Annual Report (Form 10-K), fiscal year 1993

ITEM 1 - BUSINESS
GENERAL
Betz Laboratories, Inc. and its subsidiaries ("Registrant"), is engaged in the engineered chemical treatment of water, wastewater and process systems operating in a wide variety of industrial and commercial applications, with particular emphasis on the chemical, petroleum refining, paper, automotive, electrical utility and steel industries. Registrant produces and markets a wide range of specialty chemical products, including the technical and laboratory services necessary to utilize these products effectively. Chemical treatment programs are developed and marketed for use in boilers, cooling systems, heat exchangers, paper and process streams and both influent and effluent systems. Registrant monitors changing water, process and plant operating conditions so as to prescribe the appropriate treatment programs to solve problems such as corrosion, scale, deposit formation and a variety of process problems.
Registrant has thirteen (13) production plants in the United States and eight (8) in foreign countries. Operations are conducted primarily in the United States and Canada, and also in Europe, Southeast Asia and the Caribbean area. Registrant employs approximately 4,115 people worldwide.
MARKETING
During 1993, the Registrant undertook a reorganization of its marketing strategies on a global basis. Pursuant to this globalization initiative, Registrant's foreign paper and refinery process sales and marketing organizations will report to Registrant's domestic operations along technology lines. This should result in faster overseas growth, where Registrant presently has a very small market share.
Domestically, Registrant continued to organize into separate marketing units along technology lines in order to be more responsive to customer needs. As part of this strategy, Registrant has further decentralized into nine autonomous domestic marketing units, four of which are wholly-owned subsidiaries and five of which are groups or divisions of the Registrant. Each unit operates as a separate profit center with its own sales staff and specific programs for the market it serves.
Effective January 1, 1994, Betz Industrial was decentralized into four separate operating units: the Refining and Chemical Division; the Pulp and Paper Division; the Power Industry Division; and the Manufacturing Industries Division. These four divisions along with Betz Entec, Inc. became the Betz Water Management Group which markets all of Registrant's water treatment programs to customers within the United States. Betz Water Management Group, which accounted for approximately 50.1% of Registrant's 1993 sales, will continue to provide specialty chemicals and value added treatment programs to basic domestic industries, such as petroleum, refining, chemical, paper, electric utility and food processing industries.
Betz Entec, Inc., a subsidiary, specializes in the treatment of boilers, cooling systems, air conditioning systems and wastewater for mid- sized industrial plants, hospitals, government buildings, institutions and commercial facilities. Its customized treatment programs are designed to control scale, corrosion and microbiological growth. As an adjunct to the sale of its specialty chemical products, Betz Entec, Inc. markets laboratory reagents and chemical test kits for use in analyzing water.
Betz Process Chemicals, Inc., a subsidiary, develops specific products used in process streams in the refining, petrochemical and steel industries. These products are "process-side" treatments as compared to "water-side" treatments and are formulated to reduce production inefficiencies in large industrial plants. This technology is applied in many ways including controlling corrosion with effective inhibitors and controlling fouling in heat exchangers through trace metal deactivation, polymer retardants and oxidation control.
A related market is served by Betz Energy Chemicals, Inc. This subsidiary serves the oil production markets by providing products and programs used in extracting crude oil from deposits in the earth.
The pulp and paper industry is served by another subsidiary, Betz PaperChem, Inc. It formulates custom engineered programs for the process related problems associated with paper production. As a consumer of large amounts of water in the production process, the pulp and paper industry's efforts to reuse water and conserve energy have increased the need for water treatment chemicals. Recirculating water systems build up organic and inorganic deposits which must be controlled. Deposition, corrosion, pulp bleaching, foam control, de-inking and felt conditioning are other problems associated with pulp and paper production that are treated by Betz PaperChem, Inc.'s products and programs.
The Betz MetChem Division serves steel, aluminum and plastic producers, and the related automotive, machinery, appliances, fabricated parts and coil industries. Its products and treatment programs are designed to increase productivity, improve quality and reduce overall operating expenses through specific process chemicals aimed at the respective markets.
Technical specialists working in each of the Registrant's nine marketing units assist in the development of engineered programs to meet a customer's needs. Such programs are custom designed to conserve energy, minimize corrosion and deposits, control microbiological fouling, reduce waste generation, improve process efficiency or any combination of the above, depending on the customer's requirements. Technical specialists also train customer operating personnel in the controlling, testing and chemical feeding required in applying Registrant's treatment programs. Since plant operating conditions and intake water characteristics do not remain static, the technical specialists make regular, scheduled plant follow-up visits to monitor the treatment program results and help customer operating personnel.
To ensure treatment effectiveness, Registrant may also provide additional technical services from its mobile water treatment TravelLabs (registered trademark) which conduct tests on customer water systems. In the United States and other countries, Registrant has approximately 1,495 Regional Managers, District Managers and technical specialists selling and servicing its chemical products.
Registrant's worldwide sales of specialty chemicals and the above related products during 1993 amounted to $684,872,000, as compared to $706,972,000 in 1992 and $665,565,000 in 1991, and in each case constituted 100% of Registrant's consolidated net sales. Consolidated net earnings for 1993 were $65,520,000, as compared to $82,047,000 in 1992 and $75,524,000 in 1991.
INTERNATIONAL OPERATIONS
Registrant's international activities are conducted through foreign subsidiaries operating in fourteen foreign locations. Betz International, Inc., a wholly-owned domestic subsidiary of Registrant, manages Registrant's U.S. based international sales effort and holds substantially all of the stock in Registrant's Singapore, Australian, Korean and Venezuelan subsidiaries. Betz International markets to customers outside of the U.S., Canada, and Europe which are located primarily in the Caribbean, Central America, South America, Saudi Arabia, India, Korea, Singapore, Malaysia, Indonesia, Thailand, Australia and New Zealand. Betz Europe, Inc., a wholly-owned domestic subsidiary of Registrant, holds directly or indirectly all of the stock in Registrant's Belgian, Austrian, German, Finnish, Swedish, French, Italian and United Kingdom subsidiaries. Registrant's Canadian subsidiary, Betz Inc., operates independently of Betz International and Betz Europe.
Although Registrant does not believe that its foreign operations are presently subject to a materially greater risk than its domestic operations, Registrant's foreign operations may at any time be adversely affected by conditions outside its control including economic and political conditions. See Notes 1, 2 and 4 to Consolidated Financial Statements for certain additional information pertaining to foreign operations.
The range of products sold by Registrant to customers located outside of the United States is substantially similar to, although not as broad in scope as, those sold in the United States. Products and services sold to foreign markets during 1993 accounted for approximately $153,592,000 or 22.4% of Registrant's consolidated net sales as compared to $160,484,000 (22.7%) in 1992 and $142,042,000 (21.3%) in 1991. Of these amounts, direct exports by Betz International from the United States to foreign markets accounted for approximately $11,981,000 or 1.7% of Registrant's consolidated net sales in 1993, as compared to $10,913,000 (1.5%) in 1992 and $9,989,000 (1.5%) in 1991.
Excluding products and services exported directly by Betz International, sales for 1993 by foreign subsidiaries were approximately $141,611,000 or 20.7% of the Registrant's consolidated net sales. Foreign subsidiary sales in 1992 and 1991, and their percentage of Registrant's consolidated net sales were $149,571,000 (21.2%) and $132,053,000 (19.8%) respectively. Of these amounts, sales by Registrant's Canadian subsidiary amounted to $36,171,000 (5.3%) in 1993; $34,361,000 (4.9%) in 1992; and, $33,893,000 (5.1%) in 1991. The operating earnings of Registrant's foreign subsidiaries in 1993 were $18,988,000 or 2.8% of Registrant's consolidated net sales as compared to $27,069,000 (3.8%) in 1992, and $23,963,000 (3.6%) in 1991.
Approximately $399,927,000 or 76.7% of Registrant's identifiable assets are attributable to its domestic operations and $121,202,000 or 23.3% are attributable to its foreign operations.
PRODUCTION AND DISTRIBUTION
Many of Registrant's products are produced at more than one of the twenty-one (21) production plants referred to under Item 2



ITEM 2 - PROPERTIES
The Registrant's principal facilities are at the following locations:
DOMESTIC FACILITIES
Square Owned Footage or of Location Leased Facility General Character -------- ------ -------- -----------------
Bakersfield, California Owned 55,000 Office, Plant and Warehouse
Cerritos, California Leased 28,480 Office and Warehouse
Compton, California Owned 36,600 Plant and Warehouse
Ventura, California Leased 10,000 Office and Laboratory
Jacksonville, Florida Owned 117,000 Office and Laboratory
Macon, Georgia Owned 71,000 Plant and Warehouse
Addison, Illinois Owned 56,800 Plant and Warehouse Leased 16,000 Warehouse
Reserve, Louisiana Owned 24,000 Plant and Warehouse
New Philadelphia, Ohio Owned 108,000 Plant and Warehouse
Cornwells Heights, Pennsylvania Owned 40,834 Office, Laboratory Supply and Limited Production
Trevose, Pennsylvania Owned 198,000 Headquarters
Owned 46,500 W. H. and L. D. Betz Research Center Owned 50,000 Training Center, Warehouse and Maintenance Bldg.
Owned 81,000 J. D. Betz Engineering Laboratory and Betz Industrial Laboratory
Langhorne, Pennsylvania Owned 134,000 Plant and Warehouse
Horsham, Pennsylvania Owned 32,500 Office and Laboratory
Horsham, Pennsylvania Owned 126,000 Office and Limited Production
Horsham, Pennsylvania Owned 100,000 Office and Laboratory
Square Owned Footage or of Location Leased Facility General Character -------- ------ -------- -----------------
Puerto Rico Leased 12,000 Office and Warehouse
Beaumont, Texas Owned 82,000 Plant, Warehouse and Office
The Woodlands, Texas Owned 120,000 Laboratory and Office
Garland, Texas Owned 45,000 Plant and Warehouse
Orange, Texas Owned 53,000 Plant and Warehouse
South Houston, Texas Owned 25,000 Plant and Warehouse
Washougal, Washington Owned 46,000 Plant and Warehouse
Cheyenne, Wyoming Owned 35,800 Plant and Warehouse
FOREIGN FACILITIES
Ingleburn, New South Wales, Australia Owned 31,895 Office, Plant, Warehouse and Laboratory
Haasrode, Belgium Owned 38,500 Office and Laboratory
Herentals, Belgium Owned 43,800 Office, Plant and Laboratory
Herentals, Belgium Owned 11,500 Office
Edmonton, Alberta, Canada Owned 59,800 Plant, Warehouse and Laboratory
Pointe Claire, Quebec, Canada Owned 90,000 Office and Plant
Kanata, Ontario, Canada Owned 24,400 Office and Laboratory
Winsford, England Owned 49,000 Office, Plant and Laboratory
Crissey, France Owned 48,000 Office and Plant
Marne la Vallee, France Owned 21,000 Office and Laboratory
Willich, Germany Owned 15,000 Office and Laboratory
Ferentino, Italy Owned 35,721 Office, Plant and Laboratory
Square Owned Footage or of Location Leased Facility General Character -------- ------ -------- -----------------
Rome, Italy Owned 18,200 Office
Iri, Korea Owned 22,700 Office, Plant (under construction) and Laboratory
Singapore(1) Owned/ 26,320 Office, Plant, Lease Warehouse and Laboratory
The Registrant believes that the present production capacity of its plants is adequate to meet its present and reasonably anticipated domestic and foreign needs.
In addition to owned facilities, the Registrant leases numerous office facilities throughout the world from which its local sales efforts are conducted. See Note 7 to the Consolidated Financial Statements comprising Item 8 hereof for information concerning lease obligations.
- - -------------------------
(1) In accordance with local law and custom, Registrant owns the Singapore facility but presently holds the land upon which the facility is situated under a 30 year lease, which expires in August, 2009. At such time as the lease lapses without being renewed, the office, plant and warehouse would become the property of the Singapore government. Registrant would receive no compensation therefor.
ITEM 3

ITEM 3 - PENDING LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary routine litigation incidental to the business of the Registrant to which the Registrant or any of its subsidiaries is a party or of which any of their property is the subject.
The Registrant is a "Potentially Responsible Party" ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") as amended by the Superfund Amendments and Reauthorization Act ("SARA") with respect to thirteen (13) sites at which alleged releases or threatened releases of hazardous substances into the environment may have occurred. In response, the Registrant has been voluntarily participating with other PRPs at each of these sites to familiarize itself with site conditions, determine the nature and extent of contamination, analyze alternatives for remediation and develop a plan for clean-up. In each instance, the Registrant has participated in discussions with representatives of the EPA and other PRPs to determine its potential liability for financing necessary response actions. Although it is impossible to determine the exact cost of response activities, present information and the likelihood of contributions from other PRPs at each site indicates that the Registrant's ultimate share of remediation costs at eleven (11) of the thirteen (13) sites will be less than $100,000 of the total anticipated response cost.
At the Operating Industries, Inc. site, Monterey Park, California (the "Site"), the Registrant is a signatory to two Partial Consent Decrees among the United States of America, the State of California, the California Hazardous Substance Account and approximately three hundred (300) other parties entered in the United States District Court for the Central District of California in 1989 and 1992 respectively. Pursuant to such Partial Consent Decrees, the parties are performing remedial activities at the Site in response to alleged releases and threatened releases of hazardous substances into the environment. The Registrant, without admitting liability, agreed to an allocation of costs of approximately $279,000 to be paid over a period of three (3) to five (5) years pursuant to the 1989 Partial Consent Decree. Pursuant to the 1992 Partial Consent Decree, the Registrant agreed to pay a portion of state and federal past costs and perform necessary remedial work, and pay for oversight of such work. Although Registrant's share of such costs has not been finally determined among the parties, it is estimated that Registrant's future allocation will be approximately $180,000 payable over the next eight to ten years. Such amount, if ultimately assessed and paid, would not be material to the business of the Registrant.
The Registrant is a third party defendant in two federal court actions in the State of New Jersey involving the Helen Kramer Landfill site in Mantua Township, New Jersey. It is alleged that the Registrant's wastes were shipped to the site from 1968 to 1971 and that two loads of municipal solid waste were sent to the site in 1981. In September, 1988 EPA estimated the chosen remedy to have a present worth cost of approximately $44 million. Actual costs have been higher; press releases issued in January, 1993 indicated costs were in the range of $90-100 million. However, in overall settlement discussions, EPA and New Jersey Department of Environmental Protection have demanded over $200 million to end the litigation. The defendants and third-party defendants await documentation of this later sum. If remedial costs exceed $100 million, the
Registrant's allocation may exceed $100,000; however, such allocation is speculative and would most likely not materially affect the Registrant's financial condition or results of operations. Presently, no allocation of costs has been determined among the PRPs, and the Registrant's ultimate allocation is still speculative.
ITEM 4

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Registrant's security holders through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year to which this report relates.
PART II
ITEM 5

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
Pursuant to General Instruction G(2) to Form 10-K, in response to Item 5, Registrant hereby incorporates by reference the information contained in Note 10 to the Consolidated Financial Statements, "Quarterly Financial Information (Unaudited)", under the captions "Cash Dividends Declared Per Common Share" and "Common Stock Market Prices" on page 26 of Registrant's 1993 Annual Report to its Shareholders.
ITEM 6

ITEM 6 - SELECTED FINANCIAL DATA
Pursuant to General Instruction G(2) to Form 10-K, in response to Item 6, Registrant hereby incorporates by reference the following information contained under the heading "Consolidated Summary of Operations" on pages 30 and 31, of Registrant's 1993 Annual Report to its Shareholders: For Fiscal Years 1989 through 1993, both inclusive, the information under the headings "Net Sales", "Net Earnings", "Earnings per Common Share", "Cash dividends declared per Common Share", "Total assets", and "ESOP debt".
ITEM 7

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pursuant to General Instruction G(2) to Form 10-K, in response to Item 7, Registrant hereby incorporates by reference the information contained under the heading "Management's Discussion And Analysis Of Financial Condition And Results Of Operations" on pages 27 through 29 of Registrant's 1993 Annual Report to its Shareholders.
ITEM 8


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pursuant to General Instruction G(2) to Form 10-K, in response to Item 8, Registrant hereby incorporates by reference the consolidated financial statements included on pages 17 through 26, both inclusive, of Registrant's 1993 Annual Report to its Shareholders.
ITEM 9

ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10



ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, in response to Item 10, Registrant hereby incorporates by reference the information contained under the heading "Directors and Executive Officers" on pages 2 through 6, both inclusive, of Registrant's definitive proxy statement to be used in connection with Registrant's 1994 Annual Meeting of Shareholders, as filed with the Securities and Exchange Commission on or about March 11, 1994.
ITEM 11

ITEM 11 - EXECUTIVE COMPENSATION AND TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, in response to Item 11, Registrant hereby incorporates by reference the information contained under the headings "Executive Compensation" on pages 8 through 15, both inclusive, of Registrant's definitive proxy statement to be used in connection with Registrant's 1994 Annual Meeting of Shareholders, as filed with the Securities and Exchange Commission on or about March 11, 1994.
ITEM 12

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, in response to Item 12, Registrant hereby incorporates by reference the information contained under the heading "Ownership of Company Shares" on pages 7 and 8 of Registrant's definitive proxy statement to be used in connection with Registrant's 1994 Annual Meeting of Shareholders, as filed with the Securities and Exchange Commission on or about March 11, 1994.
ITEM 13

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14

ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
a. 1. and 2. The following consolidated financial statements of Betz Laboratories, Inc. and subsidiaries, included in the Annual Report of Registrant to its shareholders for the year ended December 31, 1993, are incorporated by reference in Item 8:
Annual Report Page(s) ------- Consolidated Statements of Operations--Years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . 17
Consolidated Balance Sheets--December 31, 1993 and 1992 . 18-19
Consolidated Statements of Cash Flows--Years ended December 31, 1993, 1992 and 1991 . . . . . . . . . 20
Consolidated Statements of Common Shareholders' Equity-- Years ended December 31, 1993, 1992 and 1991 . . . . . . 21
Notes to Consolidated Financial Statements . . . . . . . . 22-26
The following consolidated financial statement schedules of Betz Laboratories, Inc. and subsidiaries are included in Item 14(d):
Form 10-K Page(s) -------- Schedule V -- Property, Plant and Equipment . . . . 16 (F-1)
Schedule VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment . . . . . . . . . . . 17 (F-2)
Schedule VIII -- Valuation and Qualifying Accounts . . . 18 (F-3)
Schedule X -- Supplementary Income Statement Information . . . . . . . . . . . . 19 (F-4)
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
3. LISTING OF EXHIBITS.
Form 10-K
Exhibit Number Description Page ------- ----------- ---- 3 Articles of Incorporation and Bylaws . . . . *
* The items designated Exhibit 3 to Registrant's Annual Report on Form 10-K for fiscal year 1988, (Restated Articles of Incorporation and Bylaws of Betz Laboratories, Inc.) as heretofore filed with the Securities and Exchange Commis- sion are hereby incorporated by reference as Exhibit 3 hereto.
4 Instruments defining the rights of Security Holders . . . . . . . . . . . . . . . . . . . *
See Exhibit 3 hereto.
Page ---- 10 Material Contracts . . . . . . . . . . . . *
*The items designated Exhibit 10 to Registrant's Annual Report on Form 10-K for fiscal year 1992, ("Guidelines For Betz Laboratories, Inc. Corporate Discretionary Senior Executive Officer Bonus Plan; Corporate Discretionary Executive Officer Bonus Plan; Corporate Discretionary Officer Plan; and Corporate Discretionary Key Employee Bonus Plan"; the item designated as Exhibit A to Registrant's definitive Proxy Statement dated March 7, 1991, ("Employee Stock Incentive Plan"); the item designated Exhibit A to Registrant's definitive Proxy Statement dated March 5, 1982, ("Stock Option Plan"); and the item designated Exhibit A to Registrant's definitive Proxy Statement dated March 7, 1991 ("Stock Option Plan of 1987"); all as heretofore filed with the Securities and Exchange Commission are hereby incorporated by reference as Exhibit 10 hereto.
11 Statement Re: Computation of Per Share Earnings 20
13 Registrant's 1993 Annual Report to Shareholders 21
18 Letter Re: Change in Accounting Principles. . . . . . 57
21 Subsidiaries of Registrant . . . . . . . . . . . . 58
23 Consent of Independent Auditors . . . . . . . . . 59
b. REPORTS ON FORM 8K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BETZ LABORATORIES, INC.
By: s/ William R. Cook Date: March 11, 1994 --------------------------------- ----------------- William R. Cook, President and Chief Executive Officer
By: s/ R. Dale Voncannon Date:March 14, 1994 --------------------------------- ----------------- R. Dale Voncanon, Vice President - Finance and Treasurer (Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: s/ John F. McCaughan Date: March 14, 1994 --------------------------------- ----------------- John F. McCaughan, Director
By: s/ John W. Boyer, Jr. Date: March 15, 1994 --------------------------------- ----------------- John W. Boyer, Jr., Director
By: s/ Patrick F.Brennan Date: March 15, 1994 --------------------------------- ----------------- Patrick F. Brennan, Director
By: s/ Carolyn S. Burger Date: March 18, 1994 --------------------------------- ----------------- Carolyn S. Burger Director
By: s/ George R. Butler Date: March 14, 1994 --------------------------------- ----------------- George A. Butler, Director
By: s/ William R. Cook Date: March 11, 1994 --------------------------------- ----------------- William R. Cook, Director
By: s/ John A. Miller Date: March 14, 1994 --------------------------------- ----------------- John A. Miller, Director
By: s/ Theodore B. Palmer, 3rd Date: March 14, 1994 --------------------------------- ----------------- Theodore B. Palmer, 3rd, Director
By: s/ John R. Quarles Date: March 17, 1994 --------------------------------- ----------------- John R. Quarles, Director
By: s/ John A. H. Shober Date: March 14, 1994 --------------------------------- ----------------- John A. H. Shober, Director
By: s/ Geoffrey Stengel, Jr. Date: March 14, 1994 --------------------------------- ----------------- Geoffrey Stengel, Jr., Director
By: s/ Robert L. Yohe Date: March 18, 1994 --------------------------------- ----------------- Robert L. Yohe Director