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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1997
Commission File No. 0-16032
Melamine Chemicals, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 64-0475913
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Highway 18 West Donaldsonville, Louisiana 70346
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(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 473-3121
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NOT APPLICABLE
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filled 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 of 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
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5,457,833 shares of Melamine Chemicals, Inc. common stock $.01 par value per
share were outstanding on April 21, 1997. Registrant has no other class of
common stock outstanding.
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Part I. Financial Information
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, JUNE 30,
1997 1996
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ASSETS
Current assets:
Cash $ 13,664,394 5,529,644
Receivables:
Trade (net of allowance for doubtful debts of
$175,000 at March 1997 and $150,000 at June 1996) 10,479,874 12,170,229
Income taxes 0 24,877
Other 20,488 167,373
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Total receivables 10,500,362 12,362,479
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Inventories:
Finished goods 2,703,000 2,225,000
Supplies 147,422 288,300
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Total inventories 2,850,422 2,513,300
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Prepaid expenses:
Spare parts 2,267,831 2,357,090
Other 147,945 1,410
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Total prepaid expenses 2,415,776 2,358,500
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Deferred income taxes 1,522,315 1,522,315
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Total current assets 30,953,269 24,286,238
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Plant and equipment, at cost 47,792,221 46,860,949
Less accumulated depreciation 27,290,583 24,082,467
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Net plant and equipment 20,501,638 22,778,482
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Other assets 70,727 78,073
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$ 51,525,634 47,142,793
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 5,452,178 3,175,843
Accrued expenses 954,991 1,518,082
Amounts due to related parties 0 1,227,711
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Total current liabilities 6,407,169 5,921,636
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Deferred income taxes 6,969,170 6,371,250
Stockholders' equity:
Preferred stock of $.01 par value
Authorized 2,000,000 shares; none issued 0 0
Common stock of $.01 par value. Authorized
20,000,000 shares; issued and outstanding 5,456,300
at March 1997 and 5,455,300 at June 1996 54,563 54,553
Additional paid-in capital 16,831,910 16,823,920
Retained earnings 21,262,822 17,971,434
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Total stockholders' equity 38,149,295 34,849,907
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$ 51,525,634 47,142,793
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See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
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Net sales $ 14,997,607 14,787,330 $ 44,907,795 38,081,772
Cost of sales 12,001,004 12,659,886 37,313,754 31,788,290
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Gross profit 2,996,603 2,127,444 7,594,041 6,293,482
Selling, general and administrative expenses 961,582 901,932 2,743,112 2,444,482
Research and development costs 52,779 59,290 177,866 171,520
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Operating profit 1,982,242 1,166,222 4,673,063 3,677,480
Other income (expense):
Interest income 128,780 67,230 341,571 415,415
Miscellaneous (225,952) (85,309) (174,357) (145,232)
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Earnings before income taxes 1,885,070 1,148,143 4,840,277 3,947,663
Income tax 603,222 367,406 1,548,889 1,263,252
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Net earnings $ 1,281,848 780,737 $ 3,291,388 2,684,411
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Earnings per common share:
Primary $ .23 .14 $ .59 .49
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Fully diluted $ .23 .14 $ .59 .49
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Weighted average shares 5,455,633 5,455,300 5,455,411 5,453,078
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Dividends per common share $ 0.00 0.00 $ 0.00 0.00
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See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
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Cash flows from operating activities:
Net earnings $ 1,281,848 780,737 $ 3,291,388 2,684,411
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 1,076,228 1,019,358 3,213,127 2,859,013
Increase in deferred income taxes 253,223 87,406 597,920 600,726
Change in assets and liabilities:
Decrease (increase) in:
Receivables (58,680) (4,183,650) 1,862,117 (2,353,401)
Inventories 375,163 (391,101) (337,122) (3,233,593)
Prepaid expenses 200,542 499,354 (57,276) (605,131)
Increase (decrease) in:
Accounts payable 2,020,318 860,033 2,276,335 1,213,423
Accrued expenses 20,556 318,753 (563,091) 323,330
Amounts due to related parties (703,417) 603,002 (1,227,711) 254,591
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Cash provided (used) by operating activities 4,465,781 (406,108) 9,055,687 1,743,369
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Cash flows from investing activities:
Capital expenditures (488,839) (1,136,063) (936,283) (3,394,895)
Decrease (increase) in other assets 6,070 (9,547) 7,346 (12,359)
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Cash used by investing activities (482,769) (1,145,610) (928,937) (3,407,254)
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Cash flows from financing activities:
Proceeds from exercise of stock options 8,000 0 8,000 25,000
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Cash provided by
financing activities 8,000 0 8,000 25,000
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Increase (decrease) in cash and cash equivalents 3,991,012 (1,551,718) 8,134,750 (1,638,885)
Cash and cash equivalents at beginning
of period 9,673,382 5,371,327 5,529,644 5,458,494
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Cash and cash equivalents at end
of period $ 13,664,394 3,819,609 $ 13,664,394 3,819,609
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 350,000 280,000 $ 885,711 540,000
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See accompanying notes to consolidated financial statements.
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NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements for the three and nine-month
periods ended March 31, 1997 and 1996 have not been audited by independent
accountants, but in the opinion of management, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
consolidated balance sheet, consolidated statement of operations and
consolidated statement of cash flows at the dates and for the periods indicated
have been made. Results of operations for interim periods are not necessarily
indicative of results of operations for the respective full years.
2. CONTINGENCIES
Various legal actions are pending against the Company which seek relief
or damages, including an action seeking contribution to cleaning costs of a
Superfund site by plaintiff parties identified by the United States
Environmental Protection Agency. While the final outcome of these matters
cannot be predicted with certainty at this time, management believes, after
consulting with counsel, that the ultimate liability, if any, will not have a
material effect on the consolidated financial position and results of
operations of the Company.
3. SUBSEQUENT EVENT
On April 3, 1997, the Company sold its patented high-pressure melamine
production technologies for $25 million of which $15 million in cash was
received and $10 million is payable in two equal installments in 2000 and 2005.
The Company will recognize a net gain of approximately $10.7 million from the
sale in the fourth fiscal quarter. Under the sales agreement, the Company will
cooperate in a joint research and development project in which one of its
plants will be used to test improvements.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the third quarter of fiscal 1997, the Company's cash position
continued to improve, as its cash balance increased by approximately $4.0
million over the balance at the end of the second fiscal quarter. This
improvement was caused primarily by $1.3 million in net earnings, a $1.1
million non-cash charge for depreciation and an increase in current
liabilities.
During the third quarter of fiscal 1997, the Company incurred capital
expenditures of approximately $489,000. Capital expenditures are expected to
total about $1.5 million for the year. These capital expenditures are expected
to be funded out of operations, and any shortfall can be funded from the
Company's $7.5 million lines of credit. In addition, on April 3, 1997, the
Company received $15 million from the technology sale.
Results of Operations
The results for the three-and nine-month periods ended March 31, 1997 and
1996 follow:
Quarter Ended Nine Months Ended
March 31, March 31,
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1997 1996 1997 1996
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Sales:
Millions of pounds 28.6 27.0 85.1 69.9
Average price/pound 52.3(cents) 54.9(cents) 52.8(cents) 54.5(cents)
Production:
Millions of pounds 27.9 27.6 83.1 77.2
Cost of sales/pound 41.9(cents) 47.0(cents) 43.9(cents) 45.5(cents)
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Sales volume for the third quarter of fiscal 1997 increased by 6% as
compared to the same period in fiscal 1996 but was fairly consistent with the
first two quarters of fiscal 1997. The increase was due mainly to two factors:
1. Fiscal 1997 reflects a continuing strong market for melamine worldwide;
and
2. Fiscal 1997 production volume is higher than the prior year and more
product is available for sale.
Average sales price for the quarter and the nine-month period ended March
31, 1997 was lower than the prior year because of the strengthening U.S.
dollar. Sales in the export market are sometimes made in foreign currencies and
a stronger U.S. dollar reduces the net sales price.
The cost of sales per pound in the three-months ended March 31, 1997 was
about 5(cent) per pound lower than in the same period last year. The decrease
was due to a higher production volume and lower raw material prices which
reduced cost per pound by 4.5(cent). Raw material prices in the fourth quarter
of 1997 have remained substantially unchanged from the third quarter.
The cost of sales per pound for the nine-months ended March 31, 1997 was
1.6(cent) per pound lower than the prior year. The decrease was due to higher
production volume and lower raw material prices. Offsetting these factors were
increases in natural gas cost which increased cost of sales by .8(cent) per
pound.
Selling, general and administrative expenses increased by 7% in the third
quarter of fiscal 1997 as compared to the third quarter of fiscal 1996 and by
5% over the previous quarter. The increase was due mostly to increased salary
levels, increased travel cost and a $25,000 provision for bad debts. During the
first quarter of fiscal 1997, the Company ended its association with its sales
agent in Europe and appointed a new agent to act on its behalf in Europe. In
this connection, Company personnel traveled extensively in Europe, visiting its
customers to assist in the transition from one agent to another.
Interest income for the third fiscal quarter of 1997 was 91% above the
same period last year. The increase is due to an increase in the amount of cash
on hand.
Miscellaneous expense in the third quarter of fiscal 1997 increased
substantially over the prior year because of an increase in foreign exchange
loss.
Historically, the Company has taken one planned maintenance shut down in
the first or second quarter of each fiscal year. These shut downs generally
last between 2 and 3 weeks. During fiscal 1997, the Company decided to take two
planned shut downs of shorter duration. The Company took a maintenance shutdown
of eight days in July 1996 and took a ten day maintenance shutdown in April
1997.
On April 3, 1997, the Company sold its patented high-pressure melamine
production technologies for $25 million of which $15 million in cash was
received and $10 million is payable in two equal installments in 2000 and 2005
and bears interest at approximately 6.1% per annum. The Company will recognize
a net gain of approximately $10.7 million from the sale in the fourth fiscal
quarter. Under the sales agreement, the Company will cooperate in a joint
research and development project in which one of its plants will be used to
test improvements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments during the quarter ended
March 31, 1997.
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Item 6. Exhibits and reports on Form 8-K.
A. Page 9 of this report is the index for those exhibits required to be
filed as part of this report.
B. A Form 8-K was filed on March 25, 1997 containing the press release
announcing the sale of technology.
C. A Form 8-K was filed on April 3, 1997 containing the press release
announcing the closing date for the sale of technology.
D. A Form 8-K was filed on April 18, 1997 containing the press release
announcing results of operations for the third quarter of fiscal 1997.
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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.
Melamine Chemicals, Inc.
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(Registrant)
Date: April 21, 1997 /s/ Fred Huber
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Fred Huber
President &
Chief Executive Officer
Date: April 21, 1997 /s/ Wayne D. DeLeo
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Wayne D. DeLeo
Vice President &
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
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