994
principally from lower foreign currency gains. The Company's
effective tax rate of 36.9% increased versus the 36.3% in the
1994 period.
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales for the first nine months of 1995 of
$502.9 million increased 17% from the comparable period in 1994.
Net earnings of $33.3 million decreased 15% versus the $39.1
million earned in the comparable period in 1994. Net earnings
per common share of $.69 decreased 9% from the $.76 reported
last year.
Gross margin as a percentage of net sales decreased to 29.4%
from 31.9% in the comparable 1994 period primarily from lower
margins in the domestic and international dyes businesses.
Consolidated operating profit of $58.8 million decreased 4% from
$61.3 million in the first nine months of 1994 as specialty
chemicals decreased 23% and specialty process equipment and
controls increased 37%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$296.3 million representing a 1% increase from $293.6 million in
the first nine 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 $147.1 million were 6% lower versus the
first nine months of 1994 primarily due to lower selling prices.
International dyes sales of $72.8 million increased by 8% versus
1994 primarily as a result of foreign currency translation (7%)
and unit volume growth (8%), offset by lower selling prices
(-7%). Specialty ingredients sales rose 10% to $76.4 million
reflecting primarily increased unit volume. The percentage of
sales outside the United States increased to 26% from 24% for
the comparable period in 1994.
Operating profit of $36.6 million for the first nine months of
1995 decreased 23% from 1994. The decline was attributable to
both domestic and international dyes. Domestic dyes operating
profit declined primarily due to lower pricing. International
dyes operating profit declined primarily due to lower pricing
and exchange rate fluctuations among European currencies, offset
in part by certain accrual adjustments. The percentage of
operating profit outside the United States decreased to 13% from
19% for the comparable period in 1994.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $206.6 million representing a 51% increase
over the first nine months of 1994. Approximately 34% of the
sales increase was attributable to the incremental impact of
acquisitions with the balance primarily from increased unit
volume. International sales of $51.4 million increased 51% from
1994 and accounted for 25% of total segment sales, virtually the
same as 1994. Operating profit of $30.8 million increased 37%
versus the comparable 1994 period. Approximately 15% was
attributable to acquisitions with the balance primarily from
higher unit volume.
Other
Selling, general and administrative expenses of $77.7 million
increased 17% versus the first nine months of 1994 primarily due
to the impact of acquisitions and inflation. Depreciation and
amortization of $11.5 million increased 15% versus the 1994
period as a result of a higher fixed asset base including
acquisitions. Interest expense increased $4.8 million primarily
as a result of increased borrowings. Other income of $192
thousand decreased $867 thousand versus 1994 primarily due to
lower foreign currency gains. The effective tax rate of 37.4%
increased versus the 36.3% in the comparable 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
The September 30, 1995 working capital balance of $133.1 million
increased $11.5 million from $121.6 million at year-end 1994.
The current ratio declined to 1.8 from 1.9 at the end of 1994
primarily as a result of the increase in notes payable. Days
sales in receivables averaged 54 days essentially equal to the
level for all of 1994. Inventory turnover averaged 2.8 for the
first nine months of 1995 compared to 3.0 for all of 1994.
Cash flows from operating activities of $8.3 million decreased
$5.8 million from the first nine months of 1994 primarily
attributable to lower earnings. 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 36% 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 increase of
$4.8 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 totaled $10.8 million for the first
nine months of 1995 compared to $8.6 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 three 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 at
the waste disposal sites where it has been named a potentially
responsible party, will not have a material effect on the
Company's liquidity and financial condition and that the cost to
the Company of any remedial actions will not be material to the
results of the Company's operations in any given year.