UNITED STATES
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, 2004
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 | 43-1050617 | |
| (State or other jurisdiction of incorporation or organization) | (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 ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
There were 69,137,069 shares of the Company’s $1.00 par value common stock outstanding on April 30, 2004.
Part 1- FINANCIAL INFORMATION
Item 1. Financial Statements
Sigma-Aldrich Corporation
Consolidated Statements of Income (Unaudited)
(in millions, except per share data)
| Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| Net sales |
$ | 368.1 | $ | 334.7 | ||
| Cost of products sold |
171.5 | 163.7 | ||||
| Gross profit |
196.6 | 171.0 | ||||
| Selling, general and administrative expenses |
99.6 | 87.3 | ||||
| Research and development expenses |
10.7 | 10.8 | ||||
| Interest, net |
2.2 | 2.8 | ||||
| Income from continuing operations before income taxes |
84.1 | 70.1 | ||||
| Provision for income taxes |
21.8 | 21.2 | ||||
| Net income from continuing operations |
62.3 | 48.9 | ||||
| Discontinued operations: |
||||||
| Net income from operations of discontinued business |
— | 1.1 | ||||
| Reduction of loss on disposition of discontinued operations |
— | 1.5 | ||||
| Net income |
$ | 62.3 | $ | 51.5 | ||
| Net income per share – Basic |
||||||
| Net income from continuing operations |
$ | 0.90 | $ | 0.69 | ||
| Net income from operations of discontinued business |
— | 0.02 | ||||
| Reduction of loss on disposition of discontinued operations |
— | 0.02 | ||||
| Net income |
$ | 0.90 | $ | 0.73 | ||
| Net income per share – Diluted |
||||||
| Net income from continuing operations |
$ | 0.89 | $ | 0.68 | ||
| Net income from operations of discontinued business |
— | 0.02 | ||||
| Reduction of loss on disposition of discontinued operations |
— | 0.02 | ||||
| Net income |
$ | 0.89 | $ | 0.72 | ||
| Weighted average number of shares outstanding – Basic |
69.2 | 71.1 | ||||
| Weighted average number of shares outstanding – Diluted |
69.9 | 71.6 | ||||
| Dividends per share |
$ | 0.17 | $ | 0.09 | ||
See accompanying notes to consolidated financial statements.
2
Sigma-Aldrich Corporation
Consolidated Balance Sheets
(in millions, except per share data)
| March 31, (Unaudited) |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 125.4 | $ | 127.6 | ||||
| Accounts receivable, less allowance for doubtful accounts |
214.8 | 178.2 | ||||||
| Inventories |
408.9 | 426.6 | ||||||
| Other current assets |
87.6 | 82.6 | ||||||
| Total current assets |
836.7 | 815.0 | ||||||
| Property, plant and equipment: |
||||||||
| Land |
40.4 | 40.6 | ||||||
| Buildings and improvements |
465.2 | 468.0 | ||||||
| Machinery and equipment |
537.3 | 535.7 | ||||||
| Construction in progress |
48.5 | 42.4 | ||||||
| Less – accumulated depreciation |
(553.0 | ) | (539.3 | ) | ||||
| Property, plant and equipment, net |
538.4 | 547.4 | ||||||
| Goodwill, net |
112.4 | 113.0 | ||||||
| Other assets |
69.0 | 72.8 | ||||||
| Total assets |
$ | 1,556.5 | $ | 1,548.2 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Notes payable and current maturities of long-term debt |
$ | 8.7 | $ | 66.6 | ||||
| Accounts payable |
71.8 | 73.4 | ||||||
| Accrued payroll and payroll taxes |
35.5 | 39.7 | ||||||
| Accrued income taxes |
45.8 | 32.0 | ||||||
| Other accrued expenses |
57.5 | 45.7 | ||||||
| Total current liabilities |
219.3 | 257.4 | ||||||
| Long-term debt |
176.3 | 176.3 | ||||||
| Deferred post-retirement benefits |
53.5 | 52.8 | ||||||
| Other liabilities |
60.9 | 62.4 | ||||||
| Total liabilities |
510.0 | 548.9 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $1.00 par value per share; 200.0 shares authorized; 100.9 and 101.0 shares issued at March 31, 2004 and December 31, 2003, respectively; 69.2 and 69.1 shares outstanding at March 31, 2004 and December 31, 2003, respectively |
100.9 | 101.0 | ||||||
| Capital in excess of par value |
48.9 | 47.2 | ||||||
| Common stock in treasury, at cost, 31.7 and 31.9 shares at March 31, 2004 and December 31, 2003, respectively |
(1,128.7 | ) | (1,126.6 | ) | ||||
| Retained earnings |
1,962.1 | 1,911.6 | ||||||
| Accumulated other comprehensive income |
63.3 | 66.1 | ||||||
| Total stockholders’ equity |
1,046.5 | 999.3 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,556.5 | $ | 1,548.2 | ||||
See accompanying notes to consolidated financial statements.
3
Sigma-Aldrich Corporation
Consolidated Statements of Cash Flows (Unaudited)
(in millions)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 62.3 | $ | 51.5 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Net income from operations of discontinued business |
— | (1.1 | ) | |||||
| Reduction of loss on disposition of discontinued operations |
— | (1.5 | ) | |||||
| Depreciation and amortization |
17.3 | 17.1 | ||||||
| Other |
1.2 | 3.6 | ||||||
| Changes in assets and liabilities: |
||||||||
| Increase in accounts receivable |
(36.6 | ) | (28.5 | ) | ||||
| Decrease in inventories |
16.5 | 8.0 | ||||||
| Increase in accrued income taxes |
15.9 | 19.4 | ||||||
| Other |
4.2 | (9.4 | ) | |||||
| Net cash provided by operating activities |
80.8 | 59.1 | ||||||
| Cash flows from investing activities: |
||||||||
| Property, plant and equipment additions |
(11.6 | ) | (9.9 | ) | ||||
| Sale of equipment |
0.6 | 0.2 | ||||||
| Other, net |
(0.2 | ) | (0.2 | ) | ||||
| Net cash used in investing activities |
(11.2 | ) | (9.9 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Repayment of short-term debt |
(58.0 | ) | (31.8 | ) | ||||
| Repayment of long-term debt |
(0.1 | ) | (0.2 | ) | ||||
| Payment of dividends |
(11.8 | ) | (6.3 | ) | ||||
| Treasury stock purchases |
(11.5 | ) | (12.6 | ) | ||||
| Exercise of stock options |
9.0 | 3.2 | ||||||
| Net cash used in financing activities |
(72.4 | ) | (47.7 | ) | ||||
| Effect of exchange rate changes on cash |
0.6 | 0.3 | ||||||
| Net change in cash and cash equivalents |
(2.2 | ) | 1.8 | |||||
| Cash and cash equivalents at January 1 |
127.6 | 52.4 | ||||||
| Cash and cash equivalents at March 31 |
$ | 125.4 | $ | 54.2 | ||||
| Supplemental disclosures of cash flow information: |
||||||||
| Income taxes paid |
$ | 6.9 | $ | 10.9 | ||||
| Interest paid, net of capitalized interest |
4.0 | 3.3 | ||||||
See accompanying notes to consolidated financial statements.
4
Sigma-Aldrich Corporation
Notes to Consolidated Financial Statements (Unaudited)
($ in millions, except per share data)
(1) 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, 2003. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included in these financial statements. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.
(2) Reclassifications
The accompanying consolidated financial statements for the prior year contain certain reclassifications to conform to the presentation used in 2004.
(3) Effect of New Accounting Standards
In December 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Post Retirement Benefits.” This Statement requires additional disclosures related to pension and other post-retirement benefits in the notes to the consolidated financial statements. The provisions of this Statement are effective for fiscal years ending after December 15, 2003. The Company adopted these provisions for the year ended December 31, 2003, and the additional data is included in Note 13 — Pension and Other Post-Retirement Benefit Plans.
(4) Common Stock
In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB No. 123” (SFAS 148). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123) to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the disclosure provisions of SFAS 148, however, the Company does not currently plan to adopt the fair value based method of accounting and plans to continue to use the intrinsic value methodology for stock-based employee compensation.
5
The Company can grant incentive and non-qualified stock options as well as stock appreciation rights, performance shares, restricted stock and other stock-based awards under the 2003 Long-Term Incentive Plan. To determine the pro-forma effects on net income and net income per share of the stock options and restricted stock granted, the Company first measures the total fair value of each option grant on the date of grant using the Black-Scholes option-pricing model. The Company then recognizes each grant’s total cost over the period that the options and restricted shares vest based on the determined fair value of each grant. Had compensation cost for the Company’s stock option and restricted stock plans been determined based on the fair value at the grant date, consistent with the provisions of SFAS 123, the Company’s reported and pro-forma net income and net income per share for the three months ended March 31, 2004 and 2003 would have been as follows:
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net income – as reported |
$ | 62.3 | $ | 51.5 | ||||
| Stock-based employee compensation expense, net of tax – pro-forma |
(2.6 | ) | (1.5 | ) | ||||
| Pro-forma net income |
$ | 59.7 | $ | 50.0 | ||||
| Net income per share – Basic, as reported |
$ | 0.90 | $ | 0.73 | ||||
| Net income per share – Basic, pro-forma |
$ | 0.86 | $ | 0.70 | ||||
| Net income per share – Diluted, as reported |
$ | 0.89 | $ | 0.72 | ||||
| Net income per share – Diluted, pro-forma |
$ | 0.85 | $ | 0.70 | ||||
(5) Inventories
The principal categories of inventories are:
| March 31, 2004 |
December 31, 2003 | |||||
| Finished goods |
$ | 351.6 | $ | 367.5 | ||
| Work in process |
18.5 | 20.9 | ||||
| Raw materials |
38.8 | 38.2 | ||||
| Total |
$ | 408.9 | $ | 426.6 | ||
(6) Intangible assets
The following table provides information relating to the Company’s amortizable and unamortizable intangible assets at March 31, 2004 and December 31, 2003:
| Cost |
Accumulated Amortization | |||||||||||
| March 31, 2004 |
December 31, 2003 |
March 31, 2004 |
December 31, 2003 | |||||||||
| Amortizable intangible assets: |
||||||||||||
| Patents |
$ | 4.2 | $ | 4.3 | $ | 2.6 | ||||||